Registration No. 33-------
As filed with the Securities and Exchange Commission on
February 26, 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
of securities to Amount to be offering price Proposed maximum Amt. of
be registered registered per unit offering price reg. fee
- - --------------------------------------------------------------------------------
<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.
</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,
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
Wm. J. McLaughlin
President and Chief Executive
Officer
March 14, 1997
Harrisburg, Pennsylvania
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
INTRODUCTION 1
Solicitation and Voting of Proxies 1
Revocability of Prospectus/Proxy 1
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 5
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 7
Class II Director To Serve Until 1997 8
Directors 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 14
APPROVAL OF THE PLAN OF REORGANIZATION 15
Summary 15
Reasons for the Stock Holding Company Reorganization 16
Plan of Reorganization 17
Effective Date 18
Optional Exchange of Stock Certificates 18
Rights of Dissenting Shareholders 19
Tax Consequences 19
Consequences Under Federal Securities Laws 19
Conditions to the Reorganization 19
Effect of the Reorganization on any Future
Mutual-to-Stock Conversion of the Mutual Holding
Company 20
Amendment, Termination or Waiver 20
Business of the Bank 20
Business of the Stock Holding Company 20
Management of the Stock Holding Company 21
Indemnification of Officers and Directors and
Limitation of Liability 21
Comparison of Shareholder Rights and Certain
Anti-Takeover Provisions 24
Regulation of the Stock Holding Company 27
DESCRIPTION OF CAPITAL STOCK OF THE STOCK HOLDING COMPANY 29
General 29
<PAGE>
Common Stock 29
Preferred Stock 29
Accounting Treatment 29
Vote Required 30
LEGAL PROCEEDINGS 30
INDEPENDENT AUDITORS 31
ANNUAL REPORT 31
SHAREHOLDERS PROPOSALS 31
OTHER MATTERS 31
ADDITIONAL INFORMATION 31
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.
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.
Revocability of Prospectus/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.
(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/INFORMATION 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.
<PAGE>
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 Percent of
or Identity of Group Beneficial Ownership(1) 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>
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.
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature
Name of Individual of Beneficial Percent
or Identity of Group Ownership(1) 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 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. 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.
<PAGE
(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) The percent of class 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
<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 pursuant to the Plan of Reorganization,
was at a price of $19 1/2 per share.
<PAGE>
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 FRB
regulatory restrictions 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
In connection with the FRB and 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 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
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.
<PAGE>
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 December 31, 1996, the Mutual Holding Company had
waived $11.6 million of dividends declared by the Bank.
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 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
<PAGE>
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 Bancor, 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.
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
<PAGE>
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.
Directors 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.
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.
<PAGE>
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the
"Exchange Act"), and the Regulations of the Federal Deposit
Insurance Corporation ("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 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, 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 percent 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.
<PAGE>
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>
Annual Compensation Long-Term Compensation
-------------------------------------- -----------------------------------
Awards Payouts
------------------------- -------
Restricted Shares
Name and Principal Other Annual Stock Awards Underlying All Other
Position Year Salary Bonus Compensation Shares(2) Options(3) Payouts Compensation(4)
- - ------------------ ---- ------ ----- ------------ ------------ ---------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William J. McLaughlin 1996 $200,039 $49,757 --- $--- --- --- $15,359
President and Chief 1995 187,820 45,213 --- --- --- --- 12,969
Executive Officer 1994 143,909 39,978 --- $399,375 40,000 --- 1,781
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, Sr. 1996 $103,116 $19,612 --- --- --- --- $ 6,948
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 Div. 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
(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.
</TABLE>
PAGE
<PAGE>
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>
<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>
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
<PAGE>
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, Messers. 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 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.
<PAGE>
As of December 31, 1996, Messers. 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 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 Securities and Exchange Commission's Regulation
S-K, 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.
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.
<PAGE>
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
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.
<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 (the "Reorganization"). In the
Reorganization, a new Pennsylvania chartered stock holding
company (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 (the "Reorganization"), each outstanding
share of Bank Common Stock will be converted into one share of
common stock of Harris Financial, Inc. ("Holding Company Common
Stock"), a newly-formed Pennsylvania capital stock corporation
(the "Stock Holding Company"), and the holders of Bank Common
Stock will become the holders of all of the outstanding Holding
Company Common Stock. Accordingly, as a result of the
Reorganization, the owners of Bank Common Stock other than the
Mutual Holding Company ("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.
<PAGE>
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 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.
Recent changes in the federal tax laws generally require that
thrift institutions pay the tax on their excess bad debt reserves
accumulated for tax purposes since 1987, but exempt from taxation
the pre-1988 tax bad debt reserves for thrift institutions that
have used the percentage of taxable income method for computing
bad debt reserves. However, certain distributions and
redemptions, such as stock repurchases, are not exempt and may be
subject to taxation. Accordingly, if the Bank were to repurchase
any of its outstanding common stock, it would cause recapture of
all or part of its pre-1988 excess tax bad debt reserves. The
Stock Holding Company, however, 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.
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.
<PAGE>
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.
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 |
| |-------------- | |
- - -------------------------| -------------------|
<PAGE>
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 |
| |
- - -------------------------|
<PAGE>
The Board of Directors of the Bank presently intends to
capitalize the Stock Holding Company with up to $10.0 million,
subject to the approval of the FRB. 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. As
of December 31, 1996, the Bank's shareholders' equity was $153
million or 8.6% of total assets, leverage capital was $125
million or 7.3% of total assets used for purposes of calculating
the Bank's leverage capital ratio, and risk-based capital was
$134 million or 14.7% of total assets used for purposes of
calculating the Bank's risk-based capital ratio. If the
Reorganization had been effected on such date, the Stock Holding
Company's consolidated shareholders' equity would have been $153
million, or 8.6% of total assets, and the Bank's shareholders'
equity would have been $143 million or 8.0% of total assets,
leverage capital would have been $115 million or 6.7% of total
assets used for purposes of calculating the Bank's leverage
capital ratio, and risk-based capital would have been $124
million or 13.6% of total assets used for purposes of calculating
the Bank's risk-based capital ratio.
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. The Board of Directors of
the Stock Holding Company has no present plans or intentions with
respect to any future issuance of securities at this time.
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 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.
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.
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.
<PAGE>
Rights of Dissenting Shareholders
Shareholders will not have dissenters' rights of appraisal
in connection with the Reorganization.
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 the 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
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.
<PAGE>
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.
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 totalled $515 million or 6.2%
of total loans. The Bank also emphasizes the origination of
consumer loans which at December 31, 1996 totalled $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 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.
<PAGE>
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.
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.
<PAGE>
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.
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.
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 be
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, 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 full
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
<PAGE>
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 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
<PAGE>
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-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 authorizes 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
<PAGE>
of the Stock Holding Company authorizes 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 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. Moreover, such additional share
issuances could be construed as having an anti-takeover effect.
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 Board of
Directors pursuant to a resolution approved by the affirmative
vote of a majority of directors then in office.
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 means that 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,
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
<PAGE>
dissenters' rights of appraisal if the their common stock 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 ten 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 provide for shareholders'
nomination for the election of directors or 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, ninety 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 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.
<PAGE>
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.
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. Such action by the Board of Directors requires
the affirmative vote of a majority of the directors then in
office at any regular or special meeting. Such action by the
shareholders generally requires the affirmative vote of the
majority of the shares of the Stock Holding Company entitled to
vote in an election of directors, provided 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.
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.
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.
<PAGE>
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. The FRB
also has determined that certain other activities, including real
estate brokerage and syndication, property management and
underwriting of life insurance not related to credit
transactions, are closely related to banking or a proper incident
thereto.
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.
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
<PAGE>
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.
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. On September 29, 1994,
the President signed into law the Riegle-Neal Interstate Banking
and Branching Efficiency Act ("Riegle-Neal Act"). The 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.
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
<PAGE>
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.
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/Information
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
<PAGE>
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 Securities and
Exchange Commission, 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 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
AGREEMENT AND PLAN OF REORGANIZATION
<PAGE>
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 I, 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
<PAGE>
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.
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.
<PAGE>
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:
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.
<PAGE>
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,
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.
<PAGE>
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 I
(in formation)
By: \s\ William J. McLaughlin
--------------------------------------
William J. McLaughlin
President and Chief Executive Officer
<PAGE>
EXHIBIT B
ARTICLES OF INCORPORATION OF HARRIS FINANCIAL, INC.
<PAGE>
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
<PAGE>
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.
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
<PAGE>
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.
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
<PAGE>
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.
<PAGE>
(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:
(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
<PAGE>
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 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
<PAGE>
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 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.
<PAGE>
EXHIBIT C
BYLAWS OF HARRIS FINANCIAL, INC.
<PAGE>
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.
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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
<PAGE>
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.
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 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
<PAGE>
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 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
<PAGE>
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.
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.
(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.
<PAGE>
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
<PAGE>
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.
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
<PAGE>
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.
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;
<PAGE>
(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;
<PAGE>
(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.
(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.
<PAGE>
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 resolution of the Board of Directors.
<PAGE>
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.
<PAGE>
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.
(g)(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 February 18, 1997.
HARRIS FINANCIAL, INC.
Date: 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: February 18, 1997 Date: February 18, 1997
By: /s/ Samuel M. Altdoerffer By: /s/ Ernest P. Davis
---------------------------- --------------------------
Samuel M. Altdoerffer, Ernest P. Davis, Director
Sr., Director
Date: February 18, 1997 Date: February 18, 1997
By: /s/ Jimmie C. George By: /s/ Robert A. Houck
---------------------------- --------------------------
Jimmie C. George, Director Robert A. Houck, Director
Date: February 18, 1997 Date: February 18, 1997
By: /s/ Robert E. Kessler By:/s/ Robert R. Roebuck
---------------------------- --------------------------
Robert E. Kessler, Director Robert R. Roebuck, Director
Date: February 18, 1997 Date: February 18, 1997
By: /s/ William A. Siverling By:/s/ Frank R. Sourbeer
---------------------------- --------------------------
William A. Siverling, Director Frank R. Sourbeer, Director
Date: February 18, 1997 Date: February 18, 1997
By: /s/ Bruce S. Isaacman
----------------------------
Bruce S. Isaacman, Director
Date: February 18, 1997
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
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 Form of Opinion of Luse Lehman Gorman Pomerenk &
Schick, A Professional Corporation regarding
legality of securities.
5.2 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 Employment Contract dated March 13, 1993 between
the Bank and Bernard H. Sarfert, Sr.*
10.7 Employment Contract dated March 13, 1993 between
the Bank and Lyle B. Shugart*
10.8 Change in Control Agreement dated January 25, 1994
between the Bank and William J. McLaughlin*
10.9 Change in Control Agreement dated January 25, 1994
between the Bank and James L. Durrell*
10.10 Change in Control Agreement dated January 25, 1994
between the Bank and William M. Long*
10.11 Change in Control Agreement dated January 25, 1994
between the Bank and Lyle B. Shugart*
24.1 Consent of Luse Lehman Gorman Pomerenk & Schick, A
Professional Corporation (contained in opinion
filed as Exhibit 5.1)*
99 Form of proxy to be mailed to shareholders of
Harris Savings Bank.
- - ----------------------
*To be filed by amendment
</TABLE>
<PAGE>
(202) 274-2000
April --, 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 ---------- shares of Common
Stock, par value $0.01 per share of which -------- shares will be
issued immediately and -------- 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,
----------------------------------------
LUSE LEHMAN GORMAN POMERENK & SCHICK
A Professional Corporation
<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
