Registration No. 33-------
As filed with the Securities and Exchange Commission on
March 17, 1997
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
HARRIS FINANCIAL, INC.
(Exact name of registrant as specified in charter)
Pennsylvania 6712 To be applied for
- -----------------------------------------------------------------
(State or other (Primary SIC No.) (I.R.S. Employer
jurisdiction of
incorporation or
organization)
235 North Second Street
Harrisburg, Pennsylvania
(717) 236-4041
--------------------------------------------
(Address, including Zip Code, and telephone number,
including area code of Registrant's principal executive offices)
Eric Luse, Esq.
Kenneth R. Lehman, Esq.
Luse Lehman Gorman Pomerenk & Schick
A Professional Corporation
5335 Wisconsin Avenue, N.W.
Suite 400
Washington, D.C. 20015
(202) 274-2000
-----------------------------------------------
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Approximate date of commencement of proposed sale of the
securities to the public:
As soon as practicable after receipt of all regulatory approvals.
If the securities being registered on this form are being offered
in connection with the formation of a holding company and there
is compliance with General Instruction G, check the following
box. / X /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Title of each class Proposed maximum Amt. of
of securities to Amount to be offering price Proposed maximum reg. fee
be registered registered per unit offering price (3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 2,750,000 $22.125(1) $60,843,750 $18,438
$.01 par value shares
Common Stock, 160,000 $10.00(2) $1,600,000 $ 485
$.01 par value shares -------
TOTAL FEE PAID $18,923
(1) Pursuant to Rule 457(f), the registration fee is based upon
the average of the bid and asked prices for the common stock
of Harris Savings Bank as of February 25, 1997.
(2) Represents shares underlying options. Such options have an
exercise price of $10.00 per share.
(3) A filing fee of $18,923 was paid with the initial filing of
the
Registration Statement.
</TABLE>
<PAGE>
[LOGO]
March 14, 1997
Dear Shareholder:
You are cordially invited to attend the 1997 Annual Meeting
of Shareholders of Harris Savings Bank at the Zembo Temple, Third
and Division Streets, Harrisburg, Pennsylvania 17110 on Tuesday,
April 15, 1997, at 10:00 a.m., prevailing time. Enclosed you
will find an Annual Report together with a Notice of Annual
Meeting and accompanying Prospectus/Proxy Statement. The
Prospectus/Proxy Statement describes the business to be
transacted at the meeting and provides other information
concerning the Bank which you should be aware of when you vote
your shares.
The principal business of the Annual Meeting will be the
election of directors, consideration of the Agreement and Plan of
Reorganization pursuant to which the Bank would reorganize into
the "two-tier" mutual holding company structure, and such other
business as may properly be presented at the meeting. In
addition, we plan to review the status of the Bank's business at
the meeting.
It is important that your shares be represented whether or
not you are personally able to attend. In order to ensure that
you will be represented, we ask that you promptly sign, date, and
return the enclosed proxy card.
Sincerely,
/s/ Wm. J. McLaughlin
----------------------------------------
Wm. J. McLaughlin
President and Chief Executive Officer
<PAGE>
[This page intentionally left blank.]
<PAGE>
[LOGO]
235 North Second Street
Harrisburg, Pennsylvania 17101
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 15, 1997
TO THE SHAREHOLDERS OF HARRIS SAVINGS BANK:
NOTICE IS HEREBY GIVEN that the Annual Meeting of
Shareholders of Harris Savings Bank (the "Bank") will be held on
Tuesday, April 15, 1997, at the Zembo Temple, Third and Division
Streets, Harrisburg, Pennsylvania 17110 at 10:00 a.m., prevailing
time, for the following purposes:
1. To elect five (5) Class III Directors to serve until
the expiration of their three-year terms and until their
successors are duly elected and qualified;
2. To approve the Agreement and Plan of Reorganization
(the "Plan of Reorganization") providing for the establishment of
Harris Financial, Inc. (the "Stock Holding Company") as a stock
holding company parent of the Bank which stock holding company
will be majority owned by Harris Financial, MHC (the "Mutual
Holding Company"), the Bank's mutual holding company. Pursuant
to the Plan of Reorganization: (i) the Bank will become a wholly
owned subsidiary of the Stock Holding Company; (ii) the Stock
Holding Company will become a majority owned subsidiary of the
Mutual Holding Company; and (iii) each outstanding share of
common stock, par value $.01 per share, of the Bank will be
converted into one share of common stock, par value $.01 per
share, of the Stock Holding Company; and
3. To transact such other business as may properly come
before the Annual Meeting and any adjournment or postponement
thereof.
In accordance with the Bylaws of the Bank, and action by the
Board of Directors, only those shareholders of record as of the
close of business on March 3, 1997, will be entitled to notice of
and to vote at the Annual Meeting and any adjournment or
postponement thereof.
A copy of the Bank's Annual Report for the fiscal year ended
December 31, 1996, is being mailed to shareholders with this
Notice.
Whether or not you plan to attend the Annual Meeting, please
sign, date, and promptly return the enclosed proxy card. Your
cooperation is appreciated so that your shares may be voted in
accordance with your wishes.
By the Bank Pursuant to an
Order of its Board of Directors
/s/ Wm. J. McLaughlin
----------------------------------------
Wm. J. McLaughlin
President and Chief Executive Officer
March 14, 1997
Harrisburg, Pennsylvania
<PAGE>
<TABLE>
<INDEX>
INDEX
Page
<S> <C>
INTRODUCTION 1
Solicitation and Voting of Proxies 1
Revocability of Proxy 2
Voting Securities, Record Date and Quorum 2
PRINCIPAL BENEFICIAL OWNERS OF THE BANK'S COMMON STOCK 2
Principal Owners 2
Beneficial Ownership by Officers, Directors and Nominees 3
MARKET INFORMATION 4
DIVIDEND POLICY 5
General 5
Dividend Waivers by the Mutual Holding Company 5
ELECTION OF DIRECTORS 6
Class III Nominees Proposed By the Board of Directors
To Serve Until 2000 7
Continuing Class I Directors To Serve Until 1999 7
Continuing Class II Directors To Serve Until 1998 8
Class II Director To Serve Until 1997 8
Director Emeritus 8
Meetings and Committees of the Board 8
Section 16(a) Beneficial Ownership Compliance 9
Executive Officers who are not Directors 9
Certain Transactions 9
Executive Compensation 10
Compensation of Directors 13
Compensation Committee Interlocks and Insider
Participation 13
Board Compensation Committee Report on Executive
Compensation 13
Shareholder Return Performance Graph 15
APPROVAL OF THE PLAN OF REORGANIZATION 16
Summary 16
Reasons for the Stock Holding Company Reorganization 16
Plan of Reorganization 17
Capitalization 18
Regulatory Capital 20
Effective Date 20
Optional Exchange of Stock Certificates 20
Rights of Dissenting Shareholders 20
Tax Consequences 21
Consequences Under Federal Securities Laws 21
Conditions to the Reorganization-Regulatory Approvals 21
Effect of the Reorganization on any Future Mutual-to-Stock
Conversion of the Mutual Holding Company 22
Effect of the Reorganization on Stock Benefit Plans
of the Bank 22
Amendment, Termination or Waiver 22
Business of the Bank 22
Business of the Stock Holding Company 23
Management of the Stock Holding Company 23
Indemnification of Officers and Directors and Limitation of
Liability 23
Comparison of Shareholder Rights and Certain Anti-Takeover
Provisions 26
Regulation of the Stock Holding Company 29
<PAGE>
DESCRIPTION OF CAPITAL STOCK OF THE STOCK HOLDING COMPANY 31
General 31
Holding Company Common Stock 32
Preferred Stock 32
Accounting Treatment 32
Vote Required 32
LEGAL PROCEEDINGS 33
INDEPENDENT AUDITORS 33
ANNUAL REPORT 33
SHAREHOLDER PROPOSALS 33
OTHER MATTERS 33
ADDITIONAL INFORMATION 33
EXHIBIT A AGREEMENT AND PLAN OF REORGANIZATION
EXHIBIT B ARTICLES OF INCORPORATION OF HARRIS FINANCIAL, INC.
EXHIBIT C BYLAWS OF HARRIS FINANCIAL, INC.
</TABLE>
<PAGE>
HARRIS SAVINGS BANK
PROSPECTUS/PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 15, 1997
INTRODUCTION
This Prospectus/Proxy Statement and enclosed form of proxy
are being furnished in connection with the solicitation by the
Board of Directors of Harris Savings Bank (the "Bank"), a
Pennsylvania-chartered savings bank, of proxies to be voted at
the Annual Meeting of Shareholders of the Bank to be held on
Tuesday, April 15, 1997, at the Zembo Temple, Third and Division
Streets, Harrisburg, Pennsylvania 17110 at 10:00 a.m., prevailing
time, and at any adjournment or postponement of the Annual
Meeting.
The principal executive office of the Bank is located at 235
North Second Street, Harrisburg, Pennsylvania 17101. The Bank
was organized in January 1994 in the mutual holding company
reorganization of the Bank's mutual savings bank predecessor. In
the mutual holding company reorganization, the Bank was chartered
as a Pennsylvania capital stock savings bank subsidiary of Harris
Financial, MHC (the "Mutual Holding Company") a Pennsylvania
chartered mutual holding company. Unless otherwise indicated,
references to the "Bank" include Harris Savings Bank in its pre-
reorganization mutual form. The Bank and the Mutual Holding
Company are proposing to reorganize into a two-tier mutual
holding company structure (the "Reorganization") by establishing
Harris Financial, Inc. (the "Stock Holding Company") as a mid-
tier stock holding company chartered under Pennsylvania law that
will own 100% of the common stock of the Bank. As part of the
Reorganization, each share of Bank common stock, par value $.01
per share ("Bank Common Stock") will be exchanged for a share of
Stock Holding Company common stock, par value $.01 per share
("Holding Company Common Stock").
Solicitation and Voting of Proxies
This Prospectus/Proxy Statement and the enclosed form of
proxy are first being sent to shareholders of the Bank on or
about March 14, 1997. Shares represented by the enclosed form of
proxy, if properly signed and returned, will be voted in
accordance with the specifications made thereon by the
shareholders. Any proxy not specifying to the contrary will be
voted FOR the election of the nominees for Class III Directors
named below, FOR the approval of the Agreement and Plan of
Reorganization (the "Plan of Reorganization") and FOR adjournment
of the meeting, if necessary. Execution and return of the
enclosed proxy will not affect a shareholder's right to attend
the Annual Meeting and to vote in person after giving notice to
the Secretary of the Bank. The cost of preparing, assembling,
printing, mailing and soliciting proxies, and any additional
materials which the Bank may furnish shareholders in connection
with the Annual Meeting, will be borne by the Bank. In addition
to the use of the mails, certain directors, officers, and
employees of the Bank may solicit proxies personally, by
telephone or by telecopier. The Bank may request that persons,
such as brokers, nominees and fiduciaries holding stock in their
names, forward proxy materials to the beneficial owners and will
reimburse such persons for their reasonable expenses.
(Continued on next page)
-----------------------------------
THE SECURITIES ISSUED HEREBY HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, THE
PENNSYLVANIA DEPARTMENT OF BANKING, THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY STATE SECURITIES AUTHORITY. NOR HAS ANY SUCH
COMMISSION, OFFICE OR AUTHORITY PASSED ON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A FEDERAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THE COMMON
STOCK IS NOT GUARANTEED BY THE BANK, THE STOCK HOLDING COMPANY,
OR THE MUTUAL HOLDING COMPANY. THERE CAN BE NO ASSURANCE THAT THE
TRADING PRICE OF THE COMMON STOCK OFFERED HEREBY WILL NOT
DECREASE AT ANY TIME.
<PAGE>
Revocability of Proxy
Any shareholder giving a proxy has the power to revoke the
proxy at any time before it is voted by giving notice to
Secretary of the Bank, Bernard H. Sarfert, Sr., at 235 North
Second Street, Harrisburg, Pennsylvania 17101, by executing a
later-dated proxy and giving notice thereof to the Secretary, or
by voting in person at the Annual Meeting after giving notice to
the Secretary.
Voting Securities, Record Date and Quorum
The Bank is authorized to issue 50,000,000 shares of common
stock. At the close of business on January 31, 1997, the Bank
had outstanding 11,220,300 shares of common stock, par value $.01
per share ("Bank Common Stock") outstanding and held of record by
approximately 4,130 shareholders. The Bank is also authorized to
issue 20,000,000 shares of series preferred stock, $.01 per share
of which none are issued to date.
Only holders of record of Bank Common Stock, as of the close
of business on March 3, 1997, will be entitled to notice of and
to vote at the Annual Meeting. Cumulative voting rights do not
exist with respect to the election of directors. On all matters
to come before the Annual Meeting, each share of Common Stock is
entitled to one vote.
The presence, in person or by proxy, of shareholders
entitled to cast at least a majority of the votes that all
shareholders are entitled to cast shall constitute a quorum at
the Annual Meeting. Votes withheld and abstentions will be
counted in determining the presence of a quorum at the Annual
Meeting. Broker non-votes will not be counted in determining the
presence of a quorum. As a practical matter, the presence of a
quorum is assured because the Holding Company owns 8,500,000
shares, or approximately 76% of the Bank Common Stock outstanding
and has indicated its intent to vote for the nominees for Class
III Directors named below and for approval of the Plan of
Reorganization.
Assuming the presence of a quorum, the five nominees for
director receiving the highest number of votes cast by
shareholders entitled to vote for the election of directors shall
be elected. Votes withheld from a nominee and broker non-votes
will not be cast for such nominee.
Approval of the Plan of Reorganization requires the
affirmative vote of two-thirds of the outstanding shares of Bank
Common Stock. Consequently, broker non-votes and abstentions
will have the same effect as a vote against the Plan of
Reorganization.
PRINCIPAL BENEFICIAL OWNERS OF THE BANK'S COMMON STOCK
Principal Owners
The following table sets forth, as of January 31, 1997, the
persons who own of record or who are known by the Board of
Directors to be beneficial owners of more than 5% of the
outstanding shares of Bank Common Stock, the number of shares
beneficially owned by such persons and the percentage of the
outstanding shares of Bank Common Stock so owned.
<TABLE>
<CAPTION>
Name of Individual Amount and Nature
or Identity of Group Beneficial Ownership(1) Percent of Class
- ---------------------------------------------------------------------
<S> <C> <C>
Harris Financial, MHC 8,500,000 75.8%
235 North Second Street
Harrisburg, PA 17101
- ----------------------------
(1) For the definition of "Beneficial Ownership" please refer to
footnote 1 below under the caption "Beneficial Ownership by
Officers, Directors and Nominees."
</TABLE>
<PAGE>
Beneficial Ownership by Officers, Directors and Nominees
The following table sets forth, as of January 31, 1997, the
amount and percentage of Bank Common Stock beneficially owned by
each director, each nominee, each executive officer and all
directors and executive officers of the Bank as a group. Unless
otherwise noted in a footnote, each Bank director and named
executive officer holds sole voting and investment power over the
shares listed as beneficially owned. The table reflects data
supplied by each Bank director and executive officer.
<TABLE>
<CAPTION>
Name of Individual Amount and Nature
or Identity of Group Beneficial Ownership(1) Percent of Class
- ---------------------------------------------------------------------
<S> <C> <C>
William J. McLaughlin (2) 62,144 (11) *
Samuel M. Altdoerffer, Sr. (4) 11,125 (12) *
Ernest P. Davis (2) 5,149 (13) *
Jimmie C. George (3) 12,713 (14) *
Robert A. Houck (3) 9,124 (15) *
Bruce S. Isaacman (4) 6,000 *
Robert E. Kessler (4) 9,793 (16) *
C. Ted Lick (6) 5,633 *
William E. McClure, Jr. (5) 200 *
Robert R. Roebuck (3) 8,424 (17) *
William A. Siverling (3) 10,416 (18) *
Frank R. Sourbeer (2) 16,614 *
Donald B. Springer (5) 2,000 *
James L. Durrell (7) 13,810 (19) *
William M. Long (8) 12,196 (20) *
Bernard H. Sarfert, Sr. (9) 16,792 (21) *
Lyle B. Shughart (10) 9,594 (22) *
All Directors and Executive
Officers as a Group
(17 Persons) 211,727 (23) 1.9%(23)
</TABLE>
- ---------------------
* Less than 1%.
(1) The securities "beneficially owned" by an individual are
determined in accordance with the definitions of "beneficial
ownership" set forth in the Regulations of the Federal
Deposit Insurance Corporation and the General Rules and
Regulations of the Securities and Exchange Commission and
may include securities owned by or for the individual's
spouse and minor children and any other relative who has the
same home, as well as securities to which the individual
has, or shares, voting or investment power or has the right
to acquire beneficial ownership within 60 days after January
31, 1997. Beneficial ownership may be disclaimed as to
certain of the securities.
(2) Class I Director, whose term expires in 1999.
(3) Class II Director, whose term expires in 1998.
(4) Class III Director, whose term expires in 1997 and a nominee
for Class III Director, whose term will expire in 2000.
(5) Nominee for Class III Director, whose term will expire in
2000.
(6) Director Emeritus.
(7) Executive Vice President and Chief Financial Officer of the
Bank.
(8) Senior Vice President of the Lending Division of the Bank.
(9) Senior Vice President of the Administration Division and
Corporate Secretary of the Bank.
(10) Senior Vice President of the Retail Services Division of the
Bank.
(11) Includes 2,000 shares of Bank Common Stock held individually
by Mr. McLaughlin's spouse, 2,119 shares purchased and held
by the Bank's Employee Stock Ownership Plan ("ESOP") that
are allocated to Mr.
<PAGE>
McLaughlin's account and over which he exercises investment
control, and 40,000 shares that may be received upon
exercise of options that have or will vest prior to 60 days
after January 31, 1997.
(12) Includes 750 shares of Bank Common Stock held individually
by Mr. Altdoerffer's spouse and 5,625 shares of Bank Common
Stock that may be received upon exercise of options that
have or will vest prior to 60 days after January 31, 1997.
(13) Includes 2,350 shares of Bank Common Stock that may be
received upon exercise of options that have or will vest
prior to 60 days after January 31, 1997.
(14) Includes 3,272 shares of Bank Common Stock held individually
by Mr. George's spouse, 400 shares held in trust for Mr.
George's children, and 3,750 shares of Bank Common Stock
that may be received upon exercise of options that have or
will vest prior to 60 days after January 31, 1997.
(15) Includes 5,625 shares of Bank Common Stock that may be
received upon exercise of options that have or will vest
prior to 60 days after January 31, 1997.
(16) Includes 5,168 shares of Bank Common Stock held individually
by Mr. Kessler's spouse and 3,625 shares of Bank Common
Stock that may be received upon exercise of options that
have or will vest prior to 60 days after January 31, 1997.
(17) Includes 500 shares of Bank Common Stock held individually
by Mr. Roebuck's spouse and 2,500 shares of Bank Common
Stock that may be received upon exercise of options that
have or will vest prior to 60 days after January 31, 1997.
(18) Includes 2,939 shares of Bank Common Stock held individually
by Mr. Siverling's spouse and 500 shares held in a profit
sharing plan for which Mr. Siverling is the beneficiary.
(19) Includes 1,138 shares of Bank Common Stock held jointly with
Mr. Durrell's spouse, 1,947 shares purchased and held by the
Bank's ESOP that are allocated to Mr. Durrell's account and
over which he exercises investment control, and 7,500 shares
of Bank Common Stock that may be received upon exercise of
options that have or will vest prior to 60 days after
January 31, 1997.
(20) Includes 1,471 shares of Bank Common Stock purchased and
held by the Bank's ESOP that are allocated to Mr. Long's
account and over which he exercises investment control and
7,500 shares of Bank Common Stock that may be received upon
exercise of options that have or will vest prior to 60 days
after January 31, 1997.
(21) Includes 829 shares of Bank Common Stock held individually
by Mr. Sarfert's spouse, 1,700 shares purchased and held by
the Bank's ESOP that are allocated to Mr. Sarfert's account
and over which he exercises investment control, and 7,500
shares of Bank Common Stock that may be received upon
exercise of options that have or will vest prior to 60 days
after January 31, 1997.
(22) Includes 1,384 shares purchased and held by the Bank's ESOP
that are allocated to Mr. Shughart's account and over which
he exercises investment control and 5,000 shares of Bank
Common Stock that may be received upon exercise of options
that have or will vest prior to 60 days after January 31,
1997.
(23) Assumes all outstanding options issued to the directors and
officers have been exercised.
MARKET INFORMATION
The Bank Common Stock is listed on the Nasdaq National
Market under the symbol "HARS." As of the December 31, 1996, the
Bank had eight registered market makers, approximately 4,130
shareholders of record (excluding the number of persons or
entities holding stock in street name through various brokerage
firms), and 11,220,300 shares outstanding, which includes shares
held by the Mutual Holding Company. The following table sets
forth market price and dividend information for the Bank Common
Stock in each of the last eight quarterly periods.
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended High Low Dividends
- -------------------------------------------------
<S> <C> <C> <C>
1995
March 31 16 3/4 13 1/4 $.125
June 30 16 3/4 15 1/2 $.125
September 30 18 1/2 15 3/4 $.13
December 31 20 1/2 18 $.13
1996
March 31 20 1/4 17 3/4 $.145
June 30 18 3/4 15 $.145
September 30 17 14 3/4 $.145
December 31 18 5/8 15 $.145
</TABLE>
The last trade of the Bank Common Stock on January 24, 1997,
the date immediately prior to the Bank's announcement of its
intention to reorganize into the two-tier mutual holding company
structure pursuant to the Agreement and Plan of Reorganization,
was at a price of $19 1/2 per share.
DIVIDEND POLICY
General
The Bank has paid quarterly cash dividends every quarter
since the completion of its mutual holding company reorganization
and minority stock issuance in January 1994. Although the Stock
Holding Company expects to continue to pay cash dividends in the
same amount per share as the Bank, its principal source of income
will initially consist of dividends from the Bank. Dividends
paid by the Stock Holding Company will be determined by the Stock
Holding Company's Board of Directors and will be based upon its
consolidated financial condition, results of operations, tax
considerations, economic conditions, regulatory restrictions
which affect the payment of dividends by the Bank to the Stock
Holding Company, and other factors. In addition, the Stock
Holding Company's ability to pay dividends is subject to
limitations under Pennsylvania law. There can be no assurance
that dividends will be paid on Holding Company Common Stock or
that, if paid, such dividends will not be reduced or eliminated
in the future. See "Approval of the Plan of Reorganization-
Comparison of Shareholder Rights and Certain Anti-
Takeover Provisions-Payment of Dividends" for information
regarding regulatory restrictions on the Bank's ability to pay
dividends or make cash contributions to the Stock Holding
Company.
The Stock Holding Company will not be subject to regulatory
restrictions of the Board of Governors of the Federal Reserve
System (the "FRB") on the payment of dividends to its
shareholders other than with respect to maintaining minimum
levels of capital, although the source of such dividends will be
dependent upon the factors set forth above. The Stock Holding
Company is subject, however, to the requirements of Pennsylvania
law with respect to the payment of dividends. See "Proposed
Formation of Stock Holding Company-Comparison of Shareholder
Rights and Certain Anti-Takeover Provisions-Payment of
Dividends."
Dividend Waivers by the Mutual Holding Company
The Mutual Holding Company has generally waived the receipt
of dividends declared by the Bank. The Mutual Holding Company
has not been required to obtain approval of the FRB prior to any
such waiver, and through the date hereof has not sought or
received FRB approval of any such waiver. In connection with the
FRB and Federal Deposit Insurance Corporation ("FDIC") approvals
of the Bank's acquisition of First Harrisburg Bancorp, Inc. and
its wholly owned subsidiary, First Federal Savings and Loan
Association of Harrisburg ("First Federal"), the Bank and the
Mutual Holding Company made several commitments to the FDIC and
the FRB regarding the waiver of dividends by the Mutual Holding
Company. These commitments include the following:
1. Any dividends waived by the Mutual Holding Company shall
be taken into account in any valuation of the Bank and the Mutual
Holding Company, and factored into the calculation used in
establishing a fair and reasonable
<PAGE>
basis for exchanging Bank shares for holding company shares in
any subsequent conversion of the Mutual Holding Company to stock
form.
2. Dividends waived by the Mutual Holding Company shall not
be available for payment to or the value thereof transferred to
shareholders of the Bank other than the Mutual Holding Company
("Minority Shareholders") by any means including through dividend
payments or at liquidation.
3. Beginning five years after April 19, 1996, the date of
consummation of the Bank's acquisition of First Federal, the
Mutual Holding Company will make prior application to and shall
receive the approval of the FRB prior to waiving any dividends
declared on the capital stock of the Bank, and the FRB shall have
the authority to approve or deny any dividend waiver request in
its discretion. Thereafter, such application may be made on an
annual basis with respect to any year in which Mutual Holding
Company intends to waive dividends paid by the Bank.
4. After April 19, 1996, the date of consummation of the
Bank's acquisition of First Federal, the amount of waived
dividends that are identified as belonging to the Mutual Holding
Company shall not be available for payment to, or the value
transferred to, Minority Shareholders, either through dividend
payments, upon the conversion of the Mutual Holding Company to
stock form, upon the redemption of shares of the Bank, upon the
Bank's issuance of additional shares, at liquidation, or by any
other means. The Mutual Holding Company shall notify the FRB of
all such transactions and will make available to the FRB such
information as the FRB determines to be appropriate.
5. The Bank will take into account when setting its
dividend rate the declaration rate in relation to net income and
the rate's effect on the Bank's ability to issue capital. The
dividend rate will be reasonable and sustainable upon a full
conversion to stock form of the Mutual Holding Company.
6. In the event that the FRB adopts regulations regarding
dividends waivers by mutual holding companies, the Mutual Holding
Company will comply with the applicable requirements of such
regulations.
As of April 19, 1996, the Mutual Holding Company had waived
$9.1 million of dividends declared by the Bank, and through
December 31, 1996, had waived a total of $11.6 million of
dividends.
The Stock Holding Company believes that after the
Reorganization, the same restrictions on dividend waivers will
apply to waivers by the Mutual Holding Company of dividends
declared by the Stock Holding Company. The Reorganization is not
expected to have an effect on whether or not the Mutual Holding
Company waives dividends. After the Reorganization, if the
Mutual Holding Company decides that it is in its best interest to
waive a particular dividend to be paid by the Stock Holding
Company, and, if necessary, the FRB approves such waiver, then
the Stock Holding Company would pay such dividend only to
Minority Shareholders, and the amount of the dividend waived by
the Mutual Holding Company would be treated in the manner
described above. The Mutual Holding Company's decision as to
whether or not to waive a particular dividend will depend on a
number of factors, including the Mutual Holding Company's capital
needs, the investment alternatives available to the Mutual
Holding Company as compared to those available to the Bank, and
the receipt of required regulatory approvals. Management
believes that, after the Reorganization, the factors considered
by the Mutual Holding Company in deciding whether or not to waive
dividends are not likely to change, except that it will also
consider the investment alternatives available to the Stock
Holding Company, which, after the Reorganization, will include
the repurchase of Holding Company Common Stock. There can be no
assurance that (i) after the Reorganization the Mutual Holding
Company will waive dividends paid by the Stock Holding Company,
(ii) the FRB will approve any dividend waivers by the Mutual
Holding Company after April 2001, or (iii) the terms that may be
imposed by the FRB on any dividend waiver will not be unfavorable
to shareholders.
ELECTION OF DIRECTORS
The Bylaws of the Bank provide that the Bank's business
shall be managed by its Board of Directors. Article III, Section
2 of the Bylaws provides that the number of directors that shall
constitute the whole Board of Directors shall consist of no less
than seven nor more than 15 members and shall be divided into
three classes, as nearly equal in number as possible. The
members of each class are elected for a term of three years.
Pursuant to Article III, Section 11 of the Bylaws, vacancies on
the Board of Directors are filled by a majority of the remaining
members of
<PAGE>
the Board of Directors, though less than a quorum, and each
person so appointed serves as a director until the next
shareholders meeting.
At the 1997 Annual Meeting, five directors are to be elected
to hold office for a three-year term and until their successors
have been duly elected and qualified. The Board of Directors has
unanimously nominated Samuel M. Altdoerffer, Sr., Robert E.
Kessler, Bruce S. Isaacman, William E. McClure, Jr. and Donald B.
Springer, for election as Class III Directors of the Bank.
Messrs. Altdoerffer and Kessler were elected by shareholders at
the 1994 Annual Meeting of the Bank. Mr. Isaacman was appointed
a Class III Director on May 21, 1996, upon consummation of the
merger of First Federal with, into and under the charter of the
Bank, on April 19, 1996, filling the vacancy created by the
election of C. Ted Lick, in April, 1996, as an Emeritus member of
the Board. In addition to Mr. Lick, Isabelle F. Ommert was a
Class III Director until April, 1996, when she became a Director
Emeritus. Mrs. Ommert resigned on June 18, 1996. N. Carl
Vandling, a Class I Director, resigned effective March 31, 1996,
and Jack W. Shader, Sr., also a Class I Director, resigned
effective November 18, 1996. In light of the vacancies on the
Board, at the Board meeting held January 21, 1997, the Board of
Directors reconstituted the Classes of the Board to set the size
of each of Class I and Class II at three (3) members and to set
the size of Class III at five (5) members. The number of
Directors is set at eleven (11). The names of the nominees, the
current directors, Directors Emeritus and brief statements
concerning their ages, principal occupations for the past five
years and other biographical information are set forth below.
The persons named in the enclosed proxy card, Ernest P.
Davis, William J. McLaughlin and Frank R. Sourbeer, have advised
the Bank that, unless a contrary direction is indicated on the
proxy card, they intend to vote for the election of the nominees
proposed. They have also advised that in the event any of the
five nominees shall not be available for election, they will
vote for the election of such substitute nominee or nominees, if
any, as the Board of Directors may propose.
There is no cumulative voting for the election of directors.
Each share of Common Stock is entitled to cast only one vote for
each nominee. For example, if a shareholder owns ten shares of
Common Stock, he or she may cast up to ten votes for each of the
five nominees in the class to be elected.
Class III Nominees Proposed By The Board of Directors To Serve
Until 2000
Samuel M. Altdoerffer, Sr. (70) is retired. Prior to his
retirement, he was Chairman of the Board of Peoples Broadcasting
Co., Inc. Mr. Altdoerffer has been a member of the Board since
1982.
Robert E. Kessler (70) is retired. Prior to his retirement,
he was President and Chief Executive Officer of Kessler's, Inc.,
a meat and food processing and distribution company located in
Lemoyne, Pennsylvania. He has been a member of the Board since
1978.
Bruce S. Isaacman (65) is a partner in Isaacman Kern & Co.,
an accounting firm. Prior to the merger of First Federal with,
into and under the charter of the Bank, Mr. Isaacman was Chairman
of the Board of First Harrisburg Bancorp, Inc., parent company of
First Federal. On May 21, 1996, Mr. Isaacman was appointed to
the Board of Directors of the Bank.
William E. McClure, Jr. (55) is President of H.B. McClure
Co., a commercial and residential plumbing contractor. He is a
nominee for Class III Director.
Donald B. Springer (61) is founder and President of Phoenix
Contact, Inc., a manufacturer of electrical and electronic
components. He is a nominee for Class III Director.
Continuing Class I Directors To Serve Until 1999
William J. McLaughlin (59) joined the Bank in 1979 as Vice
President of Lending. In 1994, he was elected President and
Chief Executive Officer. He has been a member of the Board since
1992.
<PAGE>
Ernest P. Davis (64) is an independent agent for New York
Life Insurance Company and other insurance companies, offering a
variety of insurance and financial products. He has been a
member of the Board since 1989.
Frank R. Sourbeer (46) has been President, Chairman of the
Board of Directors and controlling owner of Wilsbach
Distribution, a beverage distribution company since 1988. He is
also President of the Partnership for Regional Investment and
Development Enterprises, an industrial development company. He
has been a member of the Board since 1989.
Continuing Class II Directors To Serve Until 1998
Jimmie C. George (67) has been a co-owner of George's
Flowers, a local flower shop for the past 37 years. He has also
been the President of Pleasant Inn, a motel, for 22 years, and
was a corporate secretary for Bonnie Heights Homes for 25 years.
Mr. George is also a partner in two non-profit housing
development companies. He has been a member of the Board since
1988.
Robert A. Houck (64) was formerly the Executive Vice
President, Chief Financial Officer, Secretary and Treasurer of
HERCO, INC., a hotel resort company located in Hershey,
Pennsylvania, until his retirement in 1988. He has been a member
of the Board since 1979.
William A. Siverling (55) is the President and co-owner of
Commercial Industrial Realty Company, a commercial real estate
brokerage firm with which he has been associated for over 23
years. He has been a member of the Board since 1989. Mr.
Siverling is also a director for HS Service Corporation, a
wholly-owned subsidiary of the Bank.
Class II Director To Serve Until 1997
Robert R. Roebuck (72) was a property and casualty insurance
agent with Edward L. Noyes & Co., Inc. until his retirement in
1988. From 1988 to 1990, he worked for the same company as a
consultant. Mr. Roebuck is presently a Class II Director. He
has served as a member of the Board since 1966. Effective in
April 1997, he will become an Emeritus member.
Director Emeritus
C. Ted Lick (73) served as President of the Harrisburg Paper
Co., a paper distribution company, from 1948 until his retirement
in 1992. He served as a member of the Board from 1966 to 1996,
when he was elected as an Emeritus member.
Meetings and Committees of the Board
The business of the Bank is conducted at regular and special
meetings of the full Board of Directors and its standing
committees. The standing committees consist of the Executive,
Compensation and Benefits, Pension, Nominating, Audit and Loan
Review Committees.
During 1996, the Board of Directors met fourteen times in
accordance with the Bylaws. No director attended fewer than 75
percent of the total number of Board of Directors and Committee
Meetings of the Bank of which he or she was a member.
The Executive Committee consists of Messrs. Altdoerffer,
Davis, Houck, Kessler (Chairman) and Roebuck. The committee
manages the business and affairs of the Bank during the interval
between meetings of the Board. All actions of the Executive
Committee are subject to the approval of the entire Board of
Directors. The Executive Committee met four (4) times in 1996.
The Compensation and Benefits Committee consists of Messrs.
George, Houck, Kessler, Roebuck (Chairman), Siverling and
Sourbeer. The Compensation and Benefits Committee met six (6)
times during 1996.
<PAGE>
The Pension Committee consists of Messrs. Davis (Chairman),
Isaacman, McLaughlin and Roebuck. The Committee meets at least
annually and reviews and approves all matters relating to pension
plan additions and/or distributions. The Committee met twice
during 1996.
The Nominating Committee consists of Messrs. George, Roebuck
(Chairman), Siverling and Sourbeer and is responsible for
selecting nominees for election to the Board. The Nominating
Committee has no formal procedures in effect for receiving
recommendations for nominees. This Committee met twice during
1996.
The Audit Committee consists of Messrs. Davis, Houck
(Chairman), Isaacman and Siverling. This Committee meets on a
quarterly basis with the internal auditor to review audit
programs and the results of audits of specific areas as well as
other regulatory compliance issues. In addition, the Audit
Committee meets with the independent certified public accountants
to review the results of the annual audit and other related
matters. The Audit Committee met four times in 1996.
The Loan Review Committee consists of Messrs. McLaughlin
(Chairman), Altdoerffer, Isaacman and Siverling. The Loan Review
Committee met twice during 1996.
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the
"Exchange Act"), and the Regulations of the FDIC require the
Bank's officers and directors, and persons who own more than 10
percent of the registered class of the Bank's equity securities,
to file reports of ownership and changes in ownership with the
FDIC. Officers, directors and greater than 10 percent
shareholders are required by FDIC regulation to furnish the Bank
with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms
received by it and upon written representations that no Forms
were required, the Bank believes that, during the period January
1, 1996, through December 31, 1996, its officers and directors
were in compliance with all filing requirements applicable to
them.
Executive Officers who are not Directors
James Durrell (60) was appointed Executive Vice President in
April 1995, and has been Chief Financial Officer since 1988 when
he commenced his employment with the Bank.
William M. Long (46) has been Senior Vice President of
Lending since 1989, and has been employed by the Bank since March
1989.
Bernard H. Sarfert Sr. (58) was appointed Corporate
Secretary in 1994, and has been Senior Vice President of
Administration since 1989. Mr. Sarfert has been employed by the
Bank since 1986.
Lyle B. Shughart (50) has been Senior Vice President of
Retail since 1989, and has been employed by the Bank since 1975.
Certain Transactions
In addition to consumer loans, the Bank provides loans to
its officers, directors and employees to purchase or refinance
personal residences. All of these loans are made in the ordinary
course of business, on substantially the same terms, including
interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons, and do not
involve more than the normal risk of collectibility or present
other unfavorable features. The Bank makes loans available to
its officers, directors and employees on a basis consistent with
statutory requirements. In prior years, the Bank waived
application fees on loans made to officers and directors in
accordance with regulations then in effect.
There have been no material transactions between the Bank,
nor are any material transactions proposed, with any director or
executive officer of the Bank, or any associate of the foregoing
persons. The Bank has entered into,
<PAGE>
and intends to continue to enter into, banking and financial
transactions in the ordinary course of business with directors
and officers of the Bank and their associates on comparable terms
and with similar interest rates as those prevailing from time to
time for other customers of the Bank. Total loans outstanding
from the Bank at December 31, 1996, to the Bank's officers and
directors as a group and members of their immediate families and
companies in which they had an ownership interest of 10% or more
was approximately $1,089,736, which is less than 1% of the Bank's
total equity capital. The largest aggregate amount of
indebtedness outstanding at any time during fiscal year 1996 to
officers and directors of the Bank as a group was approximately
$1,474,803. The Bank intends that all future transactions
involving executive officers, directors, holders of 10% or more
of the shares of any class of its stock, and affiliates thereof,
will contain terms no less favorable to the Bank than the Bank
would obtain in an arm's length negotiation with unaffiliated
persons. A majority of the Bank's independent outside directors,
not having any interest in the transaction, will approve future
transactions.
Executive Compensation
Summary Compensation Table. Shown below is information
concerning the annual compensation for services in all capacities
to the Bank for the fiscal years ended December 31, 1996, 1995
and 1994 of those persons who were, at December 31, 1996, (i) the
Chief Executive Officer, and (ii) the four other most highly
compensated executive officers of the Bank (together, "Named
Executive Officers "):<PAGE>
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
------------------- -------------------
Awards Payouts
------------------- -------
Other Annual Restricted Shares All Other
Name and Compensation Stock Underlying Compensation
Principal Position Year Salary Bonus (1) Awards(2) Options Payouts (4)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William J. McLaughlin 1996 $200,039 $49,757 --- $ -- -- -- $15,359
President and 1995 187,820 45,213 --- -- -- -- 12,969
Chief Executive 1994 143,909 39,978 --- 399,375 40,000 -- 1,781
Officer
James L. Durrell 1996 $117,933 $26,591 --- -- -- -- $ 8,098
Executive Vice 1995 112,655 24,625 --- -- -- -- 7,818
President and Chief 1994 106,080 24,196 --- $95,406 12,500 -- 1,497
Financial Officer
Bernard H. Sarfert, 1996 $103,116 $19,612 --- -- -- -- $ 6,948
Sr.
Sr. Vice President 1995 100,041 18,117 --- -- -- -- 6,898
Administration Div. 1994 97,211 20,695 --- $95,406 12,500 -- 1,333
William M. Long, 1996 $ 86,813 $23,932 --- -- -- -- $ 6,001
Sr. Vice President 1995 83,637 16,912 --- -- -- -- 5,766
Lending Division 1994 81,158 17,278 --- $95,406 12,500 -- 1,142
Lyle B. Shughart, 1996 $ 83,922 $15,111 --- -- -- -- $ 5,687
Sr. Vice President 1995 81,645 14,701 --- -- -- -- 5,605
Retail Services Div. 1994 77,360 16,469 --- $95,406 10,000 -- 1,097
</TABLE>
PAGE
<PAGE>
- ------------------
(1) Amounts not reportable as they do not exceed the lesser of
$50,000 or 10% of salary and bonus.
(2) Includes an award of 22,500 shares of restricted stock to
Mr. McLaughlin that vests in four equal annual installments
in 1995 through 1998, and awards of 5,375 shares of
restricted stock to each of Messrs. Durrell, Sarfert, Long
and Shughart that each vest in five equal annual
installments in 1995 through 1999. The value of the awards
is determined based on the last sale price of the Bank
Common Stock on the date of the award. Accumulated
dividends plus interest are paid at the time the restricted
stock vests. As of December 31, 1996, Mr. McLaughlin held
11,250 shares of restricted stock with a fair market value
of $205,313, and Messrs. Durrell, Sarfert, Long and Shughart
each held 2,150 shares of restricted stock with a fair
market value of $39,238 based on the last sale price of the
Bank Common Stock on December 31, 1996.
(3) Option shares for Mr. McLaughlin vest ratably over the three
year period ending January 25, 1997. Option shares for
Messrs. Durrell, Sarfert, Long and Shughart vest ratably
over the five year period ending January 25, 1999.
(4) For 1996, includes the following contributions under the
Bank's ESOP, contributions to the defined contribution
component of the Bank's Supplemental Executive Retirement
Plan, and employer matching contributions under the Bank's
401(k) retirement plan: $6,809, $6,300 and $2,250,
respectively, for Mr. McLaughlin; $6,276, $0 and $1,822,
respectively, for Mr. Durrell; $5,397, $0 and $1,551,
respectively, for Mr. Sarfert; $4,675, $0 and $1,326,
respectively, for Mr. Long; and $4,424, $0 and $1,263,
respectively, for Mr. Shughart.
Aggregate Option Exercises During 1996 and Option Values at
December 31, 1996. The Bank's 1994 and 1996 incentive stock
option plans are available to officers and other employees of the
Bank and its affiliates. The plans are administered by a
committee of outside directors. The plans authorize the grant of
incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986 (the "Code"), "non-statutory
options," which do not qualify as incentive stock options, and
certain "Limited Rights," exercisable only upon a change-of-
control of the Bank, the Mutual Holding Company or, following the
two-tier reorganization, the Stock Holding Company. See
"Approval of the Plan of Reorganization." The following table
sets forth certain information regarding awards under the Bank's
incentive stock option plans, including the shares acquired and
the value realized during 1996 by Named Executive Officers upon
exercise of options and the number of shares of Bank Common Stock
underlying options and the value of options held by Named
Executive Officers at December 31, 1996.
PAGE
<PAGE>
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Options at Options at
December 31, December 31,
1996 1996
Number of
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable(1)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William J. McLaughlin --- --- 26,667/13,333 $220,003/$109,997
President and Chief
Executive Officer
James L. Durrell --- --- 5,000/7,500 $ 41,250/$61,875
Executive Vice
President and Chief
Financial Officer
Bernard H. Sarfert, Sr. --- --- 5,000/7,500 $ 41,250/$61,875
Sr. Vice President
Administration Div.
William M. Long --- --- 5,000/7,500 $ 41,250/$61,875
Sr. Vice President
Lending Div.
Lyle B. Shughart --- --- 2,500/7,500 $ 20,625/$61,875
Sr. Vice president
Retail Services Div.
- ------------------
(1) Based on the last sale price of the Bank Common Stock on December 31, 1996.
</TABLE>
<PAGE>
<PAGE>
Change in Control Agreements. In January, 1994, the Bank
and the Holding Company entered into a change-in-control
agreement ("CICA") with each of Messrs. McLaughlin, Durrell,
Sarfert, Long and Shughart. Each CICA has a three year term.
Commencing on the first anniversary date and continuing on each
anniversary date thereafter, each CICA will renew for an
additional year, so that the term of each CICA will be three
years, unless written notice is provided by either party. Each
CICA provides that, at any time following a change-in-control of
the Bank or of the Holding Company, if the Bank or the Holding
Company terminates the executive's employment for any reason,
other than for cause, or if the executive terminates his
employment following his demotion, loss of title, loss of
significant authority, reduction in his compensation or
relocation of his principal place of employment, the executive,
or in the event of death, his beneficiary, is entitled to receive
a severance payment equal to three times his annual compensation.
Each CICA also provides that the Bank and/or the Holding Company
will continue the executive's life, health, dental and disability
coverage for a three year period. A change-in-control is
defined, in the CICA, to mean an event that would constitute a
change-in-control of the Bank or the Holding Company, as the case
may be, under the Bank Holding Company Act or the Change in Bank
Control Act; a plan of reorganization, merger, merger conversion,
consolidation or sale of all or substantially all of the assets
of the Bank or of the Holding Company or a similar transaction in
which the Bank or the Holding Company is not the resulting
entity; or a change in the composition of the Board of Directors
of the Bank or of the Holding Company that results in a change of
a majority of such directors. If payments and benefits under a
CICA would constitute an excess parachute payment under Section
280G of the Code, then such payment may be reduced to one dollar
less than the excess parachute amounts if the reduced amount
would be greater than the unreduced payments less the excise tax
that the executive would owe under Section 4999 of the Code.
Pension Plan. The Bank maintains a non-contributory defined
benefit plan for all employees who are at least 21 years of age
and who have completed one year of service during which they
worked at least 1,000 hours. The plan is intended to be a
"qualified" plan under section 401(a) of the Code. The plan
provides for a monthly benefit to the participant upon his or her
retirement at the age of sixty-five (65) with at least five years
of service. Benefits are also payable upon the participant's
death or disability or early retirement at age fifty-five (55)
with at least five years of service. The benefit to which a
participant is entitled is determined in accordance with a
formula based upon the participant's average monthly
compensation, which is defined in the plan to be monthly
compensation averaged over the highest five years of service.
The benefit formula is the sum of (a) 2% of average monthly
compensation multiplied by years of service, up to 15 years, (b)
.5% of average monthly compensation multiplied by years of
service in excess of 15 years (maximum 20 years under this part)
and (c) .5% of average monthly compensation in excess of one-
twelfth of social security covered compensation multiplied by
years of service, up to 35 years. The Bank is required to make
annual contributions to the plan based upon actuarial estimates
provided by the actuary retained by the plan. During 1996, no
contribution was required.
The following table illustrates monthly pension benefits at
age 65 under the most advantageous plan provisions available at
various levels of compensation and years of service.
<TABLE>
<CAPTION>
YEARS OF SERVICE
------------------------------------------
Compensation 15 20 25 30 35
- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 40,000 $1,067 $1,172 $1,278 $1,384 $1,489
60,000 1,692 1,881 2,070 2,259 2,448
80,000 2,317 2,589 2,861 3,134 3,406
100,000 2,942 3,297 3,653 4,009 4,364
120,000 3,567 4,006 4,445 4,884 5,323
150,000 4,504 5,068 5,632 6,196 6,760
</TABLE>
As of December 31, 1996, Messrs. McLaughlin, Durrell, Long,
Sarfert, and Shughart had 18, 9, 13, 11, and 22 years of credited
service, respectively.
Supplemental Executive Retirement Plan. The Bank maintains
a Supplemental Executive Retirement Plan (the "SERP") for certain
employees designated by the Board of Directors. The Plan makes
up benefits lost by the employee under the Bank's three qualified
retirement plans due to the lower Internal Revenue Service
("IRS") compensation limit effective January 1, 1995. The
compensation limit for 1996 was $150,000. In 1997, the limit is
increased to $160,000. The SERP includes a defined benefit
component and a defined contribution component. The amount of
the annual defined contribution is included in the Summary
Compensation Table, the amount of the defined benefit component
is described in the table below. The benefit may be paid in a
lump sum, or over a ten year
<PAGE>
period. The following table sets forth the present value at age
65 of the defined benefit that will be received based on a
participant's years of service and average annual compensation
over the last five years prior to reaching age 65.
<TABLE>
<CAPTION>
YEARS OF SERVICE(1)
------------------------------------------
Compensation 15 20 25 30 35
- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 150,000 $ 0 $ 0 $ 0 $ 0 $ 0
200,000 156,000 177,000 219,000 219,000 240,000
225,000 254,000 288,000 356,000 356,000 390,000
250,000 352,000 399,000 492,000 492,000 539,000
300,000 547,000 620,000 766,000 766,000 839,000
</TABLE>
- -------------
(1) Represents the present value at age 65 of the SERP benefit.
As of December 31, 1996, Messrs. McLaughlin, Durrell, Long,
Sarfert, and Shughart had 18, 9, 13, 11, and 22 years of credited
service, respectively.
Compensation of Directors
Fees. The Board increased the fees payable to the Bank's
directors in April 1996. Directors receive an annual fee of
$9,000 and $1,000 for each board meeting attended. Members of
committees receive $550 for each committee meeting attended and
$600 for each special board meeting attended. Employees who are
also directors are not paid for attending committee meetings.
Directors Emeritus receive $850 for each board meeting attended.
In 1996 the Board of Directors received an aggregate of $292,575
of fees.
Stock Option Plan for Outside Directors. The Bank's
1994 Stock Option Plan for Outside Directors is self-
administering, and a total of 78,750 shares of Common Stock are
authorized for issuance under the Plan. The exercise price per
share for each option issued under the plan is the fair market
value of a share of the underlying common stock on the date of
grant. A total of 75,000 options to purchase shares of Bank
Common Stock at a price of $10.00 per share were issued in
connection with the initial grant in 1994.
Recognition and Retention Plan for Outside Directors. Awards
of between 1,000 and 2,000 shares of Bank Common Stock were made
in 1994 under the Bank's Recognition and Retention Plan for
Outside Directors to each outside director of the Bank at such
time. Awards under the plan were fixed pursuant to a formula
based upon years of service.
Compensation Committee Interlocks and Insider Participation
During 1996, Directors George, Kessler, Siverling, Houck,
Roebuck and Sourbeer served on the Compensation and Benefits
Committee. None of the Committee's members is a current or
former officer or employee of the Bank or any subsidiary of the
Bank. In addition, none of the members of the committee had any
relationship with the Bank that would require disclosure under
Item 404 of the Regulation S-K of the Securities and Exchange
Commission (the "SEC"), relating to insider transactions and
indebtedness of management.
Board Compensation Committee Report on Executive Compensation
The Compensation and Benefits Committee of the Board of
Directors of the Bank is responsible for establishing,
implementing and monitoring all executive compensation policies
of the Bank. The Committee is also responsible for evaluating
the performance of the Chief Executive Officer of the Bank and
recommending appropriate compensation levels. The Chief
Executive Officer evaluates the performance of the Executive Vice
Presidents and the Senior Vice Presidents and recommends
individual compensation levels to the Compensation and Benefits
Committee. None of the Committee's members is a current or
former officer or employee of the Bank or any subsidiary of the
Bank.
<PAGE>
The Compensation and Benefits Committee believes that a
compensation plan for executive officers should take into account
management skills, long term performance results and shareholder
returns. Compensation policies must be maintained to promote:
(i) the attraction and retention of highly-qualified executives;
(ii) motivation of executives that is related to the performance
of the individual and the Bank; (iii) current and long term
performance; and (iv) a financial interest in the success of the
Bank similar to the interests of its shareholders and other
constituencies.
The Bank's current compensation plan involves a combination
of salary and bonus to reward short-term performance. The salary
levels of executive officers are designed to be competitive
within the financial services industry. Annual compensation
surveys of thrifts nationwide which are plus or minus 30 percent
in assets from the Bank are utilized to determine competitive
salary levels and individual performance is reviewed to determine
appropriate salary adjustments. Executive officers of the Bank
are eligible to participate in a corporate bonus plan which
provides a bonus upon achievement of certain internal objectives
and external objectives based on stock price compared to peers,
which peers are disclosed in the Shareholder Return Performance
Graph, set forth below.
The internal objectives include return on equity, return on
assets and an efficiency ratio all compared to plan objectives.
In addition to base salary and bonus, executive officers of
the Bank are eligible to participate in certain long term
incentive plans including an employee stock ownership plan (ESOP)
and 401(k) plan.
During the year ended December 31, 1996, the base
compensation of Chief Executive Officer, William J. McLaughlin
was $249,796 (salary and bonus) which represents approximately a
7% increase from the previous year. The Committee believed the
increase was appropriate based on competitive salary surveys and
achievement of Bank objectives.
Compensation and Benefits Committee
Jimmie C. George Robert A. Houck
Robert E. Kessler Robert R. Roebuck, Chairman
William A. Siverling Frank R. Sourbeer
<PAGE>
Shareholder Return Performance Graph
Set forth below is a line graph comparing the yearly dollar
change in the cumulative total shareholder return assuming the
reinvestment of dividends for: (i) the Bank Common Stock over
the period commencing with the January 25, 1994 public offering
of shares for $10.00 per share through December 31, 1996; (ii)
all issues traded on the Nasdaq Stock Market from January 25,
1994 through December 31, 1996; and (iii) all publicly traded
thrifts with assets of between $1 and $5 billion from January 25,
1994 through December 31, 1996. The shareholder return shown on
the graph below is not necessarily indicative of future
performance.
<TABLE>
<CAPTION>
Period Ending
1/25/94 9/30/94 6/30/95 3/29/96 12/31/96
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
Harris Savings Bank 100.00 171.76 162.80 190.30 198.26
Nasdaq--Total US 100.00 97.73 120.48 143.02 168.08
Thrifts ($1B to $5B) 100.00 111.23 126.11 157.45 200.76
</TABLE>
<PAGE>
APPROVAL OF THE PLAN OF REORGANIZATION
Summary
At the Annual Meeting, shareholders will vote on the
approval of an Agreement and Plan of Reorganization (the "Plan of
Reorganization") pursuant to which the Bank and the Mutual
Holding Company will reorganize into the "two-tier" mutual
holding company structure. In the Reorganization, the Stock
Holding Company will be established as a majority owned
subsidiary of the Mutual Holding Company, as described more
specifically herein. Under the terms of the proposed
Reorganization, each outstanding share of Bank Common Stock will
be converted into one share of Holding Company Common Stock, and
the holders of Bank Common Stock will become the holders of all
of the outstanding shares of Holding Company Common Stock.
Accordingly, as a result of the Reorganization, Minority
Shareholders will become minority shareholders of the Stock
Holding Company.
Please make note of the following important considerations
in connection with the Reorganization:
-- Operations of the Bank and the Mutual Holding Company.
The Reorganization will have no impact on the
operations of the Bank and the Mutual Holding Company.
The Bank will continue its operations at the same
locations, with the same management, and subject to all
the rights, obligations and liabilities of the Bank
existing immediately prior to the Reorganization.
-- Reasons for the Reorganization. The Board of Directors
of the Bank believes that the "two-tier" structure will
be in the best interests of shareholders because it
will offer greater operating flexibility than is
currently available to the Bank in its existing mutual
holding company structure. The "two-tier" structure
will enhance the ability to make investments, acquire
other institutions, and repurchase shares of common
stock. See "- Reasons for the Stock Holding Company
Reorganization."
-- Optional Exchange of Stock Certificates. After the
Reorganization stock certificates evidencing shares of
Bank Common Stock will represent, by operation of law,
the same number of shares of Holding Company Common
Stock. Former holders of the Bank Common Stock will
not be required to exchange their Bank Common Stock
certificates for Holding Company Common Stock
certificates, but will have the option to do so. See
"- Optional Exchange of Stock Certificates."
-- Tax Consequences. The Bank has received an opinion of
its special counsel, Luse Lehman Gorman Pomerenk &
Schick, P.C., Washington, D.C., as to certain federal
income tax consequences of the Reorganization. Please
carefully read the section of this Prospectus/Proxy
Statement titled "- Tax Consequences."
-- Conditions to the Reorganization. The Plan of
Reorganization sets forth a number of conditions to the
completion of the Reorganization, including: (i)
approval of the Plan of Reorganization by the holders
of two-thirds of the outstanding shares of Bank Common
Stock; (ii) receipt of an opinion of counsel that the
Reorganization will be treated as a non-taxable
transaction for federal income tax purposes; and (iii)
receipt of any and all regulatory approvals necessary
for the lawful consummation of the Reorganization.
See "- Conditions to the Reorganization."
Please note that this list may not include all material
terms of the Reorganization, and must be read along with the more
complete description of the Reorganization included herein.
Reasons for the Stock Holding Company Reorganization
The Board of Directors of the Bank believes that the
formation of the Stock Holding Company as a subsidiary of the
Mutual Holding Company will be in the best interests of
shareholders and will offer greater operating flexibility than is
currently available to the Bank in its existing mutual holding
company structure. The Mutual Holding Company does not operate
as a traditional holding company at the present time because it
is a mutual organization and represents only the mutual ownership
interest in the Bank. Establishing the Stock Holding Company as
a
<PAGE>
subsidiary of the Mutual Holding Company will permit the Stock
Holding Company to conduct activities and make investments for
the benefit of all shareholders. It will also provide greater
flexibility to structure and complete acquisitions of other
financial institutions, repurchase shares of Holding Company
Common Stock as market conditions permit, and diversify the Stock
Holding Company's business activities.
Enhanced Ability to Invest Through the Stock Holding
Company. Under the existing mutual holding company structure the
Mutual Holding Company cannot make investments in other financial
institutions or business enterprises for the benefit of all
shareholders of the Bank, and the Bank itself is limited by law
or regulation in its permissible investment activities. For
example, if the Mutual Holding Company invests in 5% of the
common stock of another bank or thrift holding company, any gain
on such investment would accrue only to the Mutual Holding
Company. The Reorganization will permit the entity that issues
stock (i.e. the Stock Holding Company) to make investments,
diversify business activities, or acquire other financial
institutions, for the benefit of all shareholders. No specific
investments, new business activities or acquisitions by the Stock
Holding Company are planned at the present time.
Facilitate Mergers and Acquisitions. The Reorganization
will also facilitate the approval and completion of mergers and
acquisitions since the Stock Holding Company, acting as the sole
shareholder of the Bank, will be able to approve mergers and
acquisitions involving the Bank. This is consistent with the way
other stock holding companies are able to approve mergers of
their bank or savings institution subsidiaries. Moreover, the
Reorganization will enable the Stock Holding Company to acquire
other financial institutions and to operate them as separate
subsidiaries for the benefit of all shareholders of the Stock
Holding Company.
Stock Repurchases. The Reorganization will enable the Stock
Holding Company to repurchase Stock Holding Company Common Stock
which, particularly in recent years, has been an important, if
not essential, means for banks and savings institutions to
enhance shareholder value and invest capital resources.
Historically, the Bank has used the percentage of taxable income
method for establishing its bad debt reserves for tax purposes.
Federal tax laws generally require that thrift institutions
recapture into income and pay the tax on their excess bad debt
reserves in the event of certain distributions and redemptions,
such as stock repurchases. Accordingly, if the Bank were to
repurchase any of its outstanding shares of common stock, it
would cause recapture of all or part of its pre-1988 excess tax
bad debt reserves. Because distributions or redemptions by
entities, such as the Stock Holding Company, that have not used
the percentage of taxable income method for computing bad debt
reserves are not subject to recapture, the Stock Holding Company
will be permitted to repurchase Holding Company Common Stock
without causing any recapture of the Bank's tax bad debt
reserves. The ability to repurchase Holding Company Common Stock
is an important means of enhancing shareholder value and
investing capital resources. See "Regulation of the Stock
Holding Company-Repurchases of Holding Company Common Stock."
Stock Holding Company Powers. The Stock Holding Company
would be permitted to engage in the activities that are
permissible for bank holding companies under the Bank Holding
Company Act (i.e. activities that are closely related to banking)
these include several activities in which the Bank is not
permitted to engage, such as investing in certain equity
securities and holding other savings banks as subsidiaries. See
"-Stock Holding Company Regulation."
Although the Reorganization will enable the Stock Holding
Company's shareholders to share in the rewards of the increased
operating flexibility, shareholders should also consider that the
Stock Holding Company's shareholders will also bear the risk that
the transactions that are facilitated by the increased operating
flexibility may not prove to be advantageous to the Stock Holding
Company and its shareholders.
THE BOARD OF DIRECTORS OF THE BANK HAS UNANIMOUSLY APPROVED
THE REORGANIZATION AND RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" THE PLAN OF REORGANIZATION.
Plan of Reorganization
The Reorganization will be accomplished under the Plan of
Reorganization, which is attached as Exhibit A hereto. The
following discussion is qualified in its entirety by reference to
the Plan of Reorganization. The Plan of Reorganization was
unanimously approved by the Board of Directors on February 18,
1997.
<PAGE>
The Reorganization and the establishment of the Stock
Holding Company will be accomplished as follows: (i) the Stock
Holding Company will be organized as a wholly owned subsidiary of
the Bank; (ii) the Stock Holding Company will organize an interim
Pennsylvania stock savings bank ("Interim") as a wholly owned
subsidiary; (iii) Interim will merge into the Bank, with the Bank
as the surviving corporation; and (iv) in connection with the
merger in step (iii) above, all of the issued and outstanding
shares of Holding Company Common Stock held by the Bank prior to
the Reorganization will be canceled, all of the issued and
outstanding shares of Bank Common Stock will be converted into
and become an equal number of shares of Holding Company Common
Stock, and all of the issued and outstanding shares of Interim,
which are held by the Stock Holding Company, will automatically
be converted by operation of law into common stock of the Bank.
As a result of the steps described above, the Bank will become
the wholly owned subsidiary of the Stock Holding Company, the
Stock Holding Company will become the majority owned subsidiary
of the Mutual Holding Company, and Minority Shareholders will
become minority shareholders of the Stock Holding Company.
The following diagram sets forth the Bank's current mutual
holding company structure:
- -------------------------
| Harris Financial M.H.C.|
| |
- -------------------------|
|
|76% of Bank
|Common Stock
|
- ------------------------- -------------------
| Harris Savings Bank |24% of Bank | Minority |
| |Common Stock | Shareholders |
| |-------------- | |
- -------------------------| -------------------|
The following diagram sets forth the Bank's proposed mutual
holding company structure following completion of the
Reorganization:
- -------------------------
| Harris Financial M.H.C.|
| |
- -------------------------|
|
|76% of Holding Company
|Common Stock
|
- ------------------------- -------------------
| Harris Financial, Inc. |24% of Holding | |
| |Company | Minority |
| |Common Stock | Shareholders |
| |-------------- | |
- -------------------------| -------------------|
|
|100% Owned
|
- -------------------------
| Harris Savings Bank |
| |
- -------------------------|
Capitalization
The Board of Directors of the Bank presently intends to
capitalize the Stock Holding Company with up to $10.0 million,
subject to the receipt of any required regulatory approvals. The
Stock Holding Company is being capitalized in such amount so that
it will be in a position to take advantage of investment
opportunities as they arise
<PAGE>
from time to time. These opportunities may include investments
in equity securities, acquisitions of other financial
institutions and repurchases of shares of Holding Company Common
Stock.
The $10.0 million contributed to the Stock Holding Company
will reduce the Bank's capital in a like amount, although the
Stock Holding Company's consolidated total shareholders' equity
immediately subsequent the Reorganization will be equal to the
Bank's consolidated total shareholders' equity immediately prior
to the Reorganization. The following table sets forth the
historical capitalization of the Bank and the pro forma
capitalization of the Bank and the Stock Holding Company as of
December 31, 1996.
Set forth below is the historical and pro forma
capitalization of the Bank as of December 31, 1996 showing the
effects of the Reorganization upon the Bank.
<TABLE>
<CAPTION>
Pro Forma
Consolidated
Historical Pro Forma Capitalization
Capitalization Capitalization of Stock
of Bank of Bank Holding Company
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Liabilities:
Deposits $1,173,423 $1,173,423 $1,173,423
Borrowed funds 420,631 420,631 420,631
Other liabilities 21,306 21,306 21,306
---------- ---------- ----------
Total liabilities $1,615,360 $1,615,360 $1,615,360
---------- ---------- ----------
---------- ---------- ----------
Capital Stock:
Common Stock, par value
$.01 per share(1) $ 112 $ -- $ 112
Paid in capital 25,902 26,014 25,902
Retained earnings 124,812 114,812 124,812
Net unrealized gain (loss) on
securities available for sale,
net of income taxes 3,615 3,615 3,615
Unearned ESOP shares (1,024) (1,024) (1,024)
Unearned Recognition and
Retention Plan Shares (665) (665) (665)
---------- ---------- ----------
Total shareholders' equity(2) $ 152,752 $ 142,752 $ 152,752
---------- ---------- ----------
---------- ---------- ----------
Shareholders' equity per share $ 13.62 NM $ 13.62
---------- ---------- ----------
---------- ---------- ----------
- ---------------------
(1) The Bank has 50,000,000 shares of Bank Common Stock
authorized for issuance, 11,216,400 shares issued and
outstanding as of December 31, 1996, and 100 assumed pro
forma shares outstanding. The Stock Holding Company has
100,000,000 shares of Holding Company Common Stock authorized
for issuance, and 11,216,400 assumed pro forma shares
outstanding.
(2) Expenses of approximately $75,000 will be capitalized and
amortized over a five year period.
</TABLE>
Future capitalization of the Stock Holding Company will
depend upon earnings and dividends declared by the Bank and any
issuance of debt or equity securities. As of the date hereof,
the Board of Directors of the Stock Holding Company has adopted
no plan or agreement with respect to any future issuance of
securities. Furthermore, as long as the Mutual Holding Company
is in existence it must own a majority of the Stock Holding
Company's outstanding voting stock.
Following the Reorganization, unless the Bank receives the
nonobjection of the FDIC, the Bank may not issue to any person
other than Stock Holding Company (i) Bank Common Stock, or (ii)
any equity security that would give the holder the right to
acquire any equity security of the Bank or that would give the
holder an interest in the retained earnings of the Bank. In
addition, so long as the Mutual Holding Company is in existence,
no additional shares of
<PAGE>
Bank Common Stock shall be offered for sale by the Bank to any
person other than Stock Holding Company unless the depositors of
the Bank are given the rights set forth in the FDIC's Rules and
Regulations relating to mutual-to-stock conversions of state-
chartered savings banks. The Board of Directors of the Bank has
no present plans or intentions with respect to any future
issuance of securities of the Bank.
After the Reorganization, the Bank will continue its
existing business and operations as a wholly owned subsidiary of
the Stock Holding Company, and the consolidated capital, assets,
liabilities, and form of financial statements of the Stock
Holding Company immediately following the Reorganization will be
substantially the same as those of the Bank immediately prior to
consummation of the Reorganization. The Articles of Incorporation
and the Bylaws of the Bank will continue in effect, and will not
be affected in any manner by the Reorganization. The Bank will
continue to utilize the name "Harris Savings Bank." The
corporate existence of the Bank will be unaffected by the
Reorganization.
Regulatory Capital
Set forth below is a summary of the Bank's historical and
pro forma regulatory capital at December 31, 1996. Following
completion of the Reorganization, the Bank will exceed all
regulatory capital requirements imposed by the FDIC.
<TABLE>
<CAPTION>
Actual Pro Forma
-------------------- --------------------
Percent Percent
Amount of Assets Amount of Assets
-------------------- --------------------
<S> <C> <C> <C> <C>
Tier 1 Leverage
Capital $126,217 8.3% $116,217 7.7%
Requirement 61,099 4.0 60,699 4.0
-------- ----- -------- -----
Excess $ 65,118 4.3% $ 55,518 3.7%
-------- ----- -------- -----
-------- ----- -------- -----
Tier 1 Risk-Based:
Capital $126,217 13.8% $116,217 12.7%
Requirement 36,575 4.0 36,495 4.0
-------- ----- -------- -----
Excess $ 89,642 9.8% $ 79,722 8.7%
-------- ----- -------- -----
-------- ----- -------- -----
Total Risk-Based:
Capital $134,539 14.7% $124,539 13.6%
Requirement 73,151 8.0 72,991 8.0
-------- ----- -------- -----
Excess $ 61,388 6.7% $ 51,548 5.6%
-------- ----- -------- -----
-------- ----- -------- -----
</TABLE>
Effective Date
The "Effective Date" of the Reorganization will be the date
upon which the Articles of Merger are filed with the Pennsylvania
Department of State.
Optional Exchange of Stock Certificates
After the Effective Date stock certificates evidencing
shares of Bank Common Stock will represent, by operation of law,
the same number of shares of Holding Company Common Stock.
Former holders of the Bank Common Stock will not be required to
exchange their Bank Common Stock certificates for Holding Company
Common Stock certificates, but will have the option to do so. DO
NOT SEND YOUR STOCK CERTIFICATES TO THE BANK AT THIS TIME. Any
shareholder desiring more information about such exchange may
request additional information from the Bank by writing the
Secretary of the Bank, Bernard H. Sarfert, Sr., 235 North Second
Street, Harrisburg, Pennsylvania 17105.
Rights of Dissenting Shareholders
Shareholders will not have dissenters' rights of appraisal
in connection with the Reorganization.
<PAGE>
Tax Consequences
The Bank has received an opinion of its special counsel,
Luse Lehman Gorman Pomerenk & Schick, P.C., Washington, D.C., as
to certain federal income tax consequences of the Reorganization.
This opinion of counsel, which is not binding upon the Internal
Revenue Service, provides substantially as follows: (i) The
merger of Interim with and into the Bank will constitute a
reorganization under Section 368 of the Internal Revenue Code of
1986, as amended ("Code"), and the Stock Holding Company, the
Bank and Interim will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code, provided that
the merger of Interim with and into Bank qualifies as a statutory
merger under applicable law, after the transaction Bank will hold
substantially all of the assets of Interim and Bank shareholders
exchange solely for Holding Company Common Stock an amount of
Bank Common Stock constituting "control" of the Bank; (ii) no
gain or loss will be recognized by Bank shareholders on the
exchange of Bank Common Stock for Holding Company Common Stock;
(iii) no gain or loss will be recognized by the Stock Holding
Company on the receipt by it of Bank Common Stock solely in
exchange for Holding Company Common Stock; (iv) the basis of
Holding Company Common Stock received by the Bank's shareholders
will be the same as the basis of the Bank Common Stock
surrendered in exchange therefor; (v) the holding period of
Holding Company Common Stock to be received by Bank shareholders
will include the holding period of the Bank Common Stock
surrendered in exchange therefor, provided the Bank Common Stock
was held as a capital asset on the date of the exchange; and (vi)
no gain or loss will be recognized by the Bank shareholders as a
result of conversion of their Bank stock options into options to
purchase Holding Company Common Stock.
Each Bank shareholder should consult his own tax counsel as
to specific federal, state and local tax consequences of the
Reorganization, if any, to such shareholder.
Consequences Under Federal Securities Laws
The Bank Common Stock is registered under Section 12 of the
Exchange Act as administered by the FDIC. Upon consummation of
the Reorganization, the Stock Holding Company will register the
Common Stock under Section 12 of the Exchange Act as administered
by the SEC. The Exchange Act will apply to the Stock Holding
Company to the same degree that it currently applies to the Bank,
except that the powers, functions and duties to administer and
enforce the Exchange Act requirements, including periodic and
other reports, proxies, tender offers, and short swing profits,
and certain other requirements that are vested in the FDIC with
respect to securities of insured banks such as the Bank, are
vested in the SEC with respect to securities of corporations such
as the Stock Holding Company. In carrying out its responsibility
to administer such requirements, however, the FDIC is generally
required by law to issue substantially similar regulations to
those adopted by the SEC.
Conditions to the Reorganization-Regulatory Approvals
The Plan of Reorganization sets forth a number of conditions
to the completion of the Reorganization, including: (i) approval
of the Plan of Reorganization by the holders of two-thirds of the
outstanding shares of Bank Common Stock; (ii) receipt of an
opinion of counsel that the Reorganization will be treated as a
non-taxable transaction for federal income tax purposes (which
opinion has been received); and (iii) receipt of any and all
required approvals from the FRB, the FDIC, the Pennsylvania
Department of Banking (the "Department") and any other state or
federal agency having jurisdiction over the transaction, and the
effectiveness of any registration with the SEC.
The Mutual Holding Company, which owns more than two-thirds
of the outstanding shares of Bank Common Stock, intends to vote
its shares in favor of the Plan of Reorganization thereby
assuring shareholder approval of the Plan of Reorganization.
As of the date of this Prospectus/Proxy Statement, neither
the FDIC nor the FRB have approved the Reorganization, and there
can be no assurance that such approvals will be obtained.
Moreover, as part of any approval of the Reorganization, the FDIC
and/or the FRB may include conditions to approval that limit the
benefits that may be achieved through the Reorganization. The
Bank, the Stock Holding Company, and the Mutual Holding Company
will evaluate the terms and conditions of any FDIC and FRB
approval at the time such approval is received, and the Bank will
proceed with the Reorganization only if it believes that
completion of the Reorganization under the
<PAGE>
terms or conditions imposed by the FDIC and the FRB is in the
best interests of stockholders. The Bank will not resolicit
stockholders following receipt of FDIC and FRB approval.
Effect of the Reorganization on any Future Mutual-to-Stock
Conversion of the Mutual Holding Company
The Reorganization and the establishment of the Stock
Holding Company is not expected to have a material effect on the
rights of Minority Shareholders in the event of a mutual-to-stock
conversion of the Mutual Holding Company. The Mutual Holding
Company has no current intention to engage in a mutual-to-stock
conversion.
Effect of the Reorganization on Stock Benefit Plans of the Bank
Upon completion of the Reorganization each share of
restricted Bank Common Stock awarded to the Bank's employees
under the Bank's restricted stock plans will be converted into a
share of Holding Company Common Stock, and will continue to be
subject to the same restrictions. Shares awarded pursuant to the
Bank's Employee Stock Ownership Plan (the "ESOP") and unallocated
shares held by the ESOP trust will be converted into shares of
Holding Company Common Stock. Options to purchase shares of Bank
Common Stock will be converted into and become options to
purchase Holding Company Common Stock on the same terms that
shares of Bank Common Stock could have been purchased prior to
the Reorganization.
Amendment, Termination or Waiver
The Board of Directors of the Bank may cause the Plan of
Reorganization to be amended or terminated if the Board
determines for any reason that such amendment or termination
would be advisable. Such amendment or termination may occur at
any time prior to the filing of Articles of Merger with the
Department, provided that no such amendment may be made to the
Plan of Reorganization after shareholder approval if such
amendment is deemed to be materially adverse to the shareholders
of the Bank. Additionally, any of the terms or conditions of the
Plan of Reorganization may be waived by the party which is
entitled to the benefit thereof.
Business of the Bank
The Bank was organized as a state chartered mutual savings
and loan association in 1886 and in 1991 it converted its charter
to a state chartered mutual savings bank. In January 1994 the
Bank reorganized into the mutual holding company structure and
completed a stock issuance that raised net proceeds of $23.7
million. The deposits of the Bank are insured by the FDIC under
the Savings Association Insurance Fund (the "SAIF"). The Bank is
the largest SAIF insured institution headquartered in south
central Pennsylvania. The Bank has been a member of the Federal
Home Loan Bank System since 1941. The Bank presently operates 25
full service offices, five loan centers, and an operations center
and primarily serves customers in the five central Pennsylvania
counties of Dauphin, Cumberland, York, Lancaster, and Lebanon and
in the northern Maryland county of Washington.
At December 31, 1996, the Bank had total assets of $1.8
billion, total deposits of $1.2 billion and shareholders' equity
of $153 million. The Bank's lending activities are concentrated
on origination of loans secured by first mortgages on owner-
occupied one-to-four family residences located primarily in the
Bank's primary market area. At December 31, 1996, loans secured
by one-to-four family real estate totaled $515 million or 6.2% of
total loans. The Bank also emphasizes the origination of
consumer loans which at December 31, 1996 totaled $230 million,
or 28% of total loans.
The Bank's principal executive office is located at 235
North Second Street, Harrisburg, Pennsylvania, and its telephone
number at that address is (717) 236-4041.
Business of the Stock Holding Company
General. The Stock Holding Company was formed only recently
and currently has no business activities. Upon the completion of
the Reorganization, the Bank will become a wholly owned
subsidiary of the Stock Holding Company and each shareholder of
the Bank will become a shareholder of the Stock Holding Company
with the same
<PAGE>
ownership interest therein as such shareholder's ownership
interest in the Bank immediately prior to the Reorganization.
Immediately after consummation of the Reorganization, it is
expected that the Stock Holding Company will not engage in any
business activity other than to hold all of the stock of the
Bank. The Stock Holding Company does not presently have any
arrangements or understandings regarding any acquisition or
merger opportunities. It is anticipated, however, in the future
that the Stock Holding Company may pursue other investment
opportunities, including possible diversification through
acquisitions and mergers.
Property. The Stock Holding Company is not expected to own
real or personal property initially. Instead, it intends
initially to utilize the premises, equipment and furniture of the
Bank and will pay a rental fee to the Bank for such use.
Legal Proceedings. Since its organization, the Stock
Holding Company has not been a party to any legal proceedings.
Employees. At the present time, the Stock Holding Company
does not intend to employ any persons other than senior officers
of the Bank. It will utilize the support staff of the Bank from
time to time. If the Stock Holding Company acquires other
savings institutions or pursues other lines of business, it may
hire additional employees at such time. The Bank will be paid a
fee for services rendered to the Stock Holding Company by its
employees based on an estimate of the percentage of such person's
time that will be spent performing services for the Stock Holding
Company.
Competition. It is expected that for the immediate future
the primary business of the Stock Holding Company will be the
ownership of the Bank Common Stock. Therefore, the competitive
conditions to be faced by the Stock Holding Company will be the
same as those faced by the Bank.
Management of the Stock Holding Company
Directors. The directors of the Stock Holding Company are,
and upon completion of the Reorganization will continue to be,
the same persons who are at present the directors of the Bank.
The three-year terms of the directors are staggered to provide
for the election of approximately one-third of the board members
each year.
Executive Officers. The executive officers of the Stock
Holding Company are, and upon completion of the Reorganization
will be, the same persons who are at present the executive
officers of the Bank.
Remuneration. Since the formation of the Stock Holding
Company, none of its executive officers or directors has received
any remuneration from the Stock Holding Company. It is expected
that initially no compensation will be paid to its directors and
officers in addition to compensation paid to them by the Bank.
However, the Stock Holding Company may determine that separate
and additional compensation is appropriate in the future.
Indemnification of Officers and Directors and Limitation of
Liability
General. Certain provisions of the Articles of
Incorporation of the Stock Holding Company and the Bank seek to
ensure that directors are able to exercise their best business
judgment in managing corporate affairs, subject to their
continuing fiduciary duties, and are not unreasonably impeded by
exposure to the potentially high personal costs or other
uncertainties of litigation. The nature of the responsibilities
of directors and officers often requires them to make difficult
decisions which can expose such persons to personal liability,
but from which they will acquire no personal benefit (other than
as shareholders). In recent years, litigation against
corporations and their directors and officers, often amounting to
mere "second guessing" of good-faith judgments and involving no
allegations of personal wrongdoing, has become common. Such
litigation often claims damages in large amounts which bear no
relationship to the amount of compensation received by the
directors or officers, particularly in the case of directors who
are not officers of the corporation, and the expense of defending
such litigation, regardless of whether it is well founded, can be
enormous. Individual directors and officers can seldom bear
either the legal defense costs involved or the risk of a large
judgment.
<PAGE>
In order to attract and retain competent and conscientious
directors and officers in the face of these potentially serious
risks, corporations have historically provided for corporate
indemnification and limitation of liability in their articles of
incorporation or bylaws, and have obtained liability insurance
protecting the company and its directors and officers against the
cost of litigation and related expenses. Such indemnification
and limitation of liability provisions may also benefit
shareholders who indirectly assume the expense of litigation and
directors and officers liability insurance. The Bank currently
has insurance coverage for its directors and officers, and the
Bank's management anticipates that the Stock Holding Company will
be able to obtain such coverage for its directors and officers.
The individual members of the Stock Holding Company's Board of
Directors will benefit from the inclusion of the indemnification
and limitation of liability provisions in the Stock Holding
Company's Articles of Incorporation at the potential expense of
shareholders.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons
controlling the Stock Holding Company pursuant to the following
provisions, the Stock Holding Company has been informed that in
the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is therefore
unenforceable. In addition, Federal banking regulations restrict
the Bank or the Stock Holding Company from indemnifying officers
and directors for civil monetary penalties or judgments resulting
from administrative or civil actions instituted by any Federal
banking agency, or any other liability or legal expense with
regard to any administrative proceeding or civil action
instituted by any Federal banking agency, which results in a
final order or settlement pursuant to which such person is
assessed a civil monetary penalty, removed from office or
prohibited from participating in the conduct of the affairs of an
insured depository institution, or required to cease and desist
from or take certain actions.
Limitation of Liability under the Bank's Articles of
Incorporation. Under the Bank's Articles of Incorporation a
director of the Bank may not be personally liable for monetary
damages for any action taken or any failure to take any action as
a director, except to the extent provided by law, a director's
liability for monetary damages may not be limited. Except in the
case of criminal statutes or liability for taxes, Pennsylvania
law permits limitation of liability for monetary damages unless
the director has breached or failed to perform the fiduciary
duties of his office under Pennsylvania law and such breach or
failure to perform constitutes self-dealing, willful misconduct
or recklessness. Federal banking and securities laws may limit
the effect of such limitation of liability provisions.
Limitation of Liability under the Stock Holding Company's
Articles of Incorporation. The Stock Holding Company's Articles
of Incorporation provide that the personal liability of a
director or officer of the Stock Holding Company for monetary
damages shall be eliminated to the fullest extent permitted by
the Business Corporation Law of 1988, as amended, of the
Commonwealth of Pennsylvania (the "BCL") as it exists on the
effective date of the Articles of Incorporation or as such law
may be thereafter in effect. The Articles of Incorporation also
state that in no event shall a director be personally liable for
monetary damages for any action taken unless the director has
breached or failed to perform the duties of his office under the
BCL and the breach or failure to perform constitutes self-
dealing, willful misconduct or recklessness. This latter
provision regarding limitation of a director's personal liability
is specifically permitted by Pennsylvania law. Federal banking
and securities laws may limit the effect of such limitation of
liability provisions.
These provisions may reduce the likelihood of derivative
litigation against directors and discourage or deter shareholders
or management from bringing a lawsuit against directors for
breach of their duty of care, even though such an action, if
successful, might otherwise have been beneficial to the Bank or
the Stock Holding Company and its shareholders. The provisions
will not, however, affect the right to pursue equitable remedies
for breach of the duty of care, although such remedies might not
be available as a practical matter. To the best of management's
knowledge, there is currently no pending or threatened litigation
for which indemnification may be sought or any recent litigation
involving directors of the Bank that might have been affected by
the limitation of liability provision in the Stock Holding
Company's Articles of Incorporation had it been in effect at the
time of the litigation.
Indemnification Provisions of the Bank's Articles of
Incorporation. The Bank's Articles of Incorporation provide that
the Bank shall indemnify any person who was or is a party to, or
is threatened to be made a party to, any threatened, pending or
completed action, suit or proceeding, including actions by or in
the right of the Bank, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a
director or officer of the Bank, or is or was serving while a
director or officer of the Bank at the request of the Bank as a
director,
<PAGE>
officer, employee, agent, fiduciary or other representative of
another entity, against expenses (including attorneys' fees),
judgment, fines, excise taxes and amounts paid in settlement
actually and reasonable incurred by such person in connection
with such action, suit or proceeding to the fullest extent
permissible under Pennsylvania law.
As regards third party actions, the Pennsylvania law permits
a corporation to indemnify any employee, officer, or director who
was or is a party or is threatened to be made a party to any
threatened, pending or completed action or proceeding, whether
civil, criminal, administrative or investigative (other than an
action by or in the right of the corporation), by reason of the
fact that he is or was a representative of the corporation, or is
or was serving at the request of the corporation as a
representative of another entity, against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with the
action or proceeding if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best
interests of the corporation and, with respect to any criminal
proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action or proceeding by
judgment, order, settlement or conviction or upon a plea of nolo
contendere or its equivalent does not of itself create a
presumption that the person did not act in good faith and in a
manner that he reasonably believed to be in, or not opposed to,
the best interests of the corporation and, with respect to any
criminal proceeding, had reasonable cause to believe that his
conduct was unlawful.
As regards derivative and corporate actions, Pennsylvania
law permits a corporation to indemnify any employee, officer, or
director who was or is a party, or is threatened to be made a
party, to any threatened, pending or completed action by or in
the right of the corporation to procure a judgment in its favor
by reason of the fact that he is or was a representative of the
corporation, or is or was serving at the request of the
corporation as a representative of another entity, against
expenses (including attorney's fees) actually and reasonably
incurred by him in connection with the defense or settlement of
the action if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best
interests of the corporation. Pennsylvania law does not permit
indemnification in respect of any claim, issue or matter as to
which the person has been adjudged to be liable to the
corporation unless and only to the extent that the applicable
court determines upon application that, despite the adjudication
of liability but in view of all the circumstances of the case,
the employee, officer, or director is fairly and reasonably
entitled to indemnity for the expenses that the court deems
proper.
Pennsylvania law provides that, unless ordered by a court,
the indemnification described above shall be made by the
corporation only as authorized in the specific case upon a
determination that indemnification of the representative is
proper in the circumstances because he has met the applicable
standard of conduct set forth above. The determination shall be
made: (1) by the board of directors by a majority vote of a
quorum consisting of directors who were not parties to the action
or proceeding; (2) if such a quorum is not obtainable or if
obtainable and a majority vote of a quorum of disinterested
directors so directs, by independent legal counsel in a written
opinion; or (3) by the shareholders.
Pennsylvania law provides that reasonable expenses incurred
by an officer or director of the corporation in defending a civil
or criminal action, suit or proceeding described above shall be
paid by the corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such person to repay such amount if it shall
ultimately be determined that the person is not entitled to be
indemnified by the corporation.
Pennsylvania law provides that the indemnification and
advancement of expenses described above shall not be deemed
exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under
any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to actions in their official
capacity and as to actions in another capacity while holding an
office.
Indemnification Provisions of the Stock Holding Company's
Bylaws. The Stock Holding Company's Bylaws provide that the
Stock Holding Company shall indemnify any person who was or is a
party, or is threatened to be made a party, to any threatened,
pending or completed action or proceeding, whether civil,
criminal, administrative or investigative (other than an action
by or in the right of the Stock Holding Company), by reason of
the fact that he is or was a director or officer of the Stock
Holding Company, or is or was serving at the request of the Stock
Holding Company as a representative of another entity, against
expenses (including attorney's fees), judgments, fines and
amounts paid in settlement incurred by him in connection with the
action or proceeding if he acted in good faith and
<PAGE>
in a manner he reasonably believed to be in, or not opposed to,
the best interests of the Stock Holding Company and, with respect
to any criminal proceeding, had no reasonable cause to believe
his conduct was unlawful. The Bylaws further provide that the
Stock Holding Company shall not be liable for any amounts which
may be due to any such person in connection with a settlement of
any action or proceeding initiated by any such person (other than
an action or proceeding to enforce rights to indemnification
hereunder).
As regards derivative and corporate actions, the Stock
Holding Company's Bylaws provide that the Stock Holding Company
shall indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or
completed action by or in the right of the Stock Holding Company
to procure a judgment in its favor by reason of the fact that he
is or was a director or officer of the Stock Holding Company or
is or was serving at the request of the Stock Holding Company as
a representative of another entity, against expenses (including
attorney's fees) actually and reasonably incurred by him in
connection with the defense or settlement of the action if he
acted in good faith and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the Stock Holding
Company. The Bylaws further provide that no indemnification shall
not be made under such provisions of the Bylaws in respect of any
claim, issue or matter as to which the person has been adjudged
to be liable to the Stock Holding Company unless and only to the
extent that the court of common pleas of the judicial district
embracing the county in which the registered office of the Stock
Holding Company is located or the court in which the action was
brought determines upon application that, despite the
adjudication of liability but in view of all the circumstances of
the case, the person is fairly and reasonably entitled to
indemnity for the expenses that the court of common pleas or
other court deems proper.
Unless ordered by a court, any indemnification described
above shall be made by the Stock Holding Company only as
authorized in the specific case upon a determination that
indemnification of the representative is proper in the
circumstances because he has met the applicable standard of
conduct set forth above. The determination shall be made: (1) by
the Board of Directors by a majority vote of a quorum consisting
of directors who were not parties to the action or proceeding;
(2) if such a quorum is not obtainable, or if obtainable and a
majority vote of a quorum of disinterested directors so directs,
by independent legal counsel in a written opinion; or (3) by the
shareholders.
The Bylaws provide that expenses (including attorneys' fees)
incurred in defending any action or proceeding referred to above
shall be paid by the Stock Holding Company in advance of the
final disposition of the action or proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay
the amount if it is ultimately determined that he is not entitled
to be indemnified by the Stock Holding Company.
The duties of the Stock Holding Company to indemnify and to
advance expenses to a director or officer are in the nature of a
contract between the Stock Holding Company and each such person,
and no amendment or repeal of any provision of the Bylaws may
alter, to the detriment of such person, the right of such person
to the advance of expenses or indemnification related to a claim
based on an act or failure to act which took place prior to such
amendment or repeal.
Comparison of Shareholder Rights and Certain Anti-Takeover
Provisions
Introduction. As a result of the Reorganization, holders of
Bank Common Stock will become shareholders of the Stock Holding
Company. Accordingly, after the Reorganization, shareholders'
rights will be governed by the BCL and the Articles of
Incorporation and Bylaws of the Stock Holding Company, and by the
Banking Code of 1965 (the "Banking Code") to the extent the
Banking Code addresses rights of shareholders of Pennsylvania-
chartered savings bank holding companies. Certain differences
arise from this change of governing law, as well as from
distinctions between the Articles of Incorporation and Bylaws of
the Bank and the Stock Holding Company. The following discussion
is not intended to be a complete statement of the differences
affecting the rights of shareholders, but summarizes certain
significant differences. The Articles of Incorporation and
Bylaws of the Stock Holding Company are attached hereto as
Exhibits B and C, respectively, and should be reviewed for more
detailed information.
A number of provisions of the Articles of Incorporation and
Bylaws of the Bank and the Stock Holding Company deal with
matters of corporate governance and certain rights of
shareholders. The following discussion is a general summary of
certain of these provisions and certain other statutory and
regulatory provisions relating to stock ownership and transfers,
and business combinations. Some of these provisions may be
deemed to have potential anti-
<PAGE>
takeover effects in that they may have the effect of discouraging
a future takeover attempt or change of control which is not
approved by the Board of Directors but which a majority of
individual shareholders may deem to be in their best interests or
in which shareholders may receive a substantial premium for their
shares over then current market prices. As a result,
shareholders who desire to participate in such a transaction may
not have an opportunity to do so. Such provisions will also
render the removal of the current Board of Directors or
management more difficult. The following description is general
and reference should be made in each case to the Stock Holding
Company's Articles of Incorporation and Bylaws, which are
incorporated herein by reference.
Issuance of Capital Stock. The Bank's Articles of
Incorporation authorize the issuance of 50,000,000 shares of
common stock, par value $.01 per share, and 20,000,000 shares of
preferred stock. The Articles of Incorporation of the Stock
Holding Company authorize the issuance of 110,000,000 shares of
Common Stock, par value $.01 per share, and 10,000,000 shares of
serial preferred stock. Following the Reorganization, there
will be the same number of shares of the Holding Company Common
Stock outstanding as there were shares of Bank Common Stock
outstanding immediately prior to the Reorganization.
The Stock Holding Company has no present intention to issue
additional shares of stock at this time, other than upon the
exercise of stock options. If the Stock Holding Company issues
authorized but unissued shares of Holding Company Common Stock or
preferred stock it would not be required to obtain a vote of its
shareholders or the Bank's depositors, or give any such person
the right to purchase such shares. If additional authorized but
unissued shares of Holding Company Common Stock are issued in the
future, the percentage ownership interests of existing
shareholders would be reduced (which could be construed as having
an anti-takeover effect) and, depending on the terms pursuant to
which new shares are issued, the book value and earnings per
share of outstanding Stock Holding Company Common Stock might be
diluted. The ability to issue additional shares, which exists
under both the Articles of Incorporation of the Bank and the
Stock Holding Company, gives management greater flexibility in
financing corporate operations. As long as the Mutual Holding
Company is in existence it must own at least a majority of the
outstanding voting stock of the Stock Holding Company.
Payment of Dividends. The Banking Code states that
Pennsylvania savings banks may declare and pay dividends only out
of accumulated net earnings and may not declare or pay dividends
unless surplus (shareholders equity) is at least equal to
capital. Also, dividends may not be declared or paid if the Bank
is in default in payment of any assessment due to the FDIC. The
ability of the Bank to pay dividends on Bank Common Stock is
restricted by tax considerations related to state savings banks
and by federal regulations applicable to state chartered savings
banks. Income appropriated to bad debt reserves and deducted for
federal income tax purposes may not be used to pay cash dividends
without the payment of federal income taxes by the Bank on the
amount of such income removed from reserves for such purpose at
the then current income tax rate. Additionally, the Bank is
precluded from paying dividends on its Bank Common Stock if its
regulatory capital would thereby be reduced below the regulatory
capital requirements prescribed for a state savings bank under
federal law. The Bank currently satisfies its applicable
regulatory capital requirements.
After the Reorganization, the Stock Holding Company's
principal source of income will initially consist of dividends,
if any, paid to the Stock Holding Company by the Bank and
earnings on such dividends, and earnings on the funds contributed
to the Stock Holding Company in connection with or after the
Reorganization. Although the Stock Holding Company will not be
subject to the above dividend restrictions regarding dividend
payments to its shareholders, the restrictions on the Bank's
ability to pay dividends to the Stock Holding Company will
continue in effect. In addition, the Stock Holding Company will
be subject to FRB capital adequacy regulations that will restrict
the ability of the Stock Holding Company to pay dividends in the
event the Stock Holding Company does not maintain sufficient
capital. See "- Regulation of the Stock Holding Company."
Special Meetings of Shareholders. For a period of five
years following completion of its mutual holding company
reorganization, (i.e., until January 1999), special meetings of
the holders of the Bank's common stock may be called only by the
chairman of the board, the president or a majority of the Board
of Directors. After January 1999, a special meeting may be
called by the Chairman of the Board, the President, or a majority
of the Board of Directors and shall be called upon the written
request of shareholders entitled to cast at least one-fifth of
the votes which all shareholders are entitled to cast at a
particular meeting. The Articles of Incorporation of the Stock
Holding Company provide that special meetings of the shareholders
of the Stock Holding Company may be called only by the
<PAGE>
Board of Directors pursuant to a resolution approved by the
affirmative vote of a majority of directors then in office. The
inability of shareholders to call special meetings could be
construed as having an anti-takeover effect.
Cumulative Voting. Neither the Bank's nor the Stock Holding
Company's Articles of Incorporation provide for cumulative
voting. The absence of cumulative voting rights is generally
construed as having an anti-takeover effect because the holders
of a majority of the shares voted at a meeting of shareholders
may elect all directors of the Stock Holding Company thereby
precluding minority shareholder representation on the Board of
Directors.
Rights of Shareholders to Dissent. Under the BCL, the
shareholders of a Pennsylvania savings bank, such as the Bank,
and a Pennsylvania corporation, such as the Stock Holding
Company, are generally not entitled to dissenters' rights of
appraisal if the common stock of the issuer is held of record by
more than 2,000 shareholders, except where shares are converted
by a plan, if the shares are not converted solely into shares of
the acquiring, surviving, new or other corporation, or solely
into such shares and money in lieu of fractional shares, and in
certain other circumstances.
Vacancies on the Board of Directors. Any vacancy occurring
in the Bank's Board of Directors may be filled by the affirmative
vote of a majority of the remaining directors. A director elected
to fill a vacancy shall be elected to serve until the next
election of directors by the shareholders. Any directorship to be
filled by reason of an increase in the number of directors may be
filled by a vote of the majority of the board of directors for a
term of office continuing only until the next election of
directors by the shareholders.
The Stock Holding Company's Articles of Incorporation
provide that any vacancy occurring in the Board of Directors,
including any vacancy created by reason of an increase in the
number of directors, shall be filled by a majority vote of the
directors then in office, or by a sole remaining director, and
any director so chosen shall serve until the term of the class to
which he was appointed shall expire and until his successor is
elected and qualified. When the number of directors is changed,
the Board of Directors shall determine the class or classes to
which the increased or decreased number of directors shall be
apportioned, provided that no decrease in the number of directors
shall shorten the term of any incumbent director.
Number and Term of Directors. The Bank's Articles of
Incorporation provides that the Board of Directors shall consist
of not less than five nor more than 20 members, as set forth in
the Bylaws. The Stock Holding Company's Bylaws provide that the
Board of Directors shall consist of between five and 15 members,
the exact number to be determined by the Board of Directors. The
Board of Directors of the Stock Holding Company has set the
number of directors at ten persons. Although the Stock Holding
Company has no present intention of reducing its number of
directors below its present eleven members, the Board of
Directors believes that the ability to reduce the number of
directors will result in greater flexibility in the event of
vacancies on the current Board.
The Bank's Articles of Incorporation provides for a
classified board of directors, consisting of three substantially
equal classes of directors, each serving for a three year term,
with the term of each class of directors ending in successive
years. The Stock Holding Company's Articles of Incorporation
also provide for a classified board of directors.
Presentation of New Business at Meetings of Shareholders.
The Bank's Bylaws do not specifically authorize shareholders to
nominate persons for the election as directors or to submit
proposals for new business at a meeting of shareholders. The
Stock Holding Company's Bylaws provide that any shareholder
entitled to vote generally in an election of directors may
nominate one or more persons for election as directors at a
meeting, and, if properly brought, may bring other business
before an annual meeting of the Stock Holding Company. For
nominations or other business to be properly brought before an
annual meeting, written notice of such shareholder's intent must
be given not later than (i) 90 days prior to the anniversary date
of the mailing of proxy materials by the Stock Holding Company in
connection with the immediately preceding annual meeting of
shareholders of the Stock Holding Company or, in the case of the
first annual meeting of shareholders of the Stock Holding Company
following the Reorganization, 90 days prior to the anniversary
date of the mailing of proxy materials by the Bank in connection
with the immediately preceding annual meeting of the Bank prior
to such acquisition, and (ii) with respect to a nomination
relating to an election of directors at a special meeting of
shareholders, the close of business on the tenth day following
<PAGE>
the date on which notice of such meeting is first given to
shareholders. The Stock Holding Company's Bylaws specify further
procedural requirements that must be satisfied for notice to be
properly given.
Mutual Holding Company Ownership. So long as the Mutual
Holding Company is in existence, the Mutual Holding Company must
own 50% of the outstanding voting stock of the Bank, and,
following the Reorganization, of the Stock Holding Company. The
Mutual Holding Company currently is able to elect the Bank's
directors and direct the affairs and business operations of the
Bank. After the Reorganization, the Mutual Holding Company will
be able to elect directors and direct the affairs and business
operations of the Stock Holding Company.
Limitation on Voting Rights. The Articles of incorporation
of the Bank provide that for a period of five years following the
Bank's organization in January 1994, no person other than the
Mutual Holding Company, shall directly or indirectly offer to
acquire or acquire the beneficial ownership of more than 10% of
any class of any equity security of the Bank, unless such offer
to acquire or such acquisition is approved by two-thirds of the
Board of Directors. In the event shares are acquired in
violation of this provision, all shares beneficially owned by any
person in excess of 10% shall be considered "excess shares" and
shall not be counted as shares entitled to vote and shall not be
voted by any person or counted as voting shares in connection
with any matters submitted to the shareholders for a vote. The
Articles provide that this limitation shall not apply to a
transaction in which the Bank forms a stock holding company
without change in the respective beneficial ownership interest of
its shareholders other than pursuant to the exercise of any
dissenter and appraisal rights or the purchase of shares by a
tax-qualified employee stock benefit plan of the Bank. The Stock
Holding Company's Articles of Incorporation contain a similar
provision that is not limited to a five year period. This
provision could be construed as having an anti-takeover effect.
Amendment of Articles of Incorporation and Bylaws.
Amendments to the Stock Holding Company's Articles of
Incorporation must be approved by a majority vote of its Board of
Directors and, if required by applicable law, generally by a
majority vote of shareholders. The amendment of certain
provisions of the Articles relating to directors, meetings of
shareholders and action without a meeting, liability of directors
and officers, restrictions on acquisitions of the Stock Holding
Company's equity securities, and amendments to the Articles,
however, requires a 75% vote of the Stock Holding Company's
shareholders if such amendments are not approved by the
affirmative vote of 80% of the Stock Holding Company's Board of
Directors. The Stock Holding Company's Bylaws provide that the
Board of Directors, to the extent permitted by law, or
shareholders may amend the Bylaws. Any amendment of the Bylaws
requires the affirmative vote of a majority of the directors then
in office, or the affirmative vote of the majority of the shares
of the Stock Holding Company entitled to vote in an election of
directors; provided, however, that the affirmative vote of at
least 75% of the shares of the Stock Holding Company entitled to
vote in an election of directors is required to amend provisions
of the Bylaws which are inconsistent with certain provisions of
the Articles of Incorporation relating to directors, meetings of
shareholders and action without a meeting, liability of directors
and officers, restrictions on acquisitions of the Stock Holding
Company's equity securities, and amendments to the Articles of
the Stock Holding Company and which are not approved by the
affirmative vote of 80% of the members of the Stock Holding
Company's Board of Directors. This super-majority voting
requirement could be viewed as having an anti-takeover effect.
The Bank's Articles of Incorporation, other than certain
terms relating to the Bank's capital stock, may be amended only
after such amendment is proposed by the Bank's Board of
Directors, approved by a majority of votes eligible to be cast by
shareholders, and submitted to the Department. The Bank's Bylaws
may be amended by a majority vote of the Board of Directors or by
a majority vote of the votes cast by shareholders at any legal
meeting.
Regulation of the Stock Holding Company
General. Upon completion of the Reorganization, the Stock
Holding Company will become a registered bank holding company
pursuant to the Bank Holding Company Act of 1956, as amended (the
"BHCA"). The Stock Holding Company will be subject to
examination, regulation and periodic reporting under the BHCA, as
administered by the FRB. The Mutual Holding Company is currently
regulated by the FRB. The FRB has adopted capital adequacy
guidelines for bank holding companies (on a consolidated basis)
substantially similar to those of the FDIC. The Stock Holding
Company's pro forma capital exceeds these requirements.
<PAGE>
BHCA Activities and Other Limitations. The BHCA prohibits a
bank holding company from acquiring direct or indirect ownership
or control of more than 5% of the voting shares of any bank, or
increasing such ownership or control of any bank, without prior
approval of the FRB. In determining whether to authorize a bank
holding company (or a company that will become a bank holding
company) to acquire control of a bank, the FRB takes into
consideration the financial and managerial resources of the bank
holding company, as well as those of the bank to be acquired, and
considers whether the acquisition is likely to have anti-
competitive effects or other adverse effects. No approval under
the BHCA is required, however, for a bank holding company already
owning or controlling 50% or more of the voting shares of a bank
to acquire additional shares of such bank.
The BHCA also prohibits a bank holding company, with certain
exceptions, from acquiring more than 5% of the voting shares of
any company that is not a bank and from engaging in any business
other than banking or managing or controlling banks. Under the
BHCA, the FRB is authorized to approve the ownership of shares by
a bank holding company in any company, the activities of which
the FRB has determined to be so closely related to banking or to
managing or controlling banks as to be a proper incident thereto.
In making such determinations, the FRB is required to weigh
expected benefits to the public, such as greater convenience,
increased competition or gains in efficiency, against the
possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of interest
or unsound banking practices.
The FRB has by regulation determined that certain activities
are closely related to banking within the meaning of the BHCA,
including: operating a mortgage company, a finance company, a
credit card company, a factoring company, a trust company or a
saving association; performing certain data processing
operations; providing limited securities brokerage services;
acting as an investment or financial advisor; leasing personal
property on a full-payout (and, to a limited extent, less than
full-payout), non-operating basis; providing tax planning and
preparation services; and operating a collection agency.
Subsidiary banks of a bank holding company are subject to
certain restrictions imposed by the BHCA on extensions of credit
to the bank holding company or any of its subsidiaries, on
investments in the stock or other securities of the bank holding
company or its subsidiaries, and on the taking of such stock or
securities as collateral for loans to any borrower. Furthermore,
under amendments to the BHCA and regulations of the FRB, a bank
holding company and its subsidiaries are prohibited from engaging
in certain tie-in arrangements in connection with any extension
of credit or provision of credit or providing any property or
services. Generally, this provision provides that a bank may not
extend credit, lease or sell property, or furnish any service to
a customer on the condition that the customer provide additional
credit or service to the bank, to the bank holding company, or to
any other subsidiary of the bank holding company or on the
condition that the customer not obtain other credit or service
from a competitor of the bank, the bank holding company, or any
subsidiary of the bank.
Regulatory Capital Requirements. The FRB has capital
adequacy guidelines pursuant to which it assesses the adequacy of
capital in examining and supervising a bank holding company and
in analyzing applications to it under the BHCA. The FRB capital
adequacy guidelines generally require bank holding companies to
maintain total capital equal to 8% of total risk-adjusted assets,
with at least one-half of that amount consisting of Tier 1 and up
to one-half of that amount consisting of Tier 2 or supplementary
capital. Tier 1 capital for bank holding companies generally
consists of the sum of common shareholders' equity and perpetual
preferred stock (subject in the latter case to limitations on the
kind and amount of preferred stock which may be included as Tier
1 capital), less goodwill. Tier 2 capital generally consists of
hybrid capital instruments; perpetual preferred stock which is
not eligible to be included as Tier 1 capital; term subordinated
debt and intermediate-term preferred stock; and, subject to
limitations, general allowances for loan losses. Assets are
adjusted under the risk-based guidelines to take into account
different risk characteristics, with the categories ranging from
0% (requiring no additional capital) for assets such as cash to
100% for the bulk of assets which are typically held by a bank
holding company, including multi-family residential and
commercial real estate loans, commercial business loans and
consumer loans. One- to four- family residential first mortgage
loans which are not 90 days or more past due or nonperforming and
which have been made in accordance with prudent underwriting
standards are assigned a 50% level in the risk-weighting system,
as are certain privately-issued mortgage-backed securities
representing indirect ownership loans. Off-balance sheet items
also are adjusted to take into account certain risk
characteristics. The FRB has indicated that bank holding
companies anticipating significant growth will be expected to
maintain capital ratios in excess of the required minimums.
<PAGE>
In addition to the risk-based capital requirements, the FRB
requires bank holding companies to maintain a minimum leverage
capital ratio of Tier 1 capital to total assets of 3.0%. Total
assets for this purpose does not include goodwill and any other
intangible assets and investments that the FRB determines should
be deducted from Tier 1 capital. The FRB has announced that the
3.0% Tier 1 leverage capital ratio requirement is the minimum for
the top-rated bank holding companies without any supervisory,
financial or operational weaknesses or deficiencies or those
which are not experiencing or anticipating significant growth.
Other bank holding companies will be expected to maintain Tier 1
leverage capital ratios of at least 4.0% to 5.0% or more,
depending on their overall condition.
Repurchases of Holding Company Common Stock. Regulations
promulgated by the FRB provide that a bank holding company must
file written notice with the FRB prior to any repurchase of its
equity securities if the gross consideration for the purchase,
when aggregated with the net consideration paid by the bank
holding company for all repurchases during the preceding 12
months, is equal to 10% or more of the bank holding company's
consolidated net worth. This notice requirement is not
applicable, however, to a bank holding company, such as the Stock
Holding Company, that exceeds the thresholds established for a
well capitalized state member bank and that satisfies certain
other regulatory requirements.
Commitments to Affiliated Depository Institutions. Under FRB
policy, the Stock Holding Company will be expected to act as a
source of financial strength to the Bank and to commit resources
to support the Bank in circumstances when it might not do so
absent such policy. The enforceability and precise scope of this
policy is unclear. However, in light of recent judicial
precedent, should the Bank require the support of additional
capital resources, is expected that the Stock Holding Company
would be required to respond with any such resources available to
it. In addition, under the Federal Deposit Insurance Act, any
depository institution shall be liable for any loss incurred by
the FDIC in connection with the default of a commonly controlled
insured depository institution or assistance provided by the FDIC
to any commonly controlled depository institution in danger of
default.
Federal Securities Law. The Stock Holding Company will be
subject to the information, proxy solicitation, insider trading
restrictions and other requirements under the Exchange Act.
Riegle-Neal Interstate Banking Act. The Riegle-Neal
Interstate Banking and Branching Efficiency Act ("Riegle-Neal
Act") permits bank holding companies to acquire banks in any
state on or after September 29, 1995, unless the state elected to
opt out of the Act, and beginning July 1, 1997, holding companies
with banks in more than one state may convert all of their out-
of-state banks into interstate branches of one bank. Once a bank
establishes a branch in another state through an interstate
acquisition or merger, such bank may establish and acquire
additional branches throughout the state. The Riegle-Neal Act
permits an interstate acquisition of only a branch (without
acquisition of an entire bank) only if the laws of the state in
which the branch is located permits out-of-state banks to acquire
a branch of a bank in such state without acquiring the Bank.
Pennsylvania did not opt out of the provision permitting out-of-
state bank holding companies to acquire banks in the state prior
to September 29, 1995, and the state is not expected to opt out
of the provisions which will permit interstate branches beginning
July 1, 1997.
DESCRIPTION OF CAPITAL STOCK OF THE STOCK HOLDING COMPANY
General
The Stock Holding Company is authorized to issue 100.0
million shares of Common Stock having a par value of $.01 per
share and 10.0 million shares of serial preferred stock (the
"Preferred Stock"). In the Reorganization the Stock Holding
Company will issue a number of shares of Holding Company Common
Stock equal to the number of shares of Bank Common Stock
outstanding immediately prior to the Reorganization, and no
shares of Preferred Stock. Each share of Holding Company Common
Stock will have the same relative rights as, and will be
identical in all respects with, each other share of Holding
Company Common Stock.
The Holding Company Common Stock will represent
nonwithdrawable capital, will not be an account of an insurable
type, and will not be insured by the FDIC or any government
agency.
<PAGE>
Holding Company Common Stock
Dividends. The Stock Holding Company can pay dividends if,
as and when declared by its Board of Directors, subject to
compliance with limitations which are imposed by law. See
"Proposed Formation of the Stock Holding Company-Comparison of
Shareholders Rights and Certain Anti-takeover Provisions -
Payment of Dividends." The holders of Holding Company Common
Stock will be entitled to receive and share equally in such
dividends as may be declared by the Board of Directors of the
Stock Holding Company out of funds legally available therefor.
If the Stock Holding Company issues Preferred Stock, the holders
thereof may have priority over the holders of the Holding Company
Common Stock with respect to dividends.
Voting Rights. Upon completion of the Reorganization, the
holders of Holding Company Common Stock will possess exclusive
voting rights in the Stock Holding Company. They will elect the
Stock Holding Company's Board of Directors and act on such other
matters as are required to be presented to them under
Pennsylvania law or the Stock Holding Company's Articles of
Incorporation or as are otherwise presented to them by the Board
of Directors. Except as discussed in "Proposed Formation of the
Stock Holding Company-Comparison of Shareholders Rights and
Certain Anti-takeover Provisions- Limitations on Voting Rights,"
each holder of Common Stock will be entitled to one vote per
share and will not have any right to cumulate votes in the
election of directors. If the Stock Holding Company issues
Preferred Stock, holders of the Preferred Stock may also possess
voting rights.
Liquidation. In the event of any liquidation, dissolution
or winding up of the Bank, the Stock Holding Company, as holder
of the Bank's capital stock, would be entitled to receive, after
payment or provision for payment of all debts and liabilities of
the Bank (including all deposit accounts and accrued interest
thereon) and after distribution of the balance in the special
liquidation account established in connection with any
acquisition by the Bank subsequent to the mutual holding company
reorganization, all assets of the Bank available for
distribution. In the event of liquidation, dissolution or
winding up of the Stock Holding Company, the holders of Holding
Company Common Stock would be entitled to receive, after payment
or provision for payment of all its debts and liabilities, all of
the assets of the Stock Holding Company available for
distribution. If Preferred Stock is issued, the holders thereof
may have a priority over the holders of the Common Stock in the
event of liquidation or dissolution.
Preemptive Rights. Holders of Holding Company Common Stock
will not be entitled to preemptive rights with respect to any
shares which may be issued. The Holding Company Common Stock is
not subject to redemption.
Preferred Stock
None of the shares of the Stock Holding Company's authorized
Preferred Stock will be issued in the Reorganization. Such stock
may be issued with such preferences and designations as the Board
of Directors may from time to time determine. The Board of
Directors can, without shareholder approval, issue Preferred
Stock with voting, dividend, liquidation and conversion rights
which could dilute the voting strength of the holders of Holding
Company Common Stock and may assist management in impeding an
unfriendly takeover or attempted change in control.
Accounting Treatment
The Reorganization will be treated similar to a pooling of
interests for accounting purposes. Therefore, the consolidated
capitalization, assets, liabilities, income and financial
statements of the Stock Holding Company immediately following the
Reorganization will be substantially the same as those of the
Bank immediately prior to consummation of the Reorganization, all
of which will be shown on the Stock Holding Company's books at
their historical recorded values. Since the Reorganization will
not result in a change in such financial statements, this
document does not include financial statements of the Bank or the
Stock Holding Company.
Vote Required
Approval of the Plan of Reorganization requires the
affirmative vote of two-thirds of the total votes eligible to be
cast at the Special Meeting. Failure to vote or a vote to
abstain is equivalent to voting against the Plan of
Reorganization. The Board of Directors recommends a vote "FOR"
the approval of the Plan of Reorganization. Approval of the Plan
is assured because the Mutual Holding Company intends to vote its
shares in favor of the Plan.
<PAGE>
This description of the proposed Stock Holding Company for
the Bank does not purport to be complete, but is qualified in its
entirety by the Plan of Reorganization and Articles of
Incorporation and Bylaws of the Stock Holding Company attached as
Exhibits A, B and C, respectively, to this Prospectus/Proxy
Statement.
LEGAL PROCEEDINGS
In the opinion of the management of the Bank, there are no
proceedings pending to which the Bank is a party or to which its
property is subject, which, if determined adversely to the Bank,
would be material in relation to the Bank's undivided profits or
financial condition. There are no proceedings pending other than
ordinary routine litigation incident to the business of the Bank.
In addition, no material proceedings are pending or are known to
be threatened or contemplated against the Bank by government
authorities.
INDEPENDENT AUDITORS
KPMG Peat Marwick, LLP, Certified Public Accountants, of
Harrisburg, Pennsylvania, served as the Bank's independent
auditors for the 1996 fiscal year, assisted the Bank in the
preparation of federal and state tax returns, and provided
assistance in connection with regulatory matters, charging the
Bank for such services at its customary hourly billing rates.
These non-audit services were approved by the Bank's Boards of
Directors after due consideration to the effect of the
performance thereof on the independence of the auditors. The
Bank has been advised by KPMG Peat Marwick, LLP that none of its
members has any financial interest in the Bank. The Board of
Directors has not yet appointed independent auditors to conduct
the audit of the financial statements of the Bank, its
subsidiaries and affiliates for the fiscal year ending December
31, 1997.
ANNUAL REPORT
A copy of the Bank's Annual Report for its fiscal year ended
December 31, 1996 is enclosed with this Prospectus/Proxy
Statement. A representative of KPMG Peat Marwick, LLP, the
accounting firm which examined the financial statements in the
Annual Report will attend the meeting. The representative will
have the opportunity to make a statement, if he desires to do so,
and will be available to respond to any appropriate questions
concerning the Annual Report presented by shareholders at the
Annual Meeting.
SHAREHOLDER PROPOSALS
Any shareholder who, in accordance with and subject to the
provisions of the proxy rules of the FDIC and the SEC, wishes to
submit a proposal for inclusion in the Bank's Prospectus/Proxy
Statement for its 1998 Annual Meeting of Shareholders must
deliver such proposal in writing to the President of Harris
Savings Bank at its principal executive offices, 235 North Second
Street, Harrisburg, Pennsylvania 17101, not later than December
20, 1997.
OTHER MATTERS
The Board of Directors does not know of any matters to be
presented for consideration other than the matters described in
the accompanying Notice of Annual Meeting of Shareholders, but if
any matters are properly presented, it is the intention of the
persons named in the accompanying Proxy to vote on such matters
in accordance with their best judgment.
ADDITIONAL INFORMATION
UPON WRITTEN REQUEST OF ANY SHAREHOLDER, A COPY OF THE
BANK'S REPORT ON FORM F-2 FOR ITS FISCAL YEAR ENDED DECEMBER 31,
1996, INCLUDING THE FINANCIAL STATEMENTS AND THE SCHEDULES
THERETO, REQUIRED TO BE FILED WITH THE FEDERAL DEPOSIT INSURANCE
CORPORATION AND WHICH SERVES AS THE BANK'S ANNUAL DISCLOSURE
STATEMENT UNDER 12 C.F.R. PART 350, MAY BE OBTAINED, WITHOUT
CHARGE FROM JAMES L. DURRELL, EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER, HARRIS SAVINGS BANK, 235 NORTH SECOND STREET,
HARRISBURG, PENNSYLVANIA 17101.
<PAGE>
EXHIBIT A
HARRIS SAVINGS BANK
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION, dated February
18, 1997, is by and between HARRIS SAVINGS BANK, a Pennsylvania
stock savings bank (the "Bank"); HARRIS FINANCIAL, INC., a to-be-
formed Pennsylvania corporation (the "Stock Holding Company");
and HARRIS INTERIM SAVINGS BANK, a to-be-formed interim
Pennsylvania stock savings bank ("Interim").
The parties hereto desire to enter into this Agreement and
Plan of Reorganization whereby the corporate structure of the
Bank will be reorganized into the stock holding company form of
ownership. As a result of the reorganization, immediately after
the Effective Date (as defined in Article V below), all of the
issued and outstanding shares of common stock, par value $.01 per
share, of the Bank will be held by the Stock Holding Company, and
the holders of the issued and outstanding shares of common stock
of the Bank will become the holders of the issued and outstanding
shares of common stock of the Stock Holding Company.
The reorganization of the Bank will be accomplished by the
following steps: (1) the formation of the Stock Holding Company
as a wholly owned subsidiary of the Bank; (2) the formation of an
interim Pennsylvania stock savings bank ("Interim"), which will
be wholly owned by the Stock Holding Company; and (3) the merger
of Interim into the Bank, with the Bank as the surviving
corporation. Pursuant to such merger: (i) each of the issued and
outstanding shares of common stock of the Bank will be converted
by operation of law into an equal number of issued and
outstanding shares of common stock of the Stock Holding Company;
(ii) each of the issued and outstanding shares of common stock of
Interim will be converted automatically by operation of law into
an equal number of issued and outstanding shares of common stock
of the Bank; and (iii) the shares of common stock of the Stock
Holding Company held by the Bank will be canceled.
NOW, THEREFORE, in order to consummate this Agreement and
Plan of Reorganization, and in consideration of the mutual
covenants herein set forth, the parties agree as follows:
ARTICLE I
MERGER OF INTERIM INTO
THE BANK AND RELATED MATTERS
1.1 On the Effective Date, Interim will be merged with and
into the Bank (the "Merger") and the separate existence of
Interim shall cease, and all assets and property (real, personal
and mixed, tangible and intangible, choses in action, rights and
credits) then owned by Interim, or which would inure to it, shall
immediately and automatically, by operation of law and without
any conveyance, transfer, or further action, become the property
of the Bank. The Bank shall be deemed to be a continuation of
Interim, and the Bank shall succeed to the rights and obligations
of Interim.
1.2 Following the Merger, the existence of the Bank shall
continue unaffected and unimpaired by the Merger, with all the
rights, privileges, immunities and powers, and subject to all the
duties and liabilities, of a savings bank organized under
Pennsylvania law. The Articles of Incorporation (the "Charter")
and Bylaws of the Bank, as presently in effect, shall continue in
full force and effect and shall not be changed in any manner
whatsoever by the Merger.
1.3 From and after the Effective Date, and subject to the
actions of the Board of Directors of the Bank, the business
presently conducted by the Bank (whether directly or through its
subsidiaries) will continue to be conducted by it, as a wholly
owned subsidiary of Stock Holding Company, and the present
directors and officers of the Bank will continue in their present
positions. The home office and branch offices of the Bank in
existence immediately prior to the Effective Date shall continue
to be the home office and branch offices, respectively, of the
Bank from and after the Effective Date.
<PAGE>
ARTICLE II
CONVERSION OF STOCK
2.1 The terms and conditions of the Merger, the mode of
carrying the same into effect, and the manner and basis of
converting the common stock of the Bank into common stock of the
Stock Holding Company pursuant to this Agreement shall be as
follows:
A. On the Effective Date, each share of common stock,
par value $.01 per share, of the Bank issued and outstanding
immediately prior to the Effective Date shall automatically by
operation of law be converted into and shall become one share of
common stock, par value $.01 per share, of the Stock Holding
Company (the "Stock Holding Company Common Stock"). Each share
of common stock of Interim issued and outstanding immediately
prior to the Effective Date shall, on the Effective Date,
automatically by operation of law be converted into and become
one share of common stock, $.01 par value per share, of the Bank
and shall not be further converted into shares of the Stock
Holding Company, so that from and after the Effective Date all of
the issued and outstanding shares of common stock of the Bank
shall be held by the Stock Holding Company.
B. On the Effective Date, the current stock option
plans and recognition plans of the Bank (collectively, the
"Benefit Plans") shall automatically, by operation of law, be
continued as Benefit Plans of the Bank and/or the Stock Holding
Company. Each option to purchase shares of the Bank common stock
under the Bank's stock option plan outstanding at that time will
be automatically converted into an identical option, with
identical price, terms and conditions, to purchase an identical
number of shares of Stock Holding Company Common Stock in lieu of
shares of the Bank common stock. The Stock Holding Company and
the Bank may make appropriate amendments to the Benefit Plans to
reflect the adoption of the Benefit Plans as the plans of the
Stock Holding Company, without adverse effect on the Benefit
Plans and their participants.
C. From and after the Effective Date, each holder of
an outstanding certificate or certificates that, prior thereto,
represented shares of the Bank common stock, shall, upon
surrender of the same to the designated agent of the Bank, be
entitled to receive in exchange therefor a certificate or
certificates representing the number of whole shares of Stock
Holding Company Common Stock into which the shares theretofore
represented by the certificate or certificates so surrendered
shall have been converted, as provided in the foregoing
provisions of this Section 2.1. Until so surrendered, each such
outstanding certificate which, prior to the Effective Date,
represented shares of the Bank common stock shall be
automatically deemed for all purposes to evidence the ownership
of the equal number of whole shares of Stock Holding Company
Common Stock. Former holders of shares of the Bank common stock
will not be required to exchange their the Bank common stock
certificates for new certificates evidencing the same number of
shares of Stock Holding Company Common Stock. If in the future
Stock Holding Company determines to effect an exchange of stock
certificates, instructions will be sent to all holders of record
of Stock Holding Company Common Stock.
D. All shares of Stock Holding Company Common Stock
into which shares of the Bank common stock shall have been
converted pursuant to this Article II shall be deemed to have
been issued in full satisfaction of all rights pertaining to such
converted shares.
E. On the Effective Date, the holders of certificates
formerly representing the Bank common stock outstanding on the
Effective Date shall cease to have any rights with respect to the
common stock of the Bank, and their sole rights shall be with
respect to the Stock Holding Company Common Stock into which
their shares of the Bank common stock shall have been converted
by the Merger.
ARTICLE III
CONDITIONS
3.1 The obligations of the Bank, Stock Holding Company and
Interim to effect the Merger and otherwise consummate the
transactions which are the subject matter hereof shall be subject
to satisfaction of the following conditions:
<PAGE>
A. To the extent required by applicable law, rules,
and regulations, the holders of the outstanding shares of the
Bank common stock shall, at a meeting of the stockholders of the
Bank duly called, have approved this Agreement by the affirmative
vote of two-thirds of the outstanding shares of the Bank common
stock.
B. Any and all approvals from the Federal Reserve
Board (the "FRB"), the FDIC, the Pennsylvania Department of
Banking and any other state or federal governmental agency having
jurisdiction necessary for the lawful consummation of the Merger
and the issuance and delivery of Stock Holding Company Common
Stock as contemplated by this Agreement shall have been obtained,
and any registration with the Securities and Exchange Commission
shall have become effective.
C. The Bank shall have received either (i) a ruling
from the Internal Revenue Service or (ii) an opinion from its
legal counsel, to the effect that the Merger will be treated as a
non-taxable transaction under applicable provisions of the
Internal Revenue Code of 1986, as amended, and that no gain or
loss will be recognized by the stockholders of the Bank upon the
exchange of the Bank common stock held by them solely for Stock
Holding Company Common Stock.
ARTICLE IV
TERMINATION
4.1 This Agreement may be terminated at the election of any
of the parties hereto if any one or more of the conditions to the
obligations of any of them hereunder shall not have been
satisfied and shall have become incapable of fulfillment and
shall not be waived. This Agreement may also be terminated at
any time prior to the Effective Date by the mutual consent of the
respective Boards of Directors of the parties.
4.2 In the event of the termination of this Agreement
pursuant to any of the foregoing provisions, no party shall have
any further liability or obligation of any nature to any other
party under this Agreement.
ARTICLE V
EFFECTIVE DATE OF MERGER
Upon satisfaction or waiver (in accordance with the
provisions of this Agreement) of each of the conditions set forth
in Article III, the parties hereto shall execute and cause to be
filed this Agreement and such certificates or further documents
as shall be required by Pennsylvania law to be filed with the
Pennsylvania Secretary of State. Upon approval of the Merger by
the Pennsylvania Department of Banking, and the filing of the
Articles of Merger with the Pennsylvania Department of State, the
Merger and other transactions contemplated by this Agreement
shall become effective. The Effective Date for all purposes
hereunder shall be the date of such filing with the Pennsylvania
Department of State.
ARTICLE VI
MISCELLANEOUS
6.1 Any of the terms or conditions of this Agreement, which
may legally be waived, may be waived at any time by any party
hereto that is entitled to the benefit thereof, or any of such
terms or conditions may be amended or modified in whole or in
part at any time, to the extent authorized by applicable law, by
an agreement in writing, executed in the same manner as this
Agreement.
6.2 Any of the terms or conditions of this Agreement may be
amended or modified in whole or in part at any time, to the
extent permitted by applicable law, rules, and regulations, by an
amendment in writing, provided that any such amendment or
modification is not materially adverse to the Bank, the Stock
Holding Company or their stockholders. In the event that any
governmental agency requests or requires that the transactions
contemplated herein be modified in any respect as a condition of
providing a necessary regulatory approval or favorable ruling, or
that in the opinion of counsel such modification is necessary to
obtain such approval or ruling, this Agreement may be modified,
<PAGE>
at any time before or after adoption thereof by the stockholders
of the Bank, by an instrument in writing, provided that the
effect of such amendment would not be materially adverse to the
Bank, the Stock Holding Company or their stockholders.
6.3 This Agreement shall be governed by and construed under
the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement and Plan of Reorganization as of the date first
above written.
HARRIS SAVINGS BANK
By: \s\ William J. McLaughlin
-----------------------------------
William J. McLaughlin
President and Chief Executive
Officer
HARRIS FINANCIAL, INC.
By: \s\ William J. McLaughlin
-----------------------------------
William J. McLaughlin
President and Chief Executive
Officer
HARRIS INTERIM SAVINGS BANK
(in formation)
By: \s\ William J. McLaughlin
-----------------------------------
William J. McLaughlin
President and Chief Executive
Officer
PAGE
<PAGE>
EXHIBIT B
ARTICLES OF INCORPORATION
OF
HARRIS FINANCIAL, INC.
ARTICLE I
NAME
The name of the corporation is Harris Financial, Inc.
(hereinafter referred to as the "Corporation").
ARTICLE II
REGISTERED OFFICE
The address of the initial registered office of the
Corporation in the Commonwealth of Pennsylvania is 235 North
Second Street, Harrisburg, PA 17101.
ARTICLE III
NATURE OF BUSINESS
The purpose of the Corporation is to engage in any lawful
act or activity for which a corporation may be organized under
the Business Corporation Law of 1988, as amended, of the
Commonwealth of Pennsylvania (the "BCL"). The Corporation is
incorporated under the provisions of the BCL.
ARTICLE IV
CAPITAL STOCK
A. Authorized Amount. The total number of shares of
capital stock which the Corporation has authority to issue is
110,000,000, of which 10,000,000 shall be serial preferred stock,
par value $.01 per share (hereinafter the "Preferred Stock"), and
100,000,000 shall be common stock, par value $.01 per share
(hereinafter the "Common Stock"). Except to the extent required
by governing law, rule or regulation, the shares of capital stock
may be issued from time to time by the Board of Directors without
further approval of stockholders. The Corporation shall have the
authority to purchase its capital stock out of funds lawfully
available therefor.
B. Common Stock. Except as provided in this Article IV
(or in any resolution or resolutions adopted by the Board of
Directors pursuant hereto), the exclusive voting power of the
Corporation shall be vested in the Common Stock, with each holder
thereof being entitled to one vote for each share of such Common
Stock standing in the holder's name on the books of the
Corporation. Subject to any rights and preferences of any class
of stock having preference over the Common Stock, holders of
Common Stock shall be entitled to such dividends as may be
declared by the Board of Directors out of funds lawfully
available therefor. Upon any liquidation, dissolution or winding
up of the affairs of the Corporation, whether voluntary or
involuntary, holders of Common Stock shall be entitled to receive
pro rata the remaining assets of the Corporation after the
holders of any class of stock having preference over the Common
Stock have been paid in full any sums to which they may be
entitled.
C. Authority of Board to Fix Terms of Preferred Stock. The
Board of Directors shall have the full authority permitted by law
to divide the authorized and unissued shares of Preferred Stock
into series and to fix by resolution full, limited, multiple or
fractional, or no voting rights, and such designations,
preferences, qualifications, privileges, limitations,
restrictions, options, conversion rights, and other special or
relative rights of the Preferred Stock or any series thereof that
may be desired.
D. Preemptive Rights. Except as may be provided in a
resolution or resolutions of the Board of Directors providing for
the issue of any series of Preferred Stock, no holder of shares
of capital stock of the Corporation as such shall have any
preemptive or preferential right to purchase or subscribe to any
part of any new or additional issue of capital stock of any class
whatsoever of the Corporation, or of securities convertible into
capital stock of any class whatsoever, whether now or hereafter
authorized or issued.
<PAGE>
ARTICLE V
INCORPORATOR
The name of the sole incorporator is Harris Savings Bank,
the mailing address of the sole incorporator is 235 North Second
Street, Harrisburg, PA 17101, and the number and class of shares
for which the sole incorporator has subscribed is 100 shares of
common stock.
ARTICLE VI
DIRECTORS
A. Directors and Number of Directors. The business and
affairs of the Corporation shall be managed under the direction
of the Board of Directors. Except as otherwise increased from
time to time by the exercise of the rights of the holders of any
class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation to elect additional
directors, the number of directors of the Corporation shall be as
set forth in the Corporation's Bylaws, as may be amended from
time to time.
B. Classification and Term. The Board of Directors,
other than those who may be elected by the holders of any class
or series of stock having preference over the Common Stock as to
dividends or upon liquidation, shall be divided into three
classes as nearly equal in number as possible, with one class to
be elected annually. The term of office of the initial directors
shall be as follows: the term of directors of the first class
shall expire at the first annual meeting of stockholders after
the effective date of these Articles of Incorporation; the term
of office of the directors of the second class shall expire at
the second annual meeting of stockholders after the effective
date of these Articles of Incorporation; and the term of office
of the third class shall expire at the third annual meeting of
stockholders after the effective date of these Articles of
Incorporation; and, as to directors of each class, when their
respective successors are elected and qualified. At each annual
meeting of stockholders, directors elected to succeed those whose
terms are expiring shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders
(except to the extent necessary to ensure that the Board of
Directors shall be divided into three classes as nearly equal in
number as possible) and when their respective successors are
elected and qualified.
C. No Cumulative Voting. Stockholders of the Corporation
shall not be permitted to cumulate their votes for the election
of directors.
D. Vacancies. Except as otherwise fixed pursuant to the
provisions of Article IV hereof relating to the rights of the
holders of any class or series of stock having preference over
the Common Stock as to dividends or upon liquidation to elect
directors, any vacancy occurring in the Board of Directors,
including any vacancy created by reason of an increase in the
number of directors, shall be filled by a majority vote of the
directors then in office, whether or not a quorum is present, or
by a sole remaining director, and any director so chosen shall
serve until the term of the class to which he was appointed shall
expire and until his successor is elected and qualified. When the
number of directors is changed, the Board of Directors shall
determine the class or classes to which the increased or
decreased number of directors shall be apportioned, provided that
no decrease in the number of directors shall shorten the term of
any incumbent director.
E. Removal. Except as otherwise required by law, and
subject to the rights of any class or series of stock having
preference over the Common Stock as to dividends or upon
liquidation to elect directors, any director (including persons
elected by directors to fill vacancies in the Board of Directors)
may be removed from office by stockholders only for cause and
only upon the affirmative vote of not less than a majority of the
total votes eligible to be cast by stockholders at a duly
constituted meeting of stockholders called expressly for such
purpose. Cause for removal shall exist only if the director
whose removal is proposed has been either declared of unsound
mind by an order of a court of competent jurisdiction, convicted
of a felony or of an offense punishable by imprisonment for a
term of more than one year by a court of competent jurisdiction,
or deemed liable by a court of competent jurisdiction for gross
negligence or misconduct in the performance of such director's
duties to the Corporation.
<PAGE>
ARTICLE VII
MEETINGS OF STOCKHOLDERS; ACTION WITHOUT A MEETING
A. Special Meeting of Stockholders. Except as otherwise
required by law and subject to the rights of the holders of any
class or series of Preferred Stock, special meetings of
stockholders may be called only by the Board of Directors of the
Corporation pursuant to a resolution approved by the affirmative
vote of a majority of the directors then in office.
B. Action Without a Meeting. An action permitted to be
taken by the stockholders of the Corporation at a meeting of
stockholders may be taken without a meeting only if a unanimous
written consent setting forth the action so taken is signed by
all stockholders who would be entitled to vote at a meeting for
such purpose and such consent is filed with the Secretary of the
Corporation as part of the corporate records.
C. Advance Notice by Stockholders. Advance notice of
stockholder nominations for the election of Directors and of
business to be brought by stockholders before any meeting of the
stockholders of the Corporation shall be given in the manner
provided in the Bylaws of the Corporation.
ARTICLE VIII
LIABILITY OF DIRECTORS AND OFFICERS
A. Personal Liability for Monetary Damages. The personal
liabilities of the directors and officers of the Corporation for
monetary damages for conduct in their capacities as such shall be
eliminated to the fullest extent permitted by the BCL as it
exists on the effective date of these Articles of Incorporation
or as such law may be thereafter in effect, and in no event shall
a director be personally liable, as such, for monetary damages
for any action taken unless the director has breached or failed
to perform the duties of his office under the BCL and the breach
or failure to perform constitutes self-dealing, willful
misconduct or recklessness. This section A of Article VIII shall
not apply to the responsibility or liability of a director
pursuant to any criminal statute, or the liability of a director
for the payment of taxes pursuant to Federal, State, or local
law.
B. Amendments. No amendment, modification or repeal of
this Article VIII, nor the adoption of a provision of these
Articles of Incorporation inconsistent with this Article VIII,
shall adversely affect the rights provided hereby with respect to
any claim, issue or matter in any proceeding that is based in any
respect on any alleged action or failure to act prior to such
amendment, modification, repeal or adoption.
ARTICLE IX
RESTRICTIONS ON OFFERS AND ACQUISITIONS OF
THE CORPORATIONS' EQUITY SECURITIES
A. Definitions.
(a) Acquire. The term "Acquire" includes every type of
acquisition, whether effected by purchase, exchange, operation of
law or otherwise.
(b) Acting in Concert. The term "Acting in Concert" means
(a) knowing participation in a joint activity or conscious
parallel action towards a common goal whether or not pursuant to
an express agreement, or (b) a combination or pooling of voting
or other interests in the securities of an issuer for a common
purpose pursuant to any contract, understanding, relationship,
agreement or other arrangement, whether written or otherwise.
(c) Affiliate. An "Affiliate" of, or a Person "affiliated
with" a specified Person, means a Person that directly, or
indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with the Person
specified.
(d) Associate. The term "Associate" used to indicate a
relationship with any Person means:
<PAGE>
(i) Any corporation or organization (other than the
Corporation or a Subsidiary of the Corporation), or any
subsidiary or parent thereof, of which such Person is a director,
officer or partner or is, directly or indirectly, the Beneficial
Owner of 10% or more of any class or equity securities;
(ii) Any trust or other estate in which such Person has
a 10% or greater beneficial interest or as to which such Person
serves as trustee or in a similar fiduciary capacity, provided,
however, such term shall not include any employee stock benefit
plan of the Corporation or a Subsidiary of the Corporation in
which such Person has a 10% or greater beneficial interest or
serves as a trustee or in a similar fiduciary capacity.
(iii) Any relative or spouse of such Person (or any
relative of such spouse) who has the same home as such Person or
who is a director of officer of the Corporation or a Subsidiary
of the Corporation (or any subsidiary or parent thereof); or
(iv) Any investment company registered under the
Investment Company Act of 1940 for which such Person or any
Affiliate or Associate of such Person serves as investment
advisor.
(e) Beneficial Owner (including Beneficially Owned). A
Person shall be considered the "Beneficial Owner" of any shares
of stock (whether or not owned of record):
(i) With respect to which such Person or any Affiliate
or Associate of such Person directly or indirectly has or shares
(A) voting power, including the power to vote or to direct the
voting of such shares of stock, and/or (B) investment power,
including the power to dispose of or to direct the disposition of
such shares of stock;
(ii) Which such Person or any Affiliate or Associate of
such Person has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding or upon
the exercise of conversion rights, exchange rights, warrants or
options, or otherwise, and/or (B) the right to vote pursuant to
any agreement, arrangement or understanding (whether such right
is exercisable immediately or only after the passage of time); or
(iii) Which are Beneficially Owned within the
meaning of (i) or (ii) of this Article IX(A)(e) by any other
Person with which such first-mentioned Person or any of its
Affiliates or Associates either (A) has any agreement,
arrangement or understanding, written or oral, with respect to
acquiring, holding, voting or disposing of any shares of stock of
the Corporation or any Subsidiary of the Corporation or
acquiring, holding or disposing of all or substantially all, or
any Substantial part, of the assets or business of the
Corporation or a Subsidiary of the Corporation, or (B) is Acting
in Concert. For the purpose only of determining whether a Person
is the Beneficial Owner of a percentage specified in this Article
IX of the outstanding Voting Shares, such shares shall be deemed
to include any Voting Shares which may be issuable pursuant to
any agreement, arrangement or understanding or upon the exercise
of conversion rights, exchange rights, warrants, options or
otherwise and which are deemed to be Beneficially Owned by such
Person pursuant to the foregoing provisions of this Article
IX(A)(e), but shall not include any other Voting Shares which may
be issuable in such manner.
(f) Offer. The term "Offer" shall mean every offer to buy
or acquire, solicitation of an offer to sell, tender offer or
request or invitation for tender of, a security or interest in a
security for value; provided that the term "Offer" shall not
include (i) inquiries directed solely to the management of the
Corporation and not intended to be communicated to stockholders
which are designed to elicit an indication of management's
receptivity to the basic structure of a potential acquisition
with respect to the amount of cash and or securities, manner of
acquisition and formula for determining price, or (ii) non-
binding expressions of understanding or letters of intent with
the management of the Corporation regarding the basic structure
of a potential acquisition with respect to the amount of cash and
or securities, manner of acquisition and formula for determining
price.
(g) Person. The term "Person" shall mean any individual,
partnership, corporation, association, trust, group or other
entity. When two or more Persons act as a partnership, limited
partnership, syndicate, association or other group for the
purpose of acquiring, holding or disposing of shares of stock,
such partnership, syndicate, associate or
<PAGE>
group shall be deemed a "Person".
(h) Substantial Part. The term "Substantial Part" as used
with reference to the assets of the Corporation or of any
Subsidiary means assets having a value of more than 10% of the
total consolidated assets of the Corporation and its Subsidiaries
as of the end of the Corporation's most recent fiscal year ending
prior to the time the determination is being made.
(i) Subsidiary. "Subsidiary" means any corporation of
which a majority of any class of equity security is owned,
directly or indirectly, by the Person in question.
(j) Voting Shares. "Voting Shares" shall mean shares of
the Corporation entitled to vote generally in an election of
directors.
(k) Certain Determinations With Respect to Article IX. A
majority of the directors shall have the power to determine for
the purposes of this Article IX, on the basis of information
known to them and acting in good faith: (A) the number of Voting
Shares of which any Person is the Beneficial Owner; (B) whether a
Person is an Affiliate or Associate of another; (C) whether a
Person has an agreement, arrangement or understanding with
another as to the matters referred to in the definition of
"Beneficial Owner" as hereinabove defined; and (D) such other
matters with respect to which a determination is required under
this Article IX.
(l) Directors, Officers or Employees. Directors, officers
or employees of the Corporation or any Subsidiary thereof shall
not be deemed to be a group with respect to their individual
acquisitions of any class of equity securities of the Corporation
solely as a result of their capacities as such.
B. Restrictions. No Person other than Harris Financial,
MHC, shall directly or indirectly Offer to acquire or acquire the
Beneficial Ownership of (i) more than 10% of the issued and
outstanding shares of any class of an equity security of the
Corporation, or (ii) any securities convertible into, or
exercisable for, any equity securities of the Corporation if,
assuming conversion or exercise by such Person of all securities
of which such Person is the Beneficial Owner which are
convertible into, or exercisable for, such equity securities (but
no securities convertible into, or exercisable for, such equity
securities of which such Person is not the Beneficial Owner),
such Person would be the Beneficial Owner of more than 10% of any
class of any equity security of the Corporation.
C. Exclusions. The foregoing restrictions shall not apply
to (i) any Offer with a view toward public resale made
exclusively to the Corporation by underwriters or a selling group
acting on its behalf, (ii) any tax qualified employee benefit
plan or arrangement established by the Corporation or a
Subsidiary of the Corporation and any trustee of such a plan or
arrangement, and (iii) any other Offer or acquisition approved in
advance by the affirmative vote of 80% of the members of the
Corporation's Board of Directors then in office.
D. Remedies. In the event that shares are acquired in
violation of this Article IX, all shares Beneficially Owned by
any Person in excess of 10% shall be considered "Excess Shares"
and shall not be counted as shares entitled to vote and shall not
be voted by any Person or counted as Voting Shares in connection
with any matters submitted to stockholders for a vote.
ARTICLE X
AMENDMENT
The Corporation reserves the right to amend, alter, change
or repeal any provision contained in these Articles of
Incorporation, in the manner now or hereafter prescribe by law,
and all rights conferred upon stockholders herein are granted
subject to this reservation. No amendment, addition, alteration,
change or repeal of these Articles of Incorporation shall be made
unless it is first approved by the Board of Directors of the
Corporation pursuant to a resolution adopted by the affirmative
vote of a majority of the directors then in office, and, to the
extent required by applicable law, thereafter is approved by the
holders of a majority (except as provided below) of the shares of
the Corporation entitled to vote generally in an election of
directors, voting together as a single class, as well as such
additional vote of the Preferred Stock as may be required by the
provisions of any series thereof. Notwithstanding
<PAGE>
anything contained in these Articles of Incorporation to the
contrary, the affirmative vote of the holders of at least 75% of
the shares of the Corporation entitled to vote generally in an
election of directors, voting together as a single class, as well
as such additional vote of the Preferred Stock as may be required
by the provisions of any series thereof, shall be required to
amend, adopt, alter, change or repeal any provision of Articles
VI, VII, VIII, IX and X hereof which is not approved by the
affirmative vote of 80% of the Corporation's Board of Directors
then in office.
THE UNDERSIGNED, being the sole incorporator hereinbefore
named, for the purpose of forming a corporation pursuant to the
Business Corporation Law of 1988, as amended, of the Commonwealth
of Pennsylvania through these Articles of Incorporation, has
caused these Articles of Incorporation to be signed by its
President and Chief Executive Officer, who hereby declares and
certifies that the facts herein stated are true and who has
hereunto set his hand this 26th day of February, 1997.
ATTEST HARRIS SAVINGS BANK
/s/ Bernard H. Sarfert, Sr. By: /s/ William J. McLaughlin
- -------------------------- -------------------------------
Bernard H. Sarfert, Sr. William J. McLaughlin
Secretary President and Chief Executive
Officer
<PAGE>
EXHIBIT C
BYLAWS OF
HARRIS FINANCIAL, INC.
ARTICLE I
OFFICES
1.1 Registered Office and Registered Agent. The registered
office of Harris Financial, Inc. (the "Corporation") shall be
located in the Commonwealth of Pennsylvania at such place as may
be fixed from time to time by the Board of Directors upon filing
of such notices as may be required by law, and the registered
agent shall have a business office identical with such registered
office.
1.2 Other Offices. The Corporation may have other offices
within or outside the Commonwealth of Pennsylvania at such place
or places as the Board of Directors may from time to time
determine.
ARTICLE II
STOCKHOLDERS' MEETINGS
2.1 Place of Meeting. All meetings of the stockholders
shall be held at such place within or without the Commonwealth of
Pennsylvania as shall be determined by the Board of Directors.
2.2 Annual and Special Meetings. The annual meeting of the
stockholders for the election of directors and for the
transaction of such other business as may properly come before
the meeting shall be held each year on the third Tuesday of April
at the hour of 3:00 p.m. if not a legal holiday, and if a legal
holiday, then on the day following, at the same hour, or at such
other date and time as may be determined by the Board of
Directors and stated in the notice of such meeting. Special
meetings of stockholders may be called only by the Board of
Directors pursuant to a resolution approved by the affirmative
vote of a majority of the directors then in office.
2.3 Organization and Conduct. Each meeting of the
stockholders shall be presided over by the President, or if the
President is not present, by any Executive or Senior Vice
President or such other person as the directors may determine.
The Secretary, or in his absence a temporary Secretary, shall act
as secretary of each meeting of the stockholders. In the absence
of the Secretary and any temporary Secretary, the chairman of the
meeting may appoint any person present to act as secretary of the
meeting. The chairman of any meeting of the stockholders, unless
prescribed by law or regulation or unless the Board of Directors
has otherwise determined, shall determine the order of the
business and the procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussions
as shall be deemed appropriate by him in his sole discretion.
2.4 Notice.
(a) Written notice of every meeting of stockholders shall
be given by, or at the direction of, the Secretary of the
Corporation or other authorized person to each stockholder of
record entitled to vote at the meeting at least (i) ten days
prior to the date named for a meeting that will consider a
fundamental change under Chapter 19 of the Pennsylvania Business
Corporation Law ("BCL"), or any successor thereto, or (ii) five
days prior to the date named for a meeting in any other case. A
notice of meeting shall specify the place, date and hour of the
meeting and in the case of a special meeting the general nature
of the business to be transacted thereat, as well as any other
information required by law.
(b) When a meeting of stockholders is adjourned, it shall
not be necessary to give any notice of the adjourned meeting or
of the business to be transacted at an adjourned meeting, other
than by announcement at the meeting at which the adjournment is
taken, unless the Board of Directors fixes a new record date for
the adjourned meeting or notice of the business to be transacted
is required to be given by applicable law and such notice
previously has not been given.
2.5 Record Date. The Board of Directors may fix in advance
a record date for the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders,
or any adjournment thereof, such date to be not more than ninety
(90) days and not less than (i) ten (10) days in the case of a
meeting that will consider a fundamental
<PAGE>
change under Chapter 19 of the BCL, or any successor thereto, or
(ii) five (5) days in the case of a meeting for any other
purpose, prior to the date of the meeting established by the
Board of Directors.
2.6 Voting List. The office or agent having charge of the
transfer books for shares of the Corporation shall make a
complete list of the stockholders entitled to vote at any meeting
of stockholders, arranged in alphabetical order, with the address
of and number of shares held by each. The list shall be produced
and kept open at the time and place of the meeting and shall be
subject to the inspection of any stockholder during the whole
time of the meeting for the purposes thereof.
2.7 Quorum. Except as otherwise required by law:
(a) The presence in person or by proxy of stockholders
entitled to vote at least a majority of the votes that all
stockholders are entitled to cast on a particular matter to be
acted upon at a meeting of stockholders (after giving effect to
Article IX of the Corporation's Articles of Incorporation) shall
constitute a quorum for the purposes of consideration and action
on the matter. Where a separate vote by a class or classes is
required, a majority of the shares of such class or classes
present in person or represented by proxy shall constitute a
quorum entitled to take action with respect to that vote on that
matter. If a quorum shall fail to attend any meeting, the
chairman of the meeting or the holders of a majority of the
shares of stock entitled to vote who are present, in person or by
proxy, may adjourn the meeting to another place, date, or time.
If a notice of any adjourned special meeting of stockholders is
sent to all stockholders entitled to vote thereat, stating that
it will be held with those present constituting a quorum, then
except as otherwise required by law, those present at such
adjourned meeting shall constitute a quorum, and all matters
shall be determined by a majority of the votes cast at such
meeting.
(b) The stockholders present at a duly organized meeting
can continue to do business until adjournment notwithstanding the
general withdrawal of enough stockholders to leave less than a
quorum.
2.8 Voting of Shares.
(a) Except as otherwise provided in these Bylaws or to the
extent that voting rights of the shares of any class or classes
are limited or denied by the Articles of Incorporation, each
stockholder, on each matter submitted to a vote at a meeting of
stockholders, shall have one vote for each share of stock
registered in his name on the books of the Corporation.
(b) Except as otherwise provided by the Articles of
Incorporation, by law or by paragraph (c) of this Section 2.8,
any corporate action to be taken by vote of the stockholders of
the Corporation shall be authorized by receiving the affirmative
vote of a majority of the votes cast by all stockholders entitled
to vote thereon and, if any stockholders are entitled to vote
thereon as a class, upon receiving the affirmative vote of a
majority of the votes cast by stockholders entitled to vote as a
class.
(c) Directors are to be elected by a plurality of votes
cast by the shares entitled to vote in the election at a meeting
at which a quorum is present. If, at any meeting of the
stockholders, due to a vacancy or vacancies or otherwise,
directors of more than one class of the Board of Directors are to
be elected, each class of directors to be elected at the meeting
shall be elected in a separate election by a plurality vote.
2.9 Proxies. Every stockholder entitled to vote at a
meeting of stockholders may authorize another person to act for
him by a proxy duly executed by the stockholder or his duly
authorized attorney-in-fact. The presence of, or vote or other
action at a meeting of stockholders, by a proxy of a stockholder
shall constitute the presence of, or vote or other action by the
stockholder for all purposes. No proxy shall be valid after three
years from the date of execution unless a longer time is
expressly provided therein.
2.10 Proposals. At an annual meeting of the stockholders,
only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an
annual meeting, business must be (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, or (b) otherwise properly brought
before the meeting by a stockholder. For business to be properly
brought before an annual
<PAGE>
meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To
be timely a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the
Corporation not later than ninety (90) days prior to the
anniversary date of the mailing of proxy materials by the
Corporation in connection with the immediately preceding annual
meeting of stockholders of the Corporation or, in the case of the
first annual meeting of stockholders of the Corporation following
its acquisition of all of the outstanding capital stock of Harris
Savings Bank, ninety days prior to the anniversary date of the
mailing of proxy materials by Harris Savings Bank in connection
with the immediately preceding annual meeting of Harris Savings
Bank prior to such acquisition. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder
proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the
annual meeting, (b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business,
(c) the class and number of shares of the Corporation which are
beneficially owned by the stockholder, and (d) any material
interest of the stockholder in such business. The chairman of an
annual meeting shall, if the facts warrant, determine and declare
to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Article II,
Section 2.10, and if he should so determine, he shall so declare
to the meeting and any such business not properly brought before
the meeting shall not be transacted. This provision is not a
limitation on any other applicable laws and regulations.
2.11 Judges of Election.
(a) For each meeting of stockholders, the Board of
Directors may appoint judges of election, who need not be
stockholders, to act at the meeting or any adjournment thereof.
If judges of election are not so appointed, the presiding officer
of the meeting may, and on the request of any stockholder shall,
appoint judges of election at the meeting. The number of judges
shall be one or three. A person who is a candidate for office to
be filled at the meeting shall not act as a judge.
(b) The judges of election shall determine the number of
shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, the
authenticity, validity and effect of proxies, receive votes or
ballots, hear and determine all challenges and questions in any
way arising in connection with the right to vote, count and
tabulate all votes, determine the result and do such acts as may
be proper to conduct the election or vote with fairness to all
stockholders. The judges of election shall perform their duties
impartially, in good faith, to the best of their ability and as
expeditiously as is practical. If there are three judges of
election, the decision, act or certificate of a majority shall be
effective in all respects as the decision, act or certificate of
all.
ARTICLE III
BOARD OF DIRECTORS
3.1 Number and Powers. The business affairs of the
Corporation shall be managed under the direction of a Board of
Directors of not less than five (5) nor more than twenty (20), as
set from time to time by resolution of the Board of Directors.
Directors need not be stockholders or residents of the
Commonwealth of Pennsylvania. In addition to the powers and
authorities expressly conferred upon it by these Bylaws and the
Articles of Incorporation, all such powers of the Corporation as
are not by statute or by the Corporation's Articles of
Incorporation or by these Bylaws directed or required to be
exercised or done by the stockholders may be exercised by or
under the authority of the Board of Directors.
3.2 Classification and Terms. The classification and terms
of the directors shall be as set forth in the Corporation's
Articles of Incorporation, which provisions are incorporated
herein with the same effect as if they were set forth herein.
3.3 Vacancies. All vacancies in the Board of Directors
shall be filled in the manner provided in the Corporation's
Articles of Incorporation, which provisions are incorporated
herein with the same effect as if they were set forth herein.
3.4 Removal of Directors. Directors may be removed in the
manner provided in the Corporation's Articles of Incorporation,
which provisions are incorporated herein with the same effect as
if they were set forth herein.
<PAGE>
3.5 Regular Meetings. Regular meetings of the Board of
Directors or any committee may be held without notice at the
principal place of business of the Corporation or at such other
place or places, either within or without the Commonwealth of
Pennsylvania, as the Board of Directors or such committee, as the
case may be, may from time to time appoint or as may be
designated in the notice of the meeting. A regular meeting of the
Board of Directors shall be held without notice immediately after
the annual meeting of stockholders.
3.6 Special Meetings.
(a) Special meetings of the Board of Directors may be
called at any time by the President, Chariman of the Board, or by
a majority of the authorized number of directors, to be held at
the principal place of business of the Corporation or at such
other place or places as the Board of Directors or the person or
persons calling such meeting may from time to time designate.
Written notice of all special meetings of the Board of Directors
shall be given to each director by five days' service of the
same. Such notice need not specify the business to be transacted
at, nor the purpose of, the meeting.
(b) Special meetings of any committee may be called at any
time by such person or persons and with such notice as shall be
specified for such committee by the Board of Directors, or in the
absence of such specification, in the manner and with the notice
required for special meetings of the Board of Directors.
3.7 Action of Directors by Communications Equipment. One or
more persons may participate in a meeting of directors, or of a
committee thereof, by means of a conference telephone or similar
communications equipment by means of which all persons
participating in the meeting can hear each other.
3.8 Quorum of and Action by Directors. A majority of the
Board of Directors then in office shall be necessary at all
meetings to constitute a quorum for the transaction of business
and the acts of a majority of the directors present and voting at
a meeting at which a quorum is present shall be the acts of the
Board of Directors. Every director of the Corporation shall be
entitled to one vote.
3.9 Registering Dissent. A director who is present at a
meeting of the Board of Directors or of a committee thereof, at
which action on a corporate matter is taken on which the director
is generally competent to act, shall be presumed to have assented
to such action unless his dissent is entered in the minutes of
the meeting, or unless he files his written dissent to such
action with the person acting as the secretary of the meeting
before the adjournment thereof, or unless he delivers his dissent
in writing to the Secretary of the Corporation immediately after
the adjournment of the meeting. Such right to dissent shall not
apply to a director who voted in favor of such action.
3.10 Action by Directors Without a Meeting. Any action which
may be taken at a meeting of the directors, or of a committee
thereof, may be taken without a meeting if prior or subsequent to
the action a consent or consents in writing setting forth the
action so taken or to be taken is signed by all of the directors
in office, or by all of the members of the committee as the case
may be, and filed with the Secretary of the Corporation. Such
consent shall have the same effect as a unanimous vote.
3.11 Compensation of Directors. The Board of Directors shall
have the authority to fix the compensation of directors for their
services as directors and a director may be a salaried officer of
the Corporation.
3.12 Nominations of Directors. Subject to the rights of
holders of any class or series of stock having a preference over
the common stock as to dividends or upon liquidation, nominations
for the election of directors may be made by the Board of
Directors or committee appointed by the Board of Directors or by
any stockholder entitled to vote generally in an election of
directors. However, any stockholder entitled to vote generally in
an election of directors may nominate one or more persons for
election as directors at a meeting only if written notice of such
stockholder's intent to make such nomination or nominations has
been given, either by personal delivery or by United States mail,
postage prepaid to the Secretary of the Corporation not later
than (i) ninety (90) days prior to the anniversary date of the
mailing
<PAGE>
of proxy materials by the Corporation in connection with the
immediately preceding annual meeting of stockholders of the
Corporation or, in the case of the first annual meeting of
stockholders of the Corporation following its acquisition of all
of the outstanding capital stock of Harris Savings Bank, ninety
(90) days prior to the anniversary date of the mailing of proxy
materials by Harris Savings Bank in connection with the
immediately preceding annual meeting of Harris Savings Bank prior
to such acquisition, and (ii) with respect to an election to be
held at a special meeting of stockholders for the election of
directors, the close of business on the tenth (10th) day
following the date on which notice of such meeting is first given
to stockholders. Each such notice shall set forth: (a) the name
and address of the stockholder who intends to make the nomination
and of the person or persons to be nominated; (b) a
representation that the stockholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a
description of all arrangements or understandings between the
stockholder and each nominee and any arrangements or
understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant
to which the nomination or nominations are to be made by the
stockholders; (d) such other information regarding each nominee
proposed by such stockholder as would be required to be included
in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission; and (e) the consent of each
nominee to serve as a director of the Corporation if so elected.
The presiding officer of the meeting may refuse to acknowledge
the nomination of any person not made in compliance with the
foregoing procedures.
3.13 Retirement Age.
(a) Except as set forth in (b) below, the compulsory
retirement age for Directors shall be 70: no person having
attained the age of 70 shall be elected a member of the Board.
No Director shall serve beyond the annual meeting of Directors
immediately following the attainment of such age. Whenever any
person who is a Director becomes ineligible by age as a Director,
he or she shall be eligible for election as a Director Emeritus,
provided he or she has been a member of this Board or of a Board
of a corporation merged into this corporation, for a period of 10
years or more and has not attained the age of 75 prior to his or
her election and shall retire not later than the date of the
annual meeting of the Board of Directors following his or her
attainment of the age of 75.
(b) For persons who were Directors of Harris Savings Bank
(the "Bank") and who attained age 65 prior to the 1996 annual
meeting of the Bank, the compulsory retirement age shall be 72.
Directors Emeritus of the Bank who reached age 75 prior to the
1996 annual meeting of the Bank's Board of Directors may be
appointed to one additional one-year term. The "grandfathering"
provisions of this section (b) and all references in the Bylaws
to this section (b) shall be removed from the Bylaws
automatically without further vote when no longer applicable.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
4.1 Executive Committee.
(a) The Board of Directors may appoint from the Board of
Directors an Executive Committee of not less than three (3)
members, and may delegate to such committee, except as otherwise
provided by law or the Articles of Incorporation, the powers of
the Board of Directors in the management of the business and
affairs of the Corporation in the intervals between meetings of
the Board of Directors in all cases in which specific directions
shall not have been given by the Board, as well as the power to
authorize the seal of the Corporation to be affixed to all papers
which may require it, provided, however, that the Executive
Committee shall not have the power or authority of the Board of
Directors with respect to the following: the submission to
stockholders of any action requiring approval of stockholders by
law; the creation or filling of vacancies in the Board of
Directors; the adoption, amendment or repeal of the Articles of
Incorporation or these Bylaws; the amendment or repeal of any
resolution of the Board of Directors that by its terms is
amendable or repealable only by the Board of Directors; action on
matters committed by these Bylaws or resolution of the Board of
Directors to another committee of the Board of Directors; the
declaration of dividends; and approval of a transaction in which
any member of the Executive Committee, directly or indirectly,
has any material beneficial interest.
(b) Meetings of the Executive Committee shall be held at
such times and places as the Chairman of the Executive Committee
may determine. The Executive Committee, by a vote of a majority
of its members, may appoint a Chairman and fix its rules of
procedure, determine its manner of acting and specify what
notice, if any, of meetings shall be given, except as otherwise
set forth in these Bylaws or as the Board of Directors shall by
resolution otherwise provide.
<PAGE>
(c) The Executive Committee shall keep minutes of all
business transacted by it. All completed action by the Executive
Committee shall be reported to the Board of Directors at its
meeting next succeeding such action or at its meeting held in the
month following the taking of such action, and shall be subject
to revision or alteration by the Board of Directors.
4.2 Audit Committee. The Board of Directors shall designate
not less than three (3) members of the Board of Directors who are
not employed by the Corporation to constitute an Audit Committee,
which shall receive and evaluate internal and independent
auditor's reports, monitor the Corporation's adherence in
accounting and financial reporting to generally accepted
accounting principles and perform such other duties as may be
delegated to it by the Board of Directors. Meetings of the Audit
Committee shall be held at such times and places as the Chairman
of the Audit Committee may determine. The Audit Committee, by a
vote of a majority of its members, may fix its rules of
procedure, determine its manner of acting and specify what
notice, if any, of meetings shall be given, except as otherwise
set forth in these Bylaws or as the Board of Directors shall by
resolution otherwise provide.
4.3 Other Committees. The Board may, by resolutions passed
by a majority of the Board of Directors, designate members of the
Board to constitute other committees, which shall in each case
consist of one or more directors and shall have and may execute
such powers as may be determined and specified in the respective
resolutions appointing them. A majority of all the members of any
such committee may fix its rules of procedure, determine its
manner of acting and fix the time and place of its meetings and
specify what notice thereof, if any, shall be given, except as
otherwise set forth in these Bylaws or as the Board of Directors
shall by resolution otherwise provide.
4.4 Term. A majority of the Board of Directors shall have
the power to change the membership of any committee of the Board
of Directors at any time, to fill vacancies therein and to
discharge any such committee or to remove any member thereof,
either with or without cause, at any time.
ARTICLE V
OFFICERS
5.1 Designations. The Board of Directors shall annually
appoint a Chairman of the Board, a President a Secretary, a
Treasurer and such other officers as the Board of Directors may
from time to time deem appropriate.
5.2 Powers and Duties. The officers of the Corporation
shall have such authority and perform such duties as are
specified in these Bylaws and as the Board of Directors may from
time to time authorize or determine. In the absence of action by
the Board of Directors, the officers shall have such powers and
duties as generally pertain to their respective offices.
5.3 Chairman of the Board. The Chairman of the Board, who
shall be chosen from among the directors, shall preside at all
meetings of the Board of Directors and stockholders. He shall
supervise the carrying out of the policies adopted or approved by
the Board of Directors.
5.4 President. The President shall in the absence of the
Chairman of the Board preside at all meetings of the Board of
Directors and stockholders. The President shall have general
executive powers and shall have and may exercise any and all
other powers and duties pertaining by law, regulations or
practice to the office of President, or imposed by these Bylaws.
5.5 Secretary. The Secretary shall keep the minutes of the
meetings of the stockholders and the Board of Directors and shall
give notice of all such meetings as required in these bylaws, the
Corporation's Articles of Incorporation or by law. The Secretary
shall have custody of such minutes, the seal of the Corporation
and the stock certificate records of the Corporation, except to
the extent some other person is authorized to have custody and
possession thereof by a resolution of the Board of Directors.
5.6 Treasurer. The Treasurer shall keep, or cause to be
kept, the fiscal accounts of the Corporation, including an
account of all monies received or disbursed.
<PAGE>
5.7 Term; Removal. Each officer of the Corporation shall
hold office for a term of one year and until his successor has
been selected and qualified or until his earlier death,
resignation or removal. Any officer or agent of the Corporation
may be removed at any time, with or without cause, by the Board
of Directors, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed. Election or
appointment of an officer or agent shall not of itself create
contract rights.
5.8 Compensation. The officers of the Corporation shall
receive such salary or compensation as may be determined by or
under authority of the Board of Directors.
5.9 Delegation. In the case of absence or inability to act
of any officer of the Corporation and of any person herein
authorized to act in his place, the Board of Directors may from
time to time delegate the powers or duties of such officer to any
other officer or any director or other person whom it may select.
5.10 Vacancies. Vacancies in any office arising from any
cause may be filled by the Board of Directors at any regular or
special meeting of the Board.
5.11 Bonds. The Board of Directors may, by resolution,
require any and all of the officers to give bonds to the
Corporation, with sufficient surety or sureties, conditioned for
the faithful performance of the duties of their respective
offices, and to comply with such other conditions as may from
time to time be required by the Board of Directors.
ARTICLE VI
INDEMNIFICATION
6.1 Third Party Actions. The Corporation shall indemnify
any person who was or is a party, or is threatened to be made a
party, to any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
Corporation), by reason of the fact that he is or was a director
or officer of the Corporation, or is or was serving at the
request of the Corporation as a representative of another
domestic or foreign corporation for profit or not-for-profit,
partnership, joint venture, trust or other enterprise, against
expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by
him in connection with the action or proceeding if he acted in
good faith and in a manner he reasonably believed to be in, or
not opposed to, the best interests of the Corporation and, with
respect to any criminal proceeding, had no reasonable cause to
believe his conduct was unlawful, provided that the Corporation
shall not be liable for any amounts which may be due to any such
person in connection with a settlement of any action or
proceeding effected without its prior written consent or any
action or proceeding initiated by any such person (other than an
action or proceeding to enforce rights to indemnification
hereunder).
6.2 Derivative and Corporate Actions. The Corporation shall
indemnify any person who was or is a party, or is threatened to
be made a party, to any threatened, pending or completed action
by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a director or
officer of the Corporation or is or was serving at the request of
the Corporation as a representative of another domestic or
foreign corporation for profit or not-for-profit, partnership,
joint venture, trust or other enterprise, against expenses
(including attorney's fees) actually and reasonably incurred by
him in connection with the defense or settlement of the action if
he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation,
provided that the Corporation shall not be liable for any amounts
which may be due to any such person in connection with a
settlement of any action or proceeding affected without its prior
written consent. Indemnification shall not be made under this
Section 6.2 in respect of any claim, issue or matter as to which
the person has been adjudged to be liable to the Corporation
unless and only to the extent that the court of common pleas of
the judicial district embracing the county in which the
registered office of the Corporation is located or the court in
which the action was brought determines upon application that,
despite the adjudication of liability but in view of all the
circumstances of the case, the person is fairly and reasonably
entitled to indemnity for the expenses that the court of common
pleas or other court deems proper.
6.3 Mandatory Indemnification. To the extent that a
representative of the Corporation has been
<PAGE>
successful on the merits or otherwise in defense of any action or
proceeding referred to in Section 6.1 or Section 6.2 or in
defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith.
6.4 Procedure for Effecting Indemnification. Unless ordered
by a court, any indemnification under Section 6.1 or Section 6.2
shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the
representative is proper in the circumstances because he has met
the applicable standard of conduct set forth in those sections.
The determination shall be made: (1) by the Board of Directors
by a majority vote of a quorum consisting of directors who were
not parties to the action or proceeding; (2) if such a quorum is
not obtainable, or if obtainable and a majority vote of a quorum
of disinterested directors so directs, by independent legal
counsel in a written opinion; or (3) by the stockholders.
6.5 Advancing Expenses. Expenses (including attorneys'
fees) incurred in defending any action or proceeding referred to
in this Article VI shall be paid by the Corporation in advance of
the final disposition of the action or proceeding upon receipt of
an undertaking by or on behalf of the director or officer to
repay the amount if it is ultimately determined that he is not
entitled to be indemnified by the Corporation as authorized in
this Article VI or otherwise.
6.6 Insurance. The Corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or
was a representative of the Corporation or is or was serving at
the request of the Corporation as a representative of another
domestic or foreign corporation for profit or not-for-profit,
partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not
the Corporation would have the power to indemnify him against
that liability under the provisions of this Article VI.
6.7 Modification. The duties of the Corporation to
indemnify and to advance expenses to a director or officer
provided in this Article VI shall be in the nature of a contract
between the Corporation and each such person, and no amendment or
repeal of any provision of this Article VI shall alter, to the
detriment of such person, the right of such person to the advance
of expenses or indemnification related to a claim based on an act
or failure to act which took place prior to such amendment or
repeal.
ARTICLE VII
CAPITAL STOCK
7.1 Certificates. Certificates of stock shall be issued in
numerical order, and each stockholder shall be entitled to a
certificate signed by the President or a Vice President, and the
Secretary or the Treasurer, or in such other manner as the
Corporation may determine and may be sealed with the seal of the
Corporation or a facsimile thereof. The signatures of such
officers may be facsimiles if the certificate is manually signed
on behalf of a transfer agent, or registered by a registrar,
other than the Corporation itself or an employee of the
Corporation. If an officer who has signed or whose facsimile
signature has been placed upon such certificate ceases to be an
officer before the certificate is issued, it may be issued by the
Corporation with the same effect as if the person were an officer
on the date of issue. Each certificate of stock shall state: (a)
that the Corporation is incorporated under the laws of the
Commonwealth of Pennsylvania; (b) the name of the person to whom
issued; (c) the number and class of shares and the designation
of the series, if any, which such certificate represents; and
(d) the par value of each share represented by such certificate,
or a statement that such shares are without par value.
7.2 Transfers.
(a) Transfers of stock shall be made only upon the stock
transfer books of the Corporation, kept at the registered office
of the Corporation or at its principal place of business, or at
the office of its transfer agent or registrar, and before a new
certificate is issued the older certificate shall be surrendered
for cancellation. The Board of Directors may, by resolution, open
a share register in any state of the United States, and may
employ an agent or agents to keep such register, and to record
transfers of shares therein.
<PAGE>
(b) Shares of stock shall be transferred by delivery of the
certificates therefor, accompanied either by an assignment in
writing on the back of the certificate or an assignment separate
from the certificate, or by a written power of attorney to sell,
assign and transfer the same, signed by the holder of said
certificate. No shares of stock shall be transferred on the books
of the Corporation until the outstanding certificates therefor
have been surrendered to the Corporation.
7.3 Registered Owner. Registered stockholders shall be
treated by the Corporation as the holders in fact of the stock
standing in their respective names and the Corporation shall not
be bound to recognize any equitable or other claim to or interest
in any share on the part of any other person, whether or not it
shall have express or other notice thereof, except as expressly
provided below or by the laws of the Commonwealth of
Pennsylvania. The Board of Directors may adopt by resolution a
procedure whereby a stockholder of the Corporation may certify in
writing to the Corporation that all or a portion of the shares
registered in the name of such stockholder are held for the
account of a specified person or persons. The resolution shall
set forth: (a) The classification of shareholder who may
certify; (b) The purpose or purposes for which the certification
may be made; (c) The form of certification and information to be
contained therein; (d) If the certification is with respect to a
record date, the time after the record date within which the
certification must be received by the Corporation; and (e) Such
other provisions with respect to the procedure as are deemed
necessary or desirable.
Upon receipt by the Corporation of a certification complying
with the above requirements, the persons specified in the
certification shall be deemed, for the purpose or purposes set
forth in the certification, to be the holders of record of the
number of shares specified in place of the stockholder making the
certification.
7.4 Mutilated, Lost or Destroyed Certificates. In case of
any mutilation, loss or destruction of any certificate of stock,
another may be issued in its place upon receipt of proof of such
mutilation, loss or destruction. The Board of Directors may
impose conditions on such issuance and may require the giving of
a satisfactory bond or indemnity to the Corporation in such sum
as they might determine, or establish such other procedures as
they deem necessary.
7.5 Fractional Shares of Scrip. The Corporation may: (a)
issue fractions of a share which shall entitle the holder to
exercise voting rights, to receive dividends thereon, and to
participate in any of the assets of the Corporation in the event
of liquidation; (b) arrange for the disposition of fractional
interests by those entitled thereto; (c) pay in cash the fair
value of fractions of a share as of the time when those entitled
to receive such shares are determined; or (d) issue scrip in
registered or bearer form which shall entitle the holder to
receive a certificate for a full share upon the surrender of such
scrip aggregating a full share.
ARTICLE VIII
FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Corporation shall end on the 31st day
of December of each year. The Corporation shall be subject to an
annual audit as of the end of its fiscal year by independent
public accountants appointed by and responsible to the Board of
Directors or the Audit Committee of the Board of Directors. The
appointment of such accountants shall be subject to annual
ratification by the stockholders.
ARTICLE IX
DIVIDENDS AND FINANCE
9.1 Dividends. Dividends may be declared by the Board of
Directors and paid by the Corporation in accordance with the
conditions and subject to the limitations imposed by the laws of
the Commonwealth of Pennsylvania. The Board of Directors may
declare dividends payable only to stockholders of record at the
close of business on any business day not more than (90) days
prior to the date on which the dividend is paid.
9.2 Depositories. The monies of the Corporation shall be
deposited in the name of the Corporation in such bank or banks or
trust company or trust companies as the Board of Directors shall
designate, and shall be drawn out only by check or other order
for payment of money signed by such persons and in such manner as
may be determined by
<PAGE>
resolution of the Board of Directors.
ARTICLE X
NOTICES
10.1 Notice. Whenever written notice is required to be given
to any person pursuant to these Bylaws, it may be given to the
person either personally or by sending a copy thereof by first
class or express mail, postage prepaid, or by telegram (with
messenger service specified), telex or TWX (with answerback
received) or courier service, charges prepaid, or by facsimile
transmission, to his address (or to his telex, TWX or facsimile
number), in the case of stockholders, appearing on the books of
the Corporation or, in the case of directors, supplied by them to
the Corporation for the purpose of notice or, in the case of the
Corporation, at the address of its principal executive offices.
If the notice is sent by mail, telegraph or courier service, it
shall be deemed to have been given to the person entitled thereto
when deposited in the United States mail or with a telegraph
office or courier service for delivery to that person or, in the
case of telex or TWX, when dispatched.
10.2 Written Waiver of Notice. Whenever any written notice
is required to be given under these Bylaws, a waiver thereof in
writing, signed by the person or persons entitled to the notice,
whether before or after the time stated therein, shall be deemed
equivalent to the giving of the notice. Neither the business to
be transacted at, nor the purpose of a meeting need be specified
in the waiver of notice of the meeting.
10.3 Waiver of Notice by Attendance. Attendance of a person
at any meeting shall constitute a waiver of notice of the meeting
except where a person attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction
of any business because the meeting was not lawfully called or
convened.
ARTICLE XI
SEAL
The corporate seal of the Corporation shall be in such form
and bear such inscription as may be adopted by resolution of the
Board of Directors, or by usage of the officers on behalf of the
Corporation.
ARTICLE XII
BOOKS AND RECORDS
The Corporation shall keep correct and complete books and
records of account and shall keep minutes and proceedings of
meetings of its stockholders and Board of Directors; and it shall
keep at its registered office or principal place of business, or
at the office of its transfer agent or registrar, a record of its
stockholders, giving the names and addresses of all stockholders
and the number and class of the shares held by each. Any books,
records and minutes may be in written form or any other form
capable of being converted into written form within a reasonable
time.
ARTICLE XIII
AMENDMENTS
The Board of Directors, to the extent permitted by law, or
stockholders may adopt, alter, amend or repeal the Bylaws of the
Corporation. Such action by the Board of Directors shall require
the affirmative vote of a majority of the directors then in
office at any regular or special meeting of the Board of
Directors. Such action by the stockholders shall require the
affirmative vote of the holders of a majority of the shares of
the Corporation entitled to vote generally in an election of
directors, voting together as a single class, as well as such
additional vote of the Preferred Stock as may be required by the
provisions of any series thereof, provided that the affirmative
vote of the holders of at least 75% of the shares of the
Corporation entitled to vote generally in an election of
directors, voting together as a single class, as well as such
additional vote of the Preferred Stock as may be required by the
provisions of any series thereof, shall be required to amend,
adopt, alter, change or repeal any provision of these Bylaws
which is inconsistent with Article VI, VII, VIII, IX and X of the
Articles of Incorporation of the Corporation and which is not
approved by the affirmative vote of 80% of the members of the
Corporation's Board of Directors then in office.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Article VI of the Registrant's Bylaws provide for the
following indemnification for Directors and Officers.
6.1 Third Party Actions. The Corporation shall indemnify
any person who was or is a party, or is threatened to be made a
party, to any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
Corporation), by reason of the fact that he is or was a director
or officer of the Corporation, or is or was serving at the
request of the Corporation as a representative of another
domestic or foreign corporation for profit or not-for-profit,
partnership, joint venture, trust or other enterprise, against
expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by
him in connection with the action or proceeding if he acted in
good faith and in a manner he reasonably believed to be in, or
not opposed to, the best interests of the Corporation and, with
respect to any criminal proceeding, had no reasonable cause to
believe his conduct was unlawful, provided that the Corporation
shall not be liable for any amounts which may be due to any such
person in connection with a settlement of any action or
proceeding effected without its prior written consent or any
action or proceeding initiated by any such person (other than an
action or proceeding to enforce rights to indemnification
hereunder).
6.2 Derivative and Corporate Actions. The Corporation shall
indemnify any person who was or is a party, or is threatened to
be made a party, to any threatened, pending or completed action
by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a director or
officer of the Corporation or is or was serving at the request of
the Corporation as a representative of another domestic or
foreign corporation for profit or not-for-profit, partnership,
joint venture, trust or other enterprise, against expenses
(including attorney's fees) actually and reasonably incurred by
him in connection with the defense or settlement of the action if
he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation,
provided that the Corporation shall not be liable for any amounts
which may be due to any such person in connection with a
settlement of any action or proceeding affected without its prior
written consent. Indemnification shall not be made under this
Section 6.2 in respect of any claim, issue or matter as to which
the person has been adjudged to be liable to the Corporation
unless and only to the extent that the court of common pleas of
the judicial district embracing the county in which the
registered office of the Corporation is located or the court in
which the action was brought determines upon application that,
despite the adjudication of liability but in view of all the
circumstances of the case, the person is fairly and reasonably
entitled to indemnity for the expenses that the court of common
pleas or other court deems proper.
6.3 Mandatory Indemnification. To the extent that a
representative of the Corporation has been successful on the
merits or otherwise in defense of any action or proceeding
referred to in Section 6.1 or Section 6.2 or in defense of any
claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
<PAGE>
6.4 Procedure for Effecting Indemnification. Unless ordered
by a court, any indemnification under Section 6.1 or Section 6.2
shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the
representative is proper in the circumstances because he has met
the applicable standard of conduct set forth in those sections.
The determination shall be made:
(1) by the Board of Directors by a majority vote of a
quorum consisting of directors who were not parties to the action
or proceeding;
(2) if such a quorum is not obtainable, or if obtainable
and a majority vote of a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion; or
(3) by the stockholders.
6.5 Advancing Expenses. Expenses (including attorneys'
fees) incurred in defending any action or proceeding referred to
in this Article VI shall be paid by the Corporation in advance of
the final disposition of the action or proceeding upon receipt of
an undertaking by or on behalf of the director or officer to
repay the amount if it is ultimately determined that he is not
entitled to be indemnified by the Corporation as authorized in
this Article VI or otherwise.
6.6 Insurance. The Corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or
was a representative of the Corporation or is or was serving at
the request of the Corporation as a representative of another
domestic or foreign corporation for profit or not-for-profit,
partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not
the Corporation would have the power to indemnify him against
that liability under the provisions of this Article VI.
6.7 Modification. The duties of the Corporation to
indemnify and to advance expenses to a director or officer
provided in this Article VI shall be in the nature of a contract
between the Corporation and each such person, and no amendment or
repeal of any provision of this Article VI shall alter, to the
detriment of such person, the right of such person to the advance
of expenses or indemnification related to a claim based on an act
or failure to act which took place prior to such amendment or
repeal.
Item 21. Exhibits and Financial Statement Schedules
The exhibits and financial statements filed as part of this
Registration Statement are as follows:
(a) Exhibits
The Index of Exhibits immediately precedes the attached
Exhibits.
(b) Financial Statements
Not applicable.
<PAGE>
(c) Report or Appraisal
Not applicable.
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement; (i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933; (ii) to reflect in the
prospectus any facts or events arising after the effective date
of the registration statement (or most recent post effective
amendment thereof) which individually or in the aggregate,
represent a fundamental change in the information set forth in
the registration statement; (iii) to include any material
information with respect to the plan of distribution not
previously disclosed in the registration statement or any
material change to such information in the registration
statement.
(2) That, for purposes of determining any liability under
the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be a bona fide
offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
(b)(1) The undersigned registrant hereby undertakes as
follows: that prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part
of this registration statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration
form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the
other items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that
is filed pursuant to paragraph (1) immediately preceding, or (ii)
that purports to meet the requirements of section 10(a)(3) of the
Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such
amendment is effective, and for the purpose of determining any
liability under the Securities Act of 1933, each such post-
effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes to supply
by means of a post-effective amendment all information concerning
a transaction, and the company being acquired involved therein,
that was not the subject of, and included in the registration
statement when it became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in Harrisburg, Pennsylvania, on March 17, 1997.
HARRIS FINANCIAL, INC.
By: /s/ William J. McLaughlin
------------------------------
William J. McLaughlin
President and Chief Executive
Officer
POWER OF ATTORNEY
We, the undersigned Directors of Harris Financial, Inc.
severally constitute and appoint William J. McLaughlin with full
power of substitution, our true and lawful attorney and agent, to
do any and all things and acts in our names in the capacities
indicated below which said William J. McLaughlin may deem
necessary or advisable to enable Harris Financial, Inc. to comply
with the Securities Act of 1933, and any rules, regulations and
requirements of the Securities and Exchange Commission, in
connection with the Registration Statement on Form S-4 relating
to the offering of Harris Financial, Inc. Common Stock, including
specifically, but not limited to, power and authority to sign for
us or any of us in our names in the capacities indicated below
the Registration Statement and any and all amendments (including
post-effective amendments) thereto; and we hereby ratify and
confirm all that said William J. McLaughlin shall do or cause to
be done by virtue hereof. Pursuant to the requirements of the
Securities Act of 1933, this Registration Statement has been
signed below by the following persons in the capacities and on
the dates indicated.
By: /s/ William J. McLaughlin By: /s/ James L. Durrell
------------------------- -------------------------
William J. McLaughlin, James L. Durrell,
President, Chief Executive Executive Vice President
Officer and Chief Financial
(Principal Executive Officer) Officer (Principal
Financial Officer)
Date: March 17, 1997 Date: March 17, 1997
By: /s/ Samuel M. Altdoerffer By: /s/ Ernest P. Davis
------------------------- -------------------------
Samuel M. Altdoerffer, Ernest P. Davis, Director
Director
Date: March 17, 1997 Date: March 17, 1997
By: /s/ Jimmie C. George By: /s/ Robert A. Houck
------------------------- -------------------------
Jimmie C. George, Director Robert A. Houck, Director
Date: March 17, 1997 Date: March 17, 1997
By: /s/ Robert E. Kessler By: /s/ Robert R. Roebuck
------------------------- -------------------------
Robert E. Kessler, Director Robert R. Roebuck,
Director
Date: March 17, 1997 Date: March 17, 1997
By: /s/ William A. Siverling By: /s/ Frank R. Sourbeer
------------------------- -------------------------
William A. Siverling, Frank R. Sourbeer,
Director Director
Date: March 17, 1997 Date: March 17, 1997
By: /s/ Bruce S. Isaacman
-------------------------
Bruce S. Isaacman, Director
Date: March 17, 1997
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
Number Description of Document
------- ---------------------------------------------
<S> <C>
2 Agreement and Plan of Reorganization
(incorporated herein by reference from Exhibit
A of the Prospectus/Proxy Statement)
3.1 Certificate of Incorporation of Harris
Financial, Inc. (incorporated herein by
reference from Exhibit B of the
Prospectus/Proxy Statement)
3.2 Bylaws of Harris Financial, Inc.
(incorporated herein by reference from
Exhibit C of the Prospectus/Proxy Statement)
4 Form of Common Stock Certificate of Harris
Financial, Inc.
5.1 Opinion of Luse Lehman Gorman Pomerenk &
Schick, A Professional Corporation regarding
legality of securities.
5.2 Form of Tax Opinion of Luse Lehman Gorman
Pomerenk & Schick, A Professional Corporation
10.1 Harris Savings Bank 1994 Incentive Stock
Option Plan
10.2 Harris Savings Bank 1996 Incentive Stock
Option Plan
10.3 Harris Savings Bank 1994 Stock Option Plan
for Outside Directors
10.4 Harris Savings Bank Recognition and Retention
Plan for Officers and Employees
10.5 Harris Savings Bank Recognition and Retention
Plan for Outside Directors
10.6 Form of Employment Contracts between the Bank
and Bernard H. Sarfert, Sr., and the Bank and
Lyle B. Shughart, both dated March 13, 1993
10.7 Form of Change in Control Agreements between
the Bank and William J. McLaughlin, James L.
Durrell, William M. Long and Lyle B.
Shughart, all dated January 25, 1994
10.8 Harris Savings Bank Supplemental Executive
Retirement Plan
21 Subsidiaries of the Registrant. As of the
date of this registration statement, neither
the Registrant's nor Harris Savings Bank's
unnamed subsidiaries, considered in the
aggregate as a single subsidiary, constitute
a "significant subsidiary" under rule 1-02(w)
of Regulation S-X of the Securities and
Exchange Commission.
23 Consent of Luse Lehman Gorman Pomerenk &
Schick, A Professional Corporation (contained
in its opinion filed as Exhibit 5.1)
24 Power of Attorney (incorporated herein by
reference from the signature page of this
registration statement)
99 Form of proxy to be mailed to shareholders of
Harris Savings Bank.
</TABLE>
<PAGE>
CHARTERED UNDER THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA
HARRIS FINANCIAL, INC.
Harrisburg, Pennsylvania
Fully Paid and Non-Assessable
Par Value $.01 Each
The shares represented by this
certificate are subject to
restrictions, see reverse side
This certifies that ----------------------, is the owner of -----
- -------- shares of common stock of Harris Financial, Inc., a
Pennsylvania corporation.
The shares evidenced by this certificate are transferable
only on the books of Harris Financial, Inc. by the holder hereof,
in person or by attorney, upon surrender of this certificate
properly endorsed. The capital stock evidenced hereby is not an
account of an insurable type and is not insured by the Federal
Deposit Insurance Corporation or any other Federal or state
governmental agency.
IN WITNESS WHEREOF, Harris Financial, Inc. has caused this
certificate to be executed, by the facsimile signatures of its
duly authorized officers and has caused its a facsimile of its
seal to be hereunto affixed.
By:--------------------------- By: --------------------------
Secretary President
<PAGE>
The shares of common stock evidenced by this certificate are
subject to a limitation contained in the Articles of
Incorporation of Harris Financial, Inc. (the "Company") to the
effect that no person other than Harris Financial, MHC, the
parent mutual holding company of the Company, shall directly or
indirectly offer to acquire or acquire the beneficial ownership
of (i) more than 10% of any class of any equity security of the
Company or (ii) any securities convertible into more than 10% of
any class of any equity security of the Company. This limitation
shall not apply to (i) any offer with a view toward public resale
made exclusively to the Company or underwriters or a selling
group acting on its behalf, (ii) the purchase of shares by a tax-
qualified employee stock benefit plan or arrangement of the
Company or a subsidiary of the Company and any trustee of such a
plan or arrangement, or (iii) any offer or acquisition approved
in advance by the affirmative vote of 80% of the members of the
Company's Board of Directors then in office. In the event shares
are acquired in violation of this provision, all shares
beneficially owned by any person in excess of 10% shall be
considered "excess shares" and shall not be counted as shares
entitled to vote and shall not be voted by any person or counted
as voting shares in connection with any matters submitted to
stockholders for a vote.
The Board of Directors of the Company is authorized by
resolution or resolutions, from time to time adopted, to provide
for the issuance of serial preferred stock in series and to fix
and state the voting powers, designations, preferences,
limitations and restrictions thereof. The Company will furnish
to any shareholder upon request and without charge a full
description of each class of stock and any series thereof.
The shares represented by this Certificate may not be
cumulatively voted on any matter. The Articles of Incorporation
require the affirmative vote of the holders of at least 75% of
the voting stock of the Company, voting together as a single
class, to amend certain provisions of the Articles of
Incorporation.
The following abbreviations when used in the inscription on
the face of this certificate, shall be construed as though they
were written out in full according to applicable laws or
regulations.
UNIF GIFT MIN ACT ---------- Custodian --------------
(Cust) (Minor)
TEN COM -as tenants in common
TEN ENT -as tenants by the entities
JT TEN -as joint tenants with right
of survivorship and not as
tenants in common
Under Uniform Gifts to Minors Act
---------------------------------
(State)
Additional abbreviations may also be used though
not in the above list.
For value received, -------------- hereby sell, assign and
transfer unto.
- -----------------------------------
| |
- -----------------------------------
PLEASE INSERT SOCIAL SECURITY NUMBER OF OTHER IDENTIFYING NUMBER
- -----------------------------------------------------------------
(Please print or typewriter name and address including
postal zip code of assignee)
- -----------------------------------------------------------------
- --------------------------------------- Shares of the Common
Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint --------------------- Attorney
to transfer the said shares on the books of the within named
corporation with full power of substitution in the premises.
Dated, ----------------------
In the presence of Signature
- ------------------------------ ------------------------------
NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME OF THE STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE
CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
(202) 274-2000
March 17, 1997
Board of Directors
Harris Savings Bank
235 North Second Street
Harrisburg, PA 17101
Re: Harris Financial, Inc.
Registration Statement on Form S-4
Gentlemen:
We have served as special counsel for Harris Financial,
Inc., a Delaware corporation, in connection with the registration
under the Securities Act of 1933, of 2,910,000 shares of Common
Stock, par value $0.01 per share of which 2,750,000 shares will
be issued immediately and 160,000 shares underly options.
Based upon the foregoing and having regard for such legal
considerations as we have deemed relevant, it is our opinion
that:
(1) the shares of Common Stock have been duly authorized;
(2) upon issuance, sale and delivery of the shares as
contemplated in the Registration Statement, the shares will be
legally issued, fully paid and non-assessable.
We hereby consent to the reference to our firm under the
heading "Proposed Formation of Stock Holding Company--Legal
Opinion" in the Prospectus and Proxy Statement in the
Registration Statement (and all amendments thereto) and to the
filing of this opinion as Exhibit 5.1 thereto.
Very truly yours,,
/s/ Luse Lehman Gorman Pomerenk & Schick
----------------------------------------
LUSE LEHMAN GORMAN POMERENK & SCHICK
A Professional Corporation
<PAGE>
FORM OF
FEDERAL TAX OPINION
(202) 274-2000
- ------------------, 1997
Board of Directors
Harris Savings Bank
235 North Second Street
Harrisburg, Pennsylvania 17101
Re: Federal Income Tax Opinion Relating to the Exchange of
the Common Stock of Harris Savings Bank, for All the
Common Stock of a Newly Created Bank Holding Company
under Internal Revenue Code Sections 368(a)(1)(A) and
368(a)(2)(E)1
Gentlemen:
We are rendering this opinion to you in our capacity as
special counsel to Harris Savings Bank (the "Bank") in connection
with its proposed reorganization into a two-tier holding company
structure (the "Reorganization") by creating Harris Bancorp,
Inc., a Pennsylvania corporation (the "Holding Company") which
will be the stock holding company of the Bank and a majority
owned subsidiary of Harris Financial, MHC (the "Mutual Holding
Company").
For purposes of this opinion, we have examined such
documents and questions of law as we have considered necessary or
appropriate, including, but not limited to the Agreement and Plan
of Reorganization adopted by the Bank's Boards of Directors on
February 18, 1997 (the "Plan of Reorganization"); Form FR Y-3
together with exhibits filed by the Holding Company with the
Board of Governors of the Federal Reserve System ("FRB") on
February 20, 1997, in connection with the Reorganization; the
Application for a Merger or Other Transaction together with
exhibits filed by the Bank with the Federal Deposit Insurance
Corporation ("FDIC") on February 20, 1997 in connection with the
Reorganization; the Charter and Bylaws of the Mutual Holding
Company; the Articles of Incorporation and Bylaws of the Bank;
the Articles of Incorporation and Bylaws of the Holding Company;
the Affidavit of Representations dated __________, 1997, provided
to us by the Bank in connection with this opinion (the
"Affidavit"). In such examination, we have assumed, and have not
independently verified, the genuineness of all signatures on
original documents where due execution and delivery are
requirements to the effectiveness thereof. Terms used but not
defined herein, whether capitalized or not, shall have the same
meaning as defined in the Plan.
- -------------------------
1/ All Section references herein are to the Internal Revenue Code
of 1986, as amended (the "Code").
<PAGE>
BACKGROUND
The Bank is a Pennsylvania chartered stock savings bank with
savings deposits insured by the FDIC. The authorized capital
stock of the Bank consists of 50,000,000 shares of common stock
("Bank Common Stock") with a par value of $0.01 per share. On
January 25, 1994, the Bank reorganized from a mutual savings bank
to become the majority-owned stock subsidiary of the Mutual
Holding Company. As of January 31, 1997, the Bank had
approximately 11,220,300 shares of Bank Common Stock issued and
outstanding of which 8,500,000 shares were held by the Mutual
Holding Company. The Bank is also authorized to issue 20,000,000
shares of series preferred stock, $0.01 per share, none of which
were issued at such date. The Bank Common Stock is listed on the
Nasdaq National Market under the symbol "HARS". As of December
31, 1996, the Bank had total assets of approximately $1.8
billion, total deposits of $1.2 billion and stockholders' equity
of approximately $153 million.
The Bank Common Stock possesses voting rights, dividend
rights, and the residual equity of the Bank in the event of
liquidation. Savings depositors receive a fixed rate of return;
in the event of liquidation they are only entitled to receive the
face amount of their accounts plus accrued interest. The savings
accounts do not possess voting rights. In accordance with the tax
law changes enacted in the Small Business Job Protection Act of
1996 (P.L. 104-188), for its 1996 fiscal year, the Bank will
employ either the experience method of providing for bad debt
deductions as computed under Code Section 585 or the specific-
charge off method.
The business of the Bank consists primarily of attracting
savings deposits from the general public in the Bank's market
area and the origination of single-family mortgage loans.
PROPOSED TRANSACTION
The Board of Directors of the Bank adopted the Plan of
Reorganization on February 18, 1997, pursuant to which the Bank
will reorganize to form a two-tier holding company structure with
the Bank becoming the wholly-owned subsidiary of the Holding
Company, which will be a majority owned subsidiary of the Mutual
Holding Company. Under the terms of the proposed reorganization,
each outstanding share of Bank Common Stock, par value $0.01 per
share, will be converted into one share of common stock of the
Holding Company, par value $0.01 per share ("Common Stock"), and
the holders of Bank Common Stock will become the holders of all
of the outstanding Common Stock of the Holding Company (the
"Reorganization"). The Holding Company was incorporated on
February 26, 1997, solely for the purpose of becoming a bank
holding company and has no prior operating history. Following
the Reorganization, the Bank will
<PAGE>
continue its operations at the same locations, with the same
management, and subject to all the rights, obligations and
liabilities of the Bank existing immediately prior to the
Reorganization.
Reasons for the Holding Company Reorganization
The Board of Directors of the Bank believes that a stock
holding company structure will provide the Bank with greater
operating flexibility than is currently available under the
existing mutual holding company structure. Pennsylvania law and
regulations and federal regulations applicable to state-chartered
savings banks and bank holding companies limit both the types of
businesses in which the Bank may engage and the amount which may
be invested by the Bank in subsidiaries. Establishing the
Holding Company will provide greater flexibility in structuring
and completing the acquisition of other financial institutions as
well as the acquisition and formation of companies engaged in
lines of business which complement the Bank's business.
Currently, if the Mutual Holding Company wishes to acquire
another financial institution and hold it as a separate entity
from the Bank, it would be difficult to do so in a way that
benefits minority stockholders and the Mutual Holding Company in
proportion to their respective ownership interests. In addition,
the Reorganization will enable the Holding Company to repurchase
its outstanding Common Stock as market conditions permit without
causing a recapture into income of all or a portion of the Bank's
existing tax bad debt reserves.
The Reorganization will be structured as follows:
(i) The Bank will organize the Stock Holding
Company as a wholly-owned subsidiary of the Bank. The Holding
Company will form Harris Interim Savings Bank ("Interim"), an
interim Pennsylvania stock savings bank, as a wholly-owned
subsidiary of the Holding Company solely to facilitate the
Reorganization.
(ii) Pursuant to the Plan of Reorganization and in
accordance with applicable Pennsylvania and federal law, Interim
will be merged with and into the Bank, with the Bank as the
surviving entity. As a result, the Bank will acquire all of the
assets and assume all of the liabilities of Interim. Upon
completion of the merger, the separate corporate existence of
Interim will cease.
(iii) As part of the merger, each share of the Bank
Common Stock held immediately prior to the effective date of the
merger by stockholders of the Bank shall automatically be
converted by
<PAGE>
operation of law into one share of Common Stock of the Holding
Company.
(iv) Upon the effective date of the merger, all of
the previously issued and outstanding shares of common stock of
Holding Company owned by the Bank will be cancelled. All of the
issued and outstanding shares of common stock of Interim will
automatically be converted by operation of law into an equal
number of issued and outstanding shares of Bank Common Stock,
which will be all of the issued and outstanding stock of the
Bank.
(v) All unexercised stock options to acquire the
Bank Common Stock existing prior to the merger shall upon the
consummation of the merger be and become stock options to acquire
shares of Common Stock of Holding Company. Further, the stock
option plan of the Bank shall become the stock option plan of the
Holding Company. Lastly, any stock option agreement of the Bank
shall become the stock option agreement of the Holding Company.
(vi) As a result of the proposed transaction, all
stockholders of the Bank will become the stockholders of Holding
Company, and the Bank will become a wholly-owned subsidiary of
Holding Company.
(vii) After the Reorganization is consummated, the
Bank and Interim will constitute a single corporation and the
separate existence of Interim will cease by operation of law. All
assets and liabilities of Interim will be transferred to and
assumed by the Bank as of the date of the Reorganization. The
Bank will continue to operate as a savings bank and retain its
present name and bylaws. Directors of the Bank will continue as
Directors of the Bank after the Reorganization is consummated.
Consummation of the Reorganization requires that the Plan of
Reorganization receive the approval of at least two-thirds of the
issued and outstanding shares of Bank Common Stock and the
approval of the FRB, the FDIC and the Pennsylvania Department of
Banking upon appropriate application for approval.
<PAGE>
REPRESENTATIONS
The following statements and representations have been made
by management of the Bank regarding the treatment of the
Reorganization as a merger under Sections 368(a)(1)(A) and
368(a)(2)(E):
(a) The fair market value of Holding Company Common Stock
to be received by each Bank shareholder will be approximately
equal to the fair market value of the Bank Common Stock
surrendered in the exchange.
(b) The management of the Bank has no knowledge of any plan
or intention on the part of its shareholders who own 5% or more
of Bank Common Stock, and to the best of the knowledge of
management of the Bank, there is no plan or intention on the part
of the remaining shareholders of the Bank to sell, exchange, or
otherwise dispose of a number of shares of Holding Company Stock
received in the Reorganization that would reduce the Bank
shareholders' ownership of Holding Company Common Stock to a
number of shares having a value, as of the date of the
Reorganization, of less than 50% of the value of all of the
formerly outstanding Bank Common Stock as of the same date. For
purposes of this representation, shares of Bank Common Stock
exchanged for cash or other property or exchanged for cash in
lieu of fractional shares of Holding Company Common Stock will be
treated as outstanding Bank Common Stock on the date of the
transaction. Moreover, shares of Bank Common Stock and shares of
Holding Company Common Stock held by Bank shareholders and
otherwise sold, redeemed, or disposed of prior or subsequent to
the transaction as part of the Agreement will be considered in
making this representation.
(c) Following the Reorganization, the Bank will hold at
least 90% of the fair market value of its net assets and at least
70% of the fair market value of its gross assets and at least 90%
of the fair market value of Interim's net assets and at least 70
percent of the fair market value of Interim's gross assets held
immediately prior to the Reorganization. For purposes of this
representation, amounts paid by the Bank or Interim to
shareholders who receive cash or other property, amounts used by
the Bank or Interim to pay reorganization expenses, and all
redemptions and distributions (except for regular, normal
dividends) made by the Bank will be included as assets of the
Bank or Interim, respectively, immediately prior to the
Reorganization.
<PAGE>
(d) Prior to the transaction, Holding Company will be in
control of Interim within the meaning of Section 368(c).
(e) As of the date of the execution of the Plan of
Reorganization, the Bank has no plan or intention to issue
additional shares of its stock that would result in Holding
Company losing control of the Bank within the meaning of Section
368(c).
(f) As of the date of the Plan of Reorganization, Holding
Company has no plan or intention to reacquire any of its stock
issued in the transaction.
(g) Holding Company has no plan or intention to liquidate
the Bank; to merge the Bank with or into another corporation; to
sell or otherwise dispose of the stock of the Bank except for
transfers of stock to corporations controlled by Holding Company;
or to cause the Bank to sell or otherwise dispose of any of its
assets or of any of the assets acquired from Interim, except for
dispositions made in the ordinary course of business or transfers
of assets to a corporation controlled by the Bank.
(h) The liabilities of Interim, if any, assumed by the Bank
and the liabilities to which the transferred assets of Interim
are subject were incurred by Interim in the ordinary course of
its business.
(i) Following the transaction, the Bank will continue its
historic business or use a significant portion of its historic
business assets in a business.
(j) Holding Company, Interim, the Bank, and the
shareholders of the Bank will pay their respective expenses, if
any, incurred in connection with the Reorganization. The Bank
will pay or assume only those expenses of Interim, if any, that
are solely and directly related to the transaction in accordance
with the guidelines established in Rev. Rul. 73-54, 1973-1 C.B.
187.
(k) There is no intercorporate indebtedness existing
between Holding Company and the Bank or between Interim and the
Bank that was issued, acquired, or will be settled at a discount.
(l) In the Reorganization, shares of Bank stock
representing control of the Bank, as defined in Section 368(c),
will be exchanged solely for voting stock of Holding Company. For
purposes of this representation, shares of Bank stock exchanged
for
<PAGE>
cash or other property originating with Holding Company will be
treated as outstanding Bank Common Stock on the date of the
Reorganization.
(m) At the time of the Reorganization, the Bank will not
have outstanding any warrants, options, convertible securities or
any other type of right pursuant to which any person could
acquire stock in the Bank that, if exercised or converted, would
affect Holding Company's acquisition or retention of control of
the Bank, as defined in Section 368(c).
(n) Holding Company does not own, nor has it owned during
the past five years, any shares of the stock of the Bank, nor
will Holding Company acquire any such stock prior to the proposed
transaction.
(o) No two parties to the transaction are investment
companies as defined in Section 368(a)(2)(F)(iii) and (iv).
(p) On the date of the Reorganization, the fair market
value of the assets of the Bank on a going concern basis will
exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which the assets are subject.
(q) The Bank is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section
368(a)(3)(A).
(r) None of the compensation received by any of the
shareholder-employees of the Bank will be separate consideration
for, or allocable to, any of their shares of Bank Common Stock;
none of the shares of Holding Company Common Stock received by
any shareholder-employees will be separate consideration for, or
allocable to, any employment agreement; and the compensation paid
to any shareholder-employees will be for services actually
rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
OPINION
Based solely upon the terms of the proposed transaction
described herein and the representations set forth, it is our
opinion that the following federal income tax consequences will
result from the Reorganization.
<PAGE>
(1) Provided that the merger of Interim with and into the
Bank qualifies as a statutory merger under applicable law, and
after the Reorganization the Bank will hold substantially all of
the assets of Interim, and in the Reorganization, Bank
shareholders exchange solely for voting Holding Company Common
Stock an amount of Bank Common Stock constituting "control" of
the Bank within the meaning of Section 368(c), the Reorganization
will constitute a reorganization within the meaning of Section
368(a)(1)(A). The Reorganization will not be disqualified by
reason of the fact that Common Stock of Holding Company is used
in the transaction (Section 368(a)(2)(E)). The Bank, Holding
Company and Interim will each be a party to the Reorganization
within the meaning of Section 368(b).
(2) Interim will not recognize any gain or loss on the
transfer of its assets to the Bank in exchange for Bank Common
Stock and the assumption by the Bank of the liabilities, if any,
of Interim (Sections 361(a) and 357(a)).
(3) The Bank will not recognize any gain or loss on the
receipt of the assets of Interim in exchange for Bank Common
Stock (Section 1032(a)).
(4) The Bank's basis in the assets received from Interim in
the exchange will, in each case, be the same as the basis of such
assets in the hands of Interim immediately prior to the
Reorganization (Section 362(b)).
(5) Holding Company will not recognize any gain or loss
upon its receipt of Bank Common Stock solely in exchange for
Interim stock (Section 354(a)).
(6) The Bank's holding period for the assets received from
Interim in the exchange will, in each instance, include the
period during which such assets were held by Interim (Section
1223(2)).
(7) Bank shareholders will not recognize any gain or loss
upon their exchange of Bank Common Stock solely for shares of
Holding Company Common Stock (Section 354(a)).
- -------------------------
2/ For purposes of this opinion, "substantially all" means at
least 90 percent of the fair market value of the net assets
and at least 70 percent of the fair market value of the gross
assets of the Bank and Interim.
<PAGE>
(8) A Bank shareholder's basis in his or her Holding
Company Common Stock received in the exchange will be the same as
the basis of the Bank Common Stock surrendered in the exchange
therefor (Section 358(a)).
(9) A Bank shareholder's holding period in his or her
Holding Company Common Stock received in the exchange will
include the period during which the Bank Common Stock surrendered
was held, provided that the Bank Common Stock surrendered is a
capital asset in the hands of the Bank shareholder on the date of
the exchange (Section 1223(1)).
(10) Bank shareholders will not recognize any gain or loss
as a result of the conversion of their Bank stock options into
options to purchase stock of the Holding Company (Treasury
Regulation Section 1.83-8(b)(6)).
SCOPE OF OPINION
Our opinion is limited to the federal income tax matters
described above and does not address any other federal income tax
considerations or any federal, state, local, foreign or other tax
considerations. If any of the information upon which we have
relied is incorrect, or if changes in the relevant facts occur
after the date hereof, our opinion could be affected thereby.
Moreover, our opinion is based on the case law, Code, Treasury
Regulations thereunder and Internal Revenue Service rulings as
they now exist. These authorities are all subject to change, and
such change may be made with retroactive effect. We can give no
assurance that, after such change, our opinion would not be
different. We undertake no responsibility to update or
supplement our opinion. This opinion is not binding on the
Internal Revenue Service and there can be no assurance, and none
is hereby given, that the Internal Revenue Service will not take
a position contrary to one or more of the positions reflected in
the foregoing opinion, or that our opinion will be upheld by the
courts if challenged by the Internal Revenue Service.
CONSENT
We hereby consent to the references to us under the heading
"Approval of the Plan of Reorganization - Tax Consequences" in
the Proxy Statement constituting a part of the Application FR Y-3
filed on behalf of the Holding Company with the FRB.
<PAGE>
USE OF OPINION
This opinion is rendered solely for the benefit of Harris
Savings Bank, in connection with the proposed transaction and is
not to be relied upon or used for any other purpose without our
prior written consent.
Very truly yours,
LUSE LEHMAN GORMAN POMERENK & SCHICK,
A Professional Corporation
By: -----------------------------------
Beverly J. White
<PAGE>
INCENTIVE
STOCK OPTION AND LIMITED RIGHTS AGREEMENT
UNDER THE
HARRIS SAVINGS BANK
1994 INCENTIVE STOCK OPTION PLAN
INCENTIVE STOCK OPTION AND LIMITED RIGHTS AGREEMENT made on
- -------------, 1994, between Harris Savings Bank (the "Bank"),
and ---------------- (the "Participant"). For purposes of this
Agreement, the defined terms contained herein shall have the same
meanings as those contained in the Harris Savings Bank 1994
Incentive Stock Option Plan (the "Plan").
Whereas, the purpose of the Plan is to advance the interests
of the Bank by providing incentives to key employees of the Bank
and its Affiliates, including Harris Financial, MHC (the
"Company"), the Bank's parent holding company, in the form of
opportunities for stock ownership in the Bank; and
Whereas, in connection with the reorganization of the Bank
into a mutual holding company, and the initial public issuance by
the Bank of its common stock ("Common Stock") in connection
therewith, the Board of Directors determined to grant the
Participant an option to purchase shares of Common Stock of the
Bank ("Option"), together with Limited Rights attached thereto,
which option is intended to be an Incentive Stock Option.
THEREFORE, to evidence the grant of the Option and Limited
Rights, and subject to the terms and conditions as provided in
the Plan, the Bank and the Participant hereby agree as follows:
1. Grant of Option. The Bank hereby evidences and confirms
its grant to the Participant, effective on January 25, 1994, of
an Option to purchase -------------- shares of Common Stock, with
Limited Rights attached to all such shares, at an exercise price
of $10.00 per share (the "Exercise Price"), which was the Fair
Market Value of the underlying shares of Common Stock on the Date
of Grant. The Option and Limited Rights shall be subject to the
provisions of the Plan and this Agreement.
2. Term and Exercise of Option. The term of the Option shall
not exceed a period of 10 years, beginning on January 25, 1994,
and ending on January 25, 2004. The Participant may exercise
Limited Rights with respect to options which have vested during
the term of the Option pursuant to Section 9 of the Plan. Options
shall vest and become exercisable on a cumulative basis in equal
installments at a rate of % per year commencing one year from the
date of the grant. All Options shall vest and become exercisable
immediately in the event the Participant terminates employment
due to death, Disability, Normal Retirement or in the event of a
Change in Control of the Bank or the Bank. Except as provided in
Sections 7, 8 and 9 hereof, the Option is non-transferrable and
may be exercised by the Participant only while employed by the
Bank or its Affiliates. The grant of the Option shall impose no
obligation upon the Participant to exercise the Option.
<PAGE>
3. Manner of Exercise. The Option may be exercised by
written notice delivered to the Bank signed by the Participant or
the person or persons eligible to exercise the Option under
Section 18. Such notice shall state the number of shares of
Common Stock with respect to which the Option is being exercised,
the Exercise Price as to such shares and shall include such
written covenants, agreements and representations as the
Committee administering the Plan may from time to time deem
necessary or desirable in order to ensure compliance with
applicable laws, regulations of governmental authority and
requirements of any stock market or exchange upon which the
Common Stock is traded. Such notice shall be accompanied by
payment of the full Exercise Price. As soon as practicable after
such notice and payment shall have been received, the Bank shall
deliver a certificate or certificates representing the number of
shares of Common Stock with respect to which the Option was
exercised in the name of the person or persons exercising the
Option.
Payment of the Exercise Price shall be made in cash or by
check, or, in whole or in part, through the surrender of shares
of Common Stock which will be valued at their Fair Market Value
on the date of exercise of the Option in accordance with Section
2(j) of the Plan.
The Participant shall not be entitled to any rights as a
stockholder with respect to such shares of Common Stock being
acquired pursuant to the exercise of the Option unless and until
certificates evidencing such Common Stock are issued. No
adjustments shall be made for dividends or distributions or other
rights for which the record date is prior to the date such
certificates are issued except as provided in Section 12.
In the event the Option shall be exercised by any person
other than by the Participant pursuant to Section 8, 9 or 10
hereof, the notice of exercise of the Option shall be accompanied
by proof satisfactory to the Committee administering the Plan of
the right of such person to exercise the Option.
All shares of Common Stock that shall be purchased upon the
exercise of the Option as provided herein shall be fully paid and
nonassessable.
4. Holding Period. Notwithstanding anything herein to the
contrary, the Bank shall not be obligated to cause to be issued
or delivered any certificate evidencing shares of Common Stock
purchased pursuant to the exercise of the Option, unless and
until the Bank is advised by its counsel that the issuance and
delivery of such certificates is in compliance with all
applicable laws, regulations and governmental authority and
requirements of any exchange or stock market upon which the
Common Stock is traded or listed. The Bank shall in no event be
obligated to register any securities or to take any other
affirmative action in order to cause the issuance and delivery of
such certificates to comply with any such law, regulation or
requirement.
Under current law, the grant of the option and sale of the
underlying shares may be deemed to be a purchase and sale,
respectively, under Section 16 of the Securities Exchange Act of
1934, as amended, ("Exchange Act") and therefore may incur short
swing profit recovery under this Act and the regulations
promulgated thereunder. To avoid liability under Section 16 of
the Exchange
<PAGE>
Act a period of six months must elapse between the date of grant
and the sale of Common Stock received upon the exercise of an
option.
5. Exercise of Limited Rights. In no event shall Limited
Rights be exercisable, in whole or in part, before the expiration
of six months from the Date of Grant of the Option, as specified
in Section 1. In the event of a Change in Control, as defined in
the Plan, the Participant shall have the right, in lieu of
purchasing shares of Common Stock covered by the Option, during
the term the underlying Option is exercisable, to relinquish the
Option with respect to any or all of such shares and to receive
from the Bank an amount of cash equal to the difference between
the Exercise Price of the Option and the Fair Market Value of the
underlying shares of the Common Stock on the date the Limited
Rights are exercised, multiplied by the number of shares with
respect to which such Limited Rights are being exercised.
Limited Rights with respect to the Option may be exercised
by written notice delivered to the Bank signed by the
Participant. Such notice shall state the number of shares of
Common Stock in respect to which Limited Rights are being
exercised, the date of exercise and the Fair Market Value of the
Common Stock on such date. Within fourteen days following
delivery of such written notice to the Bank, the Bank shall
deliver to the Participant cash or such other form of payment
acceptable to the Participant in the amount as determined above
with respect to the Limited Rights being exercised.
Upon any exercise of a Limited Right, the related Option or
portion thereof shall cease to be exercisable. Upon exercise or
termination of the Option. any related Limited Rights shall
terminate.
6. Non-transferability. The Option and the Limited Rights
may be exercised during the Participant's lifetime only by the
Participant (and, upon death, by the Participant's beneficiary as
defined in Section 18). The Option, the Limited Rights and this
Agreement shall not be assignable or transferable by the
Participant, other than by will or the laws of descent and
distribution. No such transfer of the Option, the Limited Rights,
or this Agreement by the Participant by will or the laws of
descent and distribution shall be effective to bind the Bank
unless the Bank shall have been furnished with written notice
thereof and such other evidence as the Committee may deem
necessary or desirable to establish the validity of the transfer
and the agreement by the transferee or transferees to be bound by
the terms and conditions of this Agreement and the Plan. The
exercise price, upon the election of the Participant, may be paid
by such Participant's broker-dealer if such broker-dealer is to
be repaid with the proceeds of the sale of a portion of the
shares of Common Stock underlying the exercised options as
permitted under Rule 16b-6(b) of the Exchange Act ("Cashless
Exercise"). Except as provided above, the Option, the Limited
Rights and this Agreement shall not be pledged, hypothecated,
sold, assigned, transferred or otherwise encumbered or disposed
of. Any purported pledge, hypothecation, sale, assignment,
transfer or other encumbrance or disposition of the Option, the
Limited Rights or this Agreement contrary to the provisions
hereof shall be null and void and without effect. The levy of any
execution, attachment, or similar process upon the Option, the
Limited Rights or this Agreement shall be null and void and
without effect.
<PAGE>
7. Rights in Event of Termination of Employment. Subject to
the condition that the Option shall not be exercisable for more
than ten years from the date of grant, the Participant may
exercise the Option and Limited Rights while in the continuous
employ or service of the Bank or its Affiliates or within three
months after the last day on which the Participant is employed by
or in service with the Bank or its Affiliates (unless the
Participant is Discharged for Cause or on account of death,
Disability or Normal Retirement as provided in Sections 8 and 9).
If the Participant is Discharged for Cause, all rights under this
Agreement shall expire upon the date of termination.
8. Rights in Event of Death. Subject to the condition that
the Option shall not be exercisable for more than ten years from
the Date of Grant, if the Participant shall die while employed by
the Bank or its Affiliates, the beneficiary of the Participant
may exercise all of the shares covered by the Option and the
Limited Rights held by the Participant, whether or not otherwise
exercisable at such time, within one year from the date of the
Participant's death.
9. Rights in the Event of Termination of Employment for
Reason of Disability or Normal Retirement. Subject to the
condition that the Option shall not be exercisable for more than
ten years from the Date of Grant, if the Participant's employment
is terminated by reason of Disability, the Participant shall have
the right to exercise all of the shares covered by the Option and
Limited Rights for a period of one year from the last day on
which the Participant is employed by the Bank or its Affiliates.
Upon termination of the Participant's service due to Normal
Retirement, the Participant shall have the right to exercise all
of the shares covered by the Option and Limited Rights, for a
period of one year following the date of the Participant's Normal
Retirement, provided however, that such Option shall not be
eligible for treatment as an Incentive Stock Option in the event
such Option is exercised more than three months following the
date of termination of the Participant's employment as an
employee.
10. Limitations upon Exercise of Options. Notwithstanding
any other provision of the Plan, so long as the Company remains
in the mutual form of organization, an option under the Plan may
not be exercised if the exercise of such an option would result
in the Company owning less than 50.1 percent of the Common Stock
of the Bank.
11. Surrender Option. In the event of a termination of
employment or service due to a Participant's death, Disability or
Normal Retirement, the Participant (or the Participant's personal
representative(s), heir(s) or devisee(s)) may make application to
the Committee, in a form acceptable to the Committee, to
surrender all or a part of any options held by such Participant
in exchange for a cash payment from the Bank of an amount equal
to the difference between the Fair Market Value of the Common
Stock on the date of the participant's termination of employment
and the exercise price of the option.
The Participant acknowledges that whether the Bank accepts
such application or determines to make payment, in whole or in
part, is within the absolute and sole discretion of the Bank. It
is expressly understood that the Bank is under no obligation to
make any such payments. In the event that the Bank accepts a
surrender application from the Participant, such payment shall be
in lieu of the exercise of the underlying option and such option
shall cease to be exercisable.
12. Employment. Nothing in this Agreement shall confer upon
the Participant any right to continue in the employ of the Bank
or its Affiliates or shall impose upon the Bank or its Affiliates
any obligation to employ or retain the Participant in its employ
for any period.
13. Dilution and Other Adjustments. In the event of any
change in the outstanding shares of Common Stock by reason of any
stock dividend or split, recapitalization, merger, consolidation,
spin-off, reorganization, combination or exchange of shares, or
other similar corporate change, the Committee, pursuant to
Section 14 of the Plan, shall make such proportionate and
equitable adjustments to the number of shares of Common Stock
covered by the Option and to the exercise price per share covered
by the Option to prevent dilution or enlargement of the rights of
the Participant under this Agreement.
14. Notice. Any notice required or permitted under this
Agreement shall be deemed given when delivered in person or when
mailed by registered mail with return receipt requested, to the
Bank addressed to Second and Pine Streets, Harrisburg, PA 17101,
ATTN: Chief Executive Officer, and to the Participant or
beneficiary at their last known addresses in the records of the
Bank.
15. Modification and Waiver. Neither this Option and Limited
Rights Agreement nor any provision hereof can be changed,
modified, amended, discharged, terminated or waived orally or by
any course of dealing or purported course of dealing, except by
an agreement in writing signed by the Participant or the
Participant's legal representative and the Bank. The waiver of or
failure to enforce any breach of this Agreement shall not be
deemed to be a waiver or acquiescence in any other breach
thereof.
16. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of
Pennsylvania, to the extent not pre-empted by federal law.
17. Withholding. There shall be deducted from each
distribution of cash and/or stock under the Plan an amount of
cash or stock relating to withholding taxes.
18. Holding Period. The Participant hereby acknowledges that
in order to have the tax treatment provided for Incentive Stock
Options under Section 422 of the Internal Revenue Code apply, the
Participant may not dispose of shares acquired under this Option
(i) for two (2) years from the Date of Grant of the Option and
(ii) for one (1) year after the date the shares of Common Stock
are transferred to the Participant.
19. Designation Beneficiary. The Participant may designate
a person or persons to receive, in the event of death, any rights
that may be available to the Participant pursuant to the Plan
under the Option and this Option Agreement. Such designation will
be made upon forms supplied by and delivered to the Bank and may
be revoked in writing. If the Participant fails effectively to
designate a beneficiary, then the Participant's estate will be
deemed to be the beneficiary. The
<PAGE>
Participant may designate a beneficiary or beneficiaries in this
agreement or otherwise in writing to the person designated in
Section 13.
20. Participant Acknowledgment. The Participant hereby
acknowledges that all decisions, determinations and
interpretations of the Board of Directors of the Bank, or a
designated committee thereof, in respect of the Plan and this
Option and Limited Rights Agreement shall be final and
conclusive.
<PAGE>
HARRIS SAVINGS BANK
1996 INCENTIVE STOCK OPTION PLAN
1. PURPOSE. The purpose of the Harris Savings Bank (the
"Savings Bank") 1996 Incentive Stock Option Plan (the "Plan") is
to advance the interests of the Savings Bank and its shareholders
by providing those key employees of the Savings Bank and its
Affiliates, including Harris Financial, MHC (the "Holding
Company"), upon whose judgment, initiative and efforts the
successful conduct of the business of the Savings Bank and its
affiliates largely depends, with additional incentive to perform
in a superior manner. A purpose of the Plan is also to attract
people of experience and ability to the service of the Savings
Bank and its Affiliates.
2. DEFINITIONS.
(a) "Affiliate" means (i) a member of a controlled group of
corporations of which the Savings Bank is a member; (ii) an
unincorporated trade or business which is under common control
with the Savings Bank as determined in accordance with Section
414(c) of the Internal Revenue Code (the "Code") and the
regulations issued thereunder; or (iii) the Holding Company. For
purposes hereof, a "controlled group of corporations" shall mean
a controlled group of corporations as defined in Section 1563(a)
of the Code determined without regard to Section 1563(a)(4) and
(e)(3)(C).
(b) "Award" means a grant of Non-statutory Stock Options,
Incentive Stock Options, and/or Limited Rights under the
provisions of this Plan.
(c) "Board of Directors" or "Board" means the board of
directors of the Savings Bank.
(d) "Change in Control" of the Bank or the Holding Company
shall mean (i) a plan of reorganization, merger, consolidation or
sale of all or substantially all of the assets of the Bank or the
Holding Company or a similar transaction occurs in which the Bank
or the Holding Company is not the resulting entity; (ii)
individuals who constitute the board of directors of the Bank or
the board of trustees of the Holding Company on the date hereof
cease for any reason to constitute a majority thereof; or (iii) a
change in control within the meaning of 12 C.F.R. 303.4(a) or 12
C.F.R. 225.41(b) occurs, as determined by the board of directors
of the Bank or the board of trustees of the Holding Company. In
the event the Holding Company converts from the mutual form of
organization to the stock form of organization at any time
subsequent to the effective date of this Agreement ("Stock
Holding Company"), a "change in control" of the Bank or the Stock
Holding Company for purposes of this Agreement shall mean an
event of a nature that (I) would be required to be reported in
response to Item 1 of the current report on Form 8-K, as in
effect on the date
<PAGE>
hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or (II) results in a
Change in Control of the Savings Bank or the Stock Holding
Company within the meaning of the Change in Bank Control Act and
the Rules and Regulations promulgated by the Federal Deposit
Insurance Corporation ("FDIC") at 12 C.F.R. Section 303.4(a) with
respect to the Savings Bank and the Board of Governors of the
Federal Reserve System ("FRB") at 12 C.F.R. Section 225.41(b)
with respect to the Stock Holding Company, as in effect on the
date hereof; (III) results in a transaction requiring prior FRB
approval under the Bank Holding Company Act of 1956 and the
regulations promulgated thereunder by the FRB at 12 C.F.R.
Section 225.11, as in effect on the date hereof; or (IV) without
limitation such a Change in Control shall be deemed to have
occurred at such time as (a) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Bank or the
Stock Company representing 20% or more of the Bank's or the Stock
Company's outstanding securities; or (b) individuals who
constitute the Board on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof,
provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board,
or whose nomination for election by the Stock Company's
stockholders was approved by the same Nominating Committee
serving under an Incumbent Board, shall be, for purposes of this
clause (b) considered as though he were a member of the Incumbent
Board; or (c) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or the
Stock Company or similar transaction occurs in which the Bank or
Stock Company is not the resulting entity; or (d) a proxy
statement shall be distributed soliciting proxies from
stockholders of the Stock Company, by someone other than the
current management of the Stock Company, seeking stockholder
approval of a plan of reorganization, merger or consolidation of
the Stock Company or Bank or similar transaction with one or more
corporations as a result of which the outstanding shares of the
class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities
not issued by the Bank or the Stock Company; or (e) a tender
offer is made for 20% or more of the voting securities of the
Bank or Stock Company then outstanding.
(e) "Committee" means a committee consisting of
non-employee members of the
Board of Directors, all of whom are "disinterested directors" as
such term is defined under Rule 16b-3 under the Securities
Exchange Act, as amended, as promulgated by the Securities and
Exchange Commission.
(f) "Common Stock" means the Common Stock of the Savings
Bank, par value, $0.01 per share.
(g) "Date of Grant" means the date an Award granted by the
Committee is effective pursuant to the terms hereof.
(h) "Disability" means disability as defined in the Savings
Bank's retirement plan, or if not so defined, shall mean the
permanent and total inability by reason of mental or physical
infirmity, or both, of an employee to perform the work
customarily assigned to him. Additionally, a medical doctor
selected or approved by the Board of Directors must advise the
Committee that it is either not possible to determine when such
Disability will terminate or that it appears probable that such
Disability will be permanent during the remainder of said
participant's lifetime.
(i) "Fair Market Value" means, when used in connection with
the Common Stock on a certain date, the fair market value of the
Stock, as determined by the Committee; provided, however, that
(i) if the Stock is admitted to trading on a national securities
exchange on the date
<PAGE>
the Option is granted, Fair Market Value shall not be less than
the last sale price reported for the Stock on such exchange on
such date or, if no sales are reported on the date the Option is
granted, on the date immediately preceding such date on which a
sale was reported, or (ii) if the stock is not admitted to
trading on a national securities exchange on the date the Option
is granted, but the Stock is admitted to quotation on the
National Association of Securities Dealers Automated Quotation
system on the date the Option is granted, Fair Market Value shall
not be less than the average of the highest bid and lowest asked
prices of the stock on such system on such date.
(j) "Incentive Stock Option" means an Option granted by the
Committee to a Participant, which Option is designed as an
Incentive Stock Option pursuant to Section 8.
(k) "Limited Right" means the right to receive an amount of
cash based upon the terms set forth in Section 9.
(l) "Non-statutory Stock Option" means an Option granted by
the Committee to a participant and which is not designated by the
Committee as an Incentive Stock Option.
(m) "Option" means Award granted under Section 7 or Section
8.
(n) "Participant" means an employee of the Savings Bank or
its affiliates chosen by the Committee to participate in the
Plan.
(o) "Plan Year(s)" means a calendar year or years
commencing on or after January 1, 1996.
(p) "Retirement" means termination of employment with the
Savings Bank pursuant to a written notice by the Recipient to the
Savings Bank of such Recipient's intent to retire.
(q) "Termination for Cause" means the termination upon an
intentional failure to perform stated duties, breach of a
fiduciary duty involving personal dishonesty, which results in
material loss to the Savings Bank or one of its affiliates or
willful violation of any law, rule or regulation (other than
traffic violations or similar offenses) or final cease-and-desist
order which results in material loss to the Savings Bank or one
of its affiliates.
3. ADMINISTRATION.
The Plan shall be administered by the Committee. The
Committee is authorized, subject to the provisions of the Plan,
to establish such rules and regulations as it sees necessary for
the proper administration of the Plan and to make whatever
determinations and interpretations in connection with the Plan it
sees as necessary or advisable. All determinations and
interpretations made by the Committee shall be binding and
conclusive on all Participants in the Plan and on their legal
representatives and beneficiaries.
<PAGE>
4. TYPES OF AWARDS.
Awards under the Plan may be granted in any one or a
combination of:
(a) Non-statutory Stock Options;
(b) Incentive Stock Options; and
(c) Limited Rights
as defined below in paragraphs 7 through 9 of the Plan.
5. STOCK SUBJECT TO THE PLAN.
Subject to adjustment as provided in Section 15, the maximum
number of shares reserved for purchase pursuant to the exercise
of options granted under the Plan is 25,000 shares of Common
Stock of the Savings Bank, par value $ 0.01 per share. These
shares of Common Stock may be either authorized but unissued
shares or shares previously issued and reacquired by the Savings
Bank. To the extent that options or Limited Rights are granted
under the Plan, the shares underlying such options will be
unavailable for future grants under the Plan except that, to the
extent that options together with any related Limited Rights
granted under the Plan terminate, expire or are cancelled without
having been exercised (in the case of Limited Rights, exercised
for cash) new Awards may be made with respect to these shares.
6. ELIGIBILITY.
Officers and other employees of the Savings Bank or its
affiliates shall be eligible to receive Incentive Stock Options,
Non-statutory Stock Options and/or Limited Rights under the Plan.
Directors who are not employees or officers of the Savings Bank
or its affiliates shall not be eligible to receive Awards under
the Plan.
7. NON-STATUTORY STOCK OPTIONS.
7.1 Grant of Non-statutory Stock Options.
The Committee may, from time to time, grant Non-statutory
Stock Options to eligible employees and, upon such terms and
conditions as the Committee may determine, grant Non-statutory
options in exchange for and upon surrender of previously granted
Awards under this Plan. Non-statutory Stock Options granted under
this Plan are subject to the following terms and conditions:
(a) Price. The purchase price per share of Common Stock
deliverable upon the exercise of each Non-statutory Stock Option
shall be determined by the Committee on the date the option is
granted. Such purchase price shall not be less than 100% of the
Fair Market Value of the Savings Bank's Common Stock on the Date
of Grant. Shares may be purchased only upon full payment of the
purchase price. Payment of the purchase price may be made, in
whole or in part, through the surrender of shares of the Common
Stock of the Savings Bank at the Fair Market Value of such shares
on the date of surrender determined in the manner described in
Section 2(h).
<PAGE>
(b) Terms of Options. The term during which each
Non-statutory Stock Option may be exercised shall be determined
by the Committee, but in no event shall a Non-statutory Stock
Option be exercisable in whole or in part more than 10 years from
the Date of Grant. The Committee shall determine the date on
which each Non-statutory Stock Option shall become exercisable
and may provide that a Non-statutory Stock Option shall become
exercisable in installments. The shares comprising each
installment may be purchased in whole or in part at any time
after such installment becomes purchasable. The Committee may, in
its sole discretion, accelerate the time at which any
Non-statutory Stock Option may be exercised in whole or in part.
Notwithstanding the above, in the event of a Change in Control of
the Savings Bank or the Holding Company, all Non-statutory Stock
Options shall become immediately exercisable.
(c) Termination of Employment. Upon the termination of a
Participant's service for any reason other than Disability,
Retirement, death or Termination for Cause, the Participant's
Non-statutory Stock Options shall be exercisable only as to those
shares which were immediately purchasable by the Participant at
the date of termination and only for a period of three months
following termination. In the event of Termination for Cause, all
rights under the Participant's Non-statutory Stock Options shall
expire upon termination. In the event of the death, Disability or
Retirement of any Participant, all Non-statutory Stock Options
held by the Participant, whether or not exercisable at such time,
shall be exercisable by the Participant or his legal
representatives or beneficiaries of the Participant for one year
or such longer period as determined by the Committee following
the date of the Participant's death, Retirement or cessation of
employment due to Disability, provided that in no event shall the
period extend beyond the expiration of the Non-statutory Stock
Option term.
8. INCENTIVE STOCK OPTIONS.
8.1 Grant of Incentive Stock Options.
The Committee may, from time to time, grant Incentive Stock
Options to eligible employees. Incentive Stock Options granted
pursuant to the Plan shall be subject to the following terms and
conditions:
(a) Price. The purchase price per share of Common Stock
deliverable upon the exercise of each Incentive Stock Option
shall be not less than 100% of the Fair Market Value of the
Savings Bank's Common Stock on the Date of Grant. However, if a
Participant owns stock possessing more than 10% of the total
combined voting power of all classes of Common Stock of the
Savings Bank, the purchase price per share of Common Stock
deliverable upon the exercise of each Incentive Stock Option
shall not be less than 110% of the Fair Market Value of the
Savings Bank's Common Stock on the Date of Grant. Shares may be
purchased only upon payment of the full purchase price. Payment
of the purchase price may be made, in whole or in part, through
the surrender of shares of the Common Stock of the Savings Bank
at the Fair Market Value of such shares on the date of surrender
determined in the manner described in Section 2(h).
<PAGE>
(b) Amounts of Options. Incentive Stock Options may be
granted to any eligible employee in such amounts as determined by
the Committee. In the case of an option intended to qualify as an
Incentive Stock Option, the aggregate Fair Market Value
(determined as of the time the option is granted) of the Common
Stock with respect to which Incentive Stock Options granted are
exercisable for the first time by the Participant during any
calendar year (under all plans of the Participant's employer
corporation and its parent and subsidiary corporations) shall not
exceed $100,000. The provisions of this Section 8.1(b) shall be
construed and applied in accordance with Section 422(d) of the
Code and the regulations, if any, promulgated thereunder. To the
extent an award under this Section 8.1 exceeds this $100,000
limit, the portion of the award in excess of such limit shall be
deemed a Non-statutory Stock Option.
(c) Terms of Options. The term during which each Incentive
Stock Option may be exercised shall be determined by the
Committee, but in no event shall an Incentive Stock Option be
exercisable in whole or in part more than 10 years from the Date
of Grant. If at the time an Incentive Stock Option is granted to
an employee, the employee owns Common Stock representing more
than 10% of the total combined voting power of the Savings Bank
(or, under Section 425(d) of the Code, is deemed to own Common
Stock representing more than 10% of the total combined voting
power of all such classes of Common Stock, by reason of the
ownership of such classes of Common Stock, directly or
indirectly, by or for any brother, sister, spouse, ancestor or
lineal descendent of such employee, or by or for any corporation,
partnership, estate or trust of which such employee is a
shareholder, partner or beneficiary), the Incentive Stock Option
granted to such employee shall not be exercisable after the
expiration of five years from the Date of Grant. No Incentive
Stock Option granted under this Plan is transferable except by
will or the laws of descent and distribution and is exercisable
in his lifetime only by the employee to whom it is granted.
The Committee shall determine the date on which each
Incentive Stock Option shall become exercisable and may provide
that an Incentive Stock Option shall become exercisable in
installments. The shares comprising each installment may be
purchased in whole or in part at any time after such installment
becomes purchasable, provided that the amount able to be first
exercised in a given year is consistent with the terms of Section
422 of the Code. The Committee may, in its sole discretion,
accelerate the time at which any Incentive Stock Option may be
exercised in whole or in part, provided that it is consistent
with the terms of Section 422 of the Code. Notwithstanding the
above, in the event of a Change in Control of the Holding
Company, all Incentive Stock Options shall become immediately
exercisable.
(d) Termination of Employment. Upon the termination of a
Participant's service for any reason other than Disability,
Retirement, Change in Control, death or Termination for Cause,
the Participant's Incentive Stock Options shall be exercisable
only as to those shares which were immediately purchasable by the
Participant at the date of termination and only for a period of
three months following termination. In the event of Termination
for Cause all rights under the Participant's Incentive Stock
Options shall expire upon termination.
<PAGE>
In the event of death or Disability of any employee, all
Incentive Stock Options held by such Participant, whether or not
exercisable at such time, shall be exercisable by the Participant
or the Participant's legal representatives or beneficiaries for
one year following the date of the Participant's death or
cessation of employment due to Disability. Upon termination of
the Participant's service due to Retirement, or a Change in
Control, all Incentive Stock Options held by such Participant,
whether or not exercisable at such time, shall be exercisable for
a period of one year following the date of Participant's
cessation of employment, provided however, that such option shall
not be eligible for treatment as an Incentive Stock Option in the
event such option is exercised more than three months following
the date of the Participant's Retirement. In no event shall the
exercise period extend beyond the expiration of the Incentive
Stock Option term.
(e) Compliance with Code. The options granted under this
Section 8 of the Plan are intended to qualify as incentive stock
options within the meaning of Section 422 of the Code, but the
Savings Bank makes no warranty as to the qualification of any
option as an incentive stock option within the meaning of Section
422 of the Code.
9. LIMITED RIGHTS.
9.1 Grant of Limited Rights.
Simultaneously with the grant of any option, the Committee
may grant a Limited Right with respect to all or some of the
shares covered by such option. Limited Rights granted under this
Plan are subject to the following terms and conditions:
(a) Terms of Rights. In no event shall a Limited Right be
exercisable in whole or in part before the expiration of six
months from the Date of Grant of the Limited Right. A Limited
Right may be exercised only in the event of a Change in Control
of the Savings Bank or the Holding Company except that such
rights may not be exercised in the event of a Change in Control
resulting from a stand-alone mutual to stock conversion of the
Holding Company.
The Limited Right may be exercised only when the underlying
option is eligible to be exercised, and only when the Fair Market
Value of the underlying shares on the day of exercise is greater
than the exercise price of the related option.
Upon exercise of a Limited Right, the related option shall
cease to be exercisable. Upon exercise or termination of an
option, any related Limited Rights shall terminate. The Limited
Rights may be for no more than 100% of the difference between the
exercise price and the Fair Market Value of the Common Stock
subject to the underlying option. The Limited Right is
transferable only when the underlying option is transferable and
under the same conditions.
(b) Payment. Upon exercise of a Limited Right, the holder
shall promptly receive from the Savings Bank an amount of cash
equal to the difference between the Fair Market Value on the Date
of Grant of the related option and the Fair Market Value of the
underlying shares on the date the Limited Right is exercised,
multiplied by the number of shares with respect to which such
<PAGE>
Limited Right is being exercised.
(c) Termination of Employment. Upon the termination of a
Participant's service for any reason other than Termination for
Cause, any Limited Rights held by the Participant shall then be
exercisable for a period of one year following termination. In
the event of Termination for Cause, all Limited Rights held by
the Participant shall expire immediately. Upon termination of the
Participant's employment for reason of death, Retirement or
Disability, all Limited Rights held by such Participant shall be
exercisable by the Participant or the Participant's legal
representative or beneficiaries for a period of one year from the
date of such termination. In no event shall the period extend
beyond the expiration of the term of the related option.
10. SURRENDER OPTION.
In the event of a Participant's termination of employment as
a result of death, Disability or Retirement, the Participant (or
the Participant's personal representative(s), heir(s), or
devisee(s)) may, in a form acceptable to the Committee, make
application to surrender all or part of options held by such
Participant in exchange for a cash payment from the Savings Bank
of an amount equal to the difference between the Fair Market
Value of the Common Stock on the date of termination of
employment and the exercise price per share of the option on the
Date of Grant. Whether the Committee accepts such application or
determines to make payment, in whole or part, is within its
absolute and sole discretion, it being expressly understood that
the Committee is under no obligation to any Participant
whatsoever to make such payments. In the event that the Committee
accepts such application and the Savings Bank determines to make
payment, such payment shall be in lieu of the exercise of the
underlying option and such option shall cease to be exercisable.
11. RIGHTS OF A SHAREHOLDER: NON-TRANSFERABILITY.
No Participant shall have any rights as a shareholder with
respect to any shares covered by a Non-statutory and/or Incentive
Stock Option until the date of issuance of a stock certificate
for such shares. Nothing in this Plan or in any Award granted
confers on any person any right to continue in the employ of the
Savings Bank or its Affiliates or to continue to perform services
for the Savings Bank or its Affiliates or interferes in any way
with the right of the Savings Bank or its Affiliates to terminate
a Participant's services as an officer or other employee at any
time.
No Award under the Plan shall be transferable by the
optionee other than by will or the laws of descent and
distribution and may only be exercised during his lifetime by the
optionee, or by a guardian or legal representative.
12. AGREEMENT WITH GRANTEES.
Each Award of Options, and/or Limited Rights will be
evidenced by a written agreement, executed by the Participant and
the Savings Bank or its Affiliates which describes the conditions
for receiving the Awards including the date of Award, the
purchase price if any, applicable periods, and any other terms
and conditions as may be required by the Board of Directors or
applicable securities law.
<PAGE>
13. DESIGNATION OF BENEFICIARY.
A Participant may, with the consent of the Committee,
designate a person or persons to receive, in the event of death,
any stock option or Limited Rights Award to which the Participant
would then be entitled. Such designation will be made upon forms
supplied by and delivered to the Savings Bank and may be revoked
in writing. If a Participant fails effectively to designate a
beneficiary, then the Participant's estate will be deemed to be
the beneficiary.
14. DILUTION AND OTHER ADJUSTMENTS.
In the event of any change in the outstanding shares of
Common Stock of the Savings Bank by reason of any stock dividend
or split, recapitalization, merger, consolidation, spin-off,
reorganization, combination or exchange of shares, or other
similar corporate change, or other increase or decrease in such
shares without receipt or payment of consideration by the Savings
Bank, the Committee will make such adjustments to previously
granted Awards, to prevent dilution or enlargement of the rights
of the Participant, including any or all of the following:
(a) adjustments in the aggregate number or kind of shares
of Common Stock which may be awarded under the Plan;
(b) adjustments in the aggregate number or kind of shares
of Common Stock covered by Awards already made under the Plan;
(c) adjustments in the purchase price of outstanding
Incentive and/or Non-statutory Stock Options, or any Limited
Rights attached to such options.
No such adjustments may, however, materially change the
value of benefits available to a Participant under a previously
granted Award.
15. TAX WITHHOLDING.
There shall be deducted from each distribution of cash
and/or Common Stock under the Plan the amount required by any
governmental authority to be withheld for income tax purposes. If
this Plan is qualified under 17 C.F.R. 240.16b-3 of the Exchange
Act Rules, then any withholding shall comply with 17 C.F.R.
240.16b-3(e).
16. AMENDMENT OF THE PLAN.
The Board of Directors may at any time, and from time to
time, modify or amend the Plan in any respect; provided however,
that if it has been determined by the Board of Directors to
continue to qualify the Plan under the Securities and Exchange
Commission Rule 16b-3, shareholder approval shall be required for
any such modification or amendment which:
(a) increases the maximum number of shares for which
options may be granted under the Plan (subject, however, to the
provisions of Section 15 hereof);
<PAGE>
(b) reduces the exercise price at which Awards may be
granted (subject, however, to the provisions of Section 15
hereof):
(c) extends the period during which options may be granted
or exercised beyond the times originally prescribed; or
(d) changes the persons eligible to participate in the
Plan.
Failure to ratify or approve amendments or modifications to
subsections (a) through (d) of this Section by shareholders shall
be effective only as to the specific amendment or modification
requiring such ratification. Other provisions, sections, and
subsections of this Plan will remain in full force and effect.
No such termination, modification or amendment may affect
the rights of a Participant under an outstanding Award.
17. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on April 16, l996. The Plan
shall be presented to shareholders of the Savings Bank for
ratification for purposes of: (i) obtaining favorable treatment
under Section 16(b) of the Securities Exchange Act of 1934; (ii)
satisfying one of the requirements of Section 422 of the Code
governing the tax treatment for Incentive Stock Options; and
(iii) if applicable, maintaining listing on the NASDAQ National
Market System. The failure to obtain shareholder ratification
will not effect the validity of the Plan and the options
thereunder, provided, however, that if the Plan is not ratified,
the Plan shall remain in full force and effect, and any Incentive
Stock Options granted under the Plan shall be deemed to be
Non-statutory Stock Options.
18. TERMINATION OF THE PLAN.
The right to grant Awards under the Plan will terminate upon
the earlier of ten (10) years after the Effective Date of the
Plan or the issuance of Common Stock or the exercise of options
or related Limited Rights equivalent to the maximum number of
shares reserved under the Plan as set forth in Section 5. The
Board of Directors has the right to suspend or terminate the Plan
at any time, provided that no such action will, without the
consent of a Participant, adversely affect his rights under a
previously granted Award.
19. APPLICABLE LAW.
The Plan will be administered in accordance with the laws of
the Commonwealth of Pennsylvania
20. COMPLIANCE WITH SECTION 16.
If this Plan is qualified under 17 C.F.R. 240.16b-3 of the
Exchange Act Rules, with
<PAGE>
respect to persons subject to Section 16 of the Exchange Act,
transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. To the extent any of the provisions of the Plan or
actions by the Committee fail to so comply, it shall be deemed
null and void, to the extent permitted by law and deemed
advisable by the Committee.
- ------------------------------ ------------------------------
Date Adopted Wm. J. McLaughlin
President
- ------------------------------ ------------------------------
Date Ratified by Stockholders Bernard H. Sarfert, Sr.
Corporate Secretary
<PAGE>
HARRIS SAVINGS BANK
1994 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
I. Purpose
The purpose of the Harris Savings Bank (the "Savings Bank")
1994 Stock Option Plan for Outside Directors and Directors
Emeritus of the Savings Bank and its affiliates, including its
parent holding company, Harris Financial, MHC (the "Holding
Company") (the "Directors' Option Plan") is to promote the growth
and profitability of the Savings Bank and the Holding Company by
providing outside directors of the Savings Bank and its
affiliates with an incentive to achieve long-term objectives of
the Savings Bank and to attract and retain non-employee directors
of outstanding competence by providing such outside directors
with an opportunity to acquire an equity interest in the Savings
Bank.
II. Grant of Options
(a) Initial Grant. Each outside director (for purposes of
this Directors' Option Plan, the term "Outside Director" shall
mean a member of the Board of Directors of the Savings Bank or
any of its affiliates not also serving as an employee of the
Savings Bank or any of its affiliates), who is serving in such
capacity on the date of the Savings Bank's Reorganization into a
Pennsylvania mutual bank holding company and at the effective
date of this Directors' Option Plan, shall be granted non-
statutory stock options to purchase 0.075% of the shares of the
common stock of the Savings Bank ("Common Stock"), subject to
adjustment as provided in Section IV hereof. Each Outside
Director serving in such capacity as of the date of the
Reorganization shall be granted additional options based on years
of service with the Savings Bank or any of its affiliates in
accordance with the following schedule:
<TABLE>
<CAPTION>
Number of Options
as a Percent of
Shares Issued
Years of Service in the Offering
---------------- -----------------
<S> <C>
4-10 0.075%
11-20 0.150%
20 or more 0.225%
</TABLE>
These additional service based options are subject to
adjustment as provided in Section IV hereof. In addition, each
Director Emeritus of the Savings Bank who is serving in such
capacity on the date of the Reorganization and at the effective
date of this Directors' Option Plan and who was serving as an
Honorary Trustee as the Bank immediately prior to the
Reorganization shall be granted nonstatutory options in
accordance with the schedule set forth above, subject to
adjustment pursuant to Section IV hereof.
<PAGE>
The purchase price per share of the Common Stock deliverable
upon the exercise of each non-statutory stock option shall be the
purchase price of the Common Stock sold in connection with the
Reorganization of the Savings Bank into a Pennsylvania mutual
holding company. The effective date of these initial grants shall
be the effective date of the Directors' Option Plan as defined in
Section VI hereof ("Effective Date").
(b) Grants to Subsequent Outside Directors. To the extent
options are available for grant under the Directors' Option Plan,
each Outside Director who is first elected as a director
subsequent to the Effective Date ("Subsequent Outside Director")
is hereby granted, as of the date on which such Subsequent
Outside Director is qualified and first begins to serve as an
Outside Director, non-statutory stock options to purchase 0.075%
of shares of Common Stock, subject to adjustment pursuant to
Section IV, or to purchase such lesser number of shares of Common
Stock as remain in this Directors' Option Plan. The purchase
price per share of the Common Stock deliverable upon exercise of
such option shall equal the Fair Market Value of the Common Stock
on the date the grant of this option is effective as determined
under paragraph (d) of this Section II.
If options for sufficient shares are not available under the
Directors' Option Plan to fulfill the grant of options under
Section II(b) hereof to any Subsequent Outside Director first
elected subsequent to the Effective Date, and thereafter options
become available, such Subsequent Outside Director shall then
receive options to purchase an amount of shares of Common Stock,
determined by dividing pro rata among each Subsequent Outside
Director, options for the number of shares then available under
the Outside Directors' Plan, not to exceed options for shares
with the values set forth in the preceding paragraphs with
respect to Subsequent Outside Directors, subject to adjustment as
to any one Subsequent Outside Director. The date of grant shall
be the date options for such shares become available. The
purchase price per share of the Common Stock deliverable upon
exercise of such options shall equal the Fair Market Value of the
Common Stock on the date the option is granted as determined
under paragraph (d) of this Section II.
(c) Ineligibility. An option under the Directors' Option
Plan shall not be granted to any Outside Director who at any
previous time was an employee of either the Savings Bank or the
Holding Company and in such capacity was eligible to receive any
options to purchase Common Stock.
(d) Fair Market Value. For purposes of the Directors'
Option Plan, when used in connection with Common Stock on a
certain date, Fair Market Value means the average of the bid and
ask prices of the Common Stock as reported by the National
Association of Securities Dealers Automated Quotation System (as
published by the Wall Street Journal, if published), or such
other quotation system, on the effective date of the grant, or if
the Common Stock was not traded on such date, on the next
preceding day on which the Common Stock was traded thereon. For
purposes of the grant of options in connection with the
reorganization and stock issuance, as defined in Section V
hereof, of the Savings Bank, Fair Market Value shall mean the
initial offering price of the Common Stock or $10.00 per share.
<PAGE>
III. Terms and Conditions
(a) Vesting of Options. All options granted hereunder
shall vest and become exercisable one (1) year after the date of
grant, which in the case of outside directors serving on the
Board at the time of the Reorganization of the Savings Bank into
a mutual holding company shall be the Effective Date as defined
in Section V; provided, however, that in the event of death,
retirement, disability or change in control of the Savings Bank
or the Holding Company all options shall vest immediately.
(b) Option Agreement. Each option shall be evidenced by a
written option agreement between the Savings Bank and the outside
director specifying the number of shares of Common Stock that may
be acquired through its exercise and containing such other terms
and conditions which are not inconsistent with the terms of this
grant.
(c) Termination of Option. Each option shall expire upon
the earlier of (i) one hundred and twenty (120) months following
the date of grant, or (ii) one (1) year following the date on
which the outside director ceases to serve in such capacity for
any reason other than removal for cause. Provided, however, that
if the Participant's service on the Board of Directors is
terminated prior to the date the Plan is presented to the
shareholders of the Savings Bank for ratification, the option may
not be exercised prior to the date of the shareholders' meeting
regarding such ratification but shall remain exercisable for a
period of one year from the date of such meeting. If the Outside
Director dies before fully exercising any portion of an option
then exercisable, such option may be exercised by such Outside
Director's personal representative(s), heir(s) or devisee(s) at
any time within the one (1) year period following his or her
death; provided, however, that in no event shall the option be
exercisable more than one hundred and twenty (120) months after
the date of its grant. If the Outside Director is removed for
cause all options awarded to him shall expire upon such
termination.
(d) Manner of Exercise. The options may be exercised from
time to time, in whole or in part, by delivering a written notice
of exercise to the Chief Executive Officer of the Savings Bank.
Such notice is irrevocable and must be accompanied by full
payment of the exercise price (as determined in Section II(d)
hereof) in cash or shares of previously acquired Common Stock of
the Savings Bank at the Fair Market Value of such shares
determined on the exercise date by the manner described in
Paragraph II(b) above or by such other means as determined by the
Board of Directors. If previously acquired shares of Common Stock
are tendered in payment of all or part of the exercise price, the
value of such shares shall be determined as of the date of such
exercise.
(e) Transferability. Each option granted hereby may be
exercised only by the Outside Director to whom it is issued or in
the event of the Outside Director's death, his or her personal
representative(s) or designee(s), heir(s) or devisee(s) pursuant
to the terms of Section III(c) hereof.
(f) Termination of Service. Upon the termination of a
recipient's service for any reason other than disability,
retirement, Change in Control, death or removal for cause, the
participant's stock options shall be exercisable only as to those
shares which were immediately purchasable by the recipient at the
date of termination.
<PAGE>
In the event of death or disability of any recipient, all
stock options held by such recipient, whether or not exercisable
at such time, shall become immediately exercisable by the
recipient or the recipient's legal representatives or
beneficiaries. Upon termination of the recipient's service due to
retirement, or a Change in Control, all stock options held by
such recipient, whether or not exercisable at such time, shall
become immediately exercisable. For purposes of this plan the
following terms are defined:
(i) "Change in Control" for purposes of this Plan, a
"Change in Control" of the Bank or Company shall (i) a plan of
reorganization, merger, merger conversion, consolidation or sale
of all or substantially all of the assets of the Bank or the
Holding Company or a similar transaction occurs in which the Bank
or the Holding Company is not the resulting entity; (ii)
individuals who constitute the board of directors of the Bank or
the board of directors of the holding company on the date hereof
cease for any reason to constitute a majority thereof; or (iii) a
change in control within the meaning of 12 C.F.R. Section
303.4(a) or 12 C.F.R. Section 225.41(b) occurs, as determined by
the board of directors of the Bank or the board of trustees of
the Holding Company. In the event the Holding Company converts
from the mutual form of organization to the stock form of
organization at any time subsequent to the effective date of this
Agreement ("Stock Holding Company"), a "change in control" of the
Bank or the Stock Holding Company for purposes of this Agreement
shall mean an event of a nature that (I) would be required to be
reported in response to Item 1 of the current report on Form 8-K,
as in effect on the date hereof, pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 (the "Exchange Act"); or
(II) results in a Change in Control of the Savings Bank or the
Stock Holding Company within the meaning of the Change in Bank
Control Act and the Rules and Regulations promulgated by the
Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R.
Section 303.4(a) with respect to the Savings Bank and the Board
of Governors of the Federal Reserve System ("FRB") at 12 C.F.R.
Section 225.41(b) with respect to the Stock Holding Company, as
in effect on the date hereof; (III) results in a transaction
requiring prior FRB approval under the Bank Holding Company Act
of 1956 and the regulations promulgated thereunder by the FRB at
12 C.F.R. Section 225.11, as in effect on the date hereof; or
(IV) without limitation such a Change in Control shall be deemed
to have occurred at such time as (a) any "person" (as the term is
used in Sections 13(d) and 14(d) of the Exchange Act) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the
Bank or the Stock Company representing 20% or more of the Bank's
or the Stock Company's outstanding securities except for any
securities of the Bank purchased by the Stock Company in
connection with the conversion of the Company to the stock form
and any securities purchased by the Bank's employee stock
ownership plan and trust; or (b) individuals who constitute the
Board on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof
whose election was approved by a vote of at least three-quarters
of the directors comprising the Incumbent Board, or whose
nomination for election by the Stock Company's stockholders was
approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (b),
considered as though he were a member of the Incumbent Board; or
(c) a plan of
<PAGE>
reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or the Stock Company or
similar transaction occurs in which the Bank or Stock Company is
not the resulting entity; or (d) a proxy statement shall be
distributed soliciting proxies from stockholders of the Stock
Company, by someone other than the current management of the
Stock Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Stock Company or
Bank or similar transaction with one or more corporations as a
result of which the outstanding shares of the class of securities
then subject to such plan or transaction are exchanged for or
converted into cash or property or securities not issued by the
Bank or the Stock Company; or (e) a tender offer is made for 20%
or more of the voting securities of the Bank or Stock Company
then outstanding.
(ii) "Disability" means the permanent and total
inability by reason of mental or physical infirmity, or both, of
an outside director to perform the work customarily assigned to
him. Additionally, a medical doctor selected or approved by the
Board of Directors must advise the Board that it is either not
possible to determine when such disability will terminate or that
it appears probable that such disability will be permanent during
the remainder of said recipient's lifetime.
(iii) "Retirement" means the termination of service
from the board of directors of the Bank following written notice
to the Board as a whole of such Director's intention to retire.
(g) Limitations Upon Exercise of Options. Notwithstanding
any other provision of this Directors' Option Plan, so long as
the Holding Company remains in the mutual form of organization an
option granted under this Plan may not be exercised if the
exercise of such an option would result in the Holding Company
owning less than 50.1 percent of the Common Stock of the Bank.
IV. Common Stock Subject to the Directors' Option Plan
The shares which shall be issued and delivered upon exercise
of options granted under the Directors' Option Plan may be either
authorized and unissued shares of Common Stock or authorized and
issued shares of Common Stock held by the Savings Bank as
treasury stock. The number of shares of Common Stock reserved for
issuance under the Directors' Option Plan shall not exceed 78,750
shares of Common Stock of the Savings Bank, par value $.01 per
share, subject to adjustments pursuant to this Section IV. Any
shares of Common Stock subject to an option which for any reason
either terminates unexercised or expires, shall again be
available for issuance under the Directors' Option Plan.
In the event of any change or changes in the outstanding
Common Stock of the Savings Bank by reason of any stock dividend
or split, recapitalization, reorganization, merger,
consolidation, spin-off, combination or any similar corporate
change, or other increase or decrease in such shares effected
without receipt or payment of consideration by the Savings Bank,
the number of shares of Common Stock which may be issued under
this Directors' Option Plan, the number of shares of Common Stock
subject to options granted under this Directors' Option Plan and
the option price of
<PAGE>
such options, shall be automatically adjusted to prevent dilution
or enlargement of the rights granted to an Outside Director under
the Directors' Option Plan.
V. Treatment of Options in the Event of a Conversion
Transaction
In the event that the Holding Company converts to stock form
in a Conversion Transaction ("Stock Holding Company"), any
options outstanding shall, at the option of the holder, (i) be
convertible into options for Common Stock of the Stock Holding
Company, or (ii) be exercised by the holder prior to the
Effective Date of the Conversion Transaction and the holder shall
be entitled to exchange, in the same manner as other minority
stockholders of the Bank, the shares of Common Stock of the Bank
received upon such exercise for shares of Common Stock of the
Stock Holding Company; provided, however, that if for any reason
such options are not to be converted or such shares are not
exchanged, the holders of options under this Plan shall receive
cash payment for such options in an amount equal to the appraised
value of the underlying securities represented by such options.
With respect to options that have been exercised prior to the
Conversion Transaction, the Stock Holding Company will redeem
such shares for cash in the same manner as such redemption would
occur for other minority stockholders of the Bank. Any exchange,
conversion of options, or cash payment for shares shall be
subject to applicable federal and state regulations and, if
necessary, subject to the approval of the appropriate regulatory
authorities.
VI. Effective Date of the Plan; Shareholder Ratification
The Directors' Option Plan after adoption by the Board of
Directors shall become effective upon the reorganization of the
Savings Bank into a Pennsylvania mutual holding company (the
"Reorganization"). Following Reorganization, the Directors'
Option Plan shall be presented to shareholders of the Savings
Bank for ratification for purposes of (i) obtaining favorable
treatment under Section 16(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"); and (ii) if applicable,
maintaining listing on the NASDAQ National Market System;
provided, however, that the failure to obtain shareholder
ratification shall not affect the validity of this Plan and the
options granted hereunder.
VII. Termination of the Plan
The right to grant options under the Directors' Option Plan
will terminate upon the earlier of ten years after the Effective
Date of the Plan, or the issuance of 78,750 shares of Common
Stock (the maximum number of shares of Common Stock reserved for
under this Plan). A majority of the outstanding shares of the
Common Stock entitled to vote is required to terminate the
Directors' Option Plan; provided, however, no such termination
shall, without the consent of the affected individual, affect
such individual's rights under a previously granted option.
<PAGE>
VIII. Amendment of the Plan
The Directors' Option Plan may be amended from time to time
by the Board of Directors of the Savings Bank provided that
Section II and Section III hereof, " shall not be amended more
than once every six months other than to comport with the
Internal Revenue Code of 1986, as amended, or the Employee
Retirement Income Security Act of 1974, as amended, or the rules
thereunder. Except as provided in Section IV hereof, rights and
obligations under any option granted before an amendment shall
not be altered or impaired by such amendment without the written
consent of the optionee. If the Directors' Option Plan becomes
qualified under 17 C.F.R. Section 16(b)-3 of the rules and
regulations promulgated under the Exchange Act and an amendment
would require shareholder approval under such rule 16(b)-3 to
retain the Plan's qualification, then such amendment shall be
presented to shareholders for ratification, provided, however,
that the failure to obtain shareholder ratification shall not
affect the validity of this Plan as so amended and the options
granted thereunder.
IX. Applicable Law
The Plan will be administered in accordance with the laws of
the Commonwealth of Pennsylvania.
X. Compliance with Section 16
If this Plan is qualified under 17 C.F.R. 240.16b-3 of the
Securities Exchange Act of 1934 Rules, transactions under this
Plan are intended to comply with all applicable conditions of
Rule 16b-3 or its successors under the Exchange Act. To the
extent any provisions of the Plan fail to so comply, it shall be
deemed null and void, to the extent permitted by law.
- ------------------------------ ------------------------------
Date Adopted by Board Jack W. Shader, Sr.
Chief Executive Officer and
President
- ------------------------------ ------------------------------
Date Ratified By Stockholders Jean M. Bittle
Secretary
<PAGE>
HARRIS SAVINGS BANK
RECOGNITION AND RETENTION PLAN
FOR OFFICERS AND EMPLOYEES
PLAN SHARE AWARD AGREEMENT
This agreement shall evidence a PLAN SHARE AWARD made on
- ------------------- between Harris Savings Bank (the "Bank") and
- ------------------- ("Recipient"). For purposes of this
Agreement, the defined terms contained herein shall have the same
meanings as those contained in the Harris Savings Bank
Recognition and Retention Plan for Officers and Employees
("Plan").
Whereas, the purpose of the Harris Savings Bank Recognition
and Retention Plan is to provide, officers and other key
employees of the Bank an incentive to achieve the long-term
objectives of the Bank by providing such key personnel with a
proprietary interest in the Bank and Harris Financial, MHC (the
"Company"), the Bank's parent holding company; and
Whereas, the Plan is authorized to purchase up to 104,000
shares of the common stock of the Company ("Common Stock"); and
THEREFORE, to evidence the grant of this Plan Share Award
(the "Award"), and subject to the terms and conditions of the
Plan and this Agreement, the Bank and the Recipient hereby agree
as follows:
1. Grant of Award. The Board of Directors hereby
evidences and confirms the grant to the Recipient on ---- of an
Award to earn --------------- shares of Common Stock.
2. Term of Award. The term of the Award shall be for such
period of until the entire Plan Share Award evidenced hereby has
been earned and distributed or forfeited provided, however, that
such term shall not extend beyond January 25, 2015. Except as
provided in Sections 7 and 8 hereof, the Award may be earned by
the Recipient only while serving as an officer or employee of the
Bank or the Company.
3. Earning of Award. Shares under the Award shall be
earned by the Recipient annually at the rate of ----- percent
(--%) of the aggregate number of shares stated in Section 1
commencing -----------------, provided that the Performance Goal,
as set annually by the Board of Directors, is attained. In the
event that a stated Performance Goal is not attained for a given
twelve month period, Shares covered by the Plan Share Award that
would otherwise be earned on the next anniversary of the date of
grant of the Award will not be considered earned on such date.
However, upon the subsequent attainment of the Performance Goal
during the term of the Plan Share Award, the Committee shall
determine whether any or all Shares awarded to a Recipient which
had not been earned for the previous period(s) due to the failure
to attain the Performance Goal shall vest at the next anniversary
date of the grant. Fractional shares shall be aggregated and
earned on the last anniversary on which the Plan Share Award
vests. In the event the Recipient's service is terminated
<PAGE>
other than due to death, Disability, Retirement (as defined in
Section 3.14 of the Plan), termination following a Change in
Control or termination for Cause, prior to the time all shares
subject to the Award have been earned, any shares which have not
yet been earned as of the last day of service shall be forfeited.
In the event the Recipient's service or employment is terminated
due to Cause pursuant to Section 7.01(d) of the Plan prior to the
time all shares subject to the Award have been distributed,
regardless of whether such Plan Shares have been earned, the
Recipient shall forfeit the right to any shares which have not
yet been distributed as of the last day of service with the Bank
or the Company.
4. Distribution of Shares. Except as provided below, as
soon as practicable after shares shall have been earned, the Plan
Trustee shall deliver to the Recipient (or his beneficiary as
determined in Section 6) a certificate or certificates
representing the number of shares of Common Stock with respect to
which the Award was earned in the name of the Recipient or his
beneficiary.
Notwithstanding anything herein to the contrary, the Bank
shall not be obligated to cause to be issued or delivered any
certificate evidencing Common Stock awarded pursuant to the Plan,
unless and until the Bank is advised by its counsel that the
issuance and delivery of such certificates is in compliance with
all applicable laws, regulations and governmental authority and
requirements of any exchange upon which the Common Stock is
traded. The Bank shall in no event be obligated to register any
securities pursuant to the Securities Act of 1933 (as now in
effect or as hereafter amended) or to take any other affirmative
action in order to cause the issuance and delivery of such
certificates to comply with any such law, regulation or
requirement.
All shares of Common Stock earned pursuant to an Award,
together with any shares representing stock dividends, shall be
distributed in the form of Common Stock. Payments representing
accumulated cash dividends (and earnings thereon) shall be made
in cash or Common Stock.
5. Non-Transferability. This Award may be earned during
the Recipient's lifetime only by the Recipient and paid only to
the Recipient (or to the Recipient's beneficiary as defined in
Section 6). This Award shall not be pledged, hypothecated, sold,
assigned, transferred (except as provided above) or otherwise
encumbered or disposed of purported pledge, hypothecation, sale,
assignment, transfer or other encumbrance or disposition of this
Award contrary to the provisions hereof shall be null and void
and without effect. The levy of any execution, attachment, or
similar process upon this Award shall be null and void and
without effect.
6. Designation of Beneficiary. The Recipient may
designate a person or persons to receive, in the event of death,
any rights that may be available to the Recipient pursuant to the
Plan under this Award. Such designation must be made in writing
and delivered to the Bank and may be revoked by the Recipient in
writing. If the Recipient fails effectively to designate a
beneficiary, then the Recipient's estate will be deemed to be the
beneficiary. The Recipient may designate a beneficiary or
beneficiaries in this Agreement or otherwise in writing to the
person designated in Section 10.
<PAGE>
7. Rights in Event of Death. Disability and Retirement.
Notwithstanding the general rule set forth in Section 3, above,
if the Recipient's service as an officer, or other key employee
of the Bank terminates due to death, Disability or Retirement,
all shares subject to this Plan Share Award shall be deemed
earned as of the Recipient's last day of service with the Bank or
a subsidiary or affiliate of the Bank.
8. Rights in the Event of a Change in Control.
Notwithstanding the general rule set forth in Section 3, above,
in the event of the Recipient's termination following a Change in
Control (as defined Recipient's Section 7.01(c) of the Plan), all
shares subject to this Award shall be deemed earned as of the
Recipient's last day of service with the Bank or a subsidiary or
affiliate of the Bank.
9. Treatment of Plan Shares in the Event of Conversion
Transaction. In the event that the Company converts to stock
form in a Conversion Transaction ("Stock Holding Company"), any
Plan Share Awards and rights to Plan Shares shall be exchanged
into shares of Common Stock of the Stock Holding Company,
provided, however, that if for any reason such shares are not to
be exchanged, the Stock Holding Company shall, simultaneously
with the closing of the Conversion Transaction, purchase Plan
Share Awards and rights to Plan Shares for cash equal to the fair
market value of such Awards or Shares. Any exchange of shares or
cash payment for shares shall be subject to applicable federal
and state regulations and, if necessary, subject to the approval
of the appropriate regulatory authorities.
10. Dilution and Other Adjustments. In the event of any
change in the outstanding shares of Common Stock by reason of any
stock dividend or split, recapitalization, merger, consolidation,
spin-off, reorganization, combination, or exchange of shares or
other similar corporate change, such proportionate and equitable
adjustments to the Award, if any, shall be made to prevent
dilution or enlargement of the rights of the Recipient under this
Agreement.
11. Notice. Any notice required or permitted under this
Award shall be deemed given when delivered in person or when
mailed by registered mail with return receipt requested to the
Bank addressed to Second and Pine Streets, Harrisburg, PA 17101,
ATTN: Chief Executive Officer, and to the Recipient or
beneficiary at the addresses given below or at such address as
the Recipient may subsequently designate in writing to the Bank.
12. Modification and Waiver. Neither this Award nor any
provision hereof can be changed, modified, amended, discharged,
terminated or waived orally or by any course of dealing or
purported course of dealing, but only by an agreement in writing
signed by the Recipient or his legal representative and the Bank.
The waiver of or failure to enforce any breach of this Award
shall not be deemed to be a waiver or acquiescence in any other
breach thereof.
<PAGE>
13. Governing Law. This Award shall be governed by and
construed in accordance with the laws of the Commonwealth of
Pennsylvania, except to the extent pre-empted by federal laws.
14. Withholding. There shall be deducted from each
distribution of cash and/or stock under the Plan an amount of
cash or stock relating to withholding tax imposed by any federal
or state government.
15. Recipient Acknowledgment. The Recipient hereby
acknowledges that all decisions, determinations and
interpretations of the Bank, in respect of the Plan and this
Award shall be final and conclusive.
IN WITNESS WHEREOF, the Bank has caused this Award to be
executed, and said Recipient has hereunto set his hand, the day
and year first above written.
HARRIS SAVINGS BANK
- ------------------------------ ------------------------------
Secretary Wm. J. McLaughlin
- ------------------------------ ------------------------------
Witness Recipient
Date: ----------------------- ------------------------------
Address
<PAGE>
I hereby designate as my Beneficiary under the terms of the
Plan the following person(s) in the designated portions:
------------------------- --------
Name of Beneficiary %
------------------------- --------
Name of Beneficiary %
-------------------------
Relationship to Recipient
-------------------------
Address
Date: ------------------- Signed: ----------------
- -------------------------
Witness
<PAGE>
FORM OF
HARRIS SAVINGS BANK
RECOGNITION AND RETENTION PLAN
FOR OUTSIDE DIRECTORS
ARTICLE I
ESTABLISHMENT OF THE PLAN
1.01 Harris Savings Bank hereby establishes the Recognition
and Retention Plan (the "Plan") and related Trust (the "Trust")
upon the terms and conditions hereinafter stated in this
Recognition and Retention Plan.
ARTICLE II
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to recognize and retain
Outside Directors of experience and ability by providing such
persons with a proprietary interest in the Company as
compensation for their contributions to the Bank and its
Affiliates and as an incentive to make such contributions and to
promote the Bank's growth and profitability in the future.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Plan with
an initial capital letter, unless the context clearly indicates
otherwise, shall have the meanings set forth below. Wherever
appropriate, the masculine pronoun shall include the feminine
pronoun and the singular shall include the plural.
3.01 "Affiliate" means the Company and those subsidiaries of
the Bank or Company which, with the consent of the Board, agree
to participate in this Plan.
3.02 "Bank" means Harris Savings Bank.
3.03 "Beneficiary" means the person or persons designated by
a Recipient to receive any benefits payable under the Plan in the
event of such Recipient's death. Such person or persons shall be
designated in writing on forms provided for this purpose by the
Board and may be changed from time to time by similar written
notice to the Board. In the absence of a written designation, the
Beneficiary shall be the Recipient's surviving spouse, if any or
if none, his estate.
3.04 "Board" means the Board of Directors of the Bank.
3.05 "Common Stock" means shares of the common stock, $.01
par value per share, of the Bank.
<PAGE>
3.06 "Company" shall mean Harris Financial, MHC, the parent
holding company of the Bank.
3.07 "Conversion Transaction" shall mean the conversion of
the Company from the mutual to stock form of organization either
on a stand alone basis or in the context of a merger conversion.
3.08 "Disability" means disability as defined in the Savings
Bank's retirement plan, or if not so defined, shall mean the
permanent and total inability by reason of mental or physical
infirmity, or both, of an employee to perform the work
customarily assigned to him. Additionally, a medical doctor
selected or approved by the Board of Directors must advise the
Board that it is either not possible to determine when such
Disability will terminate or that it appears probable that such
Disability will be permanent during the remainder of said
participant's lifetime.
3.09 "Employee" means any person who is currently employed
on a full time basis by the Bank or an Affiliate, including
officers, but such term shall not include Outside Directors.
3.10 "Outside Director" means a member of the Board of
Directors of the Bank or the Company or a Director Emeritus of
the Savings Bank or the Company, who is not also an Employee.
3.11 "Plan Shares" means shares of Common Stock held in the
Trust and issued or issuable to a Recipient pursuant to the Plan.
3.12 "Plan Share Award" means a right granted under this
Plan to earn Plan Shares.
3.13 "Plan Share Reserve" means the shares of Common Stock
held by the Trustee pursuant to Sections 5.03 and 5.04.
3.14 "Recipient" means an Outside Director who receives a
Plan Share Award under the Plan.
3.15 "Reorganization" means the reorganization of the
Savings Bank from a Pennsylvania savings bank to a Pennsylvania
mutual holding company and the formation of a de novo
Pennsylvania capital stock savings bank as a majority-owned
subsidiary of the Company.
3.16 "Retirement" means termination of service on the board
of directors of the Bank pursuant to a written notice to the
Board as a whole of such Director's intention to retire or
retirement as determined by the Bank's bylaws.
3.17 "Trust" means the trust created by the trust agreement
between the Trustee and the Bank established to hold the Plan
assets.
3.18 "Trustee" means that person(s) or entity approved by
the Board to hold legal title to the Plan assets for the purposes
set forth herein.
<PAGE>
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 Administration. The Plan shall be administered by and
in accordance with its terms.
4.02 Limitation on Liability. No member of the Board shall
be liable for any determination made in good faith with respect
to the Plan or any Plan Shares or Plan Share Awards granted under
it. If a member of the Board is a party or is threatened to be
made a party to any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or
investigative, by reason of anything done or not done by him in
such capacity under or with respect to the Plan, the Bank shall
indemnify such member against expense (including attorneys'
fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with such action,
suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in the best interests of the Bank and
its Affiliates and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful.
ARTICLE V
CONTRIBUTIONS; PLAN SHARE RESERVE
5.01 Amount and Timing of Contributions. The Bank shall
contribute to the Trust an amount sufficient to purchase up to
0.84% of the shares of Common Stock issued by the Bank in
connection with the Reorganization. The Trustee may hold and
commingle contributions to the Plan and earnings thereon with the
assets of any other Recognition and Retention Plan maintained by
the Bank. No contributions by Outside Directors shall be
permitted.
5.02 Initial Investment. Any amounts held by the Trust
prior to the Reorganization of the Savings Bank, or until such
amounts are invested in accordance with Section 5.03, shall be
invested by the Trustee in such interest-bearing account or
accounts at the Bank as the Trustee shall determine to be
appropriate.
5.03 Investment of Trust Assets Upon the Conversion;
Creation of Plan Share Reserve. Upon the Reorganization, the
Trustee shall invest all of the Trust's assets exclusively in
Common Stock except as otherwise provided below; provided,
however, that the Trust shall not invest in more than 0.84% of
the shares of Common Stock issued in the Conversion, which shall
constitute the "Plan Share Reserve." In the event that all or a
portion of the designated number of the shares of Common Stock
are not available for purchase by the Trust in the Reorganization
and Offering, the Trustee in accordance with applicable rules and
regulations shall purchase shares of Common Stock in the open
market or, in the alternative, shall purchase authorized but
unissued shares of the Common Stock from the Bank sufficient to
fund the Plan Share Reserve. Any earnings received with respect
to Common Stock held in the Reserve shall be held in an interest-
bearing account. Any earnings received with respect to Common
Stock subject to a Plan Share Award shall be held in an interest-
bearing account on behalf of the individual Recipient.
<PAGE>
5.04 Effect of Allocations; Returns and Forfeitures Upon
Plan Share Reserves. Upon the allocation of Plan Share Awards
under Section 6.02, the Plan Share Reserve shall be reduced by
the number of Shares subject to the Awards so allocated or
returned. Any Shares subject to an Award which may not be earned
because of a forfeiture by the Recipient pursuant to Section 7.01
shall be returned (added) to the Plan Share Reserve.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 Eligibility. Outside Directors of the Bank and its
Affiliates are eligible to receive Plan Share Awards.
6.02 Allocations.
(a) Each Outside Director serving in such capacity as of
the date of the Bank's Conversion shall be granted a Plan Share
Award of 0.02% of the total number of shares of Common Stock
issued in connection with the Reorganization and Offering (the
"Fixed Award"). Each Outside Director serving in such capacity as
of the date of the Reorganization shall also be granted
additional Plan Share Awards (the "Fixed Service Awards") based
on years of service with the Bank which amounts shall be
cumulated in accordance with the following schedule:
<TABLE>
<CAPTION>
Years of Service Fixed Service Awards
---------------- --------------------
<S> <C>
4 0.02%
11 0.02%
23 0.02%
</TABLE>
In addition, each Director Emeritus of the Bank serving in
such capacity as of the date of the Reorganization shall receive
a Fixed Award and a Fixed Service Award in accordance with the
schedule set forth above.
(b) Each individual who is first elected as an Outside
Director subsequent to the date of the Bank's Conversion
("Subsequent Outside Directors") shall be granted a Plan Share
Award of 0.02% of the total number of shares issued in the
Reorganization, as of the effective date of such election.
Notwithstanding the preceding, no Plan Share Award shall be made
under this Plan to any Subsequent Outside Director who at any
previous time was an employee of either the Company or the Bank
and in such capacity was eligible for a Plan Share Award under
the Bank's Recognition and Retention Plan for officers and
employees.
If sufficient Plan Shares are not available under the Plan
for a Fixed Award to be made to a Subsequent Outside Director and
thereafter Plan Shares become available through forfeiture or by
reason of the purchase of additional shares of Common Stock by
the Plan Trustee, such Subsequent Outside Director(s) shall then
receive a Plan Share Award, sharing pro rata among each such
<PAGE>
Subsequent Outside Directors the number of Plan Shares then
available under the Plan; provided, that in no event shall such
Plan Share Award exceed 0.02% of the total number of shares
issued in connection with the Reorganization. The date of Award
shall be the date such Plan Shares become available.
6.03 Form of Allocation. As promptly as practicable after a
determination is made pursuant to Section 6.02 that a Plan Share
Award has been granted, the Recipient shall be notified in
writing of the grant of the Plan Share Award. Such notice shall
include the number of Plan Shares covered by the Award, and the
terms upon which the Plan Shares subject to the Award may be
earned. The Board shall maintain records as to all grants of Plan
Share Awards under the Plan.
ARTICLE VII
EARNING AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 Earning Plan Shares: Forfeitures.
(a) General Rules. Plan Shares subject to an Award shall be
earned by a Recipient at the rate of thirty-three and one third
percent (33-1/3%) of the aggregate number of shares covered by
the Award at the end of each full twelve months of consecutive
service with the Bank or an Affiliate after the date of grant of
the Award. If an Outside Director who has not reached Retirement
is not renominated, re-elected or otherwise discontinues service
on the Board prior to the third anniversary of the date of grant
of an Award for any reason (except as specifically provided in
Subsections (b) and (c) below), the Recipient shall forfeit the
right to earn any Shares subject to the Award which have not
theretofore been earned.
In determining the number of Plan Shares which are earned,
fractional shares shall be rounded down to the nearest whole
number, provided that such fractional shares shall be aggregated
and earned, on the third anniversary of the date of grant.
(b) Exception for Terminations Due to Death, Disability and
Retirement. Notwithstanding the general rule contained in Section
7.01(a) above, Plan Shares subject to a Plan Share Award held by
a Recipient whose service as an Outside Director with the Bank or
an Affiliate terminates due to death, Disability or Retirement,
or any part thereof which have not theretofore been earned, shall
be deemed earned as of the Recipient's last day of service as an
Outside Director with the Bank or an Affiliate; provided,
however, that if the Recipient's service terminates due to
Retirement within one year of the date of the Conversion, the
shares earned by the Recipient shall be distributed to the
Director on the first anniversary date of the Reorganization.
(c) Exception for Terminations After a Chance in Control.
Notwithstanding the general rule contained in Section 7.01(a)
above, all Plan Shares subject to a Plan Share Award held by a
Recipient whose service on the Board of Directors of the Bank or
an Affiliate terminates (or in the case of any director, such
director is not renominated or reelected to serve on the Board of
Directors of the Bank or the Company) following a Change in
Control of the Bank or Company, shall be
<PAGE>
deemed earned as of the Recipient's last day of service as an
Outside Director with the Bank or an Affiliate. A "Change in
Control" of the Bank or the Company shall mean (i) a plan of
reorganization, merger, merger conversion, consolidation or sale
of all or substantially all of the assets of the Bank or the
Company or a similar transaction occurs in which the Bank or the
Company is not the resulting entity; (ii) individuals who
constitute the board of directors of the Bank or the board of
directors of the Company on the date hereof cease for any reason
to constitute a majority thereof; or (iii) a change in control of
the Bank within the meaning of 12 C.F.R. Section 303.4(a) occurs
or a change in control of the Company within the meaning of 12
C.F.R. Section 225.41(b) occurs, as determined by the board of
directors of the Bank or the Company. In the event the Company
converts from the mutual form of organization to the stock form
of organization on a stand-alone basis at any time subsequent to
the effective date of this Agreement ("Stock Company"), a "change
in control" of the Bank or the Stock Company for purposes of this
Agreement shall mean an event of a nature that (I) would be
required to be reported in response to Item I of the current
report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"); or (II) results in a Change in Control of the
Savings Bank or the Holding Company within the meaning of the
Change in Bank Control Act and the Rules and Regulations
promulgated by the Federal Deposit Insurance Corporation ("FDIC")
at 12 C.F.R. Section 303.4(a) with respect to the Savings Bank
and the Board of Governors of the Federal Reserve System ("FRB")
at 12 C.F.R. Section 225.41(b) with respect to the Stock Company,
as in effect on the date hereof; (III) results in a transaction
requiring prior FRB approval under the Bank Holding Company Act
of 1956 and the regulations promulgated thereunder by the FRB at
12 C.F.R. Section 225.11, as in effect on the date hereof; or
(IV) without limitation such a Change in Control shall be deemed
to have occurred at such time as (A) any "person" (as the term is
used in Sections 13(d) and 14(d) of the Exchange Act) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the
Bank or the Stock Company representing 20% or more of the Bank's
or the Stock Company's outstanding securities except for any
securities of the Bank purchased by the Company and any
securities purchased by the Bank's employee stock ownership plan
and trust; or (B) individuals who constitute the Board of the
Bank or the Company on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof,
provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board,
or whose nomination for election by the Stock Company's
stockholders was approved by the same Nominating Committee
serving under an Incumbent Board, shall be, for purposes of this
clause, (B) considered as though he were a member of the
Incumbent Board; or (C) a plan of reorganization, merger,
consolidation, sale of all or substantially all the assets of the
Bank or the Stock Company or similar transaction occurs in which
the Bank or Stock Company is not the resulting entity; or (D) a
proxy statement shall be distributed soliciting proxies from
stockholders of the Stock Company, by someone other than the
current management of the Stock Company, seeking stockholder
approval of a plan of reorganization, merger or consolidation of
the Stock Company or Bank or similar transaction with one or more
corporations as a result of which the outstanding shares of the
class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities
not issued by the Bank or the Stock Company; or (E) a tender
offer is made for 20% or more of the voting securities of the
Bank or Stock Company then outstanding.
<PAGE>
(d) Revocation for Misconduct. Notwithstanding anything
hereinafter to the contrary, the Board may by resolution
immediately revoke, rescind and terminate any Plan Share Award,
or portion thereof, previously awarded under this Plan, to the
extent Plan Shares have not been delivered thereunder to the
Recipient, whether yet earned, in the case of an Outside Director
who is discharged from the Bank or an Affiliate for cause (as
hereinafter defined), or who is discovered after termination of
employment to have engaged in conduct that would have justified
termination for cause. "Cause" shall mean termination because of
personal dishonesty, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform
stated duties, or the willful violation of any law, rule or
regulation (other than traffic violations or similar offenses)
which result in a material loss to the Bank or the Company or
final cease and desist order.
7.02 Accrual of Dividends. Whenever Plan Shares are paid to
a Recipient or Beneficially under Section 7.03, such Recipient or
Beneficiary shall also be entitled to receive, with respect to
each Plan Share paid, an amount equal to any cash dividends and a
number of shares of Common Stock equal to any stock dividends,
declared and paid with respect to a share of Common Stock between
the date the relevant Plan Share Award was granted and the date
the Plan Shares are being distributed. There shall also be
distributed an appropriate amount of net earnings, if any, of the
Trust with respect to any cash dividends so paid out.
7.03 Distribution of Plan Shares.
(a) Timing of Distributions: General Rule. Plan Shares
shall be distributed to the Recipient or his Beneficiary, as the
case may be, as soon as practicable after they have been earned.
(b) Form of Distribution. All Plan Shares, together with
any shares representing stock dividends, shall be distributed in
the form of Common Stock. One share of Common Stock shall be
given for each Plan Share earned and payable. Payments
representing accumulated cash dividends (and earnings thereon)
shall be made in cash or Common Stock.
7.04 Voting of Plan Shares. After a Plan Share Award has
been granted, the Recipient shall be entitled to direct the
Trustee as to the voting of the Plan Shares which are covered by
the Plan Share Award and which have not yet been earned and
distributed to him pursuant to Section 7.03. All shares of Common
Stock held by the Trust as to which Recipients are not entitled
to direct, or have not directed, the voting, shall be voted by
the Trustee in the same proportion as Plan Shares which have been
awarded and voted.
ARTICLE VIII
MISCELLANEOUS
8.01 Adjustments for Capital Changes. In the event of any
change in the outstanding shares of Common Stock of the Company
by reason of any stock dividend or split, recapitalization,
merger, consolidation, spin-off, reorganization, combination or
exchange of shares, or other similar corporate change, or other
increase or decrease in such shares effected without receipt or
payment of
<PAGE>
consideration by the Company, the Board shall adjust the
aggregate number of Plan Shares available for issuance pursuant
to the Plan and shall adjust the number of shares to which any
Plan Share Award relates to prevent dilution or enlargement of
the rights granted to the Recipient under the Plan.
8.01A Treatment of Plan Shares in the Event of
Conversion Transaction. In the event that the Holding Company
converts to stock form in a Conversion Transaction ("Stock
Holding Company"), any Plan Share Awards and rights to Plan
Shares shall be exchanged into shares of Common Stock of the
Stock Holding Company, provided, however, that if for any reason
such shares are not to be exchanged, the Stock Holding Company
shall, simultaneously with the closing of the Conversion
Transaction, purchase Plan Share Awards and rights to Plan Shares
for cash equal to the fair market value of such Awards or Shares.
Any exchange of shares or cash payment for shares shall be
subject to applicable federal and state regulations and, if
necessary, subject to the approval of the appropriate Regulatory
authorities.
8.02 Amendment and Termination of Plan. The Board may, by
resolution, at any time amend or terminate the Plan and Trust;
provided that Section 6.02 and 7.01 shall not be amended more
than once every six months other than to comport with the
Internal Revenue Code of 1986, as amended, or the Employee
Retirement Income Security Act of 1974, as amended, or the rules
thereunder. Except as provided in Section 9.01 hereof, rights and
obligations under any Plan Share Award granted before an
amendment shall not be altered or impaired by such amendment
without the written consent of the Recipient. If the Plan becomes
qualified under 17 C.F.R. Section 16b-3 of the rules and
regulations promulgated under the Exchange Act and an amendment
would require shareholder approval under such rule 16b-3 to
retain the Plan's qualification, then such amendment shall be
presented to shareholders for ratification, provided, however,
that the failure to obtain shareholder ratification shall not
affect the validity of this Plan as so amended and the Plan Share
Awards granted thereunder. The power to amend or terminate shall
include the power to direct the Trustee to return to the Bank all
or any part of the assets of the Trust, including proceeds from
the sale of shares of Common Stock held in the Plan Share
Reserve, as well as shares of Common Stock and other assets
subject to Plan Share Awards but not yet earned by the Recipients
to whom they are allocated; provided that any shares of Common
Stock held by the Trust as part of its assets must be disposed of
by the Trustee prior to returning the proceeds representing such
assets to the Company. However, the termination of the Trust
shall not affect a Recipient's right to earn Plan Share Awards
and to the distribution of Common Stock relating thereto,
including earnings thereon, in accordance with the terms of this
Plan.
8.03 Nontransferable. Plan Share Awards and rights to Plan
Shares shall not be transferable by a Recipient, and during the
lifetime of the Recipient, Plan Shares may only be earned by and
paid to the Recipient who was notified in writing of the Award by
the Board pursuant to Section 6.03.
8.04 Service Rights. Neither the Plan nor any grant of a
Plan Share Award or Plan Shares hereunder nor any action taken by
the Trustee or the Board in connection with the Plan shall create
<PAGE>
any right on the part of any Outside Director to continue in the
service of the Bank or an Affiliate thereof, or the Company.
8.05 Voting and Dividend Rights. No Recipient shall have
any voting or dividend rights or other rights of a shareholder in
respect of any Plan Shares covered by a Plan Share Award, except
as expressly provided in Sections 7.02 and 7.04 above, prior to
the time said Plan Shares are actually distributed to him.
8.06 Governing Law. The Plan and Trust shall be governed by
the laws of the Commonwealth of Pennsylvania.
8.07 Effective Date. This Plan is effective as of the
effective date of the Reorganization. Following Reorganization,
the Plan shall be presented to shareholders of the Bank for
ratification for purposes of (i) obtaining favorable treatment
under Section 16(b) of the Securities Exchange Act of 1934; and,
if applicable, (ii) maintaining (if listed) listing on the Nasdaq
National Market; provided, however, that the failure to obtain
shareholder ratification will not affect the validity of the Plan
and the Plan Share Awards thereunder.
8.08 Compliance with Section 16. If this Plan is qualified
under 17 C.F.R. Section 240.16b-3 of the Exchange Act Rules,
transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. To the extent any provision of the Plan fails to so
comply, it shall be deemed null and void, to the extent permitted
by law.
8.09 Term of Plan. This Plan shall remain in effect until
the earlier of (1) 21 years from the Effective Date, (2)
termination by the Board of Directors of the Bank, or (3) the
distribution of all assets of the Trust. Termination of the Plan
shall not affect any Plan Share Awards previously granted, and
such Awards shall remain valid and in effect until they have been
earned and paid, or by their terms expire or are forfeited.
IN WITNESS WHEREOF, the Bank has established this Plan
effective to be executed by its duly authorized executive officer
and the corporate seal to be affixed and duly attested, effective
as of the ----- day of ----------------, 1993.
By: ------------------------------
Attest:
- ------------------------------
<PAGE>
EMPLOYMENT CONTRACT
BETWEEN
THE HARRIS SAVINGS
BANK
AND
------------------------------------
MEMORANDUM OF AGREEMENT, made and entered into this ----- day of
- -------------, 19--, by and between THE HARRIS SAVINGS BANK
(hereinafter referred to as the "Bank") AND ---------------,
(hereinafter referred to as "Employee"):
WITNESSETH:
WHEREAS, Employee has been employed by the Bank for more
than (____) year(s) and the efforts of said employee have been
of great value in the successful operation of the Bank; and
WHEREAS, the Bank desires, insofar as possible, to insure
that it will retain the benefits of Employee's services until
retirement and as part-time counsel and advisor thereafter; and
NOW, THEREFORE, in consideration of the services already
performed and of the covenants and agreements hereinafter set
forth, and of other good and valuable consideration, the receipt
of which is hereby acknowledged, IT IS HEREBY AGREED, by and
between the parties hereto, as follows:
1. The Bank agrees to retain the services of Employee in
the capacity of ------------, for a period of one (1) year from
the date of ----------, 19-- on each annual anniversary of this
Contract starting on the day of ----------, 19-- it shall be
renewable upon agreement for a new period of one (1) year.
2. Employee hereby accepts such employment by the Bank in
the capacity specified and agrees to devote full-time and best
efforts in carrying out any duties and responsibilities assigned.
3. The Bank agrees to pay Employee and Employee agrees to
accept from the Bank as compensation for the services to be
rendered hereunder a salary at the rate of ---------- ($------)
DOLLARS per annum. This salary shall consist of a currently paid
amount of ---------- ($------) DOLLARS per annum and a deferred
sum in the amount of ---------- ($------) DOLLARS per annum. It
is the intention of the Bank to review the above compensation
annually, and if a consistent record of sound performance is
maintained, and if the economic condition of the Bank warrants
it, then appropriate increases in the annual compensation may be
made, with an allocation to currently paid amounts and deferred
amounts as agreed upon by the parties hereto.
4. Employee shall be entitled to retire from the active
employment of the Bank at age sixty-five (65), the Normal
Retirement Age. It is contemplated, however, that Employee may
<PAGE>
continue in the employ of the Bank beyond this time. Full-time
employment may be offered by the Trustees of the Bank on a year-
to-year basis, if circumstances warrant, and if Employee agrees
to such employment. If Employee is in the employment of the Bank
at the date of retirement or if in the part-time employment of
the Bank at the date of retirement, the Bank agrees to pay to
Employee, from the balance of the deferred compensation account
hereinafter explained, a payment due on the first of each month
and paid in one hundred twenty (120) approximately equal
installments. In the event of Employee's death before receiving
the total one hundred twenty (120) payments, the Bank agrees to
continue the payments to such person or persons as Employee may
designate by written instrument filed with the Bank, and if there
be no such written designation in effect at the time of death or
if all named beneficiaries have predeceased Employee, then to
Employee's estate, until the total of the payments made to
Employee, beneficiaries, or Employee's estate, approximately
equal one hundred twenty (120). Employee reserves the right to
change the beneficiaries of this plan at any time by filing a
written instrument of such intent with the Bank. Deferred
compensation earned under this Agreement shall be recorded as a
monthly expense and credited to a liability account described as
Deferred Compensation which will be payable to Employee at age
sixty-five (65), or in the event of Employee's death before age
sixty-five (65), according to the provisions of paragraph 5. The
amounts earned by Employee and recorded in the Deferred
Compensation Account shall be credited with interest at such
dates and rates as comparable depositors accounts are credited by
the Bank during the year, except that at the time of establishing
any monthly payments a fixed rate, based on comparable term
Treasury securities, shall be established. Amounts so earned by
Employee shall not be forfeitable for any reason.
5. If Employee should die before age sixty-five (65) while
an employee of the Bank, the Bank agrees that it shall pay the
deferred payments to designated beneficiaries or estate in one
hundred twenty (120) approximately equal installments as so
provided in Paragraph 4, payments beginning within two (2) months
after Employee's death.
6. In the event that any time before reaching age sixty-
five (65) Employee's employment is terminated with the Bank for
any reason other than permanent disability, the Bank agrees that
when Employee shall reach age sixty-five (65), it will begin
deferred compensation payments as provided in paragraph 4. In the
event that any time before reaching age sixty-five (65) Employee
shall terminate employment with the Bank because of permanent
disability or shall become permanently disabled after terminating
employment with the Bank and before reaching the age of sixty-
five (65), the Bank agrees that it shall begin the deferred
payments beginning within two (2) months after Employee's
permanent disability in the manner provided in paragraph 5.
7. Notwithstanding Paragraphs 4 and 6, the Pension
Administrative Committee (as appointed in the Harris Savings
Association Pension Plan and Trust Agreement effective October 1,
1959, as amended January 1, 1976, and more particularly as stated
in Article VIII thereof), in its sole discretion, is empowered to
permit payments for said Deferred Compensation to be paid upon
early retirement or termination after the Employee reaches the
age of sixty (60) years.
8. The Bank hereby empowers the Pension Administrative
Committee, in its sole discretion, to negotiate a payment
schedule for said Deferred Compensation of less than one hundred
twenty (120) monthly payments and/or defer monthly payments, as
provided in
<PAGE>
paragraphs 4, 6 and 7 above, until no later than January of the
year following retirement. In those cases where the Employee's
Deferred Compensation account under paragraphs 4, 5, 6 and 7 is
less than $25,000.00, the Committee, upon the written request of
an employee, is empowered, in its sole discretion, to pay to the
employee the full amount in a lump sum distribution.
9. Neither Employee nor any person receiving payments
under this contract shall have the right or power to transfer,
assign, anticipate, pledge or mortgage or otherwise encumber in
advance any of the payments to be made to him or to any such
person. Nor shall any interest hereunder of Employee or any such
person be liable for any claims of any creditors.
10. This Agreement supersedes any previous Contract of
employment whether oral or written between Employee and the Bank
and such previous Contract or Contracts, if any there be, are
hereby canceled. This Agreement shall have no effect, however,
upon the rights of Employee under any Pension Plan or Trust to
which the Bank may make contributions, whether now in effect or
hereafter established, nor shall it prevent the Bank from paying
to Employee any bonuses that it may, from time to time, desire to
pay. In addition thereto, the required provisions of the Federal
Home Loan Bank Board Regulations, particularly section 563.39 -1
Employment Contracts, and section (B) Required Provisions, are
made a part hereof and incorporated herein by reference.
IN WITNESS WHEREOF, ------------------------- has hereunto
set his hand and seal and THE HARRIS SAVINGS BANK has caused this
instrument to be signed by its Trustees and its corporate seal to
be affixed hereunto and attested by its Assistant Secretary or
Secretary, all on the day and year first above written.
THE HARRIS SAVINGS BANK
Attest:
By: -------------------------- By: --------------------------
Witness:
- ------------------------------ ------------------ (SEAL)
<PAGE>
DESIGNATION OF BENEFICIARY
Name of Employee ------------------------------------------------
Social Security No. ------------------- Date of Birth ---------
Employee's Address ----------------------------------------------
City and State --------------------------------------------------
I hereby designate the following as my beneficiary(ies)
under my Employment Contract with THE HARRIS SAVINGS BANK dated
- ---------, 19--, hereby revoking all prior designations, if any,
made by me:
NAME/RELATIONSHIP MAILING ADDRESS
Primary
Beneficiary(ies):
- ------------------------- -----------------------------------
- ------------------------- -----------------------------------
- ------------------------- -----------------------------------
- ------------------------- -----------------------------------
Contingent
Beneficiary(ies):
- ------------------------- -----------------------------------
- ------------------------- -----------------------------------
- ------------------------- -----------------------------------
- ------------------------- -----------------------------------
Dated: ---------------, 19--
Witness:
- ------------------------- -----------------------------------
(Witness should not be (Signature of Employee)
a beneficiary)
<PAGE>
CHANGE-IN-CONTROL AGREEMENT
This AGREEMENT is made effective as of ----------- by and
among Harris Savings Bank (the "Savings Bank"), a Pennsylvania
chartered savings bank, with its principal administrative office
at Second & Pine Streets, Harrisburg, Pennsylvania, Harris
Financial, MHC (the "Holding Company"), a corporation organized
under the laws of the Commonwealth of Pennsylvania which is the
holding company for the Savings Bank, and ------------- (the
"Executive").
WHEREAS, the Savings Bank recognizes the substantial
contribution Executive has made to the Savings Bank and wishes to
protect Executive's position therewith for the period provided in
this Agreement; and
WHEREAS, Executive has been elected to, and has agreed to
serve in the position of ----------------- for the Savings Bank,
a position of substantial responsibility.
NOW, THEREFORE, in consideration of the contribution and
responsibilities of Executive, and upon the other terms and
conditions hereinafter provided, the parties hereto agree as
follows:
1. TERM OF AGREEMENT.
The term of this Agreement shall be deemed to have commenced
as of the date first above written and shall continue for a
period of thirty-six (36) full calendar months thereafter.
Commencing on the first anniversary date of this Agreement and
continuing at each anniversary date thereafter, the Agreement
shall renew for an additional year such that the remaining term
shall be three (3) years unless written notice is provided to the
Executive at least ten (10) days and not more then twenty (20)
days prior to any such anniversary date, that this Agreement
shall cease at the end of the thirty-six months following such
anniversary date. Prior to the written notice period for
nonrenewal, the Board of Directors of the Savings Bank ("Board")
will conduct a formal performance evaluation of the Executive for
purposes of determining whether to extend the Agreement, and the
results thereof shall be included in the minutes of the Board's
meeting.
2. PAYMENTS TO EXECUTIVE UPON CHANGE IN CONTROL.
(a) Upon the occurrence of a Change in Control of the
Savings Bank or the Holding Company (as herein defined) followed
at any time during the term of this Agreement by the voluntary
(for any of the bases set forth below) or involuntary termination
of Executive's employment, other than for Cause, as defined in
Section 2(c) hereof, the provisions of Section 3 shall apply.
Upon the occurrence of a Change in Control, Executive shall have
the right to elect to voluntarily terminate his employment at any
time during the term of this Agreement following any demotion,
loss of title, office or significant authority, reduction in his
annual compensation, relocation of his principal place of
employment by more than 30 miles from its location immediately
prior to the Change in Control or the failure to continue in
effect any vacation benefits, pension plan, dental plan, life
insurance plan, health, accident or disability plan in which
<PAGE>
Executive is participating immediately prior to the Change in
Control.
(b) "Change in Control" of the Bank or the Holding Company
shall mean (i) a plan of reorganization, merger, merger
conversion, consolidation or sale of all or substantially all of
the assets of the Bank or the Holding Company or a similar
transaction occurs in which the Bank or the Holding Company is
not the resulting entity; (ii) individuals who constitute the
board of directors of the Bank or the board of trustees of the
Holding Company on the date hereof cease for any reason to
constitute a majority thereof; or (iii) a change in control
within the meaning of 12 C.F.R. Section 303.4(a) or 12 C.F.R.
Section 225.41(b) occurs, as determined by the board of directors
of the Bank or the board of trustees of the Holding Company. In
the event the Holding Company converts from the mutual form of
organization to the stock form of organization at any time
subsequent to the effective date of this Agreement ("Stock
Holding Company"), a "change in control" of the Bank or the Stock
Holding Company for purposes of this Agreement shall mean an
event of a nature that: (I) would be required to be reported in
response to Item 1 of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or (II)
results in a Change in Control of the Savings Bank or the Stock
Holding Company within the meaning of the Change in Bank Control
Act and the Rules and Regulations promulgated by the Federal
Deposit Insurance Corporation ("FDIC") at 12 C.F.R. Section
303.4(a) with respect to the Savings Bank and the Board of
Governors of the Federal Reserve System ("FRB") at 12 C.F.R.
Section 225.41(b) with respect to the Stock Holding Company, as
in effect on the date hereof; (III) results in a transaction
requiring prior FRB approval under the Bank Holding Company Act
of 1956 and the regulations promulgated thereunder by the FRB at
12 C.F.R. Section 225.11, as in effect on the date hereof; or
(IV) without limitation such a Change in Control shall be deemed
to have occurred at such time as (a) any "person" (as the term is
used in Sections 13(d) and 14(d) of the Exchange Act) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the
Bank or the Stock Company representing 20% or more of the Bank's
or the Stock Company's outstanding securities except for any
securities of the Bank purchased by the Stock Company in
connection with the conversion of the Company to the stock form
and any securities purchased by the Bank's employee stock
ownership plan and trust; or (b) individuals who constitute the
Board on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof
whose election was approved by a vote of at least three-quarters
of the directors comprising the Incumbent Board, or whose
nomination for election by the Stock Company's stockholders was
approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (b),
considered as though he were a member of the Incumbent Board; or
(c) a plan of reorganization, merger, consolidation, sale of all
or substantially all the assets of the Bank or the Stock Company
or similar transaction occurs in which the Bank or Stock Company
is not the resulting entity; or (d) a proxy statement shall be
distributed soliciting proxies from stockholders of the Stock
Company, by someone other than the current management of the
Stock Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Stock Company or
Bank or similar transaction with one or more corporations as a
result of which the outstanding shares of the class of securities
then subject to such plan or transaction are exchanged for or
converted into cash or property or securities not issued by the
Bank or the Stock Company; or (e) a tender offer is made for 20%
or more of the voting securities
<PAGE>
of the Bank or Stock Company then outstanding.
(c) Executive shall not have the right to receive
termination benefits pursuant to Section 3 hereof upon
Termination for Cause. The term "Termination for Cause" shall
mean termination because of the Executive's personal dishonesty,
willful misconduct, any breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, or regulation (other than
traffic violations or similar offenses) or final cease-and-desist
order, or material breach of any material provision of this
Agreement. For purposes of this Section, no act, or the failure
to act on Executive's part shall be "willful" unless done or
omitted to be done, not in good faith and without reasonable
belief that the action or omission was in the best interests of
the Holding Company or the Savings Bank. Notwithstanding the
foregoing, Executive shall not be deemed to have been Terminated
for Cause unless and until there shall have been delivered to him
a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than
two-thirds of the members of the Board at a meeting of the Board
called and held for that purpose (after reasonable notice to the
Executive and an opportunity for him, together with counsel, to
be heard before the Board), finding that in the good faith
opinion of the Board, the Executive was guilty of conduct
justifying Termination for Cause and specifying the particulars
thereof in detail. The Executive shall not have the right to
receive compensation or other benefits for any period after
Termination for Cause. Any stock options or limited rights
granted to Executive under any stock option plan or any unvested
awards granted to Executive under a Recognition and Retention
Plan of the Savings Bank, the Company or any subsidiary or
affiliate thereof, shall become null and void effective upon
Executive's receipt of Notice of Termination for Cause and shall
not be exercisable by Executive at any time subsequent to such
Termination for Cause.
3. TERMINATION BENEFITS.
(a) Upon the occurrence of a Change in Control, followed at
any time during the term of this Agreement by the voluntary or
involuntary termination of the Executive's employment, other than
for Termination for Cause, the Savings Bank and the Company shall
pay the Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be,
as severance pay or liquidated damages, or both, a sum equal to
three (3) times the average of the three preceding years' base
salary, including bonuses and any other cash or deferred
compensation paid, or to be paid, to the Executive for such years
and the amount of any contributions made, on behalf of the
Executive, to any employee benefit plans maintained by the
Savings Bank or the Holding Company for such years, except to the
extent such benefits are otherwise payable to Executive under
such plans upon a Change in Control.. At the election of the
Executive such payment may be made in a lump sum or paid in equal
monthly installments during the twelve (12) months following the
Executive's termination. In the event that no election is made,
payment to the Executive will be made on a monthly basis during
the remaining term of this Agreement.
(b) Upon the occurrence of a Change in Control of the
Savings Bank or the Holding Company followed at any time during
the term of this Agreement by the Executive's voluntary or
involuntary termination of employment, other than for Termination
for Cause, the Savings Bank
<PAGE>
shall cause to be continued life, medical, dental and disability
coverage substantially identical to the coverage maintained by
the Savings Bank for the Executive prior to his severance. Such
coverage and payments shall cease upon the expiration of thirty-
six (36) months.
(c) Upon the occurrence of a Change in Control, the
Executive shall be entitled to receive benefits due him under, or
contributed by the Bank on his behalf pursuant to any retirement,
incentive, profit sharing, bonus, performance, disability or
other employee benefit plan maintained by the Bank on the
Executive's behalf to the extent that such benefits are not
otherwise paid to the Executive under a separate provision of
this Agreement.
(d) Notwithstanding the preceding paragraphs of this Section
3, in the event that:
(i) the aggregate payments or benefits to be made or
afforded to the Executive under said paragraphs (the "Termination
Benefits") would be deemed to include an "excess parachute
payment" under Section 280G of the Internal Revenue Code of 1986
(the "Code") or any successor thereto, and
(ii) if such Termination Benefits were reduced to an amount
(the "Non-Triggering Amount"), the value of which is one dollar
($1.00) less than an amount equal to three (3) times Executive's
"base amount," as determined in accordance with said Section
280G, and the Non-Triggering Amount would be greater than the
aggregate value of the Termination Benefits (without such
reduction) minus the amount of tax required to be paid by the
Executive thereon by Section 4999 of the Code, then the
Termination Benefits shall be reduced to the Non-Triggering
Amount. The allocation of the reduction required hereby among the
Termination Benefits provided by the preceding paragraphs of this
Section 3 shall be determined by the-Executive.
4. NOTICE OF TERMINATION.
(a) Any purported termination by the Savings Bank, the
Holding Company or by Executive shall be communicated by Notice
of Termination to the other party hereto. For purposes of this
Agreement, a "Notice of Termination" shall mean a written notice
which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in
the Notice of Termination which, in the instance of Termination
for Cause, shall be immediate.
5. SOURCE OF PAYMENTS.
It is intended by the parties hereto that all payments
provided in this Agreement shall be paid in cash or check from
the general funds of the Savings Bank. The Holding Company,
however, guarantees payment and provision of all amounts and
benefits due hereunder to the Executive and, if such amounts and
benefits due from the Savings Bank are not timely paid or
<PAGE>
provided by the Savings Bank, such amounts and benefits shall be
paid or provided by the Holding Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the
parties hereto and supersedes any prior agreement between the
Savings Bank and the Executive, except that this Agreement shall
not affect or operate to reduce any benefit or compensation
inuring to the Executive of a kind elsewhere provided. No
provision of this Agreement shall be interpreted to mean that the
Executive is subject to receiving fewer benefits than those
available to him without reference to this Agreement.
Nothing in this Agreement shall confer upon the Executive
the right to continue in the employ of Savings Bank or shall
impose on the Savings Bank any obligation to employ or retain the
Executive in its employ for any period.
7. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments
under this Agreement shall be subject to anticipation,
commutation, alienation, sale, assignment, encumbrance, charge,
pledge, or hypothecation, or to execution, attachment, levy, or
similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action
shall be null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the
benefit of, the Executive, the Savings Bank and their respective
successors and assigns.
8. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by
an instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed
to have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement, except by written
instrument of the party charged with such waiver or estoppel. No
such written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each such waiver shall operate
only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or
as to any act other than that specifically waived.
9. REQUIRED REGULATORY PROVISIONS.
(a) The Board may terminate the Executive's employment at
any time, but any termination by the Board, other than
Termination for Cause, shall not prejudice the Executive's right
to compensation or other benefits under this Agreement. The
Executive shall not have the right to
<PAGE>
receive compensation or other benefits for any period after
Termination for Cause as defined in Section 2 hereinabove.
10. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any
part of any provision, is held invalid, such invalidity shall not
affect any other provision of this Agreement or any part of such
provision not held so invalid, and each such other provision and
part thereof shall to the full extent consistent with law
continue in full force and effect.
11. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included
solely for convenience of reference and shall not control the
meaning or interpretation of any of the provisions of this
Agreement.
12. GOVERNING LAW.
The validity, interpretation, performance, and enforcement
of this Agreement shall be governed by Pennsylvania law.
13. ARBITRATION.
Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration
in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided,
however, that the Executive shall be entitled to seek specific
performance of his right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under
or in connection with this Agreement.
In the event any dispute or controversy arising under or in
connection with Executive's termination is resolved in favor of
the Executive, whether by judgment, arbitration or settlement,
Executive shall be entitled to the payment of all back-pay,
including salary, bonuses and any other cash compensation, fringe
benefits and any compensation and benefits due Executive under
this Agreement.
14. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and legal fees paid or incurred by the
Executive pursuant to any dispute or question of interpretation
relating to this Agreement shall be paid or reimbursed by the
Savings Bank (which payments are guaranteed by the Holding
Company pursuant to Section 5 hereof) if Executive is successful
pursuant to a legal judgment, arbitration or settlement:
<PAGE>
15. INDEMNIFICATION.
The Savings Bank shall provide Executive (including his or
her legal representatives, successors and assigns) with coverage
under a standard directors' and officers' liability insurance
policy at its expense, or in lieu thereof, shall indemnify
Executive (including his or her legal representatives, successors
and assigns) to the fullest extent permitted under Pennsylvania
law against all expenses and liabilities reasonably incurred by
Executive in connection with or arising out of any action, suit
or proceeding in which he may be involved by reason of his having
been a trustee or officer of the Savings Bank (whether or not he
continues to be a trustee or officer at the time of incurring
such expenses or liabilities); such expenses or liabilities to
include, but not limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements for
reasonable costs and expenses incurred by Executive in defending
or settling any judicial or administrative proceeding, or
threatened proceeding, whether civil, criminal or otherwise,
including any appeal or other proceeding for review.
Indemnification by the Savings Bank shall be made only upon
the final judgment on the merits in the favor of the Executive,
in case of settlement, in case of final judgment against
Executive or in the case of final judgment in favor of Executive
other than on the merits, if a majority of the disinterested
directors of the Savings Bank determine Executive was acting in
good faith within the scope of Executive's employment or
authority.
Any such indemnification of Executive for such expenses and
liabilities are to include, but not be limited to, judgments,
court costs and attorneys' fees and the cost of reasonable
settlements, such settlements to be approved by the Board of
Directors of the Savings Bank, if such action is brought against
Executive in his or her capacity as a officer or trustee of the
Savings Bank, provided however, such indemnity shall not extend
to matters as to which Executive is finally adjudged to be liable
for willful misconduct in the performance of his or her duties.
16. SUCCESSOR TO THE BANK.
The Savings Bank shall require any successor or assignee,
whether direct or indirect, by purchase, merger, consolidation or
otherwise, to all or substantially all the business or assets of
the Savings Bank or the Holding Company, expressly and
unconditionally to assume and agree to perform the Savings Bank's
obligations under this Agreement, in the same manner and to the
same extent that the Savings Bank would be required to perform if
no such succession or assignment had taken place.
17. SIGNATURES.
IN WITNESS WHEREOF, Harris Savings Bank and Harris
Financial, MHC have caused this Agreement to be executed by their
duly authorized officers, and Executives have signed this
Agreement, on the ------- day of -----------------.
<PAGE>
ATTEST HARRIS SAVINGS BANK
- ------------------------------ BY: --------------------------
SEAL
ATTEST HARRIS FINANCIAL, MHC
(Guarantor)
- ------------------------------ BY: --------------------------
SEAL
WITNESS:
- ------------------------------ BY: --------------------------
<PAGE>
HARRIS SAVINGS BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAIN
THIS SUPPLEMENTAL RETIREMENT PLAN (the "Agreement") is made
this ----- day of ---------------------, 1994, by and between
HARRIS SAVINGS BANK, (the "Bank")
and
----------------------, an individual employed by the Bank,
and each other employee of the Bank who is designated by the Bank
and becomes a signatory to this Agreement (each an "Employee").
Introduction
The Bank maintains the Harris Savings Bank Pension Plan, the
Harris Retirement Savings Incentive Plan and the Harris Savings
Bank Employee Stock Ownership Plan for the benefit of the Bank's
eligible employees. The Bank has amended the Plans periodically
to continue its compliance with ERISA and its qualification under
Section 401(a) of the Code.
The Revenue Reconciliation Act of 1993 amended Section
401(a)(17) of the Code. This amendment reduced each Employee's
compensation that could be considered under the Plans. The Bank
has adopted this Agreement, in order to supplement the reduced
benefit the Employee may receive under the Plans, in light of
amended Section 401(a)(17) of the Code, and in light of benefit
and contribution limitations under Section 415 of the Code.
ARTICLE I
Definitions
In this Plan, unless the context clearly implies to the
contrary, the singular includes the plural and the masculine
includes the feminine. This Agreement incorporates by reference
all defined terms set forth in Article I of the Plans, as amended
from time to time, and in addition adopts the following
definitions:
1.01 "Bank" shall mean HARRIS SAVINGS BANK, a Corporation,
having its principal place of business in Harrisburg,
Pennsylvania
1.02 "Employee" shall mean the party under this Agreement
who shall have been designated by the Board of Directors as
eligible for participation under this Agreement and who has
become a signatory to this Agreement.
1.03 "Agreement" shall mean this agreement.
<PAGE>
1.04 "Pension Plan" shall mean the Harris Savings Bank
Pension Plan. "Savings Plan" shall mean the Harris Retirement
Savings Incentive Plan. "ESOP" shall mean Harris Savings Bank
Employee Stock Ownership Plan. "Plans" shall mean all three of
the above listed plans.
1.05 "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
1.06 "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.07 "Payment" shall mean the supplemental retirement
benefit specified in this Agreement
1.08 "93 Compensation Benefit" shall mean the Actuarial
Equivalent of the Accrued Benefit payable to the Employee under
the terms of the Pension Plan, as amended from time to time;
provided, however, that the 93 Compensation Benefit shall in all
events be determined in accordance with Section 401(a)(17) of the
Code as it existed prior to amendment by The Revenue
Reconciliation Act of 1993, including the provision for
adjustments of the annual compensation limit. In the event the
Pension Plan is terminated, the 93 Compensation Benefit shall be
determined as a result of such termination and shall not increase
or decrease beyond such termination. For purposes of determining
the 93 Compensation Benefit, compensation shall include deferred
compensation for a given year under a Deferred Compensation
Employment contract between the Bank and the Employee.
Compensation shall exclude all amounts due to the exercising of
stock options on behalf of the Employee.
1.09 "Reduced Compensation Benefit" shall mean the Actuarial
Equivalent of the Accrued Benefit Payable to the Employee under
the terms of the Pension Plan, as amended from time to time. In
the event the Pension Plan is terminated, the Reduced
Compensation Benefit shall mean the Actuarial Equivalent of the
Accrued Benefit payable to the Employee under the terms of the
Plan as a result of such termination
1.10 "Excess Compensation" shall mean, for a given plan
year, the excess of compensation determined in accordance with
Section 401(a)(17) of the Code as it existed prior to amendment
by The Revenue Reconciliation Act of 1993 (including provision
for the adjustments of the annual compensation limit, excluding
all amounts due to the exercising of stock options on behalf of
the Employee and excluding deferred compensation under a Deferred
Compensation Employment contract), over the Section 401(a)(17)
limit in effect for such plan year. In no event shall Excess
Compensation be less than zero.
1.11 "Equalization Account" shall refer to benefits related
to the Savings Plan and the ESOP. Each plan year beginning
January 1, 1994 and continuing for the term of this agreement,
the equalization account shall be credited with the sum of (a)
and (b) below:
(a) With respect to the Savings Plan, a percentage shall be
determined each year equal to the 401(k) deferral percentage for
the Employee, multiplied by 25%. In no event shall such
percentage exceed the employer matching percentage multiplied by
the maximum percentage of compensation which is subject to
matching in that year (e.g. 25% x 6.0% = 1.5%). Such
<PAGE>
percentage shall be multiplied by the Employee's Excess
Compensation to determine the equalization credit for that year.
(b) With respect to the ESOP, a percentage shall be
determined each year equal to the contributions and forfeitures
allocated to the Employee under the ESOP for the plan year,
divided by the Employee's compensation (as limited by Code
Section 401(a)(17)) for that year. Such percentage shall be
multiplied by the Employee's Excess Compensation to determine the
equalization credit for that year.
1.12 "Beneficiary" shall mean any person or trust, or
combination thereof, last designated as provided in this
Agreement to receive the Payment, or any part thereof, following
the death of the Employee.
1.13 "Compensation Committee" shall mean the individual or
individuals appointed by the Board of Directors of the Bank to
administer this Agreement. Each individual appointed will serve
until the earlier of his resignation of the position or his
removal by the Board of Directors. In the absence of such
appointment, the Board of Directors shall constitute the
Compensation Committee.
1.14 "Actuarial Equivalent" shall mean a form of benefit
differing in time, period or manner of payment from a specified
benefit but having the same value. Actuarial Equivalent benefits
shall be determined based on the following mortality and interest
assumptions:
Mortality table: UP-1984
Interest rate: 7.0%
In the event of any inconsistency between the definitions in
this Article and the definitions in the Plans which are
incorporated by reference in this Agreement, the provisions of
this Agreement shall control.
ARTICLE II
General Provisions
2.01 The Bank will pay to the Employee the Payment in the
amount, at the times, and in the form specified in this
Agreement.
2.02 The Bank and the Employee intend the Payment to
coordinate with the benefits payable to the Employee under the
Plans. The terms and conditions of the Payment will be determined
by the Compensation Committee. The Compensation Committee shall
make its determinations by reference to the Plans in a manner
consistent with this Agreement.
<PAGE>
ARTICLE III
Payment Amount
3.01 The Payment shall be the sum of (a) and (b) below:
(a) With respect to the Pension Plan, the excess, if any, of
the 93 Compensation Benefit over the Reduced Compensation
Benefit.
(b) With respect to the Savings Plan and the ESOP, the
accumulated credits in the Employee's Equalization Account, if
any.
3.02 The Payment shall be zero if, before the Employee
attains age 65, the Employee's employment with the Bank
terminates, whether voluntarily or involuntarily, for any reason
other than the Employee's death or disability. Notwithstanding
the preceding sentence the Compensation Committee may, in its
sole discretion, permit the Payment to be paid upon early
retirement or termination after the Employee reaches the age of
55.
ARTICLE IV
Form of Payment
4.01 The Payment shall be paid in such form (i.e., single
sum or 10 equal annual installments) as the Compensation
Committee shall, in its sole discretion, determine after
consideration of both the situation of the Employee and the
interests of the Bank.
4.02 Each form of the Payment considered by the Compensation
Committee, for purposes of this Agreement and regardless of any
contrary provision in the Plan, shall be the Actuarial Equivalent
of each other form of the Payment.
4.03 Should the Compensation Committee fail to select the
form of the Payment prior to the time specified in Article V for
commencement of the Payment, subject to the provisions of Section
4.01 hereof, the Payment will be made at the times specified in
this Agreement in 10 equal annual installments.
ARTICLE V
Time of Payment
5.01 The time for commencement of any Payment shall be
determined by the reason for commencement and shall be determined
consistently with the terms and conditions of the Pension Plan.
5.02 The Payment made under this Agreement on account of
normal retirement shall be made over the time period determined
by the form of the Payment. The Payment hereunder will
<PAGE>
commence at the time that the Employee's normal or late
retirement benefits under the Pension Plan would commence. The
Compensation Committee may, in its sole discretion, defer
commencement of the Payment until no later than January of the
year following retirement.
By way of example and not of limitation, if the form of the
Payment is 10 equal annual installments, such installments of the
Payment will be made at the same time each year.
5.03 If the Payment commences as a result of the disability
(as defined under the Pension Plan) of the Employee, the Payment
will commence at the same time that benefits under the Pension
Plan payable on account of the disability of the Employee would
commence.
5.04 If the Payment commences as a result of the death of
the Employee, the Payment will commence at the same time that
benefits under the Pension Plan payable on account of the death
of the Employee would commence.
ARTICLE VI
Other Provisions
6.01 The Bank may establish, solely for accounting purposes
and not for the purpose of creating a fund or reserve for the
payment of amount hereunder, an unfunded account entry in the
name of the Employee, in order to record the amount of the
Payment credit. The amount of the Payment credit unpaid under
this Agreement may be credited to the Employee's account at the
times corresponding to the actuarial valuations of the Plans.
From the effective date of this Agreement, any Payment so
credited shall be credited to the account of the Employee only
for accounting purposes. Such account will be adjusted
periodically in a manner consistent with the terms and conditions
of this Agreement, the Plans, and the actuarial assumptions
applied to this Agreement.
6.02 The Payment, or any portion thereof, payable after the
death of the Employee shall be paid to the Employee's
Beneficiary. The Employee may designate the Beneficiary only by
the Employee's written designation on a form provided by the Bank
and filed with the Bank by the Employee during the Employee's
lifetime.
6.03 In the event the Employee fails to designate a
Beneficiary, the Beneficiary shall be the Employee's legal spouse
at the date of death. If there is no surviving spouse, the
Beneficiary shall be the person or trust, or combination thereof,
which the Employee designated in accordance with the Savings Plan
as the recipient of the benefits payable under the Savings Plan
as a result of the Employee's death. In the absence of a
designation by the Employee either pursuant to this Agreement or
in accordance with the Savings Plan, the Beneficiary shall be the
estate of the Employee.
6.04 If the Bank determines that the Employee (or the
Beneficiary, as the case may be) is unable to manage his affairs
due to illness, accident, or incapacity, the Payment shall be
made to the attorney-in-fact, guardian, or other legal
representative of the Employee (or the Beneficiary).
<PAGE>
Any such payment shall completely discharge any liability of the
Bank under this Agreement.
6.05 The rights of the Employee, and his beneficiary, under
this Agreement shall be solely those of an unsecured creditor of
the Bank. If the Bank has or shall acquire any securities or
other property in connection with any liabilities created
hereunder, such securities or other property shall not be deemed
to be held in trust for the benefit of the Employee or his
beneficiary, or to be collateral security for the performance of
any obligation of the Bank, but shall be and remain as general,
unpledged, unrestricted assets of the Bank. The right to any
payments granted by this Agreement shall be reflected on the
Bank's books of accounts as a general, unsecured, and unfunded
obligation, and no trust in the Employee's favor is intended or
implied.
6.06 Neither the Employee nor any other payee hereunder
shall have any right to commute, sell, assign, transfer, encumber
or otherwise convey the right to receive the Payment hereunder.
The Payment and the right thereto are expressly declared to be
nonassignable and nontransferable and, in the event of any
attempted assignment or transfer, the Bank shall have no further
liability to any person by reason of this Agreement. In no event
for the purposes of this paragraph shall the designation of, or
the payment to, a Beneficiary hereunder be considered a
commutation, sale, assignment, transfer, or any other type of
conveyance by the Employee.
6.07 The Bank shall be entitled in its sole discretion to
withhold the amount of any tax attributable to any amount payable
or accrued hereunder, after giving notice to the person entitled
to receive such payment or accrual.
6.08 Nothing contained in this Agreement shall be
interpreted or construed to confer upon the Employee the right to
continue in the employment of the Bank in any capacity.
6.09 The Compensation Committee shall have complete power
and authority to interpret, construe, and administer this
Agreement. The interpretations, constructions and actions of the
Compensation Committee in connection with this Agreement,
including but not limited to the valuation of the Payment, the
determination of the amount of the Payment, and the determination
of the recipient of the Payment, shall be binding and conclusive
on all persons for all purposes, subject to review as provided by
Section 6.10. If the Employee is a member of the Compensation
Committee with respect to this Agreement as executed by and
between the Bank and other designated employees, he shall be
disqualified from participating in any Committee actions related
to himself. None of the Bank, its trustees, directors, officers,
employees, or agents, specifically including the members of the
Compensation Committee, shall be liable to any person for any act
or omission in connection with the interpretation, construction,
or administration of this Agreement, unless such act or omission
constitutes willful misconduct.
6.10 If the Employee believes an amount that has not been
paid is due under this Agreement, the Employee may submit a
written claim to the Compensation Committee. Within sixty (60)
days after the claim is submitted, the Compensation Committee
shall notify the Employee that the claim has been allowed or
denied, The Compensation Committee shall explain the specific
reasons for any denial. Within ninety (90) days of a denial, the
Employee may request review of the denial and submit his
arguments to the reviewer. The request shall be reviewed by
<PAGE>
the Board of Directors of the Bank. Within thirty (30) days after
the review is requested, the decision shall be made and
communicated, together with the reasons for the decision, to the
Employee.
6.11 This Agreement shall be binding upon and shall inure to
the benefit of the successors and assigns of the Bank and of the
Employee, his heirs, and legal representatives.
6.12 The Bank and the Employee hereby agree that the Bank in
its sole discretion shall have the right to set off against any
payment to be made under this Agreement any amount owing, in the
sole opinion and discretion of the Bank, to the Bank by the
Employee, at the time of the payment. The set-off may be made in
the sole discretion of the Bank either in whole or in part
against any or all payments to be made hereunder, until the
amount owing to the Bank plus interest at the short-term
Applicable Federal Rate, if any, is zero.
6.13 In the event of any inconsistency between this
Agreement and any contract of employment between the Bank and the
Employee, whether such contract of employment predates or follows
the adoption of this Agreement, the provisions of this Agreement
shall control.
6.14 Neither the Bank nor any of its employees will be
liable for any tax or other liability that the Employee and/or
the Employee's Beneficiary may incur in connection with this
Agreement. The Employee agrees to rely upon legal counsel
selected by him to determine the actual tax consequences of this
Agreement for the Employee.
6.15 The Bank has the sole and absolute discretion to amend
or terminate this Agreement for any reason or no reason
whatsoever; provided, however, that the amendment or termination
may not decrease the amount of the Payment, except that the
amount of the Payment may decrease as a result of changes to
Section 401(a)(17) or Section 415 after the date of such
amendment or termination. Upon termination of this Agreement, the
amount of the Payment shall be fixed, except for adjustments due
to revisions to Section 401(a)(17) or Section 415 and shall be
paid by the Bank in the form selected by the Compensation
Committee upon the later of the commencement of the Employee's
benefits under the Pension Plan or the Employee's actual
retirement from the Bank. This Section shall survive the
termination of this Agreement.
6.16 This Agreement shall be construed and interpreted
according to the laws of the Commonwealth of Pennsylvania.
<PAGE>
INTENDING TO BE LEGALLY BOUND, the Bank has caused this
Agreement to be executed by its duly authorized officers and the
Employee has hereunto set his hand and seal as of the first date
above written.
Date this ------ day of -------------------, 19--
HARRIS SAVINGS BANK
- ------------------------------ ------------------------------
Attest
EMPLOYEE
- ------------------------------ ------------------------------
Witness
<PAGE>
HARRIS SAVINGS BANK
PROXY
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 15, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Ernest P.
Davis, William J. McLaughlin and Frank R. Sourbeer and each or
any of them, proxies of the undersigned, with full power of
substitution, to vote all of the shares of Harris Savings Bank
(the "Bank") which the undersigned may be entitled to vote at the
Annual Meeting of Shareholders of the Bank to be held at the
Zembo Temple, Third and Division Streets, Harrisburg,
Pennsylvania 17110 on Tuesday, April 15, 1997, at 10:00 a.m.,
prevailing time, and at any adjournment or postponement thereof,
as follows:
1. ELECTION OF FIVE (5) CLASS III DIRECTORS TO SERVE FOR A
THREE-YEAR TERM.
Samuel M. Altdoerffer, Sr., Bruce S. Isaacman, Robert E.
Kessler, William E. McClure, Jr., Donald B. Springer
[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY to
above (except as marked vote for all nominees
to the contrary below) listed above
(INSTRUCTION: To withhold authority to vote for any
individual nominee, write that nominee's name in the space
provided below)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF
THE CLASS III DIRECTORS LISTED ABOVE.
- -----------------------------------------------------------------
2. PROPOSAL TO CONSIDER AND VOTE UPON THE AGREEMENT AND PLAN OF
REORGANIZATION (THE "PLAN OF REORGANIZATION") PROVIDING FOR
THE ESTABLISHMENT OF HARRIS FINANCIAL, INC. (THE "STOCK
HOLDING COMPANY") AS A STOCK HOLDING COMPANY PARENT OF THE
BANK WHICH STOCK HOLDING COMPANY WILL BE MAJORITY OWNED BY
HARRIS FINANCIAL, MHC (THE "MUTUAL HOLDING COMPANY"), THE
BANK'S MUTUAL HOLDING COMPANY. PURSUANT TO THE PLAN OF
REORGANIZATION: (I) THE BANK WILL BECOME A WHOLLY OWNED
SUBSIDIARY OF THE STOCK HOLDING COMPANY; (II) THE STOCK
HOLDING COMPANY WILL BECOME A MAJORITY OWNED SUBSIDIARY OF
THE MUTUAL HOLDING COMPANY, AND (III) EACH OUTSTANDING SHARE
OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OF THE BANK WILL
BE CONVERTED INTO ONE SHARE OF COMMON STOCK, PAR VALUE $.01
PER SHARE, OF THE STOCK HOLDING COMPANY.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
- -----------------------------------------------------------------
<PAGE>
3. In their discretion, the proxy holders are authorized to
vote for such other business as may properly come before the
Annual Meeting and any adjournment or postponement thereof.
THIS PROXY, WHEN PROPERLY SIGNED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION
IS MADE, THE PROXY WILL BE VOTED FOR ALL NOMINEES LISTED ABOVE
AND FOR APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION.
This proxy must be dated, signed by the shareholder exactly as
the name appears below and returned promptly in the enclosed
envelope. When signing as attorney, executor, administrator,
trustee or guardian, please give full title. If more than one
trustee, all should sign. If stock is held jointly, each owner
should sign.
Dated: ------------------, 1997
-----------------------------------
Signature
-----------------------------------
Signature
