<PAGE>
As filed with the Securities and Exchange Commission on May 5, 2000
Registration No. 333-__________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FIRST FEDERAL BANCSHARES, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CERTIFICATE OF INCORPORATION)
DELAWARE 6035 37-1397683
(State or Other Jurisdiction (Primary Standard (IRS Employer
of Incorporation or Industrial Classification Identification No.)
Organization) Code Number)
109 EAST DEPOT STREET 109 EAST DEPOT STREET
COLCHESTER, ILLINOIS 62326 COLCHESTER, ILLINOIS 62326
(309) 776-3225 (309) 776-3225
(Address and Telephone Number (Address of Principal Place of Business
of Principal Executive Offices) or Intended Principal Place of Business)
JAMES J. STEBOR
PRESIDENT AND CHIEF EXECUTIVE OFFICER
FIRST FEDERAL BANCSHARES, INC.
109 EAST DEPOT STREET
COLCHESTER, ILLINOIS 62326
(309) 776-3225
(Name, Address and Telephone Number of Agent for Service)
Copies to:
PAUL M. AGUGGIA, ESQUIRE DANIEL C. McKAY, ESQUIRE
AARON M. KASLOW, ESQUIRE MARY C. WAGHORNE, ESQUIRE
MULDOON, MURPHY & FAUCETTE LLP VEDDER, PRICE, KAUFMAN & KAMMHOLZ
5101 WISCONSIN AVENUE, N.W. 222 NORTH LA SALLE STREET
WASHINGTON, D.C. 20016 CHICAGO, ILLINOIS 60601
(202) 362-0840 (312) 609-7500
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: As soon as practicable
after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act Registration Statement number of the earlier
effective Registration Statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act Registration Statement number of the earlier effective Registration
Statement for the same offering. /___/
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act Registration Statement number of the earlier effective Registration
Statement for the same offering. /___/
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. /___/
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT PRICE (1) FEE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock
$.01 par Value 2,578,875 Shares $10.00 $25,788,750 $6,809
- ----------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
<PAGE>
[TO BE USED IN CONNECTION WITH SYNDICATED COMMUNITY OFFERING ONLY]
PROSPECTUS SUPPLEMENT FOR SYNDICATED COMMUNITY OFFERING
[LOGO] FIRST FEDERAL BANCSHARES, INC.
(Proposed Holding Company for First Federal Bank)
109 EAST DEPOT STREET
COLCHESTER, ILLINOIS 62326
(309) 776-3225
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
First Federal Bank is converting from the mutual to stock form of
organization. After the conversion, First Federal Bancshares will own all of
First Federal's stock. First Federal Bancshares has already received
subscriptions for _________ shares. Up to ________ shares will be sold in the
conversion. The conversion will not be completed and no common stock will be
sold unless additional subscriptions are received for at least the minimum
number of shares in the offering. First Federal Bancshares will hold all funds
of subscribers in an interest-bearing savings account at First Federal until the
conversion is completed or terminated. Funds will be returned promptly with
interest if the conversion is terminated.
Friedman, Billings, Ramsey & Co., Inc. will use its best efforts to
assist First Federal Bancshares in selling at least the minimum number of shares
but does not guarantee that this number will be sold. Neither FBR nor any
selected broker-dealer is obligated to purchase any shares of common stock in
the syndicated community offering. FBR intends to make a market in the common
stock.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRICE PER SHARE: $10.00
EXPECTED TRADING MARKET AND SYMBOL: NASDAQ NATIONAL MARKET "____"
THIS OFFERING WILL EXPIRE NO LATER THAN __:__ _.M., CENTRAL TIME,
__________, 2000, UNLESS EXTENDED.
- NUMBER OF SHARES
MINIMUM/MAXIMUM
- ESTIMATED UNDERWRITING COMMISSIONS AND OTHER EXPENSES
MINIMUM/MAXIMUM
- ESTIMATED NET OFFERING PROCEEDS TO FIRST FEDERAL BANCSHARES
MINIMUM/MAXIMUM
- ESTIMATED NET OFFERING PROCEEDS PER SHARE TO FIRST FEDERAL
BANCSHARES
MINIMUM/MAXIMUM
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT INSURED OR GUARANTEED
BY FIRST FEDERAL BANCSHARES, FIRST FEDERAL, THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
INVESTING IN FIRST FEDERAL BANCSHARES' COMMON STOCK INVOLVES RISK. PLEASE REFER
TO "RISK FACTORS" BEGINNING ON PAGE __ OF THE ATTACHED PROSPECTUS DATED ________
__, 2000.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE OFFICE OF THRIFT SUPERVISION, NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT IS TRUTHFUL OR COMPLETE. ANYONE WHO TELLS YOU OTHERWISE IS
COMMITTING A CRIME.
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
The date of this Prospectus Supplement is _______________, 2000
<PAGE>
THE SYNDICATED COMMUNITY OFFERING
First Federal Bancshares is offering for sale between ___________ and
__________ shares of common stock at price of $10.00 per share in a syndicated
community offering. These shares are to be sold in connection with the
conversion of First Federal from a mutual savings bank to a stock savings bank
and the issuance of First Federal's outstanding capital stock to First Federal
Bancshares. The remaining __________ shares of common stock to be sold in
connection with the conversion have been subscribed for in subscription and
direct community offerings. The prospectus in the form used in the subscription
and direct community offerings is attached to this prospectus supplement. The
purchase price for all shares sold in the syndicated community offering will be
the same as the price paid by subscribers in the subscription and direct
community offerings.
Funds sent with purchase orders will earn interest at First Federal's
passbook rate from the date First Federal receives them until the completion or
termination of the conversion. If the syndicated community offering is not
completed by _________________, 2000, and the Office of Thrift Supervision
allows more time to complete the conversion, First Federal will contact everyone
who subscribed for shares to see if they still want to purchase stock, and
subscribers will be able to confirm, modify or cancel their subscriptions. A
failure to respond will be treated as a cancellation of the purchase order. If
payment for the stock was made by check or money order, subscription funds will
be returned with accrued interest. If payment was authorized by withdrawal of
funds on deposit at First Federal, that authorization would terminate. The
conversion must be completed by _______, 2002.
The minimum number of shares which may be purchased is 25 shares. Except for the
First Federal employee stock ownership plan, which intends to purchase up to 8%
of the total number of shares of common stock sold in the conversion, no person,
together with related persons and persons acting together, may purchase more
than $150,000 of common stock (15,000 shares) in the syndicated community
offering. However, the maximum amount of shares of common stock that may be
subscribed for or purchased in all categories of the conversion by any person,
related persons or persons acting together is 1% of the stock being offered
(which equals ______ shares). First Federal Bancshares reserves the right, in
its absolute discretion, to accept or reject, in whole or in part, any or all
subscriptions in the syndicated community offering. If a subscription is
rejected in part, you cannot cancel the remainder of your order.
First Federal Bancshares and First Federal have engaged FBR as their
financial advisor to assist them in the sale of the common stock in the
syndicated community offering. FBR expects to use the services of other
registered broker-dealers and that fees to FBR and other selected broker-dealers
will not exceed __% of the aggregate purchase price of the shares sold in the
syndicated community offering.
Before this offering, there has not been a public market for the common
stock, and there can be no assurance that an active and liquid trading market
for the common stock will develop. The absence or discontinuance of an active
and liquid trading market may hurt the market price of the common stock. See
"RISK FACTORS--POSSIBLE LIMITED MARKET FOR FIRST FEDERAL BANCSHARES' COMMON
STOCK MAY NEGATIVELY AFFECT THE MARKET PRICE." in the attached prospectus.
2
<PAGE>
PROSPECTUS [LOGO]
First Federal Bancshares, Inc.
(Proposed Holding Company for First Federal Bank)
2,242,500 Shares of Common Stock
First Federal Bank, F.S.B. is converting from the mutual form to the stock form
of organization. As part of the conversion, First Federal Bancshares, Inc. is
offering its shares of common stock to depositors and borrowers of First Federal
and, if necessary to complete the offering, to the general public. After the
conversion, First Federal Bancshares will own First Federal.
PRICE PER SHARE: $10.00
MINIMUM PURCHASE: 25 SHARES ($250.00)
EXPECTED TRADING MARKET: NASDAQ NATIONAL MARKET
PROPOSED TRADING SYMBOL: ______
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
------- -------
<S> <C> <C>
Number of shares: 1,657,500 2,242,500
Gross offering proceeds: $16,575,000 $22,425,000
Estimated underwriting commissions
and other offering expenses: $ 904,000 $ 984,000
Estimated net proceeds: $15,671,000 $21,441,000
Estimated net proceeds per share: $ 9.45 $ 9.56
</TABLE>
With regulatory approval, First Federal Bancshares may increase the maximum
number of shares by up to 15%, to 2,578,875 shares, without any further notice.
Friedman, Billings, Ramsey & Co., Inc. will use its best efforts to assist First
Federal Bancshares in selling at least the minimum number of shares, but does
not guarantee that this number will be sold. FBR is not obligated to purchase
any shares of common stock in the offering. FBR intends to make a market in the
common stock.
The offering to depositors and borrowers of First Federal will end at 12:00
Noon, Central time, on ________, 2000. An offering to the general public may
also be held and may end as early as 12:00 Noon, Central time, on _________ __,
2000. If the conversion is not completed by _________ __, 2000, and the Office
of Thrift Supervision allows more time to complete the conversion, all
subscribers will be able to increase, decrease or cancel their orders. All
extensions may not go beyond ________, 2002. First Federal Bancshares will hold
all funds of subscribers in an interest-bearing savings account at First Federal
until the conversion is completed or terminated. Funds will be returned
promptly with interest if the conversion is terminated.
- --------------------------------------------------------------------------------
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT INSURED OR GUARANTEED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
INVESTING IN FIRST FEDERAL BANCSHARES' COMMON STOCK INVOLVES RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE _.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION
NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR DETERMINED WHETHER THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANYONE
WHO TELLS YOU OTHERWISE IS COMMITTING A CRIME.
- --------------------------------------------------------------------------------
For assistance, please contact First Federal's conversion center at
(___) ___-____.
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
The date of this prospectus is ________, 2000
<PAGE>
[map of Illinois showing office locations of First Federal appears here]
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING
The following are answers to frequently asked questions. You should
read this entire prospectus, including "RISK FACTORS" beginning on page __ and
"THE CONVERSION" beginning on page __, for more information.
Q. WHY IS FIRST FEDERAL CONVERTING TO STOCK FORM?
A. We have decided to convert to a stock company to increase our potential
for long-term growth and financial strength in ways not available to us
as a mutual company. The conversion will be important to our future
growth and performance because it will allow us to compete more
effectively in our market.
Q. HOW MANY SHARES OF STOCK ARE BEING OFFERED, AND AT WHAT PRICE?
A. We are offering for sale up to 2,242,500 shares of common stock at a
subscription price of $10.00 per share. We must sell at least 1,657,500
shares. If, as a result of changing stock market or financial
conditions, the independent appraiser retained by us to determine the
market value of First Federal concludes that the market value has
increased, we may sell up to 2,578,875 shares without notice to you.
Q. WILL I BE CHARGED A COMMISSION?
A. No. You will not be charged a commission or fee to purchase shares in
the conversion.
Q. HOW MUCH STOCK MAY I BUY?
A. The minimum order is 25 shares. Generally, no person or group of
persons on a single account may purchase more than $150,000 of common
stock (which equals 15,000 shares) in the subscription offering, and no
person, either alone or together with associates and persons acting in
concert with such person, may purchase more than 1% of the stock being
offered (which equals 22,425 shares).
Q. WILL FIRST FEDERAL BANCSHARES PAY DIVIDENDS ON THE STOCK?
A. We intend to adopt a policy of paying regular cash dividends, but we
have not yet decided on the amount or frequency of payments.
Q. HOW DO I SELL MY STOCK AFTER I PURCHASE IT?
A. We expect our stock to be quoted on the Nasdaq National Market under
the symbol _____. There can be no assurance that an active trading
market will develop or that you will be able to sell your shares for
more money than you originally paid. You should consider the
possibility that you may be unable to easily sell our stock. There may
also be a wide spread between the bid and asked price for our stock.
Q. WILL MY STOCK BE COVERED BY DEPOSIT INSURANCE OR GUARANTEED BY ANY
GOVERNMENT AGENCY?
A. No. Unlike insured deposit accounts at First Federal, our stock will
not be insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Q. WHEN IS THE DEADLINE TO SUBSCRIBE FOR STOCK?
A. We must receive a properly signed and completed order form with the
required payment on or before 12:00 noon, Central time on ___________,
2000.
-i-
<PAGE>
Q. HOW DO I PURCHASE STOCK?
A. First, you should read this entire prospectus carefully. Then,
complete, sign and return the enclosed stock order and certification
form, together with your payment. Subscription orders may be delivered
in person to our office during regular banking hours, or by mail in the
enclosed business reply envelope. Subscription orders received after
the subscription offering expiration date may be held for participation
in any community offering.
Q. CAN I CHANGE MY MIND AFTER I PLACE AN ORDER TO SUBSCRIBE FOR STOCK?
A. No. Once we receive your order, you cannot cancel or change it without
our consent. If we intend to sell fewer than 1,657,500 shares or more
than 2,578,875 shares, all subscribers will be notified and given the
opportunity to change or cancel their orders. If you do not respond to
this notice, we will return your funds promptly with interest.
Q. HOW CAN I PAY FOR THE STOCK?
A. You have two options: (1) send us a check or money order, or (2)
authorize a withdrawal from your deposit account at First Federal
(without any penalty for early withdrawal). Please do not send cash in
the mail.
Q. CAN I SUBSCRIBE FOR SHARES USING FUNDS IN MY INDIVIDUAL RETIREMENT
ACCOUNT AT FIRST FEDERAL?
A. Yes. However, you cannot purchase stock with your existing IRA at First
Federal. You must establish a self-directed IRA with an outside trustee
to subscribe for stock using your IRA funds. Please call our conversion
center at (___) __________ to get more information. The transfer of IRA
funds takes time, so please make arrangements at least one week before
the expiration of the subscription offering.
Q. WHO IS ELIGIBLE TO PURCHASE STOCK IN THE SUBSCRIPTION OFFERING?
A. Certain past and present depositors and borrowers of First Federal,
along with First Federal's employee stock ownership plan, are eligible
to purchase stock in the subscription offering. Depositors with at
least $50 on deposit as of October 31, 1998 will have first priority in
the subscription offering.
Q. WHAT HAPPENS IF THERE ARE NOT ENOUGH SHARES OF STOCK TO FILL ALL
ORDERS?
A. If there is an oversubscription, then you may not receive any or all of
the shares you want to purchase. We will allocate shares in the order
of priority established in our plan of conversion.
Q. WHO CAN HELP ANSWER ANY OTHER QUESTIONS I MAY HAVE ABOUT THE STOCK
OFFERING?
A. For answers to other questions, we encourage you to read this
prospectus. Questions may also be directed to our conversion center at
(___) _________ during weekdays between the hours of 9:00 a.m. and 5:00
p.m, Central time. You may also visit our conversion center, which is
located ___________________.
-ii-
<PAGE>
SUMMARY
YOU SHOULD READ THIS ENTIRE DOCUMENT CAREFULLY BEFORE YOU DECIDE TO INVEST. FOR
ASSISTANCE, PLEASE CONTACT FIRST FEDERAL'S CONVERSION CENTER AT (___) ___-____.
THE COMPANIES
FIRST FEDERAL BANCSHARES, INC. First Federal formed First Federal
109 EAST DEPOT STREET Bancshares to be its holding company. To
COLCHESTER, ILLINOIS 62326 date, First Federal Bancshares has only
(309) 776-3225 conducted organizational activities.
After the conversion, First Federal
Bancshares will own all of First
Federal's capital stock and will direct,
plan and coordinate First Federal's
business activities. In the future,
First Federal Bancshares might become an
operating company or acquire or organize
other operating subsidiaries, including
other financial institutions or
financial services companies, although
it currently has no specific plans or
agreements to do so.
FIRST FEDERAL BANK First Federal is a community-oriented
109 EAST DEPOT STREET financial institution dedicated to
COLCHESTER, ILLINOIS 62326 serving the financial service needs of
(309) 776-3225 consumers and businesses within its
www.First-Federal-Bank.com market area. First Federal currently
operates out of its main office in
Colchester, Illinois and its five branch
offices in Quincy (2), Mt. Sterling,
Macomb and Bushnell, Illinois.
The goal of First Federal is to be the
premier community-oriented financial
institution in the markets that it
serves by providing retail and
commercial products and services with
high quality customer service. At
February 29, 2000, First Federal had
total assets of $213.2 million, deposits
of $182.6 million and total equity of
$24.0 million.
For a discussion of First Federal's
business strategy and recent results of
operations, see "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS." For a discussion
of First Federal's business activities,
see "BUSINESS OF FIRST FEDERAL BANK."
THE CONVERSION
WHAT IS THE CONVERSION? (PAGE __) The conversion is a change in First
Federal's legal form of organization. As
a mutual savings bank, First Federal
currently has no stock or stockholders.
Instead, First Federal operates for the
mutual benefit of its depositors, who
elect directors and vote on other
important matters. Through the
conversion, First Federal will change
its corporate form to become a stock
savings bank and all of its shares will
be owned by First Federal Bancshares. In
other words, First Federal will become a
wholly-owned subsidiary of First Federal
Bancshares. Voting rights in First
Federal Bancshares will belong to its
stockholders.
1
<PAGE>
First Federal is conducting the
conversion under the terms of its plan
of conversion. The Office of Thrift
Supervision has approved the plan of
conversion with the condition that it be
approved by First Federal's members.
First Federal has called a special
meeting for ______________, 2000 to vote
on the plan of conversion.
REASONS FOR THE CONVERSION The Board of Directors determined to
(PAGE __) convert to a stock company to increase
First Federal's potential for long-term
growth and financial strength in ways
not available to it as a mutual company.
The conversion will be important to
First Federal's future growth and
performance because it will:
- enhance its ability to expand
through the acquisition of
other financial institutions
or their assets;
- enhance its ability to
diversify into other financial
services related activities;
- facilitate balance sheet
growth;
- enhance its ability to attract
and retain qualified
management through stock-based
compensation plans; and
- expand its ability to serve
the public.
Currently, First Federal does not have
any specific plans or arrangements for
diversification or expansion.
BENEFITS OF THE CONVERSION TO First Federal Bancshares and First
MANAGEMENT (PAGE __) Federal intend to adopt the following
benefit plans and employment agreements:
- EMPLOYEE STOCK OWNERSHIP PLAN.
This plan intends to purchase
8% of the shares issued in the
conversion. First Federal will
allocate these shares to
employees over a period of
years in proportion to their
compensation.
- STOCK-BASED INCENTIVE PLAN.
Under this plan, which will be
adopted after the conversion
and submitted to stockholders
for their approval, First
Federal Bancshares may award
stock options and shares of
restricted stock to key
employees and directors of
First Federal Bancshares and
its affiliates. The number of
options available under this
plan will be equal to 10% of
the number of shares issued in
the conversion. The number of
shares available for
restricted stock awards will
equal 4% of the number of
shares issued in the
conversion. Shares of
restricted stock will be
awarded at no cost to the
recipient.
2
<PAGE>
- EMPLOYMENT AND CHANGE IN
CONTROL AGREEMENTS. First
Federal Bancshares and First
Federal intend to enter into
employment agreements with
James J. Stebor, President of
First Federal. First Federal
also intends to enter into
Change in Control Agreements
with four senior executive
officers. These agreements
will provide for severance
benefits if the executives are
terminated following a change
in control of First Federal
Bancshares or First Federal.
- EMPLOYEE SEVERANCE
COMPENSATION PLAN. This plan
will provide severance
benefits to eligible employees
if there is a change in
control of First Federal
Bancshares or First Federal.
The following table summarizes the total
number and dollar value of the shares of
common stock that the employee stock
ownership plan expects to acquire and
the total value of all restricted stock
awards that are expected to be available
under the stock-based incentive plan,
based on the sale of 2,242,500 shares in
the conversion. The table assumes the
value of the shares is $10.00 per share.
The table does not include a value for
the options because their exercise price
would be equal to the fair market value
of the common stock on the day that the
options are granted. As a result,
financial gains can be realized on an
option only if the market price of the
common stock increases above the price
at which the option is granted.
<TABLE>
<CAPTION>
PERCENTAGE
OF SHARES
NUMBER ESTIMATED ISSUED
OF VALUE IN THE
SHARES OF SHARES CONVERSION
------- ---------- ----------
<S> <C> <C> <C>
Employee stock
ownership plan... 179,400 $1,794,000 8.0%
Restricted stock
awards .......... 89,700 897,000 4.0
Stock options ..... 224,250 -- 10.0
------- ---------- ----
Total .... 493,350 $2,691,000 22.0%
------- ---------- ----
------- ---------- ----
</TABLE>
For a discussion of risks associated
with these plans and agreements, see
"RISK FACTORS--IMPLEMENTATION OF
ADDITIONAl BENEFIT PLANS WILL INCREASE
FIRST FEDERAL'S FUTURE COMPENSATION
EXPENSE," "RISK FACTORS--ISSUANCE OF
SHARES FOR BENEFIT PROGRAMS MAY REDUCE
YOUR OWNERSHIP INTEREST" and "RISK
FACTORS--VARIOUS FACTORS COULD MAKE
TAKEOVER ATTEMPTS THAT YOU WANT TO OCCUR
MORE DIFFICULT TO ACHIEVE."
3
<PAGE>
THE OFFERING
PERSONS WHO CAN ORDER STOCK IN First Federal Bancshares is offering
THE OFFERING (PAGE __) shares of its common stock in a
"subscription offering" in the following
NOTE: SUBSCRIPTION RIGHTS ARE NOT order of priority to:
TRANSFERABLE, AND PERSONS WITH
SUBSCRIPTION RIGHTS MAY NOT 1. Persons with $50 or more on
SUBSCRIBE FOR SHARES FOR THE deposit at First Federal as of
BENEFIT OF ANY OTHER PERSON. IF YOU October 31, 1998.
VIOLATE THIS PROHIBITION, YOU MAY
LOSE YOUR RIGHTS TO PURCHASE SHARES 2. The First Federal employee
AND MAY FACE CRIMINAL PROSECUTION stock ownership plan, which
AND/OR OTHER SANCTIONS. provides retirement benefits
to First Federal's employees.
3. Persons with $50 or more on
deposit at First Federal as of
June 30, 2000.
4. First Federal's depositors as
of ____________, 2000 and
borrowers of First Federal as
of March 27, 1990 whose loans
continue to be outstanding as
of ____________________, 2000.
If the offering is oversubscribed,
shares will be allocated in order of the
priorities described above under a
formula outlined in the plan of
conversion.
First Federal Bancshares may offer
shares not sold in the subscription
offering to the general public in a
community offering. People and trusts of
people who are residents of Adams,
Brown, McDonough, Hancock, Schuyler,
Henderson, Fulton, Warren and Pike
Counties in Illinois and Marion, Lewis
and Ralls Counties in Missouri will have
first preference to purchase shares in a
community offering. The community
offering, if held, may begin at any time
during the subscription offering or
immediately after the end of the
subscription offering.
DEADLINE FOR ORDERING STOCK The subscription offering will end at
12:00 Noon, Central time, on _________
__, 2000. First Federal expects that the
community offering will terminate at the
same time, although it may continue for
up to 45 days after the end of the
subscription offering, or longer if
regulators approve a later date. All
extensions, in the aggregate, may not go
beyond ______________, 2002.
PURCHASE PRICE The purchase price is $10.00 per share.
The Boards of Directors of First Federal
Bancshares and First Federal consulted
with FBR in determining this price. You
will not pay a commission to buy any
shares in the conversion.
NUMBER OF SHARES TO BE SOLD First Federal Bancshares is offering for
sale between 1,657,500 and 2,242,500
shares of its common stock in this
offering. With regulatory approval,
First Federal Bancshares may increase
the number of shares to be sold to
2,578,875 shares without giving
4
<PAGE>
you further notice or the opportunity to
change or cancel your order.
HOW THE OFFERING RANGE WAS
DETERMINED (PAGE __) The offering range is based on an
independent appraisal of First Federal
by RP Financial, LC., an appraisal firm
experienced in appraisals of savings
institutions. RP Financial has estimated
that as of April 28, 2000, First
Federal's market value ranged between
$16,575,000 and $22,425,000, with a
midpoint of $19,500,000. This results in
an offering of between 1,657,500 and
2,242,500 shares of stock at an offering
price of $10.00 per share. RP
Financial's appraisal was based in part
on First Federal's financial condition
and results of operations and the effect
on First Federal of the additional
capital raised by the sale of common
stock in this offering. RP Financial's
independent appraisal will be updated
before the conversion is completed.
THE INDEPENDENT APPRAISAL DOES NOT
INDICATE MARKET VALUE. First Federal
Bancshares cannot guarantee that anyone
who purchases shares in the conversion
will be able to sell their shares at or
above the $10.00 purchase price.
PURCHASE LIMITATIONS (PAGE __) Orders for common stock will be limited
in the following ways:
- The minimum purchase is 25
shares.
- The maximum purchase in the
subscription offering by any
person, or group of persons
through a single deposit
account, is $150,000 of common
stock, which equals 15,000
shares.
- The maximum purchase by any
person in the community
offering is $150,000 of common
stock, which equals 15,000
shares.
- The maximum purchase in the
subscription offering and
community offering combined by
any person, related persons or
persons acting together is 1%
of the common stock offered
for sale, which equals
$224,250 of common stock or
22,425 shares.
HOW TO PURCHASE COMMON STOCK If you want to place an order for shares
(PAGE __) in the conversion, you must complete an
original stock order form and send it
together with full payment to First
Federal. You must sign the certification
that is on the reverse side of the stock
order form. First Federal must receive
your stock order form before the end of
the subscription offering or the end of
the community offering, as appropriate.
Once First Federal receives your order,
you cannot cancel or change it without
First Federal's consent.
To ensure that First Federal properly
identifies your subscription rights, you
must list all of your deposit accounts
as of the eligibility dates on the stock
order form. If you fail to do so,
5
<PAGE>
your subscription may be reduced or
rejected if the offering is
oversubscribed.
First Federal Bancshares and First
Federal may, in their sole discretion,
reject orders received in the community
offering either in whole or in part.
If your order is rejected in part, you
cannot cancel the remainder of your
order.
You may pay for shares in the
subscription offering or the community
offering in any of the following ways:
- BY CASH, if paid in person.
- BY CHECK OR MONEY ORDER made
payable to First Federal
Bancshares, Inc.
- BY AUTHORIZING WITHDRAWAL FROM
AN ACCOUNT AT FIRST FEDERAL.
To use funds in an Individual
Retirement Account at First
Federal, you must transfer
your account to an
unaffiliated institution or
broker. Please contact the
conversion center at least one
week before the end of the
subscription offering for
assistance.
First Federal will pay interest on your
subscription funds at the rate it pays
on passbook accounts, which is currently
3%, from the date it receives your funds
until the conversion is completed or
terminated. All funds authorized for
withdrawal from deposit accounts with
First Federal will earn interest at the
applicable account rate until the
conversion is completed. There will be
no early withdrawal penalty for
withdrawals from certificates of deposit
used to pay for stock. If, as a result
of a withdrawal from a certificate of
deposit, the balance falls below the
minimum balance requirement, the
remaining funds will earn interest at
First Federal's passbook rate.
HOW FIRST FEDERAL BANCSHARES AND First Federal Bancshares will use 50% of
FIRST FEDERAL WILL USE THE PROCEEDS the net offering proceeds to buy all of
OF THIS OFFERING (PAGE __) the common stock of First Federal. First
Federal will use the funds it receives
for general business purposes, including
originating loans and purchasing
securities.
First Federal Bancshares also will loan
an amount equal to 8% of the gross
proceeds of the offering to the employee
stock ownership plan to fund its
purchase of common stock in the
conversion, and will keep the remainder
of the net proceeds for general business
purposes. These purposes may include,
for example, investment in securities,
paying cash dividends or buying back
shares of common stock.
First Federal Bancshares and First
Federal may also use the proceeds of the
offering to expand and diversify their
businesses, although they have no
specific plans to do so at this time.
6
<PAGE>
PURCHASES BY DIRECTORS AND First Federal's directors and officers
EXECUTIVE OFFICERS (PAGE __) intend to subscribe for 98,200 shares,
which equals 4.38% of the shares that
would be sold at the maximum of the
offering range. If fewer shares are sold
in the conversion, then directors and
executive officers may own a greater
percentage of First Federal Bancshares.
Directors and executive officers will
pay the same $10.00 per share price as
everyone else who purchases shares in
the conversion.
MARKET FOR FIRST FEDERAL BANCSHARES First Federal Bancshares intends to have
COMMON STOCK (PAGE __) its common stock quoted on the Nasdaq
National Market under the symbol ______.
After shares of the common stock begin
trading, you may contact a stock broker
to buy or sell shares. First Federal
Bancshares cannot assure you that there
will be an active trading market for the
common stock.
FIRST FEDERAL BANCSHARES' DIVIDEND First Federal Bancshares intends to
POLICY (PAGE __) adopt a policy of paying regular cash
dividends, but has not yet decided on
the amount or frequency of payments.
7
<PAGE>
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS AND ALL OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING FIRST FEDERAL
BANCSHARES COMMON STOCK.
FIRST FEDERAL'S RETURN ON EQUITY WILL BE BELOW AVERAGE AFTER CONVERSION BECAUSE
OF HIGH CAPITAL LEVELS
Return on equity, which equals net income divided by average equity, is
a ratio used by many investors to compare the performance of a particular
company with other companies. First Federal Bancshares expects that its return
on average equity will initially decline after the offering as a result of the
additional capital that will be raised in this offering and the time needed to
effectively deploy the net proceeds to generate a market rate of return. Over
time, First Federal Bancshares intends to use the net proceeds from this
offering to increase earnings per share and book value per share, without
assuming undue risk, with the goal of achieving a return on equity competitive
with other publicly traded financial institutions. This goal could take a number
of years to achieve, and First Federal Bancshares cannot assure you that this
goal will be attained. Consequently, you should not expect a competitive return
on equity in the near future. See "PRO FORMA DATA" for an illustration of the
financial effects of this offering.
STRONG COMPETITION COULD HURT FIRST FEDERAL'S PROFITS
First Federal faces intense competition both in making loans and
attracting deposits. This competition has made it more difficult for First
Federal to make new loans and has forced it to offer higher deposit rates in its
market area. Competition for loans and deposits has contributed to a narrowing
of its interest rate spread, which has hurt net interest income. The competition
for deposits, particularly from mutual funds and other stock market investment
vehicles, also has contributed to slower growth in First Federal's deposit base
in recent years. First Federal expects competition to increase in the future as
a result of legislative, regulatory and technological changes and the continuing
trend of consolidation in the financial services industry. Technological
advances, for example, have lowered barriers to entry, allowed banks to expand
their geographic reach by providing services over the Internet and made it
possible for non-depository institutions to offer products and services that
traditionally have been provided by banks. The Gramm-Leach-Bliley Act, which
permits affiliation among banks, securities firms and insurance companies, also
will change the competitive environment in which First Federal conducts
business. Some of the institutions with which First Federal competes are
significantly larger than First Federal and, therefore, have significantly
greater resources. Due to its relatively small size, First Federal has fewer
resources to devote to marketing and is less able to take advantage of
technological advancements. For more information about First Federal's market
area and the competition it faces, see "BUSINESS OF FIRST FEDERAL BANK--MARKET
AREA" and "BUSINESS OF FIRST FEDERAl BANK--COMPETITION."
FIRST FEDERAL'S MARKET AREA LIMITS ITS GROWTH POTENTIAL
Except for its offices in Quincy, Illinois, First Federal's offices are
located in small towns in rural counties, most of which are experiencing a
decline in population that is not expected to change in the foreseeable future.
The small population and slow growth of the rural counties served by First
Federal provide limited growth opportunities, if any. As a result, First
Federal's ability to achieve loan and deposit growth in those areas depends, in
large part, on First Federal increasing its market share or growth by
acquisition. For a discussion of First Federal's market area, see "BUSINESS OF
FIRST FEDERAL BANK--MARKET AREA."
A DOWNTURN IN THE LOCAL ECONOMY COULD HURT FIRST FEDERAL'S PROFITS
Nearly all of First Federal's loans are made to borrowers who live
and work in west central Illinois. As a result of this concentration, a
downturn in the economy in west central Illinois would likely cause
significant increases in nonperforming loans and assets, which could hurt
First Federal's profits. For a discussion of First Federal's market area, see
"BUSINESS OF FIRST FEDERAL BANK--MARKET AREA."
8
<PAGE>
COMMERCIAL BUSINESS LOANS INCREASE THE RISK OF FIRST FEDERAL'S LOAN PORTFOLIO
First Federal added a commercial loan department in September 1999 and
began to offer commercial business loans to small and medium sized businesses in
its market area. Commercial business loans are generally considered to be
riskier than residential mortgage loans because their repayment substantially
depends on the success of the borrower's business, rather than the value of the
collateral securing the loan. In addition, commercial business loans tend to be
larger in amount than residential loans. Although First Federal hired an
experienced commercial loan officer, First Federal has limited experience with
the commercial lending business. Because of its increased emphasis on commercial
loans, First Federal may find it necessary to increase its provision for loan
losses, which would hurt First Federal's profits.
CHANGING INTEREST RATES COULD HURT FIRST FEDERAL'S PROFITS
Like most financial institutions, First Federal's ability to make a
profit depends largely on its net interest income, which is the difference
between interest income it receives from its loans and securities and
interest it pays on deposits and borrowings. If interest rates increase,
First Federal anticipates that its net interest income would decline as
interest paid on its deposits would increase more quickly than the interest
earned on its assets. During the last three fiscal years, First Federal's
interest rate spread--which is the difference between the average rate
earned on interest-earnings assets and the average rate paid on
interest-bearing liabilities--has declined from 2.37% for fiscal 1998 to
2.10% for fiscal 1999 to 2.06% for fiscal 2000. If interest rates decline,
however, First Federal's loans may be refinanced at lower rates or paid off
and its investments may be prepaid earlier than expected and it may have to
redeploy such loan or investment proceeds into lower-yielding assets, which
might also lower First Federal's income. For further discussion of how
changes in interest rates could impact First Federal, see "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--MANAGEMENT OF INTEREST RATE RISK AND MARKET RISK ANALYSIS."
IMPLEMENTATION OF NEW BENEFIT PLANS WILL INCREASE FIRST FEDERAL'S FUTURE
COMPENSATION EXPENSE
First Federal will recognize additional material employee compensation
and benefit expenses stemming from the shares purchased or granted to employees
and executives under new benefit plans. These new expenses will reduce First
Federal's profits. First Federal cannot predict the actual amount of these new
expenses because applicable accounting practices require that they be based on
the fair market value of the shares of common stock at specific points in the
future. First Federal would recognize expenses for its employee stock ownership
plan when shares are committed to be released to participants' accounts and
would recognize expenses for restricted stock awards over the vesting period of
awards made to recipients. These expenses have been estimated in the pro forma
financial information under "PRO FORMA DATA" assuming the $10.00 per share
purchase price as fair market value. Actual expenses, however, may be higher or
lower, depending on the price of First Federal Bancshares' common stock. For
further discussion of these plans, see "MANAGEMENT OF FIRST FEDERAL
BANK--BENEFITS."
ISSUANCE OF SHARES FOR BENEFIT PROGRAMS MAY REDUCE YOUR OWNERSHIP INTEREST
If stockholders approve the new stock-based incentive plan, First
Federal Bancshares intends to issue shares to its officers and directors through
this plan. If the restricted stock awards under the stock-based incentive plan
are funded from authorized but unissued stock, your ownership interest could be
reduced by up to approximately 3.85%. If the shares issued upon the exercise of
stock options under the stock-based incentive plan are issued from authorized
but unissued stock, your ownership interest could be reduced by up to
approximately 9.09%. See "PRO FORMA DATA" and "MANAGEMENT OF FIRST FEDERAL
BANK--BENEFITS."
9
<PAGE>
VARIOUS FACTORS COULD MAKE TAKEOVER ATTEMPTS THAT YOU WANT TO OCCUR MORE
DIFFICULT TO ACHIEVE
Provisions of First Federal Bancshares' Certificate of Incorporation
and Bylaws, federal and state regulations and various other factors may make it
more difficult for companies or persons to acquire control of First Federal
Bancshares without the consent of First Federal Bancshares' Board of Directors.
It is possible, however, that you might like to see a takeover attempt succeed
because, for example, the potential acquiror could be offering a premium over
the then prevailing price of First Federal Bancshares common stock. The factors
that may discourage takeover attempts or make them more difficult include:
- ANTI-TAKEOVER PROVISIONS AND STATUTORY PROVISIONS. Provisions
in First Federal Bancshares' Certificate of Incorporation and
Bylaws, the corporate law of the State of Delaware, and
federal regulations may make it difficult and expensive to
pursue a takeover attempt that management opposes. These
provisions will also make the removal of the current Board of
Directors or management of First Federal Bancshares, or the
appointment of new directors, more difficult. These provisions
include: limitations on voting rights of beneficial owners of
more than 10% of First Federal Bancshares' common stock;
supermajority voting requirements for certain business
combinations; the election of directors to staggered terms of
three years; and the elimination of cumulative voting for
directors. The Certificate of Incorporation and Bylaws of
First Federal Bancshares also contain provisions regarding the
timing and content of stockholder proposals and nominations
and limitations on the calling of special meetings. For
further information about these provisions, see "RESTRICTIONS
ON ACQUISITION OF FIRST FEDERAL BANCSHARES AND FIRST FEDERAL."
- EXPECTED VOTING CONTROL BY MANAGEMENT AND EMPLOYEES. The
shares of common stock that First Federal's directors and
executive officers intend to purchase in the conversion, when
combined with the shares that may be awarded to participants
under First Federal's and First Federal Bancshares' benefit
plans, could result in management and employees controlling a
significant percentage of First Federal Bancshares' common
stock. If these individuals were to act together, they could
have significant influence over the outcome of any stockholder
vote. In addition, the total voting power of management and
employees is likely to exceed 20% of First Federal Bancshares'
outstanding stock. That level would enable management and
employees as a group to defeat any stockholder matter that
requires an 80% vote. For information about management's
intended stock purchases and the number of shares that may be
awarded under new benefit plans, see "MANAGEMENT OF FIRST
FEDERAL BANK--BENEFITS," "SHARES To BE PURCHASED BY MANAGEMENT
WITH SUBSCRIPTION RIGHTS" and "RESTRICTIONS ON ACQUISITION OF
FIRST FEDERAL BANCSHARES AND FIRST FEDERAL."
- REQUIRED CHANGE IN CONTROL PAYMENTS. If a change in control
had occurred at February 29, 2000 and all current executive
officers and employees of First Federal were terminated, the
aggregate value of the severance benefits required to be paid
under employment and change in control agreements with
executive officers and the employee severance plan, based on
1999 compensation data, would have been approximately $1.2
million. This estimate does not take into account future
salary adjustments or bonus payments or the value of the
continuation of other employee benefits. These payments may
have the effect of increasing the costs of acquiring First
Federal Bancshares, thereby discouraging future attempts to
take over First Federal Bancshares or First Federal. For
information about the proposed employment and severance
agreements and severance plan, see "MANAGEMENT OF FIRST
FEDERAL BANK--EXECUTIVE COMPENSATION."
THE RECENT POOR PERFORMANCE OF THRIFT STOCKS COULD NEGATIVELY AFFECT THE PRICE
OF FIRST FEDERAL BANCSHARES' COMMON STOCK
Since mid-1998, financial stocks in general have significantly
underperformed the overall market as a whole. From July 1, 1998 to March 31,
2000, the SNL Thrift Index declined approximately 35%, while the Nasdaq
10
<PAGE>
Composite, which includes a significant number of technology and Internet
companies, rose approximately 139%. During this period, mutual funds that
focus on financial stocks have experienced significant redemptions, which
requires the mutual funds to liquidate investments, which in turn contributed
to stock price declines for many banks and thrifts. Should this trend of
mutual fund flows continue, stock prices of companies in the financial
services sector, including that of First Federal Bancshares, may be
negatively impacted.
POSSIBLE LIMITED MARKET FOR FIRST FEDERAL BANCSHARES' COMMON STOCK MAY
NEGATIVELY AFFECT THE MARKET PRICE
Although First Federal Bancshares intends to list its common stock on
the Nasdaq National Market, First Federal Bancshares does not know whether an
active trading market will develop. Because of the relatively small size of this
offering, you may not be able to sell all of your shares of First Federal
Bancshares common stock on short notice and the sale of a large number of shares
at one time could temporarily depress the market price. For further information
about the trading market for the common stock, see "MARKET FOR THE COMMON
STOCK."
FIRST FEDERAL BANCSHARES' STOCK PRICE MAY DECLINE WHEN TRADING COMMENCES
First Federal Bancshares cannot guarantee that if you purchase shares
in the conversion that you will be able to sell them at or above the $10.00
purchase price. In several recent cases, common stock issued by converted
financial institutions has commenced trading at a price that is below the price
at which these shares were sold in the initial offerings of those companies.
After the shares of First Federal Bancshares begin trading, the trading price of
the common stock will be determined by the marketplace, and will be influenced
by many factors, including prevailing interest rates, investor perceptions and
general industry and economic conditions.
11
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
The following tables contain information concerning the financial
position and results of operations of First Federal. You should read this
information in conjunction with the financial statements included in this
prospectus.
<TABLE>
<CAPTION>
AT FEBRUARY 28/29,
--------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
SELECTED CONSOLIDATED FINANCIAL DATA:
Total assets ......................... $213,187 $201,171 $185,573
Cash and cash equivalents ............ 5,762 16,171 10,700
Loans, net ........................... 113,602 101,834 105,260
Securities held-to-maturity .......... 58,927 51,524 25,640
Securities available-for-sale ........ 29,442 26,622 37,295
Deposits ............................. 182,572 176,682 162,824
FHLB advances ........................ 6,000 -- --
Total equity ......................... 24,026 23,337 21,636
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28/29,
--------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
SELECTED OPERATING DATA:
Total interest income ................ $ 13,660 $ 13,295 $ 12,917
Total interest expense ............... 8,642 8,350 7,819
-------- -------- --------
Net interest income ............... 5,018 4,945 5,098
Provision for loan losses ............ 119 6 27
-------- -------- --------
Net interest income after provision
for loan losses ................ 4,899 4,939 5,071
Noninterest income ................... 291 236 249
Noninterest expense .................. 2,845 2,723 2,663
-------- -------- --------
Income before income taxes ........... 2,345 2,452 2,657
Income taxes ......................... 837 851 981
-------- -------- --------
Net income ........................ $ 1,508 $ 1,601 $ 1,676
======== ======== ========
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED
FEBRUARY 28/29,
-------------------------
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
SELECTED OPERATING RATIOS AND OTHER DATA (1):
PERFORMANCE RATIOS:
Average yield on interest-earning assets ........... 6.80% 7.04% 7.27%
Average rate paid on interest-bearing liabilities .. 4.74 4.94 4.90
Average interest rate spread (2) ................... 2.06 2.10 2.37
Net interest margin (3) ............................ 2.50 2.62 2.84
Ratio of interest-earning assets to
interest-bearing liabilities ..................... 110.14 111.65 110.65
Net interest income after provision for loan
losses to noninterest expense .................... 172.20 181.38 190.42
Noninterest expense as a percent of
average assets ................................... 1.36 1.40 0.79
Return on average assets ........................... 0.72 0.83 0.50
Return on average equity ........................... 6.55 7.37 8.61
Ratio of average equity to average assets .......... 11.03 11.20 11.60
Efficiency ratio (4) ............................... 54.59 52.56 49.80
REGULATORY CAPITAL RATIOS:
Tier 1 capital ratio ............................... 24.9 25.0 24.8
Core capital ratio ................................. 11.2 11.7 11.4
Tangible capital ratio ............................. 11.2 11.7 11.4
Risk-based capital ratio ........................... 24.3 26.0 25.3
ASSET QUALITY RATIOS:
Nonperforming loans and troubled debt
restructurings as a percent of total loans (5) ... 0.89 0.76 1.06
Nonperforming assets and troubled debt
restructurings as a percent of total assets (6) .. 0.50 0.43 0.63
Allowance for loan losses as a percent
of total loans ................................... 0.42 0.45 0.46
Allowance for loan losses as a percent of
nonperforming loans and troubled debt
restructurings (5) ............................... 47.73 58.44 29.69
Net loans charged-off to average interest-
earning loans .................................... 0.09 0.03 0.03
NUMBER AT END OF PERIOD:
Full service offices ............................. 6 6 6
Mortgage loans ................................... 2,413 2,460 2,621
Deposit accounts ................................. 19,699 19,533 19,250
</TABLE>
- ------------------------------
(1) Asset Quality Ratios and Regulatory Capital Ratios are end of period
ratios. With the exception of end of period ratios, all ratios are based on
average daily balances during the indicated periods.
(2) Average interest rate spread represents the difference between the weighted
average yield on average interest-earning assets and the weighted average
cost of average interest-bearing liabilities.
(3) Net interest margin represents net interest income as a percent of average
interest-earning assets.
(4) Noninterest expense as a percentage of net interest income plus noninterest
income.
(5) Nonperforming loans consist of all nonaccrual loans and all other loans 90
days or more past due.
(6) Nonperforming assets consist of nonperforming loans, other repossessed
assets and real estate owned.
13
<PAGE>
USE OF PROCEEDS
The following table shows how First Federal Bancshares intends to use
the net proceeds of the offering. The actual net proceeds will depend on the
number of shares of common stock sold in the offering and the expenses incurred
in connection with the offering. See "PRO FORMA DATA" for the assumptions used
to arrive at these amounts.
<TABLE>
<CAPTION>
1,657,500 2,242,500 2,578,875
SHARES AT SHARES AT SHARES AT
$10.00 $10.00 $10.00
PER SHARE PER SHARE PER SHARE
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Offering proceeds............................................. $16,575 $22,425 $25,789
Less: estimated underwriting commissions and
other offering expenses................................ 904 984 1,031
---------- --------- ---------
Net offering proceeds ........................................ 15,671 21,441 24,758
Less:
Proceeds used to purchase
First Federal common stock ............................. 7,836 10,721 12,379
Proceeds used for loan to employee stock ownership plan ... 1,326 1,794 2,063
---------- --------- ---------
Proceeds remaining for First Federal Bancshares .............. $ 6,510 $ 8,927 $10,316
========== ========= =========
</TABLE>
First Federal Bancshares may use the proceeds it retains from the
offering:
- to invest in securities;
- to pay dividends to stockholders;
- to repurchase shares of its common stock;
- to finance the possible acquisition of financial institutions or
other businesses that are related to banking; and
- for general corporate purposes.
First Federal may use the proceeds that it receives from the offering:
- to fund new loans;
- to invest in securities;
- to finance the possible expansion of its business activities; and
- for general corporate purposes.
First Federal Bancshares and First Federal may need regulatory
approvals to engage in some of the activities listed above. See "REGULATION AND
SUPERVISION." Neither First Federal Bancshares nor First Federal currently has
any specific plans or agreements regarding any expansion activities or
acquisitions.
14
<PAGE>
Except as described above, neither First Federal Bancshares nor First
Federal has specific plans for the investment of the proceeds of this offering.
Although First Federal's capital currently exceeds regulatory requirements, it
is converting to stock form primarily to structure itself in the form of
organization used by commercial banks and most other financial services
companies. For a discussion of management's business reasons for undertaking the
conversion, see "THE CONVERSION--REASONS FOR THE CONVERSION."
FIRST FEDERAL BANCSHARES' DIVIDEND POLICY
First Federal Bancshares' Board of Directors intends to adopt a policy
of paying regular cash dividends after the conversion, but has not decided the
amount that may be paid or when the payments may begin. In addition, the Board
of Directors may declare and pay periodic special cash dividends in addition to,
or in lieu of, regular cash dividends. In determining whether to declare or pay
any dividends, whether regular or special, the Board of Directors will take into
account First Federal Bancshares' financial condition and results of operations,
tax considerations, capital requirements, industry standards, and economic
conditions. The regulatory restrictions that affect the payment of dividends by
First Federal to First Federal Bancshares discussed below will also be
considered. First Federal Bancshares cannot guarantee that it will pay dividends
or that, if paid, that First Federal Bancshares will not reduce or eliminate
dividends in the future.
First Federal Bancshares is subject to Delaware law, which generally
limits dividends to an amount equal to the difference between the amount by
which total assets exceed total liabilities and the amount equal to the
aggregate par value of the outstanding shares of capital stock. If there is no
difference between these amounts, dividends are limited to net income for the
current and/or immediately preceding fiscal year.
Dividends from First Federal Bancshares may depend, in part, upon
receipt of dividends from First Federal because First Federal Bancshares
initially will have no source of income other than dividends from First Federal
and earnings from the investment of the net proceeds from the offering retained
by First Federal Bancshares. Office of Thrift Supervision regulations limit
distributions from First Federal to First Federal Bancshares. In addition, First
Federal may not declare or pay a cash dividend on its capital stock if its
effect would be to reduce the regulatory capital of First Federal below the
amount required for the liquidation account to be established as required by
First Federal's plan of conversion. See "REGULATION AND SUPERVISION--FEDERAL
SAVINGS INSTITUTION REGULATION--LIMITATIONS ON CAPITAL DISTRIBUTIONS" AND "THE
CONVERSION--EFFECTS OF CONVERSION TO STOCK FORM--LIQUIDATION ACCOUNT."
Any payment of dividends by First Federal to First Federal Bancshares
that would be deemed to be drawn out of First Federal's bad debt reserves would
require the payment of federal income taxes by First Federal at the then current
income tax rate on the amount deemed distributed. See "FEDERAL AND STATE
TAXATION OF INCOME--FEDERAL INCOME TAXATION" and note 9 of the notes to
financial statements included in this prospectus. First Federal Bancshares does
not contemplate any distribution by First Federal that would result in this type
of tax liability.
Additionally, First Federal Bancshares and First Federal have committed
to the Office of Thrift Supervision that during the one-year period following
the conversion, First Federal Bancshares will not take any action to declare an
extraordinary dividend to stockholders that would be treated by recipients as a
tax-free return of capital for federal income tax purposes.
15
<PAGE>
MARKET FOR THE COMMON STOCK
First Federal Bancshares has not previously issued common stock and
there is currently no established market for the common stock. First Federal
Bancshares has received conditional approval from The Nasdaq Stock Market to
have its common stock quoted on the Nasdaq National Market under the symbol ____
after the conversion.
One of the requirements for continued quotation of the common stock on
The Nasdaq Stock Market is that there be at least three market makers for the
common stock. FBR has advised First Federal Bancshares that it intends to make a
market in the common stock following the conversion, although FBR is under no
obligation to do so. First Federal Bancshares and FBR will cooperate to
encourage and assist at least two additional market makers to make a market in
the common stock. Making a market involves maintaining bid and asked quotations
and being able, as principal, to effect transactions in reasonable quantities at
those quoted prices. Various securities laws and other regulatory requirements
apply to these activities. While First Federal Bancshares believes that there
will be other broker-dealers to act as market makers for the common stock, First
Federal Bancshares cannot guarantee that there will be three or more market
makers for the common stock.
Additionally, the development of a liquid public market depends on the
existence of willing buyers and sellers, the presence of which is not within
First Federal Bancshares' control or under the control of any market maker. The
number of active buyers and sellers of the common stock at any particular time
may be limited. Under such circumstances, you could have difficulty selling your
shares on short notice and therefore you should not view the common stock as a
short-term investment. First Federal Bancshares cannot assure you that an active
and liquid trading market for the common stock will develop or that, if it
develops, it will continue. Furthermore, First Federal Bancshares cannot assure
you that if you purchase shares you will be able to sell them at or above $10.00
per share or that quotations will be available on the Nasdaq National Market as
contemplated.
16
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of First
Federal at February 29, 2000, and the capitalization of First Federal Bancshares
reflecting the conversion (referred to as "pro forma" information). The pro
forma capitalization gives effect to the assumptions listed under "PRO FORMA
DATA," based on the sale of the number of shares of common stock indicated in
the table. This table does not reflect the issuance of additional shares under
the proposed stock-based incentive plan. A CHANGE IN THE NUMBER OF SHARES TO BE
ISSUED IN THE CONVERSION MAY MATERIALLY AFFECT PRO FORMA CAPITALIZATION.
<TABLE>
<CAPTION>
FIRST FEDERAL BANCSHARES PRO FORMA
CAPITALIZATION BASED UPON THE SALE OF
-------------------------------------
FIRST FEDERAL 1,657,500 2,242,500 2,578,875
CAPITALIZATION SHARES AT SHARES AT SHARES AT
AS OF $10.00 $10.00 $10.00
FEBRUARY 29, 2000 PER SHARE PER SHARE PER SHARE
----------------- ---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Deposits (1)............................................... $182,572 $182,572 $182,572 $182,572
Advances from Federal Home Loan Bank....................... 6,000 6,000 6,000 6,000
-------- -------- -------- --------
Total deposits and borrowed funds.......................... $188,572 $188,572 $188,572 $188,572
======== ======== ======== ========
Stockholders' equity:
Preferred stock:
1,000,000 shares, $.01 par value per share,
authorized; none issued or outstanding............ $ -- $ -- $ -- $ --
Common stock:
4,000,000, $.01 par value per share,
authorized; specified number of shares
assumed to be issued and outstanding.............. -- 17 22 26
Additional paid-in capital................................. -- 15,654 21,417 24,731
Retained earnings (2)...................................... 24,131 24,131 24,131 24,131
Net unrealized gain on available-for-sale securities, net.. (105) (105) (105) (105)
Less:
Common stock acquired by employee
stock ownership plan (3)............................. -- (1,326) (1,794) (2,063)
Common stock to be acquired by stock-based
incentive plan (4)................................... -- (663) (897) (1,032)
-------- -------- -------- --------
Total stockholders' equity................................. $24,026 $37,708 $42,776 $45,689
======== ======== ======== ========
</TABLE>
- ----------
(1) Does not reflect withdrawals from deposit accounts for the purchase of
common stock in the offering. Withdrawals to purchase common stock will
reduce pro forma deposits by the amounts of the withdrawals.
(2) Retained earnings are restricted by applicable regulatory capital
requirements. Additionally, First Federal will be prohibited from paying
any dividend that would reduce its regulatory capital below the amount in
the liquidation account, which will be established for the benefit of First
Federal's eligible depositors as of October 31, 1998 and June 30, 2000 at
the time of the conversion and decreased subsequently as these account
holders reduce their balances or cease to be depositors. See "THE
CONVERSION--EFFECTS OF CONVERSION TO STOCK FORM--LIQUIDATION ACCOUNT."
(3) Assumes that 8% of the common stock issued in the conversion will be
acquired by the employee stock ownership plan in the conversion with funds
borrowed from First Federal Bancshares. Under generally accepted accounting
principles, the amount of common stock to be purchased by the employee
stock ownership plan represents unearned compensation and is, accordingly,
reflected as a reduction of capital. As shares are released to plan
participants' accounts, a corresponding reduction in the charge against
capital will occur. Since the funds are borrowed from First Federal
Bancshares, the borrowing will be eliminated in consolidation and no
liability or interest expense will be reflected in the consolidated
financial statements of First Federal Bancshares. See "MANAGEMENT OF FIRST
FEDERAL BANK--BENEFITS--EMPLOYEE STOCK OWNERSHIP PLAN."
(4) Assumes the purchase in the open market at $10.00 per share, under the
proposed stock-based incentive plan, of a number of shares equal to 4% of
the shares of common stock issued in the conversion. The shares are
reflected as a reduction of stockholders' equity. See "RISK
FACTORS--ISSUANCE OF SHARES FOR BENEFIT PROGRAMS MAY REDUCE YOUR OWNERSHIP
INTEREST," "PRO FORMA DATA" and "MANAGEMENT OF FIRST FEDERAL
BANK--BENEFITS--STOCK-BASED INCENTIVE PLAN." The stock-based incentive plan
will be submitted to stockholders for approval at a meeting following the
conversion.
17
<PAGE>
REGULATORY CAPITAL COMPLIANCE
At February 29, 2000, First Federal exceeded all regulatory capital
requirements. The following table presents First Federal's capital position
relative to its regulatory capital requirements at February 29, 2000, on a
historical and pro forma basis. The table reflects receipt by First Federal of
50% of the net proceeds of the offering. For purposes of the table, the amount
expected to be borrowed by the employee stock ownership plan and the cost of the
shares expected to be awarded under the stock-based incentive plan as restricted
stock are deducted from pro forma regulatory capital. For a discussion of the
assumptions underlying the pro forma capital calculations presented below, see
"USE OF PROCEEDS," "CAPITALIZATION" and "PRO FORMA DATA." The definitions of the
terms used in the table are those provided in the capital regulations issued by
the Office of Thrift Supervision. For a discussion of the capital standards
applicable to First Federal, see "REGULATION AND SUPERVISION--FEDERAL SAVINGS
INSTITUTION REGULATION--CAPITAL REQUIREMENTS."
<TABLE>
<CAPTION>
PRO FORMA AT FEBRUARY 29, 2000
-----------------------------------------------------------------
15% ABOVE
MINIMUM OF MAXIMUM OF MAXIMUM OF
OFFERING RANGE OFFERING RANGE OFFERING RANGE
---------------------- ------------------ --------------------
HISTORICAL AT 1,657,500 SHARES 2,242,500 SHARES 2,578,875 SHARES
FEBRUARY 29, 2000 AT $10.00 PER SHARE AT $10.00 PER SHARE AT $10.00 PER SHARE
------------------- ---------------------- ------------------- ---------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
ADJUSTED ADJUSTED ADJUSTED ADJUSTED
TOTAL TOTAL TOTAL TOTAL
AMOUNT ASSETS(1) AMOUNT ASSETS AMOUNT ASSETS AMOUNT ASSETS
------ ---------- ------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Generally accepted accounting
principles capital............... $24,026 11.27% $29,873 13.56% $32,056 14.37% $33,310 14.84%
======= ===== ======= ===== ======= ===== ======= =====
Tangible Capital:
Capital level (2)................ $24,084 11.23% $29,931 13.50% $32,114 14.32% $33,368 14.78%
Requirement...................... 3,217 1.50 3,325 1.50 3,364 1.50 3,387 1.50
------- ----- ------- ----- ------- ----- ------- -----
Excess........................... $20,867 9.73% $26,606 12.00% $28,750 12.82% $29,981 13,28%
======= ===== ======= ===== ======= ===== ======= =====
Core Capital:
Capital level (2)................ $24,084 11.23% $29,931 13.50% $32,114 14.32% $33,368 14.78%
Requirement...................... 8,578 4.00 8,865 4.00 8,971 4.00 9,032 4.00
------- ----- ------- ----- ------- ----- ------- -----
Excess........................... $15,506 7.23% $21,066 9.50% $23,143 10.32% $24,336 10.78%
======= ===== ======= ===== ======= ===== ======= =====
Total Risk-Based Capital:
Total risk-based capital (3)..... $24,626 24.86% $30,473 30.33% $32,656 32.33% $33,910 33.47%
Requirement...................... 7,924 8.00 8,039 8.00 8,081 8.00 8,106 8.00
------- ----- ------- ----- ------- ----- ------- -----
Excess........................... $16,702 16.86% $22,434 22.33% $24,575 24.33% $25,805 25.47%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
- ----------
(1) Percentage represents total core and supplementary capital divided by total
risk-weighted assets. Assumes net proceeds are invested in assets that
carry a 20% risk-weighting.
(2) Tangible capital and core capital levels are shown as a percentage of
adjusted total assets of $214.5 million. Risk-based capital levels are
shown as a percentage of risk-weighted assets of $99.1 million.
(3) A portion of the net unrealized gains on available-for-sale securities
accounts for the difference between generally accepted accounting
principles capital and tangible capital.
18
<PAGE>
PRO FORMA DATA
The following table shows information about the net income and
stockholders' equity of First Federal Bancshares reflecting the conversion. The
information provided illustrates the pro forma net income and stockholders'
equity of First Federal Bancshares based on the sale of common stock at the
minimum of the offering range, the maximum of the offering range and 15% above
the maximum of the offering range. The actual net proceeds from the sale of the
common stock cannot be determined until the conversion is completed. Net
proceeds indicated in the following tables are based upon the following
assumptions:
- FBR will receive a fee equal to 1.5% of the aggregate purchase
price of the shares sold in the conversion, except that no fee
will be paid with respect to shares purchased by the employee
stock ownership plan, officers, employees, directors of First
Federal or First Federal Bancshares and their associates. See "THE
CONVERSION--MARKETING AND UNDERWRITING ARRANGEMENTS."
- Conversion expenses, excluding the fee paid to FBR, will total
approximately $690,000 regardless of the number of shares sold in
the conversion.
Actual expenses may vary from this estimate, and the fees paid will
depend upon whether a syndicate of broker-dealers or other means is necessary to
sell the shares, and other factors.
Pro forma net income for the year ended February 29, 2000 has been
calculated as if the conversion were completed at March 1, 1999, and the net
proceeds had been invested at 6.39% beginning on that date, which represents the
one-year U.S. Treasury Bill yield as of February 29, 2000. While applicable
regulations provide for the use of a yield representing the arithmetic average
of the weighted average yield earned by First Federal on its interest-earning
assets and the rates paid on its deposits. First Federal believes that the U.S.
Treasury Bill yield represents a more realistic yield on the investment of the
offering proceeds.
A pro forma after-tax return of 3.91% is used for both First Federal
Bancshares and First Federal for the year ended February 29, 2000, after giving
effect to a combined federal and state income tax rate of 38.74%. Historical and
pro forma per share amounts have been calculated by dividing historical and pro
forma amounts by the number of shares of common stock indicated in the table.
When reviewing the following table you should consider the following:
- The final column gives effect to a 15% increase in the offering
range, which may occur without any further notice if RP Financial
increases its appraisal to reflect the results of this offering or
changes in the financial condition or results of operations of
First Federal or changes in market conditions after the offering
begins. See "THE CONVERSION--STOCK PRICING AND NUMBER OF SHARES TO
BE ISSUED."
- Since funds on deposit at First Federal may be withdrawn to
purchase shares of common stock, the amount of funds available to
First Federal Bancshares for investment will be reduced by the
amount of withdrawals for stock purchases. The pro forma tables do
not reflect withdrawals from deposit accounts.
- Historical per share amounts have been computed as if the shares
of common stock expected to be issued in the conversion had been
outstanding at the beginning of the period covered by the table.
However, neither historical nor pro forma stockholders' equity has
been adjusted to reflect the investment of the estimated net
proceeds from the sale of the shares in the conversion, the
additional employee stock ownership plan expense or the proposed
stock-based incentive plan.
19
<PAGE>
- Pro forma stockholders' equity ("book value") represents the
difference between the stated amounts of First Federal's assets
and liabilities. The amounts shown do not reflect the liquidation
account, which will be established for the benefit of eligible
depositors as of October 31, 1998 and June 30, 2000, or the
federal income tax consequences of the restoration to income of
First Federal's special bad debt reserves for income tax purposes,
which would be required in the unlikely event of liquidation.
See "FEDERAL AND STATE TAXATION" and "THE CONVERSION--EFFECTS OF
CONVERSION TO STOCK FORM." The amounts shown for book value do
not represent fair market values or amounts available for
distribution to stockholders in the unlikely event of liquidation.
- The amounts shown as pro forma stockholders' equity per share do
not represent possible future price appreciation of First Federal
Bancshares' common stock.
- The amounts shown do not account for the shares to be reserved for
issuance under the stock-based incentive plan, which requires
stockholder approval at a meeting following the conversion.
The following pro forma data, which are based on First Federal's equity
at February 29, 2000, and net income for the year ended February 29, 2000, may
not represent the actual financial effects of the conversion or the operating
results of First Federal Bancshares after the conversion. The pro forma data
rely exclusively on the assumptions outlined above and in the notes to the pro
forma table. The pro forma data do not represent the fair market value of First
Federal Bancshares' common stock, the current fair market value of First
Federal's or First Federal Bancshares' assets or liabilities, or the amount of
money that would be available for distribution to stockholders if First Federal
Bancshares is liquidated after the conversion.
20
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED FEBRUARY 29, 2000
---------------------------------------------
15% ABOVE
MINIMUM OF MAXIMUM OF MAXIMUM OF
OFFERING OFFERING OFFERING
RANGE RANGE RANGE
-------------- ----------- -----------
1,657,500 2,242,500 2,578,875
SHARES SHARES SHARES
AT $10.00 AT $10.00 AT $10.00
PER SHARE PER SHARE PER SHARE
---------- --------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Gross proceeds...................................................... 16,575 $22,425 $25,789
Less: estimated expenses........................................... (904) (984) (1,031)
------ ------- -------
Estimated net proceeds.............................................. 15,671 21,441 24,758
Less: common stock acquired by employee stock ownership plan (1)... (1,326) (1,794) (2,063)
Less: common stock to be acquired by stock-based incentive plan.... (663) (897) (1,032)
------ ------- -------
Net investable proceeds.......................................... 13,682 $18,750 $21,663
====== ======= =======
PRO FORMA NET INCOME:
Pro forma net income:
Historical....................................................... $1,508 $1,508 $1,508
Pro forma income on net investable proceeds...................... 535 733 847
Less: pro forma employee stock ownership plan adjustments (1)... (81) (110) (126)
Less: pro forma stock-based incentive plan adjustments (2)...... (81) (110) (126)
------ ------- ------
Pro forma net income.......................................... $1,881 $2,021 $2,103
====== ======= ======
Pro forma net income per share:
Historical....................................................... $ 0.98 $ 0.72 $ 0.63
Pro forma income on net investable proceeds...................... 0.35 0.35 0.35
Less: pro forma employee stock ownership plan adjustments (1)... (0.05) (0.05) (0.05)
Less: pro forma stock-based incentive plan adjustments (2)...... (0.05) (0.05) (0.05)
------ ------- ------
Pro forma net income per share................................ $ 1.23 $ 0.97 $ 0.88
====== ======= ======
Number of shares used to calculate pro forma net income per share... 1,538,160 2,081,040 2,393,196
Purchase price as a multiple of pro forma net income per share...... 8.13x 10.31x 11.36x
PRO FORMA STOCKHOLDERS' EQUITY:
Pro forma stockholders' equity (book value):
Historical....................................................... $24,026 $24,026 $24,026
Estimated net proceeds........................................... 15,671 21,441 24,758
Less: common stock acquired by employee stock ownership
plan(1) ................................................. (1,326) (1,794) (2,063)
Less: common stock to be acquired by stock-based incentive
plan(2) ................................................. (663) (897) (1,032)
------- ------- -------
Pro forma stockholders' equity................................ $37,708 $42,776 $45,689
======= ======= =======
Pro forma stockholders' equity per share:
Historical....................................................... $ 14.50 $ 10.71 $ 9.32
Estimated net proceeds........................................... 9.45 9.56 9.60
Less: common stock acquired by employee stock ownership
plan(1) ................................................. (0.80) (0.80) (0.80)
Less: common stock to be acquired by stock-based incentive
plan(2) ................................................. (0.40) (0.40) (0.40)
------ ------- -------
Pro forma stockholders' equity per share...................... $ 22.75 $ 19.07 $ 17.72
======= ======= =======
Number of shares used to calculate pro forma stockholders' equity
per share........................................................ 1,657,500 2,242,500 2,578,875
Purchase price as a percentage of pro forma stockholders' equity
per share........................................................ 43.96% 52.44% 56.43%
</TABLE>
- ----------------------------
(1) Assumes that the employee stock ownership plan will acquire an amount of
stock equal to 8% of the shares of common stock offered in the conversion.
The employee stock ownership plan will borrow the funds used to acquire
these shares from the net proceeds from the conversion retained by First
Federal Bancshares. The amount of this borrowing has been reflected as a
reduction from gross proceeds to determine estimated net investable
proceeds. This borrowing will have an interest rate equal to the prime rate
as published in THE WALL STREET JOURNAL, which is currently _____%. First
Federal
21
<PAGE>
intends to make contributions to the employee stock ownership plan in
amounts at least equal to the principal and interest requirement of the
debt. As the debt is paid down, stockholders' equity will be increased.
First Federal's payment of the employee stock ownership plan debt is based
upon equal installments of principal over a 10-year period, assuming a
combined federal and state income tax rate of 38.74%. Interest income
earned by First Federal Bancshares on the loan to the employee stock
ownership plan offsets the interest paid on the loan by First Federal. No
reinvestment is assumed on proceeds contributed to fund the employee stock
ownership plan. Applicable accounting principles require that compensation
expense for the employee stock ownership plan be based upon shares
committed to be released and that unallocated shares be excluded from
earnings per share computations. The valuation of shares committed to be
released would be based upon the average market value of the shares during
the year, which, for purposes of this calculation, was assumed to be equal
to the $10.00 per share purchase price. See "MANAGEMENT OF FIRST FEDERAL
BANK--BENEFITS--EMPLOYEE STOCK OWNERSHIP PLAN."
(2) In calculating the pro forma effect of the restricted stock awards, it is
assumed that the required stockholder approval has been received, that the
shares used to fund the awards were acquired at the beginning of the
respective period in open market purchases at the $10.00 per share purchase
price, that 20% of the amount contributed was an amortized expense during
the period, and that the combined federal and state income tax rate is
38.74%. The issuance of authorized but unissued shares of the common stock
instead of open market purchases would dilute the voting interests of
existing stockholders by approximately 3.85%.
For purposes of this table, shares of restricted stock issued under the
stock-based incentive plan vest 20% per year and compensation expense is
recognized on a straight-line basis over each vesting period. If the fair
market value per share is greater than $10.00 per share on the date shares
are awarded under the stock-based incentive plan, total stock-based
incentive plan expense would be greater. The total estimated expense was
multiplied by 20%, which is the total percent of shares for which expense
is recognized in the first year.
The following table shows the estimated pro forma net income and
stockholders' equity per share if restricted shares awarded under the
stock-based incentive plan were authorized but unissued shares instead of
repurchased shares. The table also shows the estimated pre-tax stock-based
incentive plan expense.
<TABLE>
<CAPTION>
15% ABOVE
MINIMUM MAXIMUM MAXIMUM
OF OFFERING OF OFFERING OF OFFERING
RANGE RANGE RANGE
------------ ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Pro forma net income per share:
Year ended February 29, 2000....................... $ 1.19 $ 0.95 $ 0.86
Pro forma stockholders' equity per share:
At February 29, 2000............................... $22.26 $18.73 $17.42
Pre-tax stock-based incentive plan expense:
Year ended February 29, 2000....................... $133 $179 $206
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The objective of this section is to help potential investors understand
management's views on First Federal's financial condition and results of
operations. You should read this discussion in conjunction with the financial
statements and the notes to the financial statements that appear at the end of
this prospectus. Years in this discussion (2000, 1999, etc.) refer to First
Federal's February-ending fiscal years.
GENERAL
First Federal's results of operations depend primarily on net interest
income, which is the difference between the interest income earned on First
Federal's interest-earning assets, such as loans and securities, and the
interest expense on its interest-bearing liabilities, such as deposits and
borrowings. First Federal also generates noninterest income primarily from loan
fees and service charges. First Federal's noninterest expenses primarily consist
of employee compensation and benefits, occupancy expense, advertising and other
operating expenses. First Federal's results of operations are also affected by
general economic and competitive conditions, notably changes in market interest
rates, government policies and regulations.
FORWARD LOOKING STATEMENTS
This prospectus contains forward-looking statements that are based on
assumptions and describe future plans, strategies, and expectations of First
Federal and First Federal Bancshares. These forward-looking statements are
generally identified by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project," or similar expressions. First Federal's and
First Federal Bancshares' ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors that could have a
material adverse effect on the operations of First Federal and First Federal
Bancshares include, but are not limited to, changes in interest rates, general
economic conditions, legislative/regulatory changes, monetary and fiscal
policies of the U.S. Government, including policies of the Department of
Treasury and the Federal Reserve Board, the quality and composition of the loan
or investment portfolios, demand for loan products, deposit flows, competition,
demand for financial services in First Federal's and First Federal Bancshares'
market area and accounting principles. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements.
OPERATING STRATEGY
First Federal is an independent, community-oriented financial
institution with a commitment to providing residential, personal and business
financing and financial services products in the market areas served by its
banking offices. First Federal's mission is to position itself to compete as a
community-based independent financial institution, meeting the needs of its
local customer base and providing high quality personal customer service in
meeting those needs. To accomplish these objectives, in addition to offering a
variety of mortgage loan and retail deposit products, First Federal has:
- expanded its product offering to include credit and debit cards
and a variety of transaction accounts;
- hired an experienced commercial loan officer to head its new
commercial loan department;
- implemented a web site and deployed eight automated teller
machines to provide service outside its banking offices; and
- developed a variety of consumer loan products.
23
<PAGE>
As part of its interest rate risk management strategy, First Federal
emphasizes short-term, balloon and adjustable-rate loans. In recent years, when
market interest rates have been relatively low, First Federal has increased its
portfolio of securities rather than originating long-term, fixed-rate loans.
First Federal's securities portfolio consists primarily of U.S. government
agency obligations and mortgage-backed securities.
COMPARISON OF FINANCIAL CONDITION AT FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
Total assets at February 29, 2000 were $213.2 million compared to
$201.2 million at February 28, 1999, an increase of $12.0 million or 6.0%. The
increase was primarily a result of increased loan originations due to continued
market demand and purchases of securities. The increase in loans was funded
through increased deposits of $5.9 million and borrowings from the Federal Home
Loan Bank of $6.0 million.
Total equity at February 29, 2000 was $24.0 million compared to $23.3
million at February 28, 1999. The increase of $689,000, or 3.0%, was a result of
net income of $1.5 million, partially offset by a $818,000 decrease in the
unrealized gain on securities available for sale.
FISCAL 2000 COMPARED WITH FISCAL 1999
GENERAL. Net income for fiscal 2000 decreased $93,000, or 5.8%, to $1.5
million from $1.6 million for fiscal 1999. Return on average equity was 6.55% in
fiscal 2000 compared to 7.37% in fiscal 1999. Return on assets was 0.72% in
fiscal 2000 compared to 0.83% in fiscal 1999. Although net interest income
increased 1.5%, First Federal recorded a larger provision for loan losses as a
result of the growth of First Federal's loan portfolio and expansion into
commercial lending. As a result, net interest income after provision for loan
losses decreased slightly from fiscal 1999. Noninterest income increased
$55,000, or 23.3%, while noninterest expense increased $122,000, or 4.5%,
primarily as a result of the addition of a commercial loan department.
INTEREST INCOME. Interest income for fiscal 2000 was $13.7 million
compared to $13.3 million for fiscal 1999, an increase of $365,000, or 2.7%. The
increase was primarily the result of an increase in the average balance of
interest-earning assets to $200.9 million for fiscal 2000 from $188.8 million
for fiscal 1999. The average balance of loans increased 1.1% while the average
balance of securities increased 24.1%. During fiscal 2000, First Federal
invested cash and cash equivalents in higher yielding securities, primarily U.S.
government agency obligations. The average balance of U.S. government agency
obligations increased $14.2 million from $44.5 million for fiscal 1999 to $58.7
million for fiscal 2000. Loans comprised 52.8% of interest-earning assets in
fiscal 2000 compared to 55.6% in fiscal 1999. The increase in the average
balance of interest-earning assets was partially offset by a decrease in the
average yield on earning assets from 7.04% for fiscal 1999 to 6.80% for fiscal
2000. The average yield on earning assets decreased on all categories of assets
as a result of market rates and competition.
INTEREST EXPENSE. Interest expense for fiscal 2000 was $8.6 million
compared to $8.3 million for fiscal 1999, an increase of $292,000, or 3.5%. The
increase was primarily due to an increase in volume of interest-bearing
liabilities to $182.4 million for fiscal 2000 from $169.1 million for fiscal
1999. The average balance of Federal Home Loan Bank borrowings was $5.5 million
for fiscal 2000, compared to $0 for the prior year. In addition, the average
balance of NOW and money market deposits increased $7.1 million to $32.9 million
for fiscal 2000 as a result of marketing efforts by First Federal and the
introduction of tiered interest rates for money market deposit accounts. The
increase in the volume of interest-bearing liabilities was partially offset by a
decrease in the average cost of funds from 4.94% for fiscal 1999 to 4.74% for
fiscal 2000. This was primarily a result of First Federal's effort to reduce
rates offered on certificates of deposit and still remain competitive.
PROVISION FOR LOAN LOSSES. First Federal's provision for the loan
losses for fiscal 2000 was $119,000 compared to $6,000 for fiscal 1999. The
increase in the provision for loan losses was primarily a result of increased
charge-offs in the current year in addition to loan growth and the expansion of
loan products into commercial business lending, which generally carry more
credit risk than traditional one- to four-family residential mortgage lending.
Management increases the allowance for loan losses through a provision charged
to expense based on a
24
<PAGE>
statistical percentage developed considering past loss experiences, delinquency
trends and other factors such as portfolio composition. While management
believes the existing level of reserves is adequate, future adjustments to the
allowance may be necessary due to economic, operating, regulatory, and other
conditions that may be beyond First Federal's control.
NONINTEREST INCOME. The following table shows the components of
noninterest income and the dollar and percentage change from fiscal 1999 to
fiscal 2000. Percentages are based on rounded numbers.
<TABLE>
<CAPTION>
FISCAL FISCAL DOLLAR PERCENTAGE
2000 1999 CHANGE CHANGE
-------------- ------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Service charges on NOW accounts................. $116 $ 95 $21 22.1%
Other fee income................................ 97 84 13 15.5
Other........................................... 78 57 21 36.8
---- ----- ----
Total..................................... $291 $236 $55 23.7
==== ===== ===
</TABLE>
Service charges on NOW accounts increased as a result of the increased
volume of demand deposits. Other fee income increased due to additional ATM fees
resulting from First Federal's addition of two new ATMs. Other income increased
as a result of $20,000 in insurance reimbursement.
NONINTEREST EXPENSE. The following table shows the components of
noninterest expense and the dollar and percentage change from fiscal 1999 to
fiscal 2000. Percentages are based on rounded numbers.
<TABLE>
<CAPTION>
FISCAL FISCAL DOLLAR PERCENTAGE
2000 1999 CHANGE CHANGE
-------------- ------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Compensation and benefits....................... $1,464 $1,336 $128 9.6%
Occupancy and equipment......................... 354 379 (25) (6.6)
Data processing................................. 425 424 1 0.2
Federal insurance premiums...................... 151 152 (1) (0.6)
Advertising..................................... 104 97 7 7.2
Other........................................... 347 335 12 3.6
------ ------ ----
Total..................................... $2,845 $2,723 $122 4.5
====== ====== ====
</TABLE>
Compensation and benefits expense increased due to the hiring of a
full-time commercial loan officer and the transfer of two temporary employees to
full-time status. In addition, other expense increased due to expenses related
to the issuance of new ATM cards, including special promotions, and expenses
related to the addition of two new ATM machines.
INCOME TAX EXPENSE. First Federal's federal and state income tax
expense decreased from $851,000 for fiscal 1999 to $837,000 for fiscal 2000 as a
result of a decrease in pretax income. First Federal's effective tax rate for
fiscal 2000 was 35.7% compared to 34.7% for fiscal 1999.
25
<PAGE>
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS/COST
The following table presents certain information for fiscal 2000 and
fiscal 1999 regarding average balances of assets and liabilities, as well as the
total dollar amounts of interest income from average interest-earning assets and
interest expense on average interest-bearing liabilities and the resulting
average yields and costs. The yields and costs for the periods indicated are
derived by dividing income or expense by the average balances of assets or
liabilities, respectively, for the periods presented. Average balances were
derived from daily balances.
<TABLE>
<CAPTION>
AT FEBRUARY 29,
2000 FISCAL 2000 FISCAL 1999
-------------------- ---------------------------------- ---------------------------------
AVERAGE AVERAGE
YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
---------- -------- ---------- --------- ----------- --------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans (1).............................. $114,098 7.52% $106,190 $ 7,933 7.47% $104,988 $ 8,189 7.80%
Securities (2)......................... 88,543 6.26 87,641 5,409 6.17 70,640 4,455 6.31
Deposits in other financial
institutions ........................ 6,514 5.81 7,089 318 4.48 13,161 651 4.95
------- -------- ------- -------- -------
Total interest-earning assets........ 209,155 6.93 200,920 13,660 6.80 188,789 13,295 7.04
Noninterest-earning assets.............. 4,032 7,702 5,097
-------- -------- --------
Total assets......................... $213,187 $208,622 $193,886
======== ======== ========
Interest-bearing liabilities:
Deposits:
Savings accounts and certificates..... $145,565 5.05 $144,016 7,108 4.94 $143,268 7,485 5.22
NOW and money market accounts......... 35,592 4.06 32,903 1,216 3.69 25,827 865 3.35
FHLB advances......................... 6,000 6.16 5,498 318 5.79 -- -- --
-------- -------- ------- -------- ------
Total interest-bearing liabilities.. 187,157 4.90 182,417 8,642 4.74 169,095 8,350 4.94
------- ------
Noninterest-bearing liabilities......... 2,004 3,185 3,078
-------- -------- --------
Total liabilities................... 189,161 185,602 172,173
Equity.................................. 24,026 23,020 21,713
-------- -------- --------
Total liabilities and equity........ $213,187 $208,622 $193,886
======== ======== ========
Net interest-earning assets......... $ 18,503 $ 19,694
======== ========
Net interest income/interest
rate spread (3)................. 2.03% $5,018 2.06% $4,945 2.10%
====== ====== ====== ====== ======
Net interest margin (4)............. 2.50% 2.62%
====== =====
Ratio of interest-earning assets
to interest-bearing liabilities.. 110.14% 111.65%
====== ======
</TABLE>
- ----------
(1) Balances are net of deferred loan origination costs, undisbursed proceeds
of construction loans in process, and include nonperforming loans.
(2) Includes $894,200 in stock in the FHLB of Chicago.
(3) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(4) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
26
<PAGE>
RATE/VOLUME ANALYSIS
The following table presents the effects of changing rates and volumes
on the interest income and interest expense of First Federal. The rate column
shows the effects attributable to changes in rate (changes in rate multiplied by
prior volume). The volume column shows the effects attributable to changes in
volume (changes in volume multiplied by prior rate). The net column represents
the sum of the prior columns. For purposes of this table, changes attributable
to changes in both rate and volume, which cannot be segregated, have been
allocated proportionately based on the absolute value of the change due to rate
and the change due to volume.
<TABLE>
<CAPTION>
FISCAL 2000 COMPARED TO FISCAL 1999
----------------------------------------
INCREASE (DECREASE)
DUE TO
-------------------------
RATE VOLUME NET
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest-earning assets:
Loans...................................... $(350) $ 94 $(256)
Securities................................. (76) 1,030 954
Deposits in other financial institutions... (33) (300) (333)
------- ------- ------
Total interest-earning assets........ (459) 824 365
Interest-bearing liabilities:
Deposits:
Savings accounts and certificates....... (416) 39 (377)
NOW and money market accounts........... 114 237 351
FHLB advances.............................. -- 318 318
------- -------- ------
Total interest-bearing liabilities... (302) 594 292
------- -------- ------
Increase(decrease) in net
interest income............................ $(157) $ 230 $ 73
======= ======== ======
</TABLE>
MANAGEMENT OF INTEREST RATE RISK AND MARKET RISK ANALYSIS
QUALITATIVE ASPECTS OF MARKET RISK. First Federal's most significant
form of market risk is interest rate risk. The principal objectives of First
Federal's interest rate risk management are to evaluate the interest rate risk
inherent in certain balance sheet accounts, determine the level of risk
appropriate given First Federal's business strategy, operating environment,
capital and liquidity requirements and performance objectives, and manage the
risk consistent with the Board of Director's approved guidelines. First Federal
has an Asset/Liability Committee, responsible for reviewing its asset/liability
policies and interest rate risk position, which meets monthly and reports trends
and interest rate risk position to the Board of Directors quarterly. The extent
of the movement of interest rates is an uncertainty that could have a negative
impact on the earnings of First Federal.
In recent years, First Federal has used the following strategies to
manage interest rate risk: (1) emphasizing the origination of adjustable-rate
and balloon loans and not originating long-term, fixed-rate loans for retention
in its portfolio; (2) emphasizing shorter term consumer loans; (3) introducing
floating-rate commercial business loans tied to the prime rate; (4) maintaining
a high quality securities portfolio that provides adequate liquidity and
flexibility to take advantage of opportunities that may arise from fluctuations
in market interest rates, the overall maturity of which is monitored in relation
to the repricing of its loan portfolio; and (5) using Federal Home Loan Bank
advances to better structure maturities of its interest rate sensitive
liabilities. First Federal currently does not participate in hedging programs,
interest rate swaps or other activities involving the use of off-balance sheet
derivative financial instruments.
27
<PAGE>
QUANTITATIVE ASPECTS OF MARKET RISK. First Federal primarily utilizes
an interest rate risk report prepared by the Office of Thrift Supervision to
review the level of interest rate risk. The following table, which was prepared
by the Office of Thrift Supervision, presents the change in First Federal's net
portfolio value at December 31, 1999, that would occur upon an immediate change
in interest rates based on Office of Thrift Supervision assumptions, but without
giving effect to any steps that management might take to counteract that change.
<TABLE>
<CAPTION>
NPV AS % OF PORTFOLIO
CHANGE IN VALUE OF ASSETS
INTEREST RATES NET PORTFOLIO VALUE ----------------------------
IN BASIS POINTS ----------------------------------------------- NPV
(RATE SHOCK) AMOUNT $ CHANGE % CHANGE RATIO CHANGE(1)
- --------------- --------- -------- --------- ------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
300 $11,473 $(11,766) (51)% 5.77% (514)bp
200 15,698 (7,541) (32) 7.71 (320)
100 19,767 (3,472) (15) 9.48 (143)
Static 23,239 -- -- 10.91 --
(100) 25,782 2,543 11 11.92 101
(200) 26,023 2,784 12 11.97 106
(300) 26,594 3,355 14 12.15 124
</TABLE>
- ----------
(1) Expressed in basis points.
The Office of Thrift Supervision uses certain assumptions in assessing
the interest rate risk of savings associations. These assumptions relate to
interest rates, loan prepayment rates, deposit decay rates, and the market
values of certain assets under differing interest rate scenarios, among others.
As with any method of measuring interest rate risk, certain
shortcomings are inherent in the method of analysis presented in the foregoing
table. For example, although certain assets and liabilities may have similar
maturities or periods to repricing, they may react in different degrees to
changes in market interest rates. Also, the interest rates on certain types of
assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as adjustable rate mortgage loans,
have features which restrict changes in interest rates on a short-term basis and
over the life of the asset. Further, if interest rates change, expected rates of
prepayments on loans and early withdrawals from certificates of deposit could
deviate significantly from those assumed in calculating the table.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability to meet current and future financial
obligations of a short-term nature. First Federal further defines liquidity as
the ability to respond to the needs of depositors and borrowers as well as
maintaining the flexibility to take advantage of investment opportunities. First
Federal's primary sources of funds consist of deposit inflows, loan repayments,
maturities, paydowns, and sales of investment and mortgage-backed securities and
borrowings from the Federal Home Loan Bank. While maturities and scheduled
amortization of loans and securities are predictable sources of funds, deposit
flows and mortgage prepayments are greatly influenced by general interest rates,
economic conditions and competition. First Federal generally manages the pricing
of its deposits to be competitive and to increase core deposit relationships.
Federal regulations require First Federal to maintain minimum levels of
liquid assets. The required percentage has varied from time to time based upon
economic conditions and savings flows and is currently 4.0% of net withdrawable
savings deposits and borrowings payable on demand or in one year or less during
the preceding calendar month. Liquid assets for purposes of this ratio include
cash, certain time deposits, U.S. Government, government agency and corporate
securities and other obligations generally having remaining maturities of less
than
28
<PAGE>
five years. First Federal has historically maintained its liquidity ratio for
regulatory purposes at levels in excess of those required. At February 29, 2000,
First Federal's liquidity ratio for regulatory purposes was 35.08%.
The primary investing activities of First Federal are the origination
of loans and the purchase of securities. In fiscal 2000, First Federal
originated $37.8 million of loans and purchased $24.8 million of securities. In
fiscal 1999, First Federal originated $27.4 million of loans and purchased $55.4
million of securities. Financing activities consist primarily of activity in
deposit accounts and Federal Home Loan Bank advances. First Federal experienced
a net increase in total deposits of $5.9 million and $13.9 million for fiscal
2000 and fiscal 1999, respectively. Deposit flows are affected by the overall
level of interest rates, the interest rates and products offered by First
Federal and its local competitors and other factors. First Federal closely
monitors its liquidity position on a daily basis.
First Federal's most liquid assets are cash and short-term investments.
The levels of these assets are dependent on First Federal's operating,
financing, lending and investing activities during any given period. At February
29, 2000, cash and short-term investments totaled $7.3 million. First Federal
has other sources of liquidity if a need for additional funds arises, including
securities maturing within one year and the repayment of loans. First Federal
may also utilize the sale of securities available-for-sale, federal funds
purchased, and Federal Home Loan Bank advances as a source of funds. At February
29, 2000, First Federal had the ability to borrow a total of approximately $17.9
million from the Federal Home Loan Bank of Chicago. On that date, First Federal
had advances outstanding of $6.0 million.
At February 29, 2000, First Federal had outstanding commitments to
originate loans of $1.4 million, $752,000 of which had fixed interest rates.
These loans are to be secured by properties located in its market area. First
Federal anticipates that it will have sufficient funds available to meet its
current loan commitments. Loan commitments have, in recent periods, been funded
through liquidity or through FHLB borrowings. Certificates of deposit that are
scheduled to mature in one year or less from February 29, 2000 totaled $98.9
million. Management believes, based on past experience, that a significant
portion of those deposits will remain with First Federal. Based on the
foregoing, in addition to First Federal's high level of core deposits and
capital, First Federal considers its liquidity and capital resources sufficient
to meet its outstanding short-term and long-term needs.
Liquidity management is both a daily and long-term responsibility of
management. First Federal adjusts its investments in liquid assets based upon
management's assessment of (1) expected loan demand, (2) expected deposit flows,
(3) yields available on interest-earning deposits and securities, and (4) the
objectives of its asset/liability management program. Excess liquid assets are
invested generally in interest-earning overnight deposits and short- and
intermediate-term U.S. Government and agency obligations and mortgage-backed
securities of short duration. If First Federal requires funds beyond its ability
to generate them internally, it has additional borrowing capacity with the
Federal Home Loan Bank of Chicago.
First Federal is subject to various regulatory capital requirements
administered by the Office of Thrift Supervision including a risk-based capital
measure. The risk-based capital guidelines include both a definition of capital
and a framework for calculating risk-weighted assets by assigning balance sheet
assets and off-balance sheet items to broad risk categories. At February 29,
2000, First Federal exceeded all of its regulatory capital requirements. First
Federal is considered "well capitalized" under regulatory guidelines. See
"REGULATION AND SUPERVISION- FEDERAL SAVINGS INSTITUTION REGULATION - CAPITAL
REQUIREMENTS" and "REGULATORY CAPITAL COMPLIANCE" and note 12 of the notes to
the financial statements.
The capital from the conversion will significantly increase liquidity
and capital resources. Over time, the initial level of liquidity will be reduced
as net proceeds from the stock offering are used for general corporate purposes,
including the funding of lending activities. First Federal's financial condition
and results of operations will be enhanced by the capital from the conversion,
resulting in increased net interest-earning assets and net income. However, due
to the large increase in equity resulting from the capital injection, return on
equity will be adversely impacted following the conversion.
29
<PAGE>
IMPACT OF ACCOUNTING PRONOUNCEMENTS
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," issued in June 1998 (as amended by SFAS No.
137), standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts. The Statement requires
entities to carry all derivative instruments in the statement of financial
position at fair value. The accounting for changes in the fair value, gains and
losses, of a derivative instrument depends on whether it has been designated and
qualifies as part of a hedging relationship and, if so, on the reasons for
holding it. If certain conditions are met, entities may elect to designate a
derivative instrument as a hedge of exposures to changes in fair value, cash
flows or foreign currencies. The statement is effective for fiscal years
beginning after June 15, 2000. The statement is not expected to affect First
Federal because First Federal does not currently purchase derivative instruments
or enter into hedging activities.
EFFECT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related financial data
presented in this prospectus have been prepared following generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering the change
in the relative purchasing power of money over time due to inflation. The
primary impact of inflation is reflected in the increased cost of First
Federal's operations. Unlike most industrial companies, virtually all the assets
and liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on a financial
institution's performance than do general levels of inflation. Interest rates do
not necessarily move in the same direction or to the same extent as the prices
of goods and services.
BUSINESS OF FIRST FEDERAL BANCSHARES
GENERAL
First Federal Bancshares was organized as a Delaware business
corporation at the direction of First Federal in April 2000 to become the
holding company for First Federal upon completion of the conversion. As a result
of the conversion, First Federal will be a wholly owned subsidiary of First
Federal Bancshares and all of the issued and outstanding capital stock of First
Federal will be owned by First Federal Bancshares.
BUSINESS
Before the completion of the conversion, First Federal Bancshares will
not engage in any significant activities other than those of an organizational
nature. Following completion of the conversion, First Federal Bancshares'
business activity will be the ownership of the outstanding capital stock of
First Federal and management of the investment of proceeds retained from the
conversion. In the future, First Federal Bancshares may acquire or organize
other operating subsidiaries. There are no current plans, arrangements,
agreements or understandings, written or oral, to do so.
Initially, First Federal Bancshares will neither own nor lease any
property but will instead use the premises, equipment and furniture of First
Federal with the payment of appropriate rental fees, as required by applicable
law and regulations.
Since First Federal Bancshares will hold the outstanding capital stock
of First Federal after the conversion, the competitive conditions applicable to
First Federal Bancshares will be the same as those confronting First Federal.
See "BUSINESS OF FIRST FEDERAL BANK--COMPETITION."
30
<PAGE>
BUSINESS OF FIRST FEDERAL BANK
GENERAL
First Federal was founded in 1917 as an Illinois-chartered mutual
savings association under the name "Colchester Building and Loan Investment
Association." In 1977, First Federal adopted a federal mutual charter under the
name "First Federal Saving and Loan Association of Colchester." First Federal
changed its name to "First Federal Bank, F.S.B." in 1990. Following completion
of the conversion, First Federal will operate under the name "First Federal
Bank." First Federal is regulated by the Office of Thrift Supervision and the
Federal Deposit Insurance Corporation. First Federal's deposits are insured to
the maximum allowable amount by the Savings Association Insurance Fund of the
Federal Deposit Insurance Corporation. First Federal has been a member of the
Federal Home Loan Bank System since 1934.
First Federal operates as a community-oriented financial institution,
specializing in the acceptance of retail deposits from the general public in the
areas surrounding its six full-service banking offices and using those funds,
together with funds generated from operations and borrowings, to originate
loans. The principal lending activity of First Federal is the origination of
mortgage loans for the purpose of purchasing or refinancing one- to four-family
residential property. First Federal also originates multi-family and commercial
real estate loans, residential construction loans, commercial business loans and
a variety of consumer loans. First Federal originates loans primarily for
long-term investment purposes. See "--LENDING ACTIVITIES." First Federal also
invests in mortgage-backed securities, securities issued by the U.S. Government
and state and local governments, and other permissible investments. First
Federal's revenues are derived principally from the generation of interest and
fees on loans originated and, to a lesser extent, interest and dividends on
investments. First Federal's primary sources of funds are deposits, principal
and interest payments on loans and investments and advances from the Federal
Home Loan Bank of Chicago.
MARKET AREA
First Federal conducts business in west central Illinois from its home
office in Colchester (McDonough County), its two branch offices in Quincy (Adams
County) and its branch offices located in Mt. Sterling (Brown County) and Macomb
and Bushnell (McDonough County). First Federal's primary deposit gathering and
lending area is concentrated in the communities surrounding its six banking
offices and, to a lesser extent, in the surrounding counties.
The market area served by First Federal is generally rural and has an
agriculturally-based economy. Adams County, which is home to the city of Quincy,
is a regional population and employment center for west central Illinois. Quincy
has a diverse employment base and serves as a center for education, healthcare
and related services.
COMPETITION
First Federal faces intense competition for the attraction of deposits
and origination of loans in its market area. Its most direct competition for
deposits has historically come from the several financial institutions operating
in First Federal's market area and, to a lesser extent, from other financial
service companies, such as brokerage firms, credit unions and insurance
companies. While those entities still provide a significant source of
competition for deposits, First Federal also currently faces significant
competition for deposits from the mutual fund industry as customers seek
alternative sources of investment for their funds. In this regard, First Federal
also faces competition for investors' funds from their direct purchase of
short-term money market securities and other corporate and government
securities. First Federal's competition for loans comes primarily from financial
institutions in its market area, and to a lesser extent from other financial
service providers, such as mortgage companies and mortgage brokers.
Additionally, competition for loans may increase due to the increasing number of
non-depository financial service companies entering the mortgage market, such as
insurance companies, securities companies and specialty
31
<PAGE>
finance companies. First Federal expects competition to increase in the future
as a result of legislative, regulatory and technological changes and the
continuing trend of consolidation in the financial services industry.
Technological advances, for example, have lowered barriers to entry, allowed
banks to expand their geographic reach by providing services over the Internet
and made it possible for non-depository institutions to offer products and
services that traditionally have been provided by banks. The Gramm-Leach-Bliley
Act, which permits affiliation among banks, securities firms and insurance
companies, also will change the competitive environment in which First Federal
conducts business. Some of the institutions with which First Federal competes
are significantly larger than First Federal and, therefore, have significantly
greater resources. Competition for deposits and the origination of loans could
limit First Federal's growth in the future. See "RISK FACTORS--STRONG
COMPETITION COULD HURT FIRST FEDERAL'S PROFITS."
LENDING ACTIVITIES
GENERAL. First Federal's loan portfolio primarily consists of one- to
four-family mortgage loans. To a lesser degree, First Federal's loan portfolio
also includes multi-family and commercial real estate loans, residential
construction loans, commercial business loans and a variety of consumer loans.
Most of First Federal's borrowers are located in the counties where its branches
are located and in the surrounding counties.
First Federal's loans are subject to federal laws and regulations.
Interest rates charged by First Federal on loans are affected principally by
First Federal's current asset/liability strategy, the demand for various types
of loans, the supply of money available for lending purposes and the rates
offered by competitors. These factors are, in turn, affected by general and
economic conditions, monetary policies of the federal government, including the
Federal Reserve Board, legislative tax policies and governmental budgetary
matters.
LOAN PORTFOLIO ANALYSIS. The following table presents the composition
of First Federal's loan portfolio at the dates indicated. First Federal had no
concentration of loans exceeding 10% of total loans receivable other than as
disclosed below.
<TABLE>
<CAPTION>
AT FEBRUARY 28/29,
-------------------------------------------------------------------------------------
2000 1999 1998 1997
------------------- ------------------ ------------------ ----------------------
PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------- -------- ------ -------- ------ -------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family ................$ 80,383 70.52% $ 76,452 74.76% $ 77,203 72.99% $ 75,947 74.10%
Multi-family and commercial ........ 15,580 13.67 12,767 12.49 14,922 14.11 13,999 13.66
Construction ....................... 1,675 1.47 645 0.63 1,912 1.81 1,883 1.84
-------- ------ -------- ------ -------- ------ -------- ------
Total real estate loans.. 97,638 85.66 89,864 87.88 94,037 88.91 91,829 89.60
Commercial loans .................... 3,885 3.41 532 0.52 469 0.44 610 0.60
Consumer and other loans:
Automobile ......................... 5,874 5.15 5,658 5.53 5,061 4.78 4,581 4.47
Home improvement ................... 2,434 2.14 2,276 2.23 2,513 2.38 2,382 2.32
Share loans ........................ 783 0.68 787 0.77 707 0.67 653 0.64
Other .............................. 3,379 2.96 3,141 3.07 2,984 2.82 2,429 2.37
-------- ------ -------- ------ -------- ------ -------- ------
Total consumer and
other loans............ 12,470 10.93 11,862 11.60 11,265 10.65 10,045 9.80
-------- ------ -------- ------ -------- ------ -------- ------
Total loans ................... 113,993 100.00% 102,258 100.00% 105,771 100.00% 102,484 100.00%
====== ====== ====== ======
Less:
Deferred loan origination fees
and discounts ..................... 92 33 (25) (60)
Allowance for loan losses .......... (483) (457) (486) (467)
-------- -------- -------- --------
Total loans, net .............$113,602 $101,834 $105,260 $101,957
======== ======== ======== ========
</TABLE>
32
<PAGE>
The following table presents certain information at February 29, 2000
regarding the dollar amount of loans maturing in First Federal's portfolio based
on their contractual terms to maturity or scheduled amortization, but does not
include potential prepayments. Demand loans, loans having no stated schedule of
repayments and no stated maturity, and overdrafts are reported as becoming due
in one year or less. Loan balances do not include undisbursed loan proceeds, net
deferred loan origination costs and allowance for loan losses.
<TABLE>
<CAPTION>
AT FEBRUARY 29, 2000
------------------------------------------------------------------------
MULTI-
ONE-TO FAMILY AND
FOUR- COMMERCIAL TOTAL
FAMILY REAL ESTATE CONSTRUCTION CONSUMER COMMERCIAL LOANS
-------- ----------- ------------ -------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Amounts due in:
One year or less ..................... $ 1,665 $ 1,247 $ 1,675 $ 1,879 $ 607 $ 7,073
More than one year to three years .... 7,524 2,624 -- 3,377 667 14,192
More than three years to five years... 16,996 5,465 -- 5,504 2,185 30,150
More than five years to 10 years ..... 4,757 1,624 -- 1,690 -- 8,071
More than 10 years to 15 years ....... 25,005 3,254 -- 20 426 28,705
More than 15 years ................... 24,436 1,366 -- -- -- 25,802
-------- -------- -------- -------- -------- --------
Total amount due ................ $ 80,383 $ 15,580 $ 1,675 $ 12,470 $ 3,885 $113,993
======== ======== ======== ======== ======== ========
</TABLE>
Scheduled contractual principal repayments of loans do not reflect the
actual life of the loans. The average life of a loan is substantially less than
its contractual term because of prepayments. In addition, due-on-sale clauses on
loans generally give First Federal the right to declare loans immediately due
and payable if, among other things, the borrower sells the real property with
the mortgage and the loan is not repaid. The average life of a mortgage loan
tends to increase, however, when current mortgage loan market rates are
substantially higher than rates on existing mortgage loans and, conversely,
tends to decrease when rates on existing mortgage loans are substantially higher
than current mortgage loan market rates.
The following table presents the dollar amount of all loans due after
February 29, 2000, which have fixed interest rates and floating or adjustable
interest rates. The total dollar amount of loans due after February 28, 2001
that have fixed interest rates is $46.4 million and those having adjustable
interest rates is $60.5 million.
<TABLE>
<CAPTION>
DUE AFTER FEBRUARY 29, 2000
-------------------------------
FIXED ADJUSTABLE TOTAL
--------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Real estate loans:
One- to four-family .......... $ 25,968 $ 54,415 $ 80,383
Multi-family and commercial... 10,264 5,316 15,580
Construction ................. 908 767 1,675
-------- -------- --------
Total real estate loans... 37,140 60,498 97,638
Consumer loans .................. 12,452 18 12,470
Commercial loans ................ 3,292 593 3,885
-------- -------- --------
Total loans ............... $ 52,884 $ 61,109 $113,993
======== ======== ========
</TABLE>
33
<PAGE>
ONE- TO FOUR-FAMILY REAL ESTATE LOANS. First Federal's primary lending
activity is the origination of loans secured by one- to four-family residences
located in its market area. First Federal's residential mortgage loans are
primarily structured as either one-year adjustable-rate mortgage loans or
five-year balloon loans. The loan fees charged, interest rates and other
provisions of First Federal's mortgage loans are determined by First Federal on
the basis of its own pricing criteria and market conditions.
First Federal's adjustable-rate mortgage loans are based on an
amortization schedule that ranges from 10 to 30 years. Interest rates and
payments on First Federal's adjustable-rate mortgage loans generally are
adjusted annually after one year based on the Federal Housing Finance Board's
national average mortgage contract rate for major lenders on the purchase of
previously occupied homes. The maximum amount by which the interest rate may be
increased or decreased on First Federal's adjustable-rate mortgage loans is 2%
per year and the lifetime interest rate cap is generally 5% over the initial
interest rate of the loan. First Federal qualifies the borrower based on the
borrower's ability to repay the loan based on the maximum interest rate at the
first adjustment. The terms and conditions of the adjustable-rate mortgage loans
offered by First Federal, including the index for interest rates, may vary from
time to time.
First Federal's balloon loans have a five-year term and payments based
on an amortization schedule of up to 30 years. The interest rate on First
Federal's balloon loans is fixed for the term of the loan. First Federal
typically notifies the borrower in writing 30 days before the end of the loan
term of the maturity of the loan and that the loan must be repaid or the term
extended. In most instances, a new rate is negotiated to meet market conditions
and an extension of the loan is executed for another five-year term with an
amortization schedule equal to the original amortization term less the prior
balloon term(s). First Federal generally does not extend the loan if the
borrower is delinquent or has had a poor payment history.
In January 2000, First Federal began offering 30-year fixed rate
mortgage loans through the Federal Home Loan Bank's Mortgage Partnership Finance
Program. Through this program, mortgage loans are funded and owned by the
Federal Home Loan Bank and serviced by First Federal. At February 29, 2000,
First Federal was servicing two loans originated through the Mortgage
Partnership Finance Program.
Most loans originated by First Federal conform to Fannie Mae and
Freddie Mac underwriting standards. However, First Federal also originates
residential mortgage loans that are not originated in accordance with the
purchase requirements of Freddie Mac or Fannie Mae. Although such loans satisfy
First Federal's underwriting requirements, they are considered "non-conforming"
because they do not satisfy collateral requirements, income and debt ratios,
acreage limits, insurance requirements or various other requirements imposed by
Freddie Mac and Fannie Mae. Accordingly, First Federal's non-conforming loans
could be sold only after incurring certain costs and/or discounting the purchase
price. First Federal, however, currently does not intend to sell its loans.
First Federal has historically found that its origination of non-conforming
loans has not resulted in high amounts of non-performing loans. In addition,
First Federal believes that these loans satisfy a need in First Federal's local
community. As a result, First Federal intends to continue to originate
non-conforming loans.
Adjustable-rate mortgage loans help reduce First Federal's exposure to
changes in interest rates. The retention of balloon loans in First Federal's
loan portfolio, which through the use of extension agreements function like
adjustable-rate mortgage loans, also helps reduce First Federal's exposure to
changes in interest rates. There are, however, unquantifiable credit risks
resulting from the potential of increased costs due to changed rates to be paid
by the borrower. It is possible that during periods of rising interest rates the
risk of default on adjustable-rate mortgage loans may increase as a result of
repricing and the increased payments required by the borrower. In addition,
although adjustable-rate mortgage loans make First Federal's asset base more
responsive to changes in interest rates, the extent of this interest sensitivity
is limited by the annual and lifetime interest rate adjustment limits. Because
of these considerations First Federal has no assurance that yields on
adjustable-rate mortgage loans will be sufficient to offset increases in First
Federal's cost of funds during periods of rising interest rates. First Federal
believes these risks, which have not had a material adverse effect on First
Federal to date, are less than the risks associated with holding fixed-rate
loans in its portfolio in a rising interest rate environment.
34
<PAGE>
First Federal requires all properties securing its mortgage loans to
be appraised by an approved independent state-certified and licensed appraiser.
First Federal's lending policies permit First Federal to lend up to 95% of the
appraised value of the property or the purchase price of the property, whichever
is less; however, First Federal generally requires private mortgage insurance on
the portion of the principal amount that exceeds 80% of the appraised value of
the property. First Federal also requires that fire, casualty, title, hazard
insurance and, if appropriate, flood insurance be maintained on most properties
securing real estate loans made by First Federal.
In an effort to provide financing for moderate income and first-time
home buyers, First Federal offers the Affordable Housing Loan Program through
the Illinois League of Financial Institutions and has its own first-time home
buyer loan program, the Community Home Buyer Program. First Federal offers
residential mortgage loans through these programs to qualified individuals and
originates the loans using modified underwriting guidelines. Most of these loans
have private mortgage insurance on the portion of the principal amount that
exceeds 80% of the appraised value of the property. At February 29, 2000 First
Federal had five and 235 loans originated through the Affordable Housing Loan
Program and the Community Home Buyer Program, respectively.
MULTI-FAMILY AND COMMERCIAL REAL ESTATE LOANS. First Federal originates
mortgage loans for the acquisition and refinancing of multi-family and
commercial real estate properties. In an effort to increase its emphasis on
commercial loans, First Federal hired an experienced commercial loan officer in
September 1999 with the primary responsibility of increasing commercial real
estate and business loan volume.
Most of the multi-family loans and commercial real estate loans
originated by First Federal are five-year balloon loans with payments based on
an amortization schedule of up to 20 years. Generally, the maximum loan-to-value
ratio for a multi-family or commercial real estate loan is 75%. First Federal
requires written appraisals prepared by an approved independent appraiser of all
properties located in Quincy, Illinois securing multi-family or commercial real
estate loans in amounts over $50,000 and all properties located in the remainder
of First Federal's market area securing multi-family or commercial real estate
loans in amounts over $5,000.
At February 29, 2000, First Federal's largest multi-family loan had a
balance of $304,000 and was secured by an apartment complex located in Phoenix,
Arizona. At February 29, 2000, this loan was performing according to its
original terms. At February 29, 2000, First Federal's commercial real estate
loans were secured by a variety of properties, including retail and small office
properties, farmland and churches. At February 29, 2000, First Federal's largest
commercial real estate loan had an outstanding balance of $889,000. The loan is
secured by a gas station/ convenience store located in Macomb, Illinois. At
February 29, 2000, this loan was performing according to its original terms.
Multi-family and commercial real estate lending affords First Federal
an opportunity to receive interest at rates higher than those generally
available from one- to four-family residential lending. However, loans secured
by these properties usually are greater in amount and are more difficult to
evaluate and monitor and, therefore, involve a greater degree of risk than one-
to four-family residential mortgage loans. Because payments on loans secured by
income producing properties are often dependent on the successful operation and
management of the properties, repayment of these loans may be affected by
adverse conditions in the real estate market or the economy. First Federal seeks
to minimize these risks by generally limiting the maximum loan-to-value ratio to
75% for multi-family and commercial real estate loans and by strictly
scrutinizing the financial condition of the borrower, the cash flow of the
project, the quality of the collateral and the management of the property
securing the loan. First Federal also attempts to minimize credit risk by
lending almost solely on local properties to businesses with which First Federal
is familiar. First Federal conducts a visual inspection for possible
environmental compliance concerns and requires an environmental audit with
respect to manufacturing facilities securing any loan over $200,000 and any
other property where the inspection discloses possible problems. First Federal
also generally obtains personal loan guarantees from financially capable
parties.
RESIDENTIAL CONSTRUCTION LOANS. First Federal originates construction
loans to professional builders and to individuals for the construction and
acquisition of personal residences. Most of First Federal's construction
35
<PAGE>
loans are made to individuals. First Federal's construction loans generally
provide for the payment of interest only during the construction phase, which is
usually six months. In the case of loans to individuals, at the end of the
construction phase, the loan converts to a permanent mortgage loan. Loans can be
made with a maximum loan to value ratio of 80%.
Before making a commitment to fund a construction loan, First Federal
requires an appraisal of the property by a licensed appraiser. First Federal
also reviews and inspects each property before disbursement of funds during the
term of the construction loan. Loan proceeds are disbursed after inspection
based on the percentage of completion.
Construction lending generally involves a higher degree of risk than
single-family permanent mortgage lending because of the greater potential for
disagreements between borrowers and builders and the failure of builders to pay
subcontractors. Additional risk often exists because of the inherent difficulty
in estimating both a property's value and the estimated cost of the property. If
the estimate of construction cost proves to be inaccurate, First Federal may be
required to advance funds beyond the amount originally committed to protect the
value of the property. If the estimate of value upon completion proves to be
inaccurate, First Federal may be confronted with a property whose value is
insufficient to assure full repayment. First Federal has attempted to minimize
the foregoing risks by, among other things, limiting its construction lending to
residential properties, limiting loans to builders for speculative construction
projects and by having all construction loans to individuals convert to
permanent mortgage loans at the end of the construction phase. It is also First
Federal's general policy to obtain regular financial statements and tax returns
from builders so that it can monitor their financial strength and ability to
repay.
COMMERCIAL BUSINESS LOANS. First Federal makes commercial business
loans in its market area to a variety of professionals, sole proprietorships,
partnerships and corporations. First Federal offers a variety of commercial
lending products that include term loans for equipment financing, term loans for
business acquisitions, inventory financing and revolving lines of credit. In
most cases, fixed-rate loans have terms up to 5 years and are fully amortizing.
Revolving lines of credit generally will have adjustable rates of interest and
are governed by a borrowing base certificate, payable on demand, subject to
annual review and renewal. Business loans with variable rates of interest adjust
on a daily basis and are generally indexed to the prime rate as published in THE
WALL STREET JOURNAL. Furthermore, as circumstances warrant, First Federal may
utilize a loan agreement for commercial loans. In an effort to increase its
emphasis on commercial loans, First Federal hired an experienced commercial loan
officer in September 1999 with the responsibility of developing a commercial
lending policy and increasing loan volume.
In making commercial business loans, First Federal considers a number
of factors, including the financial condition of the borrower, the nature of the
borrower's business, economic conditions affecting the borrower, First Federal's
market area, the management experience of the borrower, the debt service
capabilities of the borrower, the projected cash flows of the business and the
collateral. Commercial loans are generally secured by a variety of collateral,
including equipment, inventory and accounts receivable, and supported by
personal guarantees.
Unlike mortgage loans, which generally are made on the basis of the
borrower's ability to make repayment from his or her employment or other income,
and which are secured by real property whose value tends to be more easily
ascertainable, commercial loans are larger in amount and of higher risk and
typically are made on the basis of the borrower's ability to repay the loan from
the cash flow of the borrower's business. As a result, the availability of funds
for the repayment of commercial loans may be substantially dependent on the
success of the business itself. Further, any collateral securing such loans may
depreciate over time, may be difficult to appraise and may fluctuate in value.
To manage these risks, First Federal performs a credit analysis for each
commercial loan at least annually. At February 29, 2000, First Federal's largest
commercial loan was for $519,000 to a warehouse distribution company located in
Kirksville, Missouri. This loan was performing in accordance with its original
terms at February 29, 2000.
36
<PAGE>
CONSUMER LOANS. First Federal offers a variety of consumer loans,
including fully amortized home equity loans and second mortgage loans and
automobile loans.
First Federal offers fixed-rate home improvement loans with terms up to
eight years. The home improvement loans are FHA-insured loans in amounts up to
$25,000. The loan-to-value ratios of fixed-rate home improvement loans are
generally limited to 80%.
First Federal's second mortgage loans are generally either five-year
fixed-rate loans or five-year balloon loans. First Federal's second mortgages
are limited to existing First Federal customers. The underwriting standards
employed by First Federal for home equity loans and second mortgage loans
include a determination of the applicant's credit history, an assessment of the
applicant's ability to meet existing obligations and payments on the proposed
loan and the value of the collateral securing the loan.
First Federal also originates consumer loans secured by automobiles
and, occasionally, boats and other recreational vehicles. First Federal offers
fixed-rate automobile loans with terms of up to 60 months. Loan-to-value ratios
and maximum loan terms vary depending on the age of the vehicle. At February 29,
2000, automobile loans were 47% of First Federal's consumer loans.
Other consumer loans offered by First Federal include loans secured by
various personal property and share loans. Loans secured by personal property
generally have a fixed-rate and a maximum term of five years. Share loans are
secured by deposits at First Federal.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of loans that are unsecured or secured by rapidly
depreciating assets such as automobiles. In these cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss or depreciation. The remaining deficiency often does not warrant
further substantial collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
LOANS TO ONE BORROWER. The maximum amount that First Federal may lend
to one borrower is limited by regulation. At February 29, 2000, First Federal's
regulatory limit on loans to one borrower was $3.6 million. At that date, First
Federal's largest amount of loans to one borrower, including the borrower's
related interests, was approximately $3.1 million and consisted of commercial
real estate loans, commercial loans and a commercial working capital loan. These
loans were performing according to their original terms at February 29, 2000.
LOAN APPROVAL PROCEDURES AND AUTHORITY. First Federal's lending
activities follow written, non-discriminatory, underwriting standards and loan
origination procedures established by First Federal's Board of Directors and
management.
First Federal's policies and loan approval limits are established and
approved by the Board of Directors. With respect to residential mortgage loans,
at least two members of First Federal's loan approval committee must approve all
loans up to $300,000. All residential mortgage loans over $300,000 require prior
approval of the full Board of Directors.
With respect to commercial loans, including commercial mortgage loans,
all extensions of credit that would result in total exposure to First Federal of
$100,000 or less require the approval of the commercial loan manager or the
Chief Executive Officer. All extensions of credit that would result in total
exposure to First Federal of over $100,000 but no more than $500,000 require the
approval of the commercial loan manager and the Chief Executive Officer. All
extensions of credit that would result in total exposure to First Federal of
over $500,000 but no more than $1,000,000 require the approval of the commercial
loan manager, the Chief Executive Officer and the
37
<PAGE>
commercial loan committee. Credit extensions that would result in total exposure
to First Federal of more than $1,000,000 require the additional approval of the
Board of Directors.
Additionally, various bank personnel have been delegated authority to
approve consumer loans, including automobile loans. The Chief Executive Officer
reviews all consumer loan approvals after each loan is made.
LOAN ORIGINATIONS, PURCHASES AND SALES. First Federal's lending
activities are conducted by its employees operating through First Federal's
offices. First Federal relies on advertising, referrals from realtors and
customers, and personal contact by First Federal's staff to generate loan
originations. First Federal does not use loan correspondents or other
third-parties to originate loans and, in recent years, has not been an active
purchaser of loans. In the past, First Federal purchased whole loans and
participation interests in commercial and residential mortgage loans through a
mortgage company in Colorado. First Federal has also participated in a small
amount of loans through a group of institutions organized to lend to businesses
in the Quincy, Illinois business district. Subject to market conditions, the
existence of available funds and other factors, First Federal anticipates that
it will recommence purchasing loans later in 2000. Except for loans originated
through the Federal Home Loan Bank's Mortgage Partnership Finance Program, First
Federal generally retains for its portfolio all of the loans that it originates.
First Federal's ability to originate adjustable-rate and balloon loans is
dependent upon the relative customer demand for such loans, which is affected by
the current and expected future level of interest rates. As a result of the low
interest rate environment in recent years, First Federal has experienced a
decline in loan demand as customers have preferred fixed-rate, fully amortized
loans.
The following table presents total loans originated, purchased and
repaid during the periods indicated. First Federal did not sell any loans during
the periods indicated.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FEBRUARY 28/29,
-----------------------------------
2000 1999
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Loans at beginning of period .................. $ 102,258 $ 105,771
Originations:
Real estate:
One- to four-family .................. 11,797 12,870
Multi-family and commercial .......... 6,308 352
Construction ......................... 3,236 3,683
--------- ---------
Total real estate loans ........... 21,341 16,905
Consumer:
Home improvement ..................... 1,258 979
Automobile ........................... 3,824 3,864
Other ................................ 4,638 4,072
--------- ---------
Total consumer loans .............. 9,720 8,915
Commercial .............................. 6,754 1,562
--------- ---------
Total loans originated ............ 37,815 27,382
Loans purchased ............................... -- 275
Deduct:
Principal loan repayments and prepayments 26,044 30,988
Loan sales .............................. -- --
Transfers to REO ........................ 36 182
--------- ---------
Sub-total ......................... 26,080 31,170
--------- ---------
Net loan activity ............................. 11,735 (3,513)
--------- ---------
Loans at end of period .................. $ 113,993 $ 102,258
========= =========
</TABLE>
38
<PAGE>
LOAN COMMITMENTS. First Federal issues loan commitments to its
prospective borrowers conditioned on the occurrence of certain events.
Commitments are made in writing on specified terms and conditions and are
honored for up to 30 days from approval. At February 29, 2000, First Federal had
loan commitments and unadvanced loans and lines of credit totaling $4.5 million.
See note 10 of the notes to financial statements included in this prospectus.
LOAN FEES. In addition to interest earned on loans, First Federal
receives income from fees in connection with loan originations, loan
modifications, late payments and for miscellaneous services related to its
loans. Income from these activities varies from period to period depending upon
the volume and type of loans made and competitive conditions.
First Federal charges loan origination fees, which are calculated as a
percentage of the amount borrowed. As required by applicable accounting
principles, loan origination fees, discount points and certain loan origination
costs are deferred and recognized over the contractual remaining lives of the
related loans on a level yield basis. At February 29, 2000, First Federal had
$139,000 of net deferred loan costs.
NONPERFORMING ASSETS AND DELINQUENCIES. All loan payments are due on
the first day of each month. When a borrower on a residential mortgage loan
fails to make a required loan payment, First Federal attempts to cure the
deficiency by contacting the borrower and seeking the payment. A late notice is
mailed after 30 days of delinquency. In most cases, deficiencies are cured
promptly. A second notice is mailed after 60 days of delinquency and First
Federal follows up the second notice with a letter and a phone call to the
borrower. On or about the 90th day of delinquency, First Federal sends a third
late notice and a personal collection letter giving the borrower 10 days in
which to work out a payment schedule. On or about the 120th day of delinquency,
First Federal sends a final late notice and a compulsory collection letter from
First Federal's attorney warning the borrower of possible foreclosure if the
account is not brought up to date within 30 days. While First Federal generally
prefers to work with borrowers to resolve problems, First Federal will institute
foreclosure or other proceedings after five months of delinquency, as necessary,
to minimize any potential loss.
When a borrower on a consumer loan fails to make a required loan
payment, a late notice is mailed on the day after the payment is due. A second
notice is mailed after 10 days of delinquency and First Federal follows up with
a letter and a phone call to the borrower. Depending on the type of collateral,
First Federal may take action to repossess the property securing the loan.
A report listing all delinquent commercial loans and commercial real
estate loans is generated and reviewed by management, including the Board of
Directors, on a monthly basis. The procedures taken by First Federal with
respect to delinquencies vary depending on the nature of the loan and cause of
delinquency. When a commercial borrower fails to make a required payment on a
loan, First Federal takes a number of actions to have the debtor cure the
delinquency and return the account to current status. The commercial loan
department will send a written notice of non-payment after the payment or loan
is first past due. The commercial loan department will then via telephone,
written correspondence or face-to-face contact attempt to ascertain the reasons
for delinquency and the prospects for repayment. In the event that payment is
not received or not otherwise satisfied, additional telephone calls and letters
are generally made. If the loan is 90 days delinquent, First Federal will
commence legal proceedings.
Management informs the Board of Directors monthly of the amount of
loans delinquent more than 30 days, all loans in foreclosure, and all foreclosed
and repossessed property that First Federal owns.
First Federal ceases accruing interest on loans when principal or
interest payments are delinquent 90 days or more unless the loan is adequately
collateralized and in the process of collection. Once the accrual of interest on
a loan is discontinued, all interest previously accrued is reversed against
current period interest income once management determines that interest is
uncollectible.
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<PAGE>
The following table presents information with respect to First
Federal's nonperforming assets at the dates indicated.
<TABLE>
<CAPTION>
AT FEBRUARY 28/29
------------------------------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Accruing loans past due 90 days or more:
One- to four- family real estate ...... $ 875 $ 642 $ 911 $1,497 $ 420
Multi-family and commercial real estate -- -- 25 158 86
Consumer .............................. 105 121 165 245 121
Commercial ............................ -- -- -- -- --
------ ------ ------ ------ ------
Total 980 763 1,101 1,900 627
Non-accruing loans:
One- to four-family real estate ........ 32 17 18 98 238
Multi-family and commercial real estate -- -- -- -- --
Consumer ............................... -- 2 -- -- --
Commercial ............................. -- -- -- -- --
------ ------ ------ ------ ------
Total ............................... 32 19 18 98 238
Real estate owned (REO) ................... 48 60 25 106 288
Other repossessed assets .................. -- 15 33 22 --
------ ------ ------ ------ ------
Total nonperforming assets .......... 1,060 857 1,177 2,126 1,153
Troubled debt restructurings .............. -- -- -- -- --
====== ====== ====== ====== ======
Troubled debt restructurings and
total nonperforming assets .............. $1,060 $ 857 $1,177 $2,126 $1,153
====== ====== ====== ====== ======
Total nonperforming loans and
troubled debt restructurings as a
percentage of total loans ............... 0.89% 0.76% 1.06% 1.95% 0.90%
Total nonperforming assets and
troubled debt restructurings as a
percentage of total assets .............. 0.50% 0.43% 0.63% 1.18% 0.68%
</TABLE>
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<PAGE>
Interest income that would have been recorded for the year ended
February 29, 2000 had nonaccruing loans been current according to their original
terms amounted to approximately $11,000. Interest related to these loans of
$98,000 was included in interest income for the year ended February 29, 2000.
The following table sets forth the delinquencies in First Federal's
loan portfolio as of the dates indicated.
<TABLE>
<CAPTION>
AT FEBRUARY 28/29,
------------------------------------------------------------------------------------------
2000 1999
----------------------------------------------- ------------------------------------------
60-89 DAYS 90 DAYS OR MORE 60-89 DAYS 90 DAYS OR MORE
----------------------- ----------------------- --------------------- --------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL
OF BALANCE OF OF BALANCE OF OF BALANCE OF BALANCE
LOANS LOANS LOANS LOANS LOANS OF LOANS LOANS OF LOANS
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family 22 $ 577 22 $ 907 12 $ 296 20 $ 659
Multi-family and
commercial ..... 2 66 -- -- -- -- -- --
Construction ...... 1 70 -- -- -- -- -- --
Consumer loans:
Home improvement .. 3 11 4 17 1 1 7 33
Automobile ........ 11 86 15 60 10 47 12 61
Other ............. -- -- 2 28 2 47 3 29
Commercial loans ..... -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total .......... 39 $ 810 43 $1,012 25 $ 391 42 $ 782
====== ====== ====== ====== ====== ====== ====== ======
Delinquent loans to
total loans.. 0.71% 0.89% 0.38% 0.76%
</TABLE>
REAL ESTATE OWNED. Real estate acquired by First Federal as a
result of foreclosure or by deed-in-lieu of foreclosure is classified as real
estate owned until sold. When property is acquired it is recorded at the lower
of its cost, which is the unpaid principal balance of the loan plus foreclosure
costs, or fair market value at the date of foreclosure, establishing a new cost
basis. Holding costs and declines in fair value after acquisition of the
property result in charges to expense. At February 29, 2000, First Federal had
$48,000 in real estate owned, which consisted of a single-family residence.
ASSET CLASSIFICATION. Federal banking regulators have adopted
various regulations and practices regarding problem assets of savings
institutions. Under such regulations, examiners have authority to identify
problem assets during examinations and, if appropriate, require them to be
classified.
There are three classifications for problem assets: substandard,
doubtful and loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified as loss is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. If an asset or portion thereof is classified as loss, the insured
institution establishes specific allowances for loan losses for the full amount
of the portion of the asset classified as loss. All or a portion of general loan
loss allowances established to cover probable losses related to assets
classified substandard or doubtful can be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital. Assets that do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are designated "special mention." First Federal monitors "special mention"
assets.
41
<PAGE>
The following table presents classified assets at February 29, 2000.
<TABLE>
<CAPTION>
LOSS DOUBTFUL SUBSTANDARD SPECIAL MENTION
-------------------- -------------------- -------------------- -------------------
PRINCIPAL NUMBER OF PRINCIPAL NUMBER OF PRINCIPAL NUMBER OF PRINCIPAL NUMBER OF
BALANCE LOANS BALANCE LOANS BALANCE LOANS BALANCE LOANS
--------- --------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family $ -- -- -- -- $408 8 $ 33 3
Multi-family and
commercial ..... -- -- -- -- -- -- -- --
Construction ...... -- -- -- -- -- -- -- --
Consumer loans:
Home improvement .. 1 2 -- -- 16 4 -- --
Automobile ........ 26 8 -- -- 23 6 -- --
Share loans ....... -- -- -- -- -- -- -- --
Other ............. 24 1 -- -- 4 1 -- --
Commercial loans ..... -- -- -- -- -- -- -- --
---- ---- ---- ---- ---- ---- ---- ----
Total .......... $ 51 11 -- -- $451 19 $ 33 3
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
ALLOWANCE FOR LOAN LOSSES. In originating loans, First Federal
recognizes that losses will be experienced on loans and that the risk of loss
will vary with, among other things, the type of loan being made, the
creditworthiness of the borrower over the term of the loan, general economic
conditions and, in the case of a secured loan, the quality of the security for
the loan. First Federal maintains an allowance for loan losses to absorb losses
inherent in the loan portfolio. The allowance for loan losses represents
management's estimate of probable losses based on information available as of
the date of the financial statements. The allowance for loan losses is based on
management's evaluation of the collectibility of the loan portfolio, including
past loan loss experience, known and inherent risks in the nature and volume of
the portfolio, information about specific borrower situations and estimated
collateral values, and economic conditions.
The loan portfolio and other credit exposures are regularly reviewed by
management to evaluate the adequacy of the allowance for loan losses. The
methodology for assessing the appropriateness of the allowance includes
comparison to actual losses, peer group comparisons, industry data and economic
conditions. In addition, the regulatory agencies, as an integral part of their
examination process, periodically review First Federal's allowance for loan
losses. Such agencies may require First Federal to make additional provisions
for estimated losses based upon judgments different from those of management.
In connection with assessing the allowance, loss factors are applied to
various pools of outstanding loans. First Federal segregates the loan portfolio
according to risk characteristics (I.E., mortgage loans, business, consumer).
Loss factors are derived using First Federal's historical loss experience and
may be adjusted for significant factors that, in management's judgment, affect
the collectibility of the portfolio as of the evaluation date.
In addition, management assesses the allowance using factors that
cannot be associated with specific credit or loan categories. These factors
include management's subjective evaluation of local and national economic and
business conditions, portfolio concentration and changes in the character and
size of the loan portfolio. The allowance methodology reflects management's
objective that the overall allowance appropriately reflects a margin for the
imprecision necessarily inherent in estimates of expected credit losses.
At February 29, 2000, First Federal's allowance for loan losses
represented 0.42% of total loans and 47.73% of nonperforming loans. Although
management believes that it uses the best information available to establish the
allowance for loan losses, future adjustments to the allowance for loan losses
may be necessary and results of operations could be adversely affected if
circumstances differ substantially from the assumptions used in making the
determinations. Furthermore, while First Federal believes it has established its
existing allowance for loan losses in conformity with generally accepted
accounting principles, there can be no assurance that regulators, in reviewing
First Federal's loan portfolio, will not request First Federal to increase its
allowance for loan losses. In
42
<PAGE>
addition, because future events affecting borrowers and collateral cannot be
predicted with certainty, there can be no assurance that the existing allowance
for loan losses is adequate or that increases will not be necessary should the
quality of any loans deteriorate as a result of the factors discussed above. Any
material increase in the allowance for loan losses may adversely affect First
Federal's financial condition and results of operations.
The following table presents an analysis of First Federal's allowance
for loan losses.
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28/29,
-------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses,
beginning of year ...................... $ 457 $ 486 $ 467 $ 441 $ 517
Charged-off loans:
One- to four-family real estate ........ -- (89) -- -- (75)
Multi-family and commercial ............ -- -- -- -- --
Consumer ............................... (93) (73) (8) (2) (1)
----- ----- ----- ----- -----
Total charged-off loans ............. (93) (162) (8) (2) (76)
Recoveries on loans previously charged off:
One- to four-family real estate ........ -- 64 -- -- --
Multi-family and commercial ............ -- -- -- -- --
Consumer ............................... -- 63 -- -- --
----- ----- ----- ----- -----
Total recoveries .................... -- 127 -- -- --
----- ----- ----- ----- -----
Net loans charged-off ..................... (93) (35) (8) (2) (76)
Provision for loan losses ................. 119 6 27 27 1
----- ----- ----- ----- -----
Allowance for loan losses, end of
period ................................. $ 483 $ 457 $ 486 $ 467 $ 442
===== ===== ===== ===== =====
Allowance for loan losses to total
loans .................................. 0.42% 0.45% 0.46% 0.46% 0.46%
Allowance for loan losses to
nonperforming loans and
troubled debt restructurings ........... 47.73 58.44 43.43 23.37 50.98
Recoveries to charge-offs ................. 0.00 78.40 0.00 0.00 0.00
</TABLE>
For additional discussion regarding the provision for loan losses in
recent periods, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--FISCAL 2000 COMPARED WITH FISCAL 1999--PROVISION FOR
LOAN LOSSES."
43
<PAGE>
The following table presents the approximate allocation of the
allowance for loan losses by loan category at the dates indicated. Management
believes that the allowance can be allocated by category only on an approximate
basis. The allocation of the allowance to each category is not indicative of
future losses and does not restrict the use of any of the allowance to absorb
losses in any category.
<TABLE>
<CAPTION>
AT FEBRUARY 28/29,
------------------------------------------------------------------------------------------
2000 1999 1998
--------------------------- -------------------------- ---------------------------------
% OF PERCENT % OF PERCENT % OF PERCENT
ALLOWANCE OF LOANS ALLOWANCE OF LOANS ALLOWANCE OF LOANS
IN EACH IN EACH IN EACH IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS
------ --------- ----- ------ --------- ----- ------ --------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate ........ $207 42.86% 85.66% $180 39.39% 87.88% $197 40.53% 88.91%
Consumer ........... 151 31.26 10.93 142 31.07 11.60 151 31.07 10.65
Commercial ......... 85 17.60 3.41 -- -- 0.52 -- -- 0.44
Unallocated ........ 40 8.28 -- 135 29.54 -- 138 28.40 --
---- ------ ---- ------ ---- ------ ------
Total allowance
for loan losses $483 100.00% $457 100.00% $486 100.00%
==== ====== ==== ====== ==== ======
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------
1997 1996
------------------------------- ----------------------
% OF PERCENT % OF
ALLOWANCE OF LOANS ALLOWANCE
IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL
AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE
------ --------- ----- ------ ---------
<S> <C> <C> <C> <C> <C>
Real estate ........ $250 53.53% 89.60% $152 34.47%
Consumer ........... 182 38.97 9.80 140 31.75
Commercial ......... -- -- 0.60 -- --
Unallocated ........ 35 7.50 -- 150 33.79
---- ------ ------ ---- ------
Total allowance
for loan losses $467 100.00% $442 100.00%
==== ====== ==== ======
</TABLE>
44
<PAGE>
INVESTMENT ACTIVITIES
Under federal law, First Federal has authority to invest in various
types of liquid assets, including U.S. Government obligations, securities of
various federal agencies and of state and municipal governments, deposits at the
Federal Home Loan Bank of Chicago and certificates of deposit of federally
insured institutions. Within certain regulatory limits, First Federal may also
invest a portion of its assets in corporate securities, including non-mortgage,
asset-backed instruments. Savings institutions like First Federal are also
required to maintain an investment in Federal Home Loan Bank of Chicago stock.
First Federal is required under federal regulations to maintain a minimum amount
of liquid assets. See "REGULATION AND SUPERVISION" AND "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--LIQUIDITY AND
CAPITAL RESOURCES."
First Federal's Board of Directors has the overall responsibility for
First Federal's investment portfolio, including approval of First Federal's
investment policy and appointment of First Federal's Investment Committee. The
Board of Directors reviews, updates and approves First Federal's investment
policy at least quarterly. The Board of Directors also reviews on at least a
quarterly basis an investment activities reporting package prepared by the
Investment Committee, which provides portfolio activity, risk levels and
compliance with risk limits. The Investment Committee is responsible for
approving major policies for conducting investment activities, including the
establishment of risk limits and also ensures that management has the requisite
skills to manage the risks associated with approved investment activities. First
Federal's Chief Executive Officer is authorized to make investment decisions
consistent with First Federal's investment policy and the recommendations of
First Federal's Investment Committee and is primarily responsible for daily
investment activities. The Investment Committee generally meets monthly with the
Chief Executive Officer in order to review and determine investment strategies
and transactions.
First Federal's investment policy is designed to complement First
Federal's lending activities, provide an alternative source of income through
interest and dividends, diversify First Federal's assets and improve liquidity.
Investment decisions are made in accordance with First Federal's investment
policy and are based upon the quality of a particular investment, its inherent
risks, the composition of the balance sheet, market expectations, First
Federal's liquidity, income and collateral needs and how the investment fits
within First Federal's interest rate risk strategy.
The primary objective of the investment portfolio is to maintain an
adequate source of liquidity sufficient to meet regulatory and operating
requirements, and to safeguard against deposit outflows, reduced loan
amortization and increased loan demand. The investment portfolio primarily
includes debt issues and mortgage-backed securities. All of First Federal's
mortgage-backed securities are issued or guaranteed by agencies of the U.S.
Government. Accordingly, they carry lower credit risk than mortgage-backed
securities of a private issuer. However, mortgage-backed securities still carry
market risk, insofar as increases in market interest rates may cause a decrease
in market value, and prepayment risk, which is risk that the securities will be
repaid before maturity and that First Federal will have to reinvest the funds at
a lower interest rate.
First Federal's investment portfolio grew in 1997, 1998 and the first
half of 1999 due to the low interest rate environment. This low interest rate
environment led to a higher demand for long-term, fixed-rate loans, which First
Federal did not offer, and caused borrowers to refinance adjustable-rate
mortgage loans. Together, the decreased demand for First Federal loan products
and the refinancing of current loans caused an increase in liquidity at First
Federal, which First Federal invested in debt and mortgage-backed securities. As
market conditions permit, First Federal intends to use funds from the sale and
maturity of securities to make new loans or retire debt.
Generally accepted accounting principles require that securities be
categorized as either "held to maturity," "trading securities" or "available for
sale," based on management's intent as to the ultimate disposition of each
security. Debt securities may be classified as "held to maturity" and reported
in financial statements at amortized cost only if the reporting entity has the
positive intent and ability to hold those securities to maturity. Securities
that might be sold in response to changes in market interest rates, changes in
the security's prepayment risk, increases in loan demand, or other similar
factors cannot be classified as "held to maturity." Debt and equity securities
held for current resale are classified as "trading securities." These securities
are reported at fair value, and unrealized gains and losses on the securities
would be included in earnings. First Federal does not currently use or maintain
a trading account. Debt and equity securities not classified as either "held to
maturity" or "trading securities" are classified as
45
<PAGE>
"available for sale." These securities are reported at fair value, and
unrealized gains and losses on the securities are excluded from earnings and
reported, net of deferred taxes, as a separate component of equity.
At February 29, 2000, First Federal did not own any securities, other
than U.S. Government and agency securities, that had an aggregate book value in
excess of 10% of First Federal's retained earnings at that date.
The following table presents the amortized cost and fair value of First
Federal's securities, by type of security, at the dates indicated.
<TABLE>
<CAPTION>
AT FEBRUARY 28/29,
----------------------------------------------------
2000 1999
------------------------ ------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Securities:
Debt securities held-to-maturity:
Obligations of U.S. government agencies .... $ 55,801 $ 52,917 $ 45,996 $ 45,637
Other securities ........................... 1,329 1,328 1,432 1,443
-------- -------- -------- --------
Total ................................ 57,130 54,245 47,428 47,080
Debt securities available-for-sale:
Obligations of U.S. Treasury and U.S.
government agencies ...................... 4,000 3,787 3,000 2,996
Other securities ........................... 526 492 423 425
-------- -------- -------- --------
Total ................................ 4,526 4,279 3,423 3,421
Equity securities available-for-sale:
FHLB stock ................................. 894 894 930 930
FHLMC stock ................................ 26 1,110 26 1,532
U.S. government mortgage securities fund ...... 14,605 13,789 13,765 13,439
Adjustable rate mortgage securities fund ...... 2,093 2,068 1,000 1,000
-------- -------- -------- --------
Total equity securities available-for-sale 17,618 17,861 15,720 16,901
-------- -------- -------- --------
Total debt and equity securities ..... 79,274 76,385 66,572 67,402
Mortgage-related securities:
Mortgage-related securities held-to-
maturity:
FHLMC ...................................... 817 824 1,862 1,925
FNMA ....................................... 968 955 2,216 2,242
GNMA ....................................... 12 12 18 19
-------- -------- -------- --------
Total mortgage-related securities
held-to-maturity ..................... 1,797 1,791 4,096 4,186
Mortgage-related securities available-for-sale:
FHLMC ...................................... 3,669 3,657 1,476 1,478
FNMA ....................................... 2,369 2,255 2,874 2,858
GNMA ....................................... 1,434 1,390 1,939 1,964
-------- -------- -------- --------
Total mortgage-related securities
available-for-sale ..................... 7,472 7,302 6,289 6,300
-------- -------- -------- --------
Total mortgage-related securities .... 9,269 9,093 10,385 10,486
Net unrealized (losses) gains on
available-for-sale securities ......... (174) -- 1,189
-------- -------- -------- --------
Total securities ..................... $ 88,369 $ 85,478 $ 78,146 $ 77,888
======== ======== ======== ========
</TABLE>
46
<PAGE>
The following presents the activity in the securities and
mortgage-backed securities portfolios for the periods indicated.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
FEBRUARY 28/29,
------------------------------
2000 1999
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
MORTGAGE-RELATED SECURITIES:
Mortgage-related securities, beginning of period . $ 10,396 $ 14,957
Purchases:
Mortgage-related securities - held-to-maturity . -- --
Mortgage-related securities - available-for-sale 3,003 2,020
Sales:
Mortgage-related securities - available-for-sale -- --
Repayments and prepayments:
Mortgage-related securities .................... (4,136) (6,613)
Increase (decrease) in net discount .............. 17 53
Increase (decrease) in unrealized gain ........... (181) (21)
-------- --------
Mortgage-related securities, end of period ....... $ 9,099 $ 10,396
======== ========
SECURITIES:
Securities, beginning of period .................. $ 67,750 $ 47,978
Purchases:
Securities - held-to-maturity .................. 18,803 47,200
Securities - available-for-sale ................ 2,100 5,439
Reinvestment of dividends ...................... 933 717
Sales:
Securities - available-for-sale ................ -- --
Redemption of FHLB stock ......................... (35) --
Maturities and calls:
Securities - held-to-maturity .................. (9,103) (16,801)
Securities - available-for-sale ................ -- (16,996)
Increase (decrease) in net discount .............. 5 26
Increase (decrease) in unrealized gain ........... (1,183) 187
-------- --------
Securities, end of period ........................ $ 79,270 $ 67,750
======== ========
</TABLE>
47
<PAGE>
The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of First Federal's
securities and mortgage-related securities as of February 29, 2000.
<TABLE>
<CAPTION>
AT FEBRUARY 29, 2000
----------------------------------------------------------------------------------------
MORE THAN ONE YEAR MORE THAN FIVE YEARS
ONE YEAR OR LESS TO FIVE YEARS TO TEN YEARS MORE THAN TEN YEARS
----------------- ------------------- --------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
-------- -------- ------- -------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held-to-maturity securities:
Securities:
Municipal securities .... $ -- --% $ 1,060 4.95% $ 219 5.21% $ 50 6.00%
Obligations of U.S
Government agencies .... 999 6.25 36,997 6.06 17,805 6.36 -- --
Mortgage-related
securities ............... -- -- 1,500 6.85 290 7.57 7 12.00
---- ------- ------ ------
Total securities
at amortized cost .... $ 999 6.25 $39,557 6.06 $18,314 6.37 $ 57 6.84
==== ======= ======= =======
Available-for-sale
securities:
Securities:
Obligations of the U.S.
Treasury ............... $ -- --% $ -- --% $ -- --% $ -- --%
Municipals ............. -- -- -- -- 492 4.48 -- --
Obligations of U.S.
Government agencies .... -- -- -- -- 3,787 6.45 -- --
Equity securities ....... -- -- -- -- -- -- 17,861 6.84
Mortgage-related securities 1,296 5.50 25 8.00 2,190 6.40 3,791 6.15
----- ------- ------- -------
Total securities
at fair value ......... $ 1,296 5.50 $ 25 8.00 $ 6,469 6.30 $21,652 6.55
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
TOTAL
------------------
WEIGHTED
CARRYING AVERAGE
VALUE YIELD
------- -------
<S> <C> <C>
Held-to-maturity securities:
Securities:
Municipal securities .... $ 1,329 5.03%
Obligations of U.S
Government agencies .... 55,801 6.16
Mortgage-related
securities ............... 1,797 7.04
-------
Total securities
at amortized cost .... $58,927 6.16
=======
Available-for-sale
securities:
Securities:
Obligations of the U.S.
Treasury ............... $ -- --%
Municipals ............. 492 4.48
Obligations of U.S.
Government agencies .... 3,787 6.45
Equity securities ....... 17,861 6.64
Mortgage-related securities 7,302 6.12
-------
Total securities
at fair value ......... $29,442 6.44
=======
</TABLE>
DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS
GENERAL. Deposits are the major external source of funds for First
Federal's lending and other investment activities. In addition, First Federal
also generates funds internally from loan principal repayments and prepayments
and maturing securities. Scheduled loan repayments are a relatively stable
source of funds, while deposit inflows and outflows and loan prepayments are
influenced significantly by general interest rates and money market conditions.
First Federal may use borrowings from the Federal Home Loan Bank of Chicago to
compensate for reductions in the availability of funds from other sources.
Presently, First Federal has no other borrowing arrangements aside from the
Federal Home Loan Bank.
DEPOSIT ACCOUNTS. Nearly all of First Federal's depositors reside in
Illinois, Missouri or Iowa. First Federal offers a wide variety of deposit
accounts with a range of interest rates and terms. First Federal's deposit
accounts consist of a variety of savings accounts, checking and NOW accounts,
certificates of deposit, individual retirement accounts and money market
accounts. The maturities of First Federal's certificate of deposit accounts
range from 91 days to four years. Deposit account terms vary with the principal
differences being the minimum balance deposit, early withdrawal penalties,
limits on the number of transactions and the interest rate. First Federal
reviews its deposit mix and pricing weekly.
48
<PAGE>
First Federal believes it is competitive in the interest rates it
offers on its deposit products. First Federal determines the rates paid based on
a number of factors, including rates paid by competitors, First Federal's need
for funds and cost of funds, borrowing costs and movements of market interest
rates. First Federal does not utilize brokers to obtain deposits and at February
29, 2000 had no brokered deposits.
In the unlikely event First Federal is liquidated after the conversion,
depositors will be entitled to full payment of their deposit accounts before any
payment is made to First Federal Bancshares as the sole stockholder of First
Federal.
The following table indicates the amount of First Federal's jumbo
certificates of deposits by time remaining until maturity as of February 29,
2000. Jumbo certificates of deposits have principal balances of $100,000 or
more.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
MATURITY PERIOD AMOUNT RATE
------------------------------ ------------------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Three months or less ... $2,471 5.10%
Over 3 through 6 months 2,531 5.04
Over 6 through 12 months 8,282 5.71
Over 12 months ......... 3,795 5.45
-------
Total......... $17,079 5.49
=======
</TABLE>
The following table presents the deposit activity of First Federal for
the periods indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FEBRUARY 28/29,
------------------------------------------------
2000 1999
-------------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Beginning balance .......................... $ 176,682 $ 162,824
Increase (decrease) before interest credited (1,091) 6,985
Interest credited .......................... 6,981 6,873
--------- ---------
Net increase ............................... 5,890 13,858
--------- ---------
Ending balance ............................. $ 182,572 $ 176,682
========= =========
</TABLE>
49
<PAGE>
The following table sets forth the balances and changes in dollar
amounts in the various accounts offered by First Federal between the dates
indicated.
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28/29,
------------------------------------------------------------------
2000 1999
--------------------------------------- ------------------------
PERCENT INCREASE/ PERCENT
AMOUNT OF TOTAL (DECREASE) AMOUNT OF TOTAL
---------- ---------- ------------ ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Savings accounts ..................... $ 19,555 10.71% $ (1,205) $ 20,760 11.75%
Money market deposits ................ 18,317 10.03 7,064 11,253 6.37
NOW accounts ......................... 17,275 9.46 1,633 15,642 8.85
Certificates maturing:
Within 1 year ..................... 98,893 54.17 16,488 82,405 46.64
After 1 year, but within 2 years... 22,754 12.46 (12,613) 35,367 20.02
After 2 years, but within 5 years.. 4,363 2.39 (6,217) 10,580 5.99
-------- ------ -------- -------- ------
Total certificates ............. 126,010 69.02 (2,342) 128,352 72.65
Noninterest-bearing deposits ......... 1,415 0.78 741 674 0.38
-------- ------ -------- -------- ------
Total .......................... $182,572 100.00% $ 5,891 $176,681 100.00%
======== ====== ======== ======== ======
</TABLE>
BORROWINGS. First Federal has the ability to use advances from the
Federal Home Loan Bank of Chicago to supplement its supply of lendable funds and
to meet deposit withdrawal requirements. The Federal Home Loan Bank of Chicago
functions as a central reserve bank providing credit for savings banks and
certain other member financial institutions. As a member of the Federal Home
Loan Bank of Chicago, First Federal is required to own capital stock in the
Federal Home Loan Bank of Chicago and is authorized to apply for advances on the
security of the capital stock and certain of its mortgage loans and other
assets, principally securities that are obligations of, or guaranteed by, the
U.S. Government or its agencies, provided certain creditworthiness standards
have been met. Advances are made under several different credit programs. Each
credit program has its own interest rate and range of maturities. Depending on
the program, limitations on the amount of advances are based on the financial
condition of the member institution and the adequacy of collateral pledged to
secure the credit. At February 29, 2000, First Federal had the ability to borrow
a total of approximately $17.9 million from the Federal Home Loan Bank of
Chicago.
The following tables presents certain information regarding First
Federal's use of Federal Home Loan Bank of Chicago advances during the periods
and at the dates indicated.
<TABLE>
<CAPTION>
AT OR FOR THE YEARS
ENDED FEBRUARY 28/29,
---------------------------------
2000 1999
--------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
FHLB advances and other borrowings:
Average balance outstanding ................................. $ 5,498 --
Maximum amount outstanding at any month-end during the period 14,000 --
Balance outstanding at end of period ........................ 6,000 --
Weighted average interest rate during the period ............ 5.79% --
Weighted average interest rate at end of period ............. 6.16 --
</TABLE>
50
<PAGE>
PROPERTIES
First Federal currently conducts its business through its main office
located in Colchester, Illinois, and five other full-service banking offices,
all of which it owns. First Federal is considering construction of a building on
property that it owns in Quincy to house its commercial loan department and
corporate offices. First Federal has not developed any plans for the facility or
estimates of construction cost.
<TABLE>
<CAPTION>
NET BOOK VALUE
OF PROPERTY
OR LEASEHOLD
IMPROVEMENTS
YEAR SQUARE AT FEBRUARY 29,
LOCATION ACQUIRED FOOTAGE 2000
- ------------------------------------ -------------- ---------------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C>
109 East Depot Street
Colchester, Illinois 62326 1940 6,000 $ 52
2001 Maine Street
Quincy, Illinois 62301 1977 4,000 289
101 North 36th Street
Quincy, Illinois 62301 1988 1,400 475
201 West Main Street
Mt. Sterling, Illinois 62353 1978 1,476 31
430 West Jackson Street
Macomb, Illinois 61455 1984 6,000 423
190 East Hurst Street
Bushnell, Illinois 61422 1989 2,000 144
------
$1,414
======
</TABLE>
PERSONNEL
As of February 29, 2000, First Federal had 48 full-time employees and
four part-time employees, none of whom is represented by a collective bargaining
unit. First Federal believes its relationship with its employees is good.
LEGAL PROCEEDINGS
Periodically, there have been various claims and lawsuits involving
First Federal, such as claims to enforce liens, condemnation proceedings on
properties in which First Federal holds security interests, claims involving the
making and servicing of real property loans and other issues incident to First
Federal's business. First Federal is not a party to any pending legal
proceedings that it believes would have a material adverse effect on the
financial condition or operations of First Federal.
51
<PAGE>
MANAGEMENT OF FIRST FEDERAL BANCSHARES
Directors will be elected by the stockholders of First Federal
Bancshares for staggered three-year terms, or until their successors are elected
and qualified. First Federal Bancshares' Board of Directors consists of seven
persons divided into three classes, each of which contains approximately one
third of the Board. One class, consisting of Dr. Stephan L. Roth and Richard D.
Stephens, has a term of office expiring at the first annual meeting of
stockholders; a second class, consisting of Murrel Hollis and Franklin M.
Hartzell, has a term of office expiring at the second annual meeting of
stockholders; and a third class, consisting of Gerald L. Prunty, Eldon M.
Snowden and James J. Stebor, has a term of office expiring at the third annual
meeting of stockholders. Mr. Hartzell serves as Chairman of the Board of
Directors.
The executive officers of First Federal Bancshares are elected annually
and hold office until their respective successors have been elected and
qualified or until death, resignation or removal by the Board of Directors. The
executive officers of First Federal Bancshares are:
<TABLE>
<CAPTION>
NAME POSITION
- ------- --------
<S> <C>
James J. Stebor President and Chief Executive Officer
Cathy D. Pendell Treasurer
Ronald A. Feld Corporate Secretary
</TABLE>
Since the formation of First Federal Bancshares, none of the executive
officers, directors or other personnel has received remuneration from First
Federal Bancshares. For information concerning the principal occupations,
employment and compensation of the directors and executive officers of First
Federal Bancshares during the past five years, see "MANAGEMENT OF FIRST FEDERAL
BANK--BIOGRAPHICAL INFORMATION."
The Board of Directors of First Federal Bancshares has established an
Audit Committee consisting of the entire Board of Directors, a Compensation
Committee consisting of Messrs. Roth, Stephens, Hollis, Hartzell, Prunty and
Snowden, and a Nominating Committee consisting of Messrs. Hartzell, Prunty,
Stephens and Hollis.
All of the members of the Audit Committee except for Mr. Stebor are
independent within the meaning of the National Association of Securities
Dealers' listing standards. The Audit Committee will be responsible for
recommending to the Board the independent accounting firm to be retained for the
coming year. The Audit Committee will meet periodically with the independent
accountants and management to review accounting, auditing, internal control
structure and financial reporting matters. The Board of Directors has adopted a
written charter for the Audit Committee.
52
<PAGE>
MANAGEMENT OF FIRST FEDERAL BANK
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of First Federal presently is composed of seven
members who are elected for terms of three years, approximately one third of
whom are elected annually as required by the Bylaws of First Federal. The
executive officers of First Federal are elected annually by the Board of
Directors and serve at the Board's discretion. The following tables present
information with respect to the directors and executive officers of First
Federal. Ages presented are as of February 29, 2000.
<TABLE>
<CAPTION>
DIRECTORS
DIRECTOR TERM
NAME AGE POSITION HELD WITH FIRST FEDERAL SINCE EXPIRES
- -------- ------- ----------------------------------- -------- ----------
<S> <C> <C> <C> <C>
Franklin M. Hartzell 76 Director 1965 2002
Murrel Hollis 59 Director 1992 2002
Gerald L. Prunty 71 Chairman of the Board 1967 2003
Dr. Stephan L. Roth 74 Director 1976 2001
Eldon M. Snowden 80 Director 1967 2003
James J. Stebor 50 President and Director 1990 2003
Richard D. Stephens 72 Director 1966 2001
</TABLE>
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION HELD WITH FIRST FEDERAL
- -------- ------- -----------------------------------
<S> <C> <C>
Peggy L. Higgins 46 Senior Vice President, Accounting
Cathy D. Pendell 40 Senior Vice President, Accounting
Millie R. Shields 40 Senior Vice President, Compliance
Ronald A. Feld 57 Vice President, Secretary and Branch Manager
</TABLE>
BIOGRAPHICAL INFORMATION
Below is certain information regarding the directors and executive
officers of First Federal. Unless otherwise stated, each director and executive
officer has held his or her current occupation for at least the last five years.
FRANKLIN M. HARTZELL is a partner in the law firm of Hartzell, Glidden,
Tucker & Hartzell in Carthage, Illinois. Mr. Hartzell also serves as a director
and secretary of Pioneer Lumber Company, located in Dallas City, Illinois.
MURREL HOLLIS is a partner and funeral director of Martin-Hollis
Funeral Home in Bushnell, Illinois.
GERALD L. PRUNTY served as President of First Federal from 1969 until
his retirement in 1994.
DR. STEPHAN L. ROTH is a retired family physician.
ELDON M. SNOWDEN is a retired general manager and chief operating
officer of McDonough Telephone Cooperative.
JAMES J. STEBOR has served as President of First Federal since 1994.
Mr. Stebor has been employed by First Federal since 1977.
RICHARD D. STEPHENS is a retired attorney serving as Of Counsel to the
law firm of Flack, McRaven & Stephens in Macomb, Illinois.
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KEY EMPLOYEES WHO ARE NOT DIRECTORS
PEGGY L. HIGGINS has served as Senior Vice President of First Federal
since 1998. Prior to becoming Senior Vice President, Ms. Higgins served as a
Vice President. She has been affiliated with First Federal since 1976.
CATHY D. PENDELL has served as Senior Vice President of First Federal
since 1998. Prior to becoming Senior Vice President, Ms. Pendell served as a
Vice President. She has been affiliated with First Federal since 1976. Ms.
Pendell is a certified public accountant.
MILLIE R. SHIELDS has served as Senior Vice President of First Federal
since 1998. Prior to becoming Senior Vice President, Ms. Shields served as a
Vice President. She has been affiliated with First Federal since 1978.
RONALD A. FELD has served as Vice President and Secretary of First
Federal since 1987 and 1990, respectively. In 1995, Mr. Feld became Branch
Manager of First Federal's Colchester office. He has been affiliated with First
Federal since 1984.
MARK A. TYRPIN joined First Federal in September 1999 as Vice President
and head of the commercial loan department. From 1990 until joining First
Federal, Mr. Tyrpin was commercial loan manager with Bank of America (formerly,
NationsBank).
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held 12 regular meetings and five special
meetings during the fiscal year ended February 29, 2000. The Board of Directors
has designated three principal standing committees. The current members and
functions of those committees are as follows:
The Audit Committee consists of the entire Board of Directors. The
committee receives and reviews all reports prepared by First Federal's
independent auditor.
The Investment Committee consists of Messrs. Hartzell, Prunty, Snowden,
Stebor and Stephens. This committee adopts and reviews the policies and
procedures of the investment management of First Federal.
The Executive Committee consists of Messrs. Hartzell, Prunty, Snowden
and Stebor. This committee evaluates issues of major importance to First Federal
between regularly scheduled Board meetings and reviews and approves loan
applications that do not require the approval of the full Board of Directors.
Designated members of management sit on this committee for the purpose of
reviewing and approving loan applications.
In addition, First Federal has established a Nominating Committee.
DIRECTORS' COMPENSATION
First Federal pays a fee of $700 to each of its directors for
attendance at each board meeting. In addition, each member of the Loan Committee
receives a fee of $25 for each committee meeting attended. First Federal also
pays an annual salary of $5,000 to the Chairman of the Board. After the
conversion, First Federal will continue to pay directors fees and, initially,
First Federal Bancshares will not pay separate fees for service on its Board of
Directors. In addition, after the conversion, First Federal will cease paying a
salary to its Chairman of the Board and First Federal Bancshares will pay an
annual salary of $5,000 to its Chairman of the Board.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following information is furnished for
Mr. Stebor for the fiscal year ended February 29, 2000. No other executive
officer of First Federal received salary and bonus of $100,000 or more during
the fiscal year ended February 29, 2000.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1)
-----------------------------------------------------------
OTHER ANNUAL
NAME AND FISCAL COMPENSATION ALL OTHER
POSITION YEAR SALARY BONUS (2) COMPENSATION
- --------------------------------- ------------- ------------- ---------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
James J. Stebor..................... 2000 $103,790 $10,379 $10,150(3) --
President and Chief Executive Officer
</TABLE>
- ---------------------------------
(1) Compensation information for the fiscal years ended February 28, 1999
and 1998 has been omitted as First Federal was neither a public company
nor a subsidiary of a public company at that time.
(2) Does not include the aggregate amount of perquisites and other personal
benefits, which was less than $50,000 or 10% of the total annual salary
and bonus reported.
(3) Consists of directors' and loan committee fees.
EMPLOYMENT AGREEMENTS. Upon the completion of the conversion, First
Federal and First Federal Bancshares each intend to enter into employment
agreements with Mr. Stebor. The employment agreements are intended to ensure
that First Federal and First Federal Bancshares will be able to retain the
services of Mr. Stebor after the conversion. The continued success of First
Federal and First Federal Bancshares depends to a significant degree on the
skills and competence of Mr. Stebor.
The employment agreements will provide for a three-year term. The term
of the First Federal Bancshares employment agreement will extend on a daily
basis until written notice of non-renewal is given by the Board of Directors or
Mr. Stebor. The term of the First Federal employment agreement will be renewable
on an annual basis. The employment agreements provide that Mr. Stebor's base
salary will be reviewed annually. The initial base salary under the employment
agreements for Mr. Stebor will be $110,000. In addition to the base salary, the
employment agreements provide for, among other things, participation in stock
benefits plans and other fringe benefits applicable to executive personnel. The
employment agreements provide for termination by First Federal or First Federal
Bancshares for cause, as defined in the employment agreements, at any time. If
First Federal or First Federal Bancshares chooses to terminate Mr. Stebor's
employment for reasons other than for cause, or if Mr. Stebor resigns from First
Federal or First Federal Bancshares after specified circumstances that would
constitute constructive termination, Mr. Stebor or, if Mr. Stebor dies, his
beneficiary, would be entitled to receive an amount equal to the benefit plan
base salary payments that would have been paid to Mr. Stebor for the remaining
term of the employment agreement and the contributions that would have been made
on Mr. Stebor's behalf to any employee benefit plans of First Federal and First
Federal Bancshares during the remaining term of the employment agreement. First
Federal and First Federal Bancshares would also continue to pay for Mr. Stebor's
health and welfare benefit plan coverage for the remaining term of the
employment agreement. Upon termination of Mr. Stebor for reasons other than
cause or a change in control, Mr. Stebor must adhere to a one-year
non-competition agreement.
Under the employment agreements, if, following a change in control of
First Federal or First Federal Bancshares, Mr. Stebor's employment is
involuntarily terminated or if Mr. Stebor voluntarily terminates his employment
in connection with circumstances specified in the agreement, then Mr. Stebor or,
if Mr. Stebor dies, his beneficiary, would be entitled to a severance payment
equal to the greater of the payments and benefits that would have been paid for
the remaining term of the agreement or three times the average of Mr. Stebor's
five preceding taxable years' annual compensation. First Federal and First
Federal Bancshares would also continue Mr. Stebor's health and welfare benefits
coverage for thirty-six months. Even though both employment agreements provide
for a severance payment if a change in control occurs, Mr. Stebor would not
receive duplicate payments or benefits under the agreements. Under applicable
law, an excise tax would be triggered by change in control-related payments that
equal or exceed three times Mr. Stebor's average annual compensation over the
five years preceding the change in control. The excise tax would equal 20% of
the amount of the payment in excess of one times Mr. Stebor's average
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compensation over the preceding five-year period. In the event that payments
related to a change in control of First Federal Bancshares are subject to this
excise tax, First Federal Bancshares will provide Mr. Stebor with an additional
amount sufficient to enable Mr. Stebor to retain the full value of his change in
control benefits as if the excise tax had not applied. If a change in control of
First Federal and First Federal Bancshares occurred, the total amount of
payments due under the employment agreements, based solely on Mr. Stebor's cash
compensation received in the fiscal year ending February 29, 2000 (and without
regard to future base salary adjustments or bonuses and excluding any benefits
under any employee benefit plan which may be payable), would be approximately
$327,000.
First Federal Bancshares will guarantee the payments to Mr. Stebor
under First Federal's employment agreement if they are not paid by First
Federal. First Federal Bancshares will also make all payment due under the First
Federal Bancshares' employment agreement. First Federal or First Federal
Bancshares will pay or reimburse all reasonable costs and legal fees incurred by
Mr. Stebor under any dispute or question of interpretation relating to the
employment agreements, if Mr. Stebor is successful on the merits in a legal
judgment, arbitration or settlement. The employment agreements also provide that
First Federal and First Federal Bancshares will indemnify Mr. Stebor to the
fullest extent legally allowable for all expenses and liabilities he may incur
in connection with any suit or proceeding in which he may be involved by reason
of his having been a director or officer of First Federal Bancshares or First
Federal.
CHANGE IN CONTROL AGREEMENTS. Upon the completion of the conversion,
First Federal intends to enter into change in control agreements with four
senior officers who will not be covered by an employment agreement. Each change
in control agreement will be renewable on an annual basis. The change in control
agreements will have terms of two or three years. The change in control
agreements will provide that if involuntary termination, other than for cause,
or voluntary termination (upon the occurrence of circumstances specified in the
agreements) follows a change in control of First Federal and First Federal
Bancshares, the officers would be entitled to receive a severance payment equal
to two or three times their average annual compensation for the five most recent
taxable years. First Federal would also continue to pay for the officers' health
and welfare benefits coverage for 36 months following termination. If a change
in control of First Federal and First Federal Bancshares occurred and all
officers covered by such agreements were terminated, the total payments that
would be due under the change in control agreements, based solely on the cash
compensation paid in the fiscal year ended February 29, 2000 to the officers
covered by the change in control agreements and excluding any benefits under any
employee benefit plan which may be payable, would equal approximately $497,000.
EMPLOYEE SEVERANCE COMPENSATION PLAN. First Federal's Board of
Directors intends to adopt an employee severance compensation plan in connection
with the conversion. The severance plan will provide benefits to eligible
employees upon a change in control of First Federal Bancshares or First Federal.
First Federal expects eligible employees to include those employees who have
completed a minimum of one year of service with First Federal. Eligible
employees will not include any individual who enters into an employment or
change in control agreement with First Federal or First Federal Bancshares.
Under the severance plan, if a change in control of First Federal Bancshares or
First Federal occurs, eligible employees whose employment is terminated or who
terminate employment upon the occurrence of events specified in the severance
plan, within 12 months of the effective date of a change in control will be
entitled to a severance payment based on the individual's compensation and years
of service. Generally, the severance benefit equals two weeks compensation for
each year of service, up to a maximum of 12 months compensation. Assuming that a
change in control had occurred at February 29, 2000, and resulted in the
termination of all eligible employees, the maximum aggregate payment due under
the severance plan would be approximately $327,000.
BENEFITS
PENSION PLAN. First Federal participates in a multiple-employer defined
benefit pension plan known as the Financial Institutions Retirement Fund.
Generally, salaried employees of First Federal become members of the pension
plan upon the completion of one year of service with First Federal (as described
in the plan document adopted by First Federal) and the attainment of age 21.
First Federal makes annual contributions to the Financial Institutions
Retirement Fund sufficient to fund retirement benefits for its employees, as
determined in accordance with a formula set forth in the plan document.
Participants generally become vested in their accrued benefits under the pension
plan after completing five years of vesting service (as described in the plan
document). In general,
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accrued benefits under the pension plan, including reduced benefits payable upon
early retirement or in the event of a disability, are based on an individual's
years of benefit service (as described in the plan document) and the average of
the individual's highest five years' salary (as described in the plan document).
A participant's normal amount of retirement benefit equals 2% multiplied by his
years of benefit service multiplied by his high five-year average salary.
EMPLOYEE STOCK OWNERSHIP PLAN. In connection with the conversion, First
Federal's Board of Directors has authorized the adoption of an employee stock
ownership plan for employees of First Federal and First Federal Bancshares.
Generally, salaried employees of First Federal Bancshares and First Federal will
become eligible to participate in the employee stock ownership plan upon the
completion of one-year of service and attainment of age 21; PROVIDED, HOWEVER,
that all salaried employees who are aged 21 and employed at the date of the
conversion will immediately become participants in the plan.
First Federal Bancshares intends for the trustee of the employee stock
ownership plan to purchase 8% of the shares issued in the conversion. This would
range between 132,600 shares, assuming 1,657,500 shares are issued in the
conversion, and 179,400 shares assuming 2,242,500 shares are issued in the
conversion. It is anticipated that the employee stock ownership plan will borrow
funds from First Federal Bancshares to purchase the stock in the conversion. The
loan will equal 100% of the aggregate purchase price of the common stock. The
loan to the employee stock ownership plan will be repaid principally from First
Federal's contributions to the employee stock ownership plan and dividends
payable on common stock held by the employee stock ownership plan over the
anticipated __-year term of the loan. The interest rate for the employee stock
ownership plan loan is expected to be the prime rate as published in THE WALL
STREET JOURNAL on the closing date of the conversion. See "PRO FORMA DATA." If
the employee stock ownership plan is unable to acquire 8% of the common stock
sold in the offering, it is anticipated that additional shares may be acquired
following the conversion through open market purchases, subject to approval by
the Office of Thrift Supervision.
In any plan year, First Federal may make additional discretionary
contributions (beyond those necessary to satisfy the loan obligation) to the
employee stock ownership plan for the benefit of plan participants in either
cash or shares of common stock, which may be acquired through the purchase of
outstanding shares in the market or from individual stockholders or which
constitute authorized but unissued shares or shares held in treasury by First
Federal Bancshares. The timing, amount, and manner of discretionary
contributions will be affected by several factors, including applicable
regulatory policies, the requirements of applicable laws and regulations, and
market conditions. First Federal's contributions to the employee stock ownership
plan are not fixed, so benefits payable under the employee stock ownership plan
cannot be estimated.
Shares purchased by the employee stock ownership plan with the proceeds
of the loan from First Federal Bancshares will be held in a suspense account and
released on a pro rata basis as the loan is repaid. Discretionary contributions
to the employee stock ownership plan and shares released from the suspense
account will be allocated among participants on the basis of each participant's
proportional share of compensation.
Participants will vest in their accrued benefits under the employee
stock ownership plan at the rate of 20% per year of service, beginning upon the
completion of one year of service. Participants who are employed at the
completion of the conversion will be fully vested in their accounts. A
participant will also become fully vested at retirement, upon death or
disability, a change in control or upon termination of the employee stock
ownership plan. Benefits are generally distributable upon a participant's
separation from service. Any forfeitures will be reallocated among the remaining
plan participants.
It is anticipated that First Federal will appoint an independent
trustee. The trustees vote all allocated shares held in the employee stock
ownership plan as instructed by the plan participants and unallocated shares and
allocated shares for which no instructions are received must be voted in the
same ratio on any matter as those shares for which instructions are given,
subject to the fiduciary responsibilities of the trustee.
Under applicable accounting requirements, compensation expense for a
leveraged employee stock ownership plan is recorded at the fair market value of
the employee stock ownership plan shares when committed to be released to
participants' accounts. See "PRO FORMA DATA."
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The employee stock ownership plan must meet certain requirements of the
Internal Revenue Code and the Employee Retirement Income Security Act. First
Federal intends to request a determination letter from the Internal Revenue
Service regarding the tax-qualified status of the employee stock ownership plan.
First Federal expects to receive a favorable determination letter, but cannot
guarantee that it will.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. Following the conversion, First
Federal intends to implement a supplemental executive retirement plan to provide
for supplemental retirement benefits with respect to the employee stock
ownership plan. The plan will provide participating executives with benefits
otherwise limited by other provisions of the Internal Revenue Code or the terms
of the employee stock ownership plan loan. Specifically, the plan will provide
benefits to eligible individuals (those designated by the Board of Directors of
First Federal or its affiliates) that cannot be provided under the employee
stock ownership plan as a result of the limitations imposed by the Internal
Revenue Code, but that would have been provided under the employee stock
ownership plan but for such limitations. In addition to providing for benefits
lost under tax-qualified plans as a result of limitations imposed by the
Internal Revenue Code, the new plan will also provide supplemental benefits to
designated individuals upon a change of control before the complete scheduled
repayment of the employee stock ownership plan loan. Generally, upon such an
event, the supplemental executive retirement plan will provide the individual
with a benefit equal to what the individual would have received under the
employee stock ownership plan had he or she remained employed throughout the
term of the employee stock ownership plan loan less the benefits actually
provided under the employee stock ownership plan on behalf of such individual.
An individual's benefits under the supplemental executive retirement plan will
generally become payable upon the change in control of First Federal or First
Federal Bancshares. The Board of Directors intends to designate Mr. Stebor as a
participant in the supplemental executive retirement plan.
First Federal may utilize a grantor trust in connection with the
supplemental executive retirement plan in order to set funds aside with which to
ultimately pay benefits under the plan. The assets of the grantor trust would be
subject to the claims of First Federal's general creditors in the event of First
Federal's insolvency until paid to the individual according to the terms of the
supplemental executive retirement plan.
STOCK-BASED INCENTIVE PLAN. Following the conversion, the Board of
Directors of First Federal Bancshares intends to adopt a stock-based incentive
plan that will provide for the granting of options to purchase common stock and
awards of restricted stock to eligible officers, employees, and directors of
First Federal Bancshares and First Federal. As required by the Office of Thrift
Supervision, the stock-based incentive plan will not be implemented until at
least six months after the completion of the conversion. First Federal
Bancshares will submit the stock-based incentive plan to stockholders for their
approval at which time stockholders will be provided with detailed information
about the plan.
Under the stock-based incentive plan, First Federal Bancshares intends
to reserve shares for the grant of stock options in an amount equal to 10% of
the shares of common stock issued in the conversion. The amount reserved would
range from 165,750 shares, assuming 1,657,500 shares are issued in the
conversion to 224,250 shares, assuming 2,242,500 shares are issued in the
conversion. Additionally, First Federal Bancshares intends to reserve shares for
the grant of stock awards in an amount equal to 4% of the shares of common stock
issued in the conversion. The amount reserved would range from 66,300 shares,
assuming 1,657,500 shares are issued in the conversion to 89,700 shares,
assuming 2,242,500 shares are issued in the conversion. Any common stock awarded
under the Stock-Based Incentive Plan will be awarded at no cost to the
recipients. The plan may be funded through the purchase of common stock by a
trust established in connection with the stock-based incentive plan or from
authorized but unissued shares. If additional authorized but unissued shares are
acquired by the stock-based incentive plan after the conversion, the interests
of existing shareholders would be diluted. See "PRO FORMA DATA."
TRANSACTIONS WITH FIRST FEDERAL
Federal regulations require that all loans or extensions of credit to
executive officers and directors must generally be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons, must not involve more than
the normal risk of repayment or present other unfavorable features.
Notwithstanding this rule, federal regulations permit First Federal to make
loans to executive officers and directors at reduced interest rates if the loan
is made under a benefit program generally available to all other employees and
does not give preference to any executive officer or director over any other
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employee. In addition, loans made to a director or executive officer in an
amount that, when aggregated with the amount of all other loans to the person
and his or her related interests, are in excess of the greater of $1.0 million
or 5% of First Federal's capital and surplus, up to a maximum of $3.0 million,
must be approved in advance by a majority of the disinterested members of the
Board of Directors. See "REGULATION AND SUPERVISION--FEDERAl SAVINGS INSTITUTION
REGULATION--TRANSACTIONS WITH RELATED PARTIES." The aggregate amount of loans by
First Federal to its executive officers and directors was $124,000 at February
29, 2000, or approximately 0.3% of pro forma stockholders' equity assuming that
2,242,500 shares are issued in the conversion. These loans were performing
according to their original terms at February 29, 2000.
First Federal utilizes the services of the law firm of Hartzell,
Glidden, Tucker & Hartzell, of which Mr. Hartzell, a director of First Federal
and First Federal Bancshares, is a partner, for First Federal's foreclosure,
bankruptcy and certain tax litigation services. First Federal also utilizes the
services of the law firm of Flack, McRaven & Stephens, to which Mr. Stephens, a
director of First Federal and First Federal Bancshares, is Of Counsel, for title
opinions for First Federal's loans.
INDEMNIFICATION FOR DIRECTORS AND OFFICERS
First Federal Bancshares' Certificate of Incorporation contains
provisions that limit the liability of and indemnity of its directors and
officers. These provisions provide that directors and officers will be
indemnified and held harmless by First Federal Bancshares when that individual
is made a party to civil, criminal, administrative and investigative
proceedings. Directors and officers will be indemnified to the fullest extent
authorized by the Delaware General Corporation Law against all expense,
liability and loss reasonably incurred. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of First Federal Bancshares pursuant
to the Certificate of Incorporation or otherwise, First Federal Bancshares has
been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable.
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REGULATION AND SUPERVISION
GENERAL
As a savings and loan holding company, First Federal Bancshares will be
required by federal law to file reports with, and otherwise comply with, the
rules and regulations of the Office of Thrift Supervision. First Federal is
subject to extensive regulation, examination and supervision by the Office of
Thrift Supervision, as its primary federal regulator, and the Federal Deposit
Insurance Corporation, as the deposit insurer. First Federal is a member of the
Federal Home Loan Bank System and, with respect to deposit insurance, of the
Savings Association Insurance Fund managed by the Federal Deposit Insurance
Corporation. First Federal must file reports with the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation concerning its
activities and financial condition in addition to obtaining regulatory approvals
prior to entering into certain transactions such as mergers with, or
acquisitions of, other savings institutions. The Office of Thrift Supervision
and/or the Federal Deposit Insurance Corporation conduct periodic examinations
to test First Federal's safety and soundness and compliance with various
regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such regulatory requirements and policies, whether by the Office of
Thrift Supervision, the Federal Deposit Insurance Corporation or the U.S.
Congress, could have a material adverse impact on First Federal Bancshares,
First Federal and their operations. Certain of the regulatory requirements
applicable to First Federal and to First Federal Bancshares are referred to
below or elsewhere in this prospectus. The description of statutory provisions
and regulations applicable to savings institutions and their holding companies
included in this prospectus does not purport to be a complete description of
such statutes and regulations and their effects on First Federal and First
Federal Bancshares.
HOLDING COMPANY REGULATION
First Federal Bancshares will be a nondiversified unitary savings and
loan holding company within the meaning of federal law. Under prior law, a
unitary savings and loan holding company, such as First Federal Bancshares, was
not generally restricted as to the types of business activities in which it may
engage, provided that First Federal continued to be a qualified thrift lender.
See "--FEDERAL SAVINGS INSTITUTION REGULATION--QTL TEST." The Gramm-Leach-Bliley
Act of 1999, however, restricts unitary savings and loan holding companies not
existing or applied for before May 4, 1999 to activities permissible for
financial holding companies under the law or for multiple savings and loan
holding companies. First Federal Bancshares will not qualify for the grandfather
and will be limited to the activities permissible for financial holding
companies or multiple savings and loan holding companies. A financial holding
company may engage in activities that are financial in nature, incidental to
financial activities or complementary to a financial activity. A multiple
savings and loan holding company is generally limited to activities permissible
for bank holding companies under Section 4(c)(8) of the Bank Holding Company
Act, subject to the prior approval of the Office of Thrift Supervision, and
certain activities authorized by Office of Thrift Supervision regulation.
A savings and loan holding company is prohibited from, directly or
indirectly, acquiring more than 5% of the voting stock of another savings
institution or savings and loan holding company without prior written approval
of the Office of Thrift Supervision and from acquiring or retaining control of a
depository institution that is not insured by the Federal Deposit Insurance
Corporation. In evaluating applications by holding companies to acquire savings
institutions, the Office of Thrift Supervision considers the financial and
managerial resources and future prospects of the holding company and institution
involved, the effect of the acquisition on the risk to the deposit insurance
funds, the convenience and needs of the community and competitive factors.
The Office of Thrift Supervision may not approve any acquisition that
would result in a multiple savings and loan holding company controlling savings
institutions in more than one state, subject to two exceptions: (i) the approval
of interstate supervisory acquisitions by savings and loan holding companies and
(ii) the acquisition of a savings institution in another state if the laws of
the state of the target savings institution specifically permit such
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acquisitions. The states vary in the extent to which they permit interstate
savings and loan holding company acquisitions.
Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, federal regulations do prescribe such restrictions
on subsidiary savings institutions as described below. First Federal must notify
the Office of Thrift Supervision 30 days before declaring any dividend to First
Federal Bancshares. In addition, the financial impact of a holding company on
its subsidiary institution is a matter that is evaluated by the Office of Thrift
Supervision and the agency has authority to order cessation of activities or
divestiture of subsidiaries deemed to pose a threat to the safety and soundness
of the institution.
FEDERAL SAVINGS INSTITUTION REGULATION
BUSINESS ACTIVITIES. The activities of federal savings institutions are
governed by federal law and regulations. These laws and regulations delineate
the nature and extent of the activities in which federal associations may
engage. In particular, many types of lending authority for federal associations,
E.G., commercial, non-residential real property loans and consumer loans, are
limited to a specified percentage of the institution's capital or assets.
CAPITAL REQUIREMENTS. The Office of Thrift Supervision capital
regulations require savings institutions to meet three minimum capital
standards: a 1.5% tangible capital ratio, a 4% leverage ratio (3% for
institutions receiving the highest rating on the CAMELS rating system) and an 8%
risk-based capital ratio. In addition, the prompt corrective action standards
discussed below also establish, in effect, a minimum 2% tangible capital
standard, a 4% leverage ratio (3% for institutions receiving the highest rating
on the CAMEL financial institution rating system), and, together with the
risk-based capital standard itself, a 4% Tier 1 risk-based capital standard. The
Office of Thrift Supervision regulations also require that, in meeting the
tangible, leverage and risk-based capital standards, institutions must generally
deduct investments in and loans to subsidiaries engaged in activities as
principal that are not permissible for a national bank.
The risk-based capital standard for savings institutions requires the
maintenance of Tier 1 (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight
factor of 0% to 100%, assigned by the Office of Thrift Supervision capital
regulation based on the risks believed inherent in the type of asset. Core (Tier
1) capital is defined as common stockholders' equity (including retained
earnings), certain noncumulative perpetual preferred stock and related surplus
and minority interests in equity accounts of consolidated subsidiaries less
intangibles other than certain mortgage servicing rights and credit card
relationships. The components of supplementary capital currently include
cumulative preferred stock, long-term perpetual preferred stock, mandatory
convertible securities, subordinated debt and intermediate preferred stock, the
allowance for loan and lease losses limited to a maximum of 1.25% of
risk-weighted assets and up to 45% of unrealized gains on available-for-sale
equity securities with readily determinable fair market values. Overall, the
amount of supplementary capital included as part of total capital cannot exceed
100% of core capital.
The capital regulations also incorporate an interest rate risk
component. Savings institutions with "above normal" interest rate risk exposure
are subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements. For the present time, the Office of Thrift
Supervision has deferred implementation of the interest rate risk capital
charge. At February 29, 2000, First Federal met each of its capital
requirements.
PROMPT CORRECTIVE REGULATORY ACTION. The Office of Thrift Supervision
is required to take certain supervisory actions against undercapitalized
institutions, the severity of which depends upon the institution's degree of
undercapitalization. Generally, a savings institution that has a ratio of total
capital to risk weighted assets of less than 8%, a ratio of Tier 1 (core)
capital to risk-weighted assets of less than 4% or a ratio of core capital to
total assets of less than 4% (3% or less for institutions with the highest
examination rating) is considered to be "undercapitalized." A savings
institution that has a total risk-based capital ratio less than 6%, a Tier 1
capital ratio of less than 3% or a leverage ratio that is less than 3% is
considered to be "significantly undercapitalized" and a savings institution that
has a tangible capital to assets ratio equal to or less than 2% is deemed to be
"critically
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undercapitalized." Subject to a narrow exception, the Office of Thrift
Supervision is required to appoint a receiver or conservator for an institution
that is "critically undercapitalized." The regulation also provides that a
capital restoration plan must be filed with the Office of Thrift Supervision
within 45 days of the date a savings institution receives notice that it is
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Compliance with the plan must be guaranteed by any parent
holding company. In addition, numerous mandatory supervisory actions become
immediately applicable to an undercapitalized institution, including, but not
limited to, increased monitoring by regulators and restrictions on growth,
capital distributions and expansion. The Office of Thrift Supervision could also
take any one of a number of discretionary supervisory actions, including the
issuance of a capital directive and the replacement of senior executive officers
and directors.
INSURANCE OF DEPOSIT ACCOUNTS. First Federal is a member of the Savings
Association Insurance Fund. The Federal Deposit Insurance Corporation maintains
a risk-based assessment system by which institutions are assigned to one of
three categories based on their capitalization and one of three subcategories
based on examination ratings and other supervisory information. An institution's
assessment rate depends upon the categories to which it is assigned. Assessment
rates for insured institutions are determined semiannually by the Federal
Deposit Insurance Corporation and currently range from zero basis points for the
healthiest institutions to 27 basis points for the riskiest.
In addition to the assessment for deposit insurance, institutions are
required to make payments on bonds issued in the late 1980s by the Financing
Corporation to recapitalize the predecessor to the Savings Association Insurance
Fund. During 1999, payments for Savings Association Insurance Fund members
approximated 6.1 basis points, while Bank Insurance Fund members paid 1.2 basis
points. Since January 1, 2000, there has been equal sharing of Financing
Corporation payments between members of both insurance funds.
The Federal Deposit Insurance Corporation has authority to increase
insurance assessments. A significant increase in Savings Association Insurance
Fund insurance premiums would likely have an adverse effect on the operating
expenses and results of operations of First Federal. Management cannot predict
what insurance assessment rates will be in the future.
Insurance of deposits may be terminated by the Federal Deposit
Insurance Corporation upon a finding that the institution has engaged in unsafe
or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by the Federal Deposit Insurance Corporation or the Office of
Thrift Supervision. The management of First Federal does not know of any
practice, condition or violation that might lead to termination of deposit
insurance.
LOANS TO ONE BORROWER. Federal law provides that savings institutions
are generally subject to the limits on loans to one borrower applicable to
national banks. A savings institution may not make a loan or extend credit to a
single or related group of borrowers in excess of 15% of its unimpaired capital
and surplus. An additional amount may be lent, equal to 10% of unimpaired
capital and surplus, if secured by specified readily-marketable collateral.
QTL TEST. The HOLA requires savings institutions to meet a qualified
thrift lender test. Under the test, a savings association is required to either
qualify as a "domestic building and loan association" under the Internal Revenue
Code or maintain at least 65% of its "portfolio assets" (total assets less: (1)
specified liquid assets up to 20% of total assets; (2) intangibles, including
goodwill; and (3) the value of property used to conduct business) in certain
"qualified thrift investments" (primarily residential mortgages and related
investments, including certain mortgage-backed securities) in at least 9 months
out of each 12 month period.
A savings institution that fails the qualified thrift lender test is
subject to certain operating restrictions and may be required to convert to a
bank charter. As of February 29, 2000, First Federal met the qualified thrift
lender test. Recent legislation has expanded the extent to which education
loans, credit card loans and small business loans may be considered "qualified
thrift investments."
LIMITATIONS ON CAPITAL DISTRIBUTIONS. Office of Thrift Supervision
regulations impose limitations upon all capital distributions by a savings
institution, including cash dividends, payments to repurchase its shares and
payments to shareholders of another institution in a cash-out merger. Under
current regulations, an application
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to and the prior approval of the Office of Thrift Supervision is required prior
to any capital distribution if the institution does not meet the criteria for
"expedited treatment" of applications under Office of Thrift Supervision
regulations (I.E., generally, examination ratings in the two top categories),
the total capital distributions for the calendar year exceed net income for that
year plus the amount of retained net income for the preceding two years, the
institution would be undercapitalized following the distribution or the
distribution would otherwise be contrary to a statute, regulation or agreement
with Office of Thrift Supervision. If an application is not required, the
institution must still provide prior notice to Office of Thrift Supervision of
the capital distribution if, like First Federal, it is a subsidiary of a holding
company. In the event First Federal's capital fell below its regulatory
requirements or the Office of Thrift Supervision notified it that it was in need
of more than normal supervision, First Federal's ability to make capital
distributions could be restricted. In addition, the Office of Thrift Supervision
could prohibit a proposed capital distribution by any institution, which would
otherwise be permitted by the regulation, if the Office of Thrift Supervision
determines that such distribution would constitute an unsafe or unsound
practice.
LIQUIDITY. First Federal is required to maintain an average daily
balance of specified liquid assets equal to a monthly average of not less than a
specified percentage of its net withdrawable deposit accounts plus short-term
borrowings. This liquidity requirement is currently 4%, but may be changed from
time to time by the Office of Thrift Supervision to any amount within the range
of 4% to 10%. Monetary penalties may be imposed for failure to meet these
liquidity requirements. First Federal has never been subject to monetary
penalties for failure to meet its liquidity requirements.
ASSESSMENTS. Savings institutions are required to pay assessments to
the Office of Thrift Supervision to fund the agency's operations. The general
assessments, paid on a semi-annual basis, are computed upon the savings
institution's total assets, including consolidated subsidiaries, as reported in
First Federal's latest quarterly thrift financial report.
TRANSACTIONS WITH RELATED PARTIES. First Federal's authority to engage
in transactions with "affiliates" (E.G., any company that controls or is under
common control with an institution, including First Federal Bancshares and its
non-savings institution subsidiaries) is limited by federal law. The aggregate
amount of covered transactions with any individual affiliate is limited to 10%
of the capital and surplus of the savings institution. The aggregate amount of
covered transactions with all affiliates is limited to 20% of the savings
institution's capital and surplus. Certain transactions with affiliates are
required to be secured by collateral in an amount and of a type described in
federal law. The purchase of low quality assets from affiliates is generally
prohibited. The transactions with affiliates must be on terms and under
circumstances that are at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies. In addition, savings institutions are prohibited from lending to any
affiliate that is engaged in activities that are not permissible for bank
holding companies and no savings institution may purchase the securities of any
affiliate other than a subsidiary.
First Federal's authority to extend credit to executive officers,
directors and 10% shareholders ("insiders"), as well as entities such persons
control, is also governed by federal law. Such loans are required to be made on
terms substantially the same as those offered to unaffiliated individuals and
not involve more than the normal risk of repayment. Recent legislation created
an exception for loans made pursuant to a benefit or compensation program that
is widely available to all employees of the institution and does not give
preference to insiders over other employees. The law limits both the individual
and aggregate amount of loans First Federal may make to insiders based, in part,
on First Federal's capital position and requires certain board approval
procedures to be followed. Loans to executive officers are subject to additional
restrictions.
ENFORCEMENT. The Office of Thrift Supervision has primary enforcement
responsibility over savings institutions and has the authority to bring actions
against the institution and all institution-affiliated parties, including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors to institution of receivership, conservatorship or termination of
deposit insurance. Civil penalties cover a wide range of violations and can
amount to $25,000 per day, or even $1 million per day in especially egregious
cases. The Federal Deposit Insurance Corporation has the authority to recommend
to the Director of the Office of Thrift Supervision that enforcement action to
be taken with respect to a particular savings institution. If action is not
taken
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by the Director, the Federal Deposit Insurance Corporation has authority to take
such action under certain circumstances. Federal law also establishes criminal
penalties for certain violations.
STANDARDS FOR SAFETY AND SOUNDNESS. The federal banking agencies have
adopted Interagency Guidelines prescribing Standards for Safety and Soundness.
The guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. If the Office of Thrift
Supervision determines that a savings institution fails to meet any standard
prescribed by the guidelines, the Office of Thrift Supervision may require the
institution to submit an acceptable plan to achieve compliance with the
standard.
FEDERAL HOME LOAN BANK SYSTEM
First Federal is a member of the Federal Home Loan Bank System, which
consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank
provides a central credit facility primarily for member institutions. First
Federal, as a member of the Federal Home Loan Bank, is required to acquire and
hold shares of capital stock in that Federal Home Loan Bank in an amount at
least equal to 1.0% of the aggregate principal amount of its unpaid residential
mortgage loans and similar obligations at the beginning of each year, or 1/20 of
its advances (borrowings) from the Federal Home Loan Bank, whichever is greater.
First Federal was in compliance with this requirement with an investment in
Federal Home Loan Bank stock at February 29, 2000 of $894,000.
The Federal Home Loan Banks are required to provide funds for the
resolution of insolvent thrifts in the late 1980s and to contribute funds for
affordable housing programs. These requirements could reduce the amount of
dividends that the Federal Home Loan Banks pay to their members and could also
result in the Federal Home Loan Banks imposing a higher rate of interest on
advances to their members. If dividends were reduced, or interest on future
Federal Home Loan Bank advances increased, First Federal's net interest income
would likely also be reduced. Recent legislation has changed the structure of
the Federal Home Loan Banks funding obligations for insolvent thrifts, revised
the capital structure of the Federal Home Loan Banks and implemented entirely
voluntary membership for Federal Home Loan Banks. Management cannot predict the
effect that these changes may have with respect to its Federal Home Loan Bank
membership.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The regulations generally provide
that reserves be maintained against aggregate transaction accounts as follows:
for accounts aggregating $44.3 million or less (subject to adjustment by the
Federal Reserve Board) the reserve requirement is 3%; and for accounts
aggregating greater than $44.3 million, the reserve requirement is $1.329
million plus 10% (subject to adjustment by the Federal Reserve Board between 8%
and 14%) against that portion of total transaction accounts in excess of $44.3
million. The first $5.0 million of otherwise reservable balances (subject to
adjustments by the Federal Reserve Board) are exempted from the reserve
requirements. First Federal complies with the foregoing requirements.
PROSPECTIVE LEGISLATION
First Federal is, and First Federal Bancshares, as a savings and loan
holding company, will be extensively regulated and supervised. Regulations,
which affect First Federal on a daily basis, may be changed at any time, and the
interpretation of the relevant law and regulations may also change because of
new interpretations by the authorities who interpret those laws and regulations.
Any change in the regulatory structure or the applicable statutes or
regulations, whether by the Office of Thrift Supervision, the Federal Deposit
Insurance Corporation or the U.S. Congress, could have a material impact on
First Federal Bancshares, First Federal, its operations or the conversion.
Legislation enacted several years ago provided that the Bank Insurance
Fund and the Savings Association Insurance Fund would have merged on January 1,
1999 if there had been no more savings associations as of that date. Congress
did not enact legislation eliminating the savings association charter by that
date. First Federal is
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unable to predict whether the Savings Association Insurance Fund and Bank
Insurance Fund will eventually be merged and what effect, if any, that may have
on its business.
FEDERAL SECURITIES LAWS
First Federal Bancshares has filed with the Securities and Exchange
Commission a registration statement under the Securities Act for the
registration of the common stock to be issued in the conversion. Upon completion
of the conversion, First Federal Bancshares' common stock will be registered
with the Securities and Exchange Commission under the Securities Exchange Act.
First Federal Bancshares will then have to observe the information, proxy
solicitation, insider trading restrictions and other requirements under the
Securities Exchange Act.
The registration under the Securities Act of shares of the common stock
to be issued in the conversion does not cover the resale of those shares. Shares
of the common stock purchased by persons who are not affiliates of First Federal
Bancshares may be resold without registration. The resale restrictions of Rule
144 under the Securities Act govern shares purchased by an affiliate of First
Federal Bancshares. If First Federal Bancshares meets the current public
information requirements of Rule 144 under the Securities Act, each affiliate of
First Federal Bancshares who complies with the other conditions of Rule 144
(including those that require the affiliate's sale to be aggregated with those
of other persons) would be able to sell in the public market, without
registration, a number of shares not to exceed, in any three-month period, the
greater of (1) 1% of the outstanding shares of First Federal Bancshares or (2)
the average weekly volume of trading in such shares during the preceding four
calendar weeks. Provision may be made in the future by First Federal Bancshares
to permit affiliates to have their shares registered for sale under the
Securities Act under specific circumstances.
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FEDERAL AND STATE TAXATION
FEDERAL INCOME TAXATION
GENERAL. First Federal Bancshares and First Federal intend to report
their income on a calendar year basis using the accrual method of accounting.
The federal income tax laws apply to First Federal Bancshares and First Federal
in the same manner as to other corporations with some exceptions, including
particularly First Federal's reserve for bad debts discussed below. The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to First
Federal or First Federal Bancshares. First Federal's federal income tax returns
have been either audited or closed under the statute of limitations through tax
year 1995. For its 1999 tax year, First Federal's maximum federal income tax
rate was 34%.
BAD DEBT RESERVES. For fiscal years beginning before February 29, 1996,
thrift institutions that qualified under certain definitional tests and other
conditions of the Internal Revenue Code were permitted to use certain favorable
provisions to calculate their deductions from taxable income for annual
additions to their bad debt reserve. A reserve could be established for bad
debts on qualifying real property loans, generally secured by interests in real
property improved or to be improved, under the percentage of taxable income
method or the experience method. The reserve for nonqualifying loans was
computed using the experience method.
Federal legislation enacted in 1996 repealed the reserve method of
accounting for bad debts and the percentage of taxable income method for tax
years beginning after 1995 and require savings institutions to recapture or take
into income certain portions of their accumulated bad debt reserves.
Approximately $2.3 million of First Federal accumulated bad debt reserves would
not be recaptured into taxable income unless First Federal makes a "non-dividend
distribution" to First Federal Bancshares as described below.
DISTRIBUTIONS. If First Federal makes "non-dividend distributions" to
First Federal Bancshares, they will be considered to have been made from First
Federal's unrecaptured tax bad debt reserves, including the balance of its
reserves as of February 28, 1988, to the extent of the "non-dividend
distributions," and then from First Federal's supplemental reserve for losses on
loans, to the extent of those reserves, and an amount based on the amount
distributed, but not more than the amount of those reserves, will be included in
First Federal's taxable income. Non-dividend distributions include distributions
in excess of First Federal's current and accumulated earnings and profits, as
calculated for federal income tax purposes, distributions in redemption of
stock, and distributions in partial or complete liquidation. Dividends paid out
of First Federal's current or accumulated earnings and profits will not be so
included in First Federal's taxable income.
The amount of additional taxable income triggered by a non-dividend is
an amount that, when reduced by the tax attributable to the income, is equal to
the amount of the distribution. Therefore, if First Federal makes a non-dividend
distribution to First Federal Bancshares, approximately one and one-half times
the amount of the distribution not in excess of the amount of the reserves would
be includable in income for federal income tax purposes, assuming a 35% federal
corporate income tax rate. First Federal does not intend to pay dividends that
would result in a recapture of any portion of its bad debt reserves.
STATE TAXATION
ILLINOIS STATE TAXATION. First Federal is required to file Illinois
income tax returns and pay tax at an effective tax rate of 7.18% of Illinois
taxable income. For these purposes, Illinois taxable income generally means
federal taxable income subject to certain modifications the primary one of which
is the exclusion of interest income on United States obligations.
DELAWARE STATE TAXATION. As a Delaware holding company not earning
income in Delaware, First Federal Bancshares will be exempt from Delaware
Corporate income tax, but will be required to file an annual report with and pay
an annual franchise tax to the State of Delaware.
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SHARES TO BE PURCHASED BY MANAGEMENT
WITH SUBSCRIPTION RIGHTS
The following table presents certain information as to the approximate
purchases of common stock by the directors and executive officers of First
Federal, including their associates, as defined by applicable regulations. No
individual has entered into a binding agreement to purchase these shares and,
therefore, actual purchases could be more or less than indicated. Directors and
executive officers and their associates may not purchase more than 31.44% of the
shares sold in the conversion. For purposes of the following table, sufficient
shares are assumed to be available to satisfy subscriptions in all categories.
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
ANTICIPATED ANTICIPATED SHARES AT SHARES AT
NUMBER OF DOLLAR MINIMUM MAXIMUM
SHARES TO BE AMOUNT TO BE OF ESTIMATED OF ESTIMATED
NAME PURCHASED (1) PURCHASED (1) VALUATION RANGE VALUATION RANGE
- ---- ------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Franklin M. Hartzell................................. 15,000 $150,000 0.90% 0.67%
Murrel Hollis........................................ 15,000 150,000 0.90 0.67
Gerald L. Prunty..................................... 15,000 150,000 0.90 0.67
Dr. Stephan L. Roth.................................. 15,000 150,000 0.90 0.67
Eldon M. Snowden..................................... 3,500 35,000 0.21 0.16
James J. Stebor...................................... 5,000 50,000 0.30 0.22
Richard D. Stephens.................................. 15,000 150,000 0.90 0.67
All Directors and Officers
as a Group (15 persons)........................... 98,200 982,000 5.92 4.38
</TABLE>
- ----------
(1) Does not include shares to be awarded under the employee stock ownership
plan and stock-based incentive plan or options to acquire shares under the
stock-based incentive plan.
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THE CONVERSION
THE OFFICE OF THRIFT SUPERVISION HAS APPROVED FIRST FEDERAL'S PLAN OF
CONVERSION, PROVIDED THAT IT IS APPROVED BY THE MEMBERS OF FIRST FEDERAL AND
THAT FIRST FEDERAL BANCSHARES AND FIRST FEDERAL SATISFY CERTAIN OTHER CONDITIONS
IMPOSED BY THE OFFICE OF THRIFT SUPERVISION IN ITS APPROVAL. OFFICE OF THRIFT
SUPERVISION APPROVAL IS NOT A RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF
CONVERSION AND IS NOT A RECOMMENDATION TO PURCHASE COMMON STOCK IN THE OFFERING.
GENERAL
On December 8, 1999, the Board of Directors of First Federal
unanimously adopted the plan of conversion. Under the plan of conversion, First
Federal will convert from a federally chartered mutual savings bank to a
federally chartered stock savings bank and become a wholly owned subsidiary of
First Federal Bancshares, a newly formed Delaware corporation. In addition, the
plan provides that First Federal Bancshares will offer its common stock in a
subscription offering and, if necessary, through a community offering and/or a
syndicate of registered broker-dealers. THE FOLLOWING DISCUSSION OF THE PLAN OF
CONVERSION CONTAINS ALL MATERIAL TERMS ABOUT THE CONVERSION. NEVERTHELESS, YOU
SHOULD READ CAREFULLY THE PLAN OF CONVERSION, WHICH ACCOMPANIES FIRST FEDERAL'S
PROXY STATEMENT AND IS AVAILABLE TO MEMBERS OF FIRST FEDERAL UPON REQUEST. The
plan of conversion is also filed as an exhibit to the registration statement
that First Federal Bancshares has filed with the Securities and Exchange
Commission. See "WHERE YOU CAN FIND MORE INFORMATION."
The Office of Thrift Supervision has approved First Federal's plan of
conversion, subject to, among other things, approval of the plan of conversion
by First Federal's members. First Federal has called a special meeting of its
members for this purpose on _________, 2000. Depositors as of _________, 2000
and borrowers with loans outstanding as of March 27, 1990 whose loans continue
to be outstanding as of __________, 2000 will be entitled to vote at the special
meeting. First Federal will complete the conversion only upon completion of the
sale of at least the minimum number of shares of First Federal Bancshares common
stock offered through this prospectus and approval of the plan of conversion by
First Federal's voting members.
The Board of Directors established the aggregate price of the shares of
common stock to be issued in the conversion based upon an independent appraisal
of First Federal giving effect to the conversion. RP Financial, a consulting
firm experienced in the valuation and appraisal of savings institutions,
prepared the appraisal. RP Financial will affirm or, if necessary, update its
appraisal at the completion of the offering.
The completion of the offering depends on market conditions and other
factors beyond First Federal's control. No assurance can be given as to the
length of time after approval of the plan of conversion at the special meeting
that will be required to complete the sale of the common stock. If delays are
experienced, significant changes may occur in the appraisal of First Federal
Bancshares and First Federal as converted, which would require a change in the
offering range. A change in the offering range would result in a change in the
net proceeds realized by First Federal Bancshares from the sale of the common
stock. If the conversion is terminated, First Federal would be required to
charge all conversion expenses against current income.
REASONS FOR THE CONVERSION
After considering the advantages and disadvantages of the conversion,
the Board of Directors of First Federal unanimously approved the conversion as
being in the best interests of First Federal, its customers and employees and
the communities it serves. The Board of Directors concluded that the conversion
offers a number of advantages which will be important to the future growth and
performance of First Federal.
Formation of First Federal as a capital stock savings bank subsidiary
of First Federal Bancshares will permit First Federal Bancshares to sell common
stock, which is a source of capital not available to mutual savings banks. The
capital raised through the sale of common stock in the conversion will support
First Federal's future lending and operational growth and may also support
possible future branching activities or the acquisition of other financial
institutions or financial service companies or their assets. Additional capital
also will increase First Federal's ability to render services to the communities
it serves, although First Federal has no current specific plans, arrangements or
understandings regarding these activities.
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After completion of the conversion, the unissued common and preferred
stock authorized by First Federal Bancshares' certificate of incorporation will
permit First Federal Bancshares to raise additional capital through further
sales of securities and to issue securities in connection with possible
acquisitions, subject to market conditions and any required regulatory
approvals. First Federal Bancshares currently has no plans with respect to
additional offerings of securities.
The conversion will afford First Federal's management, members and
others the opportunity to become stockholders of First Federal Bancshares and
participate more directly in, and contribute to, any future growth of First
Federal Bancshares and First Federal. First Federal Bancshares will use
stock-related incentive programs to attract and retain executive and other
personnel.
EFFECTS OF CONVERSION TO STOCK FORM
GENERAL. Each depositor in a mutual savings bank has both a deposit
account in the institution and a pro rata ownership interest in the net worth of
the institution based upon the balance in his or her account. However, this
ownership interest is tied to the depositor's account and has no value separate
from such deposit account. Furthermore, this ownership interest may only be
realized in the unlikely event that the institution is liquidated. In such
event, the depositors of record at that time, as owners, would be able to share
in any residual surplus and reserves after payment of other claims, including
claims of depositors to the amounts of their deposits. Any depositor who opens a
deposit account obtains a pro rata ownership interest in the net worth of the
institution without any additional payment beyond the amount of the deposit. A
depositor who reduces or closes his account receives a portion or all of the
balance in the account but nothing for his ownership interest in the net worth
of the institution, which is lost to the extent that the balance in the account
is reduced.
When a mutual savings bank converts to stock form, depositors lose all
rights to the net worth of the mutual savings bank, except the right to claim a
pro rata share of funds representing the liquidation account established in
connection with the conversion. Additionally, permanent nonwithdrawable capital
stock is created and offered to depositors which represents the ownership of the
institution's net worth. THE COMMON STOCK OF FIRST FEDERAL BANCSHARES IS
SEPARATE AND APART FROM DEPOSIT ACCOUNTS AND CANNOT BE AND IS NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
Certificates are issued to evidence ownership of the permanent stock. The stock
certificates are transferable, and therefore the stock may be sold or traded if
a purchaser is available with no effect on any deposit account the seller may
hold in the institution.
No assets of First Federal Bancshares or First Federal will be
distributed in connection with the conversion other than the payment of those
expenses incurred in connection with the conversion.
CONTINUITY. While the conversion is being accomplished, the normal
business of First Federal will continue without interruption, including being
regulated by the Office of Thrift Supervision and the Federal Deposit Insurance
Corporation. After conversion, First Federal will continue to provide services
for depositors and borrowers under current policies by its present management
and staff.
The directors of First Federal at the time of conversion will serve as
directors of First Federal after the conversion. The directors of First Federal
Bancshares will be solely composed of individuals who served on the Board of
Directors of First Federal. All officers of First Federal at the time of
conversion will retain their positions after the conversion.
DEPOSIT ACCOUNTS AND LOANS. First Federal's deposit accounts, account
balances and existing Federal Deposit Insurance Corporation insurance coverage
of deposit accounts will not be affected by the conversion. Furthermore, the
conversion will not affect the loan accounts, loan balances or obligations of
borrowers under their individual contractual arrangements with First Federal.
EFFECT ON VOTING RIGHTS. Voting rights in First Federal, as a mutual
savings bank, belong to its depositor and borrower members. After the
conversion, depositors will no longer have voting rights in First Federal and,
therefore, will no longer be able to elect directors of First Federal or control
its affairs. Instead, First Federal Bancshares, as the sole stockholder of First
Federal, will possess all voting rights in First Federal. The holders of the
common stock of First Federal Bancshares will possess all voting rights in First
Federal Bancshares. Depositors
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of First Federal will not have voting rights after the conversion except to the
extent that they become stockholders of First Federal Bancshares by purchasing
common stock.
TAX EFFECTS. First Federal has received an opinion from Muldoon,
Murphy & Faucette LLP, Washington, D.C., that addresses all the material
federal income tax consequences of the conversion. The opinion, which relies
upon factual representations given by First Federal, concludes that the
conversion will constitute a nontaxable reorganization under Section
368(a)(1)(F) of the Internal Revenue Code. Among other things, the opinion
states that:
- no gain or loss will be recognized to First Federal in its mutual
or stock form by reason of the conversion;
- no gain or loss will be recognized to its account holders upon
the issuance to them of accounts in First Federal immediately
after the conversion, in the same dollar amounts and on the same
terms and conditions as their accounts at First Federal in its
mutual form plus interest in the liquidation account;
- the tax basis of account holders' accounts in First Federal
immediately after the conversion will be the same as the tax
basis of their accounts immediately before conversion;
- the tax basis of each account holder's interest in the
liquidation account will be equal to the value, if any, of that
interest;
- the tax basis of the common stock purchased in the conversion
will be the amount paid and the holding period for the stock will
begin on the date of purchase; and
- no gain or loss will be recognized to account holders upon the
receipt or exercise of subscription rights in the conversion,
except if subscription rights are deemed to have value as
discussed below.
Unlike a private letter ruling issued by the Internal Revenue Service,
an opinion of counsel is not binding on the Internal Revenue Service and the
Internal Revenue Service could disagree with the conclusions reached in the
opinion. If there is a disagreement, no assurance can be given that the
conclusions reached in an opinion of counsel would be sustained by a court if
contested by the Internal Revenue Service.
Based upon past rulings issued by the Internal Revenue Service, the
opinion provides that the receipt of subscription rights by eligible account
holders, supplemental eligible account holders and other individuals under the
plan of conversion will be taxable if the subscription rights are deemed to have
a fair market value. RP Financial, whose findings are not binding on the
Internal Revenue Service, has issued a letter indicating that the subscription
rights do not have any value, based on the fact that the rights are acquired by
the recipients without cost, are nontransferable and of short duration and
afford the recipients the right only to purchase shares of the common stock at a
price equal to its estimated fair market value, which will be the same price
paid by purchasers in the community offering for unsubscribed shares of common
stock. If the subscription rights are deemed to have a fair market value, the
receipt of the rights may only be taxable to those persons who exercise their
subscription rights. First Federal could also recognize a gain on the
distribution of subscription rights. Holders of subscription rights are
encouraged to consult with their own tax advisors as to the tax consequences if
the subscription rights are deemed to have a fair market value.
First Federal has also received an opinion from Crowe, Chizek and
Company LLP, Oak Brook, Illinois, that, assuming the conversion does not result
in any federal income tax liability to First Federal, its account holders, or
First Federal Bancshares, implementation of the plan of conversion will not
result in any Illinois income tax liability to those entities or persons.
The opinions of Muldoon, Murphy & Faucette LLP and Crowe, Chizek and
Company LLP, and the letter from RP Financial are filed as exhibits to the
registration statement that First Federal Bancshares has filed with the
Securities and Exchange Commission. See "WHERE YOU CAN FIND MORE INFORMATION."
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YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISOR REGARDING THE TAX
CONSEQUENCES OF THE CONVERSION PARTICULAR TO YOU.
LIQUIDATION ACCOUNT. In the unlikely event of a complete liquidation of
First Federal, before the conversion, each depositor in First Federal would
receive a pro rata share of any assets of First Federal remaining after payment
of claims of all creditors, including the claims of all depositors up to the
withdrawal value of their accounts. Each depositor's pro rata share of the
remaining assets would be in the same proportion as the value of his or her
deposit account to the total value of all deposit accounts in First Federal at
the time of liquidation.
After the conversion, holders of withdrawable deposit(s) in First
Federal, including certificates of deposit, will not be entitled to share in any
residual assets upon liquidation of First Federal. However, under Office of
Thrift Supervision regulations, First Federal will, at the time of the
conversion, establish a liquidation account in an amount equal to its total
equity as of the date of the latest statement of financial condition contained
in the final prospectus relating to the conversion.
First Federal will maintain the liquidation account after the
conversion for the benefit of eligible account holders and supplemental eligible
account holders who retain their savings accounts in First Federal. Each
eligible account holder and supplemental eligible account holder will, with
respect to each deposit account held, have a related inchoate interest in a
sub-account portion of the liquidation account balance.
The initial subaccount balance for a savings account held by an
eligible account holder or a supplemental eligible account holder will be
determined by multiplying the opening balance in the liquidation account by a
fraction of which the numerator is the amount of the holder's "qualifying
deposit" in the deposit account and the denominator is the total amount of the
"qualifying deposits" of all eligible or supplemental eligible account holders.
The initial subaccount balance will not be increased, but it will be decreased
as provided below.
If the deposit balance in any deposit account of an eligible account
holder or supplemental eligible account holder at the close of business on any
annual closing day of First Federal after October 31, 1998, or June 30, 2000 is
less than the lesser of the deposit balance in a deposit account at the close of
business on any other annual closing date after October 31, 1998 or June 30,
2000, or the amount of the "qualifying deposit" in a savings account on October
31, 1998 or June 30, 2000, then the subaccount balance for a savings account
will be adjusted by reducing the subaccount balance in an amount proportionate
to the reduction in the savings balance. Once reduced, the subaccount balance
will not be subsequently increased, notwithstanding any increase in the savings
balance of the related savings account. If any savings account is closed, the
related subaccount balance will be reduced to zero.
Upon a complete liquidation of First Federal, each eligible account
holder and supplemental eligible account holder will be entitled to receive a
liquidation distribution from the liquidation account in the amount of the then
current adjusted subaccount balance(s) for deposit account(s) held by the holder
before any liquidation distribution may be made to stockholders. No merger,
consolidation, bulk purchase of assets with assumptions of savings accounts and
other liabilities or similar transactions with another federally insured
institution in which First Federal is not the surviving institution will be
considered to be a complete liquidation. In any of these transactions, the
liquidation account will be assumed by the surviving institution.
In the unlikely event First Federal is liquidated after the conversion,
depositors will be entitled to full payment of their deposit accounts before any
payment is made to First Federal Bancshares as the sole stockholder of First
Federal.
SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS
Under the plan of conversion, First Federal has granted rights to
subscribe for First Federal Bancshares common stock to the following persons in
the following order of priority:
1. Persons with deposits in First Federal with balances aggregating
$50 or more ("qualifying deposits") as of October 31, 1998
("eligible account holders"). For this purpose, deposit accounts
include all savings, time, and demand accounts.
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2. Tax-qualified benefit plans of First Federal Bancshares or First
Federal, including First Federal's employee stock ownership plan.
3. Persons with qualifying deposits in First Federal as of June 30,
2000 ("supplemental eligible account holders").
4. Persons with deposits in First Federal as of _________, 2000 and
borrowers of First Federal who had loans outstanding on March 27,
1990 that continue to be outstanding as of ________, 2000 ("other
members").
The amount of common stock that any person may purchase will depend on
the availability of the common stock after satisfaction of all subscriptions
having prior rights in the subscription offering and to the maximum and minimum
purchase limitations set forth in the plan of conversion. See "--LIMITATIONS ON
PURCHASES OF SHARES." All persons on a joint account will be counted as a single
depositor for purposes of determining the maximum amount that may be subscribed
for by owners of a joint account.
SUBSCRIPTION RIGHTS ARE NONTRANSFERABLE. IF YOU SELL OR OTHERWISE
TRANSFER YOUR RIGHTS TO SUBSCRIBE FOR COMMON STOCK IN THE SUBSCRIPTION OFFERING
OR SUBSCRIBE FOR COMMON STOCK ON BEHALF OF ANOTHER PERSON, YOU MAY FORFEIT THOSE
RIGHTS AND FACE POSSIBLE FURTHER SANCTIONS AND PENALTIES IMPOSED BY THE OFFICE
OF THRIFT SUPERVISION OR ANOTHER AGENCY OF THE U.S. GOVERNMENT. IF YOU EXERCISE
YOUR SUBSCRIPTION RIGHTS, YOU WILL BE REQUIRED TO CERTIFY THAT YOU ARE
PURCHASING SHARES SOLELY FOR YOUR OWN ACCOUNT AND THAT YOU HAVE NO AGREEMENT OR
UNDERSTANDING WITH ANY OTHER PERSON FOR THE SALE OR TRANSFER OF THE SHARES. ONCE
TENDERED, SUBSCRIPTION ORDERS CANNOT BE REVOKED WITHOUT THE CONSENT OF FIRST
FEDERAL AND FIRST FEDERAL BANCSHARES.
CATEGORY 1: ELIGIBLE ACCOUNT HOLDERS. Each eligible account holder has
the right to subscribe for up to the greater of:
- $150,000 of common stock (which equals 15,000 shares);
- one-tenth of one percent of the total offering of common stock;
or
- 15 times the product, rounded down to the next whole number,
obtained by multiplying the total number of shares of common
stock to be issued by a fraction of which the numerator is the
amount of qualifying deposit of the eligible account holder and
the denominator is the total amount of qualifying deposits of all
eligible account holders.
If there are not sufficient shares to satisfy all subscriptions by
eligible account holders, shares first will be allocated so as to permit each
subscribing eligible account holder, if possible, to purchase a number of
shares sufficient to make the person's total allocation equal 100 shares or
the number of shares actually subscribed for, whichever is less. After that,
unallocated shares will be allocated among the remaining subscribing eligible
account holders whose subscriptions remain unfilled in the proportion that
the amounts of their respective qualifying deposits bear to the total
qualifying deposits of all remaining eligible account holders whose
subscriptions remain unfilled. Subscription rights of eligible account
holders who are also executive officers or directors of First Federal or
their associates will be subordinated to the subscription rights of other
eligible account holders to the extent attributable to increased deposits in
First Federal in the one year period preceding October 31, 1998.
To ensure a proper allocation of stock, each eligible account holder
must list on his or her stock order form all deposit accounts in which such
eligible account holder had an ownership interest at October 31, 1998. Failure
to list an account, or providing incorrect information, could result in the loss
of all or part of a subscriber's stock allocation.
CATEGORY 2: TAX-QUALIFIED EMPLOYEE BENEFIT PLANS. First Federal's
tax-qualified employee benefit plans have the right to purchase up to 10% of the
shares of common stock issued in the conversion. As a tax-qualified employee
benefit plan, First Federal's employee stock ownership plan intends to purchase
8% of the shares of common stock issued in the conversion. Subscriptions by the
employee stock ownership plan will not be aggregated with shares of common stock
purchased by any other participants in the offering, including subscriptions
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by the officers and directors of First Federal, for the purpose of applying the
purchase limitations in the plan of conversion. If First Federal Bancshares
increases the number of shares offered in the conversion, the employee stock
ownership plan will have a first priority right to purchase any shares exceeding
that amount up to 8% of the common stock. If the plan's subscription is not
filled in its entirety, the employee stock ownership plan may purchase shares in
the open market or may purchase shares directly from First Federal Bancshares
with the approval of the Office of Thrift Supervision.
CATEGORY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. Each supplemental
eligible account holder has the right to subscribe for up to the greater of:
- $150,000 of common stock (which equals 15,000 shares);
- one-tenth of one percent of the total offering of common stock;
or
- 15 times the product, rounded down to the next whole number,
obtained by multiplying the total number of shares of common
stock to be issued by a fraction of which the numerator is the
amount of qualifying deposit of the supplemental eligible account
holder and the denominator is the total amount of qualifying
deposits of all supplemental eligible account holders.
If eligible account holders and First Federal's employee stock
ownership plan subscribe for all of the shares being sold by First Federal
Bancshares, no shares will be available for supplemental eligible account
holders. If shares are available for supplemental eligible account holders but
there are not sufficient shares to satisfy all subscriptions by supplemental
eligible account holders, shares first will be allocated so as to permit each
subscribing supplemental eligible account holder, if possible, to purchase a
number of shares sufficient to make the person's total allocation equal 100
shares or the number of shares actually subscribed for, whichever is less. After
that, unallocated shares will be allocated among the remaining subscribing
supplemental eligible account holders whose subscriptions remain unfilled in the
proportion that the amounts of their respective qualifying deposits bear to the
total qualifying deposits of all remaining supplemental eligible account holders
whose subscriptions remain unfilled.
To ensure a proper allocation of stock, each supplemental eligible
account holder must list on his or her stock order form all deposit accounts in
which such eligible account holder had an ownership interest at June 30, 2000.
Failure to list an account, or providing incorrect information, could result in
the loss of all or part of a subscriber's stock allocation.
CATEGORY 4: OTHER MEMBERS. Each other member of First Federal has the
right to purchase up to $150,000 of common stock (which equals 15,000 shares).
If eligible account holders, First Federal's employee stock ownership plan and
supplemental eligible account holders subscribe for all of the shares being sold
by First Federal Bancshares, no shares will be available for other members. If
shares are available for other members but there are not sufficient shares to
satisfy all subscriptions by other members, shares first will be allocated so as
to permit each subscribing other member, if possible, to purchase a number of
shares sufficient to make the person's total allocation equal 100 shares or the
number of shares actually subscribed for, whichever is less. After that,
unallocated shares will be allocated among the remaining subscribing other
members in the proportion that the number of votes each other member is eligible
to cast as of the record date for persons eligible to vote at First Federal's
special meeting bears to the total votes of all remaining other members whose
subscriptions remain unfilled.
To ensure a proper allocation of stock, each other member must list on
his or her stock order form all deposit accounts in which such other member had
an ownership interest at ________, 2000 or each loan from First Federal that was
outstanding on March 27, 1990 that continues to be outstanding as of ________,
2000. Failure to list an account or loan, or providing incorrect information,
could result in the loss of all or part of a subscriber's stock allocation.
EXPIRATION DATE FOR THE SUBSCRIPTION OFFERING. The subscription
offering and all subscription rights under the plan of conversion will expire at
12:00 Noon, Central time, on ___________, 2000. FIRST FEDERAL WILL NOT ACCEPT
ORDERS FOR COMMON STOCK IN THE SUBSCRIPTION OFFERING RECEIVED IN HAND AFTER THAT
TIME. First Federal Bancshares and First Federal may extend the subscription
offering to up to ______, 2000 without regulatory
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approval. First Federal Bancshares and First Federal will make reasonable
attempts to provide a prospectus and related offering materials to holders of
subscription rights, however all subscription rights will expire on the
expiration date, as extended, whether or not First Federal has been able to
locate each person entitled to subscription rights.
Office of Thrift Supervision regulations require that First Federal
Bancshares complete the sale of common stock within 45 days after the close of
the subscription offering. If the sale of the common stock is not completed
within that period, all funds received will be returned promptly with interest
at First Federal's passbook rate and all withdrawal authorizations will be
canceled unless First Federal receives approval of the Office of Thrift
Supervision to extend the time for completing the offering. If regulatory
approval of an extension of the time period has been granted, all subscribers
will be notified of the extension and of the duration of any extension that has
been granted, and will be given the right to increase, decrease or rescind their
orders. If First Federal Bancshares does not receive an affirmative response
from a subscriber to any resolicitation, the subscriber's order will be
rescinded and all funds received will be promptly returned with interest, or
withdrawal authorizations will be canceled. No single extension can exceed 90
days, and all extensions in the aggregate, may not last beyond ______, 2002.
PERSONS IN NON-QUALIFIED STATES. First Federal Bancshares and First
Federal will make reasonable efforts to comply with the securities laws of all
states in the United States in which persons entitled to subscribe for stock
under the plan of conversion reside. However, First Federal Bancshares and First
Federal are not required to offer stock in the subscription offering to any
person who resides in a foreign country or who resides in a state of the United
States in which only a small number of persons otherwise eligible to subscribe
for shares of common stock reside and where First Federal Bancshares or First
Federal determines that compliance with that state's securities laws would be
impracticable for reasons of cost or otherwise. First Federal may determine
compliance with state securities laws to be impracticable based on a request or
requirement that First Federal Bancshares and First Federal or their officers or
directors register as a broker, dealer, salesman or selling agent under the
securities laws of the state, or a request or requirement to register or
otherwise qualify the subscription rights or common stock for sale or submit any
filing in the state.
COMMUNITY OFFERING
To the extent that shares remain available for purchase after
satisfaction of all subscriptions received in the subscription offering, First
Federal Bancshares may offer shares pursuant to the plan of conversion in a
community offering to the following persons in the following order of priority:
1. Persons and trusts of natural persons who are residents of Adams,
Brown, McDonough, Hancock, Schuyler, Henderson, Fulton, Warren or
Pike Counties in Illinois or Marion, Lewis or Ralls Counties in
Missouri.
2. Other persons to whom First Federal delivers a prospectus.
Purchasers in the community offering are eligible to purchase up to
$150,000 of common stock (which equals 15,000 shares). If not enough shares are
available to fill orders in the community offering, the available shares will be
allocated first to each subscriber whose order is accepted by First Federal in
an amount equal to the lesser of 100 shares or the number of shares subscribed
for by each such subscriber, if possible. After that, unallocated shares will be
allocated among such subscribers whose orders remain unsatisfied on a 100 shares
per order basis until all such orders have been filled or the remaining shares
have been allocated.
The community offering, if held, may commence concurrently with or
subsequent to the subscription offering and will terminate no later than 45 days
after the close of the subscription offering unless extended by First Federal
Bancshares and First Federal, with approval of the Office of Thrift Supervision.
FIRST FEDERAL BANCSHARES PRESENTLY INTENDS TO TERMINATE THE COMMUNITY OFFERING
AS SOON AS IT HAS RECEIVED ORDERS FOR ALL SHARES AVAILABLE FOR PURCHASE IN THE
CONVERSION. If First Federal receives regulatory approval of an extension of
time, all subscribers will be notified of the extension and of the duration of
any extension that has been granted, and will be given the right to increase,
decrease or rescind their orders. If First Federal Bancshares does not receive
an affirmative response from a subscriber to any resolicitation, the
subscriber's order will be rescinded and all funds received will be promptly
returned with interest.
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THE OPPORTUNITY TO SUBSCRIBE FOR SHARES OF COMMON STOCK IN THE
COMMUNITY OFFERING IS SUBJECT TO THE RIGHT OF FIRST FEDERAL BANCSHARES AND FIRST
FEDERAL TO REJECT ORDERS, IN WHOLE OR PART, EITHER AT THE TIME OF RECEIPT OF AN
ORDER OR AS SOON AS PRACTICABLE FOLLOWING THE EXPIRATION DATE OF THE OFFERING.
IF YOUR ORDER IS REJECTED IN PART, YOU WILL NOT HAVE THE RIGHT TO CANCEL THE
REMAINDER OF YOUR ORDER.
SYNDICATED COMMUNITY OFFERING
The plan of conversion provides that, if necessary, all shares of
common stock not purchased in the subscription offering and community offering
may be offered for sale to the general public in a syndicated community offering
through a syndicate of registered broker-dealers to be formed and managed by FBR
acting as agent of First Federal Bancshares. Alternatively, First Federal
Bancshares may sell any remaining shares in an underwritten public offering.
Neither FBR nor any registered broker-dealer will have any obligation to take or
purchase any shares of the common stock in the syndicated community offering;
however, FBR has agreed to use its best efforts in the sale of shares in the
syndicated community offering. First Federal Bancshares has not selected any
particular broker-dealers to participate in a syndicated community offering. The
syndicated community offering will terminate no later than 45 days after the
expiration of the subscription offering, unless extended by First Federal
Bancshares and First Federal, with approval of the Office of Thrift Supervision.
See "--COMMUNITY OFFERING" above for a discussion of rights of subscribers in
the event an extension is granted.
THE OPPORTUNITY TO SUBSCRIBE FOR SHARES OF COMMON STOCK IN THE
SYNDICATED COMMUNITY OFFERING IS SUBJECT TO THE RIGHT OF FIRST FEDERAL
BANCSHARES AND FIRST FEDERAL TO REJECT ORDERS, IN WHOLE OR PART, EITHER AT THE
TIME OF RECEIPT OF AN ORDER OR AS SOON AS PRACTICABLE FOLLOWING THE EXPIRATION
DATE OF THE OFFERING. IF YOUR ORDER IS REJECTED IN PART, YOU WILL NOT HAVE THE
RIGHT TO CANCEL THE REMAINDER OF YOUR ORDER.
Stock sold in the syndicated community offering also will be sold at
the $10.00 purchase price. See "--STOCK PRICING AND NUMBER OF SHARES TO BE
ISSUED." Purchasers in the syndicated community offering are eligible to
purchase up to $150,000 of common stock (which equals 15,000 shares).
If First Federal is unable to find purchasers from the general public
for all unsubscribed shares, other purchase arrangements will be made by the
Board of Directors of First Federal, if feasible. Other purchase arrangements
must be approved by the Office of Thrift Supervision and may provide for
purchases for investment purposes by directors, officers, their associates and
other persons in excess of the limitations provided in the plan of conversion
and in excess of the proposed director purchases discussed earlier, although no
purchases are currently intended. If other purchase arrangements cannot be made,
the plan of conversion will terminate.
MARKETING AND UNDERWRITING ARRANGEMENTS
First Federal and First Federal Bancshares have retained FBR to consult
with and advise First Federal and to assist First Federal and First Federal
Bancshares, on a best efforts basis, in the distribution of shares in the
offering. FBR is a broker-dealer registered with the Securities and Exchange
Commission and a member of the National Association of Securities Dealers, Inc.
FBR will assist First Federal in the conversion by acting as marketing advisor
with respect to the subscription offering and will represent First Federal as
placement agent on a best efforts basis in the sale of the common stock in the
community offering if one is held. FBR will conduct training sessions with
directors, officers and employees of First Federal regarding the conversion
process, assist in the establishment and supervision of First Federal's
conversion center and, with management's input, train First Federal's staff to
record properly and tabulate orders for the purchase of common stock and to
respond appropriately to customer inquiries.
Based on negotiations between First Federal and First Federal
Bancshares concerning the fee structure, FBR will receive a fee equal to 1.5% of
the aggregate dollar amount of all stock sold in the subscription and community
offerings to persons other than the employee stock ownership plan, directors,
officers and employees of First Federal or First Federal Bancshares or their
immediate families. First Federal will pay FBR's fee upon completion of the
conversion. First Federal will reimburse FBR for its reasonable out-of-pocket
expenses, including legal fees.
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FBR has not prepared any report or opinion constituting a
recommendation or advice to First Federal Bancshares or First Federal or to
persons who subscribe for stock, nor has it prepared an opinion as to the
fairness to First Federal Bancshares or First Federal of the purchase price or
the terms of the stock to be sold. FBR expresses no opinion as to the prices at
which common stock to be issued may trade. Total marketing fees to FBR are
expected to range from approximately $214,000 at the minimum of the offering
range to approximately $341,000 at 15% above the maximum of the offering range.
See "PRO FORMA DATA" for the assumptions used to arrive at these estimates. FBR
and selected dealers participating in the syndicated community offering may
receive a commission in the syndicated community offering in a maximum amount to
be agreed upon by First Federal Bancshares and First Federal to reflect market
requirements at the time of the allocation of shares in the syndicated community
offering.
With certain limitations, First Federal Bancshares and First Federal
have also agreed to indemnify FBR against liabilities and expenses, including
legal fees, incurred in connection with certain claims or litigation arising out
of or based upon the performance of FBR of its services in connection with the
conversion.
DESCRIPTION OF SALES ACTIVITIES
First Federal Bancshares will offer the common stock in the
subscription offering and community offering principally by the distribution of
this prospectus and through activities conducted at First Federal's conversion
center. The conversion center is expected to operate during normal business
hours throughout the subscription offering and community offering. It is
expected that at any particular time one or more FBR employees will be working
at the conversion center. Employees of FBR will be responsible for mailing
materials relating to the offering, responding to questions regarding the
conversion and the offering and processing stock orders.
Sales of common stock will be made by registered representatives
affiliated with FBR or by the selected dealers managed by FBR. The management
and employees of First Federal may participate in the offering in clerical
capacities, providing administrative support in effecting sales transactions or,
when permitted by state securities laws, answering questions of a mechanical
nature relating to the proper execution of the order form. Management of First
Federal may answer questions regarding the business of First Federal when
permitted by state securities laws. Other questions of prospective purchasers,
including questions as to the advisability or nature of the investment, will be
directed to registered representatives. The management and employees of First
Federal Bancshares and First Federal have been instructed not to solicit offers
to purchase common stock or provide advice regarding the purchase of common
stock.
No officer, director or employee of First Federal or First Federal
Bancshares will be compensated, directly or indirectly, for any activities in
connection with the offer or sale of securities issued in the conversion.
None of First Federal's personnel participating in the offering is
registered or licensed as a broker or dealer or an agent of a broker or dealer.
First Federal's personnel will assist in the above-described sales activities
under an exemption from registration as a broker or dealer provided by Rule
3a4-1 promulgated under the Securities Exchange Act of 1934. Rule 3a4-1
generally provides that an "associated person of an issuer" of securities will
not be deemed a broker solely by reason of participation in the sale of
securities of the issuer if the associated person meets certain conditions.
These conditions include, but are not limited to, that the associated person
participating in the sale of an issuer's securities not be compensated in
connection with the offering at the time of participation, that the person not
be associated with a broker or dealer and that the person observe certain
limitations on his or her participation in the sale of securities. For purposes
of this exemption, "associated person of an issuer" is defined to include any
person who is a director, officer or employee of the issuer or a company that
controls, is controlled by or is under common control with the issuer.
PROCEDURE FOR PURCHASING SHARES IN THE SUBSCRIPTION AND COMMUNITY OFFERINGS
USE OF ORDER FORMS. To purchase shares in the subscription offering,
you must submit a properly completed and executed order form to First Federal by
12:00 Noon, Central time, on _________ __, 2000. Your order form must be
accompanied by full payment for all of the shares subscribed for or include
appropriate authorization in the space provided on the order form for withdrawal
of full payment from a deposit account with First Federal. In order to purchase
shares in the community offering, you must submit a properly completed and
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executed order form to First Federal, accompanied by the required payment for
each share subscribed for, before the community offering terminates, which may
be on or at any time after the end of the subscription offering.
In order to ensure that your stock purchase eligibility and priority
are properly identified, you must list all accounts on the order form, giving
all names in each account, the account number and the approximate account
balance as of the appropriate eligibility date.
First Federal Bancshares need not accept order forms that are received
after the expiration of the subscription offering or community offering, as the
case may be, or that are executed defectively or that are received without full
payment or without appropriate withdrawal instructions. In addition, First
Federal and First Federal Bancshares are not obligated to accept orders
submitted on photocopied or facsimilied stock order forms. First Federal
Bancshares and First Federal have the right to waive or permit the correction of
incomplete or improperly executed order forms, but do not represent that they
will do so. Notwithstanding the foregoing, First Federal and First Federal
Bancshares will have the right, each in their sole discretion, to permit
institutional investors to submit irrevocable orders together with a legally
binding commitment for payment and to thereafter pay for the shares of common
stock for which they subscribe in the community offering at any time prior to 48
hours before the completion of the conversion. Under the plan of conversion, the
interpretation by First Federal Bancshares and First Federal of the terms and
conditions of the plan of conversion and of the order form will be final. Once
received, an executed order form may not be modified, amended or rescinded
without the consent of First Federal unless the conversion has not been
completed within 45 days after the end of the subscription offering, unless
extended.
The reverse side of the order form contains a regulatory mandated
certification form. First Federal Bancshares will not accept order forms on
which the certification form is not executed. By executing and returning the
certification form, you will be certifying that you received this prospectus and
acknowledging that the common stock is not a deposit account and is not insured
or guaranteed by any federal or state governmental agency. You will also be
acknowledging that you received disclosure concerning the risks involved in this
offering. The certification form could be used as support to show that you
understand the nature of this investment.
To ensure that each purchaser receives a prospectus at least 48 hours
before the end of the offering as required by Rule 15c2-8 under the Securities
Exchange Act of 1934, no prospectus will be mailed any later than five days
before that date or hand delivered any later than two days before that date.
Execution of the order form will confirm receipt or delivery under Rule 15c2-8.
Order forms will be distributed only when preceded or accompanied by a
prospectus.
PAYMENT FOR SHARES. Payment for subscriptions may be made by cash,
check, bank draft or money order, or by authorization of withdrawal from deposit
accounts maintained with First Federal. Appropriate means by which withdrawals
may be authorized are provided on the order form. No wire transfers or third
party checks will be accepted. Interest will be paid on payments made by cash,
check, bank draft or money order at First Federal's passbook rate from the date
payment is received at the conversion center until the completion or termination
of the conversion. If payment is made by authorization of withdrawal from
deposit accounts, the funds authorized to be withdrawn from a deposit account
will continue to accrue interest at the contractual rates until completion or
termination of the conversion, unless the certificate matures after the date of
receipt of the order form but before closing, in which case funds will earn
interest at the passbook rate from the date of maturity until the conversion is
completed or terminated, but a hold will be placed on the funds, making them
unavailable to the depositor until completion or termination of the conversion.
When the conversion is completed, the funds received in the offering will be
used to purchase the shares of common stock ordered. THE SHARES OF COMMON STOCK
ISSUED IN THE CONVERSION CANNOT AND WILL NOT BE INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. If the conversion is not
consummated for any reason, all funds submitted will be promptly refunded with
interest as described above.
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If a subscriber authorizes First Federal to withdraw the amount of the
purchase price from his or her deposit account, First Federal will do so as of
the effective date of conversion, though the account must contain the full
amount necessary for payment at the time the subscription order is received.
First Federal will waive any applicable penalties for early withdrawal from
certificate accounts. If the remaining balance in a certificate account is
reduced below the applicable minimum balance requirement at the time funds are
actually transferred under the authorization, the certificate will be canceled
at the time of the withdrawal, without penalty, and the remaining balance will
earn interest at First Federal's passbook rate.
The employee stock ownership plan will not be required to pay for the
shares subscribed for at the time it subscribes, but rather may pay for shares
of common stock subscribed for upon the completion of the conversion; provided
that there is in force from the time of its subscription until that time, a loan
commitment from an unrelated financial institution or First Federal Bancshares
to lend to the employee stock ownership plan, at that time, the aggregate
purchase price of the shares for which it subscribed.
Individual retirement accounts maintained in First Federal do not
permit investment in the common stock. A depositor interested in using his or
her individual retirement account funds to purchase common stock must do so
through a self-directed individual retirement account. Since First Federal does
not offer those accounts, First Federal will allow a depositor to make a
trustee-to-trustee transfer of the individual retirement account funds to a
trustee offering a self-directed individual retirement account program with the
agreement that the funds will be used to purchase First Federal Bancshares'
common stock in the offering. There will be no early withdrawal or Internal
Revenue Service interest penalties for transfers. The new trustee would hold the
common stock in a self-directed account in the same manner as First Federal now
holds the depositor's individual retirement account funds. An annual
administrative fee may be payable to the new trustee. Depositors interested in
using funds in an individual retirement account at First Federal to purchase
common stock should contact the conversion center as soon as possible so that
the necessary forms may be forwarded for execution and returned before the
subscription offering ends. In addition, federal laws and regulations require
that officers, directors and 10% shareholders who use self-directed individual
retirement account funds to purchase shares of common stock in the subscription
offering, make purchases for the exclusive benefit of individual retirement
accounts.
Certificates representing shares of common stock purchased, and any
refund due, will be mailed to purchasers at the address specified in properly
completed order forms or to the last address of the persons appearing on the
records of First Federal as soon as practicable following the sale of all shares
of common stock. Any certificates returned as undeliverable will be disposed of
as required by applicable law. PURCHASERS MAY NOT BE ABLE TO SELL THE SHARES OF
COMMON STOCK WHICH THEY PURCHASED UNTIL CERTIFICATES FOR THE COMMON STOCK ARE
AVAILABLE AND DELIVERED TO THEM, EVEN THOUGH TRADING OF THE COMMON STOCK MAY
HAVE BEGUN.
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED
Federal regulations require that the aggregate purchase price of the
securities sold in connection with the conversion be based upon an estimated pro
forma value of First Federal Bancshares and First Federal as converted (I.E.,
taking into account the expected receipt of proceeds from the sale of securities
in the conversion), as determined by an independent appraisal. First Federal and
First Federal Bancshares have retained RP Financial, which is experienced in the
evaluation and appraisal of business entities, to prepare an appraisal of the
pro forma market value of First Federal Bancshares and First Federal as
converted and to assist First Federal in preparing a business plan. RP Financial
will receive a fee expected to total approximately $35,000 for its appraisal
services and assistance in the preparation of a business plan, plus reasonable
out-of-pocket expenses incurred in connection with the appraisal. First Federal
has agreed to indemnify RP Financial under certain circumstances against
liabilities and expenses, including legal fees, arising out of, related to, or
based upon the conversion.
RP Financial has prepared an appraisal of the estimated pro forma
market value of First Federal Bancshares and First Federal as converted taking
into account the formation of First Federal Bancshares as the holding company
for First Federal. For its analysis, RP Financial undertook substantial
investigations to learn about First Federal's business and operations.
Management supplied financial information, including annual financial
statements, information on the composition of assets and liabilities, and other
financial schedules. In addition to this information, RP Financial reviewed
First Federal's conversion application as filed with the Office of Thrift
Supervision and First Federal Bancshares' registration statement as filed with
the Securities and Exchange
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Commission. Furthermore, RP Financial visited First Federal's facilities and had
discussions with First Federal's management and its special conversion legal
counsel, Muldoon, Murphy & Faucette LLP. RP Financial did not perform a detailed
individual analysis of the separate components of First Federal Bancshares' or
First Federal's assets and liabilities.
RP Financial's analysis utilized three selected valuation
procedures, the price/book method, the price/earnings method, and
price/assets method, all of which are described in its report. RP Financial
placed the greatest emphasis on the price/earnings and price/book methods in
estimating pro forma market value. In applying these procedures, RP Financial
reviewed, among other factors, the economic make-up of First Federal's
primary market area, First Federal's financial performance and condition in
relation to publicly traded institutions that RP Financial deemed comparable
to First Federal, the specific terms of the offering of First Federal
Bancshares' common stock, the pro forma impact of the additional capital
raised in the conversion, conditions of securities markets in general, and
the market for thrift institution common stock in particular. RP Financial's
analysis provides an approximation of the pro forma market value of First
Federal Bancshares and First Federal as converted based on the valuation
methods applied and the assumptions outlined in its report. Included in its
report were certain assumptions as to the pro forma earnings of First Federal
Bancshares after the conversion that were utilized in determining the
appraised value. These assumptions included estimated expenses and an assumed
after-tax rate of return on the net conversion proceeds as described under
"PRO FORMA DATA," purchases by the employee stock ownership plan of an amount
equal to 8% of the common stock sold in the conversion and purchases in the
open market by the stock-based incentive plan of a number of shares equal to
4% of the common stock sold in the conversion at the $10.00 purchase price.
See "PRO FORMA DATA" for additional information concerning these assumptions.
The use of different assumptions may yield different results.
On the basis of the analysis in its report, RP Financial has advised
First Federal Bancshares and First Federal that, in its opinion, as of April 28,
2000, the estimated pro forma market value of First Federal Bancshares and First
Federal, as converted, was within the valuation range of $16,575,000 to
$22,425,000 with a midpoint of $19,500,000. After reviewing the methodology and
the assumptions used by RP Financial in the preparation of the appraisal, the
Board of Directors established the offering range, which is equal to the
valuation range, of $16,575,000 to $22,425,000 with a midpoint of $19,500,000.
Assuming that the shares are sold at $10.00 per share in the conversion, the
estimated number of shares would be between 1,657,500 and 2,242,500 with a
midpoint of 1,950,000. The purchase price of $10.00 was determined by discussion
among the Boards of Directors of First Federal and First Federal Bancshares and
FBR, taking into account, among other factors, the requirement under Office of
Thrift Supervision regulations that the common stock be offered in a manner that
will achieve the widest distribution of the stock and desired liquidity in the
common stock after the conversion. Since the outcome of the offering relates in
large measure to market conditions at the time of sale, it is not possible to
determine the exact number of shares that will be issued by First Federal
Bancshares at this time. The offering range may be amended, with the approval of
the Office of Thrift Supervision, if necessitated by developments following the
date of the appraisal in, among other things, market conditions, the financial
condition or operating results of First Federal, regulatory guidelines or
national or local economic conditions. RP Financial's appraisal report is filed
as an exhibit to the registration statement that First Federal Bancshares has
filed with the Securities and Exchange Commission. See "WHERE YOU CAN FIND MORE
INFORMATION."
If, upon completion of the subscription offering, at least the minimum
number of shares are subscribed for, RP Financial, after taking into account
factors similar to those involved in its prior appraisal, will determine its
estimate of the pro forma market value of First Federal Bancshares and First
Federal as converted, as of the close of the subscription offering.
No shares will be sold unless RP Financial confirms that, to the best
of its knowledge and judgment, nothing of a material nature has occurred that
would cause it to conclude that the actual total purchase price on an aggregate
basis was materially incompatible with its estimate of the total pro forma
market value of First Federal Bancshares and First Federal as converted at the
time of the sale. If, however, the facts do not justify that statement, the
offering may be canceled, a new offering range and price per share set and new
subscription, community and syndicated community offerings held. Under those
circumstances, subscribers would have the right to modify or rescind their
subscriptions and to have their subscription funds returned promptly with
interest and holds on funds authorized for withdrawal from deposit accounts
would be released or reduced.
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Depending upon market and financial conditions, the number of shares
issued may be more than 2,242,500 shares or less than 1,657,500 shares. If the
total amount of shares issued is less than 1,657,500 or more than 2,578,875 (15%
above the maximum of the offering range), for aggregate gross proceeds of less
than $16,575,000 or more than $25,788,750, subscription funds will be returned
promptly with interest to each subscriber unless he or she indicates otherwise.
If RP Financial establishes a new valuation range, it must be approved by the
Office of Thrift Supervision.
In formulating its appraisal, RP Financial relied upon the
truthfulness, accuracy and completeness of all documents First Federal furnished
to it. RP Financial also considered financial and other information from
regulatory agencies, other financial institutions, and other public sources, as
appropriate. While RP Financial believes this information to be reliable, RP
Financial does not guarantee the accuracy or completeness of the information and
did not independently verify the financial statements and other data provided by
First Federal and First Federal Bancshares or independently value the assets or
liabilities of First Federal Bancshares and First Federal. THE APPRAISAL IS NOT
INTENDED TO BE, AND MUST NOT BE INTERPRETED AS, A RECOMMENDATION OF ANY KIND AS
TO THE ADVISABILITY OF VOTING TO APPROVE THE PLAN OF CONVERSION OR OF PURCHASING
SHARES OF COMMON STOCK. MOREOVER, BECAUSE THE APPRAISAL MUST BE BASED ON MANY
FACTORS WHICH CHANGE PERIODICALLY, THERE IS NO ASSURANCE THAT PURCHASERS OF
SHARES IN THE CONVERSION WILL BE ABLE TO SELL SHARES AFTER THE CONVERSION AT
PRICES AT OR ABOVE THE PURCHASE PRICE.
Copies of the appraisal report of RP Financial including any amendments
thereto, and the detailed memorandum of the appraiser setting forth the method
and assumptions for such appraisal are available for inspection at the main
office of First Federal and the other locations specified under "WHERE YOU CAN
FIND MORE INFORMATION."
LIMITATIONS ON PURCHASES OF SHARES
The plan of conversion imposes limitations upon the purchase of common
stock by eligible subscribers and others in the conversion. In addition to the
purchase limitations described above under "--SUBSCRIPTION OFFERING AND
SUBSCRIPTION RIGHTS," "--COMMUNITY OFFERING" and "--SYNDICATED COMMUNITY
OFFERING," the plan of conversion provides for the following purchase
limitations:
- Except for First Federal's tax-qualified employee benefit plans,
no person, either alone or together with associates of or persons
acting in concert with such person, may purchase in the aggregate
more than 1.0% of the common stock offered (which equals 22,425
shares), subject to increase as described below.
- The Board of Directors and the executive officers of First
Federal, together with their associates, may purchase up to
31.44% of the common stock sold in the offering.
- Each subscriber must subscribe for a minimum of 25 shares.
The 1.0% limitation applies to individual purchases in the offering,
aggregated with purchases by the person's associates and those persons acting in
concert with the purchaser. If you purchase $150,000 of common stock in the
subscription offering, you may still purchase up to $74,250 of common stock in
the community offering. Alternatively, if you purchase $150,000 of common stock
in the subscription offering, your associates and persons acting in concert with
you may purchase in the aggregate up to $74,250 of common stock in the
subscription offering and/or community offering.
For purposes of the plan of conversion, the directors are not deemed to
be acting in concert solely by reason of their Board membership. Pro rata
reductions within each subscription rights category will be made in allocating
shares if the maximum purchase limitations are exceeded.
First Federal's and First Federal Bancshares' Boards of Directors may,
in their sole discretion, increase the maximum purchase limitation up to 9.99%
of the shares of common stock sold in the conversion, provided that orders for
shares that exceed 5% of the shares of common stock sold in the conversion may
not exceed, in the aggregate, 10% of the shares sold in the conversion. First
Federal and First Federal Bancshares do not intend to
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increase the maximum purchase limitation unless market conditions warrant an
increase in the maximum purchase limitation and the sale of a number of shares
in excess of the minimum of the offering range. If the Boards of Directors
decide to increase the purchase limitations, persons who subscribed for the
maximum number of shares of common stock will be given the opportunity to
increase their subscriptions accordingly, subject to the rights and preferences
of any person who has priority subscription rights. First Federal Bancshares and
First Federal, in their discretion, also may give other large subscribers the
right to increase their subscriptions.
The plan of conversion defines "acting in concert" to mean knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not by an express agreement; or a combination
or pooling of voting or other interests in the securities of an issuer for a
common purpose under any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise. In general, a person who acts
in concert with another party will also be deemed to be acting in concert with
any person who is also acting in concert with that other party. FIRST FEDERAL
BANCSHARES AND FIRST FEDERAL MAY PRESUME THAT CERTAIN PERSONS ARE ACTING IN
CONCERT BASED UPON, AMONG OTHER THINGS, JOINT ACCOUNT RELATIONSHIPS AND THE FACT
THAT PERSONS MAY HAVE FILED JOINT SCHEDULES 13D OR 13G WITH THE SECURITIES AND
EXCHANGE COMMISSION WITH RESPECT TO OTHER COMPANIES.
The plan of conversion defines "associate," with respect to a
particular person, to mean:
1. any corporation or organization other than First Federal or a
majority-owned subsidiary of First Federal of which a person is
an officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity
securities;
2. any trust or other estate in which a person has a substantial
beneficial interest or as to which a person serves as trustee or
in a similar fiduciary capacity; and
3. any relative or spouse of a person, or any relative of a spouse,
who either has the same home as a person or who is a director or
officer of First Federal or any of its parents or subsidiaries.
For example, a corporation of which a person serves as an officer would
be an associate of a person and, therefore, all shares purchased by a
corporation would be included with the number of shares that a person could
purchase individually under the purchase limitations described above.
The plan of conversion defines "officer" to mean an executive officer
of First Federal, including its Chief Executive Officer, President, Executive
Vice Presidents, Senior Vice Presidents, Vice Presidents in charge of principal
business functions, Secretary, Treasurer and Controller.
RESTRICTIONS ON REPURCHASE OF STOCK
Under Office of Thrift Supervision regulations, savings associations
and their holding companies may not for a period of three years from the date of
an institution's mutual-to-stock conversion repurchase any of its common stock
from any person, except in an offer made to all of its stockholders to
repurchase the common stock on a pro rata basis, approved by the Office of
Thrift Supervision, or the repurchase of qualifying shares of a director.
Furthermore, repurchases of any common stock are prohibited if they would cause
the association's regulatory capital to be reduced below the amount required for
the liquidation account or the regulatory capital requirements imposed by the
Office of Thrift Supervision. Repurchases are generally prohibited during the
first year following conversion. Upon ten days' written notice to the Office of
Thrift Supervision, and if the Office of Thrift Supervision does not object, an
institution may make open market repurchases of its outstanding common stock
during years two and three following the conversion, provided that certain
regulatory conditions are met and that the repurchase would not adversely affect
the financial condition of the institution. Any repurchases of common stock by
First Federal Bancshares must meet these regulatory restrictions unless the
Office of Thrift Supervision provides otherwise.
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CERTAIN RESTRICTIONS ON TRANSFER OF SHARES AFTER THE CONVERSION
Common stock purchased in the conversion will be freely transferable,
except for shares purchased by directors and officers of First Federal and First
Federal Bancshares and by NASD members.
Shares of common stock purchased by directors and officers of First
Federal and First Federal Bancshares may not be sold for a period of one year
following the conversion, except upon the death of the stockholder or unless
approved by the Office of Thrift Supervision. Shares purchased by these persons
after the conversion will be free of this restriction. Shares of common stock
issued by First Federal Bancshares to directors and officers will bear a legend
giving appropriate notice of the restriction and, in addition, First Federal
Bancshares will give appropriate instructions to the transfer agent for First
Federal Bancshares' common stock with respect to the restriction on transfers.
Any shares issued to directors and officers as a stock dividend, stock split or
otherwise with respect to restricted common stock will be similarly restricted.
Purchases of outstanding shares of common stock of First Federal
Bancshares by directors, officers, or any person who was an executive officer or
director of First Federal after adoption of the plan of conversion, and their
associates during the three-year period following the conversion may be made
only through a broker or dealer registered with the Securities and Exchange
Commission, except with the prior written approval of the Office of Thrift
Supervision. This restriction does not apply, however, to negotiated
transactions involving more than 1% of First Federal Bancshares' outstanding
common stock or to the purchase of stock under stock benefit plans.
First Federal Bancshares has filed with the Securities and Exchange
Commission a registration statement under the Securities Act of 1933 for the
registration of the common stock to be issued in the conversion. This
registration does not cover the resale of the shares. Shares of common stock
purchased by persons who are not affiliates of First Federal Bancshares may be
resold without registration. Shares purchased by an affiliate of First Federal
Bancshares will have resale restrictions under Rule 144 of the Securities Act.
If First Federal Bancshares meets the current public information requirements of
Rule 144, each affiliate of First Federal Bancshares who complies with the other
conditions of Rule 144, including those that require the affiliate's sale to be
aggregated with those of certain other persons, would be able to sell in the
public market, without registration, a number of shares not to exceed, in any
three-month period, the greater of 1% of the outstanding shares of First Federal
Bancshares or the average weekly volume of trading in the shares during the
preceding four calendar weeks. Provision may be made in the future by First
Federal Bancshares to permit affiliates to have their shares registered for sale
under the Securities Act under certain circumstances.
Under guidelines of the National Association of Securities Dealers,
Inc., members of that organization and their associates face certain
restrictions on the transfer of securities purchased with subscription rights
and to certain reporting requirements upon purchase of the securities.
INTERPRETATION, AMENDMENT AND TERMINATION
To the extent permitted by law, all interpretations of the plan of
conversion by First Federal will be final; however, such interpretations have no
binding effect on the Office of Thrift Supervision. The plan of conversion
provides that, if deemed necessary or desirable by the Board of Directors, the
plan of conversion may be substantively amended by the Board of Directors as a
result of comments from regulatory authorities or otherwise, without the further
approval of First Federal's members.
Completion of the conversion requires the sale of all shares of the
common stock within 24 months following approval of the plan of conversion by
First Federal's members. If this condition is not satisfied, the plan of
conversion will be terminated and First Federal will continue its business in
the mutual form of organization. First Federal's Board of Directors may
terminate the plan of conversion at any time.
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RESTRICTIONS ON ACQUISITION OF FIRST FEDERAL BANCSHARES
AND FIRST FEDERAL
GENERAL
First Federal's plan of conversion provides for the conversion of First
Federal from the mutual to the stock form of organization and, as part of the
conversion, the adoption of a new federal stock charter and bylaws by First
Federal's members. The plan of conversion also provides for the concurrent
formation of a holding company. See "THE CONVERSION--GENERAL." As described
below and elsewhere in this document, certain provisions in First Federal
Bancshares' certificate of incorporation and bylaws may have anti-takeover
effects. In addition, provisions in First Federal's federal stock charter and
bylaws may also have anti-takeover effects. Finally, Delaware corporate law and
regulatory restrictions may make it difficult for persons or companies to
acquire control of either First Federal Bancshares or First Federal.
RESTRICTIONS IN FIRST FEDERAL BANCSHARES' CERTIFICATE OF INCORPORATION AND
BYLAWS
First Federal Bancshares' certificate of incorporation and bylaws
contain provisions that could make more difficult an acquisition of First
Federal Bancshares by means of a tender offer, proxy context or otherwise. Some
provisions will also render the removal of the incumbent Board of Directors or
management of First Federal Bancshares more difficult. These provisions may have
the effect of deterring a future takeover attempt that is not approved by the
directors of First Federal Bancshares, but which First Federal Bancshares
stockholders may deem to be in their best interests or in which stockholders may
receive a substantial premium for their shares over then current market prices.
As a result, stockholders who might desire to participate in such a transaction
may not have the opportunity to do so. The following description of these
provisions is only a summary and does not provide all of the information
contained in First Federal Bancshares' certificate of incorporation and bylaws.
See "WHERE YOU CAN FIND MORE INFORMATION" as to where to obtain a copy of these
documents.
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS. The certificate of
incorporation requires the approval of the holders of at least 80% of First
Federal Bancshares' outstanding shares of voting stock entitled to vote to
approve certain "business combinations" with an "interested stockholder." This
supermajority voting requirement will not apply in cases where the proposed
transaction has been approved by a majority of those members of First Federal
Bancshares' Board of Directors who are unaffiliated with the interested
stockholder and who were directors before the time when the interested
stockholder became an interested stockholder or if the proposed transaction
meets certain conditions that are designed to afford the stockholders a fair
price in consideration for their shares. In each such case, where stockholder
approval is required, the approval of only a majority of the outstanding shares
of voting stock is sufficient. Under Delaware law, absent this provision,
business combinations must be approved by the vote of the holders of only a
majority of the outstanding shares of common stock of First Federal Bancshares
and any other affected class of stock unless the transaction is with a person
who owns 15% or more of the corporation's voting stock.
The term "interested stockholder" includes any individual, group acting
in concert, corporation, partnership, association or other entity (other than
First Federal Bancshares or its subsidiary) who or which is the beneficial
owner, directly or indirectly, of 10% or more of the outstanding shares of
voting stock of First Federal Bancshares.
A "business combination" includes:
1. any merger or consolidation of First Federal Bancshares or any of
its subsidiaries with any interested stockholder or affiliate of
an interested stockholder or any corporation which is, or after
such merger or consolidation would be, an affiliate of an
interested stockholder;
2. any sale or other disposition to or with any interested
stockholder of 25% or more of the assets of First Federal
Bancshares or combined assets of First Federal Bancshares and its
subsidiaries;
3. the issuance or transfer to any interested stockholder or its
affiliate by First Federal Bancshares (or any subsidiary) of any
securities of First Federal Bancshares (or any subsidiary) in
exchange for any cash,
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securities or other property the value of which equals or exceeds
25% of the fair market value of the common stock of First Federal
Bancshares;
4. the adoption of any plan for the liquidation or dissolution of
First Federal Bancshares proposed by or on behalf of any
interested stockholder or its affiliate; and
5. any reclassification of securities, recapitalization, merger or
consolidation of First Federal Bancshares with any of its
subsidiaries which has the effect of increasing the proportionate
share of common stock or any class of equity or convertible
securities of First Federal Bancshares or subsidiary owned
directly or indirectly, by an interested stockholder or its
affiliate.
LIMITATION ON VOTING RIGHTS. The certificate of incorporation of First
Federal Bancshares provides that no record owner of any outstanding First
Federal Bancshares common stock which is beneficially owned, directly or
indirectly, by a person who beneficially owns in excess of 10% of the then
outstanding shares of First Federal Bancshares common stock will be entitled or
permitted to any vote in respect of the shares held in excess of the 10% limit.
Beneficial ownership is determined pursuant to the federal securities laws and
includes shares beneficially owned by such person or any of his or her
affiliates (as defined in the certificate of incorporation), shares which such
person or his or her affiliates have the right to acquire upon the exercise of
conversion rights or options and shares as to which such person and his or her
affiliates have or share investment or voting power, but does not include shares
beneficially owned by directors, officers and employees of First Federal or
First Federal Bancshares or shares that are subject to a revocable proxy and
that are not otherwise beneficially, or deemed by First Federal Bancshares to be
beneficially, owned by such person and his or her affiliates.
EVALUATION OF OFFERS. The certificate of incorporation of First Federal
Bancshares further provides that the Board of Directors of First Federal
Bancshares, when evaluating an offer, to (1) make a tender or exchange offer for
any equity security of First Federal Bancshares, (2) merge or consolidate First
Federal Bancshares with another corporation or entity or (3) purchase or
otherwise acquire all or substantially all of the properties and assets of First
Federal Bancshares, may, in connection with the exercise of its judgment in
determining what is in the best interest of First Federal Bancshares and the
stockholders of First Federal Bancshares, give consideration to those factors
that directors of any subsidiary (including First Federal) may consider in
evaluating any action that may result in a change or potential change of control
of such subsidiary, and the social and economic effects of acceptance of such
offer on: First Federal Bancshares' present and future customers and employees
and those of its subsidiaries (including First Federal); the communities in
which First Federal Bancshares and First Federal operate or are located; the
ability of First Federal Bancshares to fulfill its corporate objectives as a
savings and loan holding company; and the ability of First Federal to fulfill
the objectives of a stock savings bank under applicable statutes and
regulations. By having these standards in the certificate of incorporation of
First Federal Bancshares, the Board of Directors may be in a stronger position
to oppose such a transaction if the Board concludes that the transaction would
not be in the best interest of First Federal Bancshares, even if the price
offered is significantly greater than the then market price of any equity
security of First Federal Bancshares.
BOARD OF DIRECTORS
CLASSIFIED BOARD. The Board of Directors of First Federal Bancshares is
divided into three classes, each of which contains approximately one-third of
the number of directors. The stockholders elect one class of directors each year
for a term of three years. The classified Board makes it more difficult and time
consuming for a stockholder group to fully use its voting power to gain control
of the Board of Directors without the consent of the incumbent Board of
Directors of First Federal Bancshares.
FILLING OF VACANCIES; REMOVAL. The certificate of incorporation
provides that any vacancy occurring in the First Federal Bancshares Board,
including a vacancy created by an increase in the number of directors, may be
filled by a vote of a majority of the directors then in office. A person
appointed to fill a vacancy on the Board of Directors will serve until the
expiration of his or her term. The certificate of incorporation of First Federal
Bancshares provides that a director may be removed from the Board of Directors
prior to the expiration of his or her term only for cause and only upon the vote
of 80% of the outstanding shares of voting stock. These provisions make it more
difficult for stockholders to remove directors and replace them with their own
nominees.
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QUALIFICATION. The bylaws provide that to be eligible to serve on the
Board of Directors of First Federal Bancshares a person must reside in a county
in which an office of First Federal is located or in an adjacent county. In
addition, no person 78 years of age or older is eligible to be elected or
appointed to the Board of Directors. This age limitation does not apply to the
members of the initial Board of Directors of First Federal Bancshares. Finally,
the bylaws provide that no person will be eligible to serve on the Board of
Directors who has, in the past 10 years, been subject to a supervisory action
by a financial regulatory agency that involved fraud or other bad actions,
has been convicted of a crime involving dishonesty or breach of trust that is
punishable by a year or more in prison, or is currently charged with such a
crime. These provisions may prevent stockholders from nominating themselves
or persons of their choosing for election to the Board of Directors.
STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS OF
STOCKHOLDERS. Stockholders of First Federal Bancshares must act only through an
annual or special meeting. Stockholders cannot act by written consent in lieu of
a meeting. The certificate of incorporation provides that only a majority of the
Board of Directors of First Federal Bancshares may call special meetings of the
stockholders of First Federal Bancshares. Stockholders are not able to call a
special meeting or require that the Board do so. At a special meeting,
stockholders may consider only the business specified in the notice of meeting
given by First Federal Bancshares. The provisions of First Federal Bancshares'
certificate of incorporation prohibiting stockholder action by written consent
may have the effect of delaying consideration of a stockholder proposal until
the next annual meeting, unless a special meeting is called at the request of a
majority of the Board of Directors. These provisions also would prevent the
holders of a majority of common stock from unilaterally using the written
consent procedure to take stockholder action. Moreover, a stockholder could not
force stockholder consideration of a proposal between annual meetings over the
opposition of the Board of Directors by calling a special meeting of
stockholders.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND PROPOSALS.
The First Federal Bancshares bylaws establish an advance notice procedure for
stockholders to nominate directors or bring other business before an annual
meeting of stockholders of First Federal Bancshares. A person may not be
nominated for election as a director unless that person is nominated by or at
the direction of the First Federal Bancshares Board or by a stockholder who has
given appropriate notice to First Federal Bancshares before the meeting.
Similarly, a stockholder may not bring business before an annual meeting unless
the stockholder has given First Federal Bancshares appropriate notice of its
intention to bring that business before the meeting. First Federal Bancshares'
Secretary must receive notice of the nomination or proposal not less than 90
days and not more than 120 days prior to the annual meeting. A stockholder who
desires to raise new business must provide certain information to First Federal
Bancshares concerning the nature of the new business, the stockholder and the
stockholder's interest in the business matter. Similarly, a stockholder wishing
to nominate any person for election as a director must provide First Federal
Bancshares with certain information concerning the nominee and the proposing
stockholder.
Advance notice of nominations or proposed business by stockholders
gives the First Federal Bancshares Board time to consider the qualifications of
the proposed nominees, the merits of the proposals and, to the extent deemed
necessary or desirable by the First Federal Bancshares Board, to inform
stockholders and make recommendations about those matters.
PREFERRED STOCK. The certificate of incorporation authorizes the First
Federal Bancshares Board to establish one or more series of preferred stock and,
for any series of preferred stock, to determine the terms and rights of the
series, including voting rights, conversion rates, and liquidation preferences.
Although the First Federal Bancshares Board has no intention at the present time
of doing so, it could issue a series of preferred stock that could, depending on
its terms, impede a merger, tender offer or other takeover attempt. The First
Federal Bancshares Board will make any determination to issue shares with those
terms based on its judgment as to the best interests of First Federal Bancshares
and its stockholders.
AMENDMENT OF CERTIFICATE OF INCORPORATION. First Federal Bancshares'
certificate of incorporation requires the affirmative vote of 80% of the
outstanding voting stock entitled to vote to amend or repeal certain provisions
of the certificate of incorporation, including the provision limiting voting
rights, the provisions relating to approval of business combinations with
related persons, acting by written consent, calling special meetings, the number
and classification of directors, director and officer indemnification by First
Federal Bancshares and amendment of First Federal Bancshares' bylaws and
certificate of incorporation. These supermajority voting
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requirements make it more difficult for the stockholders to amend these
provisions of the First Federal Bancshares certificate of incorporation.
ANTI-TAKEOVER EFFECTS OF FIRST FEDERAL BANCSHARES' CERTIFICATE OF INCORPORATION
AND BYLAWS AND MANAGEMENT REMUNERATION ADOPTED IN CONVERSION
The provisions described above are intended to reduce First Federal
Bancshares' vulnerability to takeover attempts and other transactions which have
not been negotiated with and approved by members of its Board of Directors.
Provisions of the stock-based incentive plan provide for accelerated benefits to
participants if a change in control of First Federal Bancshares or First Federal
occurs or a tender or exchange offer for their stock is made. See "MANAGEMENT OF
FIRST FEDERAL--BENEFITS--STOCK-BASED INCENTIVE PLAN." First Federal Bancshares
and First Federal have also entered into agreements with key officers and
intends to establish the Severance Compensation Plan which will provide such
officers and eligible employees with additional payments and benefits on the
officer's termination in connection with a change in control of First Federal
Bancshares or First Federal. See "MANAGEMENT OF FIRST FEDERAL BANK--EXECUTIVE
COMPENSATION--EMPLOYMENT AGREEMENTS," anD "MANAGEMENT OF FIRST FEDERaL
BANK--EXECUTIVE COMPENSATION--EMPLOYEE SEVERANCE COMPENSATION PLAN." The
foregoing provisions and limitations may make it more difficult for companies or
persons to acquire control of First Federal Bancshares. Additionally, the
provisions could deter offers to acquire the outstanding shares of First Federal
Bancshares which might be viewed by stockholders to be in their best interests.
First Federal Bancshares' Board of Directors believes that the
provisions of the certificate of incorporation and bylaws are in the best
interest of First Federal Bancshares and its stockholders. An unsolicited
non-negotiated takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Accordingly, the Board
of Directors believes it is in the best interests of First Federal Bancshares
and its stockholders to encourage potential acquirors to negotiate directly with
management and that these provisions will encourage such negotiations and
discourage non-negotiated takeover attempts.
DELAWARE CORPORATE LAW
The State of Delaware has a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The Delaware
takeover statute is intended to discourage certain takeover practices by
impeding the ability of a hostile acquiror to engage in certain transactions
with the target company.
In general, the statute provides that a "person" who owns 15% or more
of the outstanding voting stock of a Delaware corporation (an "interested
stockholder") may not consummate a merger or other business combination
transaction with such corporation at any time during the three-year period
following the date such person became an interested stockholder. The term
"business combination" is defined broadly to cover a wide range of corporate
transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of
the statute: (1) any business combination if, before the date a person became an
interested stockholder, the board of directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder; (2) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he became an interested stockholder, excluding, for purposes of
determining the number of shares outstanding, shares owned by the corporation's
directors who are also officers and specific employee stock plans; (3) any
business combination with an interested stockholder that is approved by the
board of directors and by a two-thirds vote of the outstanding voting stock not
owned by the interested stockholder; and (4) certain business combinations that
are proposed after the corporation had received other acquisition proposals and
which are approved or not opposed by a majority of certain continuing members of
the board of directors. A corporation may exempt itself from the requirements of
the statute by adopting an amendment to its certificate of incorporation or
bylaws electing not to be governed by Section 203. At the present time, the
Board of Directors does not intend to propose any such amendment.
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RESTRICTIONS IN FIRST FEDERAL'S FEDERAL STOCK CHARTER AND BYLAWS
Although the Board of Directors of First Federal is not aware of any
effort that might be made to obtain control of First Federal after the
conversion, the Board of Directors believes that it is appropriate to adopt
provisions permitted by federal regulation to protect the interests of the
converted bank and its stockholders from any hostile takeover. These provisions
may, indirectly, inhibit a change in control of First Federal Bancshares, as
First Federal's sole stockholder. See "RISK FACTORS--ANTI-TAKEOVER PROVISIONS
AND STATUTORY PROVISIONS COULD MAKE TAKEOVER ATTEMPTS MORE DIFFICULT TO
ACHIEVE."
First Federal's federal stock charter will contain a provision whereby
the acquisition of beneficial ownership of more than 10% of the issued and
outstanding shares of any class of equity securities of First Federal by any
person (I.E., any individual, corporation, group acting in concert, trust,
partnership, joint stock company or similar organization), either directly or
through an affiliate, will be prohibited for a period of five years following
the date of completion of the conversion. If shares are acquired in violation of
this provision of First Federal's federal stock charter, all shares beneficially
owned by any person in excess of 10% will be considered "excess shares" and will
not be counted as shares entitled to vote and will not be voted by any person or
counted as voting shares in connection with any matters submitted to the
stockholders for a vote. This limitation will not apply to any transaction in
which First Federal forms a holding company without a change in the respective
beneficial ownership interests of its stockholders other than by the exercise of
any dissenter or appraisal rights. If holders of revocable proxies for more than
10% of the shares of the common stock of First Federal Bancshares seek, among
other things, to elect one-third or more of First Federal Bancshares' Board of
Directors, to cause First Federal Bancshares' stockholders to approve the
acquisition or corporate reorganization of First Federal Bancshares or to exert
a continuing influence on a material aspect of the business operations of First
Federal Bancshares, which actions could indirectly result in a change in control
of First Federal, the Board of Directors of First Federal will be able to assert
this provision of First Federal's federal stock charter against such holders.
Although the Board of Directors of First Federal is not currently able to
determine when and if it would assert this provision of First Federal's federal
stock charter, the Board, in exercising its fiduciary duty, may assert this
provision if it were deemed to be in the best interests of First Federal, First
Federal Bancshares and its stockholders. It is unclear, however, whether this
provision, if asserted, would be successful against such persons in a proxy
contest which could result in a change in control of First Federal indirectly
through a change in control of First Federal Bancshares.
In addition, stockholders will not be permitted to cumulate their votes
in the election of Directors. Furthermore, First Federal's Bylaws provide for
the election of three classes of directors to staggered terms.
Finally, the federal stock charter provides for the issuance of shares
of preferred stock on terms, including conversion and voting rights, as may be
determined by First Federal's Board of Directors without stockholder approval.
Although First Federal has no arrangements, understandings or plans at the
present time for the issuance or use of the shares of undesignated preferred
stock proposed to be authorized, the Board believes that the availability of
such shares will provide First Federal with increased flexibility in structuring
possible future financings and acquisitions and in meeting other corporate needs
that may arise. If a proposed merger, tender offer or other attempt to gain
control of First Federal occurs of which management does not approve, the Board
can authorize the issuance of one or more series of preferred stock with rights
and preferences which could impede the completion of such a transaction. An
effect of the possible issuance of such preferred stock, therefore, may be to
deter a future takeover attempt. The Board does not intend to issue any
preferred stock except on terms which the Board deems to be in the best interest
of First Federal and its then existing stockholders.
REGULATORY RESTRICTIONS
OFFICE OF THRIFT SUPERVISION CONVERSION REGULATIONS. Regulations issued
by the Office of Thrift Supervision provide that for a period of three years
following the date of the completion of the conversion, no person, acting singly
or together with associates in a group of persons acting in concert, will
directly or indirectly offer to acquire or acquire the beneficial ownership of
more than 10% of any class of any equity security of First Federal Bancshares
without the prior written approval of the Office of Thrift Supervision. Where
any person, directly or indirectly, acquires beneficial ownership of more than
10% of any class of any equity security of First Federal Bancshares without the
prior written approval of the Office of Thrift Supervision, the securities
beneficially owned by such person in excess of 10% will not be voted by any
person or counted as voting shares in connection
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with any matter submitted to the stockholders for a vote, and will not be
counted as outstanding for purposes of determining the affirmative vote
necessary to approve any matter submitted to the stockholders for a vote.
CHANGE IN BANK CONTROL ACT. The acquisition of 10% or more of the
common stock outstanding may trigger the provisions of the Change in Bank
Control Act. The Office of Thrift Supervision has also adopted a regulation
under the Change in Bank Control Act which generally requires persons who at any
time intend to acquire control of a federally chartered savings association,
including a converted savings bank such as First Federal, to provide 60 days
prior written notice and certain financial and other information to the Office
of Thrift Supervision.
The 60-day notice period does not commence until the information is
deemed to be substantially complete. Control for the purpose of this Act exists
in situations in which the acquiring party has voting control of at least 25% of
any class of First Federal Bancshares' voting stock or the power to direct the
management or policies of First Federal Bancshares. However, under Office of
Thrift Supervision regulations, control is presumed to exist where the acquiring
party has voting control of at least 10% of any class of First Federal
Bancshares' voting securities if specified "control factors" are present. The
statute and underlying regulations authorize the Office of Thrift Supervision to
disapprove a proposed acquisition on certain specified grounds.
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DESCRIPTION OF FIRST FEDERAL BANCSHARES STOCK
- --------------------------------------------------------------------------------
The common stock of First Federal Bancshares will represent
nonwithdrawable capital, will not be an account of any type, and will
not be insured by the Federal Deposit Insurance Corporation or any
other government agency.
- --------------------------------------------------------------------------------
GENERAL
First Federal Bancshares is authorized to issue 4,000,000 shares of
common stock having a par value of $.01 per share and 1,000,000 shares of
preferred stock having a par value of $.01 per share. First Federal Bancshares
will not issue any shares of preferred stock in the conversion. Each share of
First Federal Bancshares' common stock will have the same relative rights as,
and will be identical in all respects with, each other share of common stock.
Upon payment of the purchase price for the common stock, as required by the plan
of conversion, all stock will be duly authorized, fully paid and nonassessable.
COMMON STOCK
DIVIDENDS. First Federal Bancshares can pay dividends out of statutory
surplus or from certain net profits if, as and when declared by its Board of
Directors. The payment of dividends by First Federal Bancshares is limited by
law and applicable regulation. See "FIRST FEDERAL BANCSHARES' DIVIDEND POLICY"
and "REGULATION AND SUPERVISION." The holders of common stock of First Federal
Bancshares will be entitled to receive and share equally in dividends as may be
declared by the Board of Directors of First Federal Bancshares out of funds
legally available for dividends. If First Federal Bancshares issues preferred
stock, the holders of the preferred stock may have a priority over the holders
of the common stock with respect to dividends.
VOTING RIGHTS. After the conversion, the holders of common stock of
First Federal Bancshares will possess exclusive voting rights in First Federal
Bancshares. They will elect First Federal Bancshares' Board of Directors and act
on other matters as are required to be presented to them under Delaware law or
as are otherwise presented to them by the Board of Directors. Except as
discussed in "RESTRICTIONS ON ACQUISITION OF FIRST FEDERAL BANCSHARES AND FIRST
FEDERAL," each holder of common stock will be entitled to one vote per share and
will not have any right to cumulate votes in the election of directors. If First
Federal Bancshares issues preferred stock, holders of First Federal Bancshares
preferred stock may also possess voting rights. Certain matters require a vote
of 80% of the outstanding shares entitled to vote. See "RESTRICTIONS ON
ACQUISITION OF FIRST FEDERAL BANCSHARES AND FIRST FEDERAL."
As a federal mutual savings bank, corporate powers and control of First
Federal are currently vested in (1) its members who elect First Federal's
directors, and (2) its Board of Directors, who elect the officers of First
Federal and who fill any vacancies on the Board of Directors. After the
conversion, voting rights will be vested exclusively in First Federal
Bancshares, which will own all of the outstanding capital stock of First
Federal, and will be voted at the direction of First Federal Bancshares' Board
of Directors. Consequently, the holders of the common stock of First Federal
Bancshares will not have direct control of First Federal.
LIQUIDATION. If there is any liquidation, dissolution or winding up of
First Federal, First Federal Bancshares, as the holder of First Federal's
capital stock, would be entitled to receive all of First Federal's assets
available for distribution after payment or provision for payment of all debts
and liabilities of First Federal, including all deposit accounts and accrued
interest, and after distribution of the balance in the special liquidation
account to eligible account holders and supplemental eligible account holders.
Upon liquidation, dissolution or winding up of First Federal Bancshares, the
holders of its common stock would be entitled to receive all of the assets of
First Federal Bancshares available for distribution after payment or provision
for payment of all its debts and liabilities. If First Federal Bancshares issues
preferred stock, the preferred stock holders may have a priority over the
holders of the common stock upon liquidation or dissolution.
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INDEMNIFICATION AND LIMIT ON LIABILITY. First Federal Bancshares'
Certificate of Incorporation contains provisions that limit the liability of and
indemnify its directors, officers and employees. Such provisions provide that
each person who was or is made a party or is threatened to be made a party to or
is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was a director or officer of First Federal Bancshares will be indemnified
and held harmless by First Federal Bancshares to the fullest extent authorized
by the Delaware General Corporation Law against all expense, liability and loss
reasonably incurred. Under certain circumstances, the right to indemnification
will include the right to be paid by First Federal Bancshares the expenses
incurred in defending any such proceeding in advance of its final disposition.
In addition, a director of First Federal Bancshares will not be personally
liable to First Federal Bancshares or its stockholders for monetary damages
except for liability for any breach of the duty of loyalty, for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of the law, under Section 174 of the Delaware General Corporation Law,
or for any transaction from which the director derived an improper personal
benefit.
PREEMPTIVE RIGHTS; REDEMPTION. Holders of the common stock of First
Federal Bancshares will not be entitled to preemptive rights with respect to any
shares that may be issued. The common stock cannot be redeemed.
PREFERRED STOCK
First Federal Bancshares will not issue any preferred stock in the
conversion and it has no current plans to issue any preferred stock after the
conversion. Preferred stock may be issued with designations, powers, preferences
and rights as the Board of Directors may from time to time determine. The Board
of Directors can, without stockholder approval, issue preferred stock with
voting, dividend, liquidation and conversion rights that could dilute the voting
strength of the holders of the common stock and may assist management in
impeding an unfriendly takeover or attempted change in control.
RESTRICTIONS ON ACQUISITION
Acquisitions of First Federal Bancshares are restricted by provisions
in its certificate of incorporation and bylaws and by rules and regulations of
various regulatory agencies. See "REGULATION AND SUPERVISION" and "RESTRICTIONS
ON ACQUISITION OF FIRST FEDERAL BANCSHARES AND FIRST FEDERAL."
DESCRIPTION OF FIRST FEDERAL BANK STOCK
GENERAL
The federal stock charter of First Federal, to be effective upon
completion of the conversion, authorizes the issuance of stock consisting of
3,000,000 shares of common stock, par value $1.00 per share, and 1,000,000
shares of preferred stock, par value $1.00 per share. The preferred stock may be
issued in series and classes having such rights, preferences, privileges and
restrictions as the Board of Directors may determine. Each share of common stock
of First Federal will have the same relative rights as, and will be identical in
all respects with, each other share of common stock. After the conversion, the
Board of Directors will be authorized to approve the issuance of common stock up
to the amount authorized by the federal stock charter without the approval of
First Federal's stockholders. All of the issued and outstanding common stock of
First Federal will be held by First Federal Bancshares. FIRST FEDERAL STOCK WILL
REPRESENT NON-WITHDRAWABLE CAPITAL, WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE
AND WILL NOT BE INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION.
COMMON STOCK
DIVIDENDS. The holders of First Federal's common stock will be entitled
to receive and to share equally in such dividends as may be declared by the
Board of Directors of First Federal out of its legally available funds. See
"REGULATION AND SUPERVISION--FEDERAL SAVINGS INSTITUTION REGULATION--LIMITATIONS
ON CAPITAL DISTRIBUTIONS" for certain restrictions on the payment of dividends
and "FEDERAL AND STATE TAXATION--FEDERAL INCOME TAXATION" for a discussion of
the consequences of the payment of cash dividends from income appropriated to
bad debt reserves.
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VOTING RIGHTS. Immediately after the conversion, the holders of First
Federal's common stock will possess exclusive voting rights in First Federal.
Each holder of shares of common stock will be entitled to one vote for each
share held. Stockholders will not be entitled to cumulate their votes for the
election of directors.
LIQUIDATION. In the event of any liquidation, dissolution, or winding
up of First Federal, the holders of common stock will be entitled to receive,
after payment of all First Federal's debts and liabilities (including all
deposit accounts and accrued interest thereon), and distribution of the balance
in the special liquidation account to eligible account holders and supplemental
eligible account holders, all assets of First Federal available for distribution
in cash or in kind. If preferred stock is issued after the conversion, the
holders of the preferred stock may also have priority over the holders of common
stock in the event of liquidation or dissolution.
PREEMPTIVE RIGHTS; REDEMPTION. Holders of First Federal's common stock
will not be entitled to preemptive rights with respect to any shares of First
Federal which may be issued. First Federal's common stock cannot be redeemed.
REGISTRATION REQUIREMENTS
First Federal Bancshares has registered its common stock with the
Securities and Exchange Commission under Section 12(g) of the Securities
Exchange Act of 1934, as amended, and will not deregister its common stock for a
period of at least three years following the conversion. As a result of
registration, the proxy and tender offer rules, insider trading reporting and
restrictions, annual and periodic reporting and other requirements of that
statute will apply.
LEGAL AND TAX OPINIONS
The legality of the common stock has been passed upon for First Federal
Bancshares by Muldoon, Murphy & Faucette LLP, Washington, D.C. The federal tax
consequences of the conversion have been opined upon by Muldoon, Murphy &
Faucette LLP and the state tax consequences of the conversion have been opined
upon by Crowe, Chizek and Company LLP, Oakbrook, Illinois. Muldoon, Murphy &
Faucette LLP and Crowe, Chizek and Company LLP have consented to the references
to their opinions in this prospectus. Certain legal matters will be passed upon
for FBR by Vedder, Price, Kaufman & Kammholz, Chicago, Illinois.
EXPERTS
The financial statements of First Federal as of February 29, 2000, and
for the year ended February 29, 2000 are included in this prospectus and in the
registration statement in reliance upon the report of Crowe, Chizek and Company
LLP, Oak Brook, Illinois, independent certified public accountants, included
elsewhere in this prospectus, and upon the authority of said firm as experts in
accounting and auditing.
The financial statements of First Federal as of February 28, 1999 and
for the year ended February 28, 1999 are included in this prospectus and in the
registration statement in reliance upon the report of Clifton Gunderson, L.L.C.,
Macomb, Illinois, independent certified public accountants, included elsewhere
in this prospectus, and upon the authority of said firm as experts in accounting
and auditing.
RP Financial has consented to the summary in this prospectus of its
report to First Federal setting forth its opinion as to the estimated pro forma
market value of First Federal Bancshares and First Federal, as converted, and
its letter with respect to subscription rights, and to the use of its name and
statements with respect to it appearing in this prospectus.
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CHANGE IN ACCOUNTANTS
Prior to the fiscal year ended February 29, 2000, First Federal's
consolidated financial statements were audited by Clifton Gunderson L.L.C. The
former accountant was replaced by Crowe, Chizek and Company LLP, which was
engaged on December 22, 1999, and continues as the independent auditors of First
Federal. The decision to change auditors was approved by the Board of Directors
on December 8, 1999.
For the fiscal year ended February 28, 1999 and up to the date of the
replacement of First Federal's former accountant, there were no disagreements
with the former accountant on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure which, if not
resolved to the satisfaction of the former accountant, would have caused it to
make a reference to the subject matter of the disagreement in connection with
its reports. The independent auditors' report on the consolidated financial
statements for the fiscal year ended February 28, 1999 did not contain an
adverse opinion or a disclaimer of opinion, and was not qualified or modified as
to uncertainty, audit scope, or accounting principles.
WHERE YOU CAN FIND MORE INFORMATION
First Federal Bancshares has filed with the Securities and Exchange
Commission a Registration Statement on Form SB-2 (File No. 333-_____) under the
Securities Act of 1933, as amended, with respect to the common stock offered in
the conversion. This prospectus does not contain all the information contained
in the registration statement, certain parts of which are omitted as permitted
by the rules and regulations of the Securities and Exchange Commission. This
information may be inspected at the public reference facilities maintained by
the Securities and Exchange Commission at 450 Fifth Street, NW, Room 1024,
Washington, D.C. 20549 and at its regional offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies may be obtained at prescribed rates from the Public
Reference Room of the Securities and Exchange Commission at 450 Fifth Street,
NW, Washington, D.C. 20549. The public may obtain information on the operation
of the Public Reference Room by calling the Securities and Exchange Commission
at 1-800-SEC-0330. The registration statement also is available through the
Securities and Exchange Commission's World Wide Web site on the Internet at
http://www.sec.gov.
First Federal has filed an application for approval of conversion with
the Office of Thrift Supervision, which includes proxy materials for First
Federal's special meeting of members and certain other information. This
prospectus omits certain information contained in that application. The
application may be inspected, without charge, at the offices of the Office of
Thrift Supervision, 1700 G Street, NW, Washington, D.C. 20552 and at the offices
of the Regional Director of the Office of Thrift Supervision at the Central
Regional Office of the Office of Thrift Supervision, 200 West Madison Street,
Suite 1300, Chicago, Illinois 60606.
A copy of the plan of conversion, as amended, First Federal Bancshares'
Certificate of Incorporation and Bylaws and First Federal's Federal Stock
Charter and Bylaws are available without charge from First Federal.
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INDEX TO FINANCIAL STATEMENTS
FIRST FEDERAL BANK
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports of Independent Auditors .......................................................... F-1
Statements of Condition as of February 29, 2000 and February 28, 1999 .................... F-3
Statements of Income for the Years Ended February 29, 2000 and February 28, 1999 ......... F-4
Statement of Equity for the Years Ended February 29, 2000 and February 28, 1999 .......... F-5
Statements of Cash Flows for the Years Ended February 29, 2000 and February 28, 1999 ..... F-6
Notes to Financial Statements ............................................................ F-8
</TABLE>
* * *
All schedules are omitted as the required information either is not
applicable or is included in the financial statements or related notes.
Separate financial statements for First Federal Bancshares have not
been included in this prospectus because First Federal Bancshares, which has
engaged only in organizational activities to date, has no significant assets,
contingent or other liabilities, revenues or expenses.
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REPORT OF INDEPENDENT AUDITORS
Board of Directors
First Federal Bank, F.S.B.
Colchester, Illinois
We have audited the accompanying statement of condition of First Federal Bank,
F.S.B. as of February 29, 2000 and the related statements of income, equity, and
cash flows for the year then ended. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Federal Bank, F.S.B. as
of February 29, 2000 and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Oak Brook, Illinois
March 17, 2000
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
First Federal Bank, F.S.B.
Colchester, Illinois
We have audited the accompanying statement of condition of First Federal Bank,
F.S.B. as of February 28, 1999, and the related statements of income, equity,
and cash flows for the year then ended. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Federal Bank, F.S.B. as
of February 28, 1999, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
/s/ Clifton Gunderson L.L.C.
CLIFTON GUNDERSON L.L.C.
Macomb, Illinois
March 23, 1999
F-2
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FIRST FEDERAL BANK, F.S.B.
STATEMENTS OF CONDITION
February 29, 2000 and February 28, 1999
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<TABLE>
<CAPTION>
February 29, February 28
2000 1999
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents (interest-bearing:
2000 - $4,942,412; 1999 - $15,649,496) $ 5,762,295 $ 16,171,077
Time deposits in other financial institutions 1,572,000 1,374,000
Securities available-for-sale 29,441,550 26,622,102
Securities held-to-maturity (fair value:
2000 - $56,036,605; 1999 - $51,265,898) 58,927,169 51,523,629
Loans receivable, net 113,601,769 101,834,122
Real estate owned, net 47,606 59,652
Premises and equipment 1,636,862 1,664,380
Excess of cost over fair value of net assets acquired 46,730 83,544
Accrued interest receivable 2,013,325 1,726,888
Other assets 137,693 112,064
---------------- ----------------
Total assets $ 213,186,999 $ 201,171,458
================ ================
LIABILITIES AND EQUITY
Liabilities
Deposits
Non-interest-bearing $ 1,414,779 $ 673,964
Interest-bearing 181,157,560 176,007,624
---------------- ----------------
182,572,339 176,681,588
Advances from borrowers for taxes and insurance 296,306 275,637
Federal Home Loan Bank advances 6,000,000 -
Accrued interest payable 119,502 125,704
Other liabilities 173,064 752,027
---------------- ----------------
Total liabilities 189,161,211 177,834,956
Equity
Retained earnings 24,130,469 22,622,908
Accumulated other comprehensive income (loss) (104,681) 713,594
---------------- ----------------
Total equity 24,025,788 23,336,502
---------------- ----------------
Total liabilities and equity $ 213,186,999 $ 201,171,458
================ ================
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-3
<PAGE>
FIRST FEDERAL BANK, F.S.B.
STATEMENTS OF INCOME
Years ended February 29, 2000 and February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
February 29, February 28
------------ -----------
2000 1999
<S> <C> <C>
Interest income
Loans $ 7,933,155 $ 8,189,005
Securities 5,408,617 4,454,728
Deposits in other financial institutions 317,803 651,652
--------------- --------------
Total interest income 13,659,575 13,295,385
Interest expense
Savings and certificates 7,107,596 7,485,103
NOW and money market accounts 1,215,652 864,794
Federal Home Loan Bank advances 318,329 -
--------------- --------------
Total interest expense 8,641,577 8,349,897
NET INTEREST INCOME 5,017,998 4,945,488
Provision for loan losses 118,850 5,958
--------------- --------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,899,148 4,939,530
Noninterest income
Service charges on NOW accounts 115,873 94,655
Other fee income 97,047 83,591
Other income 78,219 57,195
--------------- --------------
Total noninterest income 291,139 235,441
Noninterest expense
Compensation and benefits 1,464,462 1,335,599
Occupancy and equipment 353,659 378,863
Data processing 425,038 423,806
Federal insurance premiums 151,200 152,067
Advertising 104,113 97,302
Other noninterest expense 346,595 335,679
--------------- --------------
Total noninterest expense 2,845,067 2,723,316
--------------- --------------
INCOME BEFORE INCOME TAXES 2,345,220 2,451,655
Provision for income taxes 837,659 850,615
--------------- --------------
NET INCOME $ 1,507,561 $ 1,601,040
=============== ==============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-4
<PAGE>
FIRST FEDERAL BANK, F.S.B.
STATEMENTS OF EQUITY
Years ended February 29, 2000 and February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Other
Retained Comprehensive
Earnings Income (Loss) Total
-------- ------------- -----
<S> <C> <C> <C>
Balance at February 28, 1998 $ 21,021,868 $ 614,281 $ 21,636,149
Comprehensive income
Net income 1,601,040 - 1,601,040
Other comprehensive income
Unrealized gain on securities
available-for-sale, net of tax of
$66,207 - 99,313 99,313
---------------
Total comprehensive income 1,700,353
--------------- -------------- ---------------
Balance at February 28, 1999 22,622,908 713,594 23,336,502
Comprehensive income
Net income 1,507,561 - 1,507,561
Other comprehensive income
Unrealized loss on securities
available-for-sale, net of tax of
$545,470 - (818,275) (818,275)
---------------
Total comprehensive income 689,286
--------------- -------------- ---------------
Balance at February 29, 2000 $ 24,130,469 $ (104,681) $ 24,025,788
=============== ============== ===============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-5
<PAGE>
FIRST FEDERAL BANK, F.S.B.
STATEMENTS OF CASH FLOWS
Years ended February 29, 2000 and February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
February 29, February 28
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,507,561 $ 1,601,040
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for depreciation 159,140 197,174
Loss (gain) on sale of real estate owned 7,719 (17,758)
Net amortization of premiums and discounts (22,028) (78,933)
Amortization of intangible assets 36,814 41,533
Provision for loan losses 118,850 5,958
Deferred income taxes (82,173) (95,500)
Net changes in
Accrued interest receivable (286,437) (200,570)
Other assets (25,629) 52,717
Deferred loan costs (20,978) (34,472)
Accrued interest payable and other liabilities 42,478 54,020
--------------- ---------------
Net cash provided by operating activities 1,435,317 1,525,209
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in time deposits in other financial institutions (198,000) 1,694,000
Purchase of securities available-for-sale (5,103,276) (7,459,039)
Dividend reinvestments (932,524) (716,944)
Purchase of securities held-to-maturity (18,803,282) (47,200,000)
Proceeds from maturities of securities and payments 13,239,078 40,410,029
Redemption of Federal Home Loan Bank stock 35,300 -
Purchase of loans receivable - (275,000)
Net decrease (increase) in loans receivable (11,901,729) 3,593,839
Capital expenditures on real estate owned (5,569) (13,919)
Proceeds from sale of real estate owned 46,105 105,500
Purchase of property and equipment (131,622) (66,417)
--------------- ---------------
Net cash used in investing activities (23,755,519) (9,927,951)
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-6
<PAGE>
FIRST FEDERAL BANK, F.S.B.
STATEMENTS OF CASH FLOWS
Years ended February 29, 2000 and February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
February 29, February 28
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits $ 5,890,751 $ 13,857,342
Net increase in advances from borrowers for
taxes and insurance 20,669 16,052
Federal Home Loan Bank advances 6,000,000 -
--------------- ---------------
Net cash provided by financing activities 11,911,420 13,873,394
--------------- ---------------
Net change in cash and cash equivalents (10,408,782) 5,470,652
Cash and cash equivalents
Beginning of year 16,171,077 10,700,425
--------------- ---------------
End of year $ 5,762,295 $ 16,171,077
=============== ===============
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ 8,647,779 $ 8,325,641
Taxes 900,147 929,115
Transfer of loans to real estate owned 36,209 182,221
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
FIRST FEDERAL BANK, F.S.B.
NOTES TO FINANCIAL STATEMENTS
February 29, 2000 and February 28, 1999
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS: First Federal Bank, F.S.B. (the Bank) was incorporated in
1917 in the State of Illinois for the purpose of providing and servicing loans
and customer deposit accounts. The Bank provides a full range of banking and
related financial services to individual and corporate business customers
located in west central Illinois. The Bank also services a portfolio of mortgage
loans purchased from First Denver Mortgage Company with borrowers located
primarily in the State of Colorado. The Bank's primary deposit products are
demand deposits and time and savings accounts. Its primary lending products are
commercial and residential real estate loans to customers who are predominantly
small and middle market businesses and individuals. The Bank is subject to
competition from other financial institutions and is regulated by federal and
state banking agencies and undergoes periodic examinations by those agencies.
The accounting and reporting policies of the Bank are based upon generally
accepted accounting principles and conform to predominant practices within the
banking industry. Significant accounting policies followed by the Bank are
presented below.
USE OF ESTIMATES: In preparing financial statements, management must make
estimates and assumptions. These estimates and assumptions affect the amounts
reported for assets, liabilities, income, and expenses, as well as affecting the
disclosures provided. Actual results could differ from the current estimates.
The collectibility of loans, fair values of financial instruments, and status of
contingencies are particularly subject to change.
SECURITIES: Securities are classified as held-to-maturity when the Bank has the
positive intent and ability to hold those securities to maturity. Accordingly,
they are stated at cost, adjusted for amortization of premiums and accretion of
discounts. All other securities are classified as available-for-sale since the
Bank may decide to sell those securities in response to changes in market
interest rates, liquidity needs, changes in yields or alternative investments,
and for other reasons. These securities are carried at market value with
unrealized gains and losses charged or credited, net of income taxes, to a
valuation allowance included as a separate component of equity. Realized gains
and losses on disposition are based on the net proceeds and the adjusted
carrying amounts of the securities sold, using the specific identification
method.
LOANS RECEIVABLE: Loans receivable are carried at the unpaid principal balance
outstanding net of the allowance for loans losses and unearned interest.
Interest is accrued as earned based upon the daily outstanding principal
balance.
ALLOWANCE FOR LOAN LOSSES: Because some loans may not be repaid in full, an
allowance for loan losses is maintained. Increases to the allowance are
recorded by a provision for loan losses charged to expense. Estimating the
risk of loss and the amount of loss on any loan is necessarily subjective.
Accordingly, the valuation allowance is maintained at levels considered
adequate to cover estimated losses that are based on delinquencies, property
appraisals, past loss experience, general economic conditions, information
about specific borrower situations
- --------------------------------------------------------------------------------
(Continued)
F-8
<PAGE>
FIRST FEDERAL BANK, F.S.B.
NOTES TO FINANCIAL STATEMENTS
February 29, 2000 and February 28, 1999
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
including their financial position, and other factors and estimates which are
subject to change over time. While management may periodically allocate portions
of the allowance for specific problem loan situations, including impaired loans
discussed below, the whole allowance is available for any charge-offs that
occur. Loans are charged off in whole or in part when management's estimate of
the undiscounted cash flows from the loan are less than the recorded investment
in the loan, although collection efforts continue and future recoveries may
occur.
Loans considered to be impaired are reduced to the present value of expected
future cash flows or to the fair value of collateral, by allocating a portion of
the allowance for loan losses to such loans. If these allocations cause the
allowance for loan losses to require increase, such increase is reported as a
provision for loan losses.
Smaller balance homogenous loans are defined as residential first mortgage loans
secured by one-to-four-family residences, residential construction loans,
consumer loans, and share loans and are evaluated collectively for impairment.
Commercial real estate loans are evaluated individually for impairment. Normal
loan evaluation procedures, as described in the second preceding paragraph, are
used to identify loans which must be evaluated for impairment. In general, loans
classified as doubtful or loss are considered impaired while loans classified as
substandard are individually evaluated for impairment. Depending on the relative
size of the credit relationship, late or insufficient payments of 30 to 90 days
will cause management to reevaluate the credit under its normal loan evaluation
procedures. While the factors which identify a credit for consideration for
measurement of impairment, or nonaccrual, are similar, the measurement
considerations differ. A loan is impaired when management believes it is
probable that they will be unable to collect all amounts due according to the
contractual terms of the loan agreement. A loan is placed on nonaccrual when
payments are more than 90 days past due unless the loan is adequately
collateralized and in the process of collection.
RECOGNITION OF INCOME ON LOANS: Interest on real estate and certain consumer
loans is accrued over the term of the loans based upon the principal balance
outstanding. Where serious doubt exists as to the collectibility of a loan, the
accrual of interest is discontinued. The carrying values of impaired loans are
periodically adjusted to reflect cash payments, revised estimates of future cash
flows, and increases in the present value of expected cash flows due to the
passage of time. Cash payments representing interest income are reported as
such. Other cash payments are reported as reductions in carrying value, while
increases or decreases due to changes in estimates of future payments and due to
the passage of time are reported as adjustments to the allowance for loan
losses. If these adjustments cause the allowance for loan losses to require
adjustment, such adjustment is reported as an adjustment to the provision for
loan losses.
Loan fees, net of direct loan origination costs, are deferred and amortized over
the contractual life of the loan as a yield adjustment.
- --------------------------------------------------------------------------------
(Continued)
F-9
<PAGE>
FIRST FEDERAL BANK, F.S.B.
NOTES TO FINANCIAL STATEMENTS
February 29, 2000 and February 28, 1999
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
REAL ESTATE OWNED: Real estate owned represents property obtained through
foreclosure or in settlement of debt obligations and is carried at the lower of
cost (fair value at date of foreclosure) or fair value less estimated selling
expenses. Valuation allowances are recognized when the fair value less selling
expenses is less than the cost of the asset. Changes in the valuation allowance
are charged or credited to income.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the respective premises and equipment,
which are primarily thirty to fifty years for premises and five to ten years for
furniture, fixtures, and equipment. Maintenance and repairs are charged to
expense as incurred and improvements which extend the useful lives of assets are
capitalized.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED: The excess of cost over
fair value of net assets acquired is the result of the application of purchase
accounting to the acquisition of another savings institution in 1985. It is
being amortized to expense by the interest method over a period equal to the
estimated remaining life of the long-term interest bearing assets acquired. The
periodic amounts of amortization were determined at the acquisition date based
on the prepayment assumptions used to determine the fair value of the long-term
interest bearing assets. Amortization expense charged to earnings was $36,814
and $41,533 for the years ended February 29, 2000 and February 28, 1999,
respectively.
INCOME TAXES: The provision for income taxes is based on an asset and liability
approach which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities.
COMPREHENSIVE INCOME: Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes unrealized gains and
losses on securities available-for-sale, net of tax, which are also recognized
as separate components of equity.
STATEMENT OF CASH FLOWS: Cash and cash equivalents include cash on hand, amounts
due from banks, and daily federal funds sold. The Bank reports net cash flows
for customer loan transactions, deposit transactions, and time deposits in other
financial institutions.
RECLASSIFICATIONS: Certain items in the financial statements as of and for the
year ended February 28, 1999 have been reclassified, with no effect on net
income, to conform with the current year presentation.
- --------------------------------------------------------------------------------
(Continued)
F-10
<PAGE>
FIRST FEDERAL BANK, F.S.B.
NOTES TO FINANCIAL STATEMENTS
February 29, 2000 and February 28, 1999
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES
The amortized cost and estimated fair value of securities at February 29, 2000
were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE
U.S. government agency bonds $ 3,000,000 $ - $ (152,080) $ 2,847,920
U.S. government agency notes 1,000,000 - (61,400) 938,600
State and municipal obligations 526,098 - (34,036) 492,062
--------------- -------------- -------------- --------------
4,526,098 - (247,516) 4,278,582
U.S. government agency mortgage-
backed securities
FHLMC 3,669,449 23,445 (35,918) 3,656,976
FNMA 2,369,282 753 (114,934) 2,255,101
GNMA 1,433,516 791 (44,166) 1,390,141
--------------- -------------- -------------- --------------
7,472,247 24,989 (195,018) 7,302,218
Marketable equity securities
U.S. League government
mortgage securities fund 14,605,002 - (816,269) 13,788,733
Federal Home Loan Bank stock 894,200 - - 894,200
Federal Home Loan Mortgage
Corporation stock 26,028 1,084,188 - 1,110,216
Adjustable rate mortgage
securities fund 2,092,397 - (24,796) 2,067,601
--------------- -------------- -------------- --------------
17,617,627 1,084,188 (841,065) 17,860,750
--------------- -------------- -------------- --------------
Total $ 29,615,972 $ 1,109,177 $ (1,283,599) $ 29,441,550
=============== ============== ============== ==============
SECURITIES HELD-TO-MATURITY
U.S. government agency bonds $ 29,809,442 $ - $ (1,550,637) $ 28,258,805
U.S. government agency notes 25,991,313 - (1,332,936) 24,658,377
State and municipal obligations 1,329,000 1,948 (2,658) 1,328,290
--------------- -------------- -------------- --------------
57,129,755 1,948 (2,886,231) 54,245,472
U.S. government agency mortgage-
backed securities
FHLMC 817,326 12,161 (5,570) 823,917
FNMA 967,935 - (12,841) 955,094
GNMA 12,153 - (31) 12,122
--------------- -------------- -------------- --------------
1,797,414 12,161 (18,442) 1,791,133
--------------- -------------- -------------- --------------
Total $ 58,927,169 $ 14,109 $ (2,904,673) $ 56,036,605
=============== ============== ============== ==============
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-11
<PAGE>
FIRST FEDERAL BANK, F.S.B.
NOTES TO FINANCIAL STATEMENTS
February 29, 2000 and February 28, 1999
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES (Continued)
The amortized cost and estimated fair value of securities at February 28, 1999
were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE
U.S. government agency bonds $ 2,000,000 $ - $ (110) $ 1,999,890
U.S. government agency notes 1,000,000 - (2,860) 997,140
State and municipal obligations 423,304 1,696 - 425,000
--------------- -------------- -------------- --------------
3,423,304 1,696 (2,970) 3,422,030
U.S. government agency mortgage-
backed securities
FHLMC 1,475,436 2,899 - 1,478,335
FNMA 2,874,233 - (16,581) 2,857,652
GNMA 1,939,403 24,307 - 1,963,710
--------------- -------------- -------------- --------------
6,289,072 27,206 (16,581) 6,299,697
Marketable equity securities
U.S. League government
mortgage securities fund 13,764,875 - (326,364) 13,438,511
Federal Home Loan Bank stock 929,500 - - 929,500
Federal Home Loan Mortgage
Corporation stock 26,028 1,506,336 - 1,532,364
Adjustable rate mortgage
securities fund 1,000,000 - - 1,000,000
--------------- -------------- -------------- --------------
15,720,403 1,506,336 (326,364) 16,900,375
--------------- -------------- -------------- --------------
Total $ 25,432,779 $ 1,535,238 $ (345,915) $ 26,622,102
=============== ============== ============== ==============
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-12
<PAGE>
FIRST FEDERAL BANK, F.S.B.
NOTES TO FINANCIAL STATEMENTS
February 29, 2000 and February 28, 1999
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES (Continued)
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
SECURITIES HELD-TO-MATURITY
U.S. government agency bonds $ 16,999,167 $ - $ (126,737) $ 16,872,430
U.S. government agency notes 28,996,190 - (231,780) 28,764,410
State and municipal obligations 1,432,250 11,275 - 1,443,525
--------------- -------------- -------------- --------------
47,427,607 11,275 (358,517) 47,080,365
U.S. government agency mortgage-
backed securities
FHLMC 1,861,438 63,307 - 1,924,745
FNMA 2,216,137 25,882 - 2,242,019
GNMA 18,447 322 - 18,769
--------------- -------------- -------------- --------------
4,096,022 89,511 - 4,185,533
--------------- -------------- -------------- --------------
Total $ 51,523,629 $ 100,786 $ (358,517) $ 51,265,898
=============== ============== ============== ==============
</TABLE>
Securities with a carrying amount of $895,000 and $2,067,000 at February 29,
2000 and February 28, 1999, respectively, were pledged to secure public deposits
and for other purposes as required by law.
The scheduled maturities of securities available-for-sale and securities
held-to-maturity at February 29, 2000 were as follows:
<TABLE>
<CAPTION>
Securities Securities
Available-for-sale Held-to-maturity
------------------ ----------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Due in one year or less $ - $ - $ 998,811 $ 945,176
Due after one year through
five years - - 38,056,762 36,117,447
Due after five years through
ten years 4,526,098 4,278,582 18,024,182 17,131,570
Due after ten years - - 50,000 51,279
--------------- -------------- -------------- --------------
Subtotal 4,526,098 4,278,582 57,129,755 54,245,472
Marketable equity securities 17,617,627 17,860,750 - -
Mortgage-backed securities 7,472,247 7,302,218 1,797,414 1,791,133
--------------- -------------- -------------- --------------
Total $ 29,615,972 $ 29,441,550 $ 58,927,169 $ 56,036,605
=============== ============== ============== ==============
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-13
<PAGE>
FIRST FEDERAL BANK, F.S.B.
NOTES TO FINANCIAL STATEMENTS
February 29, 2000 and February 28, 1999
- --------------------------------------------------------------------------------
NOTE 3 - LOANS RECEIVABLE
Loans receivable consist of the following:
<TABLE>
<CAPTION>
February 29, February 28,
2000 1999
---- ----
<S> <C> <C>
First mortgage loans
One-to-four-family $ 80,383,374 $ 76,451,606
Multi-family and commercial 15,580,223 12,766,817
Construction 1,674,636 644,778
---------------- ----------------
Total first mortgage loans 97,638,233 89,863,201
Commercial loans 3,884,536 531,561
Consumer loans
Automobile 5,873,883 5,658,460
Home improvement 2,433,815 2,276,470
Share loans 782,951 787,482
Other 3,379,441 3,140,967
---------------- ----------------
Total consumer loans 12,470,090 11,863,379
---------------- ----------------
Total loans 113,992,859 102,258,141
Less
Unearned discounts (46,730) (85,176)
Deferred loans costs, net 139,004 118,034
Allowance for loan losses (483,364) (456,877)
---------------- ----------------
Loans receivable, net $ 113,601,769 $ 101,834,122
================ ================
</TABLE>
The Bank grants commercial and residential real estate loans and consumer loans
to customers primarily in the west central Illinois area. Generally, the loans
are backed by collateral and are expected to be repaid from cash flow or
proceeds from the sale of selected assets of the borrowers.
Activity in the allowance for loan losses is summarized as follows for the years
ended February 29, 2000 and February 28, 1999, respectively.
<TABLE>
<CAPTION>
February 29, February 28,
2000 1999
---- ----
<S> <C> <C>
Balance at beginning of year $ 456,877 $ 486,140
Provision charged to income 118,850 5,958
Charge-offs (92,363) (161,915)
Recoveries - 126,694
------------ ------------
Balance at end of year $ 483,364 $ 456,877
============ ============
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-14
<PAGE>
FIRST FEDERAL BANK, F.S.B.
NOTES TO FINANCIAL STATEMENTS
February 29, 2000 and February 28, 1999
- --------------------------------------------------------------------------------
NOTE 3 - LOANS RECEIVABLE (Continued)
Impaired loans on which accrual of interest has been discontinued totaled
$32,360 and $19,404 as of February 29, 2000 and February 28, 1999, respectively.
Differences in interest income recorded on the cash basis on nonaccrual loans
for 2000 and 1999, and the amounts that would have been recorded if interest on
such nonaccrual loans had been accrued, was not material to the financial
statements.
Loans outstanding to directors, executive officers, and their associates totaled
$123,761 and $113,336 at February 29, 2000 and February 28, 1999, respectively.
NOTE 4 - LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
financial statements. The unpaid principal balances of these loans are
summarized below:
<TABLE>
<CAPTION>
February 29, February 28,
2000 1999
---- ----
<S> <C> <C>
FHLMC $ 156,682 $ 289,033
City of Quincy, Illinois 954,163 1,233,771
Federal Home Loan Bank 111,112 -
--------------- --------------
Total $ 1,221,957 $ 1,522,804
=============== ==============
</TABLE>
Custodial escrow balances maintained in connection with serviced loans were
$19,676 and $19,738 at February 29, 2000 and February 28, 1999, respectively.
NOTE 5 - ACCRUED INTEREST RECEIVABLE
Accrued interest consists of the following:
<TABLE>
<CAPTION>
February 29, February 28,
2000 1999
---- ----
<S> <C> <C>
Loans $ 724,971 $ 705,354
Securities 1,270,932 1,000,554
Other 17,422 20,980
--------------- --------------
$ 2,013,325 $ 1,726,888
=============== ==============
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-15
<PAGE>
FIRST FEDERAL BANK, F.S.B.
NOTES TO FINANCIAL STATEMENTS
February 29, 2000 and February 28, 1999
- --------------------------------------------------------------------------------
NOTE 6 - PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
February 29, February 28,
2000 1999
---- ----
<S> <C> <C>
Land, buildings, and improvements $ 2,311,025 $ 2,305,157
Furniture, fixtures, and equipment 1,389,781 1,264,027
--------------- --------------
3,700,806 3,569,184
Less accumulated depreciation 2,063,944 1,904,804
--------------- --------------
Totals $ 1,636,862 $ 1,664,380
=============== ==============
</TABLE>
NOTE 7 - DEPOSITS
Certificate of deposit accounts with balances of $100,000 or more totaled
approximately $17,079,000 and $17,234,000 at February 29, 2000 and February 28,
1999, respectively. Deposits greater than $100,000 are not federally insured.
Scheduled maturities of certificates of deposit at February 29, 2000 were as
follows:
<TABLE>
<S> <C> <C>
2001 $ 98,893,357
2002 22,753,758
2003 3,994,139
2004 369,094
-----------------
Total $ 126,010,348
=================
</TABLE>
NOTE 8 - FEDERAL HOME LOAN BANK ADVANCES
The Bank maintains an open line of credit with the Federal Home Loan Bank. The
line of credit has a variable rate of interest. At February 29, 2000, the
balance was $6,000,000 and the interest rate was 6.16%.
The Bank maintains a collateral pledge agreement covering secured advances
whereby the Bank has agreed to at all times keep on hand, free of all other
pledges, liens, and encumbrances, whole first mortgage loans on improved
residential property not more than 90 days delinquent, aggregating no less than
167% of the outstanding secured advances from the Federal Home Loan Bank of
Chicago.
- --------------------------------------------------------------------------------
(Continued)
F-16
<PAGE>
FIRST FEDERAL BANK, F.S.B.
NOTES TO FINANCIAL STATEMENTS
February 29, 2000 and February 28, 1999
- --------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES
An analysis of the provision for income taxes is as follows:
<TABLE>
<CAPTION>
February 29, February 28,
2000 1999
---- ----
<S> <C> <C>
Current $ 919,832 $ 946,115
Deferred (82,173) (95,500)
------------ ------------
$ 837,659 $ 850,615
============ ============
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at February 29, 2000 and
February 28, 1999 are as follows:
<TABLE>
<CAPTION>
February 29, February 28,
2000 1999
---- ----
<S> <C> <C>
Deferred tax assets
Unrealized losses on securities available-for-sale $ 69,741 $ -
Other 53,850 45,439
------------ ------------
Total deferred tax assets 123,591 45,439
Deferred tax liabilities
Unrealized gains on securities available-for-sale - 475,729
Bad debts 23,390 116,993
Other 73,787 53,946
------------ ------------
Total deferred tax liabilities 97,177 646,668
------------ ------------
Net deferred tax asset (liability) $ 26,414 $ (601,229)
============ ============
</TABLE>
A reconciliation of the federal statutory tax rate of 34% for the years ended
February 29, 2000 and February 29, 1999 to the effective tax rate on income
before income taxes is as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Tax expense at statutory rate $ 797,375 34.0% $ 833,562 34.0%
Tax-exempt interest income (25,116) (1.1) (26,825) (1.1)
State income taxes, net of federal 25,691 1.1 62,231 2.5
Other 39,709 1.7 (18,353) (0.7)
------------- ------ ------------ ------
Tax expense at effective rate $ 837,659 35.7% $ 850,615 34.7%
============= ====== ============ ======
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-17
<PAGE>
FIRST FEDERAL BANK, F.S.B.
NOTES TO FINANCIAL STATEMENTS
February 29, 2000 and February 28, 1999
- --------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES (Continued)
Retained earnings at February 29, 2000 include allocations for federal income
tax purposes representing tax bad debt deductions of approximately $2,300,000
through February 29, 2000, on which no tax has been paid and no deferred federal
income taxes have been provided. Reductions of amounts so allocated for purposes
other than tax bad debt losses will create income for tax purposes only, which
will be subject to the then current corporate income tax rate.
NOTE 10 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet financing needs of its customers. These
financial instruments include commitments to fund loans and previously approved
unused lines of credit. The Bank's exposure to credit loss in the event of
nonperformance by the parties to these financial instruments is represented by
the contractual amount of the instruments. The Bank uses the same credit policy
for commitments as it uses for on-balance-sheet items. The contract amount of
these financial instruments is summarized as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Commitments to extend credit $ 1,362,000 $ 911,000
Unused lines of credit 1,984,000 488,000
Construction loans in process 1,117,000 446,000
</TABLE>
At February 29, 2000, commitments to extend credit include $752,000 of fixed
rate loan commitments with rates ranging from 7.40% to 9.00%. These commitments
are due to expire within 60 days of issuance. Since many commitments expire
without being used, the amounts above do not necessarily represent future cash
commitments. Collateral may be obtained upon exercise of a commitment. The
amount of collateral is determined by management and may include commercial and
residential real estate and other business and consumer assets.
NOTE 11 - PENSION PLAN
The Bank participates in a multi-employer defined benefit pension plan. The plan
provides benefits to substantially all of the Bank's eligible employees. The
plan is funded through Bank contributions to a nationwide plan for savings and
loan associations. Beginning April 1,1997, payments to the plan were suspended
by the plan's executive committee due to the fully funded status of the plan. No
contributions were made to the plan in 2000 and 1999.
- --------------------------------------------------------------------------------
(Continued)
F-18
<PAGE>
FIRST FEDERAL BANK, F.S.B.
NOTES TO FINANCIAL STATEMENTS
February 29, 2000 and February 28, 1999
- --------------------------------------------------------------------------------
NOTE 12 - REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classifications are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital to risk-weighted assets and of Tier I capital
to average assets. Management believes, as of February 29, 2000, that the Bank
meets all capital adequacy requirements to which it is subject.
As of February 29, 2000, the most recent notification from the Office of Thrift
Supervision categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the following table. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
The following is a reconciliation of the Bank's equity under generally accepted
accounting principles (GAAP) to regulatory capital:
<TABLE>
<CAPTION>
February 29, February 28,
2000 1999
---- ----
(in thousands)
<S> <C> <C>
GAAP equity $ 24,026 $ 23,337
Disallowed intangible assets (47) (84)
Unrealized loss (gain) on securities available-for-sale 105 (714)
------------ ------------
Tier I capital 24,084 22,539
Unrealized gain on equity securities available-for-sale 109 531
General regulatory loan loss reserves 433 408
------------ ------------
Total regulatory capital $ 24,626 $ 23,478
============ ============
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-19
<PAGE>
FIRST FEDERAL BANK, F.S.B.
NOTES TO FINANCIAL STATEMENTS
February 29, 2000 and February 28, 1999
- --------------------------------------------------------------------------------
NOTE 12 - REGULATORY CAPITAL REQUIREMENTS (Continued)
The Bank's actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of February 29, 2000
Total capital (to risk-weighted
assets) $ 24,626 24.9% $ 7,924 8.0% $ 9,905 10.0%
Tier I capital (to risk-weighted
assets) 24,084 24.3 3,962 4.0 5,943 6.0
Tier I (core) capital (to adjusted
total assets) 24,084 11.2 8,578 4.0 10,723 5.0
As of February 28, 1999
Total capital (to risk-weighted
assets) $ 23,478 26.0% $ 7,225 8.0% $ 9,031 10.0%
Tier I capital (to risk-weighted
assets) 22,539 25.0 3,612 4.0 5,419 6.0
Tier I (core) capital (to adjusted
total assets) 22,539 11.7 7,735 4.0 9,669 5.0
</TABLE>
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The approximate carrying amount and estimated fair value of financial
instruments as of February 29, 2000 and February 28, 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
Approximate Estimated Approximate Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 5,762,295 $ 5,762,295 $ 16,171,077 $ 16,171,077
Time deposits in other financial
institutions 1,572,000 1,572,000 1,374,000 1,374,000
Securities available-for-sale 29,441,550 29,441,550 26,622,102 26,622,102
Securities held-to-maturity 58,927,169 56,036,605 51,523,629 51,265,898
Loans receivable, net 113,601,769 113,150,080 101,834,122 100,476,591
Accrued interest receivable 2,013,325 2,013,325 1,726,888 1,726,888
Financial liabilities
Deposits 182,572,339 182,882,712 176,681,588 177,322,811
Advance payments by borrowers
for taxes and insurance 296,306 296,306 275,637 275,637
Federal Home Loan Bank advances 6,000,000 6,000,000 - -
Accrued interest payable 119,502 119,502 125,704 125,704
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-20
<PAGE>
FIRST FEDERAL BANK, F.S.B.
NOTES TO FINANCIAL STATEMENTS
February 29, 2000 and February 28, 1999
- --------------------------------------------------------------------------------
NOTE 13 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
For purposes of the above, the following assumptions were used:
CASH AND CASH EQUIVALENTS AND TIME DEPOSITS IN OTHER FINANCIAL INSTITUTIONS:
Fair values are based on their carrying value due to the short-term nature of
these assets.
SECURITIES: The fair value of securities is based on the quoted market value for
the individual security or its equivalent.
LOANS: The fair value for loans has been determined by calculating the present
value of future cash flows based on the current rate the Bank would charge for
similar loans with similar maturities at February 29, 2000 and February 28,
1999, applied for an estimated time period until the loan is assumed to be
repriced or repaid.
DEPOSITS: The fair value for time deposits has been determined by calculating
the present value of future cash flows based on estimates of rates the Bank
would pay on such deposits at February 29, 2000 and February 28, 1999, applied
for the time period until maturity. The estimated fair value of NOW, money
market, and savings accounts is assumed to approximate carrying value as
management establishes rates on these deposits at a level that approximates the
local market area.
ACCRUED INTEREST: The fair value of accrued interest receivable and payable is
assumed to equal the carrying value.
ADVANCE PAYMENTS BY BORROWERS FOR TAXES AND INSURANCE: The fair value of this
liability is assumed to equal the carrying value due to the short-term nature of
the liability.
OFF-BALANCE-SHEET INSTRUMENTS: Off-balance-sheet items consist principally of
unfunded loan commitments. The fair value of these commitments is not material.
Other assets and liabilities of the Bank not defined as financial instruments,
such as property and equipment, are not included in the above disclosures. Also
not included are nonfinancial instruments typically not recognized in financial
statements such as the value of core deposits, loan servicing rights, customer
goodwill, and similar items.
While the above estimates are based on judgments of the most appropriate
factors, there is no assurance that if the Bank disposed of these items on
February 29, 2000 and February 28, 1999, the fair value would have been
achieved, because the market value may differ depending on the circumstances.
The fair values at February 29, 2000 and February 28, 1999 should not
necessarily be considered to apply at subsequent dates.
- --------------------------------------------------------------------------------
(Continued)
F-21
<PAGE>
FIRST FEDERAL BANK, F.S.B.
NOTES TO FINANCIAL STATEMENTS
February 29, 2000 and February 28, 1999
- --------------------------------------------------------------------------------
NOTE 14 - OTHER COMPREHENSIVE INCOME
Other comprehensive income components and related taxes were as follows:
<TABLE>
<CAPTION>
February 29, February 28,
2000 1999
---- ----
<S> <C> <C>
Unrealized holdings gains (losses) on securities
available-for-sale $ (1,363,745) $ 165,520
Tax effect 545,470 (66,207)
-------------- ------------
Other comprehensive income (loss) $ (818,275) $ 99,313
============== ============
</TABLE>
NOTE 15 - ADOPTION OF PLAN OF CONVERSION
On December 8, 1999, the Board of Directors of the Bank adopted a Plan of
Conversion to convert from a federal mutual savings bank to a federal stock
savings bank with the concurrent formation of a holding company. The conversion
will be accomplished through the amendment of the Bank's charter and the sale of
the proposed holding company's common stock in an amount equal to the
consolidated pro forma market value of the holding company and the Bank after
giving effect to the conversion. A subscription offering of the shares of common
stock will be offered initially to the Bank's eligible deposit account holders,
then to other members of the Bank. Any shares of the holding company's common
stock not sold in the subscription offering will be offered for sale to the
general public, giving preference to the Bank's market area.
- --------------------------------------------------------------------------------
F-22
<PAGE>
================================================================================
You should rely only on the information contained in this prospectus. Neither
First Federal Bancshares nor First Federal Bank has authorized anyone to provide
you with different information. This prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any of the securities offered by this
prospectus to any person or in any jurisdiction in which an offer or
solicitation is not authorized or in which the person making an offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make an offer or solicitation in those jurisdictions. The information
contained in this prospectus is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or of any sale of the
First Federal Bancshares, Inc. common stock.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Questions and Answers about the Stock Offering .......................................
Summary ..............................................................................
Recent Developments ..................................................................
Risk Factors .........................................................................
Selected Financial and Other Data. ...................................................
Use of Proceeds ......................................................................
First Federal Bancshares' Dividend Policy ............................................
Market for the Common Stock ..........................................................
Capitalization .......................................................................
Regulatory Capital Compliance ........................................................
Pro Forma Data .......................................................................
Management's Discussion and Analysis of Financial ....................................
Condition and Results of Operations .............................................
Business of First Federal Bancshares .................................................
Business of First Federal Bank .......................................................
Management of First Federal Bancshares ...............................................
Management of First Federal Bank .....................................................
Regulation and Supervision ...........................................................
Federal and State Taxation ...........................................................
Shares to be Purchased by Management with ............................................
Subscription Rights .............................................................
The Conversion .......................................................................
Restrictions on Acquisition of First Federal Bancshares ..............................
and First Federal Bank ...........................................................
Description of First Federal Bancshares Stock ........................................
Description of First Federal Bank Stock ..............................................
Registration Requirements ............................................................
Legal and Tax Opinions ...............................................................
Experts ..............................................................................
Change in Accountants ................................................................
Where You Can Find More Information ..................................................
Index of Financial Statements ........................................................
</TABLE>
------------------------------
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL ___________, 2000, ALL DEALERS THAT BUY, SELL OR TRADE THESE SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
2,242,500 Shares
FIRST FEDERAL BANCSHARES, INC.
(Proposed Holding Company for
First Federal Bank)
COMMON STOCK
--------------
PROSPECTUS
--------------
-----------------
Friedman, Billings, Ramsey & Co., Inc.
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with the General Corporation Law of the State of Delaware
(being Chapter 1 of Title 8 of the Delaware Code), Articles 10 and 11 of the
Registrant's Certificate of Incorporation provide as follows:
TENTH:
A. Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason that he or she is or was a Director or an Officer
of the Corporation or is or was serving at the request of the Corporation as
a Director, Officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an "indemnitee"),
whether the basis of such proceeding is alleged action in an official
capacity as a Director, Officer, employee or agent or in any other capacity
while serving as a Director, Officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to provide
prior to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and
amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith; PROVIDED, HOWEVER, that, except as
provided in Section C hereof with respect to proceedings to enforce rights
to indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by a majority vote
of the Directors who are not parties to such proceeding, even though less
than a quorum.
B. The right to indemnification conferred in Section A of this
Article TENTH shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition (hereinafter an "advancement of expenses"); provided, however,
that, if the Delaware General Corporation Law requires, an advancement of
expenses incurred by an indemnitee in his or her capacity as a Director or
Officer (and not in any other capacity in which service was or is rendered
by such indemnitee, including, without limitation, services to an employee
benefit plan) shall be made only upon delivery to the Corporation of an
undertaking (hereinafter an "undertaking"), by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right
to appeal (hereinafter a "final adjudication") that such indemnitee is not
entitled to be indemnified for such expenses under this Section or
otherwise. The rights to indemnification and to the advancement of expenses
conferred in Sections A and B of this Article TENTH shall be contract rights
and such rights shall continue as to an indemnitee who has ceased to be a
Director, Officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not
paid in full by the Corporation within 60 days after a written claim has
been received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be 20
days, the indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in
whole or in part in any such suit, or in a suit brought by the Corporation
to recover an advancement of expenses pursuant to the terms of an
undertaking, the indemnitee shall be entitled to be paid also the expenses
of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a
suit brought by the indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking the Corporation shall be entitled to recover such expenses
upon a final adjudication that, the indemnitee has not met any applicable
standard for indemnification set forth
II-1
<PAGE>
in the Delaware General Corporation Law. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) to have made a determination prior to the commencement of
such suit that indemnification of the indemnitee is proper in the
circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the indemnitee has not
met such applicable standard of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any
suit brought by the indemnitee to enforce a right to indemnification or to
an advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden
of proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article TENTH or otherwise shall be on
the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Corporation's Certificate of Incorporation, Bylaws, agreement, vote of
stockholders or Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any Director, Officer, employee or agent of the Corporation or
subsidiary or Affiliate or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether or
not the Corporation would have the power to indemnify such person against
such expense, liability or loss under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by
a majority vote of the Directors who are not parties to such proceeding,
even though less than a quorum, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article TENTH with respect to the
indemnification and advancement of expenses of Directors and Officers of the
Corporation.
ELEVENTH:
A Director of this Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability: (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) under Section 174 of the Delaware General Corporation
Law; or (iv) for any transaction from which the Director derived an improper
personal benefit. If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of Directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of
the Corporation shall not adversely affect any right or protection of a Director
of the Corporation existing at the time of such repeal or modification.
II-2
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC filing ......................................................$ 6,809
OTS filing fee..................................................... 8,400
NASD filing fee.................................................... 3,079
Nasdaq National Market filing fee.................................. 48,750
Edgar, printing, postage and mailing .............................. 150,000
Legal fees and expenses............................................ 250,000
Accounting fees and expenses....................................... 70,000
Appraisers' fees and expenses (including business plan)............ 35,000
Securities marketing firm expenses (1)............................. 30,000
Underwriter's counsel fees......................................... 45,000
Conversion Agent fees and expenses................................. 16,500
Blue Sky fees and expenses......................................... 10,000
Certificate printing............................................... 5,000
Miscellaneous...................................................... 11,462
--------
TOTAL ...................................................... $690,000
========
</TABLE>
- ----------
* Unless otherwise noted, fees are based upon the registration of 2,578,875
shares at $10.00 per share.
(1) Friedman, Billings, Ramsey & Co., Inc. will receive a fee of 1.5% of the
aggregate purchase price of the shares of common stock sold in the
subscription offering and the community offering, excluding shares
purchased by the ESOP and by officers and directors of First Federal and
their associates. See "THE CONVERSION--MARKETING AND UNDERWRITING
ARRANGEMENTS," in the Prospectus.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
None.
II-3
<PAGE>
ITEM 27. EXHIBITS.
The exhibits filed as a part of this Registration Statement are as follows:
(a) List of Exhibits (filed herewith unless otherwise noted)
<TABLE>
<S> <C>
1.1 Engagement Letter between First Federal Bank, F.S.B. and Friedman,
Billings, Ramsey & Co., Inc.
1.2 Draft Form of Agency Agreement*
2.0 Plan of Conversion (including the Federal Stock Charter and Bylaws of
First Federal Bank)
3.1 Certificate of Incorporation of First Federal Bancshares, Inc.
3.2 Bylaws of First Federal Bancshares, Inc.
4.0 Specimen Stock Certificate of First Federal Bancshares, Inc.
5.0 Opinion of Muldoon, Murphy & Faucette LLP re: Legality
8.1 Draft Opinion of Muldoon, Murphy & Faucette LLP re: Federal Tax Matters
8.2 Draft Opinion of Crowe, Chizek and Company LLP re: State Tax Matters*
8.3 Opinion of RP Financial, LC. re: Subscription Rights
10.1 Draft ESOP Loan Commitment Letter and ESOP Loan Documents
10.2 Form of First Federal Bank Employment Agreement
10.3 Form of First Federal Bancshares, Inc. Employment Agreement
10.4 Form of First Federal Bank Change in Control Agreement
10.5 Form of First Federal Bank Employee Severance Compensation Plan
10.6 Form of First Federal Bank Supplemental Executive Retirement Plan
16.0 Letter on Change in Certifying Accountant
23.1 Consent of Muldoon, Murphy & Faucette LLP
23.2 Consent of Crowe, Chizek and Company LLP
23.3 Consent of RP Financial, LC.
23.4 Consent of Clifton Gunderson L.L.C.
24.0 Powers of Attorney
27.0 Financial Data Schedule
99.1 Appraisal Report of RP Financial, LC. (P)
99.2 Draft Marketing Materials
</TABLE>
- ----------
(P) Filed pursuant to Rule 202 of Regulation S-T.
* To be filed by amendment.
II-4
<PAGE>
ITEM 28. UNDERTAKINGS.
The small business issuer will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
The small business issuer will provide to the underwriter at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-5
<PAGE>
CONFORMED
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Colchester, State of Illinois, on May 5, 2000.
First Federal Bancshares, Inc.
By: /s/James J. Stebor
----------------------------------
James J. Stebor
President, Chief Executive Officer
and Director
(duly authorized representative)
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
NAME TITLE DATE
/s/ James J. Stebor President, Chief Executive May 5, 2000
- ----------------------- Officer and Director
James J. Stebor (principal executive
officer)
/s/ Cathy D. Pendell Treasurer May 5, 2000
- ----------------------- (principal accounting and
Cathy D. Pendell financial officer)
/s/Franklin M. Hartzell Director May 5, 2000
- -----------------------
Franklin M. Hartzell
/s/Dr. Stephan L. Roth Director May 5, 2000
- -----------------------
Dr. Stephan L. Roth
/s/Richard D. Stephens Director May 5, 2000
- -----------------------
Richard D. Stephens
/s/Murrel Hollis Director May 5, 2000
- -----------------------
Murrel Hollis
<PAGE>
/s/Gerald L. Prunty Director May 5, 2000
- -----------------------
Gerald L. Prunty
Eldon M. Snowden Director May 5, 2000
- -----------------------
Eldon M. Snowden
<PAGE>
EXHIBIT 1.1
[Friedman, Billings, Ramsey & Co., Inc. Letterhead]
March 29, 2000
Board of Directors
Attn: Mr. James J. Stebor, President and CEO
First Federal Bank, FSB
2001 Maine Street
Quincy, IL 62301
RE: Conversion Marketing Services
Gentlemen:
This letter sets forth the terms of the proposed engagement between Friedman,
Billings, Ramsey and Co., Inc. ("FBR") and First Federal Bank, FSB ("First
Federal"), concerning our Investment Banking Services in connection with the
Plan of Conversion (the "Plan") of First Federal and its related sale of common
stock.
FBR is prepared to assist First Federal in connection with the offering of its
shares of common stock during the Subscription Offering and Community Offering
as such terms are defined in the Plan. The specific terms of the services
contemplated hereunder shall be set forth in a definitive sales agency agreement
(the "Agreement") between FBR and First Federal to be executed prior to mailing
of the Offering material. The price of the shares during the Subscription
Offering and Community Offering will be the price established by First Federal's
Board of Directors, based upon an independent appraisal as approved by the
appropriate regulatory authorities, provided such price is mutually acceptable
to FBR and First Federal.
In connection with the Subscription Offering and Community Offering, FBR will
render the following services:
- - Act as the Financial Advisor to First Federal
- - Create marketing materials and formulate a marketing plan
- - Conduct training for all Directors and Employees concerning the
reorganization and stock offering
- - Manage Stock Center and staff with FBR personnel
- - Assist First Federal and Attorneys with listing on NASDAQ
- - Assist First Federal with the proxy solicitation
After the Offering, FBR intends to continue coverage of First Federal through
research coverage and intends on making a market in the Company's stock
including assisting the company with the Employee Stock Ownership Plan purchase
in the aftermarket if applicable. For a period of twelve months following the
completion of the conversion, FBR will continue to act as Financial Advisor for
First Federal without further remuneration.
At the appropriate time, FBR, in conjunction with its counsel, will conduct an
examination of the relevant documents and records of First Federal as FBR deems
necessary and appropriate. First Federal will make all documents, records and
other information deemed necessary by FBR or its counsel available to them upon
request.
For its services hereunder, FBR will receive the following compensation and
reimbursement from First Federal:
<PAGE>
Mr. Stebor
March 29, 2000
Page 2 of 5
1. A management fee of $50,000 payable as follows, $25,000 upon the signing of
this letter and $25,000 upon receiving OTS approval of the Plan application.
Should the Plan be terminated for any reason not attributable to the action or
inaction of FBR, FBR shall have earned and be entitled to be paid fees accruing
through the stage at which point the termination occurred.
2. First Federal shall pay a marketing fee of 1.50% of the aggregate Purchase
Price of Common Stock sold in the Subscription Offering and Community Offering,
excluding those shares purchased (i) by First Federal officers, directors, or
employees (or members of their immediate families), or (ii) by any ESOP,
tax-qualified or stock compensation plans (except IRA's) or similar plan created
by First Federal for some or all of its directors or employees or (iii) by any
charitable foundation created by First Federal or the Holding Company. The
management fee of $50,000 will be subtracted from the marketing fee.
3. The foregoing commissions are to be payable to FBR at closing as defined in
the Agreement to be entered into between FBR and First Federal.
4. As part of the Subscription Offering and Community Offering, FBR shall be
reimbursed for reasonable expenses incurred by them, including legal fees. FBR's
legal fees for this transaction shall not exceed $45,000. FBR's other
out-of-pocket expenses (including out-of-pocket expenses incurred by FBR's
outside counsel) are not expected to exceed $30,000. Should FBR's expenses,
excluding legal fees, exceed $30,000, First Federal must approve such expenses
above that amount for FBR to be reimbursed. FBR's reasonable expenses, including
both legal fees and other out-of-pocket expenses, shall be reimbursed whether or
not the Agreement is consummated in accordance with the provisions of this
paragraph.
It is further understood that First Federal will pay all other expenses of the
Plan including but not limited to its attorneys' fees, NASD filing fees, filing
and registration fees and fees of either FBR's attorneys (limited to $45,000) or
the attorneys relating to any required state securities law filings, telephone
charges, air freight, supplies, conversion agent charges, transfer agent
charges, fees relating to auditing and accounting and costs of printing all
documents necessary in connection with the foregoing.
For purpose of FBR's obligation to file certain documents and to make certain
representations to the NASD in connection with the Plan, First Federal warrants
that: (a) First Federal has not privately placed any securities within the last
18 months; (b) there have been no material dealings within the last 12 months
between First Federal and any NASD member or any person related to or associated
with any such member; (c) none of the officers or directors of First Federal has
any affiliation with the NASD; (d) except as contemplated by this engagement
letter with FBR, First Federal has no financial or management consulting
contracts outstanding with any other person; (e) First Federal has not granted
FBR a right of first refusal with respect to the underwriting of any future
offering of First Federal's common stock; and (f) there has been no intermediary
between FBR and First Federal in connection with the public offering of First
Federal shares, and no person is being compensated in any manner for providing
such service.
Nothing in this Agreement shall be construed to limit the ability of FBR or its
affiliates to pursue, investigate, analyze, invest in, or engage in investment
banking, financial advisory, or any other business relationships with entities
other than First Federal, notwithstanding that such entities may be engaged in a
business which is similar to or competitive with the business of First Federal,
and notwithstanding that such entities may have actual or potential operations,
products, services, plans, ideas, customers or supplies similar or identical to
First Federal's, or may have been identified by First Federal as potential
merger or acquisition targets or potential candidates for some other business
combination, cooperation or relationship. First Federal expressly acknowledges
and agrees that it does not claim any proprietary interest in the identity of
any other entity in its industry or otherwise, and that the identity of any such
entity is not confidential information. Notwithstanding the foregoing, FBR will
keep confidential the fact that First Federal has identified to FBR any entity
as a potential merger or acquisition target or potential candidate for some
other business combination, cooperation or relationship.
<PAGE>
Mr. Stebor
March 29, 2000
Page 3 of 5
First Federal acknowledges and agrees that it is a sophisticated business
enterprise and that FBR has been retained pursuant to this Agreement to act as
financial advisor to First Federal solely with respect to the matters set forth
herein. In such capacity, FBR shall act as an independent contractor, and any
duties of FBR arising out of its engagement pursuant to this Agreement shall be
contractual in nature and shall be owed solely to First Federal. Each party
disclaims any intention to impose any fiduciary duty on the other.
First Federal agrees to indemnify FBR and its controlling persons,
representatives and agents in accordance with the indemnification provisions
(the "Indemnification Provisions") set forth in Appendix A, and agrees to the
other provisions of Appendix A, which is incorporated herein by this reference,
regardless of whether the proposed Offering is consummated.
This letter is merely a statement of intent and is not a binding legal agreement
except as to the compensation and reimbursement paragraphs numbered 1-4 above
and the indemnity described in Appendix A. While FBR and First Federal agree in
principle to the contents hereof and the purpose to proceed promptly, and in
good faith, to work out the arrangements with respect to the proposed offering,
any legal obligations between FBR and First Federal shall be only as set forth
in a duly executed Agreement. The indemnification provision described in
Appendix A will be superseded by the indemnification provisions of the Agreement
entered into by First Federal and FBR. Such Agreement shall be in the form and
content satisfactory to FBR and First Federal and subject to, among other
things, there being in FBR's opinion no material adverse change in the condition
or operations of First Federal or no market conditions which might render the
sale of the shares by First Federal hereby contemplated inadvisable.
The validity and interpretation of this agreement shall be governed by, and
construed and enforced in accordance with, the laws of the Commonwealth of
Virginia (excluding the conflicts of laws rules).
Please acknowledge your agreement to the foregoing by signing below and
returning to FBR one copy of this letter along with a payment of $25,000. This
proposal is open for your acceptance for a period of thirty (30) days from the
date hereof.
Very truly yours,
/s/ ROBERT A. KOTECKI
- ----------------------------------
By: Robert A. Kotecki
Title: Managing Director
Date:
-----------------------------
Agreed and Accepted to this 12th day of April , 2000.
------- -------
First Federal Bank, FSB
By: /s/ JAMES J. STEBOR
-------------------------------
Title: President
----------------------------
James J. Stebor, President and CEO
<PAGE>
Mr. Stebor
March 29, 2000
Page 4 of 5
APPENDIX A
First Federal agrees to indemnify and hold harmless FBR and its affiliates (as
defined in Rule 405 under the Securities Act of 1933, as amended) and their
respective directors, officers, employees, agents and controlling persons (FBR
and each person being an "Indemnified Party") from and against all losses,
claims, damages and liabilities (or actions, including shareholder actions, in
respect thereof), joint or several, to which such Indemnified Party may become
subject under any applicable federal or state law, or otherwise, which are
related to or result from the performance by FBR of the services contemplated by
or the engagement of FBR pursuant to, this letter agreement and will promptly
reimburse any Indemnified Party for all reasonable expenses (including
reasonable fees and expenses of one firm of counsel) as they are incurred in
connection with the investigation of, preparation for or defense arising from
any threatened or pending claim, whether or not such Indemnified Party is a
party and whether or not such claim, action or proceeding is initiated or
brought by First Federal . First Federal will not be liable to any Indemnified
Party under the foregoing indemnification and reimbursement provisions, (i) for
any settlement by an Indemnified Party effected without its prior written
consent (not to be unreasonably withheld); or (ii) to the extent that any loss,
claim, damage or liability is found in a final non-appealable judgment by a
court of competent jurisdiction to have resulted directly from FBR's willful
misconduct or gross negligence. First Federal also agrees that no Indemnified
Party shall have any liability (whether direct or indirect, in contract or tort
or otherwise) to First Federal or its security holders or creditors related to
or arising out of the engagement of FBR pursuant to, or the performance by FBR
of the services contemplated by, this letter agreement except to the extent that
any loss, claim, damage or liability is found in a judgment by an appellate
court (or trial court if FBR fails to file a timely appeal) of competent
jurisdiction to have resulted directly from FBR's willful misconduct, bad faith
or gross negligence.
Promptly after receipt by an Indemnified Party of notice of any intention or
threat to commence an action, suit or proceeding or notice of the commencement
of any action, suit or proceeding, such Indemnified Party will, if a claim in
respect thereof is to be made against First Federal pursuant hereto, promptly
notify First Federal in writing of the same. In case any such action is brought
against any Indemnified Party and such Indemnified Party notifies First Federal
of the commencement thereof, First Federal may elect to assume the defense
thereof, with counsel reasonably satisfactory to such Indemnified Party, and an
Indemnified Party may retain counsel to participate in the defense of any such
action; provided, however, that in no event shall First Federal be required to
pay fees and expenses for more than one firm of attorneys representing
Indemnified Parties unless the defense of one Indemnified Party is unique or
separate from that of another Indemnified Party subject to the same claim or
condition. Any failure or delay by an Indemnified Party to give the notice
referred to in this paragraph shall not affect such Indemnified Party's right to
be indemnified hereunder, except to the extent that such failure or delay causes
actual harm to First Federal, or prejudices its ability to defend such action,
suit or proceeding on behalf of such Indemnified Party.
If the indemnification provided for in this letter agreement is for any reason
held unenforceable by an Indemnified Party (other than as a result of a judicial
determination as to FBR's willful misconduct or gross negligence), First Federal
agrees to contribute to the losses, claims, damages and liabilities for which
such indemnification is held unenforceable (i) in such proportion as is
appropriate to reflect the relative benefits to First Federal, on the one hand,
and FBR on the other hand, of the Offering as contemplated (whether or not the
Offering is consummated) or, (ii) if (but only if) the allocation provided for
in clause (i) is for any reason unenforceable, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
but also the relative fault of First Federal, on the one hand and FBR, on the
other hand, as well as any other relevant equitable considerations. First
Federal agrees that for the purposes of this paragraph the relative benefits to
First Federal and FBR of the Transactions as contemplated shall be deemed to be
in the same proportion that the total value received or contemplated to be
received by First Federal or its shareholders, as the case may be, as a result
of or in connection with the Transactions bear to the fees paid or to be paid to
FBR under this letter agreement. Notwithstanding the foregoing, First Federal
expressly agrees that FBR shall not be required to contribute any amount in
excess of the amount by which fees
<PAGE>
Mr. Stebor
March 29, 2000
Page 5 of 5
owed FBR hereunder (excluding reimbursable expenses), exceeds the amount of any
damages which FBR has otherwise been required to pay.
First Federal agrees that without FBR's prior written consent, which shall not
be unreasonably withheld, it will not settle, compromise or consent to the entry
of any judgment in any pending or threatened claim, action or proceeding in
respect of which this indemnification could be sought under the indemnification
provisions of this letter agreement (in which FBR or any other indemnified Party
is an actual or potential party to such claim, action or proceeding), unless
such settlement, compromise or consent includes an unconditional release of each
Indemnified Party from all liability arising out of such claim, action or
proceeding.
In the event that an Indemnified Party is requested or required to appear as a
witness in any action brought by or on behalf of or against First Federal in
which such Indemnified Party is not named as a defendant, First Federal agrees
to promptly reimburse FBR on a monthly basis for all expenses incurred by it in
connection with such Indemnified Party's appearing and preparing to appear as
such a witness, including, without limitation, the reasonable fees and
disbursements of its legal counsel. In addition to any reimbursed fees, expenses
or costs outlined hereunder, FBR shall also receive from First Federal cash
compensation of $1,000.00 per person, per day, plus reasonable out-of-pocket
expenses and costs should FBR be required to provide testimony in any formal or
informal proceeding regarding the Offering.
If multiple claims are brought with respect to at least one of which
indemnification is permitted under applicable law and provided for under this
agreement, First Federal agrees that any judgment or arbitrated award shall be
conclusively deemed to be based on claims as to which indemnification is
permitted and provided for, except to the extent the judgment or arbitrated
award expressly states that the award, or any portion thereof, is based solely
on a claim as to which indemnification is not available.
In the event that First Federal does not promptly assume the defense of a claim
or action, the Indemnified Party shall have the right to employ counsel
reasonably satisfactory to First Federal, at First Federal's expense, to defend
such pending or threatened action or claim.
Agreed and Accepted to this 12th day of April , 2000.
------- --------
First Federal Bank, FSB
By: /s/ JAMES J. STEBOR
---------------------------
Title: President
---------------------------
James J. Stebor, President and CEO
<PAGE>
- -------------------------------------------------------------------------------
PLAN OF CONVERSION
FOR
FIRST FEDERAL BANK, F.S.B.
AS ADOPTED ON:
DECEMBER 8, 1999
- -------------------------------------------------------------------------------
<PAGE>
Exhibit 2.0
PLAN OF CONVERSION
FOR
FIRST FEDERAL BANK, F.S.B.
1. INTRODUCTION
This Plan of Conversion ("Plan") provides for the conversion of First
Federal Bank, F.S.B. ("BANK") from a federally-chartered mutual savings bank to
a federally-chartered capital stock savings bank to be named First Federal Bank.
The board of Directors of the BANK currently contemplates that all of the stock
of the BANK shall be held by a corporation (the "Holding Company"). The Board of
Directors has carefully considered the alternatives available to the BANK with
respect to its corporate structure and has determined that a mutual to stock
conversion as described in this Plan is in the best interests of the BANK, its
depositors and the community served by the BANK. The Board of Directors believes
that the decline in mutuality is placing mutual savings banks, such as the BANK,
at a disadvantage to the increasing base of stock thrift and commercial bank
institutions. The restructuring of the BANK into the capital stock form of
organization will enable the BANK to compete more effectively with commercial
banks and other financial institutions for new business opportunities and
qualified employees, and as a stock institution, to increase its equity capital
base and access the capital markets when needed and to enhance the BANK's
ability to expand its franchise and the products it offers and to operate more
effectively as an independent, community-oriented financial institution. The use
of the Holding Company, if so utilized, would also provide greater
organizational and operating flexibility.
<PAGE>
Shares of capital stock of the BANK will be sold to the Holding Company and the
Holding Company will offer the Conversion Stock upon the terms and conditions
set forth herein to the Eligible Account Holders, the Employee Plans established
by the BANK or Holding Company, Supplemental Eligible Account Holders and Other
Members in the respective priorities set forth in this Plan. Any shares of
Conversion Stock not subscribed for by the foregoing classes of persons will be
offered for sale to certain members of the public either directly by the BANK
and the Holding Company through a Community Offering or a Syndicated Community
Offering or through an underwritten firm commitment public offering or through a
combination thereof. In the event that the BANK decides not to utilize the
Holding Company in the conversion, Conversion Stock of the BANK, in lieu of the
Holding Company, will be sold as set forth above and in the respective
priorities set forth in this Plan. In addition to the foregoing, the BANK and
the Holding Company, as part of this Plan, intend to implement stock option
plans and other stock benefit plans and will provide employment or severance
agreements to certain management employees and certain other compensation to the
directors, officers and employees of the BANK as described in the prospectus for
the Conversion Stock.
This Plan, which has been unanimously approved by the Board of
Directors of the BANK, must also be approved by the affirmative vote of a
majority of the total number of outstanding votes entitled to be cast by Voting
Members of the BANK at a special meeting to be called for that purpose. Prior to
the submission of this Plan to the Voting Members for consideration, the Plan
must be approved by the Office of Thrift Supervision (the "OTS").
2
<PAGE>
2. DEFINITIONS
For the purposes of this Plan, the following terms have the following
meanings:
ACCOUNT HOLDER - The term Account Holder means any Person holding a
Savings Account in the BANK.
ACTING IN CONCERT - The term "Acting in Concert" means (i) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise; or
(iii) a person or company which acts in concert with another person or company
("other party") shall also be deemed to be acting in concert with any person or
company who is also acting in concert with that other party, except that any
Tax-Qualified Employee Stock Benefit Plan will not be deemed to be acting in
concert with its trustee or a person who serves in a similar capacity solely for
the purpose of determining whether stock held by the trustee and stock held by
the plan will be aggregated.
ACTUAL PURCHASE PRICE - The term Actual Purchase Price means the per
share price at which the Conversion Stock is ultimately sold in accordance with
the terms hereof.
ASSOCIATE - The term Associate when used to indicate a relationship
with any person, means (i) any corporation or organization (other than the BANK
or a majority-owned subsidiary of the BANK) of which such person is an officer
or partner or is, directly or indirectly, the beneficial owner of 10 percent or
more of any class of equity securities, (ii) any trust or other estate in which
such person has a substantial beneficial interest or as to which such person
serves as trustee or in a similar fiduciary capacity except that for the
purposes of Sections 9 and 14 hereof, the term
3
<PAGE>
"Associate" does not include any Non-Tax-Qualified Employee Stock Benefit Plan
or any Tax-Qualified Employee Stock Benefit Plan in which a person has a
substantial beneficial interest or serves as a trustee or in a similar fiduciary
capacity, and except that, for purposes of aggregating total shares that may be
held by Officers and Directors the term "Associate" does not include any
Tax-Qualified Employee Stock Benefit Plan, and (iii) any relative or spouse of
such person, or any relative of such spouse, who has the same home as such
person or who is a Director or Officer of the BANK or the Holding Company, if
utilized, or any of its parents or subsidiaries.
BANK - The term BANK means First Federal Bank, F.S.B., Colchester,
Illinois and after its conversion to stock form, First Federal Bank.
COMMUNITY OFFERING - The term Community Offering means the offering for
sale to certain members of the general public directly by the BANK or the
Holding Company, if utilized, of any shares of Conversion Stock not subscribed
for in the Subscription Offering.
CONVERSION STOCK - The term Conversion Stock means the common stock
offered and issued by the Holding Company or the $1.00 par value Common Stock
offered and issued by the BANK, if the Holding Company form of organization is
not utilized, upon conversion.
DIRECTOR - The term Director means a member of the Board of Directors
of the BANK and, where applicable, a member of the Board of Directors of the
Holding Company.
ELIGIBLE ACCOUNT HOLDER - The term Eligible Account Holder means any
person holding a Qualifying Deposit on the Eligibility Record Date.
4
<PAGE>
ELIGIBILITY RECORD DATE - The term Eligibility Record Date means the
date for determining Eligible Account Holders in the BANK and is October 31,
1998.
EMPLOYEES - The term Employees means all Persons who are employed by
the BANK but does not include an Officer or Director.
EMPLOYEE PLANS - The term Employee Plans means the Tax Qualified
Employee Stock Benefit Plans approved by the Board of Directors of the BANK.
ESTIMATED PRICE RANGE - The term Estimated Price Range means the range
of minimum and maximum aggregate values determined by the Board of Directors of
the BANK within which the aggregate amount of Common Stock sold in the
Conversion will fall. The Estimated Price Range will be within the estimated pro
forma market value of the Conversion Stock as determined by the Independent
Appraiser prior to the Subscription Offering and as it may be amended from time
to time thereafter.
FDIC - The term FDIC means the Federal Deposit Insurance Corporation.
HOLDING COMPANY - The term Holding Company means the corporation formed
for the purpose of acquiring all of the shares of capital stock of the BANK to
be issued upon its conversion to stock form unless the Holding Company form of
organization is not utilized. Shares of common stock of the Holding Company will
be issued in the conversion to Participants and others in a Subscription,
Community, Syndicated Community, or underwritten firm commitment public
offering, or through a combination thereof.
INDEPENDENT APPRAISER - The term Independent Appraiser means an
appraiser retained by the BANK to prepare an appraisal of the pro forma market
value of the Conversion Stock.
5
<PAGE>
LOCAL COMMUNITY - The term Local Community means Adams, Brown,
McDonough, Hancock, Schuyler, Henderson, Fulton, Warren and Pike Counties in
Illinois and Marian, Lewis and Ralls Counties in Missouri.
MEMBER - The term Member means any Person or entity who qualifies as a
member of the BANK pursuant to its charter and bylaws.
OTS - The term OTS means Office of Thrift Supervision of the Department
of the Treasury and its successors.
OFFICER - The term Officer means an executive officer of the BANK which
includes the Chief Executive Officer, President, Executive Vice President,
Senior Vice Presidents, Vice Presidents in charge of principal business
functions, Secretary, Treasurer and Controller and any person performing
functions similar to those performed by the foregoing persons.
ORDER FORM - The term Order Form means any form together with attached
cover letter, sent by the BANK to any Participant or Person containing among
other things a description of the alternatives available to such Person under
the Plan and by which any such Person may make elections regarding subscriptions
for Conversion Stock in the Subscription and Community Offerings.
OTHER MEMBER - The term Other Member means any person who is a Member
of the BANK (other than an Eligible Account Holder or Supplemental Eligible
Account Holder) at the close of business on the Voting Record Date.
PARTICIPANTS - The term Participants means the Eligible Account
Holders, Employee Plans, Supplemental Eligible Account Holders and Other
Members.
6
<PAGE>
PERSON - The term Person means an individual, a corporation, a
partnership, a bank, a joint-stock company, a trust (including Individual
Retirement Accounts and KEOGH Accounts), any unincorporated organization, a
government or political subdivision thereof or any other entity.
PLAN - The term Plan means this Plan of Conversion of the BANK as it
exists on the date hereof and as it may hereafter be amended in accordance with
its terms.
PREFERRED SUBSCRIBERS - The term Preferred Subscribers means those
members of the general public which are natural persons residing in the BANK's
Local Community.
QUALIFYING DEPOSIT - The term Qualifying Deposit means the balance of
each Savings Account of $50 or more in the BANK at the close of business on the
Eligibility Record Date or the Supplemental Eligibility Record Date, whichever
may be the case. Savings Accounts with total deposit balances of less than $50
shall not constitute a Qualifying Deposit.
SEC - The term SEC refers to the United States Securities and Exchange
Commission.
SAVINGS ACCOUNT - The term Savings Account includes savings accounts,
as that term is defined in Section 561.42 of the Rules and Regulations of the
OTS, withdrawable accounts, including certificates of deposit, and demand
accounts which are defined in Section 561.16.
SPECIAL MEETING OF MEMBERS - The term Special Meeting of Members
means the special meeting and any adjournments thereof held to consider and
vote upon this Plan.
SUBSCRIPTION OFFERING - The term Subscription Offering means the
offering of Conversion Stock for purchase through Order Forms to
Participants.
SUBSCRIPTION PRICE - The term Subscription Price means the amount
per share of Conversion Stock to be paid initially by Participants in the
Subscription Offering and persons in the Community Offering.
7
<PAGE>
SUPPLEMENTAL ELIGIBILITY RECORD DATE - The term Supplemental
Eligibility Record Date means the supplemental record date for determining
Supplemental Eligible Account Holders of the BANK. The Supplemental Eligibility
Record Date shall be the last day of the calendar quarter preceding the OTS'
approval of the application for conversion.
SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER - The term Supplemental Eligible
Account Holder means any person (other than an Eligible Account Holder) holding
a Qualifying Deposit, except officers, directors and their associates, as of the
Supplemental Eligibility Record Date.
SYNDICATED COMMUNITY OFFERING - The term Syndicated Community Offering
means the offering of Conversion Stock following the Subscription and Community
Offerings through a syndicate of broker-dealers.
TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLAN - The term Tax-Qualified
Employee Stock Benefit Plan means any defined benefit plan or defined
contribution plan, such as an employee stock ownership plan, stock bonus plan,
profit-sharing plan or other plan, which, with its related trust, meets the
requirements to be "qualified" under Section 401 of the Internal Revenue Code. A
"Non-Tax-Qualified Employee Stock Benefit Plan" is any defined benefit plan or
defined contribution plan which is not so qualified.
VOTING MEMBERS - The term Voting Members means those persons qualifying
as voting members of the BANK pursuant to its charter and bylaws.
VOTING RECORD DATE - The term Voting Record Date means the date fixed
by the Directors in accordance with OTS regulations for determining eligibility
to vote at the Special Meeting of Members.
8
<PAGE>
3. PROCEDURE FOR CONVERSION
After approval of the Plan by a vote of not less than two-thirds (2/3)
of the Board of Directors of the BANK, the Plan shall be submitted together with
all other requisite material to the OTS for its approval. Notice of the adoption
of the Plan by the Board of Directors of the BANK and the submission of the Plan
to the OTS for its approval will be published in a newspaper having general
circulation in each community in which an office of the BANK is located and
copies of the Plan will be made available at each office of the BANK for
inspection by the Members. Upon receipt of notice from the OTS to do so, the
BANK also will cause to be published a notice of the filing with the OTS of an
application to convert in accordance with the provisions of the Plan. Following
approval by the OTS, the Plan will be submitted to a vote of the Voting Members
at the Special Meeting of Members called for that purpose. Upon approval of the
Plan by a majority of the total outstanding votes of the Voting Members, the
BANK will take all other necessary steps pursuant to applicable laws and
regulations to convert the BANK to stock form. The conversion must be completed
within 24 months of the approval of the Plan by the Voting Members, unless a
longer time period is permitted by governing laws and regulations.
The Board of Directors of the BANK intends to take all necessary steps
to form the Holding Company, including the filing of an Application on Form
H-(e)1 or H-(e)1-S, if available to the Holding Company, with the OTS. In the
event that the Holding Company is utilized, upon conversion the BANK will issue
capital stock to the Holding Company and the Holding Company will issue and sell
the Conversion Stock in accordance with this Plan.
The Board of Directors of the BANK may determine for any reason at any
time prior to the issuance of the Conversion Stock not to utilize a holding
company form of organization in the
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Conversion, in which case, the Holding Company's registration statement on Form
S-1 will be withdrawn from the SEC, the BANK will take all steps necessary to
complete the conversion from the mutual to the stock form of organization,
including filing any necessary documents with the OTS, and will issue and sell
the Conversion Stock in accordance with this Plan. In such event, any
subscriptions or orders received for Conversion Stock of the Holding Company
shall be deemed to be subscriptions or orders for Conversion Stock of the BANK
without any further action by the BANK or the subscribers for the Conversion
Stock, unless any such further action is required by the SEC or the OTS, in
which case the BANK shall take such necessary action to complete the Conversion.
Any references to the Holding Company in this Plan shall mean the BANK in the
event the Holding Company is eliminated in the Conversion.
The Conversion Stock will not be insured by the FDIC. The BANK will not
knowingly lend funds or otherwise extend credit to any Person to purchase shares
of the Conversion Stock.
4. HOLDING COMPANY APPLICATIONS AND APPROVALS
The Holding Company shall make timely applications for any requisite
regulatory approvals, including an Application on Form H-(e)1 or H-(e)1-S, if
available to the Holding Company, to be filed with the OTS and a Registration
Statement on Form S-1 or Form SB-2, if available to the Holding Company, to be
filed with the SEC. The BANK shall be a wholly-owned subsidiary of the Holding
Company unless the Holding Company is eliminated in the Conversion.
5. SALE OF CONVERSION STOCK
The Conversion Stock will be offered simultaneously in the Subscription
Offering to the Eligible Account Holders, Employee Plans, Supplemental Eligible
Account Holders and Other Members in the respective priorities set forth in
Sections 8 through 11 of this Plan. The
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Subscription Offering may be commenced as early as the mailing of the Proxy
Statement for the Special Meeting of Members and must be commenced in time to
complete the Conversion within the time period specified in Section 3.
Any shares of Conversion Stock not subscribed for in the Subscription
Offering will be offered for sale in the Community Offering as provided in
Section 12 of this Plan. The Subscription Offering may be commenced prior to the
Special Meeting of Members and, in that event, the Community Offering may also
be commenced prior to the Special Meeting of Members. The offer and sale of
Conversion Stock prior to the Special Meeting of Members shall, however, be
conditioned upon approval of the Plan by the Voting Members.
If feasible, any shares of Conversion Stock remaining after the
Subscription and Community Offerings may be sold in a Syndicated Community
Offering, as provided in Section 13 of this Plan in a manner that will achieve
the widest distribution of the Conversion Stock as determined by the BANK. The
sale of all Conversion Stock subscribed for in the Subscription and Community
Offerings will be consummated simultaneously on the date the sale of Conversion
Stock in the Syndicated Community Offering is consummated and only if all
unsubscribed for Conversion Stock is sold.
The BANK may elect to offer to pay fees on a per share basis to brokers
who assist Persons in determining to purchase shares in the Subscription and
Community Offerings.
6. NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK
The total number of shares (or a range thereof) of Conversion Stock
to be issued and offered for sale will be determined jointly by the Board of
Directors of the BANK and the Board of Directors of the Holding Company, if
the holding company form of organization is utilized,
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immediately prior to the commencement of the Subscription and Community
Offerings, subject to adjustment thereafter if necessitated by market or
financial conditions, with the approval of the OTS, if necessary. In particular,
the total number of shares may be increased by up to 15% of the number of shares
offered in the Subscription and Community Offering if the Estimated Price Range
is increased subsequent to the commencement of the Subscription and Community
Offering to reflect changes in market and financial conditions.
All shares sold in the Conversion will be sold at a uniform price per
share referred to in this Plan as the Actual Purchase Price. The aggregate
purchase price for all shares of Conversion Stock will not be inconsistent with
the estimated consolidated pro forma market value of the BANK or the Holding
Company, if utilized. The estimated consolidated pro forma market value of the
BANK or the Holding Company, if utilized, will be determined for such purpose by
the Independent Appraiser. Prior to the commencement of the Subscription and
Community Offerings, an Estimated Price Range will be established, which range
will vary within 15% above to 15% below the midpoint of such range. The number
of shares of Conversion Stock to be issued and the purchase price per share may
be increased or decreased by the BANK. In the event that the aggregate purchase
price of the Conversion Stock is below the minimum of the Estimated Price Range,
or materially above the maximum of the Estimated Price Range, resolicitation of
purchasers may be required provided that up to a 15% increase above the maximum
of the Estimated Price Range will not be deemed material so as to require a
resolicitation. Up to a 15% increase in the number of shares to be issued which
is supported by an appropriate change in the estimated pro forma market value of
the BANK or the Holding Company, if utilized, will not be deemed to be material
so as to require a resolicitation of subscriptions. In the event that the
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aggregate purchase price of the Conversion Stock is below the minimum of the
Estimated Price Range or in excess of 15% above the maximum of the Estimated
Price Range, and a resolicitation is required, such resolicitation shall be
effected in such manner and within such time as the BANK shall establish, with
the approval of the OTS, if required.
Based upon the independent valuation as updated prior to the
commencement of the Subscription and Community Offerings, the Board of Directors
of the Holding Company, (if a holding company form of organization is utilized)
and the Board of Directors of the BANK will fix the Subscription Price and the
range of the number of shares to be offered. If upon completion of the
Subscription and Community Offerings all of the Conversion Stock is subscribed
for, or if because of a limited number of unsubscribed shares or otherwise a
Syndicated Community Offering cannot be effected, the total number of shares of
Conversion Stock to be issued and sold will be jointly determined by the BANK
and Holding Company (if a holding company form of organization is utilized) as
follows: (a) the estimated aggregate pro forma market value of the BANK or the
Holding Company, as the case may be, immediately after conversion as determined
by the Independent Appraiser, expressed in terms of a specific aggregate dollar
amount rather than as a range, upon completion of the Subscription and Community
Offerings or other sale of all of the Conversion Stock shall be divided by (b)
the Actual Purchase Price.
If there is a Syndicated Community Offering of shares of Conversion
Stock not subscribed for in the Subscription and Community Offerings, the price
per share at which the Conversion Stock is sold in such Syndicated Community
Offering shall be the Subscription Price.
Notwithstanding the foregoing, no sale of Conversion Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the BANK and Holding
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Company, if utilized, and to the OTS that, to the best knowledge of the
Independent Appraiser, nothing of a material nature has occurred which, taking
into account all relevant factors, would cause the Independent Appraiser to
conclude that the aggregate value of the Conversion Stock at the Actual Purchase
Price is incompatible with its estimate of the aggregate consolidated pro forma
market value of the Holding Company or the BANK if no Holding Company is
utilized. If such confirmation is not received, the BANK may cancel the
Subscription and Community Offerings and/or the Syndicated Community Offering,
extend the Conversion, establish a new Subscription Price Range and/or Estimated
Price Range, extend, reopen or hold new Subscription and Community Offerings
and/or Syndicated Community Offering or take such other action as the OTS may
permit.
The Conversion Stock to be issued in the Conversion shall be fully paid
and nonassessable.
7. PURCHASE BY THE HOLDING COMPANY OF THE STOCK OF THE BANK
Upon the consummation of the sale of all of the Conversion Stock, and
in the event that a holding company form of organization is utilized, the
Holding Company will purchase from the BANK all of the capital stock of the BANK
to be issued by the BANK in the Conversion in exchange for the Conversion
proceeds that are not permitted to be retained by the Holding Company.
The Holding Company will apply to the OTS to retain up to 50% of the
proceeds of the Conversion. Assuming the Holding Company is not eliminated, a
lesser percentage may be acceptable. The BANK believes that the Conversion
proceeds will provide economic strength to the Holding Company and the BANK for
the future in a highly competitive and regulated environment and would
facilitate expansion through acquisitions, diversification into other related
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businesses and for other business and investment purposes, including the payment
of dividends and future repurchases of Conversion Stock as permitted by the OTS.
If during the Conversion process the Board of Directors of the BANK determines
not to complete the Conversion utilizing a holding company form of organization,
capital stock of the BANK will be issued and sold in accordance with the Plan.
The above activities may also be engaged in by the BANK if the Holding Company
is eliminated.
8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS
(FIRST PRIORITY)
A. Each Eligible Account Holder shall receive, as first priority and
without payment, nontransferable subscription rights to subscribe for shares of
Conversion Stock equal to an amount up to the greater of: the amount permitted
to be subscribed for in the Community Offering which amount, pursuant to Section
12, currently is $150,000 of the Conversion Stock offered, but which may be
increased to 5% or decreased to less than $150,000 without the further approval
of members or resolicitation of subscribers; one-tenth of one percent (.10%) of
the total offering of shares of Conversion Stock; or fifteen times the product
(rounded down to the next whole number) obtained by multiplying the total number
of shares of Conversion Stock to be issued by a fraction of which the numerator
is the amount of the Qualifying Deposit of the Eligible Account Holder and the
denominator is the total amount of Qualifying Deposits of all Eligible Account
Holders, in each case on the Eligibility Record Date, subject to the maximum
purchase limitation specified in Section 14A and the minimum purchase limitation
specified in Section 14C and exclusive of an increase in the total number of
shares issued due to an increase in the Estimated Price Range of up to 15%.
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B. In the event that Eligible Account Holders exercise subscription
rights for a number of shares of Conversion Stock in excess of the total number
of shares eligible for subscription, the shares of Conversion Stock shall be
allocated among the subscribing Eligible Account Holders so as to permit each
subscribing Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his or her total allocation of Conversion
Stock equal to the lesser of 100 shares or the number of shares subscribed for
by the Eligible Account Holders. Any shares remaining after that allocation will
be allocated among the subscribing Eligible Account Holders whose subscriptions
remain unsatisfied in the proportion that the amount of the Qualifying Deposit
of each Eligible Account Holder whose subscription remains unsatisfied bears to
the total amount of the Qualifying Deposits of all Eligible Account Holders
whose subscriptions remain unsatisfied. If the amount so allocated exceeds the
amount subscribed for by any one or more Eligible Account Holders, the excess
shall be reallocated (one or more times as necessary) among those Eligible
Account Holders whose subscriptions are still not fully satisfied on the same
principle until all available shares have been allocated or all subscriptions
satisfied.
C. Subscription rights as Eligible Account Holders received by
Directors and Officers and their Associates which are based on deposits made by
such persons during the twelve (12) months preceding the Eligibility Record Date
shall be subordinated to the Subscription Rights of all other Eligible Account
Holders.
9. SUBSCRIPTION RIGHTS OF THE EMPLOYEE PLANS (SECOND PRIORITY)
The Employee Plans shall receive, without payment, as a second priority
after the filling of subscriptions of Eligible Account Holders, nontransferable
subscription rights to purchase in the Subscription Offering the number of
shares of Conversion Stock requested by such Employee
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Plans. If, after the filling of subscriptions of Eligible Account Holders, a
sufficient number of shares are not available to fill the subscriptions by such
Employee Plans, the subscription by such Employee Plans shall be filled to the
maximum extent possible; provided, however, that in the event of an increase in
the total number of shares issued due to an increase in the Estimated Price
Range of up to 15%, the additional shares may be sold to the Employee Plans
subject to the provisions of Section 14.
The Employee Plans shall not be deemed to be an associate or affiliate
of or Person Acting in Concert with any Director or Officer of the Holding
Company or the BANK.
10. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS
(THIRD PRIORITY)
A. Each Supplemental Eligible Account Holder shall receive, as third
priority and without payment, nontransferable subscription rights to subscribe
for shares of Conversion Stock equal to an amount up to the greater of: the
amount permitted to be subscribed for in the Community Offering which amount,
pursuant to Section 12, currently is $150,000 of the Conversion Stock offered,
but which may be increased to 5% or decreased to less than $150,000 without the
further approval of members or resolicitation of subscribers; one-tenth of one
percent (.10%) of the total offering of Conversion Stock; or fifteen times the
product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Conversion Stock to be issued by a fraction of which
the numerator is the amount of the Qualifying Deposit of the Supplemental
Eligible Account Holder and the denominator is the total amount of the
Qualifying Deposits of all Supplemental Eligible Account Holders in the BANK on
the Supplemental Eligibility Record Date, subject to the maximum purchase
limitation specified in Section 14A and
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the minimum purchase limitation specified in Section 14C and exclusive of an
increase in the total number of shares issued due to an increase in the
Estimated Price Range of up to 15%.
B. In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of Conversion Stock in excess of the
total number of shares eligible for subscription, the remaining shares of
Conversion Stock shall be allocated among the subscribing Supplemental Eligible
Account Holders so as to permit each subscribing Supplemental Eligible Account
Holder, to the extent possible, to purchase a number of shares sufficient to
make his or her total allocation of Conversion Stock equal to the lesser of 100
shares or the number of shares subscribed for by the Supplemental Eligible
Account Holder. Any shares remaining after that allocation will be allocated
among the subscribing Supplemental Eligible Account Holders whose subscriptions
remain unsatisfied in the proportion that the amount of the Qualifying Deposit
of each Supplemental Eligible Account Holder whose subscription remains
unsatisfied bears to the total amount of the Qualifying Deposits of all
Supplemental Eligible Account Holders whose subscriptions remain unsatisfied. If
the amount so allocated exceeds the amount subscribed for by any one or more
Supplemental Eligible Account Holders, the excess shall be reallocated (one or
more times as necessary) among those Supplemental Eligible Account Holders whose
subscriptions are still not fully satisfied on the same principle until all
available shares have been allocated or all subscriptions satisfied.
C. Subscription rights received by an Eligible Account Holder
pursuant to Section 8 shall be applied in partial satisfaction of the
subscription rights to be received as a Supplemental Eligible Account Holder
pursuant to this Section 10.
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11. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)
A. Each Other Member shall receive, without payment, as a fourth
priority after the filling of subscriptions of the Eligible Account Holders, the
Employee Plans, and the Supplemental Eligible Account Holders, nontransferable
subscription rights to subscribe for shares of Conversion Stock equal to an
amount up to the greater of: the amount permitted to be subscribed for in the
Community Offering which amount, pursuant to Section 12, currently is $150,000
of the Conversion Stock offered, but which may be increased to 5% or decreased
to less than $150,000 without the further approval of members or resolicitation
of subscribers; or one-tenth of one percent (.10%) of the total offering of
shares of Conversion Stock, subject to the maximum purchase limitation specified
in Section 14A and the minimum purchase limitation specified in Section 14C and
exclusive of an increase in the total number of shares issued due to an increase
in the Estimated Price Range of up to 15%.
B. In the event that Other Members exercise subscription rights for
a number of shares of Conversion Stock in excess of the total number of shares
eligible for subscription, the remaining shares of Conversion Stock shall be
allocated among the subscribing Other Members so as to permit each subscribing
Other Member, to the extent possible, to purchase a number of shares sufficient
to make his or her total allocation of Conversion Stock equal to the lesser of
100 shares or the number of shares subscribed for by the Other Member. Any
shares remaining after that allocation will be allocated among the subscribing
Other Members whose subscriptions remain unsatisfied pro rata in the same
proportion that the number of votes of a subscribing Other Member on the Voting
Record Date bears to the total votes on the Voting Record Date of all
subscribing Other Members. If the amount so allocated exceeds the amount
subscribed for by any
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one or more remaining Other Members, the excess shall be reallocated (one or
more times as necessary) among those remaining Other Members whose subscriptions
are still not fully satisfied on the same principle until all available shares
have been allocated or all subscriptions satisfied.
12. COMMUNITY OFFERING (FIFTH PRIORITY)
If less than the total number of shares of Conversion Stock to be
subscribed for in the Conversion are sold in the Subscription Offering, it is
expected that shares remaining unsubscribed for will be made available for
purchase in the Community Offering to certain members of the general public,
which may subscribe together with any Associate or group of persons Acting in
Concert for up to $150,000 of the shares of Conversion Stock offered subject to
the Maximum Overall Purchase Limitation as specified in Section 14A and the
minimum purchase limitation specified in Section 14C and exclusive of an
increase in the total number of shares issued due to an increase in the
Estimated Price Range of up to 15%; provided, however, that the amount permitted
to be purchased in the Community Offering may be increased to 5% of the
Conversion Stock; or decreased to less than $150,000 without the further
approval of members or resolicitation of subscribers. The shares may be made
available in the Community Offering through a direct community marketing program
which may provide for utilization of a broker, dealer, consultant or investment
banking firm, experienced and expert in the sale of savings institution
securities. Such entities may be compensated on a fixed fee basis or on a
commission basis, or a combination thereof. Any excess of shares will be
available for purchase by the general public with preference given to Preferred
Subscribers. The BANK shall make distribution of the Conversion Stock to be sold
in the Community Offering in such a manner as to promote the widest
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distribution of Conversion Stock. The BANK reserves the right to reject any or
all orders, in whole or in part, which are received in the Community Offering.
If the subscribers in the Community Offering, whose orders would
otherwise be accepted, subscribe for more shares than are available for
purchase, the shares available to them will be allocated among the subscribers
in the manner which permits each such person to the extent possible, to purchase
the number of shares necessary to make his total allocation of Conversion Stock
equal to the lesser of 100 shares or the number of shares subscribed for by such
persons. Thereafter, unallocated shares will be allocated among the subscribers
whose subscriptions remain unsatisfied on a 100 shares per order basis until all
such orders have been filled or the remaining shares have been allocated. The
BANK may establish all other terms and conditions of such offer. It is expected
that the Community Offering will commence concurrently with the Subscription
Offering. The Community Offering must be completed within 45 days after the
completion of the Subscription Offering unless otherwise extended by the OTS.
13. SYNDICATED COMMUNITY OFFERING
If feasible, all shares of Conversion Stock not subscribed for in the
Subscription and Community Offerings may be sold in a Syndicated Community
Offering, subject to such terms, conditions and procedures as may be determined
by the BANK, in a manner that will achieve the widest distribution of the
Conversion Stock subject to the right of the BANK to accept or reject in whole
or in part all subscriptions in the Syndicated Community Offering. In the
Syndicated Community Offering, any person together with any Associate or group
of persons Acting in Concert may purchase up to $150,000 of the total number of
shares of Conversion Stock offered subject to the maximum purchase limitation
specified in Section 14A and the minimum purchase
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limitation specified in Section 14C and exclusive of an increase in the total
number of shares issued due to an increase in the Estimated Price Range of up to
15%; provided, however, that this amount may be increased to 5% or decreased to
less than $150,000 without the further approval of members or resolicitation of
subscribers. The shares purchased by any Person together with any Associate or
group of persons Acting in Concert pursuant to Section 12 shall be counted
toward meeting the maximum percentage of shares permitted to be purchased
pursuant to this Section. Provided that the Subscription Offering has commenced,
the BANK may commence the Syndicated Community Offering at any time after the
mailing to the Members of the Proxy Statement to be used in connection with the
Special Meeting of Members, provided that the completion of the offer and sale
of the Conversion Stock shall be conditioned upon the approval of this Plan by
the Voting Members. If the Syndicated Community Offering is not sooner commenced
pursuant to the provisions of the preceding sentence, the Syndicated Community
Offering will be commenced as soon as practicable following the date upon which
the Subscription and Community Offerings terminate.
Alternatively, if a Syndicated Community Offering is not held, the BANK
shall have the right to sell any shares of Conversion Stock remaining following
the Subscription and Community Offerings in an underwritten firm commitment
public offering. The provisions of Section 14 hereof shall not be applicable to
sales to underwriters for purposes of such an offering but shall be applicable
to the sales by the underwriters to the public. The price to be paid by the
underwriters in such an offering shall be equal to the Actual Purchase Price
less an underwriting discount to be negotiated among such underwriters and the
BANK, which will in no event exceed an amount deemed to be acceptable by the
OTS.
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If for any reason a Syndicated Community Offering or an underwritten
firm commitment public offering of shares of Conversion Stock not sold in the
Subscription and Community Offerings can not be effected, or in the event that
any insignificant residue of shares of Conversion Stock is not sold in the
Subscription and Community Offerings or in the Syndicated Community Offering or
an underwritten firm commitment public offering, other purchase arrangements
will be made for the sale of unsubscribed shares by the BANK, if possible. Such
other purchase arrangements will be subject to the approval of the OTS.
14. LIMITATION ON PURCHASES
In addition to the maximum amount of Conversion Stock that may be
subscribed for as set forth in Sections 8, 10, 11, 12 and 13, the following
limitations shall apply to all purchases of shares of Conversion Stock:
A. The maximum number of shares of Conversion Stock which may be
subscribed for or purchased in all categories in the conversion by any Person or
Participant together with any Associate or group or persons Acting in Concert
shall not exceed 1.0% of the Conversion Stock offered (the "Maximum Overall
Purchase Limitation"), except for the Employee Plans which may subscribe for up
to 10% of the Conversion Stock issued and except for certain Eligible Account
Holders and Supplemental Eligible Account Holders which may subscribe for or
purchase shares in accordance with Sections 8 and 10 herein, respectively;
provided, however, in the event that the Maximum Overall Purchase Limitation is
increased to more than 2.0% of the shares of Conversion Stock offered, orders
for Conversion Stock in the Community Offering and in the Syndicated Community
Offering (or, alternatively an underwritten firm commitment public offering), if
any, shall, as determined by the BANK, first be filled to a maximum of 2.0% of
the
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total number of shares of Conversion Stock offered and thereafter remaining
shares shall be allocated on an equal number of shares basis per order until all
orders have been filled.
B. The maximum number of shares of Conversion Stock which may be
purchased in all categories in the Conversion by Officers and Directors of the
BANK and their Associates in the aggregate shall not exceed 31.44% of the total
number of shares of Conversion Stock issued.
C. A minimum of 25 shares of Conversion Stock must be purchased by
each Person purchasing shares in the Conversion to the extent those shares are
available; provided, however, that in the event the minimum number of shares of
Conversion Stock purchased times the price per share exceeds $500, then such
minimum purchase requirement shall be reduced to such number of shares of
Conversion Stock which when multiplied by the price per share shall not exceed
$500, as determined by the Board.
If the number of shares of Conversion Stock otherwise allocable
pursuant to Sections 8, 10, 11, 12 and 13, to any Person or that Person's
Associates would be in excess of the maximum number of shares permitted as set
forth above, the number of shares of Conversion Stock allocated to each such
person shall be reduced to the lowest limitation applicable to that Person, and
then the number of shares allocated to each group consisting of a Person and
that Person's Associates shall be reduced so that the aggregate allocation to
that Person and his or her Associates complies with the above maximums, and such
maximum number of shares shall be reallocated among that Person and his or her
Associates as they may agree, or in the absence of an agreement, in proportion
to the shares subscribed by each (after first applying the maximums applicable
to each Person, separately).
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Depending upon market or financial conditions, the Board of Directors
of the BANK and the Holding Company, without further approval of the Members,
may decrease or increase the purchase limitations in this Plan, provided that
the maximum purchase limitations may not be increased to a percentage in excess
of 5%. Notwithstanding the foregoing, the Maximum Overall Purchase Limitation
may be increased up to 9.99% provided that orders for Conversion Stock exceeding
5% of the shares being offered shall not exceed, in the aggregate, 10% of the
total offering. If the BANK or the Holding Company, as the case may be,
increases the maximum purchase limitations, the BANK or the Holding Company, as
the case may be, is only required to resolicit Persons who subscribed for the
maximum purchase amount and may, in the sole discretion of the BANK or the
Holding Company, as the case may be, resolicit certain other large subscribers.
In the event shares of Conversion stock are sold in excess of the
maximum of the Estimated Price Range, (the "Adjusted Maximum") such shares will
be allocated in the following order of priority: (i) to fill the Employee Plans'
subscription to the Adjusted Maximum; (ii) in the event that there is an over
subscription at the Eligible Account Holder level, to fill unfulfilled
subscriptions of Eligible Account Holders exclusive of the Adjusted Maximum in
accordance with Section 8; (iii) in the event there is an over subscription at
the Supplemental Eligible Account Holder level, to fill unfulfilled
subscriptions of Supplemental Eligible Account Holders exclusive of the Adjusted
Maximum in accordance with Section 10; (iv) in the event that there is an over
subscription at the Other Member level, to fill unfulfilled subscriptions of
Other Members exclusive of the Adjusted Maximum in accordance with Section 11;
and (v) to fill unfulfilled
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Subscriptions in the Community Offering exclusive of the Adjusted Maximum in
accordance with Section 12.
For purposes of this Section 14, the Directors and Officers of the BANK
and the Holding Company shall not be deemed to be Associates or a group
affiliated with each other or otherwise Acting in Concert solely as a result of
their being Directors or Officers of the BANK or the Holding Company.
Each Person purchasing Conversion Stock in the Conversion shall be
deemed to confirm that such purchase does not conflict with the above purchase
limitations contained in this Plan.
For a period of three years following the Conversion, no Officer,
Director or their Associates shall purchase, without the prior written approval
of the OTS, any outstanding shares of common stock of the BANK or the Holding
Company, as the case may be, except from a broker-dealer registered with the
SEC. This provision shall not apply to negotiated transactions involving more
than one percent of the outstanding shares of common stock of the BANK or the
Holding Company, as the case may be, the exercise of any options pursuant to a
stock option plan or purchases of common stock of the BANK or the Holding
Company, as the case may be, made by or held by any Tax-Qualified Employee Stock
Benefit Plan or Non-Tax-Qualified Employee Stock Benefit Plan of the BANK or the
Holding Company (including the Employee Plans) which may be attributable to any
Officer or Director. As used herein, the term "negotiated transaction" means a
transaction in which the securities are offered and the terms and arrangements
relating to any sale are arrived at through direct communications between the
seller or any person acting on its behalf and the purchaser or his investment
representative. The term "investment
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representative" shall mean a professional investment advisor acting as agent for
the purchaser and independent of the seller and not acting on behalf of the
seller in connection with the transaction.
15. PAYMENT FOR CONVERSION STOCK
All payments for Conversion Stock subscribed for in the Subscription,
Community and Syndicated Community Offerings must be delivered in full to the
BANK, together with a properly completed and executed Order Form, or purchase
order in the case of the Syndicated Community Offering, on or prior to the
expiration date specified on the Order Form or purchase order, as the case may
be, unless such date is extended by the BANK; provided, however, that if the
Employee Plans subscribe for shares during the Subscription Offering, such plans
will not be required to pay for the shares at the time they subscribe but rather
may pay for such shares of Conversion Stock subscribed for by such plans at the
Actual Purchase Price upon consummation of the Conversion, provided that, in the
case of the employee stock ownership plan ("ESOP") there is in force from the
time of its subscription until the consummation of the Conversion, a loan
commitment from the Holding Company or an unrelated financial institution to
lend to the ESOP, at such time, the aggregate Subscription Price of the shares
for which it subscribed. The BANK may make scheduled discretionary contributions
to an Employee Plan provided such contributions do not cause the BANK to fail to
meet its regulatory capital requirement.
Notwithstanding the foregoing, the BANK and the Holding Company, if
utilized, shall have the right, in their sole discretion, to permit
institutional investors to submit contractually irrevocable orders in the
Community Offering and to thereafter submit payment for the Conversion Stock for
which they are subscribing in the Community Offering at any time prior to 48
hours
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before the completion of the Conversion, unless such 48 hour period is waived by
the BANK and the Holding Company, in their sole discretion.
Payment for Conversion Stock subscribed for shall be made either in
cash (if delivered in person), check or money order. Alternatively, subscribers
in the Subscription and Community Offerings may pay for the shares subscribed
for by authorizing the BANK on the Order Form to make a withdrawal from the
subscriber's Savings Account at the BANK in an amount equal to the purchase
price of such shares. Such authorized withdrawal, whether from a savings
passbook or certificate account, shall be without penalty as to premature
withdrawal. If the authorized withdrawal is from a certificate account, and the
remaining balance does not meet the applicable minimum balance requirement, the
certificate shall be cancelled at the time of withdrawal, without penalty, and
the remaining balance will earn interest at the passbook rate. Funds for which a
withdrawal is authorized will remain in the subscriber's Savings Account but may
not be used by the subscriber until the Conversion Stock has been sold or the
45-day period (or such longer period as may be approved by the OTS) following
the Subscription and Community Offering has expired, whichever occurs first.
Thereafter, the withdrawal will be given effect only to the extent necessary to
satisfy the subscription (to the extent it can be filled) at the purchase price
per share. Interest will continue to be earned on any amounts authorized for
withdrawal until such withdrawal is given effect. Interest will be paid by the
BANK at not less than the passbook annual rate on payments for Conversion Stock
received in cash or by check or money order. Such interest will be paid from the
date payment is received by the BANK until consummation or termination of the
Conversion. If for any reason the Conversion is not consummated, all payments
made by subscribers in the Subscription, Community and Syndicated Community
Offerings will be refunded
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to them with interest. In case of amounts authorized for withdrawal from Savings
Accounts, refunds will be made by cancelling the authorization for withdrawal.
The BANK is prohibited by regulation from knowingly making any loans or granting
any lines of credit for the purchase of stock in the Conversion, and therefore,
will not do so.
16. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER
FORMS
As soon as practicable after the Prospectus prepared by the Holding
Company and BANK has been declared effective by the OTS and the SEC, if the
holding company form of organization is utilized, Order Forms will be
distributed to all Eligible Account Holders, the Employee Plans, the
Supplemental Eligible Account Holders and Other Members at their last known
addresses appearing on the records of the BANK for the purpose of subscribing to
shares of Conversion Stock in the Subscription Offering and will be made
available for use by those Persons entitled to purchase in the Community
Offering. Notwithstanding the foregoing, the BANK may elect to send Order Forms
only to those Persons who request them after such notice as is approved by the
OTS and is adequate to apprise all Eligible Account Holders, the Employee Plans,
Supplemental Eligible Account Holders and Other Members of the pendency of the
Subscription Offering has been given. Such notice may be included with the proxy
statement for the Special Meeting of Members and may also be included in a
notice of the pendency of the Conversion and the Special Meeting of Members sent
to all Eligible Account Holders and Supplemental Eligible Account Holders in
accordance with regulations of the OTS.
Each Order Form will be preceded or accompanied by the Prospectus (if a
holding company form of organization is utilized) or the Offering Circular (if
the holding company form
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of organization is not utilized) describing the Holding Company, if utilized,
the BANK, the Conversion Stock and the Subscription and Community Offerings.
Each Order Form will contain, among other things, the following:
A. A specified date by which all Order Forms must be received by the
BANK, which date shall be not less than twenty (20), nor more than forty-five
(45) days, following the date on which the Order Forms are mailed by the BANK,
and which date will constitute the termination of the Subscription Offering;
B. The Subscription Price per share for shares of Conversion Stock
to be sold in the Subscription and Community Offerings;
C. A description of the minimum and maximum number of shares of
Conversion Stock which may be subscribed for pursuant to the exercise of
subscription rights or otherwise purchased in the Community Offering;
D. Instructions as to how the recipient of the Order Form is to
indicate thereon the number of shares of Conversion Stock for which such person
elects to subscribe and the available alternative methods of payment therefor;
E. An acknowledgment that the recipient of the Order Form has
received a final copy of the Prospectus or Offering Circular, as the case may
be, prior to execution of the Order Form;
F. A statement to the effect that all subscription rights are
nontransferable, will be void at the end of the Subscription Offering, and can
only be exercised by delivering within the subscription period such properly
completed and executed Order Form, together with cash (if delivered in person),
check or money order in the full amount of the purchase price as specified in
the Order Form for the shares of Conversion Stock for which the recipient elects
to subscribe
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in the Subscription Offering (or by authorizing on the Order Form that the BANK
withdraw said amount from the subscriber's Savings Account at the BANK) to the
BANK; and
G. A statement to the effect that the executed Order Form, once
received by the BANK, may not be modified or amended by the subscriber without
the consent of the BANK.
Notwithstanding the above, the BANK and the Holding Company will not
accept orders received on photocopied or facsimilied order forms.
17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORMS: INSUFFICIENT PAYMENT
In the event Order Forms (a) are not delivered and are returned to the
BANK by the United States Postal Service or the BANK is unable to locate the
addressee, (b) are not received back by the BANK or are received by the BANK
after the expiration date specified thereon, (c) are defectively filled out or
executed, (d) are not accompanied by the full required payment, except in the
case of institutional investors in the Community Offering, by delivering
irrevocable orders together with a legally binding commitment to pay in cash,
check or money order the full amount of the purchase price prior to 48 hours
before the completion of the Conversion for the shares of Conversion Stock
subscribed for (including cases in which savings accounts from which withdrawals
are authorized are insufficient to cover the amount of the required payment), or
(e) are not mailed pursuant to a "no mail" order placed in effect by the account
holder, the subscription rights of the person to whom such rights have been
granted will lapse as though such person failed to return the contemplated Order
Form within the time period specified thereon; provided, however, that the BANK
may, but will not be required to, waive any immaterial irregularity on any Order
Form or require the submission of corrected Order Forms or the
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remittance of full payment for subscribed shares by such date as the BANK may
specify. The interpretation of the BANK of terms and conditions of the Plan and
of the Order Forms will be final, subject to the authority of the OTS.
18. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION
A. All shares of Conversion Stock purchased by Directors or Officers
of the BANK or the Holding Company in the Conversion shall be subject to the
restriction that, except as provided in Section 18B, below, or as may be
approved by the OTS, no interest in such shares may be sold or otherwise
disposed of for value for a period of one (l) year following the date of
purchase.
B. The restriction on disposition of shares of Conversion Stock set
forth in Section 18A above shall not apply to the following:
(i) Any exchange of such shares in connection with a merger
or acquisition involving the BANK or the Holding Company, as the case may be,
which has been approved by the OTS; and
(ii) Any disposition of such shares following the death of the
person to whom such shares were initially sold under the terms of the Plan.
C. With respect to all shares of Conversion Stock subject to
restrictions on resale or subsequent disposition, each of the following
provisions shall apply:
(i) Each certificate representing shares restricted within the
meaning of Section 18A, above, shall bear a legend prominently stamped on its
face giving notice of the restriction;
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(ii) Instructions shall be issued to the stock transfer agent for
the BANK or the Holding Company, as the case may be, not to recognize or effect
any transfer of any certificate or record of ownership of any such shares in
violation of the restriction on transfer; and
(iii) Any shares of capital stock of the BANK or the Holding
Company, as the case may be, issued with respect to a stock dividend, stock
split, or otherwise with respect to ownership of outstanding shares of
Conversion Stock subject to the restriction on transfer hereunder shall be
subject to the same restriction as is applicable to such Conversion Stock.
19. VOTING RIGHTS OF STOCKHOLDERS
Upon conversion, the holders of the capital stock of the BANK shall
have the exclusive voting rights with respect to the BANK as specified in its
charter. The holders of the common stock of the Holding Company (if a holding
company form of organization is utilized) shall have the exclusive voting rights
with respect to the Holding Company.
20. ESTABLISHMENT OF LIQUIDATION ACCOUNT
The BANK shall establish at the time of conversion a liquidation
account in an amount equal to its net worth as of the latest practicable date
prior to conversion ("Liquidation Account"). The Liquidation Account will be
maintained by the BANK for the benefit of the Eligible Account Holders and
Supplemental Eligible Account Holders who continue to maintain their Savings
Accounts at the BANK. Each Eligible Account Holder and Supplemental Eligible
Account Holder shall, with respect to his Savings Account, hold a related
inchoate interest in a portion of the Liquidation Account balance, in relation
to his Savings Account balance at the Eligibility Record Date and/or
Supplemental Eligibility Record Date or to such balance as it may be
subsequently reduced, as hereinafter provided.
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In the unlikely event of a complete liquidation of the BANK (and only
in such event), following all liquidation payments to creditors (including those
to Account Holders to the extent of their Savings Accounts) each Eligible
Account Holder and Supplemental Eligible Account Holder shall be entitled to
receive a liquidating distribution from the Liquidation Account, in the amount
of the then adjusted subaccount balance for his Savings Account then held,
before any liquidation distribution may be made to any holders of the BANK's
capital stock. No merger, consolidation, bulk purchase of assets with assumption
of Savings Accounts and other liabilities, or similar transactions with an
FDIC-insured institution, in which the BANK is not the surviving institution,
shall be deemed to be a complete liquidation for this purpose. In such
transactions, the Liquidation Account shall be assumed by the surviving
institution.
The initial subaccount balance for a Savings Account held by an
Eligible Account Holder and Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the Liquidation Account by a
fraction, the numerator of which is the amount of such Eligible Account Holder's
and/or Supplemental Eligible Account Holder's Qualifying Deposit and the
denominator of which is the total amount of all Qualifying Deposits of all
Eligible Account Holders and Supplemental Eligible Account Holders in the BANK.
Such initial subaccount balance shall not be increased, but shall be subject to
downward adjustment as described below. For Savings Accounts in existence at
both dates, separate subaccounts shall be determined on the basis of the
Qualifying Deposits in such Savings Account on such record dates. Such initial
subaccount balances shall not be increased but shall be subject to downward
adjustment as described below.
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If, at the close of business on any annual closing date, commencing on
or after the effective date of Conversion, the deposit balance in the Savings
Account of an Eligible Account Holder or Supplemental Eligible Account Holder is
less than the lesser of (i) the balance in the Savings Account at the close of
business on any other annual closing date subsequent to the Eligibility Record
Date or Supplemental Eligibility Record Date, or (ii) the amount of the
Qualifying Deposit in such Savings Account, the subaccount balance for such
Savings Account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of
such downward adjustment, the subaccount balance shall not be subsequently
increased, notwithstanding any subsequent increase in the deposit balance of the
related Savings Account. If any such Savings Account is closed, the related
subaccount shall be reduced to zero.
The creation and maintenance of the Liquidation Account shall not
operate to restrict the use or application of any of the net worth accounts of
the BANK.
21. TRANSFER OF SAVINGS ACCOUNTS AND CONTINUITY OF THE BANK
Upon Conversion, each Savings Account Holder having a Savings Account
at the BANK prior to the Conversion will continue to have a Savings Account,
without payment therefor, in the same amount and subject to the same terms and
conditions (except for voting and liquidation rights) as in effect prior to the
Conversion.
After the Conversion, the BANK will succeed to all the rights,
interests, duties and obligations of the BANK before the Conversion,
including but not limited to all rights and interests of the BANK in and to
its assets and properties, whether real, personal or mixed. The BANK will
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continue to be a member of the Federal Home Loan Bank System and all its insured
savings deposits will continue to be insured by the FDIC to the extent provided
by applicable law.
22. RESTRICTIONS ON ACQUISITION OF THE BANK AND HOLDING COMPANY
A. In accordance with OTS regulations, for a period of three years
from the date of consummation of the Conversion, no Person, other than the
Holding Company (if a holding company form of organization is utilized), shall
directly or indirectly offer to acquire or acquire the beneficial ownership of
more than 10% of any class of an equity security of the BANK without the prior
written consent of the OTS.
B. 1. The charter of the BANK contains a provision stipulating that
no person, except the Holding Company (if a holding company form of organization
is utilized), for a period of five years following the date of the Conversion
shall directly or indirectly offer to acquire or acquire the beneficial
ownership of more than 10% of any class of an equity security of the BANK,
without the prior written approval of the OTS. In addition, such charter may
also provide that for a period of five years following the Conversion, shares
beneficially owned in violation of the above-described charter provision shall
not be entitled to vote and shall not be voted by any person or counted as
voting stock in connection with any matter submitted to stockholders for a vote.
In addition, special meetings of the stockholders relating to changes in control
or amendment of the charter may only be called by the Board of Directors, and
shareholders shall not be permitted to cumulate their votes for the election of
directors.
2. The Certificate of Incorporation of the Holding Company, if
a holding company form of organization is utilized, will contain a provision
stipulating that in no event shall any record owner of any outstanding shares of
the Holding Company's common stock who
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beneficially owns in excess of 10% of such outstanding shares be entitled or
permitted to any vote in respect to any shares held in excess of 10%. In
addition, the Certificate of Incorporation and Bylaws of the Holding Company
provide for staggered terms of the directors, noncumulative voting for
directors, limitations on the calling of special meetings, a fair price
provision for certain business combinations and certain notice requirements.
C. For the purposes of this Section 22:
(i) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an BANK, a joint stock company, a trust,
an unincorporated organization or similar company, a syndicate or any other
group formed for the purpose of acquiring, holding or disposing of securities of
an insured institution;
(ii) The term "offer" includes every offer to buy or acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value;
(iii) The term "acquire" includes every type of acquisition,
whether effected by purchase, exchange, operation of law or otherwise; and
(iv) The term "security" includes non-transferable subscription
rights issued pursuant to a plan of conversion as well as a "security" as
defined in 15 U.S.C. Section 78c(a)(10).
23. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK
The BANK shall not declare or pay a cash dividend on, or repurchase any
of, its capital stock if the effect thereof would cause its regulatory capital
to be reduced below (i) the amount required for the Liquidation Account or (ii)
the federal regulatory capital requirement in Section 567.2 of the Rules and
Regulations of the OTS. Otherwise, the BANK may declare dividends,
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make capital distributions or repurchase its capital stock in accordance with
applicable law and regulations.
24. AMENDMENT OF PLAN
If deemed necessary or desirable, the Plan may be substantively amended
at any time prior to solicitation of proxies from Members to vote on the Plan by
a two-thirds vote of the BANK's Board of Directors, and at any time thereafter
by such vote of such Board of Directors with the concurrence of the OTS. Any
amendment to the Plan made after approval by the Members with the approval of
the OTS shall not necessitate further approval by the Members unless otherwise
required by the OTS. The Plan may be terminated by majority vote of the BANK's
Board of Directors at any time prior to the Special Meeting of Members to vote
on the Plan, and at any time thereafter with the concurrence of the OTS.
By adoption of the Plan, the Members of the BANK authorize the Board of
Directors to amend or terminate the Plan under the circumstances set forth in
this Section.
25. CHARTER AND BYLAWS
By voting to adopt the Plan, members of the BANK will be voting to
adopt a Federal Stock Savings Bank Charter and Bylaws for a Federal Stock
Savings Bank attached as Exhibits I and II to this Plan. The effective date of
the BANK's stock charter and bylaws shall be the date of issuance and sale of
the Conversion Stock as specified by the OTS.
26. CONSUMMATION OF CONVERSION
The Conversion of the BANK shall be deemed to take place and be
effective upon the completion of all requisite organizational procedures for
obtaining a Federal Stock Savings Bank Charter for the BANK and sale of all
Conversion Stock.
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27. REGISTRATION AND MARKETING
Within the time period required by applicable laws and regulations, the
BANK or the Holding Company, as the case may be, will register the securities
issued in connection with the Conversion pursuant to the Securities Exchange Act
of 1934 and will not deregister such securities for a period of at least three
years thereafter, except that the maintenance of registration for three years
requirement may be fulfilled by any successor to the BANK or any holding company
of the BANK. In addition, the BANK or Holding Company, as the case may be, will
use its best efforts to encourage and assist a market-maker to establish and
maintain a market for the Conversion Stock and to list those securities on a
national or regional securities exchange or the NASDAQ system.
28. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES
The BANK will make reasonable efforts to comply with the securities
laws of all States in the United States in which Persons entitled to subscribe
for shares of Conversion Stock pursuant to the Plan reside. However, no such
Person will be issued subscription rights or be permitted to purchase shares of
Conversion Stock in the Subscription Offering if such Person resides in a
foreign country or in a state of the United States with respect to which both of
the following apply: A. a small number of Persons otherwise eligible to
subscribe for shares under the Plan reside in such state and; B. the issuance of
subscription rights or the offer or sale of shares of Conversion Stock to such
Persons would require the BANK or the Holding Company, as the case may be, under
the securities laws of such state, to register as a broker, dealer, salesman or
agent or to register or otherwise qualify its securities for sale in such state
and such registration or qualification would be impracticable for reasons of
cost or otherwise.
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29. EXPENSES OF CONVERSION
The BANK shall use its best efforts to assure that expenses incurred by
it in connection with the Conversion shall be reasonable.
30. CONDITIONS TO CONVERSION
The Conversion of the BANK pursuant to this Plan is expressly
conditioned upon the following:
(a) Prior receipt by the BANK of rulings of the United States Internal
Revenue Service and any applicable state taxing authority, or opinions of
counsel, substantially to the effect that the Conversion will not result in any
adverse federal or state tax consequences to Eligible Account Holders or to the
BANK and the Holding Company before or after the Conversion;
(b) The sale of all of the Conversion Stock offered in the
Conversion; and
(c) The completion of the Conversion within the time period specified
in Section 3 of this Plan.
31. INTERPRETATION
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Directors of the BANK
shall be final, subject to the authority of the OTS.
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EXHIBIT I
FEDERAL STOCK CHARTER
FOR
FIRST FEDERAL BANK
Section 1. Corporate Title.
The full corporate title of the bank is First Federal Bank (the
"BANK").
Section 2. Office.
The home office shall be located in the City of Colchester, in the
State of Illinois.
Section 3. Duration.
The duration of the BANK is perpetual.
Section 4. Purpose and Powers.
The purpose of the BANK is to pursue any or all of the lawful
objectives of a Federal savings association chartered under Section 5 of the
Home Owners' Loan Act and to exercise all the express, implied, and incidental
powers conferred thereby and by all acts amendatory thereof and supplemental
thereto, subject to the Constitution and laws of the United States as they are
now in effect, or as they may hereafter be amended, and subject to all lawful
and applicable rules, regulations, and orders of the Office of Thrift
Supervision ("Office").
Section 5. Capital Stock.
The total number of shares of all classes of the capital stock which
the BANK has the authority to issue is four million (4,000,000), of which three
million (3,000,000) shall be common stock, par value $1.00 per share and of
which one million (1,000,000) shall be preferred stock, par value $1.00 per
share. The shares may be issued from time to time as authorized by the Board of
Directors without further approval of shareholders except as otherwise provided
in this Section 5 or to the extent that such approval is required by governing
law, rule, or regulation. The consideration for the issuance of the shares shall
be paid in full before their issuance and shall not be less than the par value.
Neither promissory notes nor future services shall constitute payment or part
payment for the issuance of shares of the BANK. The consideration for the shares
shall be cash, tangible or intangible property (to the extent direct investment
in such property would be permitted), labor or services actually performed for
the BANK, or any combination of the foregoing. In the absence of actual fraud in
the transaction, the value of such property, labor, or services, as determined
by the Board of Directors of the BANK, shall be conclusive. In the case of a
stock dividend, that part of the retained earnings of the BANK that is
transferred to common
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stock or paid-in capital accounts upon the issuance of shares as a stock
dividend shall be deemed to be the consideration for their issuance.
Except for shares issued in connection with the conversion of the BANK
from the mutual to the stock form of capitalization, no shares of capital stock
(including shares issuable upon conversion, exchange, or exercise of other
securities) shall be issued, directly or indirectly, to officers, directors, or
controlling persons of the BANK other than as part of a general public offering
or as qualifying shares to a director, unless their issuance or the plan under
which they would be issued has been approved by a majority of the total votes
eligible to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share; PROVIDED,
HOWEVER, that this restriction on voting separately by class or series shall not
apply:
(i) To any provision which would authorize the holders of
preferred stock, voting as a class or series, to elect some
members of the Board of Directors, less than a majority
thereof, in the event of default in the payment of dividends
on any class or series of preferred stock;
(ii) To any provision that would require the holders of preferred
stock, voting as a class or series, to approve the merger or
consolidation of the BANK with another corporation or the
sale, lease, or conveyance (other than by mortgage or
pledge) of properties or business in exchange for securities
of a corporation other than the BANK if the preferred stock
is exchanged for securities of such other corporation;
PROVIDED, HOWEVER, that no provision may require such
approval for transactions undertaken with the assistance or
pursuant to the direction of the Office or the Federal
Deposit Insurance Corporation; or
(iii) To any amendment which would adversely change the specific
terms of any class or series of capital stock as set forth in
this Section 5 (or in any supplementary sections hereto),
including any amendment which would create or enlarge any
class or series ranking prior thereto in rights and
preferences. An amendment which increases the number of
authorized shares of any class or series of capital stock,
or substitutes the surviving BANK in a merger or
consolidation for the BANK, shall not be considered to be
such an adverse change.
A description of the different classes and series (if any) of the
BANK's capital stock and a statement of the designations, and the relative
rights, preferences, and limitations of the shares of each class of and series
(if any) of capital stock are as follows:
A. COMMON STOCK. Except as provided in this Section 5 (or in any
supplementary sections hereto) the holders of the common stock
shall exclusively possess all
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voting power. Each holder of shares of common stock shall be
entitled to one vote for each share held by each holder. There
shall be no cumulative voting for the election of directors.
Whenever there shall have been paid, or declared and set aside
for payment, to the holders of the outstanding shares of any
class of stock having preference over the common stock as to the
payment of dividends, the full amount of dividends and of sinking
fund, or retirement fund, or other retirement payments, if any,
to which such holders are respectively entitled in preference to
the common stock, then dividends may be paid on the common stock
and on any class or series of stock entitled to participate
therewith as to dividends out of any assets legally available for
the payment of dividends.
In the event of any liquidation, dissolution, or winding up of
the BANK, the holders of the common stock (and the holders of any
class or series of stock entitled to participate with the common
stock in the distribution of assets) shall be entitled to
receive, in cash or in kind, the assets of the BANK available for
distribution remaining after: (i) payment or provision for
payment of the BANK's debts and liabilities; (ii) distributions
or provision for distributions in settlement of its liquidation
account; and (iii) distributions or provision for distributions
to holders of any class or series of stock having preference over
the common stock in the liquidation, dissolution, or winding up
of the BANK. Each share of common stock shall have the same
relative rights as and be identical in all respects with all the
other shares of common stock.
B. PREFERRED STOCK. The BANK may provide in supplementary sections
to its charter for one or more classes of preferred stock,
which shall be separately identified. The shares
of any class may be divided into and issued in series, with each
series separately designated so as to distinguish the shares
thereof from the shares of all other series and classes. The
terms of each series shall be set forth in a supplementary
section to the charter. All shares of the same class shall be
identical except as to the following relative rights and
preferences, as to which there may be variations between
different series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on
the shares of such series, whether dividends shall be
cumulative and, if so, from which date(s), the payment
date(s) for dividends, and the participating or other
special rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of the shares of
such series;
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(d) Whether the shares of such series shall be redeemable and,
if so, the price(s) at which, and the terms and conditions
on which, such shares may be redeemed;
(e) The amount(s) payable upon the shares of such series in the
event of voluntary or involuntary liquidation, dissolution,
or winding up of the BANK;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the
purchase or redemption of such shares, and if so entitled,
the amount of such fund and the manner of its application,
including the price(s) at which such shares may be redeemed
or purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into,
or exchangeable for, shares of any other class or classes of
stock of the BANK and, if so, the conversion price(s) or the
rate(s) of exchange, and the adjustments thereof, if any, at
which such conversion or exchange may be made, and any other
terms and conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of
such series shall be issued; and
(i) Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued
shares of serial preferred stock and whether such shares may
be reissued as shares of the same or any other series of
serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The Board of Directors shall have authority to divide, by the adoption
of supplementary charter sections, any authorized class of preferred stock into
series, and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred shares of a series established
by a supplementary charter section adopted by the Board of Directors, the BANK
shall file with the Secretary of the Office a dated copy of that supplementary
section of this charter establishing and designating the series and fixing and
determining the relative rights and preferences thereof.
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Section 6. Preemptive Rights.
Holders of the capital stock of the BANK shall not be entitled to
preemptive rights with respect to any shares of the BANK which may be issued.
Section 7. Liquidation Account.
Pursuant to the requirements of the Office's regulations (12 C.F.R.
563b.3), the BANK shall establish and maintain a liquidation account for the
benefit of its savings account holders as of __________, 199__ and
______________, ____ ("eligible savers"). In the event of a complete liquidation
of the BANK, it shall comply with such regulations with respect to the amount
and the priorities on liquidation of each of the BANK's eligible saver's
inchoate interest in the liquidation account, to the extent it is still in
existence; PROVIDED, HOWEVER, that an eligible saver's inchoate interest in the
liquidation account shall not entitle such eligible saver to any voting rights
at meetings of the BANK's shareholders.
Section 8. Certain Provisions Applicable for Five Years.
Notwithstanding anything contained in the BANK's charter or bylaws to
the contrary, for a period of five years from the date of consummation of the
conversion of the BANK from mutual to stock form, the following provisions shall
apply:
A. BENEFICIAL OWNERSHIP LIMITATION. No person shall directly or
indirectly offer to acquire or acquire the beneficial ownership
of more than 10 percent of any class of any equity security of
the BANK. This limitation shall not apply to a transaction in
which the BANK forms a holding company without change in the
respective beneficial ownership interests of the BANK's
shareholders other than pursuant to the exercise of any dissenter
and appraisal rights, the purchase of shares by underwriters in
connection with a public offering, or the purchase of shares by a
tax-qualified employee stock benefit plan which is exempt from
the approval requirements under Section 574.3(c)(1)(vi) of the
Office Regulations.
In the event shares are acquired in violation of this Section 8,
all shares beneficially owned by any person in excess of 10
percent shall be considered "excess shares" and shall not be
counted as shares entitled to vote and shall not be voted by any
person or counted as voting shares in connection with any matters
submitted to the shareholders for a vote.
For the purposes of this Section 8, the following definitions apply:
(i) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint
stock company, a trust,
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any unincorporated organization or similar company, a syndicate
or any other group formed for the purpose of acquiring, holding
or disposing of the equity securities of the BANK.
(ii) The term "offer" includes every offer to buy or otherwise
acquire, solicitation of an offer to sell, tender offer for, or
request or invitation for tenders of, a security or interest in a
security for value.
(iii) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(iv) The term "acting in concert" means (a) knowing participation in a
joint activity or conscious parallel action towards a common goal
whether or not pursuant to an express agreement, or (b) a
combination or pooling of voting or other interests in the
securities of an issuer for a common purpose pursuant to any
contract, understanding, relationship, agreement or other
arrangement, whether written or otherwise.
B. CALL FOR SPECIAL MEETINGS. Special meetings of shareholders relating
to changes in control of the BANK or amendments to its charter shall
be called only at the direction of the Board of Directors.
Section 9. Directors.
The BANK shall be under the direction of a Board of Directors. The
authorized number of directors, as stated in the BANK's bylaws, shall be not be
less than five nor more than 15 except when a greater number or lesser number is
approved by the Director of the Office or his or her delegate.
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Section 10. Amendment of Charter.
Except as provided in Section 5, no amendment, addition, alteration,
change, or repeal of this charter shall be made, unless such is proposed by the
Board of Directors of the BANK, approved by the shareholders by a majority of
the votes eligible to be cast at a legal meeting, unless a higher vote is
otherwise required, and approved or preapproved by the Office.
FIRST FEDERAL BANK
Attest: ___________________________ By: ___________________________
Secretary President and
Chief Executive Officer
OFFICE OF THRIFT SUPERVISION
Attest: ___________________________ By: ___________________________
Declared effective on
the _____ day of __________, ____
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EXHIBIT II
FEDERAL STOCK BYLAWS
FOR
FIRST FEDERAL BANK
ARTICLE I - HOME OFFICE
The home office of First Federal Bank ("Bank") shall be at 109 East
Depot Street, Colchester, in the State of Illinois.
ARTICLE II - SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual and special meetings of
shareholders shall be held at the home office of the Bank or at such other
convenient place as the board of directors may determine.
SECTION 2. ANNUAL MEETING. A meeting of the shareholders of the Bank
for the election of directors and for the transaction of any other business of
the Bank shall be held annually within 150 days after the end of the Bank's
fiscal year on the third Wednesday of June of each year if not a legal holiday,
and if a legal holiday, then on the next day following which is not a legal
holiday, at 10:00 a.m., local time, or at such other date and time within such
150-day period as the board of directors may determine.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders for
any purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision ("Office") or the Bank's Federal Stock Charter, may
be called at any time by the chairman of the board, the president, or a majority
of the board of directors, and shall be called by the chairman of the board, the
president, or the secretary upon the written request of the holders of not less
than one-tenth of all of the outstanding capital stock of the Bank entitled to
vote at the meeting. Such written request shall state the purpose or purposes of
the meeting and shall be delivered to the home office of the Bank addressed to
the chairman of the board, the president, or the secretary.
SECTION 4. CONDUCT OF MEETINGS. Annual and special meetings shall be
conducted in accordance with the most current edition of Robert's Rules of Order
unless otherwise prescribed by regulations of the Office or these bylaws or the
board of directors adopts another written procedure for the conduct of meetings.
The board of directors shall designate, when present, either the chairman of the
board or president to preside at such meetings.
SECTION 5. NOTICE OF MEETINGS. Written notice stating the place, day,
and hour of the meeting and the purpose(s) for which the meeting is called shall
be delivered not fewer than 20 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, or the secretary, or the directors calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the mail,
addressed to the shareholder at the address as it appears on the stock transfer
books or records of the Bank as of the record date
<PAGE>
prescribed in section 6 of this article II with postage prepaid. When any
shareholders' meeting, either annual or special, is adjourned for 30 days or
more, notice of the adjourned meeting shall be given as in the case of an
original meeting. It shall not be necessary to give any notice of the time and
place of any meeting adjourned for less than 30 days or of the business to be
transacted at the meeting, other than an announcement at the meeting at which
such adjournment is taken.
SECTION 6. FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more than
60 days and, in case of a meeting of shareholders, not fewer than 10 days prior
to the date on which the particular action, requiring such determination of
shareholders, is to be taken. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment.
SECTION 7. VOTING LISTS. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the Bank shall make a complete list of the shareholders of record
entitled to vote at such meeting, or any adjournment thereof, arranged in
alphabetical order, with the address and the number of shares held by each. This
list of shareholders shall be kept on file at the home office of the Bank and
shall be subject to inspection by any shareholder of record or the shareholder's
agent at any time during usual business hours for a period of 20 days prior to
such meeting. Such list shall also be produced and kept open at the time and
place of the meeting and shall be subject to inspection by any shareholder of
record or any shareholder's agent during the entire time of the meeting. The
original stock transfer book shall constitute prima facie evidence of the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders.
In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the board of directors may
elect to follow the procedures prescribed in Section 552.6(d) of the Office's
regulations as now or hereafter in effect.
SECTION 8. QUORUM. A majority of the outstanding shares of the Bank
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
is represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum. If a quorum is present, the
affirmative vote of the majority of the shares represented at the meeting and
entitled to vote on the subject matter shall be the act of the shareholders,
unless the vote of a greater number of shareholders voting together or voting by
classes is required by law or the charter. Directors, however, are elected by a
plurality of the votes cast at an election of directors.
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SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his or her duly
authorized attorney in fact. Proxies may be given telephonically or
electronically as long as the holder uses a procedure for verifying the identity
of the shareholder. Proxies solicited on behalf of the management shall be voted
as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid more
than eleven months from the date of its execution except for a proxy coupled
with an interest.
SECTION 10. VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS. When
ownership stands in the name of two or more persons, in the absence of written
directions to the Bank to the contrary, at any meeting of the shareholders of
the Bank any one or more of such shareholders may cast, in person or by proxy,
all votes to which such ownership is entitled. In the event an attempt is made
to cast conflicting votes, in person or by proxy, by the several persons in
whose names shares of stock stand, the vote or votes to which those persons are
entitled shall be cast as directed by a majority of those holding such and
present in person or by proxy at such meeting, but no votes shall be cast for
such stock if a majority cannot agree.
SECTION 11. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares outstanding in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her name.
Shares held in trust in an IRA or Keogh Account, however, may by voted by the
Bank if no other instructions are received. Shares standing in the name of a
receiver may be voted by such receiver, and shares held by or under control of a
receiver may be voted by such receiver without the transfer into his or her name
if authority to do so is consigned in an appropriate order of the court or other
public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Bank nor shares
held by another Corporation, if a majority of the shares entitled to vote for
the election of directors of such other corporation are held by the Bank, shall
be voted at any meeting or counted in determining the total number of
outstanding shares at any given time for purposes of any meeting.
SECTION 12. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the board of directors may appoint any person other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed the chairman of the board or the president may, or on the request of
not fewer than 10 percent of
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the votes represented at the meeting shall, make such appointment at the
meeting. If appointed at the meeting, the majority of the votes present shall
determine whether one or three inspectors are to be appointed. In case any
person appointed as inspector fails to appear or fails or refuses to act, the
vacancy may be filled by appointment by the board of directors in advance of the
meeting or at the meeting by the chairman of the board or the president.
Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity and effect of proxies; receiving votes,
ballots, or consents; hearing and determining all challenges and questions in
any way arising in connection with the rights to vote; counting and tabulating
all votes or consents; determining the result; and such acts as may be proper
for conduct the election or vote with fairness to all shareholders.
SECTION 13. NOMINATING COMMITTEE. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Bank. No nominations for directors
except those made by the nominating committee shall be voted upon at the annual
meeting unless other nominations by shareholders are made in writing and
delivered to the secretary of the Bank at least five days prior to the date of
the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Bank. Ballots bearing the names of all
persons nominated by the nominating committee and by shareholders shall be
provided for use at the annual meeting. However, if the nominating committee
shall fail or refuse to act at least 20 days prior to the annual meeting,
nominations for directors may be made at the annual meeting by any shareholder
entitled to vote and shall be voted upon.
SECTION 14. NEW BUSINESS. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the secretary of the Bank at
least five days before the date of the annual meeting, and all business so
stated, proposed, and filed shall be considered at the annual meeting; but no
other proposal shall be acted upon at the annual meeting. Any shareholder may
make any other proposal at the annual meeting and the same may be discussed and
considered, but unless stated in writing and filed with the secretary at least
five days before the meeting, such proposal shall be laid over for action at an
adjourned, special, or annual meeting of the shareholders taking place 30 days
or more thereafter. This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of officers, directors,
and committees; but in connection with such reports, no new business shall be
acted upon at such annual meeting unless stated and filed as herein provided.
SECTION 15. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by
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all of the shareholders entitled to vote with respect to the subject matter.
ARTICLE III - BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Bank shall
be under the direction of its board of directors. The board of directors shall
annually elect a chairman of the board and a president from among its members
and shall designate, when present, either the chairman of the board or the
president to preside at its meetings.
SECTION 2. NUMBER AND TERM. The board of directors shall consist of
seven (7) members and shall be divided into three classes as nearly equal in
number as possible. The members of each class shall be elected for a term of
three years and until their successors are elected and qualified. One class
shall be elected by ballot annually.
SECTION 3. REGULAR MEETINGS. A regular meeting of the board of
directors shall be held without other notice than this bylaw following the
annual meeting of shareholders. The board of directors may provide, by
resolution, the time and place, for the holding of additional regular meetings
without other notice than such resolution. Directors may participate in a
meeting by means of a conference telephone or similar communications device
through which all persons participating can hear each other at the same time.
Participation by such means shall constitute presence in person for all
purposes.
SECTION 4. QUALIFICATION. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the Bank unless
the Bank is a wholly owned subsidiary of a holding company.
SECTION 5. SPECIAL MEETINGS. Special meetings of the board of directors
may be called by or at the request of the chairman of the board, the president,
or one-third of the directors. The persons authorized to call special meetings
of the board of directors may fix any place, within the Bank's normal lending
territory, as the place for holding any special meeting of the board of
directors called by such persons.
Members of the board of directors may participate in special meetings
by making use of conference telephone or similar communications equipment by
which all persons participating in the meeting can hear each other. Such
participation shall constitute presence in person for all purposes.
SECTION 6. NOTICE. Written notice of any special meeting shall be given
to each director at least 24 hours prior thereto when delivered personally or by
telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed, when delivered to the telegraph company if sent by telegram,
or when the Bank receives notice of delivery if electronically transmitted. Any
director may waive notice of any meeting by a writing filed with the secretary.
The attendance of a director at a meeting shall
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constitute a waiver of notice of such meeting, except where a director attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any meeting of the board of directors need
be specified in the notice of waiver of notice of such meeting.
SECTION 7. QUORUM. A majority of the number of directors fixed by
section 2 of this article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors; but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed by section 5 of this article III.
SECTION 8. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by regulation of the Office
or by these bylaws.
SECTION 9. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken by the board of directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors.
SECTION 10. RESIGNATION. Any director may resign at any time by sending
a written notice of such resignation to the home office of the Bank addressed to
the chairman of the board or the president. Unless otherwise specified, such
resignation shall take effect upon receipt by the chairman of the board or the
president. More than three consecutive absences from regular meetings of the
board of directors, unless excused by resolution of the board of directors,
shall automatically constitute a resignation, effective when such resignation is
accepted by the board of directors.
SECTION 11. VACANCIES. Any vacancy occurring on the board of directors
may be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve only until the next election of
directors by the shareholders. Any directorship to be filled by reason of an
increase in the number of directors may be filled by election by the board of
directors for a term of office continuing only until the next election of
directors by the shareholders.
SECTION 12. COMPENSATION. Directors, as such, may receive a stated
salary for their services. By resolution of the board of directors, a reasonable
fixed sum, and reasonable expenses of attendance, if any, may be allowed for
attendance at each regular or special meeting of the board of directors. Members
of either standing or special committees may be allowed such compensation for
attendance at committee meetings as the board of directors may determine.
SECTION 13. PRESUMPTION OF ASSENT. A director of the Bank who is
present at a meeting of the board of directors at which action on any bank
matter is taken shall be presumed to have assented to the action taken unless
his or her dissent or abstention shall be entered in the minutes of the meeting
or unless he or she shall file a written dissent to such action with the person
acting
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as the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the secretary of the Bank within five days
after the date a copy of the minutes of the meeting is received. Such right to
dissent shall not apply to a director who voted in favor of such action.
SECTION 14. REMOVAL OF DIRECTORS. At a meeting of shareholders called
expressly for that purpose, any director may be removed only for cause by a vote
of the holders of a majority of the shares then entitled to vote at an election
of directors. Whenever the holders of the shares of any class are entitled to
elect one or more directors by the provisions of the charter or supplemental
sections thereto, the provisions of this section shall apply, in respect to the
removal of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class and not to the vote of the outstanding shares
as a whole.
ARTICLE IV - EXECUTIVE AND OTHER COMMITTEES
SECTION 1. APPOINTMENT. The board of directors, by resolution adopted
by a majority of the full board, may designate the chief executive officer and
two or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
SECTION 2. AUTHORITY. The executive committee, when the board of
directors is not in session, shall have and may exercise all of the authority of
the board of directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the board of
directors with reference to: the declaration of dividends; the amendment of the
charter or bylaws of the Bank, or recommending to the shareholders a plan of
merger, consolidation, or conversion; the sale, lease, or other disposition of
all or substantially all of the property and assets of the Bank otherwise than
in the usual and regular course of its business; a voluntary dissolution of the
Bank; a revocation of any of the foregoing; or the approval of a transaction in
which any member of the executive committee, directly or indirectly, has any
material beneficial interest.
SECTION 3. TENURE. Subject to the provisions of section 8 of this
article IV, each member of the executive committee shall hold office until the
next regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
SECTION 4. MEETINGS. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one day's notice stating the
place, date, and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be
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transacted at the meeting.
SECTION 5. QUORUM. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken by the executive committee at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the members of the executive committee.
SECTION 7. VACANCIES. Any vacancy in the executive committee may be
filled by a resolution adopted by a majority of the full board of directors.
SECTION 8. RESIGNATIONS AND REMOVAL. Any member of the executive
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full board of directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the president or secretary of the Bank. Unless otherwise specified,
such resignation shall take effect upon its receipt; the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 9 PROCEDURE. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
SECTION 10. OTHER COMMITTEES. The board of directors may by resolution
establish an audit, loan, or other committee composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
Bank and may prescribe the duties, constitution, and procedures thereof.
ARTICLE V - OFFICERS
SECTION 1 . POSITIONS. The officers of the Bank shall be a president,
one or more vice presidents, a secretary, and a treasurer or comptroller, each
of whom shall be elected by the board of directors. The board of directors may
also designate the chairman of the board as an officer. The offices of the
secretary and treasurer or comptroller may be held by the same person and a vice
president may also be either the secretary or the treasurer or comptroller. The
board of directors may designate one or more vice presidents as executive vice
president or senior vice president. The board of directors may also elect or
authorize the appointment of such other officers as the business of the Bank may
require. The officers shall have such authority and perform such duties as the
board of directors may from time to time authorize or determine. In the absence
of action by the board of directors, the officers shall have such powers and
duties as generally pertain to their respective offices.
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SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Bank shall
be elected annually at the first meeting of the board of directors held after
each annual meeting of the shareholders. If the election of officers is not held
at such meeting, such election shall be held as soon thereafter as possible.
Each officer shall hold office until a successor has been duly elected and
qualified or until the officer's death, resignation or removal in the manner
hereinafter provided. Election or appointment of an officer, employee, or agent
shall not of itself create contractual rights. The board of directors may
authorize the Bank to enter into an employment contract with any officer in
accordance with regulations of the Office; but no such contract shall impair the
right of the board of directors to remove any officer at any time in accordance
with section 3 of this Article V.
SECTION 3. REMOVAL. Any officer may be removed by the board of
directors whenever in its judgment the best interests of the Bank will be served
thereby, but such removal, other than for cause, shall be without prejudice to
the contractual rights, if any, of the person so removed.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the board
of directors for the unexpired portion of the term.
SECTION 5. REMUNERATION. The remuneration of the officers shall be
fixed from time to time by the board of directors.
ARTICLE VI - CONTRACTS, LOANS, CHECKS, AND DEPOSITS
SECTION 1. CONTRACTS. To the extent permitted by regulations of the
Office, and except as otherwise prescribed by these bylaws with respect to
certificates for shares, the board of directors may authorize any officer,
employee, or agent of the Bank to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the Bank. Such authority may be
general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the Bank
and no evidence of indebtedness shall be issued in its name unless authorized by
the board of directors. Such authority may be general or confined to specific
instances.
SECTION 3. CHECKS; DRAFTS. ETC. All checks, drafts, or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the Bank shall be signed by one or more officers, employees or agents of
the Bank in such manner as shall from time to time be determined by the board of
directors.
SECTION 4. DEPOSITS. All funds of the Bank not otherwise employed shall
be deposited from time to time to the credit of the Bank in any duly authorized
depositories as the board of directors may select.
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ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
capital stock of the Bank shall be in such form as shall be determined by the
board of directors and approved by the Office. Such certificates shall be signed
by the chief executive officer or by any other officer of the Bank authorized by
the board of directors, attested by the secretary or an assistant secretary, and
sealed with the corporate seal or a facsimile thereof. The signatures of such
officers upon a certificate may be facsimiles if the certificate is manually
signed on behalf of a transfer agent or a registrar other than the Bank itself
or one of its employees. Each certificate for shares of capital stock shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares are issued, with the owner of shares and date of
issue, shall be entered on the stock transfer books of the Bank. All
certificates surrendered to the Bank for transfer shall be cancelled and no new
certificate shall be issued until the former certificate for a like number of
shares has been surrendered and cancelled, except that in the case of a lost or
destroyed certificate, a new certificate may be issued upon such terms and
indemnity to the Bank as the board of directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock of
the Bank shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the Bank. Such transfer shall be made only on surrender for cancellation of the
certificate for such shares. The person in whose name shares of capital stock
stand on the books of the Bank shall be deemed by the Bank to be the owner for
all purposes.
ARTICLE VIII - FISCAL YEAR
The fiscal year of the Bank shall end on the 31st day of December of
each year. The appointment of accountants shall be subject to annual
ratification by the shareholders.
ARTICLE IX - DIVIDENDS
Subject to the terms of the Bank's charter and the regulations and
orders of the Office, the board of directors may, from time to time, declare,
and the Bank may pay, dividends on its outstanding shares of capital stock.
ARTICLE X - CORPORATE SEAL
The board of directors shall provide the Bank seal which shall be two
concentric circles between which shall be the name of the Bank. The year of
incorporation or an emblem may appear in the center.
10
<PAGE>
ARTICLE XI - AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of
the Office and shall be effective after: (i) approval of the amendment by a
majority vote of the authorized board of directors, or by a majority vote of the
votes cast by the shareholders of the Bank at any legal meeting, and (ii)
receipt of any applicable regulatory approval. When the Bank fails to meet its
quorum requirements, solely due to vacancies on the board, then the affirmative
vote of a majority of the sitting board will be required to amend the bylaws.
11
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
FIRST FEDERAL BANCSHARES, INC.
FIRST: The name of the corporation is First Federal Bancshares, Inc.
(hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
FOURTH:
A. The total number of shares of all classes of stock
which the Corporation shall have authority to issue is five million
(5,000,000), consisting of:
1. One million (1,000,000) shares of preferred
stock, par value one cent ($.01) per share
(the "Preferred Stock"); and
2. Four million (4,000,000) shares of common
stock, par value one cent ($.01) per share
(the "Common Stock").
B. The Board of Directors is authorized, subject to any
limitations prescribed by law, to provide for the issuance of the
shares of Preferred Stock in series, and by filing a certificate
pursuant to the applicable law of the State of Delaware (such
certificate being hereinafter referred to as a "Preferred Stock
Designation"), to establish from time to time the number of shares to
be included in each such series, and to fix the designation, powers,
preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number of
authorized shares of Preferred Stock may be increased or decreased (but
not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the Common Stock,
without a vote of the holders of the Preferred Stock, or of any series
thereof, unless a vote of any such holders is required pursuant to the
terms of any Preferred Stock Designation.
C. 1. Notwithstanding any other provision of this
Certificate of Incorporation, in no event
shall any record owner of any outstanding
Common Stock which is beneficially owned,
directly or indirectly, by a person who, as
of any record date for the determination of
<PAGE>
stockholders entitled to vote on any matter,
beneficially owns in excess of 10% of the
then-outstanding shares of Common Stock (the
"Limit"), be entitled, or permitted to any
vote in respect of the shares held in excess
of the Limit. The number of votes which may
be cast by any record owner by virtue of the
provisions hereof in respect of Common Stock
beneficially owned by such person
beneficially owning shares in excess of the
Limit shall be a number equal to the total
number of votes which a single record owner
of all Common Stock beneficially owned by
such person would be entitled to cast,
(subject to the provisions of this Article
FOURTH) multiplied by a fraction, the
numerator of which is the number of shares
of such class or series which are both
beneficially owned by such person and owned
of record by such record owner and the
denominator of which is the total number of
shares of Common Stock beneficially owned by
such person owning shares in excess of the
Limit.
2. The following definitions shall apply to
this Section C of this Article FOURTH:
a. "Affiliate" shall have the meaning
ascribed to it in Rule 12b-2 of the
General Rules and Regulations under
the Securities Exchange Act of
1934, as amended, as in effect on
the date of filing of this
Certificate of Incorporation.
b. "Beneficial ownership" shall be
determined pursuant to Rule 13d-3
of the General Rules and
Regulations under the Securities
Exchange Act of 1934, as amended,
(or any successor rule or statutory
provision), or, if said Rule 13d-3
shall be rescinded and there shall
be no successor rule or provision
thereto, pursuant to said Rule
13d-3 as in effect on the date of
filing of this Certificate of
Incorporation; PROVIDED, HOWEVER,
that a person shall, in any event,
also be deemed the "beneficial
owner" of any Common Stock:
(1) which such person or any
of its affiliates
beneficially owns,
directly or indirectly; or
(2) which such person or any
of its affiliates has: (i)
the right to acquire
(whether such right is
exercisable immediately or
only after the passage of
time), pursuant to any
agreement, arrangement or
understanding (but shall
not be deemed to be the
beneficial owner of any
voting shares solely by
reason
2
<PAGE>
of an agreement, contract,
or other arrangement with
this Corporation to effect
any transaction which is
described in any one or
more of clauses 1 through
5 of Section A of Article
EIGHTH of this Certificate
of Incorporation ("Article
EIGHTH")), or upon the
exercise of conversion
rights, exchange rights,
warrants, or options or
otherwise, or (ii) sole or
shared voting or
investment power with
respect thereto pursuant
to any agreement,
arrangement,
understanding,
relationship or otherwise
(but shall not be deemed
to be the beneficial owner
of any voting shares
solely by reason of a
revocable proxy granted
for a particular meeting
of stockholders, pursuant
to a public solicitation
of proxies for such
meeting, with respect to
shares of which neither
such person nor any such
Affiliate is otherwise
deemed the beneficial
owner); or
(3) which are beneficially
owned, directly or
indirectly, by any other
person with which such
first mentioned person or
any of its Affiliates acts
as a partnership, limited
partnership, syndicate or
other group pursuant to
any agreement, arrangement
or understanding for the
purpose of acquiring,
holding, voting or
disposing of any shares of
capital stock of this
Corporation; and PROVIDED
FURTHER, HOWEVER, that:
(1) no Director or Officer
of this Corporation (or
any Affiliate of any such
Director or Officer)
shall, solely by reason of
any or all of such
Directors or Officers
acting in their capacities
as such, be deemed, for
any purposes hereof, to
beneficially own any
Common Stock beneficially
owned by any other such
Director or Officer (or
any Affiliate thereof);
and (2) neither any
employee stock ownership
or similar plan of this
Corporation or any
subsidiary of this
Corporation, nor any
trustee with respect
thereto or any Affiliate
of such trustee (solely by
reason of such capacity of
such trustee), shall be
deemed, for any purposes
hereof, to beneficially
own any Common Stock held
under any such plan. For
purposes only of computing
the percentage of
beneficial ownership of
Common Stock of a person,
the outstanding Common
Stock shall include shares
deemed owned by such
person through
3
<PAGE>
application of this
subsection but shall not
include any other shares
of Common Stock which may
be issuable by this
Corporation pursuant to
any agreement, or upon
exercise of conversion
rights, warrants or
options, or otherwise. For
all other purposes, the
outstanding Common Stock
shall include only shares
of Common Stock then
outstanding and shall not
include any shares of
Common Stock which may be
issuable by this
Corporation pursuant to
any agreement, or upon the
exercise of conversion
rights, warrants or
options, or otherwise.
c. The "Limit" shall mean 10% of the
then-outstanding shares of Common
Stock.
d. A "person" shall include an
individual, a firm, a group acting
in concert, a corporation, a
partnership, an association, a
joint venture, a pool, a joint
stock company, a trust, an
unincorporated organization or
similar company, a syndicate or any
other group formed for the purpose
of acquiring, holding or disposing
of securities or any other entity.
3. The Board of Directors shall have the power
to construe and apply the provisions of this
section and to make all determinations
necessary or desirable to implement such
provisions, including but not limited to
matters with respect to: (i) the number of
shares of Common Stock beneficially owned by
any person; (ii) whether a person is an
affiliate of another; (iii) whether a person
has an agreement, arrangement, or
understanding with another as to the matters
referred to in the definition of beneficial
ownership; (iv) the application of any other
definition or operative provision of the
section to the given facts; or (v) any other
matter relating to the applicability or
effect of this section.
4. The Board of Directors shall have the right
to demand that any person who is reasonably
believed to beneficially own shares of
Common Stock in excess of the Limit (or
holds of record Common Stock beneficially
owned by any person in excess of the Limit)
supply the Corporation with complete
information as to: (i) the record owner(s)
of all shares beneficially owned by such
person who is reasonably believed to own
shares in excess of the Limit; and (ii) any
other factual matter relating to the
applicability or effect of this section as
may reasonably be requested of such person.
4
<PAGE>
5. Except as otherwise provided by law or
expressly provided in this Section C, the
presence, in person or by proxy, of the
holders of record of shares of capital stock
of the Corporation entitling the holders
thereof to cast a majority of the votes
(after giving effect, if required, to the
provisions of this Section C) entitled to be
cast by the holders of shares of capital
stock of the Corporation entitled to vote
shall constitute a quorum at all meetings of
the stockholders, and every reference in
this Certificate of Incorporation to a
majority or other proportion of capital
stock (or the holders thereof) for purposes
of determining any quorum requirement or any
requirement for stockholder consent or
approval shall be deemed to refer to such
majority or other proportion of the votes
(or the holders thereof) then entitled to be
cast in respect of such capital stock.
6. Any constructions, applications, or
determinations made by the Board of
Directors pursuant to this section in good
faith and on the basis of such information
and assistance as was then reasonably
available for such purpose shall be
conclusive and binding upon the Corporation
and its stockholders.
7. In the event any provision (or portion
thereof) of this Section C shall be found to
be invalid, prohibited or unenforceable for
any reason, the remaining provisions (or
portions thereof) of this Section shall
remain in full force and effect, and shall
be construed as if such invalid, prohibited
or unenforceable provision had been stricken
herefrom or otherwise rendered inapplicable,
it being the intent of this Corporation and
its stockholders that each such remaining
provision (or portion thereof) of this
Section C remain, to the fullest extent
permitted by law, applicable and enforceable
as to all stockholders, including
stockholders owning an amount of stock over
the Limit, notwithstanding any such finding.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Directors and stockholders:
A. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors. In
addition to the powers and authority expressly conferred upon them by
statute or by this Certificate of Incorporation or the Bylaws of the
Corporation, the Directors are hereby empowered to exercise all such
powers and do all such acts and things as may be exercised or done by
the Corporation.
5
<PAGE>
B. The Directors of the Corporation need not be elected
by written ballot unless the Bylaws so provide.
C. Subject to the rights of the holders of any class or
series of Preferred Stock, any action required or permitted to be taken
by the stockholders of the Corporation must be effected at a duly
called annual or special meeting of stockholders of the Corporation and
may not be effected by any consent in writing by such stockholders.
D. Special meetings of stockholders of the Corporation
may be called only by the Board of Directors pursuant to a resolution
adopted by a majority of the Whole Board or as otherwise provided in
the Bylaws. The term "Whole Board" shall mean the total number of
authorized directorships (whether or not there exist any vacancies in
previously authorized directorships at the time any such resolution is
presented to the Board for adoption).
SIXTH:
A. The number of Directors shall be fixed from time to
time exclusively by the Board of Directors pursuant to a resolution
adopted by a majority of the Whole Board. The Directors shall be
divided into three classes, as nearly equal in number as reasonably
possible, with the term of office of the first class to expire at the
first annual meeting of stockholders, the term of office of the second
class to expire at the annual meeting of stockholders one year
thereafter and the term of office of the third class to expire at the
annual meeting of stockholders two years thereafter with each Director
to hold office until his or her successor shall have been duly elected
and qualified. At each annual meeting of stockholders following such
initial classification and election, Directors elected to succeed those
Directors whose terms expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after
their election with each Director to hold office until his or her
successor shall have been duly elected and qualified.
B. Subject to the rights of holders of any series of
Preferred Stock outstanding, the newly created directorships resulting
from any increase in the authorized number of Directors or any
vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be
filled only by a majority vote of the Directors then in office, though
less than a quorum, and Directors so chosen shall hold office for a
term expiring at the annual meeting of stockholders at which the term
of office of the class to which they have been chosen expires. No
decrease in the number of Directors constituting the Board of Directors
shall shorten the term of any incumbent Director.
C. Advance notice of stockholder nominations for the
election of Directors and of business to be brought by stockholders
before any meeting of the stockholders of the Corporation shall be
given in the manner provided in the Bylaws of the Corporation.
6
<PAGE>
D. Subject to the rights of holders of any series of
Preferred Stock then outstanding, any Director, or the entire Board of
Directors, may be removed from office at any time, but only for cause
and only by the affirmative vote of the holders of at least 80% of the
voting power of all of the then-outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of Directors
(after giving effect to the provisions of Article FOURTH of this
Certificate of Incorporation ("Article FOURTH")), voting together as a
single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend
or repeal Bylaws of the Corporation. Any adoption, amendment or repeal of the
Bylaws of the Corporation by the Board of Directors shall require the approval
of a majority of the Whole Board. The stockholders shall also have power to
adopt, amend or repeal the Bylaws of the Corporation; PROVIDED, HOWEVER, that,
in addition to any vote of the holders of any class or series of stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80% of the voting power of all of
the then-outstanding shares of the capital stock of the Corporation entitled to
vote generally in the election of Directors (after giving effect to the
provisions of Article FOURTH), voting together as a single class, shall be
required to adopt, amend or repeal any provisions of the Bylaws of the
Corporation.
EIGHTH:
A. In addition to any affirmative vote required by law
or by this Certificate of Incorporation, and except as otherwise
expressly provided in this Article EIGHTH:
1. any merger or consolidation of the
Corporation or any Subsidiary (as
hereinafter defined) with: (i) any
Interested Stockholder (as hereinafter
defined); or (ii) any other corporation
(whether or not itself an Interested
Stockholder) which is, or after such merger
or consolidation would be, an Affiliate (as
hereinafter defined) of an Interested
Stockholder; or
2. any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one
transaction or a series of transactions) to
or with any Interested Stockholder, or any
Affiliate of any Interested Stockholder, of
any assets of the Corporation or any
Subsidiary having an aggregate Fair Market
Value (as hereinafter defined) equaling or
exceeding 25% or more of the combined assets
of the Corporation and its Subsidiaries; or
3. the issuance or transfer by the Corporation
or any Subsidiary (in one transaction or a
series of transactions) of any securities of
the Corporation or any Subsidiary to any
Interested Stockholder or any Affiliate of
any Interested Stockholder in exchange for
cash,
7
<PAGE>
securities or other property (or a
combination thereof) having an aggregate
Fair Market Value (as hereinafter defined)
equaling or exceeding 25% of the combined
Fair Market Value of the outstanding common
stock of the Corporation and its
Subsidiaries, except for any issuance or
transfer pursuant to an employee benefit
plan of the Corporation or any Subsidiary
thereof; or
4. the adoption of any plan or proposal for the
liquidation or dissolution of the
Corporation proposed by or on behalf of an
Interested Stockholder or any Affiliate of
any Interested Stockholder; or
5. any reclassification of securities
(including any reverse stock split), or
recapitalization of the Corporation, or any
merger or consolidation of the Corporation
with any of its Subsidiaries or any other
transaction (whether or not with or into or
otherwise involving an Interested
Stockholder) which has the effect, directly
or indirectly, of increasing the
proportionate share of the outstanding
shares of any class of equity or convertible
securities of the Corporation or any
Subsidiary which is directly or indirectly
owned by any Interested Stockholder or any
Affiliate of any Interested Stockholder;
shall require the affirmative vote of the holders of at least 80% of
the voting power of the then-outstanding shares of capital stock of the
Corporation entitled to vote in the election of Directors (the "Voting
Stock") (after giving effect to the provisions of Article FOURTH),
voting together as a single class. Such affirmative vote shall be
required notwithstanding that no vote may be required, or that a lesser
percentage may be specified, by law or by any other provisions of this
Certificate of Incorporation or any Preferred Stock Designation in any
agreement with any national securities exchange or otherwise.
The term "Business Combination" as used in this Article EIGHTH
shall mean any transaction which is referred to in any one or more of
paragraphs 1 through 5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH
shall not be applicable to any particular Business Combination, and
such Business Combination shall require only the affirmative vote of
the majority of the outstanding shares of capital stock entitled to
vote after giving effect to the provisions of Article FOURTH, or such
vote (if any), as is required by law or by this Certificate of
Incorporation, if, in the case of any Business Combination that does
not involve any cash or other consideration being received by the
stockholders of the Corporation solely in their capacity as
stockholders of the Corporation, the condition specified in the
following paragraph 1 is met or, in the case of any other Business
Combination, all of the conditions specified in either of the following
paragraphs 1 or 2 are met:
8
<PAGE>
1. The Business Combination shall have been
approved by a majority of the Disinterested
Directors (as hereinafter defined).
2. All of the following conditions shall have
been met:
a. The aggregate amount of the cash
and the Fair Market Value as of the
date of the consummation of the
Business Combination of
consideration other than cash to be
received per share by the holders
of Common Stock in such Business
Combination shall at least be equal
to the higher of the following:
(1) (if applicable) the
Highest Per Share Price
(as hereinafter defined),
including any brokerage
commissions, transfer
taxes and soliciting
dealers' fees, paid by the
Interested Stockholder or
any of its Affiliates for
any shares of Common Stock
acquired by it: (i) within
the two-year period
immediately prior to the
first public announcement
of the proposal of the
Business Combination (the
"Announcement Date"); or
(ii) in the transaction in
which it became an
Interested Stockholder,
whichever is higher; or
(2) the Fair Market Value per
share of Common Stock on
the Announcement Date or
on the date on which the
Interested Stockholder
became an Interested
Stockholder (such latter
date is referred to in
this Article EIGHTH as the
"Determination Date"),
whichever is higher.
b. The aggregate amount of the cash
and the Fair Market Value as of the
date of the consummation of the
Business Combination of
consideration other than cash to be
received per share by holders of
shares of any class of outstanding
Voting Stock other than Common
Stock shall be at least equal to
the highest of the following (it
being intended that the
requirements of this subparagraph
(b) shall be required to be met
with respect to every such class of
outstanding Voting Stock, whether
or not the Interested Stockholder
has previously acquired any shares
of a particular class of Voting
Stock):
9
<PAGE>
(1) (if applicable) the
Highest Per Share Price
(as hereinafter defined),
including any brokerage
commissions, transfer
taxes and soliciting
dealers' fees, paid by the
Interested Stockholder for
any shares of such class
of Voting Stock acquired
by it: (i) within the
two-year period
immediately prior to the
Announcement Date; or (ii)
in the transaction in
which it became an
Interested Stockholder,
whichever is higher; or
(2) (if applicable) the
highest preferential
amount per share to which
the holders of shares of
such class of Voting Stock
are entitled in the event
of any voluntary or
involuntary liquidation,
dissolution or winding up
of the Corporation; or
(3) the Fair Market Value per
share of such class of
Voting Stock on the
Announcement Date or on
the Determination Date,
whichever is higher.
c. The consideration to be received by
holders of a particular class of
outstanding Voting Stock (including
Common Stock) shall be in cash or
in the same form as the Interested
Stockholder has previously paid for
shares of such class of Voting
Stock. If the Interested
Stockholder has paid for shares of
any class of Voting Stock with
varying forms of consideration, the
form of consideration to be
received per share by holders of
shares of such class of Voting
Stock shall be either cash or the
form used to acquire the largest
number of shares of such class of
Voting Stock previously acquired by
the Interested Stockholder. The
price determined in accordance with
subparagraph B.2 of this Article
EIGHTH shall be subject to
appropriate adjustment in the event
of any stock dividend, stock split,
combination of shares or similar
event.
d. After such Interested Stockholder
has become an Interested
Stockholder and prior to the
consummation of such Business
Combination: (1) except as approved
by a majority of the Disinterested
Directors (as hereinafter defined),
there shall have been no failure to
declare and pay at the regular date
therefor any full quarterly
dividends (whether or not
cumulative) on any outstanding
stock having preference over
10
<PAGE>
the Common Stock as to dividends or
liquidation; (2) there shall have
been: (i) no reduction in the
annual rate of dividends paid on
the Common Stock (except as
necessary to reflect any
subdivision of the Common Stock),
except as approved by a majority of
the Disinterested Directors; and
(ii) an increase in such annual
rate of dividends as necessary to
reflect any reclassification
(including any reverse stock
split), recapitalization,
reorganization or any similar
transaction which has the effect of
reducing the number of outstanding
shares of the Common Stock, unless
the failure to so increase such
annual rate is approved by a
majority of the Disinterested
Directors, and (3) neither such
Interested Stockholder or any of
its Affiliates shall have become
the beneficial owner of any
additional shares of Voting Stock
except as part of the transaction
which results in such Interested
Stockholder becoming an Interested
Stockholder.
e. After such Interested Stockholder
has become an Interested
Stockholder, such Interested
Stockholder shall not have received
the benefit, directly or indirectly
(except proportionately as a
stockholder), of any loans,
advances, guarantees, pledges or
other financial assistance or any
tax credits or other tax advantages
provided, directly or indirectly,
by the Corporation, whether in
anticipation of or in connection
with such Business Combination or
otherwise.
f. A proxy or information statement
describing the proposed Business
Combination and complying with the
requirements of the Securities
Exchange Act of 1934, as amended,
and the rules and regulations
thereunder (or any subsequent
provisions replacing such Act, and
the rules or regulations
thereunder) shall be mailed to
stockholders of the Corporation at
least 30 days prior to the
consummation of such Business
Combination (whether or not such
proxy or information statement is
required to be mailed pursuant to
such Act or subsequent provisions).
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a
firm, a group acting in concert, a
corporation, a partnership, an association,
a joint venture, a pool, a joint stock
company, a trust, an unincorporated
organization or similar company, a syndicate
or any other group formed for the
11
<PAGE>
purpose of acquiring, holding or disposing
of securities or any other entity.
2. "Interested Stockholder" shall mean any
person (other than the Corporation or any
holding company or Subsidiary thereof) who
or which:
a. is the beneficial owner, directly
or indirectly, of more than 10% of
the voting power of the outstanding
Voting Stock; or
b. is an Affiliate of the Corporation
and at any time within the two-year
period immediately prior to the
date in question was the beneficial
owner, directly or indirectly, of
10% or more of the voting power of
the then outstanding Voting Stock;
or
c. is an assignee of or has otherwise
succeeded to any shares of Voting
Stock which were at any time within
the two-year period immediately
prior to the date in question
beneficially owned by any
Interested Stockholder, if such
assignment or succession shall have
occurred in the course of a
transaction or series of
transactions not involving a public
offering within the meaning of the
Securities Act of 1933, as amended.
3. For purposes of this Article EIGHTH,
"beneficial ownership" shall be determined
in the manner provided in Section C of
Article FOURTH hereof.
4. "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms
in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange
Act of 1934, as in effect on the date of
filing of this Certificate of Incorporation.
5. "Subsidiary" means any corporation of which
a majority of any class of equity security
is owned, directly or indirectly, by the
Corporation; PROVIDED, HOWEVER, that for the
purposes of the definition of Interested
Stockholder set forth in Paragraph 2 of this
Section C, the term "Subsidiary" shall mean
only a corporation of which a majority of
each class of equity security is owned,
directly or indirectly, by the Corporation.
6. "Disinterested Director" means any member of
the Board of Directors who is unaffiliated
with the Interested Stockholder and was a
member of the Board of Directors prior to
the time that the Interested
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<PAGE>
Stockholder became an Interested
Stockholder, and any Director who is
thereafter chosen to fill any vacancy of the
Board of Directors or who is elected and
who, in either event, is unaffiliated with
the Interested Stockholder and in connection
with his or her initial assumption of office
is recommended for appointment or election
by a majority of Disinterested Directors
then on the Board of Directors.
7. "Fair Market Value" means:
a. in the case of stock, the highest
closing sales price of the stock
during the 30-day period
immediately preceding the date in
question of a share of such stock
on the National Association of
Securities Dealers Automated
Quotation System or any system then
in use, or, if such stock is
admitted to trading on a principal
United States securities exchange
registered under the Securities
Exchange Act of 1934, as amended,
Fair Market Value shall be the
highest sale price reported during
the 30-day period preceding the
date in question, or, if no such
quotations are available, the Fair
Market Value on the date in
question of a share of such stock
as determined by the Board of
Directors in good faith, in each
case with respect to any class of
stock, appropriately adjusted for
any dividend or distribution in
shares of such stock or any stock
split or reclassification of
outstanding shares of such stock
into a greater number of shares of
such stock or any combination or
reclassification of outstanding
shares of such stock into a smaller
number of shares of such stock; and
b. in the case of property other than
cash or stock, the Fair Market
Value of such property on the date
in question as determined by the
Board of Directors in good faith.
8. Reference to "Highest Per Share Price" shall
in each case with respect to any class of
stock reflect an appropriate adjustment for
any dividend or distribution in shares of
such stock or any stock split or
reclassification of outstanding shares of
such stock into a greater number of shares
of such stock or any combination or
reclassification of outstanding shares of
such stock into a smaller number of shares
of such stock.
9. In the event of any Business Combination in
which the Corporation survives, the phrase
"consideration other than cash to be
received" as used in Subparagraphs (a) and
(b) of Paragraph 2 of Section B of this
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Article EIGHTH shall include the shares of
Common Stock and/or the shares of any other
class of outstanding Voting Stock retained
by the holders of such shares.
D. A majority of the Disinterested Directors of the
Corporation shall have the power and duty to determine for the purposes
of this Article EIGHTH, on the basis of information known to them after
reasonable inquiry: (a) whether a person is an Interested Stockholder;
(b) the number of shares of Voting Stock beneficially owned by any
person; (c) whether a person is an Affiliate or Associate of another;
and (d) whether the assets which are the subject of any Business
Combination have, or the consideration to be received for the issuance
or transfer of securities by the Corporation or any Subsidiary in any
Business Combination has an aggregate Fair Market Value equaling or
exceeding 25% of the combined Fair Market Value of the Common Stock of
the Corporation and its Subsidiaries. A majority of the Disinterested
Directors shall have the further power to interpret all of the terms
and provisions of this Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be
construed to relieve any Interested Stockholder from any fiduciary
obligation imposed by law.
F. Notwithstanding any other provisions of this
Certificate of Incorporation or any provision of law which might
otherwise permit a lesser vote or no vote, but in addition to any
affirmative vote of the holders of any particular class or series of
the Voting Stock required by law, this Certificate of Incorporation or
any Preferred Stock Designation, the affirmative vote of the holders of
at least 80% of the voting power of all of the then-outstanding shares
of the Voting Stock (after giving effect to the provisions of Article
FOURTH), voting together as a single class, shall be required to alter,
amend or repeal this Article EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any
offer of another Person (as defined in Article EIGHTH hereof) to: (A) make a
tender or exchange offer for any equity security of the Corporation; (B) merge
or consolidate the Corporation with another corporation or entity; or (C)
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, may, in connection with the exercise of its judgment
in determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, those factors that Directors of any subsidiary of the Corporation
may consider in evaluating any action that may result in a change or potential
change in the control of the subsidiary, and the social and economic effect of
acceptance of such offer: on the Corporation's present and future customers and
employees and those of its Subsidiaries (as defined in Article EIGHTH hereof);
on the communities in which the Corporation and its Subsidiaries operate or are
located; on the ability of the Corporation to fulfill its corporate objective as
a savings and loan holding company under applicable laws and regulations; and on
the ability of its subsidiary savings institution to fulfill the objectives of a
stock form savings institution under applicable statutes and regulations.
14
<PAGE>
TENTH:
A. Each person who was or is made a party or is
threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason that he or she is
or was a Director or an Officer of the Corporation or is or was serving
at the request of the Corporation as a Director, Officer, employee or
agent of another corporation or of a partnership, joint venture, trust
or other enterprise, including service with respect to an employee
benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director,
Officer, employee or agent or in any other capacity while serving as a
Director, Officer, employee or agent, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may hereafter
be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to
provide prior to such amendment), against all expense, liability and
loss (including attorneys' fees, judgments, fines, ERISA excise taxes
or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith; PROVIDED, HOWEVER,
that, except as provided in Section C hereof with respect to
proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by a majority vote of the Directors who are not
parties to such proceeding, even though less than a quorum.
B. The right to indemnification conferred in Section A
of this Article TENTH shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition (hereinafter an "advancement of
expenses"); PROVIDED, HOWEVER, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an
indemnitee in his or her capacity as a Director or Officer (and not in
any other capacity in which service was or is rendered by such
indemnitee, including, without limitation, services to an employee
benefit plan) shall be made only upon delivery to the Corporation of an
undertaking (hereinafter an "undertaking"), by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further
right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under
this Section or otherwise. The rights to indemnification and to the
advancement of expenses conferred in Sections A and B of this Article
TENTH shall be contract rights and such rights shall continue as to an
indemnitee who has ceased to be a Director, Officer, employee or agent
and shall inure to the benefit of the indemnitee's heirs, executors and
administrators.
C. If a claim under Section A or B of this Article TENTH
is not paid in full by the Corporation within sixty days after a
written claim has been received by the Corporation,
15
<PAGE>
except in the case of a claim for an advancement of expenses, in which
case the applicable period shall be twenty days, the indemnitee may at
any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim. If successful in whole or in part in any
such suit, or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expenses of
prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in
a suit brought by the indemnitee to enforce a right to an advancement
of expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms
of an undertaking the Corporation shall be entitled to recover such
expenses upon a final adjudication that, the indemnitee has not met any
applicable standard for indemnification set forth in the Delaware
General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of
such suit that indemnification of the indemnitee is proper in the
circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the
indemnitee has not met such applicable standard of conduct, shall
create a presumption that the indemnitee has not met the applicable
standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the
indemnitee to enforce a right to indemnification or to an advancement
of expenses hereunder, or by the Corporation to recover an advancement
of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to
such advancement of expenses, under this Article TENTH or otherwise
shall be on the Corporation.
D. The rights to indemnification and to the advancement
of expenses conferred in this Article TENTH shall not be exclusive of
any other right which any person may have or hereafter acquire under
any statute, the Corporation's Certificate of Incorporation, Bylaws,
agreement, vote of stockholders or Disinterested Directors or
otherwise.
E. The Corporation may maintain insurance, at its
expense, to protect itself and any Director, Officer, employee or agent
of the Corporation or subsidiary or Affiliate or another corporation,
partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have
the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from
time to time by a majority vote of the Directors who are not parties to
such proceeding, even though less than a quorum, grant rights to
indemnification and to the advancement of expenses to any employee or
agent of the Corporation to the fullest extent of the provisions of
this Article TENTH with respect to the indemnification and advancement
of expenses of Directors and Officers of the Corporation.
16
<PAGE>
ELEVENTH: A Director of this Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a Director, except for liability: (i) for any breach of the
Director's duty of loyalty to the Corporation or its stockholders; (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) under Section 174 of the Delaware General
Corporation Law; or (iv) for any transaction from which the Director derived an
improper personal benefit. If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of Directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a Director of the Corporation existing at the time of such repeal
or modification.
TWELFTH: The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; PROVIDED, HOWEVER, that,
notwithstanding any other provision of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80% of the voting power of all of
the then-outstanding shares of the capital stock of the Corporation entitled to
vote generally in the election of Directors (after giving effect to the
provisions of Article FOURTH), voting together as a single class, shall be
required to amend or repeal this Article TWELFTH, Section C of Article FOURTH,
Sections C or D of Article FIFTH, Article SIXTH, Article SEVENTH, Article EIGHTH
or Article TENTH.
THIRTEENTH: The name and mailing address of the sole incorporator are
as follows:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
---- ---------------
<S> <C>
Joseph P. Daly Muldoon, Murphy & Faucette LLP
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
</TABLE>
17
<PAGE>
I, THE UNDERSIGNED, being the incorporator, for the purpose of forming
a corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation and do certify that the facts herein stated
are true, and accordingly, have hereto set my hand this 27th day of March 2000.
/s/ Joseph P. Daly
---------------------------------------
Joseph P. Daly
Incorporator
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<PAGE>
Exhibit 3.2
FIRST FEDERAL BANCSHARES, INC.
BYLAWS
ARTICLE I - STOCKHOLDERS
SECTION 1. ANNUAL MEETING.
An annual meeting of the stockholders, for the election of Directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix, which date
shall be within thirteen (13) months subsequent to the later of the date of
incorporation or the last annual meeting of stockholders.
SECTION 2. SPECIAL MEETINGS.
Subject to the rights of the holders of any class or series of
preferred stock of the Corporation, special meetings of stockholders of the
Corporation may be called only by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of Directors which the
Corporation would have if there were no vacancies on the Board of Directors
(hereinafter the "Whole Board"). Business transacted at any special meeting
shall be confined to the purpose or purposes stated in the notice of such
meeting.
SECTION 3. NOTICE OF MEETINGS.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
PROVIDED, HOWEVER, that if the date of any adjourned meeting is more than thirty
(30) days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting shall be given in conformity herewith.
At any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
SECTION 4. QUORUM.
At any meeting of the stockholders, the holders of a majority of all of
the shares of the stock entitled to vote at the meeting, present in person or by
proxy (after giving effect to the provisions of Article FOURTH of the
Corporation's Certificate of Incorporation), shall constitute a quorum for
<PAGE>
all purposes, unless or except to the extent that the presence of a larger
number may be required by law. Where a separate vote by a class or classes is
required, a majority of the shares of such class or classes present in person or
represented by proxy (after giving effect to the provisions of Article FOURTH of
the Corporation's Certificate of Incorporation) shall constitute a quorum
entitled to take action with respect to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, may adjourn the meeting to another place,
date, or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present in person or by proxy constituting a quorum, then except as
otherwise required by law, those present in person or by proxy at such adjourned
meeting shall constitute a quorum, and all matters shall be determined by a
majority of the votes cast at such meeting.
SECTION 5. ORGANIZATION.
Such person as the Board of Directors may have designated or, in the
absence of such a person, the Chairman of the Board of the Corporation or, in
his or her absence, such person as may be chosen by the holders of a majority of
the shares entitled to vote who are present, in person or by proxy, shall call
to order any meeting of the stockholders and act as chairman of the meeting. In
the absence of the Secretary of the Corporation, the secretary of the meeting
shall be such person as the chairman appoints.
SECTION 6. CONDUCT OF BUSINESS.
(a) The chairman of any meeting of stockholders shall
determine the order of business and the procedures at the meeting, including
such regulation of the manner of voting and the conduct of discussion as seem to
him or her in order. The date and time of the opening and closing of the polls
for each matter upon which the stockholders will vote at the meeting shall be
announced at the meeting.
(b) At any annual meeting of the stockholders, only such
business shall be conducted as shall have been brought before the meeting: (i)
by or at the direction of the Board of Directors or (ii) by any stockholder of
the Corporation who is entitled to vote with respect thereto and who complies
with the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered or mailed to
and received at the principal executive offices of the Corporation not less than
ninety (90) nor more than one hundred twenty (120) days prior to the date of the
annual meeting; PROVIDED, HOWEVER, that in the event that less than one hundred
(100) days' notice or prior public disclosure of the date
2
<PAGE>
of the meeting is given or made to stockholders, notice by the stockholder to be
timely must be received not later than the close of business on the 10th day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made. A stockholder's notice to the
Secretary shall set forth as to each matter such stockholder proposes to bring
before the annual meeting: (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting; (ii) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business; (iii) the class
and number of shares of the Corporation's capital stock that are beneficially
owned by such stockholder; and (iv) any material interest of such stockholder in
such business. Notwithstanding anything in these Bylaws to the contrary, no
business shall be brought before or conducted at an annual meeting except in
accordance with the provisions of this Section 6(b). The Officer of the
Corporation or other person presiding over the annual meeting shall, if the
facts so warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section 6(b) and, if he should so determine, he shall so declare to the meeting
and any such business so determined to be not properly brought before the
meeting shall not be transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
(c) Only persons who are nominated in accordance with the
procedures set forth in these Bylaws shall be eligible for election as
Directors. Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders at which directors are to
be elected only: (i) by or at the direction of the Board of Directors; or (ii)
by any stockholder of the Corporation entitled to vote for the election of
Directors at the meeting who complies with the notice procedures set forth in
this Section 6(c). Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made by timely notice in writing
to the Secretary of the Corporation. To be timely, a stockholder's notice shall
be delivered or mailed to and received at the principal executive offices of the
Corporation not less than ninety (90) nor more than one hundred twenty (120)
days prior to the date of the meeting; PROVIDED, HOWEVER, that in the event that
less than one hundred (100) days' notice or prior public disclosure of the date
of the meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on the 10th day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made. Such stockholder's notice shall set forth: (i)
as to each person whom such stockholder proposes to nominate for election or
re-election as a Director, all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); and (ii) as to the stockholder giving the notice (x) the
name and address, as they appear on the Corporation's books, of such stockholder
and (y) the class and number of shares of the Corporation's capital stock that
are beneficially owned by such stockholder. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
Director shall furnish to the Secretary
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<PAGE>
of the Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a Director of the Corporation unless nominated in accordance
with the provisions of this Section 6(c). The Officer of the Corporation or
other person presiding at the meeting shall, if the facts so warrant, determine
that a nomination was not made in accordance with such provisions and, if he or
she shall so determine, he or she shall so declare to the meeting and the
defective nomination shall be disregarded.
SECTION 7. PROXIES AND VOTING.
At any meeting of the stockholders, every stockholder entitled to vote
may vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting. Any facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
All voting, including on the election of Directors but excepting where
otherwise required by law or by the governing documents of the Corporation, may
be made by a voice vote; PROVIDED, HOWEVER, that upon demand therefor by a
stockholder entitled to vote or his or her proxy, a stock vote shall be taken.
Every stock vote shall be taken by ballot, each of which shall state the name of
the stockholder or proxy voting and such other information as may be required
under the procedures established for the meeting. The Corporation shall, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
the meeting and make a written report thereof. The Corporation may designate one
or more persons as alternate inspectors to replace any inspector who fails to
act. If no inspector or alternate is able to act at a meeting of stockholders,
the person presiding at the meeting shall appoint one or more inspectors to act
at the meeting. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or the Certificate of Incorporation, all
other matters shall be determined by a majority of the votes cast.
SECTION 8. STOCK LIST.
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting is
4
<PAGE>
to be held, which place shall be specified in the notice of the meeting, or if
not so specified, at the place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during
the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the identity
of the stockholders entitled to vote at the meeting and the number of shares
held by each of them.
ARTICLE II - BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS.
The business and affairs of the Corporation shall be under the
direction of its Board of Directors. The number of Directors who shall
constitute the Whole Board shall be such number as the Board of Directors shall
from time to time have designated, except that in the absence of such
designation shall be seven (7). The Board of Directors shall annually elect a
Chairman of the Board from among its members who shall, when present, preside at
its meetings.
SECTION 2. VACANCIES.
Any vacancy occurring in the Board of Directors may be filled in
accordance with the Certificate of Incorporation.
SECTION 3. REGULAR MEETINGS.
Regular meetings of the Board of Directors shall be held at such place
or places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all Directors. A
notice of each regular meeting shall not be required.
SECTION 4. SPECIAL MEETINGS.
Special meetings of the Board of Directors may be called by one-third
(1/3) of the Directors then in office (rounded up to the nearest whole number),
by the Chairman of the Board or the President or, in the event that the Chairman
of the Board or President are incapacitated or otherwise unable to call such
meeting, by the Secretary, and shall be held at such place, on such date, and at
such time as they, or he or she, shall fix. Notice of the place, date, and time
of each such special meeting shall be given each Director by whom it is not
waived by mailing written notice not less than five (5) days before the meeting
or by telegraph or by facsimile, or similar means of transmission, of the same
not less than twenty-four (24) hours before the meeting. Unless otherwise
indicated in the notice thereof, any and all business may be transacted at a
special meeting.
5
<PAGE>
SECTION 5. QUORUM.
At any meeting of the Board of Directors, a majority of the Whole Board
shall constitute a quorum for all purposes. If a quorum shall fail to attend any
meeting, a majority of those present may adjourn the meeting to another place,
date, or time, without further notice or waiver thereof.
SECTION 6. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. CONDUCT OF BUSINESS.
At any meeting of the Board of Directors, business shall be transacted
in such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the Directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
SECTION 8. POWERS.
Except as otherwise required by law, the Board of Directors may
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, including, without limiting the generality of the
foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance
with law;
(2) To purchase or otherwise acquire any property, rights
or privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in
such form as it may determine, of written obligations of every kind,
negotiable or non-negotiable, secured or unsecured, and to do all
things necessary in connection therewith;
(4) To remove any Officer of the Corporation with or
without cause, and from time to time to devolve the powers and duties
of any Officer upon any other person for the time being;
(5) To confer upon any Officer of the Corporation the
power to appoint, remove and suspend subordinate Officers, employees
and agents;
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(6) To adopt from time to time such stock, option, stock
purchase, bonus or other compensation plans for Directors, Officers,
employees and agents of the Corporation and its subsidiaries as it may
determine;
(7) To adopt from time to time such insurance,
retirement, and other benefit plans for Directors, Officers, employees
and agents of the Corporation and its subsidiaries as it may determine;
(8) To adopt from time to time regulations, not
inconsistent with these Bylaws, for the management of the Corporation's
business and affairs; and
(9) To fix the Compensation of officers and employees of
the Corporation and its subsidiaries as it may determine.
SECTION 9. COMPENSATION OF DIRECTORS.
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as Directors,
including, without limitation, their services as members of committees of the
Board of Directors.
SECTION 10. QUALIFICATION.
To be eligible for election, reelection, appointment or reappointment
to the Board of Directors, a person must reside within a county in which an
office of the Corporation or one of its depository institution subsidiaries is
located or any adjacent county. No person 78 years of age or older shall be
eligible for election, reelection, appointment or reappointment to the Board of
Directors. A director who becomes 78 years of age may serve as such until the
next annual meeting of stockholders. This age limitation shall not apply to any
director currently serving on the Board of Directors. No person shall be
eligible for election or appointment to the board of directors if such person
(i) has, within the previous 10 years, been the subject of supervisory action by
a financial regulatory agency that resulted in a cease and desist order or an
agreement or other written statement subject to public disclosure under 12
U.S.C. 1818(u), or any successor provision, that involved fraud, moral
turpitude, dishonesty, breach of trust or fiduciary duties, organized crime or
racketeering or violation of depository institution laws or regulations, (ii)
has been convicted of a crime involving dishonesty or breach of trust which is
punishable by imprisonment for a term exceeding one year under state or federal
law, or (iii) is currently charged in any information, indictment, or other
complaint with the commission of or participation in such a crime.
7
<PAGE>
ARTICLE III - COMMITTEES
SECTION 1. COMMITTEES OF THE BOARD OF DIRECTORS.
The Board of Directors, by a vote of a majority of the Board of
Directors, may from time to time designate committees of the Board, with such
lawfully delegable powers and duties as it thereby confers, to serve at the
pleasure of the Board and shall, for these committees and any others provided
for herein, elect a Director or Directors to serve as the member or members,
designating, if it desires, other Directors as alternate members who may replace
any absent or disqualified member at any meeting of the committee. Any committee
so designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law if the resolution which designates the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member.
SECTION 2. CONDUCT OF BUSINESS.
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings. The quorum requirements for each such
committee shall be a majority of the members of such committee unless otherwise
determined by the Board of Directors by a majority vote of the Board of
Directors which such quorum determined by a majority of the Board may be
one-third of such members and all matters considered by such committees shall be
determined by a majority vote of the members present. Action may be taken by any
committee without a meeting if all members thereof consent thereto in writing,
and the writing or writings are filed with the minutes of the proceedings of
such committee.
SECTION 3. NOMINATING COMMITTEE.
The Board of Directors shall appoint a Nominating Committee of the
Board, consisting of not less than three (3) members. The Nominating Committee
shall have authority: (a) to review any nominations for election to the Board of
Directors made by a stockholder of the Corporation pursuant to Section 6(c)(ii)
of Article I of these Bylaws in order to determine compliance with such Bylaw;
and (b) to recommend to the Whole Board nominees for election to the Board of
Directors to replace those Directors whose terms expire at the annual meeting of
stockholders next ensuing.
8
<PAGE>
ARTICLE IV - OFFICERS
SECTION 1. GENERALLY.
(a) The Board of Directors, as soon as may be practicable
after the annual meeting of stockholders, shall choose a Chairman of
the Board, Chief Executive Officer, a President, one or more Vice
Presidents, a Secretary and a Treasurer and from time to time may
choose such other officers as it may deem proper. The Chairman of the
Board shall be chosen from among the Directors. Any number of offices
may be held by the same person.
(b) The term of office of all Officers shall be until the
next annual election of Officers and until their respective successors
are chosen, but any Officer may be removed from office at any time by
the affirmative vote of a majority of the authorized number of
Directors then constituting the Board of Directors.
(c) All Officers chosen by the Board of Directors shall
have such powers and duties as generally pertain to their respective
Offices, subject to the specific provisions of this ARTICLE IV. Such
officers shall also have such powers and duties as from time to time
may be conferred by the Board of Directors or by any committee thereof.
SECTION 2. CHAIRMAN OF THE BOARD OF DIRECTORS.
The Chairman of the Board, subject to the provisions of these Bylaws
and to the direction of the Board of Directors, when present shall preside at
all meetings of the stockholders of the Corporation. The Chairman of the Board
shall perform such duties designated to him or her by the Board of Directors and
which are delegated to him or her by the Board of Directors by resolution of the
Board of Directors.
SECTION 3. PRESIDENT AND CHIEF EXECUTIVE OFFICER.
The President and Chief Executive Officer shall have general
responsibility for the management and control of the business and affairs of the
Corporation and shall perform all duties and have all powers which are commonly
incident to the office of President and Chief Executive Officer or which are
delegated to him or her by the Board of Directors. Subject to the direction of
the Board of Directors, the President and Chief Executive Officer shall have
power to sign all stock certificates, contracts and other instruments of the
Corporation which are authorized and shall have general supervision of all of
the other Officers (other than the Chairman of the Board), employees and agents
of the Corporation.
SECTION 4. VICE PRESIDENT.
The Vice President(s) shall perform the duties of the President in his
or her absence or during his or her inability to act. In addition, the Vice
President(s) shall perform the duties and exercise the
9
<PAGE>
powers usually incident to their respective offices and/or such other duties and
powers as may be properly assigned to them by the Board of Directors, the
Chairman of the Board or the President. A Vice President(s) may be designated as
Executive Vice President or Senior Vice President.
SECTION 5. SECRETARY.
The Secretary or Assistant Secretary shall issue notices of meetings,
shall keep their minutes, shall have charge of the seal and the corporate books,
shall perform such other duties and exercise such other powers as are usually
incident to such office and/or such other duties and powers as are properly
assigned thereto by the Board of Directors, the Chairman of the Board or the
President. Subject to the direction of the Board of Directors, the Secretary
shall have the power to sign all stock certificates.
SECTION 6. TREASURER.
The Treasurer shall be the Comptroller of the Corporation and shall
have the responsibility for maintaining the financial records of the
Corporation. He or she shall make such disbursements of the funds of the
Corporation as are authorized and shall render from time to time an account of
all such transactions and of the financial condition of the Corporation. The
Treasurer shall also perform such other duties as the Board of Directors may
from time to time prescribe. Subject to the direction of the Board of Directors,
the Treasurer shall have the power to sign all stock certificates.
SECTION 7. ASSISTANT SECRETARIES AND OTHER OFFICERS.
The Board of Directors may appoint one or more Assistant Secretaries
and such other Officers who shall have such powers and shall perform such duties
as are provided in these Bylaws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President.
SECTION 8. ACTION WITH RESPECT TO SECURITIES OF OTHER
CORPORATIONS.
Unless otherwise directed by the Board of Directors, the President or
any Officer of the Corporation authorized by the President shall have power to
vote and otherwise act on behalf of the Corporation, in person or by proxy, at
any meeting of stockholders of or with respect to any action of stockholders of
any other corporation in which this Corporation may hold securities and
otherwise to exercise any and all rights and powers which this Corporation may
possess by reason of its ownership of securities in such other corporation.
10
<PAGE>
ARTICLE V - STOCK
SECTION 1. CERTIFICATES OF STOCK.
Each stockholder shall be entitled to a certificate signed by, or in
the name of the Corporation by, the Chairman of the Board or the President, and
by the Secretary or an Assistant Secretary, or any Treasurer or Assistant
Treasurer, certifying the number of shares owned by him or her. Any or all of
the signatures on the certificate may be by facsimile.
SECTION 2. TRANSFERS OF STOCK.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these Bylaws,
an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
SECTION 3. RECORD DATE.
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; PROVIDED, HOWEVER, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the next day preceding the day
on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment or rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
PROVIDED, HOWEVER, that the Board of Directors may fix a new record date for the
adjourned meeting.
11
<PAGE>
SECTION 4. LOST, STOLEN OR DESTROYED CERTIFICATES.
In the event of the loss, theft or destruction of any certificate of
stock, another may be issued in its place pursuant to such regulations as the
Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond(s) of indemnity.
SECTION 5. REGULATIONS.
The issue, transfer, conversion and registration of certificates of
stock shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI - NOTICES
SECTION 1. NOTICES.
Except as otherwise specifically provided herein or required by law,
all notices required to be given to any stockholder, Director, Officer, employee
or agent shall be in writing and may in every instance be effectively given by
hand delivery to the recipient thereof, by depositing such notice in the mail,
postage paid, or by sending such notice by prepaid telegram or mailgram or other
courier. Any such notice shall be addressed to such stockholder, Director,
Officer, employee or agent at his or her last known address as the same appears
on the books of the Corporation. The time when such notice is received, if hand
delivered, or dispatched, if delivered through the mails or by telegram or
mailgram or other courier, shall be the time of the giving of the notice.
SECTION 2. WAIVERS.
A written waiver of any notice, signed by a stockholder, Director,
Officer, employee or agent, whether before or after the time of the event for
which notice is to be given, shall be deemed equivalent to the notice required
to be given to such stockholder, Director, Officer, employee or agent. Neither
the business nor the purpose of any meeting need be specified in such a waiver.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends the meeting for the express purpose of
objecting at the beginning of the meeting to the transaction of business because
the meeting is not lawfully called or convened.
12
<PAGE>
ARTICLE VII - MISCELLANEOUS
SECTION 1. FACSIMILE SIGNATURES.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
SECTION 2. CORPORATE SEAL.
The Board of Directors may provide a suitable seal, containing the name
of the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Treasurer or by an Assistant Secretary or
an assistant to the Treasurer.
SECTION 3. RELIANCE UPON BOOKS, REPORTS AND RECORDS.
Each Director, each member of any committee designated by the Board of
Directors, and each Officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its Officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such Director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
SECTION 4. FISCAL YEAR.
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
SECTION 5. TIME PERIODS.
In applying any provision of these Bylaws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
ARTICLE VIII - AMENDMENTS
These Bylaws may be amended or repealed in the manner set forth in the
Certificate of Incorporation.
The above Bylaws are effective as of April 12, 2000.
13
<PAGE>
Exhibit 4.0
COMMON STOCK COMMON STOCK
PAR VALUE $.01 SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP
FIRST FEDERAL BANCSHARES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
S P E C I M E N
is the owner of:
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE PER SHARE,
OF FIRST FEDERAL BANCSHARES, INC.
The shares represented by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record hereof, or by his duly
authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation of the Corporation and any amendments thereto
(copies of which are on file with the Transfer Agent), to all of which
provisions the holder by acceptance hereof, assents.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
IN WITNESS THEREOF, First Federal Bancshares, Inc. has caused
this certificate to be executed by the facsimile signatures of its duly
authorized officers and has caused a facsimile of its corporate seal to be
hereunto affixed.
Dated: [SEAL]
President Secretary
<PAGE>
First Federal Bancshares, Inc.
The shares represented by this certificate are subject to a limitation
contained in the Certificate of Incorporation to the effect that in no event
shall any record owner of any outstanding common stock which is beneficially
owned, directly or indirectly, by a person who beneficially owns in excess of
10% of the outstanding shares of common stock (the "Limit") be entitled or
permitted to any vote in respect of shares held in excess of the Limit.
The Board of Directors of the Corporation is authorized by
resolution(s), from time to time adopted, to provide for the issuance of serial
preferred stock in series and to fix and state the voting powers, designations,
preferences and relative, participating, optional, or other special rights of
the shares of each such series and the qualifications, limitations and
restrictions thereof. The Corporation will furnish to any shareholder upon
request and without charge a full description of each class of stock and any
series thereof.
The shares represented by this certificate may not be cumulatively
voted on any matter. The affirmative vote of the holders of at least 80% of the
voting stock of the Corporation, voting together as a single class, shall be
required to approve certain business combinations and other transactions,
pursuant to the Certificate of Incorporation or to amend certain provisions of
the Certificate of Incorporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFTS MIN ACT - ______ custodian _______
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act
--------------------
(State)
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above list.
For value received, __________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFICATION NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of assignee
_______________________________________________ shares of the common stock
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
____________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
DATED ________________________ ______________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
SIGNATURE GUARANTEED: _________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15
<PAGE>
Exhibit 5.0
[Letterhead of Muldoon, Murphy & Faucette LLP]
May 5, 2000
Board of Directors
First Federal Bancshares, Inc.
109 East Depot Street
Colchester, Illinois 62326
Re: The issuance of up to 2,578,875 shares of
First Federal Bancshares, Inc. Common Stock
Ladies and Gentlemen:
You have requested our opinion concerning certain matters of Delaware
law in connection with the conversion of the First Federal Bank, F.S.B. (the
"Bank"), a federal savings bank, from the mutual to the stock form of ownership,
and the related subscription offering, direct community offering and syndicated
community offering (the "Offerings") by First Federal Bancshares, Inc. (the
"Company"), a Delaware corporation and the proposed holding company for the
Bank, of up to 2,242,500 shares of its common stock, par value $.01 per share
("Common Stock") (2,578,875 shares if the estimated valuation range is increased
up to 15% to reflect changes in market and financial conditions following
commencement of the Offerings).
We understand that the Company will lend to the trust for the Bank's
Employee Stock Ownership Plan (the "ESOP") the funds the ESOP trust will use to
purchase shares of Common Stock for which the ESOP trust subscribes pursuant to
the Offerings and, for purposes of rendering the opinion set forth in paragraph
2 below, we assume that: (a) the Board of Directors of the Company (the "Board")
has duly authorized the loan to the ESOP trust (the "Loan"); (b) the ESOP serves
a valid corporate purpose for the Company; (c) the Loan will be made at an
interest rate and on other terms that are fair to the Company; (d) the terms of
the Loan will be set forth in customary and appropriate documents including,
without limitation, a promissory note representing the indebtedness of the ESOP
trust to the Company as a result of the Loan; and (e) the closing for the Loan
and for the sale of Common Stock to the ESOP trust will be held after the
closing for the sale of the other shares of Common Stock sold in the Offerings
<PAGE>
Board of Directors
First Federal Bancshares, Inc.
May 5, 2000
Page 2
and the receipt by the Company of the proceeds thereof.
In connection with your request for our opinion, you have provided to
us and we have reviewed the Company's certificate of incorporation filed with
the Delaware Secretary of State on March 27, 2000 (the "Certificate of
Incorporation"); the Company's Bylaws; the Company's Registration Statement on
Form SB-2, as initially filed with the Securities and Exchange Commission on
May 5, 2000 (the "Registration Statement"); a consent of the sole incorporator
of the Company; the plan of conversion, as amended; the ESOP trust agreement and
the ESOP Loan agreement; resolutions of the Board concerning the organization of
the Company, the Offerings and designation of a pricing committee of the Board
(the "Pricing Committee"); and the form of stock certificate approved by the
Board to represent shares of Common Stock. We have also been furnished a
certificate of the Delaware Secretary of State certifying the Company's good
standing as a Delaware corporation. Capitalized terms used but not defined
herein shall have the meaning given them in the Certificate of Incorporation.
Based upon and subject to the foregoing, and limited in all respects to
matters of Delaware law, it is our opinion that:
1. The Company has been duly organized and is validly existing in
good standing as a corporation under the laws of the State of Delaware.
2. Upon the due adoption by the Pricing Committee of a resolution
fixing the number of shares of Common Stock to be sold in the Offerings, the
Common Stock to be issued in the Offerings (including the shares to be issued to
the ESOP trust) will be duly authorized and, when such shares are sold and paid
for in accordance with the terms set forth in the prospectus which is included
in the Registration Statement and such resolution of the Pricing Committee and
certificates representing such shares in the form provided to us are duly and
properly issued, will be validly issued, fully paid and nonassessable.
The following provisions of the Certificate of Incorporation may not be
given effect by a court applying Delaware law, but in our opinion the failure to
give effect to such provisions will not affect the duly authorized, validly
issued, fully paid and nonassessable status of the Common Stock:
1. Subsections C.3 and C.6 of Article FOURTH and Section D of Article
EIGHTH, which grant the Board the authority to construe and apply
the provisions of those Articles, subsection C.4 of Article
FOURTH, to the extent that subsection obligates any person to
provide to the Board the information such subsection authorizes
the Board to demand, and the provision of Subsection C.7 of
Article EIGHTH empowering the Board to
<PAGE>
Board of Directors
First Federal Bancshares, Inc.
May 5, 2000
Page 3
determine the Fair Market Value of property offered or paid for
the Company's stock by an Interested Stockholder, in each case to
the extent, if any, that a court applying Delaware law were to
impose equitable limitations upon such authority; and
2. Article NINTH, which authorizes the Board to consider the
effect of any offer to acquire the Company on constituencies
other than stockholders in evaluating any such offer.
We assume no obligation to advise you of any events that occur
subsequent to the date of this opinion.
Very truly yours,
/s/ Muldoon, Murphy & Faucette LLP
----------------------------------
MULDOON, MURPHY & FAUCETTE LLP
<PAGE>
Exhibit 8.1
May __, 2000
Board of Directors
First Federal Bancshares, Inc.
109 East Depot Street
Colchester, Illinois 62326
Board of Directors
First Federal Bank, F.S.B.
109 East Depot Street
Colchester, Illinois 62326
RE: FEDERAL TAX CONSEQUENCES OF THE CONVERSION OF FIRST FEDERAL
BANK, F.S.B. FROM A FEDERALLY-CHARTERED MUTUAL SAVINGS BANK TO
A FEDERALLY-CHARTERED STOCK SAVINGS BANK AND THE OFFER AND
SALE OF COMMON STOCK OF FIRST FEDERAL BANCSHARES, INC. (THE
"CONVERSION")
To the Members of the Board of Directors:
You have requested an opinion regarding all the material federal income
tax consequences of the proposed conversion of First Federal Bank, F.S.B. (the
"Bank") from a federally-chartered mutual savings bank to a federally-chartered
stock savings bank (the "Converted Bank") and the acquisition of the Converted
Bank's capital stock by First Federal Bancshares, Inc., a Delaware corporation
(the "Holding Company"), pursuant to the plan of conversion adopted by the Board
of Directors on December 8, 1999 (the "Plan of Conversion").
The proposed transaction is described in the Prospectus and the Plan of
Conversion, and the tax consequences of the proposed transaction will be as set
forth in the section of this letter entitled "FEDERAL TAX OPINION."
<PAGE>
Board of Directors
May __, 2000
Page 2
We have made such inquiries and have examined such documents and
records as we have deemed appropriate for the purpose of this opinion. In
rendering this opinion, we have received factual representations of the Holding
Company and the Bank concerning the Holding Company and the Bank as well as the
transaction ("Representations"). We will rely upon the accuracy of the
Representations of the Holding Company and the Bank and the statements of facts
contained in the examined documents, particularly the Plan of Conversion. We
have also assumed the authenticity of all signatures, the legal capacity of all
natural persons and the conformity to the originals of all documents submitted
to us as copies. Each capitalized term used herein, unless otherwise defined,
has the meaning set forth in the Plan of Conversion. We have assumed that the
Conversion will be consummated strictly in accordance with the terms of the Plan
of Conversion.
The Plan of Conversion and the Prospectus contain a detailed
description of the Conversion. These documents as well as the Representations to
be provided by the Holding Company and the Bank are incorporated in this letter
as part of the statement of the facts.
The Bank, with its headquarters in Colchester, Illinois, is a
federally-chartered mutual savings bank. As a mutual savings bank, the Bank has
never been authorized to issue stock. Instead, the proprietary interest in the
reserves and undivided profits of the Bank belong to the deposit account holders
of the Bank, hereinafter sometimes referred to as "shareholders." A shareholder
of the Bank has a right to share, pro rata, with respect to the withdrawal value
of his respective deposit account in any liquidation proceeds distributed in the
event the Bank is ever liquidated. In addition, a shareholder of the Bank is
entitled to interest on his account balance as fixed and paid by the Bank.
In order to provide organizational and economic strength to the Bank,
the Board of Directors has adopted the Plan of Conversion whereby the Bank will
convert itself into a federally-chartered stock savings bank, the stock of which
will be held entirely by the Holding Company. The Holding Company will acquire
the stock of the Converted Bank by purchase, in exchange for the Conversion
proceeds that are not permitted to be retained by the Holding Company. The
Holding Company will apply to the Office of Thrift Supervision ("OTS") to retain
up to 50% of the proceeds received from the Conversion. The aggregate sales
price of the Common Stock issued in the Conversion will be based on an
independent appraiser's valuation of the estimated pro forma market value of the
Holding Company and the Converted Bank. The Conversion and sale of the Common
Stock will be subject to applicable regulatory approval and the approval by the
affirmative vote of a majority of the Members.
<PAGE>
Board of Directors
May __, 2000
Page 3
The Bank shall establish at the time of Conversion a liquidation
account in an amount equal to its net worth as of the latest practicable date
prior to Conversion. The liquidation account will be maintained by the
Converted Bank for the benefit of the Eligible Account Holders and
Supplemental Eligible Account Holders who continue to maintain their deposit
accounts at the Converted Bank. Each Eligible Account Holder and Supplemental
Eligible Account Holder shall, with respect to his Savings Account, hold a
related inchoate interest in a portion of the liquidation account balance, in
relation to his deposit account balance on the Eligibility Record Date and/or
Supplemental Eligibility Record Date or to such balance as it may be
subsequently reduced, as provided in the Plan of Conversion.
In the unlikely event of a complete liquidation of the Converted Bank
(and only in such event), following all liquidation payments to creditors
(including those to Account Holders to the extent of their deposit accounts),
each Eligible Account Holder and Supplemental Eligible Account Holder shall be
entitled to receive a liquidating distribution from the liquidation account, in
the amount of the then adjusted subaccount balance for his deposit accounts then
held, before any liquidation distribution may be made to any holders of the
Converted Bank's capital stock. No merger, consolidation, purchase of bulk
assets with assumption of Savings Accounts and other liabilities, or similar
transaction with a Federal Deposit Insurance Corporation ("FDIC") institution,
in which the Converted Bank is not the surviving institution, shall be deemed to
be a complete liquidation for this purpose. In such transactions, the
liquidation account shall be assumed by the surviving institution.
LIMITATIONS ON OPINION
Our opinions expressed herein are based solely upon current provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), including
applicable regulations thereunder and current judicial and administrative
authority. Any future amendments to the Code or applicable regulations, or new
judicial decisions or administrative interpretations, any of which could be
retroactive in effect, could cause us to modify our opinion. No opinion is
expressed herein with regard to the federal, state, or city tax consequences of
the Conversion under any section of the Code except if and to the extent
specifically addressed.
FEDERAL TAX OPINION
Based upon the Representations and the other factual information
referred to in this letter, and assuming the transaction occurs in accordance
with the Plan of Conversion, and taking into
<PAGE>
Board of Directors
May __, 2000
Page 4
consideration the limitations noted throughout this opinion, it is our
opinion that under current federal income tax law:
(1) Pursuant to the Conversion, the changes at the corporate level
other than changes in the form of organization will be
insubstantial. Based upon that fact and the fact that the
equity interest of a shareholder in a mutual entity is more
nominal than real, unlike that of a shareholder of a
corporation, the Conversion of the Bank from a mutual entity
to a stock savings bank is a tax-free reorganization since it
is a mere change in identity, form or place of organization
within the meaning of section 368(a)(1)(F) of the Code (see
Rev. Rul. 80-105, 1980-1 C.B. 78). Neither the Bank nor the
Converted Bank shall recognize gain or loss as a result of the
Conversion. The Bank and the Converted Bank shall each be "a
party to a reorganization" within the meaning of section
368(b) of the Code.
(2) No gain or loss shall be recognized by the Converted Bank or
the Holding Company on the receipt by the Converted Bank of
money from the Holding Company in exchange for shares of the
Converted Bank's capital stock or by the Holding Company upon
the receipt of money from the sale of its Common Stock
(Section 1032(a) of the Code).
(3) The basis of the assets of the Bank in the hands of the
Converted Bank shall be the same as the basis of such assets
in the hands of the Bank immediately prior to the Conversion
(Section 362(b) of the Code).
(4) The holding period of the assets of the Bank in the hands of
the Converted Bank shall include the period during which the
Bank held the assets (Section 1223(2) of the Code).
(5) No gain or loss shall be recognized by the Eligible Account
Holders and the Supplemental Eligible Account Holders of the
Bank on the issuance to them of withdrawable deposit accounts
in the Converted Bank plus interests in the liquidation
account of the Converted Bank in exchange for their deposit
accounts in the Bank or to the other depositors on the
issuance to them of withdrawable deposit accounts (Section
354(a) of the Code).
(6) Provided that the amount to be paid for such stock pursuant to
the subscription rights is equal to the fair market value of
the stock, no gain or loss will be recognized by Eligible
Account Holders and Supplemental Eligible Account Holders upon
the distribution to them of the nontransferable subscription
rights to
<PAGE>
Board of Directors
May __, 2000
Page 5
purchase shares of stock in the Holding Company
(Section 356(a)). Gain realized, if any, by the Eligible
Account Holders and Supplemental Eligible Account Holders on
the distribution to them of nontransferable subscription
rights to purchase shares of Common Stock will be recognized
but only in an amount not in excess of the fair market value
of such subscription rights (Section 356(a)). Eligible
Account Holders and Supplemental Eligible Account Holders
will not realize any taxable income as a result of the
exercise by them of the nontransferable subscription rights
(Rev. Rul. 56-572, 1956-2 C.B. 182).
(7) The basis of the deposit accounts in the Converted Bank to be
received by the Eligible Account Holders, Supplemental
Eligible Account Holders and other shareholders of the Bank
will be the same as the basis of their deposit accounts in the
Bank surrendered in exchange therefor (Section 358(a)(1) of
the Code). The basis of the interests in the liquidation
account of the Converted Bank to be received by the Eligible
Account Holders and Supplemental Eligible Account Holders of
the Bank shall be zero (Rev. Rul. 71-233, 1971-1 C.B. 113).
The basis of the Holding Company Common Stock to its
stockholders will be the purchase price thereof plus the
basis, if any, of nontransferable subscription rights (Section
1012 of the Code). Accordingly, assuming the nontransferable
subscription rights have no value, the basis of the Common
Stock to the Eligible Account Holders and Supplemental
Eligible Account Holders will be the amount paid therefor. The
holding period of the Common Stock purchased pursuant to the
exercise of subscription rights shall commence on the date on
which the right to acquire such stock was exercised (Section
1223(6) of the Code).
Our opinion under paragraph (6) above is predicated on the
Representation that no person shall receive any payment, whether in money or
property, in lieu of the issuance of subscription rights. Our opinion under
paragraphs (6) and (7) above assumes that the subscription rights to purchase
shares of Common Stock received by Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members have a fair market value of zero. We
understand that you have received a letter from RP Financial, LC. that the
subscription rights do not have any value. We express no view regarding the
valuation of the subscription rights.
If the subscription rights are subsequently found to have a fair market
value, income may be recognized by various recipients of the subscription rights
(in certain cases, whether or not the rights are exercised) and Holding Company
and/or the Converted Bank may be taxable on the distribution of the subscription
rights.
* * *
<PAGE>
Board of Directors
May __, 2000
Page 6
Since this letter is rendered in advance of the closing of this
transaction, we have assumed that the transaction will be consummated in
accordance with the Plan of Conversion as well as all the information and
Representations referred to herein. Any change in the transaction could cause
us to modify our opinion.
We consent to the inclusion of this opinion as an exhibit to the Form
AC Application for Conversion of the Bank and the references to and summary of
this opinion in such Application for Conversion. We also consent to the
inclusion of this opinion as an exhibit to the Form SB-2 Registration Statement
and the Form H-(e)1-S Application of First Federal Bancshares, Inc. and the
references to and summary of this opinion in both the Form SB-2 and the Form
H-(e)1-S.
Sincerely,
MULDOON, MURPHY & FAUCETTE LLP
<PAGE>
CERTIFICATE OF REPRESENTATIONS
I, James J. Stebor, President of First Federal Bank, F.S.B. (the
"Bank"), for the purpose of obtaining an opinion of counsel to be tendered by
Muldoon, Murphy & Faucette LLP in connection with the conversion of the Bank
from a federally chartered mutual savings bank to a federally chartered capital
stock savings bank (the "Conversion") and the acquisition of the Bank's capital
stock by First Federal Bancshares, Inc., a Delaware corporation (the "Holding
Company"), pursuant to the plan of conversion adopted by the Board of Directors
on December 8, 1999 (the "Plan of Conversion"), do hereby certify that all the
information set forth in the following representations is true to the best of my
knowledge and belief:
(a) The fair market value of the withdrawable deposit accounts
plus interests in the liquidation account of the Converted
Bank to be received under the Plan of Conversion will, in each
instance, be equal to the fair market value of the
withdrawable deposit accounts (plus the related interest in
the residual equity of the Bank) deemed to be surrendered in
exchange therefor.
(b) If an individual's total deposits in the Bank equal or exceed
$50 as of the Eligibility Record Date or the Supplemental
Eligibility Record Date (if any), then no amount of that
individual's total deposits will be excluded from
participating in the liquidation account. The fair market
value of the deposit accounts of the Bank which have a balance
of less than $50 on the Eligibility Record Date or the
Supplemental Eligibility Record Date (if any) will be less
than 1% of the total fair market value of all deposit accounts
of the Bank.
(c) Immediately following the Conversion, the Eligible Account
Holders and the Supplemental Eligible Account Holders (if any)
of the Bank will own all of the outstanding interests in the
liquidation account and will own such interest solely by
reason of their ownership of deposits in the Bank immediately
before the Conversion.
(d) After the Conversion, the Converted Bank will continue the
business of the Bank in the same manner as prior to the
Conversion. The Converted Bank has no plan or intention and
the Holding Company has no plan or intention to cause the
Converted Bank to sell its assets other than in the ordinary
course of business.
(e) The Holding Company has no plan or intention to sell,
liquidate or otherwise dispose of the stock of the Converted
Bank other than in the ordinary course of business.
(f) The Holding Company and the Converted Bank have no current
plan or intention
<PAGE>
to redeem or otherwise acquire any of the Common Stock issued
in the Conversion transaction.
(g) Immediately after the Conversion, the assets and liabilities
of the Converted Bank will be identical to the assets and
liabilities of the Bank immediately prior to the Conversion,
plus the net proceeds from the sale of the Converted Bank's
common stock to the Holding Company and any liability
associated with indebtedness incurred by the Employee Plans in
the acquisition of Common Stock by the Tax-Qualified Employee
Stock Benefit Plans.
(h) The Bank is federally chartered as a mutual savings bank.
(i) None of the shares of the Common Stock to be purchased by the
Directors and depositor-employees of the Bank in the
Conversion will be issued or acquired at a discount. However,
shares may be given to certain employees as compensation by
means of the Tax-Qualified Employee Stock Benefit Plans.
Compensation to be paid to such Directors and
depositor-employees will be commensurate with amounts paid to
third parties bargaining at arm's length for similar services.
(j) The fair market value of the assets of the Bank, which will be
transferred to the Converted Bank in the Conversion, will
equal or exceed the sum of the liabilities of the Bank which
will be assumed by the Converted Bank and any liabilities to
which the transferred assets are subject.
(k) The Bank is not insolvent and is not under the jurisdiction of
a bankruptcy or similar court, a receivership, foreclosure, or
similar proceeding in a Federal or State court.
(l) Upon the completion of the Conversion, the Holding Company
will own and hold 100% of the issued and outstanding capital
stock of the Converted Bank and no other shares of capital
stock of the Converted Bank will be issued and/or outstanding.
At the time of the Conversion, the Converted Bank does not
have any plan or intention to issue additional shares of its
stock following the transaction. Further, no shares of
preferred stock of the Converted Bank will be issued and/or
outstanding.
(m) Upon the completion of the Conversion, there will be no
rights, warrants, contracts, agreements, commitments or
understandings with respect to the capital stock of the
Converted Bank, nor will there be any securities outstanding
which are convertible into the capital stock of the Converted
Bank.
(n) No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders (if any), or others in
lieu of (a) nontransferable
<PAGE>
subscription rights, or (b) an interest in the liquidation
account of the Converted Bank.
(o) Depositors will pay the expenses of the Conversion solely
applicable to them, if any. The Holding Company and the Bank
will each pay expenses of the transaction attributable to them
and will not pay any expenses solely attributable to the
depositors or to the Holding Company shareholders.
(p) The exercise price of the subscription rights received by the
Bank's Eligible Account Holders, Supplemental Eligible Account
Holders (if any), and other holders of subscription rights to
purchase Holding Company Common Stock will be equal to the
fair market value of the stock of the Holding Company at the
time of the completion of the Conversion as determined by an
independent appraisal.
(q) The liquidation account will be maintained by the Bank for the
benefit of the Eligible Account Holders and the Supplemental
Eligible Account Holders (if any) who continue to maintain
deposit accounts at the Bank.
(t) There is no plan or intention for the Converted Bank to be
liquidated or merged with another corporation following this
proposed transaction.
(u) The liabilities of the Bank assumed by the Converted Bank plus
the liabilities, if any, to which the transferred assets are
subject were incurred by the Bank in the ordinary course of
its business and are associated with the assets transferred.
(v) The Bank currently has no net operating losses for federal tax
purposes, and has no such losses available for carryover to
future tax years.
I understand that any change in facts or in the execution of this
transaction could cause a modification of the opinion of Muldoon, Murphy &
Faucette LLP. Since these representations are being offered in advance of the
closing of this transaction, I will undertake to promptly notify Muldoon, Murphy
& Faucette LLP if I discover at any time following the date hereof that any of
the above representations cease to be true, correct and/or complete.
Each capitalized term not defined herein shall have the same meaning as
in the opinion of Muldoon, Murphy & Faucette LLP or the Plan of Conversion, as
appropriate.
, 2000
---------------------------------------
James J. Stebor
President
First Federal Bank, F.S.B.
<PAGE>
Exhibit 8.3
[Letterhead of RP Financial, LC.]
May 5, 2000
Board of Directors
First Federal Bank, F.S.B.
109 East Depot Street
Colchester, Illinois 62326
Re: Plan of Conversion: Subscription Rights
First Federal Bank, F.S.B.
__________________________
Gentlemen:
All capitalized terms not otherwise defined in this letter have the
meanings given such terms in the plan of conversion adopted by the Board of
Directors of First Federal Bank, F.S.B., ("First Federal" or the "Bank") whereby
the Bank will convert from a federally chartered mutual savings bank to a
federally chartered stock savings bank and issue all of the Bank's outstanding
capital stock to First Federal Bancshares, Inc. (the "Holding Company").
Simultaneously, the Holding Company will issue shares of common stock.
We understand that in accordance with the Plan of Conversion,
subscription rights to purchase shares of common stock in the Holding Company
are to be issued to: (1) Eligible Account Holders; (2) the Tax-Qualified
Employee Benefit Plans; (3) Supplemental Eligible Account Holders; and, (4)
Other Members. Based solely upon our observation that the subscription rights
will be available to such parties without cost, will be legally non-transferable
and of short duration, and will afford such parties the right only to purchase
shares of common stock at the same price as will be paid by members of the
general public in the community offering, but without undertaking any
independent investigation of state or federal law or the position of the
Internal Revenue Service with respect to this issue, we are of the belief that,
as a factual matter:
(1) the subscription rights will have no ascertainable market
value; and,
(2) the price at which the subscription rights are exercisable
will not be more or less than the pro forma market value of
the shares upon issuance.
Changes in the local and national economy, the legislative and
regulatory environment, the stock market, interest rates, and other external
forces (such as natural disasters or significant world events) may occur from
time to time, often with great unpredictability and may materially impact the
value of thrift stocks as a whole or the Holding Company's value alone.
Accordingly, no assurance can be given that persons who subscribe to shares of
common stock in the subscription offering will thereafter be able to buy or sell
such shares at the same price paid in the subscription offering.
Sincerely,
/s/ RP Financial, LC.
--------------------------
RP FINANCIAL, LC.
<PAGE>
Exhibit 10.1
[FIRST FEDERAL BANCSHARES, INC. LETTERHEAD]
______________,2000
First Federal Bank
2001 Maine Street
Quincy, Illinois 62301
Dear Mr. _____________:
This letter confirms First Federal Bancshares, Inc.'s commitment to
fund a leveraged ESOP in an amount sufficient to purchase 8% of the shares
issued in the mutual to stock conversion of First Federal Bank (the
"Conversion"). The commitment is subject to the following terms and conditions:
1. LENDER: First Federal Bank (the "Company").
2. BORROWER: First Federal Bank Employee Stock Ownership Plan.
3. TRUSTEE: ______________
4. SECURITY: Unallocated shares of stock of the Company held in First
Federal Bank Employee Stock Ownership Plan Trust.
5. MATURITY: Up to __ years from takedown.
6. AMORTIZATION: Equal quarterly principal and interest payments.
7. PRICING:
a. Lowest "prime rate" as published in the Wall Street Journal
on the date of the loan transaction.
<PAGE>
8. INTEREST PAYMENTS:
a. Annual on a 365 day basis.
9. PREPAYMENT: Voluntary prepayments are permitted at any time.
10. CONDITIONS PRECEDENT TO CLOSING: Receipt by the Company of all
supporting loan documents in a form and with terms and conditions
satisfactory to the Company and its counsel. Consummation of the
transaction will also be contingent upon no material adverse
change occurring in the condition of First Federal Bank or the
Company.
If the terms and conditions are agreeable to you, please indicate your
acceptance by signing the enclosed copy and returning it to my attention.
Sincerely,
Accepted on Behalf of
First Federal Bank
By: Date:
------------------------------- ----------------------------
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Loan Agreement") is made and entered in as of the
___ day of ___________, 2000, by and between the FIRST FEDERAL BANK EMPLOYEE
STOCK OWNERSHIP PLAN TRUST ("Borrower"), a trust forming part of the First
Federal Bank Employee Stock Ownership Plan ("ESOP"); and FIRST FEDERAL
BANCSHARES, INC. ("Lender"), a corporation organized and existing under the laws
of the State of Delaware.
W I T N E S S E T H
WHEREAS, the Borrower is authorized to purchase shares of common stock
of First Federal Bancshares, Inc. ("Common Stock"), either directly from First
Federal Bancshares, Inc. or in open market purchases in an amount not to exceed
______________ shares of Common Stock.
WHEREAS, the Borrower is authorized to borrow funds from the Lender for
the purpose of financing authorized purchases of Common Stock; and
WHEREAS, the Lender is willing to make a loan to the Borrower for such
purpose:
NOW, THEREFORE, the parties agree hereto as follows:
ARTICLE I
DEFINITIONS
The following definitions shall apply for purposes of this Loan
Agreement, except to the extent that a different meaning is plainly indicated by
the context:
BUSINESS DAY means any day other than a Saturday, Sunday or other day
on which banks are authorized or required to close under federal or local law.
CODE means the Internal Revenue Code of 1986 (including the
corresponding provisions of any succeeding law).
DEFAULT means an event or condition which would constitute an Event of
Default. The determination as to whether an event or condition would constitute
an Event of Default shall be determined without regard to any applicable
requirements of notice or lapse of time.
ERISA means the Employee Retirement Income Security Act of 1974, as
amended (including the corresponding provisions of any succeeding law).
EVENT OF DEFAULT means an event or condition described in Article 5.
LOAN means the loan described in section 2.1
<PAGE>
LOAN DOCUMENTS means, collectively, the Loan Agreement, the Promissory
Note and the Pledge Agreement and all other documents now or hereafter executed
and delivered in connection with such documents, including all amendments,
modifications and supplements of or to all such documents.
PLEDGE AGREEMENT means the agreement described in section 2.8(a).
PRINCIPAL AMOUNT means the face amount of the Promissory Note,
determined as set forth in section 2.1(c).
PROMISSORY NOTE means the promissory note described in section 2.3.
REGISTER means the register described in section 2.9.
ARTICLE II
THE LOAN; PRINCIPAL AMOUNT;
INTEREST; SECURITY; INDEMNIFICATION
SECTION 2.1 THE LOAN; PRINCIPAL AMOUNT.
(a) The Lender hereby agrees to lend to the Borrower such amount, and
at such time, as shall be determined under this Section 2.1; provided, however,
that in no event shall the aggregate amount lent under this Loan Agreement from
time to time exceed the greater of (i) $___________ or (ii) the aggregate amount
paid by the Borrower to purchase up to ____________ shares of Common Stock.
(b) Subject to the limitations of Section 2.1(a), the Borrower shall
determine the amounts borrowed under this Agreement, and the time at which such
borrowings are effected. Each such determination shall be evidenced in a writing
which shall set forth the amount to be borrowed and the date on which the Lender
shall disburse such amount, and such writing shall be furnished to the Lender by
notice from the Borrower. The Lender shall disburse to the Borrower the amount
specified in each such notice on the date specified therein or, if later, as
promptly as practicable following the Lender's receipt of such notice; provided,
however, that the Lender shall have no obligation to disburse funds pursuant to
this Agreement following the occurrence of a Default or an Event of Default
until such time as such Default or Event of Default shall have been cured.
(c) For all purposes of this Loan Agreement, the Principal Amount on
any date shall be equal to the excess, if any, of:
(i) the aggregate amount disbursed by the Lender pursuant
to section 2.1(b) on or before such date; over
2
<PAGE>
(ii) the aggregate amount of any repayments of such amounts
made before such date.
The Lender shall maintain on the Register a record of, and shall record in the
Promissory Note, the Principal Amount, any changes in the Principal Amount and
the effective date of any changes in the Principal Amount.
SECTION 2.2 INTEREST.
(a) The Borrower shall pay to the Lender interest on the Principal
Amount, for the period commencing with the first disbursement of funds under
this Loan Agreement and continuing until the Principal Amount shall be paid in
full, at the rate of___________ percent (_____%) per annum. Interest payable
under this Agreement shall be computed on the basis of a year of 365 days and
actual days elapsed (including the first day but excluding the last) occurring
during the period to which the computation relates.
(b) Accrued interest on the Principal Amount shall be payable by the
Borrower on the dates set forth in Schedule I to the Promissory Note. All
interest on the Principal Amount shall be paid by the Borrower in immediately
available funds.
(c) Anything in the Loan Agreement or the Promissory Note to the
contrary notwithstanding, the obligation of the Borrower to make payments of
interest shall be subject to the limitation that payments of interest shall
not be required to be made to the Lender to the extent that the Lender's
receipt thereof would not be permissible under the law or laws applicable to
the Lender limiting rates of interest which may be charged or collected by
the Lender. Any such payment referred to in the preceding sentence shall be
made by the Borrower to the Lender on the earliest interest payment date or
dates on which the receipt thereof would be permissible under the laws
applicable to the Lender limiting rates of interest which may be charged or
collected by the Lender. Such deferred interest shall not bear interest.
SECTION 2.3 PROMISSORY NOTE.
The Loan shall be evidenced by the Promissory Note of the Borrower
attached hereto as an exhibit payable to the order of the lender in the
Principal Amount and otherwise duly completed.
SECTION 2.4 PAYMENT OF TRUST LOAN.
The Principal Amount of the Loan shall be repaid in accordance with
Schedule I to the Promissory Note on the dates specified therein until fully
paid.
3
<PAGE>
SECTION 2.5 PREPAYMENT.
The Borrower shall be entitled to prepay the Loan in whole or in part,
at any time and from time to time; provided, however, that the Borrower shall
give notice to the Lender of any such prepayment; and provided, further, that
any partial prepayment of the Loan shall be in an amount not less than $1,000.
Any such prepayment shall be: (a) permanent and irrevocable; (b) accompanied by
all accrued interest through the date of such prepayment; (c) made without
premium or penalty; and (d) applied on the inverse order of the maturity of the
installment thereof unless the Lender and the Borrower agree to apply such
prepayments in some other order.
SECTION 2.6 METHOD OF PAYMENTS.
(a) All payments of principal, interest, other charges (including
indemnities) and other amounts payable by the Borrower hereunder shall be made
in lawful money of the United States, in immediately available funds, to the
Lender at the address specified in or pursuant to this Loan Agreement for
notices to the Lender, on the date on which such payment shall become due. Any
such payment made on such date but after such time shall, if the amount paid
bears interest, and except as expressly provided to the contrary herein, be
deemed to have been made on, and interest shall continue to accrue and be
payable thereon until, the next succeeding Business Day. If any payment of
principal or interest becomes due on a day other than a Business Day, such
payment may be made on the next succeeding Business Day, and when paid, such
payment shall include interest to the day on which payment is in fact made.
(b) Notwithstanding anything to the contrary contained in this Loan
Agreement or the Promissory Note, the Borrower shall not be obligated to make
any payment, repayment or prepayment on the Promissory Note if doing so would
cause the ESOP to cease to be an employee stock ownership plan within the
meaning of section 4975(e)(7) of the Code or qualified under section 401(a) of
the Code or cause the Borrower to cease to be a tax exempt trust under section
501(a) of the Code or if such act or failure to act would cause the Borrower to
engage in any "prohibited transaction" as such term is defined in the section
4975(c) of the Code and the regulations promulgated thereunder which is not
exempted by section 4975(c)(2) or (d) of the Code and the regulations
promulgated thereunder or in section 406 of ERISA and the regulations
promulgated thereunder which is not exempted by section 408(b) of ERISA and the
regulations promulgated thereunder; provided, however, that in each case, the
Borrower, may act or refrain from acting pursuant to this section 2.6(b) on the
basis of an opinion of counsel, and any opinion of such counsel. The Borrower
may consult with counsel, and any opinion of such counsel shall be full and
complete authorization and protection in respect of any action taken or suffered
or omitted by it hereunder in good faith and in accordance with such opinion of
counsel. Nothing contained in this section 2.6(b) shall be construed as imposing
a duty on the Borrower to consult with counsel. Any obligation of the Borrower
to make any payment, repayment or prepayment on the Promissory Note or refrain
from taking any other act hereunder or under the Promissory Note which is
excused pursuant to this section 2.6(b) shall be considered a binding obligation
of the Borrower, or both, as the case may be, for the purposes of determined
whether a Default or Event of Default has occurred hereunder or
4
<PAGE>
under the Promissory Note and nothing in this section 2.6(b) shall be construed
as providing a defense to any remedies otherwise available upon a Default or an
Event of Default hereunder (other than the remedy of specific performance).
SECTION 2.7 USE OF PROCEEDS OF LOAN.
The entire proceeds of the Loan shall be used solely for acquiring
shares of Common Stock, and for no other purpose whatsoever.
SECTION 2.8 SECURITY.
(a) In order to secure the due payment and performance by the Borrower
of all of its obligations under this Loan Agreement, simultaneously with the
execution and delivery of this Loan Agreement by the Borrower, the Borrower
shall:
(i) pledge to the Lender as Collateral (as defined in the
Pledge Agreement), and grant to the Lender a first priority lien on and
security interest in, the Common Stock purchased with the Principal
Amount, by the execution and delivery to the lender of the Pledge
Agreement attached hereto as an exhibit; and
(ii) execute and deliver, or cause to be executed and
delivered, such other agreement, instruments and documents as the
Lender may reasonable require in order to effect the purposes of the
Pledge Agreement and this Loan Agreement.
(b) The Lender shall release from encumbrance under the Pledge
Agreement and transfer to the Borrower, as of the date on which any payment or
repayment of the Principal Amount is made, a number of shares of Common Stock
held as Collateral determined pursuant to the applicable provisions of the ESOP.
SECTION 2.9 REGISTRATION OF THE PROMISSORY NOTE.
(a) The Lender shall maintain a Register providing for the
registration of the Principal Amount and any stated interest and of transfer and
exchange of the Promissory Note. Transfer of the Promissory Note may be effected
only by the surrender of the old instrument and either the reissuance by the
Borrower of the old instrument to the new holder or the issuance by the Borrower
of a new instrument to the new holder. The old Promissory Note so surrendered
shall be canceled by the Lender and returned to the Borrower after such
cancellation.
(b) Any new Promissory Note issued pursuant to section 2.9(a) shall
carry the same rights to interest (unpaid and to accrue) carried by the
Promissory Note so transferred or exchanged so that there will not be any loss
or gain of interest on the note surrender. Such new Promissory Note shall be
subject to all of the provisions and entitled to all of the benefits of this
Agreement. Prior to due presentment for registration or transfer, the Borrower
may deem and treat the registered holder of any Promissory Note as the holder
thereof for purposes of payment and other purposes. A notation
5
<PAGE>
shall be made on each new Promissory Note of the amount of all payments of
principal and interest theretofore paid.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
The Borrower hereby represents and warrants to the Lender as follows:
SECTION 3.1 POWER, AUTHORITY, CONSENTS.
The Borrower has the power to execute, deliver and perform this Loan
Agreement, the Promissory Note and Pledge Agreements, all of which have been
duly authorized by all necessary and proper corporate or other action.
SECTION 3.2 DUE EXECUTION, VALIDITY, ENFORCEABILITY.
Each of the Loan Documents, including, without limitation, this Loan
Agreement, the Promissory Note and the Pledge Agreement, have been duly executed
and delivered by the Borrower; and each constitutes the valid and legally
binding obligation of the Borrower, enforceable in accordance with its terms.
SECTION 3.3 PROPERTIES, PRIORITY OF LIENS.
The liens which have been created and granted by the Pledge Agreement
constitute valid, first liens on the properties and assets covered by the Pledge
Agreement, subject to no prior or equal lien.
SECTION 3.4 NO DEFAULTS, COMPLIANCE WITH LAWS.
The Borrower is not in default in any material respect under any
agreement, ordinance, resolution, decree, bond, note, indenture, order or
judgement to which it is an party or by which it is bound, or any other
agreement or other instrument by which any of the properties or assets owned by
it is materially affected.
SECTION 3.5 PURCHASE OF COMMON STOCK.
Upon consummation of any purchase of Common Stock by the Borrower with
the proceeds of the Loan, the Borrower shall acquire valid, legal and marketable
title to all of the Common Stock so purchased, free and clear of any liens,
other than a pledge to the Lender of the Common Stock so purchased pursuant to
the Pledge Agreement. Neither the execution and delivery of the Loan Documents
nor the performance of any obligation thereunder violates any provisions of law
or conflicts with or results in a breach of or creates (with or without the
giving of notice of lapse of
6
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time, or both) a default under any agreement to which the Borrower is a party or
by which it is bound or any of its properties is affected. No consent of any
federal, state, or local governmental authority, agency, or other regulatory
body, the absence of which could have a materially adverse effect on the
Borrower or the Trustee, is or was required to be obtained in connection with
the execution, delivery, or performance of the Loan Documents and the
transaction contemplated therein or in connection therewith, including without
limitation, with respect to the transfer of the shares of Common Stock purchased
with the proceeds of the Loan pursuant thereto.
SECTION 3.6 ESOP; CONTRIBUTIONS.
As of the effective date of the ESOP sponsor's mutual-to-stock
conversion, the ESOP and the Borrower will be duly created, organized and
maintained by the ESOP sponsor in compliance with all applicable laws,
regulations and rulings. The ESOP will qualify as an "employee stock ownership
plan" as defined in section 4975(e)(7) of the Code. The ESOP provides that the
ESOP sponsor may make contributions to the ESOP in an amount necessary to enable
the Trustee to amortize the Loan in accordance with the terms of the Promissory
Note; provided, however, that no such contributions shall be required if they
would adversely affect the qualification of the ESOP under section 401(a) of the
Code.
SECTION 3.7 TRUSTEE.
The trustees of the ESOP have been duly appointed by the ESOP sponsor.
SECTION 3.8 COMPLIANCE WITH LAWS; ACTIONS.
Neither the execution and delivery by the Borrower of this Loan
Agreement or any instruments required thereby, nor compliance with the terms and
provisions of any such documents by the lender, constitutes a violation of any
provision of any law or any regulation, order, writ, injunction or decree or any
court or governmental instrumentality, or an event of default under any
agreement, to which the Borrower is a party of which the Borrower is bound or to
which the Borrower is subject, which violation or event of default would have a
material adverse effect on the Borrower. There is no action or proceeding
pending or threatened against either the ESOP or the Borrower before any court
or administrative agency.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE LENDER
The Lender hereby represents and warrants to the Borrower as follows:
SECTION 4.1 POWER, AUTHORITY, CONSENTS.
The Lender has the power to execute, deliver and perform this Loan
Agreement, the Pledge Agreement and all documents executed by the Lender in
connection with the Loan, all of which have been duly authorized by all
necessary and proper corporate or other action. No consent, authorization or
approval or other action by any governmental authority or regulatory body, and
no notice by the Lender to, or filing by the Lender with any governmental
authority or regulatory body is required for the due execution, delivery and
performance of this Loan Agreement.
SECTION 4.2 DUE EXECUTION, VALIDITY, ENFORCEABILITY.
This Loan Agreement and the Pledge Agreement have been duly executed
and delivered by the Lender, and each constitutes a valid and legally binding
obligation of the Lender, enforceable in accordance with its terms.
ARTICLE V
EVENTS OF DEFAULT
SECTION 5.1 EVENTS OF DEFAULT UNDER LOAN AGREEMENT.
Each of the following events shall constitute an "Event of Default"
hereunder:
(a) Failure to make any payment or mandatory prepayment of principal
of the Promissory Note when due, or failure to make any payment of interest on
the Promissory Note not later than five (5) Business Days after the date when
due.
(b) Failure by the Borrower to perform or observe any term, condition
or covenant of this Loan Agreement or of any of the other Loan Documents,
including without limitation, the Promissory Note and the Pledge Agreement.
(c) Any representation or warranty made in writing to the Lender in
any of the Loan Documents, or any certificate, statement or report made or
delivered in compliance with this Loan Agreement, shall have been false or
misleading in any material respect when made or delivered.
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SECTION 5.2 LENDER'S RIGHTS UPON EVENT OF DEFAULT.
If an Event of Default under this Loan Agreement shall occur and be
continuing, the Lender shall have no rights to assets of the Borrower other
than: (a) contributions (other than contributions of Common Stock) that are made
by the ESOP sponsor to enable the Borrower to meet its obligations pursuant to
this Loan Agreement and earnings attributable to the investment of such
contributions and (b) "Eligible Collateral" (as defined in the Pledge
Agreement); provided, however, that; (i) the value of the Borrower's assets
transferred to the Lender following an Event of Default in satisfaction of the
due and unpaid amount of the Loan shall not exceed the amount in default
(without regard to amounts owing solely as a result of any acceleration of the
Loan); (ii) the Borrower's assets shall be transferred to the Lender following
an Event of Default only to the extent of the failure of the Borrower to meet
the payment schedule of the Loan; and (iii) all rights of the Lender to the
Common Stock purchased with the proceeds of the Loan covered by the Pledge
Agreement following an Event of Default shall be governed by the terms of the
Pledge Agreement.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1 PAYMENTS DUE TO THE LENDER.
If any amount is payable by the Borrower to the Lender pursuant to any
indemnity obligation contained herein, then the Borrower shall pay, at the time
or times provided therefor, any such amount and shall indemnify the Lender
against and hold it harmless from any loss of damage resulting from or arising
out of the nonpayment or delay in payment of any such amount. If any amounts as
to which the Borrower has so indemnified the Lender hereunder shall be assessed
or levied against the Lender, the Lender may notify the Borrower and make
immediate payment thereof, together with interest or penalties in connection
therewith, and shall thereupon be entitled to and shall receive immediate
reimbursement therefor from the Borrower together with interest on each such
amount as provided in section 2.2(c). Notwithstanding any other provision
contained in this Loan Agreement, the covenants and agreements of the Borrower
contained in this section 6.1 shall survive: (a) payment of the Promissory Note
and (b) termination of this Loan Agreement.
SECTION 6.2 PAYMENTS.
All payments hereunder and under the Promissory Note shall be made
without set-off or counterclaim and in such amounts as may be necessary in order
that all such payments shall not be less than the amounts otherwise specified to
be paid under this Loan Agreement and the Promissory Note, subject to any
applicable tax withholding requirements. Upon payment in full of the Promissory
Note, the Lender shall mark such Promissory Note "Paid" and return it to the
Borrower.
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<PAGE>
SECTION 6.3 SURVIVAL.
All agreements, representations and warranties made herein shall
survive the delivery of this Loan Agreement and the Promissory Note.
SECTION 6.4 MODIFICATIONS, CONSENTS AND WAIVERS; ENTIRE AGREEMENT.
No modification, amendment or waiver of or with respect to any
provision of this Loan Agreement, the Promissory Note, the Pledge Agreement, or
any of the other Loan Documents, nor consent to any departure from any of the
terms or conditions thereof, shall in any event be effective unless it shall be
in writing and signed by the party against whom enforcement thereof is sought.
Any such waiver or consent shall be effective only in the specific instance and
for the purpose for which given. No consent to or demand on a party in any case
shall, of itself, entitle it to any other or further notice or demand in similar
or other circumstances. This Loan Agreement embodies the entire agreement and
understanding between the Lender and the Borrower and supersedes all prior
agreements and understandings relating to the subject matter hereof.
SECTION 6.5 REMEDIES CUMULATIVE.
Each and every right granted to the Lender hereunder or under any other
document delivered hereunder or in connection herewith, or allowed it by law or
equity, shall be cumulative and may be exercised from time to time. No failure
on the part of the Lender or the holder of the Promissory Note to exercise, and
no delay in exercising, any right shall operate as a waiver thereof, nor shall
any single or partial exercise of any right preclude any other or future
exercise thereof or the exercise of any other right. The due payment and
performance of the obligations under the Loan Documents shall be without regard
to any counterclaim, right of offset or any other claim whatsoever which the
Borrower may have against the Lender and without regard to any other obligation
of any nature whatsoever which the Lender may have to the Borrower, and no such
counterclaim or offset shall be asserted by the Borrower in any action, suit or
proceeding instituted by the Lender for payment or performance of such
obligations.
SECTION 6.6 FURTHER ASSURANCES; COMPLIANCE WITH COVENANTS.
At any time and from time to time, upon the request of the Lender, the
Borrower shall execute, deliver and acknowledge or cause to be executed,
delivered and acknowledged, such further documents and instruments and do such
other acts and things as the Lender may reasonably request in order to fully
effect the terms of this Loan Agreement, the Promissory Note, the Pledge
Agreement, the other Loan Documents and any other agreements, instruments and
documents delivered pursuant hereto or in connection with the Loan.
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<PAGE>
SECTION 6.7 NOTICES.
Except as otherwise specifically provided for herein, all notice,
requests, reports and other communications pursuant to this Loan Agreement shall
be in writing, either by letter (delivered by hand or commercial messenger
service or sent by registered or certified mail, return receipt requested,
except for routine reports delivered in compliance with Article VI hereof which
may be sent by ordinary first-class mail) or telex or telecopier addressed as
follows:
(a) If to the Borrower:
________________________, Trustee
First Federal Bank Employee Stock Ownership Plan
(b) If to the Lender:
First Federal Bancshares, Inc.
2001 Maine Street
Quincy, Illinois 62301
Any notice, request or communication hereunder shall be deemed to have been
given on the day on which it is delivered by hand or by commercial messenger
service, or sent by telex or telecopier, to such party at its address specified
above, or, if sent by mail, on the third Business Day after the day deposited in
the mail, postage prepaid, addressed as aforesaid. Any party may change the
person or address to whom or which notices are to be given hereunder, by notice
duly given hereunder; provided, however, that any such notice shall be deemed to
have been given only when actually received by the party to whom it is
addressed.
SECTION 7.1 COUNTERPARTS.
This Loan Agreement may be signed in any number of counterparts which,
when taken together, shall constitute one and the same document.
SECTION 7.2 CONSTRUCTION; GOVERNING LAW.
The headings used in the table of contents and in this Loan Agreement
are for convenience only and shall not be deemed to constitute a part hereof.
All uses herein of any gender or of singular or plural terms shall be deemed to
include uses of the other genders or plural or singular terms, as the context
may require. All references in this Loan Agreement of an Article or section
shall be to an Article or section of this Loan Agreement, unless otherwise
specified. This Loan Agreement, the Promissory Note, the Pledge Agreement and
the other Loan Documents shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Illinois.
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<PAGE>
SECTION 7.3 SEVERABILITY.
Wherever possible, each provision of this Loan Agreement shall be
interpreted in such manner as to be effective and valid under applicable law;
however, the provisions of this Loan Agreement are severable, and if any clause
of provision hereof shall be held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part thereof, in such jurisdiction and shall not in
any manner affect such clause or provision in any other jurisdiction, or any
other clause or provisions in this Loan Agreement in and jurisdiction. Each of
the covenants, agreements and conditions contained in this Loan Agreement
independent, and compliance by a party with any of them shall not excuse
non-compliance by such party with any other. The Borrower shall not take any
action the effect of which shall constitute a breach or violation of any
provision of this Loan Agreement.
SECTION 7.4 BINDING EFFECT: NO ASSIGNMENT OR DELEGATION.
This Loan Agreement shall be binding upon and inure to the benefit of
the Borrower and its successors and the Lender and its successors and assigns.
The rights and obligations of the Borrower under this Agreement shall not be
assigned or delegated without the prior written consent of the Lender, and any
purported assignment or delegation without such consent shall be void.
IN WITNESS WHEREOF, the parties have caused this Loan Agreement to be
executed as of the date first written above.
FIRST FEDERAL BANK
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
, as TRUSTEE
-----------------------
FIRST FEDERAL BANCSHARES, INC.
By:
---------------------------------
James J. Stebor
For the Entire Board of Directors
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PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT ("Pledge Agreement") is made as of the ___ day of
_________, 2000, by and between FIRST FEDERAL BANK EMPLOYEE STOCK OWNERSHIP PLAN
TRUST ("Pledgor"), and FIRST FEDERAL BANCSHARES, INC., a corporation organized
and existing under the laws of the State of Delaware ("Pledgee").
W I T N E S S E T H
WHEREAS, this Pledge Agreement is being executed and delivered to the
Pledgee pursuant to the terms of a Loan Agreement ("Loan Agreement"), by and
between the Pledgor and the Pledgee;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and in the Loan Agreement, the parties hereto do hereby covenant and
agree as follows:
SECTION 1. DEFINITIONS. The following definitions shall apply for
purposes of this Pledge Agreement, except to the extent that a different meaning
is plainly indicated by the context; all capitalized terms used but not defined
herein shall have the respective meanings assigned to them in the Loan
Agreement:
COLLATERAL shall mean the Pledged Shares and, subject to section 5
hereof, and to the extent permitted by applicable law, all rights with respect
thereto, and all proceeds of such Pledged Shares and rights.
ESOP shall mean First Federal Bank Employee Stock Ownership Plan.
EVENT OF DEFAULT shall mean an event so defined in the Loan Agreement.
LIABILITIES shall mean all the obligations of the Pledgor to the
Pledgee, howsoever created, arising or evidenced, whether direct or indirect,
absolute or contingent, now or hereafter existing, or due or to become due,
under the Loan Agreement and the Promissory Note.
PLEDGED SHARES shall mean all the Shares of Common Stock of the Pledgee
purchased by the Pledgor with the proceeds of the loan made by the Pledgee to
the Pledgor pursuant to the Loan Agreement, but excluding any such shares
previously released pursuant to section 4.
SECTION 2. PLEDGE. To secure the payment of and performance of all the
Liabilities, the Pledgor hereby pledges to the Pledgee, and the grants to the
Pledgee, a security interest in, and lien upon, the Collateral.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE PLEDGOR. The Pledgor
represents, warrants, and covenants to the Pledgee as follows:
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(a) the execution, delivery and performance of this Pledge Agreement
and the pledging of the Collateral hereunder do not and will not conflict with,
result in a violation of, or constitute a default under, any agreement binding
upon the Pledgor;
(b) the Pledged Shares are and will continue to be owned by the Pledgor
free and clear of any liens or rights of any other person except the lien
hereunder and under the Loan Agreement in favor of the Pledgee, and the security
interest of the Pledgee in the Pledged Shares and the proceeds thereof is and
will continue to be prior to and senior to the rights of all others;
(c) this Pledge Agreement is the legal, valid, binding and enforceable
obligation of the Pledgor in accordance with its terms;
(d) the Pledgor shall, from time to time, upon request of the Pledgee,
promptly deliver to the Pledgee such stock powers, proxies, and similar
documents, satisfactory in form and substance to the Pledgee, with respect to
the Collateral as the Pledgee may reasonable request; and
(e) subject to the first sentence of section 4(b), the Pledgor shall
not, so long as any Liabilities are outstanding, sell, assign, exchange, pledge
or otherwise transfer or encumber any of its rights in and to any of the
Collateral.
SECTION 4. ELIGIBLE COLLATERAL.
(a) As used herein the term "Eligible Collateral" shall mean the amount
of Collateral which has an aggregate fair market value equal to the amount by
which the Pledgor is in default (without regard to any amounts owing solely as
the result of an acceleration of the Loan Agreement) or such lesser amount of
Collateral as may be required pursuant to section 13 of this Pledge Agreement.
(b) The Pledged Shares shall be released from this Pledge Agreement in
a manner conforming to the requirements of Treasury Regulations Section
54.4975-7(b)(8), as the same may be from time to time amended or supplemented,
and the applicable provisions of the ESOP. Subject to such Regulations, the
Pledgee may from time to time, after any Default or Event of Default, and
without prior notice to the Pledgor, transfer all or any part of the Eligible
Collateral in the name of the Pledgee or its nominee, without disclosing that
such Eligible Collateral is subject to any rights of the Pledgor and may from
time to time, whether before or after any of the Liabilities shall become due
and payable, without notice to the Pledgor, take all or any of the following
actions: (i) notify the parties obligated on any of the Eligible Collateral to
make payment to the Pledgee of any amounts due or due to become due thereunder,
(ii) release or exchange all or any part of the Eligible Collateral, or
compromise or extend or renew for any period (whether or not longer than the
original period) any obligations of any nature of any party with respect
thereto, and (iii) take control of any proceeds of the Eligible Collateral.
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SECTION 5. DELIVERY.
(a) The Pledgor shall deliver to the Pledgee upon execution of this
Pledge Agreement (i) either (A) certificates for the Pledged Shares, each
certificate duly signed in blank by the Pledgor or accompanied by a stock
transfer power duly signed in blank by the Pledgor and each such certificate
accompanied by all required documentary or stock transfer tax stamps or (B) if
the Trustee does not yet have possession of the Pledged Shares, an assignment by
the Pledgor of all the Pledgor's rights to and interest in the Pledged Shares
and (ii) an irrevocable proxy, in form and substance satisfactory to the
Pledgee, signed by the Pledgor with respect to the Pledged Shares.
(b) So long as no Default or Event of Default shall have occurred and
be continuing, (i) the Pledgor shall be entitled to exercise any and all voting
and other rights pertaining to the Collateral or any part thereof for any
purpose not inconsistent with the terms of this Pledge Agreement, and (ii) the
Pledgor shall be entitled to receive any and all cash dividends or other
distributions paid in respect of the Collateral.
SECTION 6. EVENTS OF DEFAULT.
(a) If a Default or Event Default shall be existing, in addition to the
rights it may have under the Loan Agreement, the Promissory Note, and this
Pledge Agreement, or by virtue of any other instrument, (i) the Pledgee may
exercise, with respect to the Eligible Collateral, from time to time, any rights
and remedies available to it under the Uniform Commercial Code as in effect from
time to time in the State of Delaware or otherwise available to it and (ii) the
Pledgee shall have the right, for and in the name, place and stead of the
Pledgor, to execute endorsement, assignments, stock powers and other instruments
of conveyance or transfer with respect to all or any of the Eligible Collateral.
Written notification of intended disposition of any of the Eligible Collateral
shall be given by the Pledgee to the Pledgor at least three (3) Business Days
before such disposition. Subject to section 13 below, any proceeds of any
disposition of Eligible Collateral may be applied by the Pledgee to the payment
of expenses in connection with the Eligible Collateral, including, without
limitation, reasonable attorneys's fees and legal expenses, and any balance of
such proceeds may be applied by the Pledgee toward the payment of such of the
Liabilities as are in Default, and in such order of application, as the Pledgee
may from time to time elect. No action of the Pledgee permitted hereunder shall
impair or affect its rights in and to the Eligible Collateral. All rights and
remedies of the Pledgee expressed hereunder are in addition to all other rights
and remedies possessed by it, including, without limitation, those contained in
the documents referred to in the definition of Liability in section 1 hereof.
(b) In any sale of any of the Eligible Collateral after a Default or an
Event of Default shall have occurred, the Pledgee is hereby authorized to comply
with any limitation or restriction in connection with such sale as it may be
advised by counsel is necessary in order to avoid violation of applicable law
(including, without limitation, compliance with such procedures as may restrict
the number of prospective bidders and purchasers or further restrict such
prospective bidders or purchasers to persons who will represent and agree that
they are purchasing for their own account
3
<PAGE>
for investment and not with a view to the distribution or resale of such
Eligible Collateral), or in order to obtain such required approval of the sale
or of the purchase by any governmental regulatory authority or official, and the
Pledgor further agrees that such compliance shall not result in such sale's
being considered or deemed not to have been made in a commercially reasonable
manner, nor shall the Pledgee be liable or accountable to the Pledgor for any
discount allowed by reason of the fact that such Eligible Collateral is sold in
compliance with any such limitation or restriction.
SECTION 7. PAYMENT IN FULL. Upon the payment in full of all outstanding
Liabilities, this Pledge Agreement shall terminate and the Pledgee shall
forthwith assign, transfer and deliver to the Pledgor, against receipt and
without recourse to the Pledgee, all Collateral then held by the Pledgee
pursuant to the Pledge Agreement.
SECTION 8. NO WAIVER. No failure or delay in the part of the Pledgee in
exercising any right or remedy hereunder or under any other document which
confers or grants any rights in the Pledgee in respect of the Liabilities shall
operate as a waiver thereof nor shall any single or partial exercise of any such
rights or remedy preclude any other or further exercise thereof or the exercise
of any other right or remedy of the Pledgee.
SECTION 9. BINDING EFFECT; NO ASSIGNMENT OR DELEGATION. This Pledge
Agreement shall be binding upon and inure to the benefit of the Pledgor, the
Pledgee and their respective successors and assigns, except that the Pledgor may
not assign or transfer it rights hereunder without the prior written consent of
the Pledgee (which consent shall not unreasonably be withheld). Each duty or
obligation of the Pledgor to the Pledgee pursuant to the provisions of this
Pledge Agreement shall be performed in favor of any person or entity designated
by the Pledgee, and any duty or obligation of the Pledgee to the Pledgor may be
performed by any other person or entity designated by the Pledgee.
SECTION 10. GOVERNING LAW. This Pledge Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware applicable to
agreements to be performed wholly within the State of Delaware.
SECTION 11. NOTICES. All notices, requests, instructions or documents
hereunder shall be in writing and delivered personally or sent by United States
mail, registered or certified, return receipt requested, with proper postage
prepaid as follows:
(a) If to the Pledgee:
First Federal Bancshares, Inc.
2001 Maine Street
Quincy, IL 62301
Attn: ______________
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(b) If to the Pledgor:
First Federal Bank Employee Stock Ownership Plan
c/o ____________, as trustee
or at such other address as either of the parties may designate by written
notice to the other party. If delivered personally, the date on which a notice,
request, instruction or document is delivered shall be the date on which such
delivery is made, and, if deliver by mail, the sate on which such notice,
request, instruction, or document is deposited in the mail shall be the date of
delivery. Each notice, request, instruction or document shall bear the date on
which it is delivered.
SECTION 12. INTERPRETATION. Wherever possible each provision of this
Pledge Agreements shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision herein shall be prohibited by
or invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, with out invalidating the remainder of such
provision or the remaining provisions hereof.
SECTION 13. CONSTRUCTION. All provisions hereof shall be construed so
as to maintain (a) the ESOP as a qualified leveraged employee stock ownership
plan under section 401(a) and 4975(e)(7) of the Internal Revenue Code of 1986
(the "Code"), (b) the Trust as exempt from taxation under section 501(a) of the
Code and (c) the Trust Loan as an exempt loan under section 54.4975-7(b) of the
Treasury Regulations and as described in Department of Labor Regulation section
2550.408b-3.
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IN WITNESS WHEREOF, this Pledge Agreement has been duly executed by the
parties hereto as of the day and year first above written.
FIRST FEDERAL BANK
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
------------------------------------------
Duly authorized officer of ___________, as
Trustee
FIRST FEDERAL BANCSHARES, INC.
By:
---------------------------------------
For the Entire Board of Directors
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PROMISSORY NOTE
, 2000
------------
FOR VALUE RECEIVED, the undersigned, FIRST FEDERAL BANK EMPLOYEE STOCK
OWNERSHIP PLAN TRUST ("Borrower"), hereby promises to pay to the order of FIRST
FEDERAL BANCSHARES, INC. ("Lender") an amount sufficient to purchase __________
shares of First Federal Bancshares, Inc. common stock payable in accordance with
the Loan Agreement made and entered into between the Borrower and the Lender of
even date herewith ("Loan Agreement") pursuant to which this Promissory Note is
issued.
The Principal Amount of this Promissory Note shall be payable in
accordance with the schedule attached hereto ("Schedule I").
This Promissory Note shall bear interest at the rate per annum set for
or established under the Loan Agreement, such interest to be payable in
accordance with Schedule I.
Anything herein to the contrary notwithstanding, the obligation of the
Borrower to make payments of interest shall be subject to the limitation that
payments of interest shall not be required to be made to the Lender to the
extent that the Lender's receipt thereof would not be permissible under the law
or laws applicable to the Lender limiting rates on interest which may be charged
or collected by the Lender. Any such payments on interest which are not made as
a result of the limitation referred to in the preceding sentence shall be made
by the Borrower to the Lender on the earliest interest payment date or dates on
which the receipt thereof would be permissible under the laws applicable to the
Lender limiting rates of interest which may be charged or collected by the
Lender. Such deferred interest shall not bear interest.
Payments of both principal and interest on this Promissory Note are to
be made at the principal office of the Lender or such other place as the holder
hereof shall designate to the Borrower in writing, in lawful money of the United
States of America in immediately available funds.
Failure to make any payments of principal on this Promissory Note when
due, or failure to make any payment of interest on this Promissory Note not
later than five (5) Business Days after the date when due, shall constitute a
default hereunder, whereupon the principal amount of accrued interest on this
Promissory Note shall immediately become due and payable in accordance with the
terms of the Loan Agreement.
<PAGE>
This Promissory Note is secured by a Pledge Agreement between the
Borrower and the Lender of even date herewith and is entitled to the benefits
thereof.
FIRST FEDERAL BANK
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
--------------------------------------------
Duly authorized officer of _____________, as
Trustee
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Exhibit 10.2
FORM OF
FIRST FEDERAL BANK
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement"), is entered into and made effective as of
[DATE] by and between First Federal Bank (the "Bank"), a federally chartered
savings institution, with its principal administrative offices at 109 East Depot
Street, Colchester, Illinois 62326, First Federal Bancshares, Inc., a
corporation organized under the laws of the state of Delaware, the Holding
Company of the Bank (the "Holding Company") and [NAME] ("Executive").
WHEREAS, the Bank wishes to assure itself of the services of Executive
for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Bank and
its subsidiaries on a full-time basis for the term of this Agreement.
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 Executive's employment hereunder, Executive agrees
to serve as [TITLE] of the Bank. Executive shall render administrative and
management services to the Bank such as are customarily performed by persons in
a similar executive capacity. During the term of this Agreement, Executive also
agrees to serve as a director of the Bank.
2. TERMS.
(a) The period of Executive's employment under this Agreement
shall be deemed to have commenced as of the date first written above and shall
continue for a period of thirty-six (36) full calendar months from the effective
date of this Agreement. Commencing on the first anniversary date of this
Agreement, and continuing on each anniversary thereafter, the disinterested
members of the board of directors of the Bank ("Board") may extend the Agreement
an additional year such that the remaining term of the Agreement shall be three
(3) years, unless Executive elects not to extend the term of this Agreement by
giving written notice in accordance with Section 8 of this Agreement. The Board
will review the Agreement and Executive's performance annually for purposes of
determining whether to extend the Agreement and the rationale and results
thereof shall be included in the minutes of the Board's meeting. The Board shall
give notice to the Executive as soon as possible after such review as to whether
the Agreement is to be extended.
(b) During the period of Executive's employment hereunder, except
for periods of absence occasioned by illness, vacation periods, and other
reasonable leaves of absence, Executive shall devote substantially all of his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder, including activities and services related to the organization,
operation and management of the Bank and participation in industry, community
and civic organizations; PROVIDED, HOWEVER, that, with the approval of the
Board, as evidenced by a resolution
<PAGE>
of the Board, from time to time, Executive may serve, or continue to serve, on
the boards of directors of, and hold any other offices or positions in,
companies or organizations, which, in the Board's judgment, will not present any
conflict of interest with the Bank, or materially affect the performance of
Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything in this Agreement to the contrary,
either Executive or the Bank may terminate Executive's employment with the Bank
at any time during the term of this Agreement, subject to the terms and
conditions of this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall
constitute consideration paid by the Bank in exchange for the duties described
in Section 1 of this Agreement. The Bank shall pay Executive, as compensation, a
salary of not less than $[AMOUNT] ("Base Salary"). Base Salary shall include any
amounts of compensation deferred by Executive under any tax-qualified retirement
or welfare benefit plan or any other deferred compensation arrangement
maintained by the Bank. Base Salary shall be payable in accordance with the
normal payroll practices of the Bank. During the period of this Agreement,
Executive's Base Salary shall be reviewed at least annually; on or about [DATE]
each year. Such review shall be conducted by the Board or by a committee of the
Board delegated such responsibility by the Board. The committee or the Board may
increase Executive's Base Salary at any time. Any increase in Base Salary shall
thereafter become the new "Base Salary" for purposes of this Agreement.
(b) Executive shall be entitled to participate in any 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 (or any plans, arrangements or perquisites with
respect to which Executive begins to participate at any time during the term of
this Agreement) which would adversely affect Executive's rights or benefits
thereunder, without separately providing for an arrangement that ensures
Executive receives or will receive the economic value that Executive would
otherwise lose as a result of such adverse affect, unless such change is general
in nature and applies in a nondiscriminatory manner to all employees covered by
the plan, arrangement or perquisite. Without limiting the generality of the
foregoing provisions of this Subsection (b), Executive shall be entitled to
participate in and receive benefits under any employee benefit plans including,
but not limited to, retirement plans (such as pension, profit sharing and
employee stock ownership plans), supplemental retirement plans, incentive plans,
health and welfare plans and any other employee benefit plan or arrangement made
available by the Bank now or in the future to full-time employees of the Bank
and/or senior executives and key management employees of the Bank, subject to
and on a basis consistent with the terms, conditions and overall administration
of such plans and arrangements. Nothing paid to Executive under any such plans
or arrangements will be deemed to be in lieu of other compensation and benefits
to which Executive is entitled under this Agreement.
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(c) The Bank shall pay or reimburse Executive for all reasonable
expenses incurred by Executive in performing his obligations under this
Agreement.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein
defined) during Executive's term of employment under this Agreement, the
provisions of this Section 4 shall apply. 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 Holding Company of Executive's full-time
employment hereunder for any reason other than termination governed by Section
5(a) of this Agreement, or Termination for Cause, as defined in Section 7 of
this Agreement, or Retirement or Disability, as defined in paragraph (f) of this
Section 4 or; (ii) Executive's resignation from the Bank's employ, upon, any (A)
failure to re-elect or re-appoint Executive as [TITLE] of the Bank or a failure
to nominate or re-elect Executive to the Board of Directors of the Bank, unless
consented to by the Executive, (B) material change in Executive's function,
duties, or responsibilities with the Bank, 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 of this Agreement (and
any such material change shall be deemed as continuing breach of this
Agreement), unless consented to by Executive, (C) relocation of Executive's
principal place of employment by more than 25 miles from its location at the
effective date of this Agreement, unless consented to by Executive, (D) material
reduction in the benefits, arrangements or perquisites to Executive which is not
general in nature and applicable on a nondiscriminatory basis to all employees
covered by such benefits, arrangements, or perquisites or, pursuant to Section
3(b) of this Agreement, to which Executive does not consent or for which
Executive is not or will not be provided the economic benefit, (E) liquidation
or dissolution of the Bank or the Holding Company, or (F) breach of this
Agreement by the Bank. Upon the occurrence of any event described in clauses
(A), (B), (C), (D), (E), or (F), above, Executive shall have the right to elect
to terminate employment under this Agreement by resignation upon not less than
sixty (60) days prior written notice given within six full calendar months after
the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8 of this Agreement, the Bank shall be
obligated to pay Executive, or, in the event of Executive's subsequent death,
his beneficiary or beneficiaries, or his estate, as the case may be, the amount
of the remaining payments and benefits that Executive would have earned if he
had continued his employment with the Bank during the remaining unexpired term
of this Agreement, based on Executive's Base Salary and the benefits provided to
Executive as of the date of the Event of Termination, as set forth in Sections
3(a) and (b) of this Agreement, as the case may be, and the amount still due
Executive under any paragraph of Section 3 for service rendered through the Date
of Termination. Except as provided below and in paragraph (c) of this Section 4,
the determination of Executive's benefits as of the date of the Event of
Termination shall be made based on (i) the value of the allocation attributable
to employer contributions for the most recent plan year under any defined
contribution type plan; (ii) the percentage of salary of any incentive or bonus
payment for the most recently-completed fiscal year; and (iii) the
employer-provided cost of any other benefit for the most recently-completed
fiscal year. In addition, for purposes of determining his vested accrued
benefit, Executive shall be credited either under the defined benefit pension
plan maintained
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by the Bank or, if not permitted under such plan, under a separate arrangement,
with the additional "years of service" that he would have earned for vesting and
benefit accrual purposes for the remaining term of the Agreement had his
employment not terminated. At the election of Executive, which election is to be
made within thirty (30) days of the Date of Termination, such payments shall be
made in a lump sum (without discount for early payment) or paid monthly during
the remaining term of the agreement following Executive's termination. In the
event that no election is made, payment to Executive will be made in a lump sum.
Such payments shall not be reduced in the event Executive obtains other
employment following termination of employment. Notwithstanding anything to the
contrary elsewhere in this Agreement to the extent the Executive is entitled to
continued coverage or benefit accrual under any retirement or welfare benefit
plan during the remaining unexpired term of this Agreement, the amount payable
under this Section 4(b) should be adjusted to the extent necessary to avoid any
duplication of such benefits.
(c) To the extent that the Bank continues to offer any life,
medical, health, disability or dental insurance plan or arrangement in which
Executive participates in on the last day of his employment (each being a
"Welfare Plan"), after an Event of Termination (as herein defined), Executive
and his dependents shall continue participating in such Welfare Plans, subject
to the same premium contributions on the part of Executive as were required
immediately prior to the Event of Termination until the earlier of (i) his death
(ii) his employment by another employer other than one of which he is the
majority owner or (iii) the end of the remaining term of this Agreement. If the
Bank does not offer the Welfare Plans (or if for any reason Executive's
participation in said plans is prohibited) after the Event of Termination, then
the Bank shall provide Executive with a payment equal to the actuarial value of
the provision of such benefit for the period which runs until the earlier of (i)
his death; (ii) his employment by another employer other than one of which he is
the majority owner; or (iii) the end of the remaining term of this Agreement.
(d) In the event that Executive is receiving monthly payments
pursuant to Section 4(b) of this Agreement, on an annual basis, thereafter,
between the dates of January 1 and January 31 of each year, Executive shall
elect whether the balance of the amount payable under the Agreement for that
year shall be paid in a lump sum or on a pro rata basis. Such election shall be
irrevocable for the year for which such election is made.
(e) Termination of Executive based on "Retirement" shall mean
termination by written notice to the Bank from Executive specifying an exact
retirement date or termination in accordance with any retirement arrangement
established with Executive's written consent with respect to him. Termination of
Executive based on Disability shall mean written notice to the Bank by Executive
specifying an exact date as of which he is unable to perform all of the duties
and responsibilities of his position. Upon termination of Executive upon
Disability, Executive shall be entitled to all benefits under any disability
plan of the Bank or any other plans which Executive is a party or a participant
in accordance with the terms of the plan or arrangement. Executive shall be
entitled to all compensation and benefits provided for in Section 3 of this
Agreement through the date of his termination of employment as specified in the
notice provided by him.
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5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Bank or Holding Company shall mean an event of a nature that: (i) would be
required to be reported in response to Item 1 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, as amended (the "Exchange Act"); or (ii)
results in a Change in Control of the Bank or the Holding Company within the
meaning of the Home Owners' Loan Act of 1933, as amended, the Federal Deposit
Insurance Act and the Rules and Regulations promulgated by the Office of Thrift
Supervision ("OTS") (or its predecessor agency), as in effect on the date hereof
(provided, that in applying the definition of change in control or presumptive
change in control or acting in concert or presumptive acting in concert as set
forth under the rules and regulations of the OTS, ownership by a person or a
group, including a presumptive group, of at least 15% of the voting stock of the
Bank or the Holding Company shall be required, and provided further that
ownership of stock by a tax-qualified employee benefit plan of the Bank or the
Holding Company shall not be subject to presumptions of control or acting in
concert); 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 voting securities of the Bank or the Holding Company representing
25% or more of the Bank's or the Holding Company's outstanding voting securities
or right to acquire such securities except for any voting securities of the Bank
purchased by the Holding Company and any voting securities purchased by any
employee benefit plan of the Bank or the Holding Company, or (B) individuals who
constitute the board of directors 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 members who were nominated by the Incumbent Board), or whose
nomination for election by the Holding Company's stockholders was approved by
the same Nominating Committee serving under an Incumbent Board (or members who
were nominated by the 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 Holding Company or similar transaction occurs in which
the Bank or Holding Company is not the resulting entity; provided, however, that
such an event listed above will be deemed to have occurred or to have been
effectuated upon the receipt of all required regulatory approvals not including
the lapse of any statutory waiting periods.
(b) If any of the events described in Section 5(a) of this
Agreement constituting a Change in Control have occurred, or the Board has
determined that a Change in Control has occurred, Executive shall be entitled to
the benefits provided in paragraphs (c), (d), (e), and (f) of this Section 5
upon his termination of employment on or after the date the Change in Control
occurs due to (i) Executive's dismissal at any time during the term of this
Agreement, (ii) Executive's resignation following any demotion, loss of title,
office or significant authority or responsibility, reduction in the annual
compensation or benefits or relocation of Executive's principal place of
employment by more than 25 miles from its location immediately prior to the
Change in Control, unless such termination is because of Executive's Termination
for Cause; PROVIDED, HOWEVER, Executive may
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consent in writing to any such demotion, loss, reduction or relocation. The
effect of any written consent of the Executive under this Section 5(b) shall be
strictly limited to the terms specified in such written consent. Under no
circumstances can a termination of employment during the term of this Agreement
on or after the date of a Change in Control occurs be considered a termination
on account of retirement or disability for purposes of determining Executive's
rights to the payment of benefits provided in paragraphs (c), (d), (e), and (f)
of this Section 5.
(c) Upon Executive's entitlement to payment pursuant to Section
5(b) of this Agreement, the Bank shall pay Executive, or in the event of
Executive's subsequent death, Executive's beneficiary or beneficiaries, or
estate, as the case may be, as severance pay or liquidated damages, or both, a
sum equal to three (3) times Executive's average annual compensation for the
five most recently completed taxable years of Executive. In the event the Bank
is not in compliance with its minimum capital requirements or if such payments
would cause the Bank's capital to be reduced below its minimum regulatory
capital requirements, such payments shall be deferred until such time as the
Bank or successor thereto is in capital compliance. For purposes of this Section
5(c), annual compensation shall include Base Salary and any other taxable income
paid by the Bank or its Subsidiaries, including but not limited to amounts
related to the granting, vesting or exercise of restricted stock or stock option
awards, commissions, bonuses, severance payments, retirement benefits, director
or committee fees and fringe benefits paid or to be paid to Executive or paid
for Executive's benefit during any such year, as well as pension, profit
sharing, employee stock ownership plan and other retirement contributions or
benefits, including to any tax-qualified or non-tax-qualified plan or
arrangement (whether or not taxable) made or accrued on behalf of Executive for
such year. At the election of Executive, which election is to be made prior to
or within thirty (30) days of the Date of Termination on or following a Change
in Control, such payment may be made in a lump sum (without discount for early
payment) on or immediately following the Date of Termination (which may be the
date a Change in Control occurs) or paid in equal monthly installments during
the thirty-six (36) months following Executive's termination. In the event that
no election is made, payment to Executive will be made in a lump sum. Such
payments shall not be reduced in the event Executive obtains other employment
following termination of employment.
(d) Upon the occurrence of a Change in Control followed by
Executive's termination of employment, Executive will be entitled to receive
benefits due him under or contributed by the Bank on his behalf pursuant to any
retirement, incentive, profit sharing, employee stock ownership, bonus,
performance, disability or other employee benefit plan or other arrangement
maintained by the Bank on Executive's behalf to the extent such benefits are not
otherwise paid to Executive under a separate provision of this Agreement. In
addition, for purposes of determining his vested accrued benefit, Executive
shall be credited either under the defined benefit pension plan maintained by
the Bank or, if not permitted under such plan, under a separate arrangement,
with the additional "years of service" that he would have earned for vesting and
benefit accrual purposes for the remaining term of the Agreement had his
employment not terminated.
(e) Upon the occurrence of a Change in Control and Executive's
termination of employment pursuant to the provisions of Section 5(b) of this
Agreement in connection therewith, the Bank will cause to be continued any
Welfare Plan Benefit (as described in Section 4(d) of this
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Agreement) substantially identical to the benefit coverage maintained by the
Bank for Executive and any of his dependents covered under such plans prior to
the Change in Control. Such coverage shall cease upon the expiration of
thirty-six (36) full calendar months following the Date of Termination. In the
event Executive's or Executive's dependent's participation in any such plan or
program is barred, the Bank shall arrange to provide Executive and his
dependents with benefits coverage substantially similar to those which Executive
and his dependents would otherwise have been entitled to receive under such
plans and programs by operation of this provision or provide their economic
equivalent to Executive and his dependents.
(f) In the event that Executive is receiving monthly payments
pursuant to Section 5(c) hereof, on an annual basis, thereafter, between the
dates of January 1 and January 31 of each year, Executive shall elect whether
the balance of the amount payable under the Agreement for that year shall be
paid in a lump sum pursuant to such section. Such election shall be irrevocable
for the year for which such election is made.
6. CHANGE OF CONTROL RELATED PROVISIONS.
Notwithstanding the provisions of Section 5 of this Agreement, in no
event shall the aggregate payments or benefits to be made or afforded to
Executive under said paragraphs or otherwise paid or provided by the Bank in
connection with a Change in Control (the "Termination Benefits") constitute an
"excess parachute payment" under Section 280G of the Code or any successor
thereto, and in order to avoid such a result, the Termination Benefits will be
reduced, if necessary, to an amount (the "Non-Triggering Amount"), the value of
which is one dollar ($1.00) less than an amount equal to three (3) times
Executive's "base amount", as determined in accordance with said Section 280G.
The allocation of any reduction required with respect to the Termination
Benefits shall be determined by Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
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, regulation (other than traffic
violations or similar offenses), 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 the standards for professional competence
generally prevailing for executive officers having comparable positions in the
savings institution industry. Notwithstanding the foregoing, Executive shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to Executive a Notice of Termination which shall include a copy
of a resolution duly adopted by the affirmative vote of not less than
three-fourths of the 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 Executive, together with counsel, to be heard before the Board and which
such meeting shall be held not more than 30 days from the date of notice during
which period Executive may be suspended with pay), 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.
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Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause except for compensation and benefits
already vested. Any stock options and related limited rights granted to
Executive under any stock option plan, or any unvested awards granted to
Executive under any restricted stock benefit plan of the Bank or its
Subsidiaries, shall become null and void effective upon Executive's receipt of
Notice of Termination for Cause pursuant to Section 8 hereof, and shall not be
exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause except all benefits shall be deemed to have remained in
effect if Executive is reinstated.
8. 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.
(b) Except as otherwise provided for in this Agreement, "Date of
Termination" shall mean the date specified in the Notice of Termination (which,
in the case of a Termination for Cause, shall not be less than thirty (30) days
from the date such Notice of Termination is given).
(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 reasonable dispute exists concerning the termination, 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 therefrom 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, the Bank will continue to pay
Executive's Base Salary and continue to cover Executive under each Welfare
Benefit Plan in which Executive participated at the time of such notice in
effect when the notice giving rise to the dispute was given until the dispute is
finally resolved in accordance with this Agreement. Amounts paid under this
Section 8(c) are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under this
Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for two (2) full years
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Bank. Executive shall, upon reasonable notice,
furnish such information and assistance to the Bank with regard to matters as to
which he has personal knowledge and as may reasonably be required by the Bank in
connection with
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any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party. The Bank shall reimburse Executive for all out-of-pocket
expenses incurred and at an hourly rate equivalent to the hourly rate (based on
an eight-hour work day) of his Base Salary in effect at the time of his
termination from employment for any time incurred in connection with services
rendered pursuant to this Section 9.
10. NON-COMPETITION.
(a) Upon any termination of Executive's employment hereunder
pursuant to Section 4 of this Agreement, Executive agrees not to compete with
the Bank for a period of one (1) year following such termination in any city,
town or county in which the Executive's normal business office is located and
the Bank 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. The parties
hereto, recognizing that irreparable injury will result to the Bank, its
business and property in the event of Executive's breach of this Subsection
10(a) agree that in the event of any such breach by Executive, the Bank 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, employees and all persons acting for or under the direction of
Executive. Executive represents and admits that in the event of the termination
of his employment pursuant to Section 4 hereof, 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 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
from pursuing any other remedies available to the Bank 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 its
affiliates 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 Executive's employment, disclose any knowledge of the past, present, planned
or considered business activities of the Bank and its affiliates thereof to any
person, firm, corporation, or other entity for any reason or purpose whatsoever
unless expressly authorized by the Board of Directors or required by law.
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. In the
event of a breach or threatened breach by the Executive of the provisions of
this Section 10, 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 its affiliates
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
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the Bank from pursuing any other remedies available to the Bank for such breach
or threatened breach, including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid
in cash, check or other mutually agreed upon method from the general funds of
the Bank subject to Section 11(b) of this Agreement. The Holding Company,
however, unconditionally 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 Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the
extent that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement in effect between Executive
and the Holding Company, such payments and benefits paid by the Bank will be
subtracted from any amount due simultaneously to Executive under similar
provisions of this Agreement. Payments pursuant to this Agreement and the
Holding Company Agreement shall be allocated in proportion to the level of
activity and the time expended on such activities by Executive as determined by
the Holding Company and the Bank on a quarterly basis; PROVIDED, HOWEVER, that
except for the reduction provided by the first sentence of this Section 11(b),
the Bank will be obligated to pay 100% of the amounts due Executive hereunder.
12. 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.
13. 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.
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14. 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.
15. REQUIRED PROVISIONS.
(a) The Bank may terminate Executive's employment at any time, but
any termination by the Bank, 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
hereinabove.
(b) If 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) or 8(g)(1) of the Federal Deposit Insurance Act, 12
U.S.C. Section 1818(e)(3) or (g)(1); 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 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 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)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
Section 1818(e)(4) or (g)(1), 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)(1) of the
Federal Deposit Insurance Act, 12 U.S.C. Section 1813(x)(1) 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 of
the OTS (or his designee), the FDIC or the Resolution Trust Corporation, at the
time the FDIC enters into an agreement to provide assistance to or on behalf of
the Bank under the authority contained in Section 13(c) of the Federal Deposit
Insurance Act, 12 U.S.C. Section 1823(c); or (ii) by the Director of the OTS (or
his designee) at the time the Director (or his designee) approves a supervisory
merger to resolve problems related to the operations of the Bank
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or when the Bank is determined by the Director 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 compliance with 12 U.S.C. Section
1828(k) and 12 C.F.R. Section 545.121 and any rules and regulations promulgated
thereunder.
16. 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.
17. 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.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Illinois,
unless otherwise specified herein.
19. 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 Executive within fifty
(50) miles from the location of the Bank, in accordance with the rules of the
American Arbitration Association then in effect. 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 Executive's 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.
In the event any dispute or controversy arising under or in connection
with Executive's termination is resolved in favor of Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
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<PAGE>
20. 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, if Executive is successful pursuant to a legal
judgment, arbitration or settlement.
21. INDEMNIFICATION.
The Bank shall provide Executive (including Executive's heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense and shall indemnify
Executive (and Executive's heirs, executors and administrators) to the fullest
extent permitted under Delaware law against all expenses and liabilities
reasonably incurred by Executive in connection with or arising out of any
action, suit or proceeding in which Executive may be involved by reason of
Executive having been a director or officer of the Bank or its Subsidiaries
(whether or not Executive continues to be a 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 attorneys' fees and
the cost of reasonable settlements.
22. 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, 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.
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SIGNATURES
IN WITNESS WHEREOF, First Federal Bank and First Federal Bancshares,
Inc. have caused this Agreement, to be executed and their seals to be affixed
hereunto by their duly authorized officers and Executive has signed this
Agreement on [DATE].
ATTEST: FIRST FEDERAL BANK
By:
- ----------------------------- ---------------------------------------
Secretary For the Entire Board of Directors
[SEAL]
WITNESS:
By:
- ----------------------------- ---------------------------------------
Executive
ATTEST: FIRST FEDERAL BANCSHARES, INC.
(Guarantor)
By:
- ----------------------------- ---------------------------------------
Secretary For the Entire Board of Directors
[SEAL]
WITNESS: EXECUTIVE
- ----------------------------- ------------------------------------------
[NAME]
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Exhibit 10.3
FORM
FIRST FEDERAL BANCSHARES, INC.
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement"), is entered into and made effective as of
[DATE] by and between First Federal Bancshares, Inc. (the "Holding Company"), a
corporation organized under the laws of Delaware, with its principal
administrative offices at 109 East Depot Street, Colchester, Illinois 62326, and
[NAME] ("Executive"). Any reference to the "Institution" in this Agreement shall
mean First Federal Bank or any successor to First Federal Bank.
WHEREAS, the Holding Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Holding
Company and its subsidiaries on a full-time basis for the term of this
Agreement.
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 Executive's employment hereunder, Executive agrees
to serve as [TITLE] of the Holding Company. Executive shall render
administrative and management services to the Holding Company such as are
customarily performed by persons in a similar executive capacity. During the
term of this Agreement, Executive also agrees to serve an officer and director
of the Institution, as well as a director of the Holding Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement
shall be deemed to have commenced as of the date first written above and shall
continue for a period of thirty-six (36) full calendar months from the effective
date of this Agreement. Commencing on the date of execution of this Agreement,
the term of this Agreement shall be extended for one day each day, so that a
constant thirty-six (36) calendar month term shall remain in effect, until such
time as the Board of Directors of the Holding Company (the "Board") or Executive
elects not to extend the term of the Agreement by giving written notice to the
other party in accordance with Section 8 of this Agreement, in which case the
term of this Agreement shall be fixed and shall end on the third anniversary of
the date of such written notice.
(b) During the period of Executive's employment hereunder, except
for periods of absence occasioned by illness, vacation periods, and other
reasonable leaves of absence, Executive shall devote substantially all of his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder, including activities and services related to the organization,
operation and management of the Holding Company and its direct or indirect
subsidiaries ("Subsidiaries") and participation in industry, community and civic
organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of the Board, from time
<PAGE>
to time, Executive may serve, or continue to serve, on the boards of directors
of, and hold any other offices or positions in, companies or organizations,
which, in the Board's judgment, will not present any conflict of interest with
the Holding Company or its Subsidiaries, or materially affect the performance of
Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything in this Agreement to the contrary,
either Executive or the Holding Company may terminate Executive's employment
with the Holding Company at any time during the term of this Agreement, subject
to the terms and conditions of this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall
constitute consideration paid by the Holding Company in exchange for the duties
described in Section 1 of this Agreement. The Holding Company shall pay
Executive, as compensation, a salary of not less than $[AMOUNT] ("Base Salary").
Base Salary shall include any amounts of compensation deferred by Executive
under any tax-qualified retirement or welfare benefit plan or any other deferred
compensation arrangement maintained by the Holding Company or its Subsidiaries.
Base Salary shall be payable in accordance with the normal payroll practices of
the Holding Company. During the period of this Agreement, Executive's Base
Salary shall be reviewed at least annually; on or about [DATE]. Such review
shall be conducted by the Board or by a committee of the Board delegated such
responsibility by the Board. The committee or the Board may increase Executive's
Base Salary at any time. Any increase in Base Salary shall thereafter become the
new "Base Salary" for purposes of this Agreement.
(b) Executive shall be entitled to participate in any 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 Holding Company
and its Subsidiaries will not, without Executive's prior written consent, make
any changes in such plans, arrangements or perquisites (or any plans,
arrangements or perquisites with respect to which Executive begins to
participate at any time during the term of this Agreement) which would adversely
affect Executive's rights or benefits thereunder, without separately providing
for an arrangement that ensures Executive receives or will receive the economic
value that Executive would otherwise lose as a result of such adverse affect,
unless such change is general in nature and applies in a nondiscriminatory
manner to all employees covered by the plan, arrangement or perquisite. Without
limiting the generality of the foregoing provisions of this Subsection (b),
Executive shall be entitled to participate in and receive benefits under any
employee benefit plans including, but not limited to, retirement plans (such as
pension, profit sharing and employee stock ownership plans), supplemental
retirement plans, incentive plans, health and welfare plans and any other
employee benefit plan or arrangement made available by the Holding Company or
its Subsidiaries now or in the future to full-time employees of the Holding
Company and/or senior executives and key management employees of the Holding
Company or its Subsidiaries, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans and arrangements.
Nothing paid to Executive under any such plans or arrangements will be deemed to
be in lieu of other compensation and benefits to which Executive is entitled
under this Agreement.
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(c) The Holding Company shall pay or reimburse Executive for all
reasonable expenses incurred by Executive in performing his obligations under
this Agreement.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein
defined) during Executive's term of employment under this Agreement, the
provisions of this Section 4 shall apply. 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 Holding Company of Executive's full-time employment hereunder
for any reason other than termination governed by Section 5(a) of this
Agreement, or Termination for Cause, as defined in Section 7 of this Agreement,
or Retirement or Disability, as defined in paragraph (f) of this Section 4 or;
(ii) Executive's resignation from the Holding Company's employ, upon, any (A)
failure to re-elect or re-appoint Executive as [TITLE] of the Holding Company or
a failure to nominate or re-elect Executive to the Board of Directors of the
Holding Company or of the Institution, unless consented to by the Executive, (B)
material change in Executive's function, duties, or responsibilities with the
Holding Company or its Subsidiaries, 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 of this Agreement (and
any such material change shall be deemed as continuing breach of this
Agreement), unless consented to by Executive, (C) relocation of Executive's
principal place of employment by more than 25 miles from its location at the
effective date of this Agreement, unless consented to by Executive, (D) material
reduction in the benefits, arrangements or perquisites to Executive which is not
general in nature and applicable on a nondiscriminatory basis to all employees
covered by such benefits, arrangements, or perquisites or, pursuant to Section
3(b) of this Agreement, to which Executive does not consent or for which
Executive is not or will not be provided the economic benefit, (E) liquidation
or dissolution of the Holding Company or the Institution, or (F) breach of this
Agreement by the Holding Company. Upon the occurrence of any event described in
clauses (A), (B), (C), (D), (E),or (F), above, Executive shall have the right to
elect to terminate employment under this Agreement by resignation upon not less
than sixty (60) days prior written notice given within six full calendar months
after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8 of this Agreement, the Holding Company
shall be obligated to pay Executive, or, in the event of Executive's subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, the
amount of the remaining payments and benefits that Executive would have earned
if he had continued his employment with the Holding Company during the remaining
unexpired term of this Agreement, based on Executive's Base Salary and the
benefits provided to Executive as of the date of the Event of Termination, as
set forth in Sections 3(a) and (b) of this Agreement, as the case may be, and
the amount still due Executive under any paragraph of Section 3 for service
rendered through the Date of Termination. Except as provided for in below and in
paragraph (c) of this Section 4, the determination of Executive's benefits as of
the date of the Event of Termination shall be made based on (i) the value of the
allocation attributable to employer contributions for the most recent plan year
under any defined contribution type plan; (ii) the amount of any incentive or
bonus payment for the most recently-completed fiscal year; and (iii) the
employer-provided cost of
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<PAGE>
any other benefit for the most recently-completed fiscal year from former (c).
In addition, for purposes of determining his vested accrued benefit, Executive
shall be credited either under any defined benefit pension plan maintained by
the Institution or, if not permitted under such plan, under a separate
arrangement, with the additional "years of service" that he would have earned
for vesting and benefit accrual purposes for the remaining term of the Agreement
had his employment not terminated. At the election of Executive, which election
is to be made within thirty (30) days of the Date of Termination, such payments
shall be made in a lump sum (without discount for early payment) or paid monthly
during the remaining term of the agreement following Executive's termination. In
the event that no election is made, payment to Executive will be made in a lump
sum. Such payments shall not be reduced in the event Executive obtains other
employment following termination of employment. Notwithstanding anything to the
contrary elsewhere in this Agreement, to the extent the Executive is entitled to
continued coverage or benefit accrual under any retirement or welfare benefit
plan during the remaining unexpired term of this Agreement, the amount payable
under this Section 4(b) should be adjusted to the extent necessary to avoid any
duplication of such benefits.
(c) To the extent that the Holding Company or its Subsidiaries
continue to offer any life, medical, health, disability or dental insurance plan
or arrangement in which Executive participates in on the last day of his
employment (each being a "Welfare Plan"), after an Event of Termination (as
herein defined), Executive and his dependents shall continue participating in
such Welfare Plans, subject to the same premium contributions on the part of
Executive as were required immediately prior to the Event of Termination until
the earlier of (i) his death (ii) his employment by another employer other than
one of which he is the majority owner or (iii) the end of the remaining term of
this Agreement. If the Holding Company or its Subsidiaries does not offer the
Welfare Plans (or if for any reason Executive's participation in said plans is
prohibited) after the Event of Termination, then the Holding Company shall
provide Executive with a payment equal to the actuarial value of the provision
of such benefit for the period which runs until the earlier of (i) his death;
(ii) his employment by another employer other than one of which he is the
majority owner; or (iii) the end of the remaining term of this Agreement.
(d) In the event that Executive is receiving monthly payments
pursuant to Section 4(b) of this Agreement, on an annual basis, thereafter,
between the dates of January 1 and January 31 of each year, Executive shall
elect whether the balance of the amount payable under the Agreement for that
year shall be paid in a lump sum or on a pro rata basis. Such election shall be
irrevocable for the year for which such election is made.
(e) Termination of Executive based on "Retirement" shall mean
termination by written notice to the Holding Company or its Subsidiaries from
Executive specifying an exact retirement date or termination in accordance with
any retirement arrangement established with Executive's written consent with
respect to him. Termination of Executive based on Disability shall mean written
notice to the Holding Company or its Subsidiaries by Executive specifying an
exact date as of which he is unable to perform all of the duties and
responsibilities of his position. Upon termination of Executive upon Disability,
Executive shall be entitled to all benefits under any disability plan of the
Holding Company or its Subsidiaries or any other plans which Executive is a
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<PAGE>
party or a participant in accordance with the terms of the plan or arrangement.
Executive shall be entitled to all compensation and benefits provided for in
Section 3 of this Agreement through the date of his termination of employment as
specified in the notice provided by him.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Holding Company or the Institution shall mean an event 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 Institution or the Holding Company within the meaning
of the Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance
Act, and the Rules and Regulations promulgated by the Office of Thrift
Supervision (or its predecessor agency) ("OTS"), as in effect on the date hereof
(provided, that in applying the definition of change in control as set forth
under the rules and regulations of the OTS, the Board shall substitute its
judgment for that of the OTS); 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 voting securities of the Institution or the Holding
Company representing 20% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Holding Company
or its Subsidiaries; or (B) individuals who constitute the board of directors 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 members who
were nominated by the Incumbent Board), or whose nomination for election by the
Company's stockholders was approved by a Nominating Committee solely composed of
members which are Incumbent Board members (or members who were nominated by the
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
Institution or the Holding Company or similar transaction occurs or is
effectuated in which the Institution or Holding Company is not the resulting
entity; provided, however, that such an event listed above will be deemed to
have occurred or to have been effectuated upon the receipt of all required
federal regulatory approvals not including the lapse of any statutory waiting
periods; or (D) a proxy statement has been distributed soliciting proxies from
stockholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Holding Company or Institution
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 Institution
or the Holding Company shall be distributed; or (E) a tender offer is made by a
person other than the Holding Company for 20% or more of the voting securities
of the Institution or Holding Company then outstanding.
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(b) If any of the events described in Section 5(a) of this
Agreement constituting a Change in Control have occurred, or the Board has
determined that a Change in Control has occurred, Executive shall be entitled to
the benefits provided in paragraphs (c), (d), (e), and (f) of this Section 5
upon his termination of employment on or after the date the Change in Control
occurs due to (i) Executive's dismissal at any time during the term of this
Agreement, or (ii) Executive's resignation following any demotion, loss of
title, office or significant authority or responsibility, reduction in the
annual compensation or benefits or relocation of Executive's principal place of
employment by more than 25 miles from its location immediately prior to the
Change in Control, unless such termination is because of Executive's Termination
for Cause; provided, however, Executive may consent in writing to any such
demotion, loss, reduction or relocation. The effect of any written consent of
the Executive under this Section 5(b) shall be strictly limited to the terms
specified in such written consent. Under no circumstances can a termination of
employment during the term of this Agreement on or after the date of a Change in
Control occurs be considered a termination on account of retirement or
disability for purposes of determining Executive's rights to the payment of
benefits provided in paragraphs (c), (d), (e), and (f) of this Section 5.
(c) Upon Executive's entitlement to payment pursuant to Section
5(b) of this Agreement, the Holding Company shall pay Executive, or in the event
of Executive's subsequent death, Executive's beneficiary or beneficiaries, or
estate, as the case may be, as severance pay or liquidated damages, or both, a
sum equal to the greater of: (i) the payments and benefits that would have been
due pursuant to Section 3 of this Agreement for the remaining term of the
Agreement (determined in the same manner set forth in paragraphs (b) and (c) of
Section 4 of this Agreement; or (ii) three (3) times Executive's average annual
compensation for the five most recently completed taxable years of Executive.
For purposes of this Section 5(c), annual compensation shall include Base Salary
and any other taxable income paid by the Holding Company or its Subsidiaries,
including but not limited to amounts related to the granting, vesting or
exercise of restricted stock or stock option awards, commissions, bonuses,
severance payments, retirement benefits, director or committee fees and fringe
benefits paid or to be paid to Executive or paid for Executive's benefit during
any such year, as well as pension, profit sharing, employee stock ownership plan
and other retirement contributions or benefits, including to any tax-qualified
or non-tax-qualified plan or arrangement (whether or not taxable) made or
accrued on behalf of Executive for such year. At the election of Executive,
which election is to be made prior to or within thirty (30) days of the Date of
Termination on or following a Change in Control, such payment may be made in a
lump sum (without discount for early payment) on or immediately following the
Date of Termination (which may be the date a Change in Control occurs) or paid
in equal monthly installments during the thirty-six (36) months following
Executive's termination. In the event that no election is made, payment to
Executive will be made in a lump sum. Such payments shall not be reduced in the
event Executive obtains other employment following termination of employment.
(d) Upon the occurrence of a Change in Control followed by
Executive's termination of employment, Executive will be entitled to receive
benefits due him under or contributed by the Holding Company or its Subsidiaries
on his behalf pursuant to any retirement, incentive, profit sharing, employee
stock ownership, bonus, performance, disability or other employee benefit plan
or other arrangement maintained by the Institution or the Holding Company on
Executive's behalf
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to the extent such benefits are not otherwise paid to Executive under a separate
provision of this Agreement. In addition, for purposes of determining his vested
accrued benefit, Executive shall be credited either under any defined benefit
pension plan maintained by the Institution or, if not permitted under such plan,
under a separate arrangement, with the additional "years of service" that he
would have earned for vesting and benefit accrual purposes for the remaining
term of the Agreement had his employment not terminated.
(e) Upon the occurrence of a Change in Control and Executive's
termination of employment pursuant to the provisions of Section 5(b) of this
Agreement in connection therewith, the Holding Company will cause to be
continued any welfare Plan benefit (as described in Section 4(d) of this
Agreement) substantially identical to the benefit coverage maintained by the
Holding Company or its Subsidiaries for Executive and any of his dependents
covered under such plans prior to the Change in Control. Such coverage shall
cease upon the expiration of thirty-six (36) full calendar months following the
Date of Termination. In the event Executive's or Executive's dependent's
participation in any such plan or program is barred, the Holding Company shall
arrange to provide Executive and his dependents with benefits coverage
substantially similar to those which Executive and his dependents would
otherwise have been entitled to receive under such plans and programs by
operation of this provision or provide their economic equivalent to executive
and his dependents.
(f) In the event that Executive is receiving monthly payments
pursuant to Section 5(c) hereof, on an annual basis, thereafter, between the
dates of January 1 and January 31 of each year, Executive shall elect whether
the balance of the amount payable under the Agreement for that year shall be
paid in a lump sum pursuant to such section. Such election shall be irrevocable
for the year for which such election is made.
6. CHANGE OF CONTROL RELATED PROVISIONS.
(a) Notwithstanding the preceding provisions of Section 5 of this
Agreement, for any taxable year in which Executive shall be liable for the
payment of an excise tax under Section 4999 of the Internal Revenue Code (or any
successor provision thereto), with respect to any payment in the nature of the
compensation made by the Holding Company or its Subsidiaries to (or for the
benefit of) Executive pursuant to this Agreement or otherwise, the Holding
Company (or any successor thereto) shall pay to Executive an amount determined
under the following formula:
An amount equal to: (E x P) + X
WHERE:
X = E X P
--------------------------------------------------------------
1 - [(FI x (1 - SLI)) + SLI + E + M]
and
E = the rate at which the excise tax is assessed under Section 4999
of the Code;
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<PAGE>
P = the amount with respect to which such excise tax is
assessed, determined without regard to this Section
6;
FI = the highest marginal rate of federal income,
employment, and other taxes (other than taxes imposed
under Section 4999 of the Code) applicable to
Executive for the taxable year in question with
respect to such payment (including any effective
increase in Executive's tax rate attributable to the
resultant disallowance of any deduction or the
phase-out of any personal exemption or similar
items);
SLI = the sum of the highest marginal rates of income and
payroll tax applicable to Executive under applicable
state and local laws for the taxable year in question
(including any effective increase in Executive's tax
rate attributable to the resultant disallowance of
any deduction or the phase-out of any personal
exemption or similar items);
M = highest marginal rate of Medicare tax; and
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Executive under the terms of this Section 6 or otherwise and
on which an excise tax under Section 4999 of the Code may or will be assessed,
the payment determined under this Section 6 shall be made to Executive on the
earliest of (i) the date the Holding Company is required to withhold such tax,
(ii) the date the tax is required to be paid by Executive, or (iii) at the time
of termination resulting from the Change in Control. It is the intention of the
parties that the Holding Company provide Executive with a full tax gross-up
under the provisions of this Section 6, so that on a net after-tax basis, the
result to Executive shall be the same as if the excise tax under Section 4999
(or any successor provisions) of the Code had not been imposed. The tax gross-up
may be adjusted, as appropriate, if alternative minimum tax rules are applicable
to Executive.
(b) Notwithstanding the foregoing, if its is (i) initially
determined by the Holding Company's tax advisors that no excise tax under
Section 4999 of the Code is due with respect to any payment or benefit described
in the first paragraph of Section 6(a) and thereafter it is determined in a
final judicial determination or administrative settlement that the Section 4999
excise tax is due with respect to such payments or benefits or subsequently
determined in a final judicial determination or a final administrative
settlement to which Executive is a party that the excise tax under Section 4999
of the Code is due or that the excess parachute payment as defined in Section
4999 of the Code is more than the amount determined as "P", above (such revised
determination under (i) or (ii) above thereafter being referred to as the
"Determinative Excess Parachute Payment"), then the tax advisors of the Holding
Company (or any successor thereto) shall determine the amount (the "Adjustment
Amount"), the Holding Company (or any successor thereto) must pay to Executive,
in order to put Executive in the same position as Executive would have been if
the amount determined as "P" above had been equal to the Determinative Excess
Parachute Payment. In determining the Adjustment Amount, the tax advisors shall
take into account any and all taxes (including any penalties and interest) paid
or payable by Executive in connection with such final
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<PAGE>
judicial determination or final administrative settlement As soon as practicable
after the Adjustment Amount has been so determined, the Holding Company shall
pay the Adjustment Amount to Executive.
(c) The Holding Company (or its successor) shall indemnify and
hold Executive harmless from any and all losses, costs and expenses (including
without limitation, reasonable attorney's fees, reasonable accountant's fees,
interest, fines and penalties of any kind) which Executive incurs as a result of
any administrative or judicial review of Executive's liability under Section
4999 of the Code by the Internal Revenue Service or any comparable state agency
through and including a final judicial determination or final administrative
settlement of any dispute arising out of Executive's liability for the Section
4999 excise tax or otherwise relating to the classification for purposes of
Section 280G of the Code of any payment or benefit in the nature of compensation
made or provided to Executive by the Holding Company or any successor thereto.
Executive shall promptly notify the Holding Company in writing whenever
Executive receives notice of the commencement of any judicial or administrative
proceeding, formal or informal, in which the federal tax treatment under Section
4999 of the Code of any amount paid or payable under this Supplemental Agreement
is being reviewed or is in dispute (including a notice of audit or other inquiry
concerning the reporting of Executive's liability under Section 4999). The
Holding Company (or its successor) may assume control at its expense over all
legal and accounting matters pertaining to such federal or state tax treatment
(except to the extent necessary or appropriate for Executive to resolve any such
proceeding with respect to any matter unrelated to amounts paid or payable
pursuant to this contract) and Executive shall cooperate fully with the Holding
Company in any such proceeding. Executive shall not enter into any compromise or
settlement or otherwise prejudice any rights the Holding Company (or its
successor) may have in connection therewith without prior consent to the Holding
Company (or its successor). In the event that the Holding Company (or any
successor thereto) elects not to assume control over such matters, the Holding
Company (or any successor thereto) shall promptly reimburse Executive for all
expenses related thereto as and when incurred upon presentation of appropriate
documentation relating thereto.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
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, regulation (other than traffic
violations or similar offenses), 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 the standards for professional competence
generally prevailing for executive officers having comparable positions in the
savings institution industry. Notwithstanding the foregoing, Executive shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to Executive a Notice of Termination which shall include a copy
of a resolution duly adopted by the affirmative vote of not less than
three-fourths of the 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 Executive, together with counsel, to be heard before the Board and which
such meeting shall be held not more than 30 days from the date of notice during
which period Executive
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may be suspended with pay), 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. Executive shall not have the right to receive
compensation or other benefits for any period after Termination for Cause except
for compensation and benefits already vested. Any stock options and related
limited rights granted to Executive under any stock option plan, or any unvested
awards granted to Executive under any restricted stock benefit plan of the
Holding Company or its Subsidiaries, shall become null and void effective upon
Executive's receipt of Notice of Termination for Cause pursuant to Section 8
hereof, and shall not be exercisable by or delivered to Executive at any time
subsequent to such Termination for Cause except all benefits shall be deemed to
have remained in effect if Executive is reinstated.
8. NOTICE.
(a) Any purported termination by the Holding Company 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.
(b) Except as otherwise provided for in this Agreement, "Date of
Termination" shall mean the date specified in the Notice of Termination (which,
in the case of a Termination for Cause, shall not be less than thirty (30) days
from the date such Notice of Termination is given).
(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 reasonable dispute exists concerning the termination, 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 therefrom 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, the Holding Company will
continue to pay Executive's Base Salary and continue to cover Executive under
each Welfare Benefit Plan in which Executive participated at the time of such
notice in effect when the notice giving rise to the dispute was given until the
dispute is finally resolved in accordance with this Agreement. Amounts paid
under this Section 8(c) are in addition to all other amounts due under this
Agreement and shall not be offset against or reduce any other amounts due under
this Agreement.
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9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for two (2) full years
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company with regard to matters as to which he has personal knowledge and as may
reasonably be required by the Holding Company in connection with any litigation
in which it or any of its subsidiaries or affiliates is, or may become, a party.
The Holding Company shall reimburse Executive for all out-of-pocket expenses
incurred and at an hourly rate equivalent to the hourly rate (based on an
eight-hour work day) of his Base Salary in effect at the time of his termination
from employment for any time incurred in connection with services rendered
pursuant to this Section 9.
10. NON-COMPETITION.
(a) Upon any termination of Executive's employment hereunder
pursuant to Section 4 of this Agreement, Executive agrees not to compete with
the Holding Company or its Subsidiaries for a period of one (1) year following
such termination in any city, town or county in which the Executive's normal
business office is located and the Holding Company or any of its Subsidiaries
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 Holding Company or its Subsidiaries.
The parties hereto, recognizing that irreparable injury will result to the
Holding Company or its Subsidiaries, its business and property in the event of
Executive's breach of this Subsection 10(a) agree that in the event of any such
breach by Executive, the Holding Company or its Subsidiaries, 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, employees and all persons acting for or under the direction of
Executive. Executive represents and admits that in the event of the termination
of his employment pursuant to Section 4 hereof, 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 Holding Company or its
Subsidiaries, 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 Holding Company or its Subsidiaries from pursuing any other
remedies available to the Holding Company or its Subsidiaries 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 Holding Company
and its Subsidiaries as it may exist from time to time, is a valuable, special
and unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of Executive's employment, disclose
any knowledge of the past, present, planned or considered business activities of
the Holding Company
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and its Subsidiaries thereof to any person, firm, corporation, or other entity
for any reason or purpose whatsoever unless expressly authorized by the Board of
Directors or required by law. 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 Holding Company. In the event of a breach or
threatened breach by the Executive of the provisions of this Section 10, the
Holding Company 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 Holding Company or its Subsidiaries 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 Holding
Company from pursuing any other remedies available to the Holding Company for
such breach or threatened breach, including the recovery of damages from
Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid
in cash, check or other mutually agreed upon method from the general funds of
the Holding Company subject to Section 11(b) of this Agreement.
(b) Notwithstanding any provision herein to the contrary, to the
extent that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement in effect between Executive
and the Institution, such payments and benefits paid by the Institution will be
subtracted from any amount due simultaneously to Executive under similar
provisions of this Agreement. Payments pursuant to this Agreement and the
Institution Agreement shall be allocated in proportion to the level of activity
and the time expended on such activities by Executive as determined by the
Holding Company and the Institution on a quarterly basis; provided, however,
that except for the reduction provided by the first sentence of this Section
11(b), the Holding Company will be obligated to pay 100% of the amounts due
Executive hereunder.
12. 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 Holding Company
or any predecessor of the Holding Company 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.
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13. 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 Holding Company and their respective successors and
assigns.
14. 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.
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 Delaware,
unless otherwise specified herein.
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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 Executive within fifty
(50) miles from the location of the Association, in accordance with the rules of
the American Arbitration Association then in effect. 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 Executive's 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.
In the event any dispute or controversy arising under or in connection
with Executive's termination is resolved in favor of Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
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 Holding Company, if Executive is successful pursuant to a
legal judgment, arbitration or settlement.
20. INDEMNIFICATION.
The Holding Company shall provide Executive (including Executive's
heirs, executors and administrators) with coverage under a standard directors'
and officers' liability insurance policy at its expense and shall indemnify
Executive (and Executive's heirs, executors and administrators) to the fullest
extent permitted under Delaware law against all expenses and liabilities
reasonably incurred by Executive in connection with or arising out of any
action, suit or proceeding in which Executive may be involved by reason of
Executive having been a director or officer of the Holding Company or its
Subsidiaries (whether or not Executive continues to be a 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
attorneys' fees and the cost of reasonable settlements.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company 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 Holding Company,
expressly and unconditionally to assume and agree to perform the Holding
Company's obligations under this Agreement, in the same manner and to the same
extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
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SIGNATURES
IN WITNESS WHEREOF, First Federal Bancshares, Inc. has caused this
Agreement, to be executed and its seal to be affixed hereunto by its duly
authorized officer and its directors, and Executive has signed this Agreement,
on [DATE].
ATTEST: FIRST FEDERAL BANCSHARES, INC.
By:
- ----------------------------- --------------------------------------
Secretary For the Entire Board of Directors
[SEAL]
WITNESS: EXECUTIVE
By:
- ----------------------------- --------------------------------------
Executive [NAME]
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Exhibit 10.4
FORM OF
FIRST FEDERAL BANK
CHANGE IN CONTROL AGREEMENT
This AGREEMENT is entered into effective and made as of [DATE], by and
between First Federal Bank (the "Bank"), a federally chartered savings
institution, with its principal administrative offices at 109 East Depot Street,
Colchester, Illinois 62326, and First Federal Bancshares, Inc. (the "Holding
Company"), a corporation organized under the laws of the State of Delaware and
the holding company of the Bank and [NAME] ("Executive").
WHEREAS, the Bank recognizes the substantial contribution Executive has
made to the Bank and wishes to continue to protect Executive's position with the
Bank for the period provided in this Agreement in the event of a Change in
Control (as defined in this Agreement); and
WHEREAS, Executive has agreed to continue serve in the employ of the
Bank.
NOW, THEREFORE, in consideration of the contribution and
responsibilities of Executive, and upon the other terms and conditions
hereinafter provided, the parties hereto agree as follows:
1. TERM OF AGREEMENT.
The period of this Agreement shall be deemed to have commenced as of
the date first above written and shall continue for a period of thirty-six
(36) full calendar months from the date of this Agreement. Commencing on [DATE]
, and at each anniversary date thereafter, the Board of Directors of the Bank
(the "Board") may extend the term of this Agreement for an additional year so
that the remaining term is a full thirty-six (36) calendar months, unless
Executive elects not to extend the term of the Agreement by providing written
notice to the Board in accordance with Section 5 of the Agreement. The Board
will review the Agreement and Executive's performance annually for purposes
of determining whether to extend the term of the Agreement, and the results
of such review shall be included in the minutes of the Board's meeting.
2. CHANGE IN CONTROL.
(a) Upon the occurrence of a Change in Control (as defined in
paragraph (b) of this Section 2), Executive shall be entitled to the payments
and benefits provided for in Section 3 of this Agreement upon Executive's
termination of employment on or after the date the Change in Control occurs due
to: (i) Executive's dismissal at any time during the term of this Agreement; or
(ii) Executive's resignation at any time during the term of this Agreement
following any demotion, or loss of title, office or significant authority, or
reduction in Executive's annual compensation or benefits, or relocation of
Executive's principal place of employment by more than 25 miles from its
location immediately prior to the Change in Control; provided, however,
Executive may consent in writing to any such demotion, loss, reduction or
relocation. The effect of any written consent of Executive under this Section
2(a) shall be strictly limited to the terms specified in such written consent.
<PAGE>
(b) For purposes of this Agreement, a "Change in Control" of the
Bank or Holding Company shall mean an event 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 Holding Company within the meaning of the
Home Owners' Loan Act of 1933 and the Rules and Regulations promulgated by the
Office of Thrift Supervision ("OTS") (or its predecessor agency), as in effect
on the date hereof (provided, that in applying the definition of change in
control or presumptive change in control or acting in concert or presumptive
acting in concert as set forth under the Rules and Regulations of the OTS,
ownership by a person or group, including a presumptive group, of at least 15%
of the voting stock of the Bank or the Holding Company shall be required, and
provided further that ownership of stock by a tax qualified employee benefit
plan of the Bank or the Holding Company shall not be subject to presumptions of
control or acting in concert); 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 Holding Company
representing 25% or more of the Bank's or the Holding Company's outstanding
securities except for any securities of the Bank purchased by the Holding
Company in connection with the conversion of the Bank to the stock form and any
securities purchased by any employee benefit plan of the Bank or the Holding
Company, or (B) individuals who constitute the board of directors 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 members who were nominated by
the Incumbent Board), or whose nomination for election by the Holding Company's
stockholders was approved by the same Nominating Committee serving under an
Incumbent Board (or members who were nominated by the Incumbent Board), shall
be, for purposes of this clause (B), considered as though she 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 Holding Company
or similar transaction occurs in which the Bank or Holding Company is not the
resulting entity.
(c) Notwithstanding any other provision of this Agreement,
Executive shall not have the right to receive termination benefits under this
Agreement upon Executive's Termination for Cause. The term "Termination for
Cause" shall mean termination because of 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, regulation (other than traffic violations or similar offenses)
or final cease and desist order, or any material breach of this Agreement. In
determining incompetence, the acts or omissions shall be measured against
standards of professional competence generally prevailing for officers having
comparable positions in the savings institutions industry. Notwithstanding the
foregoing, Executive shall not be deemed to have been Terminated for Cause
unless and until there shall have been delivered to Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three-fourths
of the 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 Executive,
together with counsel, to be heard before the Board and which such meeting shall
be held not more than 30 days from the date of notice during
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<PAGE>
which period Executive may be suspended with pay), 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.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause except for compensation or benefits
already vested. Any stock options and related limited rights granted to
Executive under any stock option plan, or any unvested awards granted to
Executive under any restricted stock benefit plan of the Holding Company or its
subsidiaries, shall become null and void effective upon Executive's receipt of
Notice of Termination For Cause pursuant to Section 5 of this Agreement except
all benefits shall be deemed to have remained in effect if Executive is
reinstated, and shall not be exercisable by or delivered to Executive at any
time subsequent to such Termination For Cause.
3. TERMINATION BENEFITS.
(a) Upon the occurrence of a Change in Control, followed at any
time by the termination of Executive's employment in accordance with the
provisions of Section 2 of this Agreement, the Bank shall be obligated to pay
Executive, or in the event of Executive's subsequent death, Executive's
beneficiary or beneficiaries, or Executive's estate, as the case may be, a sum
equal to three (3) times Executive's average annual compensation for the five
most recently completed taxable years of Executive. For purposes of this Section
3(a), annual compensation shall include base salary and any other taxable
income, including but not limited to amounts related to the granting, vesting or
exercise of restricted stock or stock option awards, commissions, bonuses,
severance payments, retirement benefits, director or committee fees and fringe
benefits paid or to be paid to Executive or paid for Executive's benefit during
any such year, as well as profit sharing, employee stock ownership plan and
other retirement contributions or benefits (other than defined benefit pension
benefits), including to any tax-qualified or non-tax-qualified plan or agreement
(whether or not taxable) made or accrued on behalf of Executive for such year.
In addition, for purposes of determining her vested accrued benefit, Executive
shall be credited either under the defined benefit pension plan maintained by
the Bank or, if not permitted under such plan, under a separate arrangement,
with the additional "years of service" that she would have earned for vesting
and benefit accrual purposes for the remaining term of the Agreement had her
employment not terminated. At the election of Executive, which election is to be
made prior to or within thirty (30) days of the Date of Termination on or
following a Change in Control, such payment may be made in a lump sum (without
discount for early payment) on or immediately following the Date of Termination
(which may be the date a Change in Control occurs) or paid in equal monthly
installments during the thirty-six (36) months following Executive's
termination. In the event that no election is made, payment to Executive will be
made on a monthly basis during the remaining thirty-six (36) month term of the
Agreement. Such payments shall not be reduced in the event Executive obtains
other employment following termination of employment. However, in the event the
Bank is not in compliance with its minimum capital requirements or if such
payments pursuant to this Section 3 would cause the Bank's capital to be reduced
below its minimum regulatory capital requirements, such payments shall be
deferred until such time as the Bank or successor thereto is in capital
compliance.
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(b) Upon the occurrence of a Change in Control and Executive's
termination of employment in accordance with the provisions of Section 2 of this
Agreement, the Bank will cause to be continued any life, medical, health and
disability or dental insurance plan or arrangement in which Executive
participates (each being a "Welfare Benefit Plan") substantially identical to
the benefit coverage maintained by the Bank for Executive and any of her
dependents covered under such plans prior to the Change in Control. Such
coverage shall cease upon the expiration of thirty-six (36) full calendar months
following the Date of Termination. In the event Executive's or Executive's
covered dependent's participation in any such plan or program is barred, the
Holding Company shall arrange to provide Executive and her dependents with
benefits coverage substantially similar to those which Executive and her
dependents would otherwise have been entitled to receive under such plans and
programs by operation of this provision or provide their economic equivalent to
Executive and Executive's dependents.
4. CHANGE IN CONTROL RELATED PROVISIONS.
Notwithstanding the preceding paragraphs of Section 3, in no event
shall the aggregate payments or benefits to be made or afforded to Executive
under this Agreement (the "Termination Benefits") constitute an "excess
parachute payment" under Section 280G of the Code or any successor thereto, and
in order to avoid such a result the Termination Benefits will be reduced, if
necessary, to an amount (the "Non-Triggering Amount"), the value of which is one
dollar ($1.00) less than an amount equal to three (3) times Executive's "base
amount," as determined in accordance with said Section 280G. The allocation of
any reduction required with respect to the Termination Benefits shall be
determined by Executive.
5. NOTICE OF TERMINATION.
(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 detail the facts and circumstances claimed to provide a
basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the
Notice of Termination (which, in the case of Termination for Cause, shall not be
less than thirty (30) days from the date such Notice of Termination is given).
(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 reasonable dispute exists concerning the termination, 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 therefrom 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
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<PAGE>
pendency of any such dispute, the Bank will continue to pay Executive's base
salary and continue to cover Executive under each Welfare Benefit Plan in which
Executive participated when the notice giving rise to the dispute was given
until the dispute is finally resolved in accordance with this Agreement. Amounts
paid under this Section 5(c) are in addition to all other amounts due under this
Agreement and shall not be offset against or reduce any other amounts due under
this Agreement.
6. SOURCE OF PAYMENTS.
The parties to this Agreement intend that all payments provided for in
this Agreement shall be paid in cash, check or other mutually agreed upon method
from the general funds of the Bank. Further, the Holding Company guarantees such
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
Holding Company.
7. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the Bank and Executive, except
that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to 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 Executive without reference to
this Agreement.
Nothing in this Agreement shall confer upon Executive the right to
continue in the employ of the Bank or shall impose on the Bank or its
subsidiaries any obligation to employ or retain Executive in its employ for any
period.
8. 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, the Bank and their respective successors and assigns.
9. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
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(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 or as to any act
other than that specifically waived.
10. REQUIRED REGULATORY PROVISIONS.
(a) The Board may terminate Executive's employment at any time,
but any termination by the 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
2 of this Agreement.
(b) If 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) or 8(g)(1) of the Federal Deposit Insurance Act (12
U.S.C. Section 1818(e)(3) or (g)(1)), 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 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 benefit obligations which were suspended.
(c) If 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)(4) or 8(g)(1) of the Federal Deposit Insurance Act (12 U.S.C.
Section 1818(c)(4) or (g)(1)), 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)(1) of the
Federal Deposit Insurance Act, 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 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 of the
Office of Thrift Supervision (or his or her designee) at the time the Federal
Deposit Insurance Corporation or the Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of the Bank under the authority
contained in Section 13(c) of the Federal Deposit Insurance Act; or (ii) by the
Director of the Office of Thrift Supervision (or his or her designee) at the
time the Director (or his or her designee) approves a supervisory merger to
resolve problems related to operation of the Bank or when the Bank is determined
by the Director 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.
6
<PAGE>
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C. Section
1828(k) and any rules and regulations promulgated thereunder.
11. REINSTATEMENT OF BENEFITS UNDER BANK AGREEMENT.
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice described in
Section 10(b) of this Agreement (the "Notice") during the term of this Agreement
and a Change in Control, as defined herein, occurs, the Bank will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 3 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice of Termination.
12. 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.
13. 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. In addition, references herein to the
masculine shall apply to both the masculine and the feminine.
14. GOVERNING LAW.
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Illinois.
15. 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 Executive within fifty
(50) miles from the location of the Bank, in accordance with the rules of the
American Arbitration Association then in effect. 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 Executive's 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.
7
<PAGE>
16. 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 if Executive is successful pursuant to a legal
judgment, arbitration or settlement.
17. INDEMNIFICATION.
The Bank shall provide Executive (including his or her legal
representatives, successors and assigns) with coverage under a standard
directors' and officers' liability insurance policy at its expense and shall
indemnify Executive (including his or her legal representatives, successors and
assigns) for reasonable costs and expenses incurred by Executive in defending or
settling any judicial or administrative proceeding, or threatened proceeding,
whether civil, criminal or otherwise, including any appeal or other proceeding
for review.
Indemnification by the Bank shall be made only upon the final judgment
on the merits in the favor of Executive, in case of settlement, in case of final
judgment against Executive or in the case of final judgment in favor of
Executive other than on the merits, if a majority of the disinterested directors
of the Bank determine Executive was acting in good faith within the scope of
Executive's employment or authority in accordance with 12 C.F.R. section
545.121(c)(iii).
Any such indemnification of Executive must conform with the notice
provisions of 12 C.F.R. Section 545.121(c)(iii) to indemnify Executive to the
fullest for such expenses and liabilities to include, but not be limited to,
judgments, court costs and attorneys' fees and the cost of reasonable
settlements, such settlements to be approved by the Board, if such action is
brought against Executive in his or her capacity as a officer or director of the
Bank, however, shall not extend to matters as to which Executive is finally
adjudged to be liable for willful misconduct in the performance of his or her
duties.
18. 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, 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.
8
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, First Federal Bank and First Federal Bancshares,
Inc. have caused this Agreement, to be executed by their duly authorized
officers, and Executive has signed this Agreement on [DATE].
ATTEST: FIRST FEDERAL BANK
_______________________________ By: _________________________________
Secretary For the Entire Board of Directors
SEAL
ATTEST: FIRST FEDERAL BANCSHARES, INC.
(Guarantor)
______________________________ By: _________________________________
Secretary For the Entire Board of Directors
SEAL
WITNESS: EXECUTIVE
- ---------------------------------- ---------------------------------
[NAME]
9
<PAGE>
Exhibit 10.5
First Federal Bank
Employee Severance Compensation Plan
SECTION 1.01 PURPOSE.
The purpose of this First Federal Bank, F.S.B. Employee Severance Compensation
Plan (the "Plan") is to assure the services of employees of the Bank in the
event of a Change in Control (as defined in Section 2.01 of the Plan). The
benefits contemplated by the Plan recognize the value to the Bank of its
employees and the potential effect upon the Bank resulting from the
uncertainties of continued employment, reduced employee benefits, management
changes and relocations that may arise in the event of a Change in Control. The
Board of Directors of the Bank believes that the Plan will also aid the Bank in
attracting and retaining the qualified individuals essential to the success of
the Bank and will reduce the distractions and other adverse effects on the
performance of employees in the event of a Change in Control.
SECTION 2.01 DEFINITIONS.
In this Plan, whenever the context so indicates, the singular or the plural
number and the masculine or feminine gender shall be deemed to include the
other, the terms "he," "his," and "him," shall refer to a Participant and,
except as otherwise provided, or unless the context otherwise requires, the
capitalized terms shall have the following meanings:
(a) "Annual Compensation" of a Participant means and includes all wages and
salary paid or accrued by the Employer with respect to the Participant's service
during the 12 consecutive-month period ending on the last day of the month
preceding the date the Participant's employment terminates.
(b) "Bank" means First Federal Bank, Colchester, Illinois and any successor to
First Federal Bank.
(c) "Board of Directors" means the Board of Directors of the Bank.
(d) "Change in Control" of the Holding Company or the Bank shall mean an event
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, as amended (the
"Exchange Act"); or (ii) results in a "Change in Control" of the Bank or the
Holding Company within the meaning of the Home Owners' Loan Act of 1933, as
amended, the Federal Deposit Insurance Act, and the Rules and Regulations
promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor
agency), as in effect on the date hereof (provided, that in applying the
definition of change in control as set forth under the rules and regulations of
the OTS, the Board of Directors shall substitute its judgment for that of the
OTS); or (iii) without limitation 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 voting
securities of the Bank or the Holding Company representing 20% or more of the
Bank's or the Holding Company's
<PAGE>
outstanding voting securities or right to acquire such securities except for any
voting securities of the Bank purchased by the Holding Company and any voting
securities purchased by any employee benefit plan of the Holding Company or its
subsidiaries, or (B) individuals who constitute the Board of Directors 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 Holding Company's stockholders was approved by a Nominating
Committee solely composed of members which are Incumbent Board members, 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 Holding Company
or similar transaction occurs or is effectuated in which the Bank or Holding
Company is not the resulting entity; provided, however, that such an event
listed above will be deemed to have occurred or to have been effectuated upon
the receipt of all required federal regulatory approvals not including the lapse
of any statutory waiting periods, or (D) a proxy statement has been distributed
soliciting proxies from stockholders of the Holding Company, by someone other
than the current management of the Holding Company, seeking stockholder approval
of a plan of reorganization, merger or consolidation of the Holding Company or
Bank 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 Holding Company shall be distributed, or (E) a tender offer is made
by a person other than the Holding Company for 20% or more of the voting
securities of the Bank or Holding Company then outstanding.
(e) "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. Additionally, a medical doctor selected or approved by the
Board of Directors must advise the Board of Directors that it is either not
possible to determine if or when such Disability will terminate or that it
appears probable that such Disability will be permanent during the remainder of
the employee's lifetime.
(f) "Effective Date" means [DATE].
(g) "Employer" means (i) the Bank, (ii) the Holding Company or (iii) any
subsidiary of the Bank or the Holding Company that has adopted the Plan pursuant
to the provision of Article VI.
(h) "Holding Company" means First Federal Bancshares, Inc., the holding company
of the Bank.
(i) "Participant" means an employee of an Employer who meets the eligibility
requirements of Article III.
(j) "Plan" means this First Federal Bank, F.S.B. Employee Severance Compensation
Plan.
(k) "Termination for Cause" means termination of employment because of the
Participant's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit,
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intentional failure to perform stated duties, willful violation of any law, rule
or regulation (other than traffic violations or other similar offenses) or any
final cease-and-desist order.
SECTION 3.01 ELIGIBILITY.
(a) Every employee of an Employer shall be eligible to participate in this Plan
upon the completion of a 12 consecutive-month period during which the employee
has been credited with at least 500 hours of service.
(b) Notwithstanding paragraph (a) of this Section 3.01, any employee who has
entered into an employment or change in control agreement with an Employer that
is in effect at the time the employee's employment terminates shall not be
entitled to participate in this Plan.
SECTION 4.01 RIGHT TO BENEFITS.
(a) If a Change in Control occurs, a Participant shall be entitled to receive
benefits under this Plan from his Employer if, within one (1) year of the Change
in Control, he terminates employment for any of the following reasons:
(i) Dismissal by the Employer or the successor to the Employer for any
reason other than Termination for Cause;
(ii) A reduction of the Participant's base salary or rate of
compensation from that in effect immediately prior to the Change in
Control or from any increase that occurs subsequent to the Change in
Control;
(iii) A material change in the Participant's functions, duties or
responsibilities which would cause the Participant's position to be one
of lesser responsibility, importance or scope;
(iv) A relocation of the Participant's principal place of employment by
more than twenty-five (25) miles from the location of the Participant's
principal place of employment immediately prior to the Change in
Control; provided that the place of relocation is not closer to the
Participant's primary residence;
(v) A material reduction in the benefits and perquisites available to
the Participant immediately prior to the Change in Control;
(vi) A successor to the Employer fails or refuses to assume the
Employer's obligations under this Plan, as required by Article VII; or
(vii) The Employer, or any successor to the Employer, breaches any
provisions of this Plan.
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<PAGE>
SECTION 4.02 DETERMINATION OF BENEFITS.
(a) Each Participant entitled to a Payment under this Plan shall receive from
his Employer or any successor to his Employer, a lump sum cash payment equal to
one-twenty-sixth of his or her Annual Compensation for each calendar year or
fraction thereof during which he or she was employed by an Employer or any
successor to an Employer. Notwithstanding the preceding sentence, a Participant
shall not receive a severance benefit in excess of 100% of his or her Annual
Compensation.
(b) Notwithstanding the provisions of paragraph (a) of this Section 4.02, if any
of the payments and benefits provided to a Participant under this Plan or
otherwise constitute an "excess parachute payment" for purposes of Sections 280G
and 4999 of the Internal Revenue Code of 1986, as amended, then the benefits
provided under this Plan to the Participant shall be reduced to the extent that
they no longer constitute an excess parachute payment.
(c) A Participant shall not be required to mitigate the benefits provided under
this Plan in any way, including seeking other employment.
(d) The benefits provided under this Plan shall not be in lieu of or reduced by
any compensation earned by the Participant as a result of employment following
his termination of employment with his Employer.
(e) Neither the provisions of this Plan nor the benefits provided for under this
Plan shall reduce any amounts otherwise payable to a Participant under any plan
or arrangement of the Participant's Employer.
SECTION 4.03 TIME OF PAYMENT.
Any Participant entitled to benefits under this Plan shall receive payment of
those benefits from the Employer or the successor to the Employer, in cash and
in full, not later than thirty (30) business days after the termination of the
Participant's employment. If any Participant should die after becoming entitled
to benefits under this Plan but before he has received payment of the benefits,
then the Employer or the successor to the Employer shall pay the benefits, in
full, to the Participant's named beneficiary, if living, or, if not living, to
the Participant's personal representative on behalf of or for the benefit of the
Participant's estate.
SECTION 4.04 SUSPENSION OF PAYMENT.
Notwithstanding the foregoing, no payments or portions thereof shall be made
under this Plan, if such payment or portion would result in the Bank failing to
meet its minimum regulatory capital requirements as required by 12 C.F.R.
Section 567.2. Any payments or portions thereof not paid shall be suspended
until such time as their payment would not result in a failure to meet the
Bank's minimum
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<PAGE>
regulatory capital requirements. Any portion of benefit payments which have not
been suspended will be paid to Participants on an equitable basis, pro rata,
based upon amounts due each Participant.
SECTION 5.01 PARTICIPATING EMPLOYERS.
Upon approval by the Board of Directors of this Plan, any subsidiary of the Bank
or the Holding Company may adopt this Plan for the benefit of its employees.
Upon adoption, the subsidiary shall become an Employer for purposes of this Plan
and the provisions of the Plan shall be fully applicable to the employees of
that subsidiary. For this purpose, the term "subsidiary" means any corporation
in which the Bank or the Holding Company, directly or indirectly, holds a
majority of the voting power of its outstanding shares of capital stock.
SECTION 5.02 SUCCESSORS TO THE EMPLOYERS.
The Bank and the Holding Company shall require that 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 Holding
Company, expressly and unconditionally to assume and agree to perform the
obligations of the Employers under this Plan.
SECTION 6.01 ADMINISTRATION.
The Board of Directors or a committee appointed by the Board of Directors shall
administer the Plan. Subject to the specific provisions of the Plan, the Board
of Directors or the committee shall have the authority to adopt, amend, alter
and repeal any administrative rules, guidelines or practices it may consider
advisable with respect to the Plan. The Board of Directors or the committee
shall also have the authority to interpret the provisions of the Plan and to
resolve all disputes arising in connection with the Plan. The Board of Directors
or the committee may correct any defect or supply any omission or reconcile any
inconsistency in the Plan in the manner and to the extent it deems appropriate
to carry out the purpose of the Plan. The decisions and interpretations of the
Board of Directors or the committee shall be final and binding. Any action of
the Board of Directors or the committee with respect to the administration of
the Plan shall be taken pursuant to a majority vote or by the unanimous written
consent of the members of the Board of Directors or the committee, as
appropriate.
SECTION 6.02. CLAIMS AND REVIEW PROCEDURES.
(a) Claims procedure. If any person believes he or she is being denied any
rights or benefits under the Plan, such person may file a claim in writing with
the Board. If any such claim is wholly or partially denied, the Board will
notify such person of its decision in writing. Such notification will be written
in a manner calculated to be understood by such person and will contain (i)
specific reasons for the denial, (ii) specific reference to pertinent Plan
provisions, (iii) a description of any additional material or information
necessary for such person to perfect such claim and an explanation of why such
material or information is necessary and (iv) information as to the steps to be
taken if
Page 5
<PAGE>
the person wishes to submit a request for review. Such notification will be
given within 90 days after the claim is received by the Board (or within 180
days, if special circumstances require an extension of time for processing the
claim, and if written notice of such extension and circumstances is given to
such person within the initial 90 day period). If such notification is not given
within such period, the claim will be considered denied as of the last day of
such period and such person may request a review of his claim.
(b) Review procedure. Within 60 days after the date on which a person receives a
written notice of a denied claim (or, if applicable, within 60 days after the
date on which such denial is considered to have occurred) such person (or his
duly authorized representative) may (i) file a written request with the Board
for a review of his denied claim and of pertinent documents and (ii) submit
written issues and comments to the Board. The Board will notify such person of
its decision in writing. Such notification will be written in a manner
calculated to be understood by such person and will contain specific reasons for
the decision as well as specific references to pertinent Plan provisions. The
decision on review will be made within 60 days after the request for review is
received by the Board (or within 120 days, if special circumstances require an
extension of time for processing the requests such as an election by the Board
to hold a hearing, and if written notice of such extension and circumstances is
given to such person within the initial 60 day period). If the decision on
review is not made within such period, the claim will be considered denied.
SECTION 6.03 NAMED FIDUCIARY.
The Board will be a "named fiduciary" for purposes of Section 402(a)(1) of ERISA
with authority to control and manage the operation and administration of the
Plan, and will be responsible for complying with all of the reporting and
disclosure requirements of Part 1 of Subtitle B of Title I of ERISA.
SECTION 7.01 AMENDMENT AND TERMINATION.
(a) At any time prior to a Change in Control, the Bank may amend or terminate
the Plan by a resolution adopted by a majority of the Board of Directors. Any
amendment or termination of the Plan by the Bank shall apply equally to all
Employers. Further, at any time prior to a Change in Control, any Employer may
terminate its participation in the Plan by a resolution adopted by a majority of
its board of directors.
(b) The form of any amendment to the Plan shall be a written instrument signed
by a duly authorized officer or officers of the Bank, certifying that the
amendment has been approved by the Board of Directors.
SECTION 7.02 NO ATTACHMENT.
(a) Except as required by law, no right to receive benefits under this Plan
shall be subject to anticipation, commutation, alienation, sale, assignment,
encumbrance, charge, pledge, or
Page 6
<PAGE>
hypothecation, or to execution, attachment, levy, or similar process or
assignment by operation of law, and any attempt, voluntary or involuntary, to
affect such action shall be null, void, and of no effect.
(b) The provisions of this Plan shall be binding upon, and inure to the benefit
of, each Participant, the Employers and their respective successors and assigns.
SECTION 7.03 LEGAL FEES AND EXPENSES.
All reasonable legal fees and other expenses paid or incurred by a Participant
or an Employer with respect to any claim under this Plan shall be paid or
reimbursed to the prevailing party by the other party in any legal judgment,
arbitration or settlement.
SECTION 7.04 APPLICABLE LAW.
The laws of the State of Illinois shall be controlling law in all matters
relating to the Plan to the extent not preempted by federal law.
SECTION 7.05 SEVERABILITY.
If any provision of this Plan is held illegal or invalid, the illegality or
invalidity of that provision shall not affect the remaining provisions of the
Plan and the Plan shall be construed and enforced as if the illegal or invalid
provision had not been included.
SECTION 7.06 EMPLOYMENT STATUS.
This Plan does not constitute a contract of employment or impose on any Employer
any obligation to retain a Participant, to maintain the status of the
Participant's employment, or to change the Employer's policies regarding
termination of employment.
SECTION 8.01 REQUIRED PROVISIONS.
(a) An Employer may terminate a Participant's employment at any time, but any
termination by the Employer, other than Termination for Cause, shall not
otherwise prejudice the Participant's right to compensation or other benefits
under this Plan.
(b) If a Participant is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Sections 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
Section 1818(e)(3) or (g)(1), the Bank's obligations under this Plan 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 Participant all or part of the compensation withheld while the
obligations were suspended and (ii) reinstate (in whole or in part) any of the
obligations which were suspended.
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(c) If a Participant is removed and/or permanently prohibited from participating
in the conduct of the Bank's affairs by an order issued under Sections 8(e)(4)
or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1818(e)(4) or
(g)(1), all obligations of the Bank under this Plan shall terminate as of the
effective date of the order.
(d) If the Bank is in default, as defined in Section 3(x)(1) of the Federal
Deposit Insurance Act, 12 U.S.C. Section 1813(x)(1), all obligations of the Bank
under this Plan shall terminate as of the date of default; provided, however,
that this paragraph shall not affect any vested rights of the parties to this
Plan.
(e) Any payments made to a Participant pursuant to this Plan, or otherwise, are
subject to and conditioned upon their compliance with 12 U.S.C. Section 1828(k)
and any regulations promulgated thereunder.
Having been adopted by the Board of Directors on [DATE], this Plan is executed
by a duly authorized officer of the Bank on this [DATE].
Attest
- ------------------------------------ ---------------------------------
For the Entire Board of Directors
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Exhibit 10.6
FORM OF
FIRST FEDERAL BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
FORM OF
FIRST FEDERAL BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
TABLE OF CONTENTS
<TABLE>
<S> <C>
Article I - Introduction.......................................................1
Article II - Definitions.......................................................2
Article III - Eligibility and Participation....................................5
Article IV - Benefits..........................................................6
Article V - Accounts...........................................................8
Article VI - Supplemental Benefit Payments.....................................9
Article VII - Claims Procedures...............................................10
Article VIII - Amendment and Termination......................................12
Article IX - General Provisions...............................................13
</TABLE>
i
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ARTICLE I
INTRODUCTION
SECTION 1.01 PURPOSE, DESIGN AND INTENT.
(a) The purpose of the First Federal Bank Supplemental Executive Retirement
Plan (the "Plan") is to assist First Federal Bank (the "Bank") and its
affiliates in retaining the services of key employees until their
retirement, to induce such employees to use their best efforts to
enhance the business of the Bank and its affiliates, and to provide
certain supplemental retirement benefits to such employees.
(b) The Plan, in relevant part, is intended to constitute an unfunded
"excess benefit plan" as defined in Section 3(36) of the Employee
Retirement Income Security Act of 1974, as amended. The Plan is
specifically designed to provide certain key employees with retirement
benefits that would have been provided under various tax-qualified
retirement plans sponsored by the Bank but for the applicable
limitations placed on benefits and contributions under such plans by
various provisions of the Internal Revenue Code of 1986, as amended.
1
<PAGE>
ARTICLE II
DEFINITIONS
SECTION 2.01 DEFINITIONS. In this Plan, whenever the context so indicates,
the singular or the plural number and the masculine or feminine gender shall be
deemed to include the other, the terms "he," "his," and "him," shall refer to a
Participant or a beneficiary of a Participant, as the case may be, and, except
as otherwise provided, or unless the context otherwise requires, the capitalized
terms shall have the following meanings:
(a) "AFFILIATE" means any corporation, trade or business, which, at the time of
reference, is together with the Bank, a member of a controlled group of
corporations, a group of trades or businesses (whether or not incorporated)
under common control, or an affiliated service group, as described in Sections
414(b), 414(c), and 414(m) of the Code, respectively, or any other organization
treated as a single employer with the Bank under Section 414(o) of the Code.
(b) "APPLICABLE LIMITATIONS" means one or more of the following, as applicable:
(i) the maximum limitations on annual additions to a tax-qualified
defined contribution plan under Section 415(c) of the Code;
and
(ii) the maximum limitation on the annual amount of compensation
that may, under Section 401(a)(17) of the Code, be taken into
account in determining contributions to and benefits under
tax-qualified plans.
(c) "BANK" means First Federal Bank, and its successors.
(d) "BOARD OF DIRECTORS" means the Board of Directors of the Bank.
(e) "CHANGE IN CONTROL" means, with respect to the Bank or the Company, an event
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 Holding Company within
the meaning of the Change in Bank Control Act and the Rules and Regulations
promulgated by the Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R.
Section 303.4(a) with respect to the Bank and the Board of Governors of the
Federal Reserve System ("FRB") at 12 C.F.R. Section 225.41(b) with respect to
the Holding Company, as in effect on the date hereof; or (iii) results in a
transaction requiring prior FRB approval under the Bank Holding Company Act of
1956 and the regulations promulgated thereunder by the FRB at 12 C.F.R. Section
225.11, as in effect on the date hereof except for the Holding Company's
acquisition of the Bank; or (iv) 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 Holding Company representing 20%
or more of the Bank's or the Holding Company's outstanding securities except for
2
<PAGE>
any securities of the Bank purchased by the Holding Company in connection with
the conversion of the Bank to the stock form and any securities purchased by any
tax qualified employee benefit plan of the Bank; or (B) individuals who
constitute the Board of Directors 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 Holding 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 Holding Company or similar transaction occurs in which the Bank or
Holding Company is not the resulting entity; or (D) solicitations of
shareholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan or
reorganization, merger of consolidation of the Holding 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 the plan or
transaction are exchanged for or converted into cash or property or securities
not issued by the Bank or the Holding Company shall be distributed; or (E) a
tender offer is made for 20% or more of the voting securities of the Bank or the
Holding Company.
(f) "CODE" means the Internal Revenue Code of 1986, as amended.
(g) "COMMITTEE" means the person(s) designated by the Board of Directors,
pursuant to Section 9.02 of the Plan, to administer the Plan.
(h) "COMMON STOCK" means the common stock of the Company.
(i) "COMPANY" means First Federal Bancshares, Inc. and its successors.
(j) "ELIGIBLE INDIVIDUAL" means any Employee of the Bank or an Affiliate who
participates in the ESOP and whom the Board of Directors determines is one of a
"select group of management or highly compensated employees," as such phrase is
used for purposes of Sections 101, 201, and 301 of ERISA.
(k) "EMPLOYEE" means any person employed by the Bank or an Affiliate.
(l) "EMPLOYER" means the Bank or Affiliate that employs the Employee.
(m) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
(n) "ESOP" means the First Federal Bank Employee Stock Ownership Plan, as
amended from time to time.
3
<PAGE>
(o) "ESOP ACQUISITION LOAN" means a loan or other extension of credit incurred
by the trustee of the ESOP in connection with the purchase of Common Stock on
behalf of the ESOP.
(p) "ESOP VALUATION DATE" means any day as of which the investment experience of
the trust fund of the ESOP is determined and individuals' accounts under the
ESOP are adjusted accordingly.
(q) "EFFECTIVE DATE" means [JANUARY 1, 2000].
(r) "PARTICIPANT" means an Eligible Employee who is entitled to benefits under
the Plan.
(s) "PLAN" means this First Federal Bank Supplemental Executive Retirement Plan.
(t) "SUPPLEMENTAL ESOP ACCOUNT" means an account established by an Employer,
pursuant to Section 5.01 of the Plan, with respect to a Participant's
Supplemental ESOP Benefit.
(u) "SUPPLEMENTAL ESOP BENEFIT" means the benefit credited to a Participant
pursuant to Section 4.01 of the Plan.
(v) "SUPPLEMENTAL STOCK OWNERSHIP ACCOUNT" means an account established by an
Employer, pursuant to Section 5.02 of the Plan, with respect to a Participant's
Supplemental Stock Ownership Benefit.
(w) "SUPPLEMENTAL STOCK OWNERSHIP BENEFIT" means the benefit credited to a
Participant pursuant to Section 4.02 of the Plan.
4
<PAGE>
ARTICLE III
ELIGIBILITY AND PARTICIPATION
SECTION 3.01 ELIGIBILITY AND PARTICIPATION.
(a) Each Eligible Employee may participate in the Plan. An Eligible
Employee shall become a Participant in the Plan upon designation as
such by the Board of Directors. An Eligible Employee whom the Board of
Directors designates as a Participant in the Plan shall commence
participation as of the date established by the Board of Directors. The
Board of Directors shall establish an Eligible Employee's date of
participation at the same time it designates the Eligible Employee as a
Participant in the Plan.
(b) The Board of Directors may, at any time, designate an Eligible Employee
as a Participant for any or all supplemental benefits provided for
under Article IV of the Plan.
5
<PAGE>
ARTICLE IV
BENEFITS
SECTION 4.01 SUPPLEMENTAL ESOP BENEFIT.
As of the last day of each plan year of the ESOP, the Employer shall credit the
Participant's Supplemental ESOP Account with a Supplemental ESOP Benefit equal
to the excess of (a) over (b), where:
(a) Equals the annual contributions made by the Employer and/or the number of
shares of Common Stock released for allocation in connection with the
repayment of an ESOP Acquisition Loan that would otherwise be allocated
to the accounts of the Participant under the ESOP for the applicable plan
year if the provisions of the ESOP were administered without regard to
and of the Applicable Limitations; and
(b) Equals the annual contributions made by the Employer and for the number
of shares of common stock released for allocation in connection with the
repayment of an ESOP Acquisition Loan that are actually allocated to the
accounts of the Participant under the provisions of the ESOP for that
particular plan year after giving effect to any reduction of such
allocation required by the limitations imposed by any of the Applicable
Limitations.
SECTION 4.02 SUPPLEMENTAL STOCK OWNERSHIP BENEFIT.
(a) Upon a Change in Control, the Employer shall credit to the Participant's
Supplemental Stock Ownership Account a Supplemental Stock Ownership
Benefit equal to (i) less (ii), the result of which is multiplied by
(iii), where:
(i) Equals the total number of shares of Common Stock acquired
with the proceeds of all ESOP Acquisition Loans (together with
any dividends, cash proceeds, or other medium related to such
ESOP Acquisition Loans) that would have been allocated or
credited for the benefit of the Participant under the ESOP
and/or this Plan, as the case may be, had the Participant
continued in the employ of the Employer through the first ESOP
Valuation Date following the last scheduled payment of
principal and interest on all ESOP Acquisition Loans
outstanding at the time of the Change in Control; and
(ii) Equals the total number of shares of Common Stock acquired
with the proceeds of all ESOP Acquisition Loans (together with
any dividends, cash proceeds, or other medium related to such
ESOP Acquisition Loans) and allocated for the benefit of the
Participant under the ESOP and this Plan as of the first ESOP
Valuation Date following the Change in Control; and
(iii) Equals the fair market value of Common Stock immediately
preceding the Change in Control.
6
<PAGE>
(b) For purposes of clause: (i) of subsection (a) of this Section 4.02, the
total number of shares of Common Stock shall be determined by multiplying
the sum of (i) and (ii) by (iii), where:
(i) equals the average of the total shares of Common Stock
acquired with the proceeds of an ESOP Acquisition Loan and
allocated for the benefit of the Participant under the ESOP as
of three most recent ESOP Valuation Dates preceding the
Participant's Retirement (or lesser number if the Participant
has not participated in the ESOP for three full years);
(ii) equals the average number of shares of Common Stock credited
to the Participant's Supplemental ESOP Account for the three
most recent plan years of the ESOP (such that the three recent
plan years coincide with the three most recent ESOP Valuation
Dates referred to in (i) above); and
(iii) equals the total number of scheduled annual payments remaining
on the ESOP Acquisition Loans as of the Change in Control.
7
<PAGE>
ARTICLE V
ACCOUNTS
SECTION 5.01 SUPPLEMENTAL ESOP BENEFIT ACCOUNT.
For each Participant who is credited with a benefit pursuant to Section 4.01 of
the Plan, the Employer shall establish, as a memorandum account on its books, a
Supplemental ESOP Account. Each year, the Committee shall credit to the
Participant's Supplemental ESOP Account the amount of benefits determined under
Section 4.01 of the Plan for that year. The Committee shall credit the account
with an amount equal to the appropriate number of shares of Common Stock or
other medium of contribution that would have otherwise been made to the
Participant's accounts under the ESOP but for the limitations imposed by the
Code. Shares of Common Stock shall be valued under this Plan in the same manner
as under the ESOP. Cash contributions credited to a Participant's Supplemental
ESOP Account shall be credited annually with interest at a rate equal to the
combined weighted return provided to the Participant's non-stock accounts under
the ESOP.
SECTION 5.02 SUPPLEMENTAL STOCK OWNERSHIP ACCOUNT.
The Employer shall establish, as a memorandum account on its books, a
Supplemental Stock Ownership Account. Upon a Change in Control, the Committee
shall credit to the Participant's Supplemental Stock Ownership Account the
amount of benefits determined under Section 4.02 of the Plan. The Committee
shall credit the account with an amount equal to the appropriate number of
shares of Common Stock or other medium of contribution that would have otherwise
been made to the Participant's accounts under the ESOP but for the Participant's
Retirement. Shares of Common Stock shall be valued under this Plan in the same
manner as under the ESOP. Cash contributions credited to a Participant's
Supplemental Stock Ownership Account shall be credited annually with interest at
a rate equal to the combined weighted return provided to the Participant's
non-stock accounts under the ESOP.
8
<PAGE>
ARTICLE VI
SUPPLEMENTAL BENEFIT PAYMENTS
SECTION 6.01 PAYMENT OF SUPPLEMENTAL ESOP BENEFIT.
(a) A Participant's Supplemental ESOP Benefit shall be paid to the
Participant or in the event of the Participant's death, to his
beneficiary in the same form, time and medium (I.E., cash and/or shares
of Common Stock) as his benefits are paid under the ESOP.
(b) A Participant shall have a non-forfeitable right to the Supplemental ESOP
Benefit credited to him under this Plan in the same percentage as he has
to benefits allocated to him under the ESOP at the time the benefits
become distributable to him under the ESOP.
SECTION 6.02 PAYMENT OF SUPPLEMENTAL STOCK OWNERSHIP BENEFIT.
(a) A Participant's Supplemental Stock Ownership Benefit shall be paid to the
Participant or in the event of the Participant's death, to his
beneficiary in the same form, time and medium (I.E., cash and/or shares
of Common Stock) as his benefits are paid under the ESOP.
(b) A Participant shall always have a fully non-forfeitable right to the
Supplemental Stock Ownership Benefit credited to him under this Plan.
SECTION 6.03 ALTERNATIVE PAYMENT OF BENEFITS.
Notwithstanding the other provisions of this Article VI, a Participant may, with
prior written consent of the Committee and upon such terms and conditions as the
Committee may impose, request that the Supplemental ESOP Benefit and/or the
Supplemental Stock Ownership Benefit to which he is entitled be paid commencing
at a different time, over a different period, in a different form, or to
different persons, than the benefit to which he or his beneficiary may be
entitled under the ESOP.
9
<PAGE>
ARTICLE VII
CLAIMS PROCEDURES
SECTION 7.01 CLAIMS REVIEWER.
For purposes of handling claims with respect to this Plan, the "Claims Reviewer"
shall be the Committee, unless the Committee designates another person or group
of persons as Claims Reviewer.
SECTION 7.02 CLAIMS PROCEDURE.
(a) An initial claim for benefits under the Plan must be made by the
Participant or his or her beneficiary or beneficiaries in accordance with
the terms of this Section 7.02.
(b) Not later than ninety (90) days after receipt of such a claim, the Claims
Reviewer will render a written decision on the claim to the claimant,
unless special circumstances require the extension of such 90-day period.
If such extension is necessary, the Claims Reviewer shall provide the
Participant or the Participant's beneficiary or beneficiaries with
written notification of such extension before the expiration of the
initial 90-day period. Such notice shall specify the reason or reasons
for the extension and the date by which a final decision can be expected.
In no event shall such extension exceed a period of ninety (90) days from
the end of the initial 90-day period.
(c) In the event the Claims Reviewer denies the claim of a Participant or any
beneficiary in whole or in part, the Claims Reviewer's written
notification shall specify, in a manner calculated to be understood by
the claimant, the reason for the denial; a reference to the Plan or other
document or form that is the basis for the denial; a description of any
additional material or information necessary for the claimant to perfect
the claim; an explanation as to why such information or material is
necessary; and an explanation of the applicable claims procedure.
(d) Should the claim be denied in whole or in part and should the claimant be
dissatisfied with the Claims Reviewer's disposition of the claimant's
claim, the claimant may have a full and fair review of the claim by the
Committee upon written request submitted by the claimant or the
claimant's duly authorized representative and received by the Committee
within sixty (60) days after the claimant receives written notification
that the claimant's claim has been denied. In connection with such
review, the claimant or the claimant's duly authorized representative
shall be entitled to review pertinent documents and submit the claimant's
views as to the issues, in writing. The Committee shall act to deny or
accept the claim within sixty (60) days after receipt of the claimant's
written request for review unless special circumstances require the
extension of such 60-day period. If such extension is necessary, the
Committee shall provide the claimant with written notification of such
extension before the expiration of such initial 60-day period. In all
events, the Committee shall act to deny or accept the claim within 120
days of the receipt of the claimant's written request for review. The
action of the Committee shall be in the form of a written notice to the
claimant and its contents shall include all of the requirements for
action on the original claim.
10
<PAGE>
(e) In no event may a claimant commence legal action for benefits the
claimant believes are due the claimant until the claimant has exhausted
all of the remedies and procedures afforded the claimant by this Article
VII.
11
<PAGE>
ARTICLE VIII
AMENDMENT AND TERMINATION
SECTION 8.01 AMENDMENT OF THE PLAN.
The Bank may from time to time and at any time amend the Plan; provided,
however, that such amendment may not adversely affect the rights of any
Participant or beneficiary with respect to any benefit under the Plan to which
the Participant or beneficiary may have previously become entitled prior to the
effective date of such amendment without the consent of the Participant or
beneficiary. The Committee shall be authorized to make minor or administrative
changes to the Plan, as well as amendments required by applicable federal or
state law (or authorized or made desirable by such statutes); provided, however,
that such amendments must subsequently be ratified by the Board of Directors.
SECTION 8.02 TERMINATION OF THE PLAN.
The Bank may at any time terminate the Plan; provided, however, that such
termination may not adversely affect the rights of any Participant or
beneficiary with respect to any benefit under the Plan to which the Participant
or beneficiary may have previously become entitled prior to the effective date
of such termination without the consent of the Participant or beneficiary. Any
amounts credited to the supplemental accounts of any Participant shall remain
subject to the provisions of the Plan and no distribution of benefits shall be
accelerated because of termination of the Plan.
12
<PAGE>
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01 UNFUNDED, UNSECURED PROMISE TO MAKE PAYMENTS IN THE FUTURE.
The right of a Participant or any beneficiary to receive a distribution under
this Plan shall be an unsecured claim against the general assets of the Bank or
its Affiliates and neither a Participant nor his designated beneficiary or
beneficiaries shall have any rights in or against any amount credited to any
account under this Plan or any other assets of the Bank or an Affiliate. The
Plan at all times shall be considered entirely unfunded both for tax purposes
and for purposes of Title I of ERISA. Any funds invested hereunder shall
continue for all purposes to be part of the general assets of the Bank or an
Affiliate and available to its general creditors in the event of bankruptcy or
insolvency. Accounts under this Plan and any benefits which may be payable
pursuant to this Plan are not subject in any manner to anticipation, sale,
alienation, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors of a Participant or a Participant's beneficiary. The
Plan constitute a mere promise by the Bank or Affiliate to make benefit payments
in the future. No interest or right to receive a benefit may be taken, either
voluntarily or involuntarily, for the satisfaction of the debts of, or other
obligations or claims against, such Participant or beneficiary, including claims
for alimony, support, separate maintenance and claims in bankruptcy proceedings.
SECTION 9.02 COMMITTEE AS PLAN ADMINISTRATOR.
(a) The Plan shall be administered by the Committee designated by the Board
of Directors.
(b) The Committee shall have the authority, duty and power to interpret and
construe the provisions of the Plan as it deems appropriate. The
Committee shall have the duty and responsibility of maintaining records,
making the requisite calculations and disbursing the payments hereunder.
In addition, the Committee shall have the authority and power to delegate
any of its administrative duties to employees of the Bank or Affiliate,
as they may deem appropriate. The Committee shall be entitled to rely on
all tables, valuations, certificates, opinions, data and reports
furnished by any actuary, accountant, controller, counsel or other person
employed or retained by the Bank with respect to the Plan. The
interpretations, determination, regulations and calculations of the
Committee shall be final and binding on all persons and parties
concerned.
SECTION 9.03 EXPENSES.
Expenses of administration of the Plan shall be paid by the Bank or an
Affiliate.
SECTION 9.04 STATEMENTS.
The Committee shall furnish individual annual statements of accrued benefits to
each Participant, or current beneficiary, in such form as determined by the
Committee or as required by law.
13
<PAGE>
SECTION 9.05 RIGHTS OF PARTICIPANTS AND BENEFICIARIES.
(a) The sole rights of a Participant or beneficiary under this Plan shall be
to have this Plan administered according to its provisions, to receive
whatever benefits he or she may be entitled to hereunder.
(b) Nothing in the Plan shall be interpreted as a guaranty that any funds in
any trust which may be established in connection with the Plan or assets
of the Bank or an Affiliate will be sufficient to pay any benefit
hereunder.
(c) The adoption and maintenance of this Plan shall not be construed as
creating any contract of employment or service between the Bank or an
Affiliate and any Participant or other individual. The Plan shall not
affect the right of the Bank or an Affiliate to deal with any
Participants in employment or service respects, including their hiring,
discharge, compensation, and conditions of employment or other service.
SECTION 9.06 INCOMPETENT INDIVIDUALS.
The Committee may from time to time establish rules and procedures which it
determines to be necessary for the proper administration of the Plan and the
benefits payable to a Participant or beneficiary in the event that such
Participant or beneficiary is declared incompetent and a conservator or other
person legally charged with that Participant's or beneficiary's care is
appointed. Except as otherwise provided herein, when the Committee determines
that such Participant or beneficiary is unable to manage his or her financial
affairs, the Committee may pay such Participant's or beneficiary's benefits to
such conservator, person legally charged with such Participant's or
beneficiary's care, or institution then contributing toward or providing for the
care and maintenance of such Participant or beneficiary. Any such payment shall
constitute a complete discharge of any liability of the Bank or an Affiliate and
the Plan for such Participant or beneficiary.
SECTION 9.07 SALE, MERGER, OR CONSOLIDATION OF THE BANK.
The Plan may be continued after a sale of assets of the Bank, or a merger or
consolidation of the Bank into or with another corporation or entity only if and
to the extent that the transferee, purchaser or successor entity agrees to
continue the Plan. Additionally, upon a merger, consolidation or other change in
control any amounts credited to Participant's deferral accounts shall be placed
in a grantor trust to the extent not already in such a trust. In the event that
the Plan is not continued by the transferee, purchaser or successor entity, then
the Plan shall be terminated subject to the provisions of Section 8.02 of the
Plan. Any legal fees incurred by a Participant in determining benefits to which
such Participant is entitled under the Plan following a sale, merger, or
consolidation of the Bank or an Affiliate of which the Participant is an
Employee or, if applicable, a member of the Board of Directors, shall be paid by
the resulting or succeeding entity.
14
<PAGE>
SECTION 9.08 LOCATION OF PARTICIPANTS.
Each Participant shall keep the Bank informed of his or her current address and
the current address of his or her designated beneficiary or beneficiaries. The
Bank shall not be obligated to search for any person. If such person is not
located within three (3) years after the date on which payment of the
Participant's benefits payable under this Plan may first be made, payment may be
made as though the Participant or his or her beneficiary had died at the end of
such three-year period.
SECTION 9.09 LIABILITY OF THE BANK AND ITS AFFILIATES.
Notwithstanding any provision herein to the contrary, neither the Bank nor any
individual acting as an employee or agent of the Bank shall be liable to any
Participant, former Participant, beneficiary, or any other person for any claim,
loss, liability or expense incurred in connection with the Plan, unless
attributable to fraud or willful misconduct on the part of the Bank or any such
employee or agent of the Bank.
SECTION 9.10 GOVERNING LAW.
All questions pertaining to the construction, validity and effect of the Plan
shall be determined in accordance with the laws of the United States and to the
extent not preempted by such laws, by the laws of the state of Illinois.
Having been adopted by its Board of Directors on the ______________ 2000, this
Plan is executed by its duly authorized officer this ___ day of________________,
2000.
FIRST FEDERAL BANK
Attest:
________________________ By:______________________________
15
<PAGE>
Exhibit 16.0
The Board of Directors
First Federal Bank, F.S.B.
We consent to the inclusion of our report dated March 23, 1999 on the financial
statements of First Federal Bank, F.S.B. as of and for the year ended February
28, 1999 in First Federal Bank, F.S.B.'s Form SB-2 to be filed with the
Securities and Exchange Commission.
/s/ Clifton Gunderson L.L.C.
CLIFTON GUNDERSON L.L.C.
Peoria, Illinois
May 5, 2000
<PAGE>
Exhibit 23.1
CONSENT
We hereby consent to the references to this firm and our opinions in,
and the inclusion of our opinions as exhibits to: the Registration Statement on
Form SB-2 filed by First Federal Bancshares, Inc. (the "Company"), and all
amendments thereto; in the Form H-(e)1-S for the Company, and all amendments
thereto; and in the Application for Conversion on Form AC filed by First Federal
Bank, F.S.B. (the "Bank"), and all amendments thereto, relating to the
conversion of the Bank from a federally-chartered mutual savings bank to a
federally-chartered stock savings bank, the concurrent issuance of the Bank's
outstanding capital stock to the Company, a holding company formed for such
purpose, and the offering of the Company's common stock.
We note that, although certain portions of the Registration Statement
on Form SB-2 (the financial statements and schedules) have been included therein
on the authority of "experts" within the meaning of the Securities Act, we are
not such experts with respect to any portion of the Registration Statement on
Form SB-2, including without limitation the financial statements or schedules or
the other financial information or data included therein.
/s/ Muldoon, Murphy & Faucette LLP
----------------------------------
MULDOON, MURPHY & FAUCETTE LLP
Dated this 5th day of
May 2000
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
First Federal Bank, F.S.B.
We consent to the use in this Registration Statement on Form SB-2 filed with the
Securities and Exchange Commission and Form AC filed with the Office of Thrift
Supervision on May 5, 2000, of our report dated March 17, 2000, on the financial
statements of First Federal Bank, F.S.B. for the year ended February 29, 2000.
We also consent to the reference to us under the headings "The Conversion -
Effects of Conversion to Stock Form - Tax Effects," "Legal and Tax Opinions,"
and "Experts" in this Registration Statement on Forms SB-2 and AC.
/s/ Crowe, Chizek and Company LLP
-----------------------------------
Crowe, Chizek and Company LLP
Oak Brook, Illinois
May 5, 2000
<PAGE>
Exhibit 23.3
[Letterhead of RP Financial, LC.]
May 5, 2000
Board of Directors
First Federal Bank, F.S.B.
109 East Depot Street
Colchester, Illinois 62326
Gentlemen:
We hereby consent to the use of our firm's name in the Application for
Conversion of First Federal Bank, F.S.B., Colchester, Illinois, and any
amendments thereto, and in the Form SB-2 Registration Statement and any
amendments thereto for First Federal Bancshares, Inc. We also hereby consent to
the inclusion of, summary of and references to our Appraisal Report and our
statement concerning subscription rights in such filings including the
Prospectus of First Federal Bancshares, Inc.
Sincerely,
/s/ RP Financial, LC.
----------------------
RP FINANCIAL, LC.
<PAGE>
Exhibit 23.4
LETTER RE CHANGE IN CERTIFYING ACCOUNTANT
May 5, 2000
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Gentlemen:
We have read the "Change in Accountants" section of the prospectus dated May 5,
2000, of First Federal Bancshares, Inc. and are in agreement with the statements
contained in the first sentence of the first paragraph as it pertains to Clifton
Gunderson L.L.C., and with the statements in the second paragraph of the "Change
in Accountants" section therein. We have no basis to agree or disagree with the
other statements of the registrant contained therein.
/s/ Clifton Gunderson L.L.C.
CLIFTON GUNDERSON L.L.C.
<PAGE>
Exhibit 24.0
CONFORMED
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints James J. Stebor, as true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for them and in their name, place and stead, in any and all capacities to sign
any or all amendments to the Application for Conversion by First Federal Bank,
F.S.B. and the Form SB-2 Registration Statement by First Federal Bancshares,
Inc. and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Office of Thrift Supervision of the Department of
the Treasury (the "OTS") or the U.S. Securities and Exchange Commission,
respectively, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done as fully to all intents and purposes as they might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or their substitute or substitutes may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of Part 563b of the OTS Rules and
Regulations and the Securities Act of 1933, as amended, and any rules and
regulations promulgated thereunder, the foregoing Power of Attorney prepared in
conjunction with the Application for Conversion and the Registration Statement
has been duly signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
NAME DATE
---- ----
<S> <C>
/s/ James J. Stebor May 5, 2000
- ------------------------------
James J. Stebor
President, Chief Executive Officer
and Director
(principal executive officer)
First Federal Bancshares, Inc.
President and Director
(principal executive officer)
First Federal Bank, F.S.B.
/s/ Cathy D. Pendell May 5, 2000
- ------------------------------
Cathy D. Pendell
Treasurer
(principal accounting and financial officer)
First Federal Bancshares, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
/s/ Peggy L. Higgins May 5, 2000
- ------------------------------
Peggy L. Higgins
Senior Vice President, Accounting
(principal accounting and financial officer)
First Federal Bank, F.S.B.
/s/ Gerald L. Prunty May 5, 2000
- ------------------------------
Gerald L. Prunty
Director
First Federal Bancshares, Inc.
Chairman of the Board
First Federal Bank, F.S.B.
/s/ Franklin M. Hartzell May 5, 2000
- ------------------------------
Franklin M. Hartzell
Chairman of the Board
First Federal Bancshares, Inc.
Director
First Federal Bank, F.S.B.
/s/ Murrel Hollis May 5, 2000
- ------------------------------
Murrel Hollis
Director
First Federal Bancshares, Inc.
Director
First Federal Bank, F.S.B.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
/s/ Dr. Stephan L. Roth May 5, 2000
- ---------------------------------------
Dr. Stephan L. Roth
Director
First Federal Bancshares, Inc.
Director
First Federal Bank, F.S.B.
/s/ Eldon M. Snowden May 5, 2000
- ----------------------------------------
Eldon M. Snowden
Director
First Federal Bancshares, Inc.
Director
First Federal Bank, F.S.B.
/s/ Richard D. Stephens May 5, 2000
- -----------------------------------------
Richard D. Stephens
Director
First Federal Bancshares, Inc.
Director
First Federal Bank, F.S.B.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS FOR THE FIRST FEDERAL BANCSHARES, INC. FOR THE
YEAR ENDED FEBRUARY 29, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH AUDITED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> FEB-29-2000
<CASH> 820
<INT-BEARING-DEPOSITS> 6,514
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 29,442
<INVESTMENTS-CARRYING> 58,927
<INVESTMENTS-MARKET> 56,037
<LOANS> 114,085
<ALLOWANCE> 483
<TOTAL-ASSETS> 213,187
<DEPOSITS> 182,572
<SHORT-TERM> 6,000
<LIABILITIES-OTHER> 589
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 24,026
<TOTAL-LIABILITIES-AND-EQUITY> 213,187
<INTEREST-LOAN> 7,933
<INTEREST-INVEST> 5,409
<INTEREST-OTHER> 318
<INTEREST-TOTAL> 13,660
<INTEREST-DEPOSIT> 8,324
<INTEREST-EXPENSE> 8,642
<INTEREST-INCOME-NET> 5,018
<LOAN-LOSSES> 119
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,845
<INCOME-PRETAX> 2,345
<INCOME-PRE-EXTRAORDINARY> 2,345
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,508
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 2.50
<LOANS-NON> 32
<LOANS-PAST> 980
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 457
<CHARGE-OFFS> 92
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 483
<ALLOWANCE-DOMESTIC> 443
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 40
</TABLE>
<PAGE>
EXHIBIT 99.2
[Member Letter - First Federal Bank letterhead]
July XX, 2000
Dear Member:
I am pleased to be writing to you during this historic time for First
Federal Bank. Our Board of Directors has adopted a plan of conversion that will
allow us to convert from mutual to stock form and organize a stock holding
company which will offer its stock to our depositors as well as to the general
public. The additional capital raised will allow us to continue to serve our
communities, enhance our ability to expand the products and services we
currently offer, and potentially expand into new markets.
We are forwarding this packet of information to you for several
reasons. First, we want our valued customers to better understand our corporate
strategy, business plan and vision for the future. I encourage you to read the
enclosed prospectus for a detailed discussion of our company including
information regarding our conversion and stock offering. The Question and Answer
section at the beginning of the prospectus addresses many questions you may have
concerning our plan of conversion.
Second, we would like you to vote on our proposed conversion and stock
offering. Our depositors and certain borrowers have the right to vote. Attached
to the top of the blue and white order form is a proxy card. By signing the
proxy card, detaching it and returning it in the enclosed blue envelope, your
vote will be cast at a Special Meeting of Members to be held on August XX, 2000.
The Board of Directors encourages you to vote "For" the conversion.
Third, I invite you to consider investing in shares of our company. I
want to emphasize, however, that shares of common stock are not insured or
guaranteed by the bank, the government or any other agency. You should read the
entire prospectus carefully before deciding whether or not to invest in our
company. If you decide to purchase shares, please complete the enclosed blue and
white stock order form and certification form and return it in the white return
envelope with proper payment. We must receive all orders for stock by 12:00
noon, Central time, on XXXday, August XX, 2000 at a branch of the bank or at the
conversion center located XXX. Please note that orders will be filled on a
priority basis in accordance with the prospectus.
In closing, I want to assure you that your deposits and loans with
First Federal Bank will not change due to the conversion. There will be no
change in the balance, interest rate or maturity of deposits or loans because of
the conversion, and your deposits will continue to be insured by the Federal
Deposit Insurance Corporation in the same capacity as before the conversion.
If you have any questions about the conversion, please call our
representatives at (xxx) xxx-xxxx or visit the conversion center between 9:00
a.m. and 5:00 p.m., Central time, Monday through Friday.
Thank you for giving these matters your attention and timely
consideration.
Sincerely,
James J. Stebor
President
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL
AGENCY. THIS IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS ACCOMPANIED BY THE STOCK ORDER
FORM.
M
<PAGE>
("Dark Blue Sky" Letter- First Federal Bank Letterhead)
July XX, 2000
Dear Member:
I am pleased to be writing to you during this historic time for First
Federal Bank. Our Board of Directors has adopted a plan of conversion that will
allow us to convert from mutual to stock form and organize a stock holding
company which will offer its stock to our depositors as well as to the general
public. The additional capital raised will allow us to continue to serve our
communities, enhance our ability to expand the products and services we
currently offer, and potentially expand into new markets.
We are forwarding this packet of information to you for primarily two
reasons. First, we want our valued customers to better understand our corporate
strategy, business plan and vision for the future. I encourage you to read the
enclosed Prospectus for a detailed discussion of our company including
information regarding our conversion and stock offering. The Question and Answer
section at the beginning of the prospectus addresses many questions you may have
concerning our plan of conversion.
Second, we would like you to vote on our proposed conversion and stock
offering. Our depositors and certain borrowers have the right to vote. Attached
to the top of the blue and white order form is a proxy card. By signing the
proxy card, detaching it and returning it in the enclosed blue envelope, your
vote will be cast at a Special Meeting of Members to be held on August XX, 2000.
The Board of Directors encourages you to vote "For" the conversion.
Currently, we are conducting a stock offering to our depositors.
However, the company is unable to offer or sell its common stock to you because
the small number of eligible subscribers in your jurisdiction makes registration
or qualification of the common stock under the securities laws of your
jurisdiction impractical, for reasons of cost or otherwise. Accordingly, this
letter should be considered neither an offer to sell nor a solicitation of an
offer to buy the common stock of the company.
In closing, I want to assure you that your deposits and loans with
First Federal Bank will not change due to the conversion. There will be no
change in the balance, interest rate or maturity of deposits or loans because of
the conversion, and your deposits will continue to be insured by the Federal
Deposit Insurance Corporation in the same capacity as before the conversion.
If you have any questions about the conversion, please call our
representatives at (xxx) xxx-xxxx or visit the conversion center located at XXX
between 9:00 a.m. and 5:00 p.m., Central time, Monday through Friday.
Thank you for giving these matters your attention and timely
consideration.
Sincerely,
James J. Stebor
President
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL
AGENCY. THIS IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS ACCOMPANIED BY THE STOCK ORDER
FORM.
B
<PAGE>
[Closed Account Letter - First Federal Bank Letterhead]
July XX, 2000
Dear Friend:
I am pleased to be writing to you during this historic time for First
Federal Bank. Our Board of Directors has adopted a plan of conversion that will
allow us to convert from mutual to stock form and organize a stock holding
company which will offer its stock to our depositors as well as to the general
public. The additional capital raised will allow us to continue to serve our
communities, enhance our ability to expand the products and services we
currently offer, and potentially expand into new markets.
We are forwarding this packet of information to you primarily for two
reasons. First, we want our present and past customers to better understand our
corporate strategy, business plan and vision for the future. Because you had a
deposit account at First Federal Bank within the past year and a half, we are
forwarding you this packet of information. I encourage you to read the enclosed
Prospectus for a detailed discussion of our company including information
regarding our conversion and stock offering. The Question and Answer section at
the beginning of the prospectus addresses many questions you may have concerning
our plan of conversion.
Second, I invite you to consider investing in shares of our company. I
want to emphasize, however, that shares of common stock are not insured or
guaranteed by the bank, the government or any other agency. You should read the
entire prospectus carefully before deciding whether or not to invest in our
company. If you decide to purchase shares, please complete the enclosed blue and
white stock order form and certification form and return it in the white return
envelope with proper payment. We must receive all orders for stock by 12:00
noon, Central time, on XXXday, August XX, 2000 at a branch of the bank or at the
conversion center located in XXX. Please note that orders will be filled on a
priority basis in accordance with the prospectus.
If you have any questions about the conversion, please call our
representatives at (xxx) xxx-xxxx or visit the conversion center between 9:00
a.m. and 5:00 p.m., Central time, Monday through Friday.
Thank you for giving these matters your attention and timely
consideration.
Sincerely,
James J. Stebor
President
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL
AGENCY. THIS IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS ACCOMPANIED BY THE STOCK ORDER
FORM.
F
<PAGE>
(Prospective Investor Letter - First Federal Bancshares, Inc. Letterhead)
July XX, 2000
Dear Prospective Investor:
I am pleased to be writing to you during this historic time for First
Federal Bank. Our Board of Directors has adopted a plan of conversion that will
allow us to convert from mutual to stock form and organize a stock holding
company which will offer its stock to our depositors as well as to the general
public. The additional capital raised will allow us to continue to serve our
communities, enhance our ability to expand the products and services we
currently offer, and potentially expand into new markets.
We are forwarding on this packet of information to you primarily for
two reasons. First, we want all prospective investors to better understand our
corporate strategy, business plan and vision for the future. I encourage you to
read the enclosed prospectus for a detailed discussion of our company including
information regarding our conversion and stock offering. The Question and Answer
section at the beginning of the prospectus addresses many questions you may have
concerning our plan of conversion.
Second, I invite you to consider investing in shares of our company. I
want to emphasize, however, that shares of common stock are not insured or
guaranteed by the bank, the government or any other agency. You should read the
entire prospectus carefully before deciding whether or not to invest in our
company. If you decide to purchase shares, please complete the enclosed blue and
white stock order form and certification form and return it in the white return
envelope with proper payment. We must receive all orders for stock by 12:00
noon, Central time, on XXXday, August XX, 2000 at a branch of the bank or at the
conversion center located in XXX. Please note that orders will be filled on a
priority basis in accordance with the prospectus.
If you have any questions about the conversion, please call our
representatives at (xxx) xxx-xxxx or visit the conversion center between 9:00
a.m. and 5:00 p.m., Central time, Monday through Friday.
Thank you for giving these matters your attention and timely
consideration.
Sincerely,
James J. Stebor
President and Chief Executive Officer
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL
AGENCY. THIS IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS ACCOMPANIED BY THE STOCK ORDER
FORM.
P
<PAGE>
[Broker Dealer Letter - FBR Letterhead]
July XX, 2000
To Whom It May Concern:
Friedman, Billings, Ramsey & Co., Inc., or FBR, is assisting First
Federal Bank in converting from mutual to stock form and organizing a stock
holding company which will sell its shares of common stock to First Federal
Bank's depositors and the general public. FBR is a full-service investment
banking, research and institutional brokerage firm located outside of
Washington, D.C. We are a member of the National Association of Securities
Dealers, and our on-site professionals at the bank are registered
representatives who are licensed to sell common stock.
At the request of First Federal Bank, we are enclosing materials
explaining the conversion and your opportunity to invest in shares of common
stock being offered to customers and the community. Please read the enclosed
offering materials carefully. The company has asked us to forward these
documents to you in order to comply with the requirements of the securities laws
in your state. If you would like to place an order for shares of common stock,
please complete the enclosed blue and white stock order form and certification
form and return it in the white return envelope with proper payment. We must
receive all orders for stock by 12:00 noon, Central time, on XXXday, August XX,
2000 at a branch of the bank or at the conversion center located XXX. Please
note that orders will be filled on a priority basis in accordance with the
prospectus.
If you have any questions about the conversion, please call our
representatives at (xxx) xxx-xxxx or visit the conversion center between 9:00
a.m. and 5:00 p.m., Central time, Monday through Friday.
Very truly yours,
Friedman, Billings, Ramsey & Co., Inc.
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL
AGENCY. THIS IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS ACCOMPANIED BY THE STOCK ORDER
FORM.
B
<PAGE>
<TABLE>
FIRST FEDERAL BANCSHARES, INC. CONVERSION CENTER
LOGO 2001 Maine Street
(Proposed Holding Company for Quincy, IL 62301
First Federal Bank) (XXX) XXX-XXXX
<S> <C>
STOCK ORDER FORM & CERTIFICATION FORM: Please read the Stock Order Form Instructions and Ownership Guide for assistance in
completing this Stock Order Form.
- ----------------------------------------------------------------------------------------------------------------------------
DEADLINE: We must receive a properly executed Stock Order Form and Certification Form with the required payment on or before
12:00 noon, Central time, on August XX, 2000. We may not accept photocopied or faxed Stock Order Forms or Certification Forms.
- ----------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES / AMOUNT OF PAYMENT
- ----------------------------------------------------------------------------------------------------------------------------
(1) NUMBER OF SHARES TO PURCHASE PRICE PER SHARE (2) TOTAL AMOUNT DUE
--------------------------------- --------------------------
X $10.00 = $
--------------------------------- --------------------------
(minimum 25)
- ----------------------------------------------------------------------------------------------------------------------------
PURCHASE LIMITATIONS: If you choose to purchase shares of First Federal Bancshares, Inc., you must place an order for at
least 25 shares ($250.00 worth). In most cases, each depositor or depositors on the same account, as well as certain
borrowers, may place an order for up to 15,000 shares of common stock, which is equal to $150,000, in the subscription
offering. In addition, each individual or entity may place an order for up to 15,000 shares of common stock, which is equal
to $150,000, in the community offering. However, no person, either alone or together with associates or persons acting in
concert with such person, may purchase, in the aggregate, more than 1.0% of the common stock offered, which equals 22,425
shares.
METHOD OF PAYMENT PURCHASER INFORMATION
(3) / / Enclosed is a check, bank draft or money (5) / / Check here if you were a depositor with at least
order made payable to $50.00 on deposit as of either October 31, 1998 or
FIRST FEDERAL BANCSHARES, INC. June 30, 2000, or if you were a depositor at June 30,
for $________________. 2000 or a borrower as of March 27, 1990 whose loans
continue to be outstanding as of June 30, 2000. List
(4) / / I authorize First Federal Bancshares, Inc. all the names on the account(s) and all the account
to make the withdrawals from my First Federal number(s) of those accounts you had at these dates to
Bank account(s) shown below, and understand ensure proper identification of your purchase rights.
that the amounts will not otherwise be Confirm account(s) by initialing here________.
available for withdrawal:
ACCOUNT NUMBER(S) AMOUNT(S) ACCOUNT TITLE (NAMES ON ACCOUNTS) ACCOUNT NUMBER
----------------------------- --------------------- --------------------------------- --------------------
$
----------------------------- --------------------- ---------------------------------
----------------------------- --------------------- --------------------------------- --------------------
----------------------------- --------------------- ---------------------------------
TOTAL WITHDRAWAL $
--------------------- --------------------------------- --------------------
There is no penalty for early withdrawals used for (6) / / Check here if you are a director, officer or employee
this stock purchase. of First Federal Bank or a member of such person's
immediate family.
- ----------------------------------------------------------------------------------------------------------------------------
(7) STOCK REGISTRATION Form of stock ownership
/ / Individual / / Uniform Transfer to Minors / / Partnership
/ / Joint Tenants (WROS) / / Uniform Gift to Minors / / Individual Retirement Account (contact conversion center)
/ / Tenants in Common / / Corporation / / Fiduciary/Trust (Under Agreement Dated __________)
---------------------------------------------------------- ---------------------------------------------------------------
(8) Name (9) Social Security or Tax I.D.
---------------------------------------------------------- ---------------------------------------------------------------
Name Daytime Telephone
---------------------------------------------------------- ---------------------------------------------------------------
Street Address Evening Telephone
---------------------------------------------------------- ---------------------------------------------------------------
City State Zip Code County of Residence
---------------------------------------------------------- ---------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
(10) / / NASD AFFILIATION (This section applies to those individuals who meet the ---------------------------------------
delineated criteria) Check here if you are a member of the National Association (11) / / ASSOCIATE- ACTING IN CONCERT
of Securities Dealers, Inc. ("NASD"), a person associated with an NASD member, a Check here, and complete the reverse
member of the immediate family of any such person to whose support such person side of this form, if you, or any
contributes, directly or indirectly, or the holder of an account in which an associates (as defined on the reverse
NASD member or person associated with an NASD member has a beneficial interest. side of this form) or persons acting
To comply with conditions under which an exemption from the NASD's in concert with you, have submitted
Interpretation With Respect to Free Riding and Withholding is available, you other orders for shares in the
agree, if you have checked the NASD affiliation box, (i) not to sell, transfer offerings.
or hypothecate the stock for a period of 90 days following the issuance, and ---------------------------------------
(ii) to report this subscription in writing to the applicable NASD member within
one day of the payment therefor.
- ----------------------------------------------------------------------------------------------------------------------------
ACKNOWLEDGEMENT By signing below, I acknowledge receipt of the Prospectus dated _____ __, 2000 and the provisions therein
and understand that I may not change or revoke my order once it is received by First Federal Bancshares, Inc. I also certify
that this stock order is for my account only and there is no agreement or understanding regarding any further sale or
transfer of these shares. Federal regulations prohibit any persons from transferring, or entering into any agreement,
directly or indirectly, to transfer the legal or beneficial ownership of conversion subscription rights or the underlying
securities to the account of another person. First Federal Bancshares, Inc. will pursue any and all legal and equitable
remedies in the event it becomes aware of the transfer of subscription rights and will not honor orders known by it to
involve such transfer. Under penalties of perjury, I further certify that: (1) the social security number or taxpayer
identification number and the information provided on this order form given above is true, correct and complete and that I
am purchasing for solely my own account and that there is no agreement or understanding regarding the sale or transfer of
shares ordered hereby or my rights to subscribe for such shares; and (2) I am not subject to backup withholding. You must
cross out this item, (2) above, if you have been notified by the Internal Revenue Service that you are subject to backup
withholding because of underreporting interest or dividends on your tax return.
(12) SIGNATURE Sign and date the form. When purchasing ---------------------------------------------------------------
as a custodian, corporate officer, etc., include your Authorized Signature Title (if applicable) Date
full title. An additional signature is required only
when payment is by withdrawal from an account that
requires more than one signature to withdraw funds. ---------------------------------------------------------------
Authorized Signature Title (is applicable) Date
YOUR ORDER WILL BE FILLED IN ACCORDANCE WITH THE PROVISIONS
OF THE PROSPECTUS. THIS ORDER IS NOT VALID IF NOT SIGNED.
---------------------------------------------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER CORPORATION, FUND OR GOVERNMENTAL AGENCY.
- ----------------------------------------------------------------------------------------------------------------------------
FOR OFFICE USE ONLY
Date Rec'd ____/____/____ Order #________ Batch________ Check #________ Category________ Amount $__________Initials_______.
- ----------------------------------------------------------------------------------------------------------------------------
REMEMBER TO SIGN THE CERTIFICATION FORM ON THE REVERSE SIDE
</TABLE>
<PAGE>
(FIRST FEDERAL BANCSHARES, INC. LOGO)
<TABLE>
<S> <C>
ITEM (5) -(continued)
ACCOUNT TITLE (NAMES ON ACCOUNT) ACCOUNT NUMBER ACCOUNT TITLE (NAMES ON ACCOUNT) ACCOUNT NUMBER
----------------------------------- ---------------- ------------------------------------------ --------------------
----------------------------------- ---------------- ------------------------------------------ --------------------
----------------------------------- ---------------- ------------------------------------------ --------------------
----------------------------------- ---------------- ------------------------------------------ --------------------
---------------------------------------------------------------
ITEM (11) - (continued) The term "associate," when used to indicate a relationship
List below all other orders submitted by you or your with any person, is defined to mean (i) a corporation or
associates (as defined) or by persons acting in concert organization (other than First Federal Bancshares, Inc. or
with you. First Federal Bank) of which such person is an officer or
partner or is, directly or indirectly, the beneficial owner
NAME(S) NUMBER OF SHARES of 10% or more of any class of equity securities, (ii) any
----------------------------------- ------------------ trust or other estate in which such person has a substantial
----------------------------------- ------------------ beneficial interest or as to which such person serves as
----------------------------------- ------------------ trustee or in a similar fiduciary capacity, provided, however,
----------------------------------- ------------------ that such term shall not include any tax qualified employee
----------------------------------- ------------------ stock benefit plan of First Federal Bancshares, Inc. or First
Federal Bank in which such person has a substantial beneficial
interest or serves as a trustee or in a similar fiduciary
capacity, and (iii) any relative or spouse of such person, or
any relative of such spouse, who has the same home as such
person or who is a director or officer of First Federal
Bancshares, Inc. or First Federal Bank or any of the
subsidiaries of the foregoing.
---------------------------------------------------------------
</TABLE>
CERTIFICATION FORM
(This form must be dated and signed along with your dated and signed
Stock Order Form on the reverse side.)
I ACKNOWLEDGE THAT THE SHARES OF COMMON STOCK, $0.01 PAR VALUE PER SHARE (THE
"COMMON STOCK") OF FIRST FEDERAL BANCSHARES, INC., THE PROPOSED HOLDING COMPANY
FOR FIRST FEDERAL BANK, ARE NOT FEDERALLY INSURED AND ARE NOT GUARANTEED BY
FIRST FEDERAL BANCSHARES, INC., FIRST FEDERAL BANK OR THE FEDERAL GOVERNMENT.
If anyone asserts that the shares of common stock are federally insured or
guaranteed, or are as safe as an insured deposit, I should call the Office of
Thrift Supervision's Central Regional Director, Ronald N. Karr, at (312)
917-5000.
I further certify that, before purchasing shares of Common Stock of First
Federal Bancshares, Inc., I received a copy of the Prospectus dated _______ ___,
2000, which discloses the nature of the shares of common stock being offered
thereby and describes the following risks involved in an investment in the
common stock under the heading "Risk Factors":
1. First Federal's return on equity will be below average after the
conversion because of high capital levels.
2. Strong competition could hurt First Federal's profits.
3. First Federal's market area limits its growth potential.
4. A downturn in the local economy could hurt First Federal's profits.
5. Commercial business loans increase the risk of First Federal's loan
portfolio.
6. Changing interest rates could hurt First Federal's profits.
7. Implementation of new benefit plans will increase First Federal's
future compensation expense.
8. Issuance of shares for benefits programs may reduce your ownership
interest.
9. Various factors could make takeover attempts that you want to occur
more difficult to achieve.
10. The recent poor performance of thrift stocks could negatively affect
the price of First Federal Bancshares' common stock.
11. Possible limited market for First Federal Bancshares' common stock
may negatively affect the market price.
12. First Federal Bancshares' stock price may decline when trading
commences.
SIGNATURE DATE SIGNATURE DATE
- ----------------------------------- --------------------------------------
- ----------------------------------- --------------------------------------
NAME (PLEASE PRINT) NAME (PLEASE PRINT)
- ----------------------------------- --------------------------------------
- ----------------------------------- --------------------------------------
(NOTE: ALL PARTIES NAMED AS REGISTERED OWNERS IN ITEM 8 ON THE REVERSE SIDE MUST
SIGN THE CERTIFICATION FORM)
<PAGE>
FIRST FEDERAL BANCSHARES, INC. LOGO
109 East Depot Street
Colchester, Illinois 62326
(309) 776-3225
- --------------------------------------------------------------------------------
STOCK ORDER FORM INSTRUCTIONS
- --------------------------------------------------------------------------------
ITEM 1 - Fill in the number of shares that you wish to purchase. If you choose
to purchase shares of First Federal Bancshares, Inc., you must place an order
for at least 25 shares ($250 worth). In most cases, each depositor or depositors
on the same account, as well as certain borrowers, may place an order for up to
15,000 shares of common stock, which is equal to $150,000, in the subscription
offering. In addition, each individual or entity may place an order for up to
15,000 shares of common stock, which is equal to $150,000, in the community
offering. However, no person, either alone or together with associates or
persons acting in concert with such person, may purchase in the aggregate more
than 1.0% of the common stock offered, which equals 22,425 shares.
ITEM 2 - Calculate the total amount due by multiplying the number of shares you
indicated in ITEM 2 by $10.00.
ITEM 3 - If you will be paying for your shares by check, bank draft, or money
order, place a check in the box for ITEM 4 and write the amount in the blank
space provided in ITEM 4. Enclose your check, bank draft, or money order with
your order form. Checks should be made payable to FIRST FEDERAL BANCSHARES, INC.
You may pay with cash by bringing your completed order form into a branch of the
bank and changing your cash for a bank check. DO NOT SEND CASH THROUGH THE MAIL.
ITEM 4 - To pay by withdrawal from a savings account or certificate of First
Federal Bancshares, Inc., write the account number(s) and the amount(s) you wish
to withdraw from each account. If more than one signature is required to
withdraw, each person must sign in the signature box in ITEM 12. No early
withdrawal penalty will be charged on funds used to purchase our stock. A hold
will be placed on the account(s) for the amount(s) you indicate, and the actual
withdrawal will occur upon closing of the offering. You will continue to receive
interest at the specified rate on your account until the funds are withdrawn. If
a partial withdrawal reduces the balance of a certificate of deposit account to
less than the applicable minimum, the remaining balance will thereafter earn
interest at the passbook rate.
ITEM 5 - Check the box provided if you were a depositor with at least $50.00 on
deposit as of either October 31, 1998 or June 30, 2000, or if you were a
depositor at June 30, 2000 or a borrower as of March 27, 1990 whose loans
continue to be outstanding as of June 30, 2000. To ensure proper identification
of your purchasing rights, list all the names and account number(s) of those
accounts you had on these dates. If you need additional space, you may continue
in the spaces provided on the back of the order form.
ITEM 6 - Check the box provided if you are a director, officer or employee of
First Federal Bank or a member of such person's immediate family.
ITEM 7 - Indicate the form of stock ownership by checking one of the boxes
provided. Please refer to the reverse side of this form for detailed information
about the various forms of stock ownership.
ITEM 8 - Complete the boxes provided by printing the name and address
information of the person or entity that is purchasing the stock. Include first
name, middle initial and last name for person's name. Multiple names may be
listed, but only one address is needed. Do not use any titles or superfluous
words such as "Mrs.", "Mr.", "Dr.", "special account", etc.
If the information requested in ITEM 8 is EXACTLY the same as the information
imprinted at the top left of the form, you may indicate this by writing "Same as
Above" on the first line in ITEM 8.
ITEM 9 - Fill in the social security number, telephone numbers and county of
residence for the first person or entity listed in ITEM 8.
Subscription rights are not transferable. If you are a qualified member, to
protect your priority over other purchasers as described in the Prospectus, you
must take ownership as your account relationship is established. If you, as a
qualified member, include a non-qualified member or a member in a lower priority
category on your stock order, your priority will be lowered or eliminated.
ITEMS 10 AND 11 - See instructions on the stock order form.
ITEM 12 - Sign and date the stock order form. All people listed in ITEM 8 MUST
sign in the space provided in ITEM 12 as well as in the CERTIFICATION FORM on
the reverse side of the order form.
<PAGE>
- --------------------------------------------------------------------------------
OWNERSHIP GUIDE
- --------------------------------------------------------------------------------
INDIVIDUAL
The stock is to be registered in an individual's name only. You may not list
beneficiaries for this ownership.
JOINT TENANTS WITH RIGHTS OF SURVIVORSHIP (WROS)
Joint tenants with rights of survivorship identifies two or more owners. When
stock is held by joint tenants with rights of survivorship, ownership
automatically passes to the surviving joint tenant(s) upon the death of any
joint tenant. You may not list beneficiaries for this ownership.
TENANTS IN COMMON
Tenants in common may also identify two or more owners. When stock is held by
tenants in common, upon the death of one co-tenant, ownership of the stock will
be held by the surviving co-tenant(s) and by the heirs of the deceased
co-tenant. All parties must agree to the transfer or sale of shares held by
tenants in common. You may not list beneficiaries for this ownership.
UNIFORM GIFT TO MINORS/UNIFORM TRANSFER TO MINORS
For residents of many states, stock may be held in the name of a custodian for
the benefit of a minor under the Uniform Transfer to Minors Act. For residents
in other states, stock may be held in a similar type of ownership under the
Uniform Gift to Minors Act. For either ownership, the minor is the actual owner
of the stock with the adult custodian being responsible for the investment until
the minor reaches legal age. See your legal advisor if you are unsure about the
correct registration of your stock.
On the first "Name" line, print the first name, middle initial and last name of
the custodian, with the abbreviation "CUST" after the name. Print the first
name, middle initial and last name of the minor on the second "Name" line. Only
one custodian and one minor may be designated.
CORPORATION/PARTNERSHIP
Corporations/Partnerships may purchase stock. Please provide the
Corporation/Partnership's legal name and tax I.D. number. To have depositor
rights, the Corporation/Partnership must have an account in its legal name and
its tax I.D. Please contact the conversion center to verify depositor rights and
purchase limitations.
INDIVIDUAL RETIREMENT ACCOUNT
Individual retirement account holders may make stock purchases using their
deposits through a pre-arranged "trustee-to-trustee" transfer into a
self-directed IRA at a brokerage firm. Please contact the conversion center AS
SOON AS POSSIBLE if you would like to purchase shares through an IRA. There will
be no early withdrawal or IRS penalties incurred by properly executed
transactions.
FIDUCIARY/TRUST
Generally, fiduciary relationships (such as Trusts, Estates, Guardianships,
etc.) are established under a form of trust agreement or are pursuant to a court
order. Without a legal document establishing a fiduciary relationship, your
stock may not be registered in a fiduciary capacity.
INSTRUCTIONS: On the first "Name" line, print the first name, middle initial and
last name of the fiduciary, if the fiduciary is an individual. If the fiduciary
is a corporation, list the corporate title on the first "Name" line. Following
the name, print the fiduciary "title" such as trustee, executor, personal
representative, etc.
One the second "Name" line, print either the name of the maker, donor, testator
or the name of the beneficiary. Following the name, indicate the type of legal
document establishing the fiduciary relationship (agreement, court order, etc.).
In the blank after "Under Agreement Dated", fill in the date of the document
governing the relationship. The date of the document need not be provided for a
trust created by a will.
An example of fiduciary ownership of stock in the case of a trust is: John D.
Smith, Trustee for Thomas A. Smith Under Agreement Dated 06/09/87.
