SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
FSF FINANCIAL CORP.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (set forth the amount on which the filing
fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[FSF LETTERHEAD]
December 10, 1997
Dear Fellow Stockholder:
On behalf of the Board of Directors and management of FSF Financial
Corp., we cordially invite you to attend the Annual Meeting of Stockholders to
be held at the office of FSF Financial Corp. at 201 Main Street South,
Hutchinson, Minnesota 55350 on January 20, 1998, at 8:30 a.m. The attached
Notice of Annual Meeting and Proxy Statement describe the formal business to be
transacted at the Meeting. During the Meeting, we will also report on the
operations of the Company. Directors and officers of the Company, as well as
representatives of Bertram Cooper & Co., LLP, independent accountants, will be
present to respond to any questions stockholders may have.
Whether or not you plan to attend the Meeting, please sign and date the
enclosed form of proxy and return it in the accompanying postage-paid return
envelope as promptly as possible. This will not prevent you from voting in
person at the Meeting, but will assure that your vote is counted if you are
unable to attend the Meeting. YOUR VOTE IS VERY IMPORTANT.
Sincerely,
/s/ George B. Loban
George B. Loban
President
/s/ Donald A. Glas
Donald A. Glas
Chief Executive Officer
<PAGE>
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FSF FINANCIAL CORP.
201 MAIN STREET SOUTH
HUTCHINSON, MINNESOTA 55350
(320) 234-4500
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held on January 20, 1998
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NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of FSF Financial Corp. (the "Company"), will be held at the Company's
office at 201 Main Street South, Hutchinson, Minnesota 55350 on Tuesday, January
20, 1998, at 8:30 a.m. The Meeting is for the purpose of considering and acting
upon:
1. The election of two directors of the Company;
2. The ratification of the FSF Financial 1998 Stock Compensation
Plan; and
3. The ratification of the appointment of Bertram Cooper & Co.,
LLP as independent auditors of FSF Financial Corp. for the
fiscal year ending September 30, 1998.
Execution of a proxy in the form enclosed also permits the proxy holder to vote,
in their discretion, upon such other matters that may come before the Meeting.
As of the date of mailing, the Board of directors is not aware of any other
matters that may come before the Meeting.
Action may be taken on any one of the foregoing proposals at the Meeting on the
date specified above or on any date or dates to which, by original or later
adjournment, the Meeting may be adjourned. Stockholders of record at the close
of business on December 1, 1997, are the stockholders entitled to vote at the
Meeting and any adjournments thereof.
You are requested to complete and to sign the enclosed form of proxy which is
solicited by the Board of Directors and to return it promptly in the enclosed
envelope. The proxy will not be used if you attend and vote at the Meeting in
person.
EACH STOCKHOLDER, WHETHER OR NOT HE OR SHE PLANS TO ATTEND THE MEETING,
IS REQUESTED TO SIGN, DATE, AND RETURN THE ENCLOSED FORM OF PROXY WITHOUT DELAY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE. ANY PROXY GIVEN BY THE STOCKHOLDER MAY BE
REVOKED BY FILING WITH THE SECRETARY OF THE COMPANY A WRITTEN REVOCATION OR A
DULY EXECUTED PROXY BEARING A LATER DATE. ANY STOCKHOLDER PRESENT AT THE MEETING
MAY REVOKE HIS OR HER PROXY AND VOTE IN PERSON ON EACH MATTER BROUGHT BEFORE THE
MEETING. HOWEVER, IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE NOT REGISTERED IN
YOUR OWN NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER TO
VOTE IN PERSON AT THE MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Richard H. Burgart
Richard H. Burgart, Secretary
Hutchinson, Minnesota
December 10, 1997
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IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO INSURE A QUORUM AT THE MEETING. A
SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED
IF MAILED IN THE UNITED STATES.
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<PAGE>
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PROXY STATEMENT
OF
FSF FINANCIAL CORP.
201 MAIN STREET SOUTH
HUTCHINSON, MINNESOTA 55350
ANNUAL MEETING OF STOCKHOLDERS
JANUARY 20, 1998
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GENERAL
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This Proxy Statement is furnished to holders of common stock, $0.10 par
value per share ("Common Stock"), of FSF Financial Corp. (the "Company").
Proxies are being solicited by the board of directors of the Company (the
"Board" or "Board of Directors") to be used at the Annual Meeting of
Stockholders of the Company (the "Meeting") which will be held at the Company's
office at 201 Main Street South, Hutchinson, Minnesota 55350 on January 20,
1998, 8:30 a.m. local time.
At the Meeting, stockholders will consider and vote upon (i) the
election of two directors; (ii) the ratification of the FSF Financial 1998 Stock
Compensation Plan ("1998 Stock Plan"); and (iii) the ratification of the
appointment of Bertram Cooper & Co., LLP as independent auditors of the Company
for the fiscal year ending September 30, 1998. The Board of Directors knows of
no additional matters that will be presented for consideration at the Meeting.
Execution of a proxy, however, confers on the designated proxy holder
discretionary authority to vote the shares represented by such proxy in
accordance with their best judgment on such other business, if any, that may
properly come before the Meeting or any adjournment thereof.
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VOTING AND REVOCABILITY OF PROXIES
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Stockholders who execute proxies retain the right to revoke them at any
time. Unless so revoked, the shares represented by such proxies will be voted at
the Meeting and all adjournments thereof. Proxies may be revoked by written
notice delivered in person or mailed to the Secretary of the Company at the
address of the Company shown above or by the filing of a later dated proxy prior
to a vote being taken on a particular proposal at the Meeting. A proxy will not
be voted if a stockholder attends the Meeting and votes in person. Proxies
solicited by the Board of Directors will be voted in accordance with the
directions given therein. Where no instructions are indicated, signed proxies
will be voted "FOR" the proposals set forth in this Proxy Statement for
consideration at the Meeting or any adjournment thereof. The proxy confers
discretionary authority on the persons named therein to vote with respect to the
election of any person as a director should the nominee be unable to serve, or
for good cause, will not serve, and matters incident to the conduct of the
Meeting.
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VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
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Stockholders of record as of the close of business on December 1, 1997
("Voting Record Date"), are entitled to one vote for each share of Common Stock
then held. As of the Voting Record Date, the Company had 3,016,211 shares of
Common Stock issued and outstanding.
The articles of incorporation of the Company (the "Articles") provide
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 then outstanding shares of Common Stock (the
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<PAGE>
"Limit") be entitled or permitted to any vote with respect to the shares held in
excess of the Limit. Beneficial ownership is determined pursuant to the
definition in the Articles and includes shares beneficially owned by such person
or any of his or her affiliates or associates (as defined in the Articles),
shares which such person or his or her affiliates or associates 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 or associates have or share
investment or voting power, but shall not include shares beneficially owned by
any employee stock ownership or similar plan of the issuer or any subsidiary.
The presence in person or by proxy of at least a majority of the
outstanding shares of Common Stock entitled to vote (after subtracting any
shares held in excess of the Limit) is necessary to constitute a quorum at the
Meeting.
As to the election of directors as stated in "Information with Respect
to Nominees for Director, Directors continuing in Office, and Executive Officers
- - Election of Directors," the form of proxy being provided by the Board enables
a stockholder to vote for the election of the nominees proposed by the Board, or
to withhold authority to vote for one or more of the nominees being proposed.
Directors are elected by a plurality of votes cast, without respect to either
(i) broker non-votes or (ii) proxies as to which authority to vote for one or
more of the nominees being proposed is withheld.
As to the ratification of the 1998 Stock Plan and the ratification of
independent auditors as set forth under "Ratification of Appointment of
Auditors," and all other matters that may properly come before the Meeting, by
checking the appropriate box, a stockholder may: (i) vote "FOR" the item, (ii)
vote "AGAINST" the item, or (iii) "ABSTAIN" with respect to the item. Unless
otherwise required by law, the ratification of auditors and the ratification of
the 1998 Stock Plan shall be determined by a majority of the total votes cast
affirmatively or negatively without regard to (a) broker non-votes or (b)
proxies for which the "ABSTAIN" box is selected as to the matter.
As to all other matters that may properly come before the Meeting,
unless otherwise required by law, the Articles, or the bylaws of the Company
(the "Bylaws"), a majority of the votes cast by shareholders shall be sufficient
to pass on any other matter.
Persons and groups owning in excess of 5% of the Common Stock are
required to file certain reports regarding such ownership pursuant to the
Securities Exchange Act of 1934 Act, as amended (the "1934 Act"). Other than as
noted below, management knows of no person or entity, including any "group" as
that term is used in ss.13(d)(3) of the 1934 Act, who or which is the beneficial
owner of more than 5% of the outstanding shares of Common Stock on the Voting
Record Date. Information concerning the security ownership of management is
included under "Information with Respect to Nominees for Director, Directors
Continuing in Office, and Executive Officers."
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<PAGE>
<TABLE>
<CAPTION>
Percent of Shares of
Amount and Nature of Common Stock
Name and Address of Beneficial Owner Beneficial Ownership Outstanding
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<S> <C> <C>
First Federal fsb 359,720 (1) 10.9%
Employee Stock Ownership Plan Trust ("ESOP")
201 Main Street South
Hutchinson, Minnesota
Brandes Investment Partners, Inc. 232,780 (2) 7.5%
12750 High Bluff Drive
San Diego, California
Security Bancshares Company 200,000 (3) 6.1%
P.O. Box 212
Glencoe, Minnesota
</TABLE>
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(1) The ESOP purchased such shares for the exclusive benefit of plan
employee participants with funds borrowed from the Company. These
shares are held in a suspense account and will be allocated among ESOP
participants annually on the basis of compensation as the ESOP debt is
repaid. As of the Voting Record Date, 121,406 shares have been
allocated under the ESOP to participant accounts. See "Director and
Executive Officer Compensation - Other Benefits Employee Stock
Ownership Plan."
(2) Based on an amended Schedule 13G filed by the dated February 12, 1997.
(3) Based on a Schedule 13G received by the Company on March 14, 1996.
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INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
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Executive officers and directors of the Company have an interest in
certain matters being presented for stockholder ratification. Upon stockholder
ratification, executive officers and directors of the Company would be granted
stock options pursuant to the 1998 Option Plan. The ratification of the 1998
Option Plan is being presented as "II - Ratification of 1998 Option Plan." See
"I - Information with Respect to Nominees for Director, Directors Continuing in
Office, and Executive Officers" for information regarding the voting control of
shares of Common Stock held by executive officers and directors.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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Section 16(a) of the 1934 Act requires the Company's officers and
directors, and persons who own more than ten percent of the Common Stock, to
file reports of ownership and changes in ownership of the Common Stock, on Forms
3, 4 and 5, with the Securities and Exchange Commission ("SEC") and to provide
copies of those Forms 3, 4 and 5 to the Company. The Company is not aware of any
beneficial owner of more than ten percent of its Common Stock.
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<PAGE>
Based upon a review of the copies of the forms furnished to the
Company, or written representations from certain reporting persons that no Forms
5 were required, the Company believes that all Section 16(a) filing requirements
applicable to its officers and directors were complied with during the fiscal
year ended September 30, 1997.
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I - INFORMATION WITH RESPECT TO NOMINEES FOR DIRECTOR,
DIRECTORS CONTINUING IN OFFICE, AND EXECUTIVE OFFICERS
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Election of Directors
The Articles require that directors be divided into three classes, as
nearly equal in number as possible, each class to serve for a three year period,
with approximately one-third of the directors elected each year. The Board of
Directors currently consists of eight members. Two directors will be elected at
the Meeting, to serve for three-year terms, as noted below, or until their
respective successors have been elected and qualified. Carl O. Bretzke is a
director of the Company whose term expires at the Meeting. Mr. Bretzke is
retiring from his position effective at the Annual Meeting. At that the time,
the Board size will be reduced from eight to seven members.
Roger R. Stearns and Richard H. Burgart have been nominated by the
Board of Directors to serve as directors. Messrs. Stearns and Burgart are
currently members of the Board. If a nominee is unable to serve, the shares
represented by all valid proxies will be voted for the election of such
substitute as the Board of Directors may recommend or the size of the Board may
be reduced to eliminate the vacancy. At this time, the Board knows of no reason
why any nominee might be unavailable to serve.
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<PAGE>
The following table sets forth the nominees and the directors
continuing in office, their name, age, the year they first became a director of
the Company, the Banks, or the Bank, the expiration date of their current term
as a director of the Company, and the number and percentage of shares of the
Common Stock beneficially owned. Each director of the Company, is also a member
of the Board of Directors of the Bank.
<TABLE>
<CAPTION>
Year First Current Shares of
Elected or Term to Common Stock Percent
Name Age(1) Appointed Expire Beneficially Owned(2) of Class
- ----------------------------------------- ------ ---------- -------- --------------------- --------
BOARD NOMINEES FOR TERM TO EXPIRE IN 2001
<S> <C> <C> <C> <C> <C>
Roger R. Stearns 49 1990 1998 40,137(3)(4) 1.3%
Richard H. Burgart 50 1994 1998 86,457(5) 2.8%
THE BOARD OF DIRECTORS RECOMMENDS THAT THE ABOVE
NOMINEES BE ELECTED AS DIRECTORS
DIRECTORS CONTINUING IN OFFICE(6)
Donald A. Glas 47 1981 1999 151,855(7) 4.9%
James J. Caturia 59 1984 1999 15,837(3)(8) 0.5%
Jerome J. Dempsey 64 1984 1999 8,220(9) 0.3%
Sever B. Knutson 65 1984 2000 43,488(3)(10) 1.4%
George B. Loban 47 1979 2000 150,322(11) 4.9%
All Directors and
Executive Officers as a
Group (7 persons) 496,316(12) 15.2%
</TABLE>
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(1) At September 30, 1997.
(2) Excludes stock options to purchase shares of Common Stock pursuant to
the 1994 Stock Option Plan that are not exercisable within 60 days of
the Record Date. See "Director and Executive Officer Compensation -
Other Benefits - 1994 Stock Option Plan."
(3) Excludes shares of Common Stock held under the Employee Stock Ownership
Plan ("ESOP") or MSP for which such individual serves as a member of
the ESOP or MSP Committee or Trustee Committee. Such individual
disclaims beneficial ownership with respect to such shares held in a
fiduciary capacity. See "Director and Executive Officer Compensation -
Other Benefits - Employee Stock Ownership Plan."
(4) Includes 7,800 shares held by Stearns Foundation, Inc. of which Mr.
Stearns is an officer and director, and 100 shares held in trust for
each of Mr. Stearns' son and daughter, which Mr. Stearns may be deemed
to beneficially own. Includes options to purchase 6,544 shares of
Common Stock exercisable within 60 days of the Record Date.
(5) Includes 743 shares held in the individual retirement account of the
spouse of Mr. Burgart and 25 shares held in trust for the benefit of
the minor son of Mr. Burgart, which Mr. Burgart may be deemed to
beneficially own. Includes 13,490 shares of restricted Common Stock
granted, but not vested, pursuant to the Bank's Management Stock Plan
("MSP"). Includes options to purchase 26,975 shares of Common Stock
exercisable with 60 days of the Record Date.
(6) Mr. Bretzke is a director of the Company whose term expires at the
meeting. Mr. Bretzke is retiring from his position effective at the
Annual Meeting. At that the time, the Board size will be reduced from
eight to seven members.
(7) Includes 2,210 shares owned by the spouse of Mr. Glas and 1,000 shares
held in trust for the benefit of the minor child of Mr. Glas, which Mr.
Glas may be deemed to beneficially own. Includes 26,979 shares of
restricted Common Stock granted but not vested, pursuant to the MSP.
Includes options to purchase 67,447 shares of Common Stock exercisable
with 60 days of the Record Date.
(8) Includes 1,679 shares in the individual retirement account of the
spouse of Mr. Caturia, which Mr. Caturia may be deemed to beneficially
own. Includes options to purchase 5,620 shares of Common Stock
exercisable with 60 days of the Record Date.
(9) Includes options to purchase 3,370 shares of Common Stock exercisable
with 60 days of the Record Date.
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<PAGE>
(10) Includes 10,000 shares owned by the spouse of Mr. Knutson, which Mr.
Knutson may be deemed to beneficially own. Includes options to purchase
13,488 shares of Common Stock exercisable with 60 days of the Record
Date.
(11) Includes 250 shares held by the son of Mr. Loban, 2,000 shares held in
trust for the benefit of the minor child of Mr. Loban, and 2,961 shares
held in the individual retirement account of the spouse of Mr. Loban,
which Mr. Loban may be deemed to beneficially own. Includes 26,979
shares of restricted Common Stock granted, but not vested, pursuant to
the MSP. Includes options to purchase 67,447 shares of Common Stock
exercisable with 60 days of the Record Date.
(12) Includes options to purchase 261,874 shares of Common Stock exercisable
within 60 days of the Record Date.
The following individuals hold the executive offices in the Company set
forth opposite their names.
<TABLE>
<CAPTION>
Name Age (1) Position(s) Held With the Company
- ---- ------- ---------------------------------
<S> <C> <C>
Donald A. Glas 47 Co-Chair and Chief Executive Officer
George B. Loban 47 Co-Chair and President
Richard H. Burgart 50 Chief Financial Officer, Treasurer and Secretary
</TABLE>
- -----------------
(1) At September 30, 1997.
The executive officers of the Company 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.
Biographical Information
The principal occupation of each director, nominee for director, and
executive officer of the Company is set forth below. Unless otherwise noted, all
persons have held there present occupation for the last five years.
Carl O. Bretzke served as a director of First State from 1971 until the
Merger and has served as a director of the Company and the Bank since 1994.
Presently, Mr. Bretzke serves as Chair of the Community Reinvestment Act
Committee and is a member of the Audit Committee. He served as a Family
Physician in Hutchinson for 38 years. Dr. Bretzke is a past president of the
Hutchinson Medical Center and McLeod County Medical Society and past chief of
the Hutchinson Hospital Medical Staff. Dr. Bretzke currently serves as a
volunteer physician for St. Mary's Health Clinic in Shakopee, Minnesota, is a
director of the Hutchinson Area Foundation for Health Care, and is a member of
the McLeod County HIV/STD Advisory Council. Dr. Bretzke is past chairman of the
Hutchinson Planning Commission, Hutchinson Park Board, and Hutchinson School
Board. Dr. Bretzke is a past president of the Hutchinson Optimist Club, and
served as moderator for the First Congregational Church in Hutchinson, where he
has been a lifelong member. Dr. Bretzke is a member of the American Legion and
the Masonic Order. Mr. Bretzke has announced that he will retire from the Board
of Directors effective at the Annual Meeting. At that the time, the Board will
be reduced from eight to seven members.
Richard H. Burgart has served as a director of the Company and Chief
Financial Officer and Treasurer of the Company and the Bank since 1994 and
Secretary of the Company and the Bank since January 1997. Mr. Burgart was
appointed by the Board to replace Ms. Arliss Haag who retired in January 1997.
Mr. Burgart began his employment with First State in 1985 and was the Chief
Financial
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<PAGE>
Officer and Treasurer of First State from 1988 until the Merger. Mr. Burgart has
participated in the Hutchinson Dollars for Scholars, the Hutchinson Youth Hockey
Association, and the Hutchinson Community Development Corporation. Mr. Burgart
is a member of the First Congregational Church and he is a past national
Chairman of the Financial Managers Society.
James J. Caturia served as a director of Hastings from 1984 until the
Merger and has served as a director of the Company and the Bank since 1994. He
is the owner and manager of Caturia Interiors, Inc., Hastings, Minnesota, a
retail home furnishings company. Mr. Caturia is a member of the Hastings Chamber
of Commerce and the Knights of Columbus Council 1600.
Jerome R. Dempsey served as a director of Hastings from 1984 until the
Merger and has served as a director of the Company and the Bank since 1994 and
1996. Mr. Dempsey taught and served as an administrator for the Hastings Public
Schools. In 1992, Mr. Dempsey was elected to a two-year term in the Minnesota
House of Representatives and was re-elected in 1994 and 1996. Mr. Dempsey serves
on the Bonding, Environment and Natural Resources, Economic Development, and
Housing Financing Committees. Mr. Dempsey is a member of the Council 1600
Knights of Columbus, the Hastings United Way, and the Hastings Chamber of
Commerce. In addition, Mr. Dempsey is involved with the Special Olympics,
Habitat for Humanity, and the American Cancer Society.
Donald A. Glas is Co-Chair and Chief Executive Officer of the Company
and the Bank. Mr. Glas started with First State in 1972 and served as President
and Chief Executive Officer from 1983 until the Merger. In addition, Mr. Glas
serves as a director and Chair of Firstate Services, Incorporated. He is also a
founding director and a committee member of the Hutchinson Community Development
Corporation. In addition, Mr. Glas serves on the Legislative Affairs Committee
of the America's Community Bankers ("ACB"), a national trade group for the
industry. Mr. Glas also served as a member of the Board of Directors of the
Federal Home Loan Bank ("FHLB") of Des Moines, served on the Consumer Advisory
Council of the Federal Reserve Board, and was a member of the Hutchinson
Technical College Advisory Board, the Activity Advisory Committee of Hutchinson
Schools, the Chamber of Commerce, the Hutchinson Main Street Organization, the
United Way, and the Crow River Drumline Association.
Sever B. Knutson served as director of First State from 1984 until the
Merger and has served as a director of the Company and the Bank since 1994. He
is the former President and majority stockholder of Lynn Card Company, a mail
order business located in Hutchinson, Minnesota. Mr. Knutson chairs the
Transportation Committee of the Hutchinson Community Development Corporation.
Mr. Knutson also serves as the Operations Officer for the Hutchinson Squadron of
the Civil Air Patrol. Mr. Knutson served as an Officer in the United States Air
Force for 22 years, retiring in 1972.
George B. Loban is Co-Chair and President of the Company and the Bank.
Mr. Loban served as director and Chief Executive Officer of First Federal of
Hastings prior to the Merger in 1994. He has previously served as Vice Chairman
of the FHLB of Des Moines and is a member of the Governmental Affairs Committee
of the FHLB System. Mr. Loban serves on the Board of ACB as well as an active
member on several committees of the ACB. Mr. Loban is actively involved in his
local community through the Chamber of Commerce, United Way and other
educational and civic organizations.
Roger R. Stearns served as a director of First State from 1989 until
the Merger and has served as a director of the Company and the Bank since 1994.
Mr. Stearns is the President and part owner of Stearnswood, Inc. Hutchinson,
Minnesota, a closely-held family corporation that currently manufactures
transport packaging for regional and internal customers. Mr. Stearns is also
director and past Treasurer
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<PAGE>
of Blue Cross Blue Shield of Minnesota. Mr Stearns was Treasurer and director of
the Hutchinson School District Board and has served as the Chairman of Little
Crow Telemedia Network. Mr. Stearns is past director of the Hutchinson Area and
Minnesota State Chambers of Commerce, a founding director of the Central Prairie
Railway Association, the Hutchinson Community Video Network, and an active
trustee and Secretary of the Stearns Foundation.
Nominations for Directors
Nominations of candidates for election as directors at any annual
meeting of stockholders may be made (a) by, or at the direction of, a majority
of the Board of Directors or (b) by any stockholder entitled to vote at such
annual meeting. Only persons nominated in accordance with the procedures set
forth in the Articles may be eligible for election as directors at an annual
meeting.
Nominations, other than those made by or at the direction of the Board
of Directors, must be made pursuant to timely notice in writing to the Secretary
of the Company. To be timely, a stockholder's notice shall be delivered to, or
mailed and received at, the principal executive offices of the Company not less
than 60 days prior to the anniversary date of the immediately preceding annual
meeting of stockholders of the Company. Such stockholder's notice shall set
forth (a) as to each person whom the stockholder proposes to nominate for
election or re-election as a director and as to the stockholder giving the
notice (i) the name, age, business address and residence address of such person,
(ii) the principal occupation or employment of such person, (iii) the number of
shares of Common Stock that are beneficially owned (as defined in the Articles)
by such person on the date of such stockholder notice, and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies with respect to nominees for election as directors,
pursuant to the 1934 Act, including, but not limited to, information which would
be required to be filed with the SEC; and (b) as to the stockholder giving the
notice (i) the name and address, as they appear on the Company's books, of such
stockholder and any other stockholders known by such stockholder to be
supporting such nominees and (ii) the number of shares of Common Stock that are
beneficially owned by such stockholder on the date of such stockholder notice
and, to the extent known, by any other stockholders known by such stockholder to
be supporting such nominees on the date of such stockholder notice. At the
request of the board of directors, any person nominated by, or at the direction
of, the Board for election as a director at an annual meeting must furnish to
the Secretary of the Company that information required to be set forth in a
stockholder's notice of nomination that pertains to the nominee.
The Board or a committee of the Board may reject any nomination by a
stockholder not timely made in accordance with the requirements of the Articles.
A stockholder may be given the opportunity to correct a notice not meeting the
requirements of the Articles as provided in the Articles. Notwithstanding the
procedures set forth in the Articles, if neither the Board nor such committee
makes a determination as to the validity of any nominations by a stockholder,
the presiding officer of the annual meeting shall determine and declare at the
annual meeting whether the nomination was made in accordance with the terms of
the Articles. If the presiding officer determines that a nomination or proposal
was made in accordance with the terms of the Articles, such officer shall so
declare at the annual meeting and ballots shall be provided for use at the
meeting with respect to such nominee or proposal. If the presiding officer
determines that a nomination or proposal was not made in accordance with the
terms of this Article, such officer shall so declare at the annual meeting and
the defective nomination or proposal shall be disregarded.
-8-
<PAGE>
Meetings and Committees of the Board of Directors
The Board of Directors conducts its business through meetings of the
Board and through activities of its committees. Each member of the Board of
Directors also currently serves as a member of the board of directors of the
Bank, which meets monthly and may have special meetings. All committees act for
both the Company and the Bank.
During the fiscal year ended September 30, 1997, the Board of Directors
of the Company and the Bank held 13 regular meetings and no special meetings. No
director attended fewer than 75% of the total meetings of the Board of Directors
of the Company and the Bank and the committees on which such director served
during the fiscal year ended September 30, 1997.
The Audit Committee of the Company is responsible for overseeing the
Company's internal audit procedures. Currently, the members of the Audit
Committee are Messrs. Knutson, Bretzke, and Dempsey. The Audit Committee met
four times during the fiscal year ended September 30, 1997.
The Nominating Committee of the Company recommends nominees for
election as directors to the Board of Directors. The Nominating Committee, which
met one time during the fiscal year ended September 30, 1997, consists of the
entire Board of Directors. Although the Board of Directors will consider
nominees recommended by stockholders, it has not actively solicited
recommendations from stockholders.
- --------------------------------------------------------------------------------
DIRECTOR AND EXECUTIVE OFFICER COMPENSATION
- --------------------------------------------------------------------------------
Directors' Compensation
The Company compensates its directors by means of a $4,000 annual
retainer. Each director of the Company is a director of the Bank, and receives
fees accordingly. See, however, "II-Ratification of the 1998 Stock Compensation
Plan-Awards to Directors and Key Officers."
During the fiscal year ended September 30, 1997, each member of the
Board of Directors of the Bank received a fee of $550 per meeting attended, plus
a $4,000 annual retainer. See, however, "II- Ratification of the 1998 Stock
Compensation Plan-Awards to Directors and Key Officers." In addition, committee
fees consisted of $300 for each committee meeting attended. Furthermore, some
directors received fees for being directors of Firstate Services, Incorporated,
the Bank's subsidiary. For the year ended September 30, 1997, total director
fees paid to all directors as a group were $139,916.
On January 17, 1995, the date of stockholder approval of the 1994
Option Plan, Directors Bretzke, Stearns and Knutson and Directors Caturia and
Dempsey each received stock options to purchase 16,861 and 7,026 shares,
respectively, of Common Stock at the then current fair market value ($9.50 per
share). These shares and options vest at a rate of 20% annually on and after
January 17, 1996. See "Benefits - 1994 Stock Option Plan."
Subject to stockholder ratification of Proposal 2 - Ratification of the
1998 Stock Compensation Plan, each director of the Company serving on the Board
as of the first business day after the 1998 Annual Meeting who is not otherwise
an employee of the Company or the Bank shall be awarded 1,500 shares of Common
Stock and options to purchase 1,500 shares of Common Stock at an exercise price
equal to the fair market price of said Common Stock as of the date of grant.
Stock Awards (as defined
-9-
<PAGE>
later) have been granted to non-employee directors in lieu of annual Board
retainers at the Bank and Company. See "Proposal 2 - Ratification of the 1998
Stock Compensation Plan."
Executive Compensation
General. Since the formation of the Company, none of its executive
officers or other personnel have received remuneration from the Company.
Executive officers received compensation from the Bank. However, a portion of
the executive officers' compensation is reimbursed to the Bank by the Company in
accordance with a cost sharing agreement between the two entities.
Summary Compensation Table. The following table sets forth the cash and
non-cash compensation awarded to or earned by the Chief Executive Officer and
certain other executive officers of the Bank for the years ended September 30,
1997, 1996, and 1995. Except as set forth below, no executive officer of the
Company had a salary and bonus during such periods that exceeded $100,000 for
services rendered in all capacities to the Bank or the Company in the aggregate.
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards
----------------------------------- --------------------------
Securities
Restricted Underlying
Name and Other Annual Stock Options/ All Other
Principal Position Year Salary Bonus(1) Compensation(2) Awards($)(3) SARs (#)(4) Compensation
- ------------------- ------ ------ -------- --------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Donald A. Glas 1997 $149,500 $53,671 $16,200 -- -- $33,988 (5)
Director and Chief 1996 $135,000 $35,500 $13,400 -- -- $23,079 (5)
Executive Officer 1995 $119,250 $40,000 $11,125 $427,000 112,412 $36,613 (5)
George B. Loban 1997 $149,500 $53,671 $14,450 -- -- $33,988 (5)
Director and President 1996 $135,000 $35,500 $12,200 -- -- $23,079 (5)
1995 $115,000 $40,000 $ 9,850 $427,000 112,412 $36,613 (5)
Richard H. Burgart 1997 $102,000 $36,610 $15,000 -- -- $33,988 (5)
Chief Financial 1996 $ 92,000 $26,600 $12,200 -- -- $20,496 (5)
Officer and Treasurer 1995 $ 82,500 $29,750 $ 7,500 $213,578 44,965 $30,401 (5)
</TABLE>
- ------------------------
(1) Awarded pursuant to the Incentive Compensation Policy. See "- Other
Benefits - Incentive Compensation Policy."
(2) Includes director's fees. For Messrs. Glas, Loban, and Burgart for
fiscal 1997, 1996, and 1995, there were no (a) perquisites over the
lesser of $50,000 or 10% of any of such individual's total salary and
bonus for the year; (b) payments of above-market preferential earnings
on deferred compensation; (c) payments of earnings with respect to
long-term incentive plans prior to settlement or maturation; (d) tax
payment reimbursements; or (e) preferential discounts on stock.
(3) Represents 44,965 shares of Common Stock awarded to both Mr. Glas and
Mr. Loban and 22,482 shares of Common Stock awarded to Mr. Burgart on
January 17, 1995 based upon a market price of $9.50 as of the date of
the award. Awards are earned at a rate of 20% per year beginning one
year after the effective date of the grant. The total value of the
restricted stock held for the benefit of Mr. Glas, Mr. Loban, and Mr.
Burgart by the MSP at September 30, 1997 was $529,463, $529,463, and
$264,741, respectively (calculated by multiplying $19.625, the closing
average bid and ask price of the Company's unrestricted Common Stock at
September 30, 1997, by 26,979, 26,979, and 13,490, the number of
awarded, but unvested, shares, respectively). Dividends paid on the
restricted Common Stock are accrued and held in arrears until the
restricted Common Stock for which dividends were paid becomes vested.
(4) The options, by their terms, are first exercisable at a rate of 20% per
year beginning on January 17, 1996, but in no event shall any option be
exercisable more then ten years after the effective date of grant. See
also "III - Ratification of the 1998 Option Plan."
(5) Represents employer contribution to the ESOP.
Employment Agreements. The Bank entered into employment agreements with
Chief Executive Officer and Co-Chair Donald A. Glas, President and Co-Chair
George B. Loban, and Chief Financial Officer and Treasurer Richard H. Burgart
(the"Officers"). The employment agreements provide for a
-10-
<PAGE>
term of three years. The agreements may be terminable by the Bank for "just
cause" as defined in the agreement. If the Bank terminates an Officer without
just cause, the Officer will be entitled to a continuation of his salary from
the date of termination through the remaining term of the agreement, but in no
event for a period of less than one year. The employment agreements contain a
provision stating that in the event of involuntary termination of employment in
connection with, or within one year after, any change in control of the Bank,
each will be paid in a lump sum an amount equal to 2.99 times his average
taxable compensation paid during the five prior calendar years. In the event of
a change in control of the Bank, at September 30, 1998, the Officers would
currently be entitled to an aggregate lump sum payment of approximately $1.4
million. The aggregate payments that would be made would be an expense to the
Bank, thereby reducing net income and the Bank's capital by that amount. The
agreements are reviewed annually by the Board of Directors and may be extended
for additional one-year periods upon a determination of satisfactory performance
within the Board's sole discretion.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee currently consists of Messrs. Stearns
(Chair), Caturia, and Knutson, all present members of the Board of Directors of
the Bank and the Company. Executive Officers of the Company or the Bank do not
participate in matters involving their compensation.
Report of the Compensation Committee on Executive Compensation
The executive officers of the Company and the Bank consist of Messrs.
George B. Loban (Co- Chairman of the Board and President), Donald A. Glas
(Co-Chairman of the Board and Chief Executive Officer), and Richard H. Burgart
(Chief Financial Officer, Treasurer and Secretary).
The Bank Compensation Committee meets annually to review compensation
paid to executive officers and to determine the compensation levels for all Bank
employees. The Committee reviews various published surveys of compensation paid
to employees performing similar duties for depository institutions and their
holding companies, with a particular focus on the level of compensation paid by
comparable institutions in and around the Bank's market area, including
institutions with total assets of between $250 million and $500 million.
Although the Committee does not specifically set compensation levels for
executive officers based on whether particular financial goals have been
achieved by the Bank the Committee does consider the overall profitability of
the Bank when making these decisions. With respect to each particular employee,
his or her particular contributions to the Bank over the past year are also
evaluated.
Effective January 1, 1997, Mr. Glas, Co-Chairman of the Board and Chief
Executive Officer, and Mr. Loban, Co-Chairman of the Board and President, each
received a salary increase from $145,000 to $151,000, and Mr. Burgart received a
salary increase from $99,000 to $103,000. The Committee will consider the annual
compensation paid to presidents, chief executive officers, and chief financial
officers of financial institutions in the State of Minnesota and surrounding
states with assets of between $250 million and $500 million and the individual
job performance of such individual in consideration of its specific salary
increase decision with respect to compensation to be paid to the President,
Chief Executive Officer, and Chief Financial Officer in the future.
Compensation Committee:
James J. Caturia
Roger R. Stearns
Sever B. Knutson
-11-
<PAGE>
Other Benefits
Long Term Incentive Plans. The Company does not presently sponsor any
long-term incentive plans nor did it make any payouts to George B. Loban, Donald
A. Glas, or Richard H. Burgart under such plans during the fiscal year ended
September 30, 1997.
Incentive Compensation Policy. The Bank has an Incentive Compensation
Policy for selected management personnel (18 persons). Compensation awards under
this policy appear as a bonus in the year earned. Awards are based on
individuals attaining various financial and business plan objectives set by the
Board of Directors. Total bonuses earned by all participants covered by the
policy (including Mr. Glas, Mr. Loban, and Mr. Burgart) totalled $253,477 for
the fiscal year ended September 30, 1997.
Supplemental Executive Retirement Plans. The Bank maintains an insured
executive salary continuation plan ("ESCP") for the benefit of eligible
executive employees (eight persons, including two retired employees). The
purpose of the ESCP is to furnish executive employees with post-retirement and
death benefits in addition to those which will be provided under the Bank's SEP
and other retirement benefits. The ESCP is also designed to foster the retention
of executive employees. It is anticipated that benefits payable under the ESCPs
will equal approximately $5,159 per month in the case of Mr. Glas upon his
retirement at age 56 for a maximum of 180 months, $4,166 in the case of Mr.
Loban upon his retirement age 56 for a maximum of 120 months, and $3,810 per
month in the case of Mr. Burgart upon his retirement at age 60 for a maximum of
180 months. Payments under the ESCP are accrued for financial reporting purposes
during the period of employment. The Bank's policy is to fund the ESCP costs
accrued with insurance contracts. The accrued liability for all participants
(six persons) at September 30, 1997, in connection with the ESCP amounted to
$505,319 of which $174,486, $127,193, and $78,490 were attributable to Messrs.
Glas, Loban, and Burgart, respectively. There are no tax consequences to any
executive officer or the Bank related to the plans prior to the payment of
benefits. Upon receipt of payment of benefits, the executive employees will
recognize taxable ordinary income in the amount of such payments received and
the Bank will be entitled to recognize a tax-deductible compensation expense at
that time. At the time of the Merger, the Bank assumed the ESCP of Hastings.
Employee Stock Ownership Plan. The Bank maintains an employee stock
ownership plan, (the "ESOP"), for the exclusive benefit of participating
employees. Participating employees are employees who have completed one year of
service with the Bank or its subsidiary and attained age 21. The ESOP is to be
funded by contributions made by the Bank in cash or the Common Stock. Benefits
may be paid either in shares of the Common Stock or in cash. The ESOP borrowed
funds from the Company to acquire 359,720 shares of the Common Stock issued in
the Merger Conversion, representing 8.0% of the then outstanding shares, of
which 238,315 shares remained unallocated as of the Voting Record Date. This
loan is secured by the shares purchased and earnings of ESOP assets. Shares
purchased with loan proceeds are held in a suspense account for allocation among
participants as the loan is repaid. During the fiscal year ended September 30,
1997, the Bank contributed $204,825 to the ESOP.
A committee consisting of Messrs. Knutson, Stearns, and Caturia (the
"ESOP Committee") administers the ESOP and also serves as the ESOP trustees (the
"ESOP Trustees"). The Board of Directors or the ESOP Committee may instruct the
ESOP Trustees regarding investments of funds contributed to the ESOP. The ESOP
Trustees must vote all allocated shares held in the ESOP in accordance with the
instructions of the participating employees. Unallocated shares and allocated
shares for which no timely direction is received will be voted by the ESOP
Trustees as directed by the Board of Directors or the ESOP Committee, subject to
the Trustees' fiduciary duties.
-12-
<PAGE>
1994 Stock Option Plan. The Board of Directors adopted the 1994 Stock
Option Plan (the "Option Plan"). Pursuant to the Option Plan, additional
authorized shares were reserved for issuance by the Company upon exercise of
stock options to be granted to officers, directors, and employees of the Company
and the Bank from time to time under the Option Plan. The purpose of the Option
Plan is to provide additional incentive to certain officers, directors, and key
employees by facilitating their purchase of a stock interest in the Company. The
Option Plan, which became effective January 17, 1995, the date of stockholder
approval, provides for a term of ten years, after which no awards may be made,
unless earlier terminated by the Board of Directors pursuant to the Option Plan.
Options awarded pursuant to the Option Plan vest at a rate of 20% per year
beginning on the anniversary date of the grant. An initial grant of options was
made on the date of stockholder approval. The options are immediately
exercisable in the event of a change in control. No options have been awarded
under the Option Plan since that time.
The following table set forth additional information concerning options
granted under the Option Plan.
<TABLE>
<CAPTION>
OPTION/SAR EXERCISES AND YEAR END VALUE TABLE
Aggregated Option/SAR Exercises in Last Fiscal Year, and FY-End Option/SAR Value
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Options/SARs Options/SARs
at FY-End (#)(1)(2) at FY-End ($)(1)(3)
------------------------- -------------------------
Shares Acquired Value
Name on Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- --------------- -------------- ------------------------- --------------------------
<S> <C> <C> <C> <C>
Donald A. Glas 0 0 44,965/67,447 $455,046/$682,901
George B. Loban 0 0 44,956/67,447 $455,046/$682,901
Richard H. Burgart 0 0 17,986/26,979 $182,108/$273,162
</TABLE>
- ----------------------
(1) No Stock Appreciation Rights (SARs) have been awarded under the Option
Plan.
(2) Includes options that are exercisable within 60 days of the Voting
Record Date.
(3) Based upon an exercise price of $9.50 per share and the average bid and
asked price of $19.625 as of September 30, 1997.
Management Stock Plan. The board of directors of the Bank has adopted
the Management Stock Plan (the "MSP") as a method of providing executive
officers and key employees of the Bank with a proprietary interest in the
Company in a manner designed to encourage such persons to remain in the
employment or service with the Bank. Awards under the MSP were made in
recognition of prior and expected future services to the Bank to those executive
officers and key employees of the Bank responsible for implementation of the
policies adopted by the board of directors of the Bank, the profitable operation
of the Bank, and as a means of providing a further retention incentive and
direct link between compensation and the profitability of the Bank. Awards under
the MSP vest at a rate of 20% per year beginning on the anniversary date of the
date of grant. An initial grant of restricted stock was made on January 17,
1995, the date of stockholder approval of the MSP. No additional awards of
restricted stock under the MSP have been made since that time.
-13-
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE GRAPH
- --------------------------------------------------------------------------------
The following graph compares the cumulative total shareholder return of
the Common Stock of the Company with that of (a) the total return index for
domestic companies listed on the Nasdaq Stock Market and (b) the total return
index for banks listed on the Nasdaq Stock Market. These total return indices of
the Nasdaq Stock Market are computed by the Center for Research in Securities
Prices ("CRSP") at the University of Chicago. All three investment comparisons
assume the investment of $100 at the market close on October 7, 1994 (the date
the Common Stock was first traded) and the reinvestment of dividends as paid.
The graph provides comparisons as of September 30, 1997.
There can be no assurance that the Company's stock performance will
continue with the same or similar trends depicted in the graph below. The
Company will not make or endorse any predictions as to future stock performance.
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
================================================================================
10/7/94 9/30/95 9/30/96 9/30/97
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CRSP Nasdaq US Index 100.00 140.71 166.97 229.17
- --------------------------------------------------------------------------------
CRSP Nasdaq Bank Index 100.00 128.57 164.07 273.30
- --------------------------------------------------------------------------------
FSF Financial Corp. 100.00 135.65 137.19 217.82
================================================================================
</TABLE>
-14-
<PAGE>
- --------------------------------------------------------------------------------
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------------------------------
The Bank had no "interlocking" relationships existing on or after
October 1, 1996 in which (i) any executive officer is a member of the Board of
Directors/Trustees of another entity, one of whose executive officers is a
member of the board of directors of the Bank, or where (ii) any executive
officer is a member of the compensation committee of another entity, one of
whose executive officers is a member of board of directors of the Bank.
The Bank, like many financial institutions, has followed a policy of
granting various types of loans to executive officers, directors, employees, or
immediate family members or affiliates thereof. The loans have been made in the
ordinary course of business and on substantially the same terms and conditions
(including interest rates and collateral) that apply to the Bank's other
customers, and do not involve more than the normal risk of collectibility, nor
present other unfavorable features. All loans by the Bank to its directors and
executive officers are subject to OTS regulations restricting loans and other
transactions with affiliated persons of the Bank. The Bank's affiliates must
qualify for any loans on the same terms and conditions that apply to other
customers.
- --------------------------------------------------------------------------------
II - RATIFICATION OF THE 1998 STOCK COMPENSATION PLAN
- --------------------------------------------------------------------------------
General
The Company's Board of Directors has adopted the 1998 Stock
Compensation Plan. The 1998 Stock Compensation Plan is subject to ratification
by the Company's stockholders. Pursuant to the 1998 Stock Compensation Plan, up
to 300,000 shares of Common Stock are to be reserved under the Company's
authorized but unissued shares for issuance by the Company upon exercise of
stock options to be granted to officers, directors, key employees and other
persons from time to time and other stock awards. The purpose of the 1998 Stock
Compensation Plan is to attract and retain qualified personnel for positions of
substantial responsibility and to provide additional incentive to certain
officers, directors, key employees and other persons to promote the success of
the Company's and the Bank's business. The 1998 Stock Compensation Plan provides
for a term of ten years, after which no awards may be made. The following
summary of the material features of the 1998 Stock Compensation Plan is
qualified in its entirety by reference to the complete provisions of the 1998
Stock Compensation Plan which is attached hereto as Exhibit A.
The 1998 Stock Compensation Plan will be administered by the Board of
Directors or a committee of not less than two non-employee directors appointed
by the Company's Board of Directors and serving at the pleasure of the Board
(the "Option Committee"). The Option Committee may select the directors,
officers, and employees to whom options are to be granted and the number of
options to be granted based upon several factors including prior and anticipated
future job duties and responsibilities, job performance, certain performance
criteria as established from time-to-time by the Option Committee, the Bank's
financial performance and a comparison of awards given by other institutions. A
majority of the members of the Option Committee shall constitute a quorum and
the action of a majority of the members present at any meeting at which a quorum
is present shall be deemed the action of the Option Committee.
Officers, directors, key employees, and other persons who are
designated by the Option Committee will be eligible to receive, at no cost to
them, options under the 1998 Stock Compensation
-15-
<PAGE>
Plan (the "Optionees"). Each option granted pursuant to the 1998 Stock
Compensation Plan shall be evidenced by an instrument in such form as the Option
Committee shall from time to time approve. It is anticipated that options
granted under the 1998 Stock Compensation Plan will constitute either Incentive
Stock Options (options that afford favorable tax treatment to recipients upon
compliance with certain restrictions pursuant to Section 422 of the Internal
Revenue Code (the "Code") and that do not normally result in tax deductions to
the Company) or Non-Incentive Stock Options (options that do not afford
recipients favorable tax treatment under Section 422 of the Code). Option shares
may be paid for in cash, shares of Common Stock, or a combination of both. The
Company will receive no monetary consideration for the granting of stock options
under the 1998 Stock Compensation Plan. Further, the Company will receive no
consideration other than the option exercise price per share for Common Stock
issued to Optionees upon the exercise of those Options.
Options to be awarded to employees, officers, and directors shall be
conditioned upon receipt of stockholder ratification of the 1998 Stock
Compensation Plan. The terms of such options awarded to employees, officers, and
directors have been determined by the Board of Directors. See "- Awards to
Directors and Key Officers. In the event of the death or disability of an
Optionee, or a change in control (as such terms are described in the 1998 Stock
Compensation Plan), the options granted to such Optionee shall become
immediately exercisable without regard to any vesting schedule.
Shares issuable under the 1998 Stock Compensation Plan may be from
authorized but unissued shares or shares purchased in the open market. An Option
which expires, becomes unexercisable, or is forfeited for any reason prior to
its exercise will again be available for issuance under the 1998 Stock
Compensation Plan. No Option or any right or interest therein is assignable or
transferable except by will or the laws of descent and distribution. The 1998
Stock Compensation Plan shall continue in effect for a term of ten years from
the Effective Date.
Stock Options
The Option Committee may grant either Incentive Stock Options or
Non-Incentive Stock Options. In general, if an Optionee ceases to serve as an
employee of the Company for any reason other than disability or death, an
exercisable Incentive Stock Option may continue to be exercisable for three
months but in no event after the expiration date of the option, except as may
otherwise be determined by the Option Committee at the time of the award. In the
event of the disability or death of an Optionee during employment, an
exercisable Incentive Stock Option will continue to be exercisable for one year
and two years, respectively, to the extent exercisable by the Optionee
immediately prior to the Optionee's disability or death but only if, and to the
extent that, the Optionee was entitled to exercise such Incentive Stock Options
on the date of termination of employment. The terms and conditions of
Non-Incentive Stock Options relating to the effect of an Optionee's termination
of employment or service, disability, or death shall be such terms as the Option
Committee, in its sole discretion, shall determine at the time of termination of
service, disability or death, unless specifically determined at the time of
grant of such options.
The exercise price for the purchase of Common Stock subject to an
Option may not be less than one hundred percent (100%) of the Fair Market Value
of the Common Stock covered by the Option on the date of grant of such Option.
For purposes of determining the Fair Market Value of the Common Stock, the
exercise price per share of the Option shall be not less than the mean between
the last bid and ask price on the date the Option is granted or, if there is no
bid and ask price on that date, then on the immediately prior business day on
which there was a bid and ask price. If no bid and ask price is available, then
the exercise price per share shall be determined in good faith by the Option
Committee.
-16-
<PAGE>
The Option Committee may impose additional conditions upon the right of an
Optionee to exercise any Option granted hereunder that are not inconsistent with
the terms of the 1998 Stock Compensation Plan or the requirements for
qualification as an Incentive Stock Option, if such Option is intended to
qualify as an Incentive Stock Option.
No shares of Common Stock shall be issued upon the exercise of an
Option until full payment therefor has been received by the Company, and no
Optionee shall have any of the rights of a stockholder of the Company until
shares of Common Stock are issued to the Optionee, except to the extent that
dividend equivalent rights are awarded under the 1998 Stock Compensation Plan.
Upon the exercise of an Option by an Optionee (or the Optionee's personal
representative), the Option Committee, in its sole and absolute discretion, may
make a cash payment to the Optionee, in whole or in part, in lieu of the
delivery of shares of Common Stock. Such cash payment to be paid in lieu of
delivery of Common Stock shall be equal to the difference between the Fair
Market Value of the Common Stock on the date of the Option exercise and the
exercise price per share of the Option. Such cash payment shall be in exchange
for the cancellation of such Option and shall not be made in the event that the
transaction would result in liability to the Optionee and the Company under the
1934 Act or regulations promulgated thereunder.
The 1998 Stock Compensation Plan provides that the Board of Directors
of the Company may authorize the Option Committee to direct the execution of an
instrument providing for the modification, extension, or renewal of any
outstanding option, provided that no such modification, extension, or renewal
shall confer on the Optionee any right or benefit that could not be conferred on
the Optionee by the grant of a new Option at such time, and shall not materially
decrease the Optionee's benefits under the Option without the Optionee's
consent, except as otherwise provided under the 1998 Stock Compensation Plan.
Awards Under the 1998 Stock Compensation Plan
The Board or the Option Committee shall from time to time determine the
officers, Directors, key employees, and other persons who shall be granted
awards (Options or Stock-Awards, collectively, "Awards") under the 1998 Stock
Compensation Plan, the number of Awards to be granted to any Participant under
the 1998 Stock Compensation Plan, and whether Awards granted to each Participant
under the 1998 Stock Compensation Plan shall be Incentive Stock Options and/or
Non-Incentive Stock Options. In selecting Participants and in determining the
number of shares of Common Stock subject to Options to be granted to each such
Participant, the Board or the Option Committee may consider the nature of the
past and anticipated future services rendered by each such Participant, each
such Participant's current and potential contribution to the Company and such
other factors as may be deemed relevant. Participants who have been granted an
Award may, if otherwise eligible, be granted additional Awards.
Options may be granted to newly appointed or elected non-employee
Directors within the sole discretion of the Option Committee, and the exercise
price shall be equal to the Fair Market Value of such Common Stock on the date
of grant. The Options and Stock Awards granted to non-employee Directors on the
Effective Date will be first exercisable 20% on the date of grant and 20% on
each one year anniversary of the date of grant thereafter, during such period of
service as a Director or a Director Emeritus. Options granted to non-employee
Directors will remain exercisable for up to ten years from the date of grant
without regard to continuation of service as a Director or Director Emeritus.
Upon the death or disability of a Director or Director Emeritus, Options shall
be deemed immediately 100% exercisable for their remaining term.
-17-
<PAGE>
All outstanding option awards shall become immediately exercisable in
the event of a change in control of the Company or the Bank. Subject to vesting
requirements, if applicable, except in the event of death or disability of the
Optionee, a minimum of six months must elapse between the date of the grant of
an Option and the date of the sale of the Common Stock received through the
exercise of such Option.
Awards to Directors and Key Officers
Pursuant to the terms of the 1998 Stock Compensation Plan, as of the
first business day after the date of the Meeting ("Date of Grant"), each
non-employee Director of the Company shall be granted a Stock Award consisting
of 1,500 shares of Common Stock. Stock Awards have been granted to non-employee
directors in lieu of the current $8,000 retainer fees currently paid for service
on the Company's and the Bank's Boards of Directors. Additionally, as of such
Date of Grant, each recipient of such Stock Award shall receive an option to
purchase a number of shares of Common Stock represented by the number of shares
of Common Stock represented by the Stock Award ("Tandem Stock Option"). The
option exercise price for each share of Common Stock under such Tandem Stock
Option shall be equal to the average of the last reported sale price of the
Common Stock on the three business days immediately prior to the Date of Grant
("Stock Price"). Such Stock Award and Tandem Stock Option shall be earned and
non-forfeitable at the rate of 20% of each such Award as of the Date of Grant
and 20% annually thereafter. Such Tandem Stock Options shall continue to be
exercisable for a period of ten years following the Date of Grant without regard
to the continued services of such Director as a Director. Such Awards shall be
immediately 100% earned and non-forfeitable upon a Change in Control of the
Company or upon the death or Disability of such Director. In the event of the
Participant's death, such Tandem Stock Options may be exercised by the personal
representative of his estate or person or persons to whom his rights under such
Option shall have passed by will or by the laws of descent and distribution.
Stock Options to purchase 102,801 shares of Common Stock have been
granted to key employees of the Company and the Bank. Such options vest 33% on
the Date of Grant and 16.67% annually beginning October 1, 1998.
-18-
<PAGE>
The table below presents information related to stock option awards
granted under the plan, subject to stockholder ratification of the 1998 Stock
Compensation Plan.
NEW PLAN BENEFIT
1998 STOCK OPTION PLAN
----------------------
<TABLE>
<CAPTION>
Number of
Number of Shares of
Options Common Stock
Name and Position Dollar Value(1) to be Granted Awarded
- ----------------------------------------------- --------------- --------------- --------------
Donald A. Glas
<S> <C> <C> <C>
Chief Executive Officer and Director......... N/A 33,973(2) N/A
George Loban
President and Director....................... N/A 33,973(2) N/A
Richard H. Burgart
Chief Financial Officer, Secretary
and Director(3)............................ N/A 23,178(2) N/A
Roger Stearns
Director(3)................................... $29,719 1,500(4) 1,500(4)
Executive Officer Group (4 persons)............ N/A 99,901 N/A
Non-Executive Director Group
(4 persons).................................. $118,875 6,000 6,000
Non-Executive Officer Employee
Group.......................................... N/A 2,900(5) N/A
</TABLE>
- -----------------------
(1) The exercise price of Options will be equal to the Fair Market Value of
the Common Stock on the date of stockholder ratification of the 1998
Stock Compensation Plan. Accordingly, the dollar value of the options
was not determinable at the time of mailing this Proxy Statement. On
the Voting Record Date, the average of the bid and ask price of the
Common Stock at the close of the market as reported on the Nasdaq
National Market was $19.8125 per share. The value of the shares of
Common Stock to be awarded to each non-employee director is $29,719,
based average bid and ask price of the Common Stock on the Record Date.
(2) To vest 33.3% on the Date of Grant and 16.67% annually beginning
October 1, 1997.
(3) Nominee for Director.
(4) To vest equally at a rate of 20% per year beginning on the Date of
Grant.
(5) To vest 33% per year beginning October 1, 1998.
Effect of Mergers, Change of Control and Other Adjustments
Subject to any required action by the stockholders of the Company,
within the sole discretion of the Option Committee, the aggregate number of
shares of Common Stock for which Options may be granted hereunder or the number
of shares of Common Stock represented by each outstanding Option will be
proportionately adjusted for any increase or decrease in the number of issued
and outstanding shares of Common Stock resulting from a subdivision or
consolidation of shares or the payment of a stock dividend or any other increase
or decrease in the number of shares of Common Stock effected without the receipt
or payment of consideration by the Company. Subject to any required action by
the
-19-
<PAGE>
stockholders of the Company, in the event of any change in control,
recapitalization, merger, consolidation, exchange of shares, spin-off,
reorganization, tender offer, partial or complete liquidation, or other
extraordinary corporate action or event, the Option Committee, in its sole
discretion, has the power, prior to or subsequent to the action or events, to
(i) appropriately adjust the number of shares of Common Stock subject to each
Option, the exercise price per share of each Option, and the consideration to be
given or received by the Company upon the exercise of any outstanding Options;
(ii) cancel any or all previously granted Options, provided that appropriate
consideration is paid to the Optionee in connection therewith; and/or (iii) make
such other adjustments in connection with the 1998 Stock Compensation Plan as
the Option Committee, in its sole discretion, deems necessary, desirable,
appropriate, or advisable. However, no action may be taken by the Option
Committee that would cause Incentive Stock Options granted pursuant to the 1998
Stock Compensation Plan to fail to meet the requirements of Section 422 of the
Code without the consent of the Optionee. Upon the payment of a special or
non-recurring cash dividend that has the effect of a return of capital to the
stockholders, if any, the Option exercise price per share will be adjusted
proportionately.
The Option Committee will at all times have the power to accelerate the
exercise date of all Options granted under the 1998 Stock Compensation Plan. In
the case of a Change in Control of the Company as determined by the Option
Committee, all outstanding options shall become immediately exercisable. A
change in control is defined to include (i) the sale of all, or a material
portion, of the assets of the Company; (ii) the merger or recapitalization of
the Company whereby the Company is not the surviving entity; (iii) a change in
control of the Company as otherwise defined or determined by the OTS or its
regulations; or (iv) the acquisition, directly or indirectly, of the beneficial
ownership (within the meaning of Section 13(d) of the 1934 Act and rules and
regulations promulgated thereunder) of 25% or more of the outstanding voting
securities of the Company by any person, trust, entity, or group. This
limitation does not apply to the purchase of shares by underwriters in
connection with a pubic offering of Company stock or the purchase of shares of
up to 25% of any class of securities of the Company by a tax-qualified employee
stock benefit plan.
In the event of a Change in Control, the Option Committee and the Board
of Directors will take one or more of the following actions to be effective as
of the date of the Change in Control: (i) provide that Options will be assumed,
or equivalent options will be substituted, ("Substitute Options") by the
acquiring or succeeding corporation (or an affiliate thereof), provided that:
(A) any Substitute Options exchanged for Incentive Stock Options must meet the
requirements of Section 424(a) of the Code, and (B) the shares of stock issuable
upon the exercise of Substitute Options constitute securities registered in
accordance with the Securities Act of 1933, as amended, ("1933 Act") or such
securities shall be exempt from such registration in accordance with Sections
3(a)(2) or 3(a)(5) of the 1933 Act, (collectively, "Registered Securities"), or
in the alternative, if the securities issuable upon the exercise of Substitute
Options do not constitute Registered Securities, then the Optionee will receive
upon consummation of the Change in Control transaction a cash payment for each
Option surrendered equal to the difference between (1) the Fair Market Value of
the consideration to be received for each share of Common Stock in the Change in
Control transaction times the number of shares of Common Stock subject to the
surrendered Options, and (2) the aggregate exercise price of all surrendered
Options, or (ii) in the event of a transaction under the terms of which the
holders of the Common Stock of the Company will receive upon consummation
thereof a cash payment (the "Merger Price") for each share of Common Stock
exchanged in the Change in Control transaction, to make or to provide for a cash
payment to the Optionees equal to the difference between (A) the Merger Price
times the number of shares of Common Stock subject to the Options held by each
Optionee (to the extent then exercisable at prices not in excess of the Merger
Price) and (B) the aggregate exercise price of all surrendered Options in
exchange for surrendered Options.
-20-
<PAGE>
The power of the Option Committee to accelerate the exercise of Options
and the immediate exercisability of Options in the case of a Change in Control
of the Company could have an anti-takeover effect by making it more costly for a
potential acquiror to obtain control of the Company due to the higher number of
shares outstanding following such exercise of Options. The power of the Option
Committee to make adjustments in connection with the 1998 Stock Compensation
Plan, including adjusting the number of shares subject to Options and canceling
Options, prior to or after the occurrence of an extraordinary corporate action,
allows the Option Committee to adapt the 1998 Stock Compensation Plan to operate
in changed circumstances, to adjust the 1998 Stock Compensation Plan to fit a
smaller or larger company, and to permit the issuance of Options to new
management following an extraordinary corporate action. However, this power of
the Option Committee may also have an anti-takeover effect, by allowing the
Option Committee to adjust the 1998 Stock Compensation Plan in a manner to allow
the present management of the Company to exercise more Options and hold more
shares of the Company's Common Stock, and to possibly decrease the number of
Options available to new management of the Company.
Although the 1998 Stock Compensation Plan may have an anti-takeover
effect, the Board of Directors did not adopt the 1998 Stock Compensation Plan
specifically for anti-takeover purposes. The 1998 Stock Compensation Plan could
render it more difficult to obtain support for stockholder proposals opposed by
the Board and management in that recipients of Options could choose to exercise
such Options and thereby increase the number of shares for which they hold
voting power. Also, the exercise of Options could make it easier for the Board
and management to block the approval of certain transactions requiring the
voting approval of 80% of the Common Stock in accordance with the Articles. In
addition, the exercise of Options could increase the cost of an acquisition by a
potential acquiror.
Amendment and Termination of the 1998 Stock Compensation Plan
The Board of Directors may alter, suspend, or discontinue the 1998
Stock Compensation Plan, except that no action of the Board shall increase the
maximum number of shares of Common Stock issuable under the 1998 Stock
Compensation Plan, materially increase the benefits accruing to Optionees under
the 1998 Stock Compensation Plan or materially modify the requirements for
eligibility for participation in the 1998 Stock Compensation Plan unless such
action of the Board is subject to ratification by the stockholders of the
Company.
Possible Dilutive Effects of the 1998 Stock Compensation Plan
The Common Stock to be issued upon the exercise of Options awarded
under the 1998 Stock Compensation Plan may either be authorized but unissued
shares of Common Stock or shares purchased in the open market. Because the
stockholders of the Company do not have preemptive rights, to the extent that
the Company funds the 1998 Stock Compensation Plan, in whole or in part, with
authorized but unissued shares, the interests of current stockholders will be
diluted. If upon the exercise of all of the Options, the Company delivers newly
issued shares of Common Stock (i.e., 300,000 shares of Common Stock), then the
effect to current stockholders would be to dilute their current ownership
percentages by approximately 9.1%.
-21-
<PAGE>
Federal Income Tax Consequences
Under present federal tax laws, awards under the 1998 Stock
Compensation Plan will have the following consequences:
1. The grant of an Option will not by itself result in the
recognition of taxable income to an Optionee nor entitle the
Company to a tax deduction at the time of such grant.
2. The exercise of an Option which is an "Incentive Stock Option"
within the meaning of Section 422 of the Code generally will
not, by itself, result in the recognition of taxable income to
an Optionee nor entitle the Company to a deduction at the time
of such exercise. However, the difference between the Option
exercise price and the Fair Market Value of the Common Stock
on the date of Option exercise is an item of tax preference
which may, in certain situations, trigger the alternative
minimum tax for an Optionee. An Optionee will recognize
capital gain or loss upon resale of the shares of Common Stock
received pursuant to the exercise of Incentive Stock Options,
provided that such shares are held for at least one year after
transfer of the shares or two years after the grant of the
Option, whichever is later. Generally, if the shares are not
held for that period, the Optionee will recognize ordinary
income upon disposition in an amount equal to the difference
between the Option exercise price and the Fair Market Value of
the Common Stock on the date of exercise, or, if less, the
sales proceeds of the shares acquired pursuant to the Option.
3. The exercise of a Non-Incentive Stock Option will result in
the recognition of ordinary income by the Optionee on the date
of exercise in an amount equal to the difference between the
exercise price and the Fair Market Value of the Common Stock
acquired pursuant to the Option.
4. Upon the vesting of the award of Common Stock, participants
will recognize taxable income equal to the fair market value
of said Common Stock on such date.
5. The Company will be allowed a tax deduction for federal tax
purposes equal to the amount of ordinary income recognized by
an Optionee at the time the Optionee recognizes such ordinary
income.
6. In accordance with Section 162(m) of the Code, the Company's
tax deductions for compensation paid to the most highly paid
executives named in the Company's Proxy Statement may be
limited to no more than $1 million per year, excluding certain
"performance-based" compensation. The Company intends for the
award of Options under the Option Plan to comply with the
requirement for an exception to Section 162(m) of the Code
applicable to stock option plans so that the Company's
deduction for compensation related to the exercise of Options
would not be subject to the deduction limitation set forth in
Section 162(m) of the Code.
-22-
<PAGE>
Accounting Treatment
Neither the grant nor the exercise of an Option under the 1998 Stock
Compensation Plan currently requires any charge against earnings under generally
accepted accounting principles. In certain circumstances, Common Stock issuable
pursuant to outstanding Options that are exercisable under the 1998 Stock
Compensation Plan might be considered outstanding for purposes of calculating
earnings per share on a fully diluted basis. The award of Common Stock to
directors will result in a financial reporting expense based upon the fair
market value of said awards as of the date of grant amortized over the vesting
period.
Stockholder Ratification
Stockholder ratification of the 1998 Compensation Plan is being sought
to qualify the 1998 Stock Compensation Plan for the granting of Incentive Stock
Options in accordance with the Code, to enable Optionees to qualify for certain
exemptive treatment from the short-swing profit recapture provisions of Section
16(b) of the 1934 Act, to meet the requirements for the tax-deductibility of
certain compensation items under Section 162(m) of the Code, and to meet the
requirements for continued listing of the Common Stock under the Nasdaq National
Market. An affirmative vote of a majority of the votes cast at the Meeting on
the matter, in person or by proxy, is required to constitute stockholder
ratification of this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
1998 STOCK COMPENSATION PLAN, ATTACHED AS EXHIBIT A.
- --------------------------------------------------------------------------------
RATIFICATION OF APPOINTMENT OF AUDITORS
- --------------------------------------------------------------------------------
Bertram Cooper & Co., LLP was the Company's independent public
accountant for the fiscal year ended September 30, 19978. The Board of Directors
has approved the selection of Bertram Cooper & Co., LLP as its auditors for the
fiscal year ending September 30, 1998, subject to ratification by the Company's
stockholders. A representative of Bertram Cooper & Co., LLP is expected to be
present at the Meeting to respond to stockholders' questions and will have the
opportunity to make a statement if he or she so desires.
Ratification of the appointment of the auditors requires the
affirmative vote of a majority of the votes cast by the stockholders of the
Company at the Meeting. The Board of Directors recommends that stockholders vote
"FOR" the ratification of the appointment of Bertram Cooper & Co., LLP as the
Company's auditors for the fiscal year ending September 30, 1998.
- --------------------------------------------------------------------------------
OTHER MATTERS
- --------------------------------------------------------------------------------
The Board of Directors is not aware of any business to come before the
Meeting other than those matters described above in this Proxy Statement.
However, if any other matters should properly come before the Meeting, it is
intended that proxies in the accompanying form will be voted in respect thereof
in accordance with the judgment of the person or persons voting such proxies.
-23-
<PAGE>
- --------------------------------------------------------------------------------
MISCELLANEOUS
- --------------------------------------------------------------------------------
The cost of soliciting proxies will be borne by the Company. The
Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of Common Stock. In addition to solicitations by mail,
directors, officers and regular employees of the Company may solicit proxies
personally or by telegraph or telephone without additional compensation.
- --------------------------------------------------------------------------------
ANNUAL REPORTS
- --------------------------------------------------------------------------------
The Company's Annual Report to Stockholders for the fiscal year ended
September 30, 1997, including financial statements, and the Company's Annual
Report on Form 10-K will be mailed to all stockholders of record as of the close
of business on December 1, 1997. Any stockholder who has not received a copy of
the Annual Report by December 31, 1997 may obtain a copy by writing to the
Secretary of the Company. The Annual Report to Stockholders and Form 10-K are
not to be treated as a part of the proxy solicitation material or as having been
incorporated herein by reference.
- --------------------------------------------------------------------------------
STOCKHOLDER PROPOSALS
- --------------------------------------------------------------------------------
In order to be eligible for inclusion in the Company's proxy materials
for next year's Annual Meeting of Stockholders, any stockholder proposal to take
action at such meeting must be received at the Company's executive offices at
201 Main Street South, Hutchinson, Minnesota 55350, no later than August 12,
1998. Any such proposals shall be subject to the requirements of the proxy rules
adopted under the 1934 Act.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Richard H. Burgart
Richard H. Burgart, Secretary
Hutchinson, Minnesota
December 10, 1997
-24-
<PAGE>
Exhibit A
FSF FINANCIAL CORP.
1998 STOCK COMPENSATION PLAN
1. Purpose of the Plan. The Plan shall be known as the FSF Financial
Corp. ("Company") 1998 Stock Compensation Plan (the "Plan"). The purpose of the
Plan is to attract and retain qualified personnel for positions of substantial
responsibility and to provide additional incentive to officers, directors,
employees and other persons providing services to the Company, or any present or
future parent or subsidiary of the Company to promote the success of the
business. The Plan is intended to provide for the grant of "Incentive Stock
Options," within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), Non-Incentive Stock Options, options that do not
so qualify, and shares of Company Common Stock. The provisions of the Plan
relating to Incentive Stock Options shall be interpreted to conform to the
requirements of Section 422 of the Code.
2. Definitions. The following words and phrases when used in this Plan
with an initial capital letter, unless the context clearly indicates otherwise,
shall have the meaning as set forth below. Wherever appropriate, the masculine
pronoun shall include the feminine pronoun and the singular shall include the
plural.
(a) "Award" means the grant by the Committee of an Incentive
Stock Option, a Non-Incentive Stock Option, shares of Common Stock or any
combination thereof, as provided in the Plan.
(b) "Board" shall mean the Board of Directors of the Company,
or any successor or parent corporation thereto.
(c) "Change in Control" shall mean: (i) the sale of all, or a
material portion, of the assets of the Company; (ii) the merger or
recapitalization of the Company whereby the Company is not the surviving entity;
(iii) a change in control of the Company, as otherwise defined or determined by
the Office of Thrift Supervision or regulations promulgated by it; or (iv) the
acquisition, directly or indirectly, of the beneficial ownership (within the
meaning of that term as it is used in Section 13(d) of the Securities Exchange
Act of 1934 and the rules and regulations promulgated thereunder) of twenty-five
percent (25%) or more of the outstanding voting securities of the Company by any
person, trust, entity or group. This limitation shall not apply to the purchase
of shares by underwriters in connection with a public offering of Company stock,
or the purchase of shares of up to 25% of any class of securities of the Company
by a tax-qualified employee stock benefit plan which is exempt from the approval
requirements, set forth under 12 C.F.R. ss.574.3(c)(1)(vi) as now in effect or
as may hereafter be amended. The term "person" refers to an individual or a
corporation, partnership, trust, association, joint venture, pool, syndicate,
sole proprietorship, unincorporated organization or any other form of entity not
specifically listed herein. The decision of the Committee as to whether a Change
in Control has occurred shall be conclusive and binding.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended, and regulations promulgated thereunder.
(e) "Committee" shall mean the Board or the Stock Compensation
Committee appointed by the Board in accordance with Section 5(a) of the Plan.
(f) "Common Stock" shall mean the common stock of the Company,
or any successor or parent corporation thereto.
(g) "Company" shall mean the FSF Financial Corp, the parent
corporation of the Savings Bank, or any successor or Parent thereof.
(h) "Continuous Employment" or "Continuous Status as an
Employee" shall mean the absence of any interruption or termination of
employment with the Company or any present or future Parent or Subsidiary of the
Company. Employment shall not be considered interrupted in the case of sick
leave, military leave or any other leave
A-1
<PAGE>
of absence approved by the Company or in the case of transfers between payroll
locations, of the Company or between the Company, its Parent, its Subsidiaries
or a successor.
(i) "Director" shall mean a member of the Board of the
Company, or any successor or parent corporation thereto.
(j) "Director Emeritus" shall mean a person serving as a
director emeritus, advisory director, consulting director, or other similar
position as may be appointed by the Board of Directors of the Savings Bank or
the Company from time to time.
(k) "Disability" means (a) with respect to Incentive Stock
Options, the "permanent and total disability" of the Employee as such term is
defined at Section 22(e)(3) of the Code; and (b) with respect to Non-Incentive
Stock Options, any physical or mental impairment which renders the Participant
incapable of continuing in the employment or service of the Savings Bank or the
Parent in his then current capacity as determined by the Committee.
(l) "Effective Date" shall mean the date specified in Section
15 hereof.
(m) "Employee" shall mean any person employed by the Company
or any present or future Parent or Subsidiary of the Company.
(n) "Fair Market Value" shall mean: (i) if the Common Stock is
traded otherwise than on a national securities exchange, then the Fair Market
Value per Share shall be equal to the mean between the last bid and ask price of
such Common Stock on such date or, if there is no bid and ask price on said
date, then on the immediately prior business day on which there was a bid and
ask price. If no such bid and ask price is available, then the Fair Market Value
shall be determined by the Committee in good faith; or (ii) if the Common Stock
is listed on a national securities exchange, then the Fair Market Value per
Share shall be not less than the average of the highest and lowest selling price
of such Common Stock on such exchange on such date, or if there were no sales on
said date, then the Fair Market Value shall be not less than the mean between
the last bid and ask price on such date.
(o) "Incentive Stock Option" or "ISO" shall mean an option to
purchase Shares granted by the Committee pursuant to Section 8 hereof which is
subject to the limitations and restrictions of Section 8 hereof and is intended
to qualify as an incentive stock option under Section 422 of the Code.
(p) "Non-Incentive Stock Option" or "Non-ISO" shall mean an
option to purchase Shares granted pursuant to Section 9 hereof, which option is
not intended to qualify under Section 422 of the Code.
(q) "Option" shall mean an Incentive Stock Option or
Non-Incentive Stock Option granted pursuant to this Plan providing the holder of
such Option with the right to purchase Common Stock.
(r) "Optioned Stock" shall mean stock subject to an Option
granted pursuant to the Plan.
(s) "Optionee" shall mean any person who receives an Option or
Award pursuant to the Plan.
(t) "Parent" shall mean any present or future corporation
which would be a "parent corporation" as defined in Sections 424(e) and (g) of
the Code.
(u) "Participant" means any director, officer or key employee
of the Company or any Parent or Subsidiary of the Company or any other person
providing a service to the Company who is selected by the Committee to receive
an Award, or who by the express terms of the Plan is granted an Award.
(v) "Plan" shall mean the FSF Financial Corp 1998 Stock
Compensation Plan.
A-2
<PAGE>
(w) "Savings Bank" shall mean FSF Federal fsb, Hutchinson
Minnesota, or any successor corporation thereto.
(x) "Share" shall mean one share of the Common Stock.
(y) "Stock Award" shall mean an award of Common Stock in
accordance with Section 12 of the Plan.
(z) "Subsidiary" shall mean any present or future corporation
which constitutes a "subsidiary corporation" as defined in Sections 424(f) and
(g) of the Code.
3. Shares Subject to the Plan. Except as otherwise required by the
provisions of Section 13 hereof, the aggregate number of Shares with respect to
which Awards may be made pursuant to the Plan shall not exceed 300,000 Shares.
Such Shares may either be from authorized but unissued shares or shares
purchased in the market for Plan purposes. If an Award shall expire, become
unexercisable, or be forfeited for any reason prior to its exercise, new Awards
may be granted under the Plan with respect to the number of Shares as to which
such expiration has occurred.
4. Six Month Holding Period.
Subject to vesting requirements, if applicable, except in the
event of death or disability of the Optionee or a Change in Control of the
Company, a minimum of six months must elapse between the date of the grant of an
Option and the date of the sale of the Common Stock received through the
exercise of such Option.
5. Administration of the Plan.
(a) Composition of the Committee. The Plan shall be
administered by the Board of Directors of the Company or a Committee which shall
consist of not less than two Directors of the Company appointed by the Board and
serving at the pleasure of the Board. All persons designated as members of the
Committee shall meet the requirements of a "Non-Employee Director" within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, as
found at 17 CFR ss.240.16b-3.
(b) Powers of the Committee. The Committee is authorized (but
only to the extent not contrary to the express provisions of the Plan or to
resolutions adopted by the Board) to interpret the Plan, to prescribe, amend and
rescind rules and regulations relating to the Plan, to determine the form and
content of Awards to be issued under the Plan and to make other determinations
necessary or advisable for the administration of the Plan, and shall have and
may exercise such other power and authority as may be delegated to it by the
Board from time to time. A majority of the entire Committee shall constitute a
quorum and the action of a majority of the members present at any meeting at
which a quorum is present shall be deemed the action of the Committee. In no
event may the Committee revoke outstanding Awards without the consent of the
Participant.
The Chairman of the Board or the President of the Company and
such other officers as shall be designated by the Committee are hereby
authorized to execute written agreements evidencing Awards on behalf of the
Company and to cause them to be delivered to the Participants. Such agreements
shall set forth the Option exercise price, the number of shares of Common Stock
subject to such Option, the expiration date of such Options, and such other
terms and restrictions applicable to such Award as are determined in accordance
with the Plan or the actions of the Committee.
(c) Effect of Committee's Decision. All decisions,
determinations and interpretations of the Committee shall be final and
conclusive on all persons affected thereby.
A-3
<PAGE>
6. Eligibility for Awards and Limitations.
(a) The Committee shall from time to time
determine the officers, Directors, key employees and other persons who shall be
granted Awards under the Plan, the number of Awards to be granted to each such
persons, and whether Awards granted to each such Participant under the Plan
shall be Incentive and/or Non-Incentive Stock Options. In selecting Participants
and in determining the number of Shares of Common Stock to be granted to each
such Participant, the Committee may consider the nature of the prior and
anticipated future services rendered by each such Participant, each such
Participant's current and potential contribution to the Company and such other
factors as the Committee may, in its sole discretion, deem relevant.
Participants who have been granted an Award may, if otherwise eligible, be
granted additional Awards.
(b) The aggregate Fair Market Value (determined
as of the date the Option is granted) of the Shares with respect to which
Incentive Stock Options are exercisable for the first time by each Employee
during any calendar year (under all Incentive Stock Option plans, as defined in
Section 422 of the Code, of the Company or any present or future Parent or
Subsidiary of the Company) shall not exceed $100,000. Notwithstanding the prior
provisions of this Section 6, the Committee may grant Options in excess of the
foregoing limitations, provided said Options shall be clearly and specifically
designated as not being Incentive Stock Options.
(c) In no event shall Shares subject to Stock Awards
in accordance with Section 12 granted to non-employee Directors in the aggregate
under this Plan exceed more than 30,000 shares of Common Stock. In no event
shall Shares subject to Stock Options in accordance with the Plan granted to any
individual Optionee in the aggregate under this Plan exceed more than 100,000
shares of Common Stock.
7. Term of the Plan. The Plan shall continue in effect for a term of
ten (10) years from the Effective Date, unless sooner terminated pursuant to
Section 18 hereof. No Option shall be granted under the Plan after ten (10)
years from the Effective Date.
8. Terms and Conditions of Incentive Stock Options. Incentive Stock
Options may be granted only to Participants who are Employees. Each Incentive
Stock Option granted pursuant to the Plan shall be evidenced by an instrument in
such form as the Committee shall from time to time approve. Each Incentive Stock
Option granted pursuant to the Plan shall comply with, and be subject to, the
following terms and conditions:
(a) Option Price.
(i) The price per Share at which each Incentive
Stock Option granted by the Committee under the Plan may be exercised shall not,
as to any particular Incentive Stock Option, be less than the Fair Market Value
of the Common Stock on the date that such Incentive Stock Option is granted.
(ii) In the case of an Employee who owns Common Stock representing more than ten
percent (10%) of the outstanding Common Stock at the time the Incentive Stock
Option is granted, the Incentive Stock Option exercise price shall not be less
than one hundred and ten percent (110%) of the Fair Market Value of the Common
Stock on the date that the Incentive Stock Option is granted.
(b) Payment. Full payment for each Share of Common Stock
purchased upon the exercise of any Incentive Stock Option granted under the Plan
shall be made at the time of exercise of each such Incentive Stock Option and
shall be paid in cash (in United States Dollars), Common Stock or a combination
of cash and Common Stock. Common Stock utilized in full or partial payment of
the exercise price shall be valued at the Fair Market Value at the date of
exercise. The Company shall accept full or partial payment in Common Stock only
to the extent permitted by applicable law. No Shares of Common Stock shall be
issued until full payment has been received by the Company, and
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no Optionee shall have any of the rights of a stockholder of the Company until
Shares of Common Stock are issued to the Optionee.
(c) Term of Incentive Stock Option. The term of exercisability
of each Incentive Stock Option granted pursuant to the Plan shall be not more
than ten (10) years from the date each such Incentive Stock Option is granted,
provided that in the case of an Employee who owns stock representing more than
ten percent (10%) of the Common Stock outstanding at the time the Incentive
Stock Option is granted, the term of exercisability of the Incentive Stock
Option shall not exceed five (5) years.
(d) Exercise Generally. Except as otherwise provided in
Section 10 hereof, no Incentive Stock Option may be exercised unless the
Optionee shall have been in the employ of the Company at all times during the
period beginning with the date of grant of any such Incentive Stock Option and
ending on the date three (3) months prior to the date of exercise of any such
Incentive Stock Option. The Committee may impose additional conditions upon the
right of an Optionee to exercise any Incentive Stock Option granted hereunder
which are not inconsistent with the terms of the Plan or the requirements for
qualification as an Incentive Stock Option. Except as otherwise provided by the
terms of the Plan or by action of the Committee at the time of the grant of the
Options, the Options will be first exercisable at the rate of 100% on the date
of grant.
(e) Cashless Exercise. Subject to vesting requirements, if
applicable, an Optionee who has held an Incentive Stock Option for at least six
months may engage in the "cashless exercise" of the Option. Upon a cashless
exercise, an Optionee shall give the Company written notice of the exercise of
the Option together with an order to a registered broker-dealer or equivalent
third party, to sell part or all of the Optioned Stock and to deliver enough of
the proceeds to the Company to pay the Option exercise price and any applicable
withholding taxes. If the Optionee does not sell the Optioned Stock through a
registered broker-dealer or equivalent third party, the Optionee can give the
Company written notice of the exercise of the Option and the third party
purchaser of the Optioned Stock shall pay the Option exercise price plus any
applicable withholding taxes to the Company.
(f) Transferability. An Incentive Stock Option granted
pursuant to the Plan shall be exercised during an Optionee's lifetime only by
the Optionee to whom it was granted and shall not be assignable or transferable
otherwise than by will or by the laws of descent and distribution.
9. Terms and Conditions of Non-Incentive Stock Options. Each
Non-Incentive Stock Option granted pursuant to the Plan shall be evidenced by an
instrument in such form as the Committee shall from time to time approve. Each
Non-Incentive Stock Option granted pursuant to the Plan shall comply with and be
subject to the following terms and conditions.
(a) Option Price. The exercise price per Share of Common Stock
for each Non-Incentive Stock Option granted pursuant to the Plan shall be at
such price as the Committee may determine in its sole discretion, but in no
event less than the Fair Market Value of such Common Stock on the date of grant
as determined by the Committee in good faith.
(b) Payment. Full payment for each Share of Common Stock
purchased upon the exercise of any Non-Incentive Stock Option granted under the
Plan shall be made at the time of exercise of each such Non-Incentive Stock
Option and shall be paid in cash (in United States Dollars), Common Stock or a
combination of cash and Common Stock. Common Stock utilized in full or partial
payment of the exercise price shall be valued at its Fair Market Value at the
date of exercise. The Company shall accept full or partial payment in Common
Stock only to the extent permitted by applicable law. No Shares of Common Stock
shall be issued until full payment has been received by the Company and
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no Optionee shall have any of the rights of a stockholder of the Company until
the Shares of Common Stock are issued to the Optionee.
(c) Term. The term of exercisability of each Non-Incentive
Stock Option granted pursuant to the Plan shall be not more than ten (10) years
from the date each such Non-Incentive Stock Option is granted.
(d) Exercise Generally. The Committee may impose additional
conditions upon the right of any Participant to exercise any Non-Incentive Stock
Option granted hereunder which is not inconsistent with the terms of the Plan.
Except as otherwise provided by the terms of the Plan or by action of the
Committee at the time of the grant of the Options, the Options will be first
exercisable at the rate of 100% on the date of grant.
(e) Cashless Exercise. Subject to vesting requirements, if
applicable, an Optionee who has held a Non-Incentive Stock Option for at least
six months may engage in the "cashless exercise" of the Option. Upon a cashless
exercise, an Optionee shall give the Company written notice of the exercise of
the Option together with an order to a registered broker-dealer or equivalent
third party, to sell part or all of the Optioned Stock and to deliver enough of
the proceeds to the Company to pay the Option exercise price and any applicable
withholding taxes. If the Optionee does not sell the Optioned Stock through a
registered broker-dealer or equivalent third party, the Optionee can give the
Company written notice of the exercise of the Option and the third party
purchaser of the Optioned Stock shall pay the Option exercise price plus any
applicable withholding taxes to the Company.
(f) Transferability. Any Non-Incentive Stock Option granted
pursuant to the Plan shall be exercised during an Optionee's lifetime only by
the Optionee to whom it was granted and shall not be assignable or transferable
otherwise than by will or by the laws of descent and distribution.
10. Effect of Termination of Employment, Disability or Death on
Incentive Stock Options.
(a) Termination of Employment. In the event that any
Optionee's employment with the Company shall terminate for any reason, other
than Disability or death, all of any such Optionee's Incentive Stock Options,
and all of any such Optionee's rights to purchase or receive Shares of Common
Stock pursuant thereto, shall automatically terminate on (A) the earlier of (i)
or (ii): (i) the respective expiration dates of any such Incentive Stock
Options, or (ii) the expiration of not more than three (3) months after the date
of such termination of employment; or (B) at such later date as is determined by
the Committee at the time of the grant of such Award based upon the Optionee's
continuing status as a Director or Director Emeritus of the Savings Bank or the
Company, but only if, and to the extent that, the Optionee was entitled to
exercise any such Incentive Stock Options at the date of such termination of
employment, and further that such Award shall thereafter be deemed a
Non-Incentive Stock Option. In the event that a Subsidiary ceases to be a
Subsidiary of the Company, the employment of all of its employees who are not
immediately thereafter employees of the Company shall be deemed to terminate
upon the date such Subsidiary so ceases to be a Subsidiary of the Company.
(b) Disability. In the event that any Optionee's employment
with the Company shall terminate as the result of the Disability of such
Optionee, such Optionee may exercise any Incentive Stock Options granted to the
Optionee pursuant to the Plan at any time prior to the earlier of (i) the
respective expiration dates of any such Incentive Stock Options or (ii) the date
which is one (1) year after the date of such termination of employment, but only
if, and to the extent that, the Optionee was entitled to exercise any such
Incentive Stock Options at the date of such termination of employment.
(c) Death. In the event of the death of an Optionee, any
Incentive Stock Options granted to such Optionee may be exercised by the person
or persons to whom the Optionee's rights under any such Incentive Stock Options
pass by will or by the laws of descent and distribution (including the
Optionee's estate during the period of
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administration) at any time prior to the earlier of (i) the respective
expiration dates of any such Incentive Stock Options or (ii) the date which is
two (2) years after the date of death of such Optionee but only if, and to the
extent that, the Optionee was entitled to exercise any such Incentive Stock
Options at the date of death. For purposes of this Section 10(c), any Incentive
Stock Option held by an Optionee shall be considered exercisable at the date of
his death if the only unsatisfied condition precedent to the exercisability of
such Incentive Stock Option at the date of death is the passage of a specified
period of time. At the discretion of the Committee, upon exercise of such
Options the Optionee may receive Shares or cash or a combination thereof. If
cash shall be paid in lieu of Shares, such cash shall be equal to the difference
between the Fair Market Value of such Shares and the exercise price of such
Options on the exercise date.
(d) Incentive Stock Options Deemed Exercisable. For purposes
of Sections 10(a), 10(b) and 10(c) above, any Incentive Stock Option held by any
Optionee shall be considered exercisable at the date of termination of
employment if any such Incentive Stock Option would have been exercisable at
such date of termination of employment without regard to the Disability or death
of the Participant.
(e) Termination of Incentive Stock Options. Except as may be
specified by the Committee at the time of grant of an Option, to the extent that
any Incentive Stock Option granted under the Plan to any Optionee whose
employment with the Company terminates shall not have been exercised within the
applicable period set forth in this Section 10, any such Incentive Stock Option,
and all rights to purchase or receive Shares of Common Stock pursuant thereto,
as the case may be, shall terminate on the last day of the applicable period.
11. Effect of Termination of Employment, Disability or Death on
Non-Incentive Stock Options. The terms and conditions of Non-Incentive Stock
Options relating to the effect of the termination of an Optionee's employment or
service, Disability of an Optionee or his death shall be such terms and
conditions as the Committee shall, in its sole discretion, determine at the time
of termination of service, unless specifically provided for by the terms of the
Agreement at the time of grant of the Award.
12. Stock Awards to Directors.
(a) Awards to Directors. Notwithstanding anything herein to the
contrary, as of the first business day after the date of the 1998 Annual Meeting
of Stockholders of the Company ("Date of Grant"), each Director of the Company
then serving that is not otherwise an Employee of the Company or any Subsidiary
shall be granted a Stock Award consisting of 1,500 shares of Common Stock.
Additionally, as of such Date of Grant, each recipient of such Stock Award shall
receive an option to purchase a number of shares of Common Stock represented by
the number of shares of Common Stock represented by the Stock Award ("Tandem
Stock Option"). The option exercise price for each share of Common Stock under
such Tandem Stock Option shall be equal to the average of the last reported sale
price of the Common Stock on the three business days immediately prior to the
Date of Grant ("Stock Price"). Such Stock Award and Tandem Stock Option shall be
earned and non-forfeitable at the rate of 20% of each such Award as of the Date
of Grant and 20% annually thereafter. Such Tandem Stock Options shall continue
to be exercisable for a period of ten years following the Date of Grant without
regard to the continued services of such Director as a Director. Such Awards
shall be immediately 100% earned and non-forfeitable upon a Change in Control of
the Company or upon the death or Disability of such Director. In the event of
the Participant's death, such Tandem Stock Options may be exercised by the
personal representative of his estate or person or persons to whom his rights
under such Option shall have passed by will or by the laws of descent and
distribution.
13. Recapitalization, Merger, Consolidation, Change in Control and
Other Transactions.
(a) Adjustment. Subject to any required action by the
stockholders of the Company, within the sole discretion of the Committee, the
aggregate number of Shares of Common Stock for which Options may be granted
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hereunder, the number of Shares of Common Stock covered by each outstanding
Option, and the exercise price per Share of Common Stock of each such Option,
shall all be proportionately adjusted for any increase or decrease in the number
of issued and outstanding Shares of Common Stock resulting from a subdivision or
consolidation of Shares (whether by reason of merger, consolidation,
recapitalization, reclassification, split-up, combination of shares, or
otherwise) or the payment of a stock dividend (but only on the Common Stock) or
any other increase or decrease in the number of such Shares of Common Stock
effected without the receipt or payment of consideration by the Company (other
than Shares held by dissenting stockholders).
(b) Change in Control. All outstanding Awards shall become
immediately exercisable in the event of a Change in Control of the Company, as
determined by the Committee. In the event of such a Change in Control, the
Committee and the Board of Directors will take one or more of the following
actions to be effective as of the date of such Change in Control:
(i) provide that such Options shall be assumed, or equivalent
options shall be substituted, ("Substitute Options") by the acquiring or
succeeding corporation (or an affiliate thereof), provided that: (A) any such
Substitute Options exchanged for Incentive Stock Options shall meet the
requirements of Section 424(a) of the Code, and (B) the shares of stock issuable
upon the exercise of such Substitute Options shall constitute securities
registered in accordance with the Securities Act of 1933, as amended, ("1933
Act") or such securities shall be exempt from such registration in accordance
with Sections 3(a)(2) or 3(a)(5) of the 1933 Act, (collectively, "Registered
Securities"), or in the alternative, if the securities issuable upon the
exercise of such Substitute Options shall not constitute Registered Securities,
then the Optionee will receive upon consummation of the Change in Control
transaction a cash payment for each Option surrendered equal to the difference
between (1) the Fair Market Value of the consideration to be received for each
share of Common Stock in the Change in Control transaction times the number of
shares of Common Stock subject to such surrendered Options, and (2) the
aggregate exercise price of all such surrendered Options, or
(ii) in the event of a transaction under the terms of which
the holders of the Common Stock of the Company will receive upon consummation
thereof a cash payment (the "Merger Price") for each share of Common Stock
exchanged in the Change in Control transaction, to make or to provide for a cash
payment to the Optionees equal to the difference between (A) the Merger Price
times the number of shares of Common Stock subject to such Options held by each
Optionee (to the extent then exercisable at prices not in excess of the Merger
Price) and (B) the aggregate exercise price of all such surrendered Options in
exchange for such surrendered Options.
(c) Extraordinary Corporate Action. Notwithstanding any
provisions of the Plan to the contrary, subject to any required action by the
stockholders of the Company, in the event of any Change in Control,
recapitalization, merger, consolidation, exchange of Shares, spin-off,
reorganization, tender offer, partial or complete liquidation or other
extraordinary corporate action or event, the Committee, in its sole discretion,
shall have the power, prior or subsequent to such action or event to:
(i) appropriately adjust the number of Shares of
Common Stock subject to each Option, the Option exercise price per Share of
Common Stock, and the consideration to be given or received by the Company upon
the exercise of any outstanding Option;
(ii) cancel any or all previously granted Options,
provided that appropriate consideration is paid to the Optionee in connection
therewith; and/or
(iii) make such other adjustments in connection
with the Plan as the Committee, in its sole discretion, deems necessary,
desirable, appropriate or advisable; provided, however, that no action shall be
taken by the
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Committee which would cause Incentive Stock Options granted pursuant to the Plan
to fail to meet the requirements of Section 422 of the Code without the consent
of the Optionee.
(d) Acceleration. The Committee shall at all times have the
power to accelerate the exercise date of Options previously granted under the
Plan.
(e) Non-recurring Dividends. Upon the payment of a special or
non-recurring cash dividend that has the effect of a return of capital to the
stockholders, the Option exercise price per share shall be adjusted
proportionately as deemed equitable by the Committee at such time.
Except as expressly provided in Sections 13(a), 13(b) and 13(e) hereof,
no Optionee shall have any rights by reason of the occurrence of any of the
events described in this Section 13.
14. Time of Granting Options. The date of grant of an Option under the
Plan shall, for all purposes, be the date on which the Committee makes the
determination of granting such Option. Notice of the grant of an Option shall be
given to each individual to whom an Option is so granted within a reasonable
time after the date of such grant in a form determined by the Committee.
15. Effective Date. The Plan shall become effective upon the date of
Board approval of the Plan.
16. Ratification by Stockholders. The Plan shall be ratified by
stockholders of the Company within twelve (12) months before or after the date
the Plan is approved by the Board.
17. Modification of Options. At any time and from time to time, the
Board may authorize the Committee to direct the execution of an instrument
providing for the modification of any outstanding Option, provided no such
modification, extension or renewal shall confer on the holder of said Option any
right or benefit which could not be conferred on the Optionee by the grant of a
new Option at such time, or shall not materially decrease the Optionee's
benefits under the Option without the consent of the holder of the Option,
except as otherwise permitted under Section 18 hereof.
18. Amendment and Termination of the Plan.
(a) Action by the Board. The Board may alter, suspend or
discontinue the Plan, except that no action of the Board may increase (other
than as provided in Section 13 hereof) the maximum number of Shares permitted to
be optioned under the Plan, materially increase the benefits accruing to
Participants under the Plan or materially modify the requirements for
eligibility for participation in the Plan unless such action of the Board shall
be subject to approval or ratification by the stockholders of the Company.
(b) Change in Applicable Law. Notwithstanding any other
provision contained in the Plan, in the event of a change in any federal or
state law, rule or regulation which would make the exercise of all or part of
any previously granted Option unlawful or subject the Company to any penalty,
the Committee may restrict any such exercise without the consent of the Optionee
or other holder thereof in order to comply with any such law, rule or regulation
or to avoid any such penalty.
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19. Conditions Upon Issuance of Shares; Limitations on Option Exercise;
Cancellation of Option Rights.
(a) Shares shall not be issued with respect to any Option granted under
the Plan unless the issuance and delivery of such Shares shall comply with all
relevant provisions of applicable law, including, without limitation, the
Securities Act of 1933, as amended, the rules and regulations promulgated
thereunder, any applicable state securities laws and the requirements of any
stock exchange upon which the Shares may then be listed.
(b) The inability of the Company to obtain any necessary
authorizations, approvals or letters of non-objection from any regulatory body
or authority deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares issuable hereunder shall relieve the Company of
any liability with respect to the non-issuance or sale of such Shares.
(c) As a condition to the exercise of an Option, the Company may
require the person exercising the Option to make such representations and
warranties as may be necessary to assure the availability of an exemption from
the registration requirements of federal or state securities law.
(d) Notwithstanding anything herein to the contrary, upon the
termination of employment or service of an Optionee by the Company or its
Subsidiaries for "cause" as defined at 12 C.F.R. 563.39(b)(1) as determined by
the Board of Directors, all Options held by such Participant shall cease to be
exercisable as of the date of such termination of employment or service.
(e) Upon the exercise of an Option by an Optionee (or the Optionee's
personal representative), the Committee, in its sole and absolute discretion,
may make a cash payment to the Optionee, in whole or in part, in lieu of the
delivery of shares of Common Stock. Such cash payment to be paid in lieu of
delivery of Common Stock shall be equal to the difference between the Fair
Market Value of the Common Stock on the date of the Option exercise and the
exercise price per share of the Option. Such cash payment shall be in exchange
for the cancellation of such Option. Such cash payment shall not be made in the
event that such transaction would result in liability to the Optionee or the
Company under Section 16(b) of the Securities Exchange Act of 1934, as amended,
and regulations promulgated thereunder.
20. Reservation of Shares. During the term of the Plan, the Company
will reserve and keep available a number of Shares sufficient to satisfy the
requirements of the Plan.
21. Unsecured Obligation. No Participant under the Plan shall have any
interest in any fund or special asset of the Company by reason of the Plan or
the grant of any Option under the Plan. No trust fund shall be created in
connection with the Plan or any grant of any Option hereunder and there shall be
no required funding of amounts which may become payable to any Participant.
22. Withholding Tax. The Company shall have the right to deduct from
all amounts paid in cash with respect to the cashless exercise of Options and
Stock Awards under the Plan any taxes required by law to be withheld with
respect to such cash payments. Where a Participant or other person is entitled
to receive Shares pursuant to the exercise of an Option or otherwise, the
Company shall have the right to require the Participant or such other person to
pay the Company the amount of any taxes which the Company is required to
withhold with respect to such Shares, or, in lieu thereof, to retain, or to sell
without notice, a number of such Shares sufficient to cover the amount required
to be withheld.
23. No Employment Rights. No Director, Employee or other person shall
have a right to be selected as a Participant under the Plan. Neither the Plan
nor any action taken by the Committee in administration of the Plan shall
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be construed as giving any person any rights of employment or retention as an
Employee, Director or in any other capacity with the Company, the Savings Bank
or other Subsidiaries.
24. Governing Law. The Plan shall be governed by and construed in
accordance with the laws of the State of Minnesota, except to the extent that
federal law shall be deemed to apply.
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APPENDIX I
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FSF FINANCIAL CORP.
201 MAIN STREET SOUTH
HUTCHINSON, MINNESOTA 55350
(320) 234-4500
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ANNUAL MEETING OF STOCKHOLDERS
JANUARY 21, 1998
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The undersigned hereby appoints the Board of Directors of FSF Financial
Corp. (the "Company"), or its designee, with full powers of substitution, to act
as attorneys and proxies for the undersigned, to vote all shares of common stock
of the Company which the undersigned is entitled to vote at the Annual Meeting
of Stockholders (the "Meeting"), to be held at the Company's office, 201 Main
Street South, Hutchinson, Minnesota 55350 on Tuesday, January 20, 1998, at 8:30
a.m. and at any and all adjournments thereof, as follows:
FOR WITHHELD
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1. The election as director of all nominees
listed below each for a 3 year term:
Roger R. Stearns and Richard H. Burgart [ ] [ ]
INSTRUCTIONS: To withhold your vote for any individual nominee, insert the
nominee's name on the line provided below.
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FOR AGAINST ABSTAIN
------ ------- --------
2. The ratification of the FSF Financial Corp.
1998 Stock Compensation Plan. |_| |_| |_|
3. Proposal to ratify the appointment of
Bertram Cooper & Co., LLP as
independent auditors of FSF Financial Corp.
for the fiscal year ending September 30,
1998. |_| |_| |_|
The Board of Directors recommends a vote "FOR" all of the above listed
propositions.
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THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
SIGNED PROXY WILL BE VOTED FOR EACH OF THE PROPOSITIONS STATED. IF ANY OTHER
BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED
IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF
DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
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<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elects to vote at the Meeting,
or at any adjournments thereof, and after notification to the Secretary of the
Company at the Meeting of the stockholder's decision to terminate this proxy,
the power of said attorneys and proxies shall be deemed terminated and of no
further force and effect. The undersigned may also revoke this proxy by filing a
subsequently dated proxy or by notifying the Secretary of the Company of his or
her decision to terminate this proxy.
The undersigned acknowledges receipt from the Company prior to the
execution of this proxy of an Annual Report to Stockholders, a Notice of the
Meeting and a Proxy Statement dated December 10, 1997.
Please check here if you
Dated: , 199 |_| plan to attend the Meeting.
--------------- --
- ----------------------------------- --------------------------------
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
- ----------------------------------- --------------------------------
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
Please sign exactly as your name appears on this form of proxy. When signing as
attorney, executor, administrator, trustee, or guardian, please give your full
title. If shares are held jointly, each holder should sign.
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PLEASE COMPLETE, DATE, SIGN, AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
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