[HARRIS FINANCIAL, INC. LOGO]
March 19, 1998
Dear Shareholder:
You are cordially invited to attend the 1998 First Annual Meeting of
Shareholders of Harris Financial, Inc., a parent of Harris Savings Bank, at the
Zembo Temple, Third and Division Streets, Harrisburg, Pennsylvania 17110 on
Tuesday, April 21, 1998 at 10:00 a.m., prevailing time. Enclosed you will find
an Annual Report together with a Notice of Annual Meeting and accompanying Proxy
Statement. The Proxy Statement describes the business to be transacted at the
meeting and provides other information concerning the Corporation and 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 and such other business as may properly be presented at the meeting.
In addition, we plan to review the status of the Corporation's and the Bank's
business at the meeting.
It is important that your shares be represented whether or not you are
personally able to attend. In order to ensure that you will be represented, we
ask that you promptly sign, date, and return the enclosed proxy card.
Sincerely,
/s/ Charles C. Pearson, Jr.
----------------------------
Charles C. Pearson, Jr.
President and Chief Executive Officer
<PAGE>
[HARRIS FINANCIAL, INC. LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 21, 1998
TO THE SHAREHOLDERS OF HARRIS FINANCIAL, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Harris
Financial, Inc., (the "Corporation") will be held on Tuesday, April 21, 1998, 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 three (3) Class I Directors to serve until the expiration
of their three-year term and until their successors are duly elected and
qualified.
2. 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 Corporation, and action by the Board
of Directors, only those shareholders of record as of the close of business on
March 9, 1998, will be entitled to notice of and to vote at the Annual Meeting
and any adjournment or postponement thereof.
A copy of the Corporation's Annual Report for the fiscal year ended
December 31, 1997, 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 Corporation Pursuant to an
Order of its Board of Directors
/s/ Charles C. Pearson, Jr.
----------------------------
Charles C. Pearson, Jr.
President and Chief Executive Officer
March 19, 1998
Harrisburg, Pennsylvania
<PAGE>
INDEX
PAGE
----
INTRODUCTION................................................ 1
Solicitation and Voting of Proxies........................ 2
Revocability of Proxy..................................... 2
Voting Securities, Record Date and Quorum................. 2
PRINCIPAL BENEFICIAL OWNERS OF THE CORPORATION'S COMMON
STOCK..................................................... 3
Principal Owners.......................................... 3
Beneficial Ownership by Officers, Directors and
Nominees............................................... 3
MARKET INFORMATION.......................................... 5
DIVIDEND POLICY............................................. 5
General................................................... 5
Dividend Waivers by the Mutual Holding Company............ 5
ELECTION OF DIRECTORS....................................... 7
Class I Nominees Proposed By the Board of Directors To
Serve Until 2001....................................... 7
Continuing Class II Directors To Serve Until 1999......... 8
Continuing Class III Directors To Serve Until 2000........ 8
Continuing Class III Director To Serve Until 1999......... 8
Class III Director To Serve Until 1998.................... 8
Interim Director.......................................... 8
Directors Emeritus........................................ 8
Meetings and Committees of the Board...................... 9
Section 16(a) Beneficial Ownership Compliance............. 9
Executive Officers Who Are Not Directors.................. 9
Certain Transactions...................................... 10
Executive Compensation.................................... 11
Compensation of Directors................................. ?
Compensation Committee Interlocks and Insider
Participation.......................................... 15
Board Compensation Committee Report on Executive
Compensation........................................... 15
Shareholder Return Performance Graph...................... 17
LEGAL PROCEEDINGS........................................... 18
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 18
ANNUAL REPORT............................................... 18
SHAREHOLDER PROPOSALS....................................... 18
OTHER MATTERS............................................... 18
ADDITIONAL INFORMATION...................................... 18
<PAGE>
HARRIS FINANCIAL, INC.
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 21, 1998
INTRODUCTION
This Proxy Statement and enclosed form of proxy are being furnished in
connection with the solicitation by the Board of Directors of Harris Financial,
Inc., (the "Corporation"), a Pennsylvania corporation, of proxies to be voted at
the Annual Meeting of Shareholders of the Corporation to be held on Tuesday,
April 21, 1998, 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 Corporation is located at 235 North
Second Street, Harrisburg, Pennsylvania 17101. The Corporation was organized in
September, 1997 in the reorganization of Harris Financial, MHC, and Harris
Savings Bank's corporate structures. The Corporation was incorporated in
February, 1997 and organized in September, 1997 pursuant to the approval of the
Plan of Reorganization approved by shareholders of Harris Savings Bank at its
Annual Meeting on April 15, 1997.
The organization's corporate structure is now established as set forth in
the following diagram:
[In the printed version there appears a chart showing the corporate structure
and ownership of Common Stock.]
Each share of Harris Savings Bank (hereinafter "Bank") stock ($.01 par
value) was converted to one share of Harris Financial, Inc. stock ($.01 par
value) after the Reorganization. Subsequently, the Corporation declared a split
in the form of a stock dividend of two additional shares of Corporation stock
($.01 par value) for each share of stock outstanding.
Harris Savings Bank, as the result of the Reorganization, became the
wholly-owned subsidiary of the Corporation. The Corporation's stock is owned by
Harris Financial, MHC (the "Mutual Holding Company") approximately 75.2% and
minority shareholders, approximately 24.8%.
At present, the sole subsidiary of Harris Financial, Inc., is Harris
Savings Bank and the Corporation is the sole subsidiary of the Mutual Holding
Company.
Due to the short year of the Corporation, since September 16, 1997, the
remaining identity between the Officers and Directors of the Bank and the
Corporation and so that information for the Corporation not be misleading,
information will be provided in the pages following for both the Corporation and
the Bank, where deemed appropriate.
1
<PAGE>
SOLICITATION AND VOTING OF PROXIES
This Proxy Statement and the enclosed form of proxy are first being sent to
shareholders of the Corporation on or about March 19, 1998. 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 I Directors named below 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 Corporation. The cost of preparing,
assembling, printing, mailing and soliciting proxies, and any additional
materials which the Corporation may furnish shareholders in connection with the
Annual Meeting, will be borne by the Corporation. In addition to the use of the
mails, certain directors, officers, and employees of the Corporation may solicit
proxies personally, by telephone or by telecopier. The Corporation 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 PROXY
Any shareholder giving a proxy has the power to revoke the proxy at any
time before it is voted by giving notice to the Secretary of the Corporation,
Richard C. Ruben, at 235 North Second Street, Harrisburg, Pennsylvania 17101, by
executing a later-dated proxy and giving notice thereof to the Secretary, or by
voting in person at the Annual Meeting after giving notice to the Secretary.
VOTING SECURITIES, RECORD DATE AND QUORUM
The Corporation is authorized to issue 100,000,000 shares of common stock.
At the close of business on February 3, 1998, the Corporation had 33,910,400
shares of common stock, par value $.01 per share ("Common Stock") outstanding
and held of record by approximately 3,730 shareholders. The Corporation is also
authorized to issue 10,000,000 shares of series preferred stock, $.01 per share
of which none are issued to date.
Only holders of record of Common Stock, as of the close of business on
March 9, 1998, 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 Harris Financial,
MHC, (the "Holding Company") owns 25,500,000 shares, or approximately 75.2% of
the Common Stock outstanding and has indicated its intent to vote for the
nominees for Class I Directors named below.
Assuming the presence of a quorum, the three 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.
2
<PAGE>
PRINCIPAL BENEFICIAL OWNERS OF THE CORPORATION'S COMMON STOCK
PRINCIPAL OWNERS
The following table sets forth, as of January 31, 1998, 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 Common Stock, the number of shares
beneficially owned by such persons and the percentage of the outstanding shares
of Common Stock so owned.
NAME OF INDIVIDUAL AMOUNT AND NATURE PERCENT
OR IDENTITY OF GROUP OF BENEFICIAL OWNERSHIP(1) OF CLASS
-------------------- -------------------------- --------
Harris Financial, MHC 25,500,000 75.2%
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."
BENEFICIAL OWNERSHIP BY OFFICERS, DIRECTORS AND NOMINEES
The following table sets forth, as of January 31, 1998, the amount and
percentage of Common Stock beneficially owned by each director, each nominee,
each executive officer and all directors and executive officers of the
Corporation as a group. Unless otherwise noted in a footnote, each Corporation
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 Corporation director and executive officer.
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL AMOUNT AND NATURE PERCENT
OR IDENTITY OF GROUP OF BENEFICIAL OWNERSHIP(1) OF CLASS
-------------------- -------------------------- --------
<S> <C> <C>
Charles C. Pearson(2)........................... 4,000 *
Samuel M. Altdoerffer, Sr.(7)................... 33,375(14) *
Ernest P. Davis(3).............................. 15,447 *
Jimmie C. George(4)............................. 38,139(15) *
Robert A. Houck(4).............................. 27,408(16) *
Bruce S. Isaacman(5)............................ 24,125(17) *
Robert E. Kessler(6)............................ 27,879(18) *
C. Ted Lick(8).................................. 14,799 *
William E. McClure, Jr.(5)...................... 8,100 *
Robert R. Roebuck(8)............................ 15,998 *
William A. Siverling(4)......................... 29,745(19) *
Frank R. Sourbeer(3)............................ 49,876 *
Donald B. Springer(5)........................... 6,000(20) *
James L. Durrell(9)............................. 54,908(21) *
William M. Long(10)............................. 48,774(22) *
Lyle B. Shughart(11)............................ 35,434(23) *
John C. Coulson(12)............................. 300(24) *
Richard C. Ruben(13)............................ 14,661(25) *
All Directors and Executive Officers as a Group
(18 Persons).................................. 448,968(26) 1.6%(26)
</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
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
(Footnotes continued on next page)
3
<PAGE>
(Footnotes continued from previous page)
which the individual has, or shares, voting or investment power or has the
right to acquire beneficial ownership within 60 days after January 31,
1998. Beneficial ownership may be disclaimed as to certain of the
securities.
(2) Class I Director, whose term expires in 1998 and a nominee for Class I
Director, whose term will expire in 2001. President and Chief Executive
Officer of the Corporation and the Bank.
(3) Class I Director, whose term expires in 1998 and a nominee for Class I
Director, whose term will expire in 2001.
(4) Class II Director, whose term expires in 1999
(5) Class III Director whose term expires in 2000
(6) Class III Director whose term expires in 1999. Chairman of the Board.
(7) Class III Director whose term expires in 1998.
(8) Director Emeritus of the Bank
(9) Executive Vice President, Chief Financial Officer and Interim Director of
the Corporation and the Bank.
(10) Senior Vice President of the Corporation and Senior Vice President of the
Lending Division of the Bank.
(11) Senior Vice President of the Corporation and Senior Vice President of the
Retail Services Division of the Bank.
(12) Senior Vice President and Chief Information Officer of the Bank.
(13) Senior Vice President, Chief Legal Officer and Corporate Secretary of the
Corporation and the Bank.
(14) Includes 2,250 shares of Common Stock held individually by Mr.
Altdoerffer's spouse.
(15) Includes 9,816 shares of Common Stock held individually by Mr. George's
spouse, 600 shares held in trust for Mr. George's children and 11,250
shares of Common Stock that may be received upon exercise of options that
have or will vest prior to 60 days after January 31, 1998.
(16) Includes 16,875 shares of Common Stock that may be received upon exercise
of options that have or will vest prior to 60 days after January 31, 1998.
(17) Includes 5,625 shares of Common Stock that may be received upon exercise of
options that have or will vest prior to 60 days after January 31, 1998.
(18) Includes 17,004 shares of Common Stock held individually by Mr. Kessler's
spouse and 10,875 shares of Common Stock that may be received upon exercise
of options that have or will vest prior to 60 days after January 31, 1998.
(19) Includes 8,817 shares of Common Stock held individually by Mr. Siverling's
spouse and 4,500 shares held in a profit sharing plan of which Mr.
Siverling is the beneficiary.
(20) Held jointly with Mr. Springer's spouse.
(21) Includes 3,414 shares of Common Stock held jointly with Mr. Durrell's
spouse, 8,594 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 28,800 shares of Common Stock that may be received upon
exercise of options that have or will vest prior to 60 days after January
31, 1998.
(22) Includes 6,474 shares of 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 22,500 shares of Common Stock that may be received
upon exercise of options that have or will vest prior to 60 days after
January 31, 1998.
(23) Includes 5,875 shares purchased and held by the Bank's ESOP that are
allocated to Mr. Shughart's account and over which he exercises investment
control, 7,500 shares of Common Stock that may be received upon exercise of
options that have or will vest prior to 60 days after January 31, 1998 and
16,650 held jointly with Mr. Shughart's spouse.
(24) Held jointly with Mr. Coulson's spouse
(25) Includes 852 shares of Common Stock held individually by Mr. Ruben's
spouse.
(26) Assumes all outstanding options issued to the directors and officers have
been exercised.
4
<PAGE>
MARKET INFORMATION
The Corporation's Common Stock is listed on the Nasdaq National Market
under the symbol "HARS." As of December 31, 1997, the Corporation had eight
registered market makers, approximately 3,730 shareholders of record (excluding
the number of persons or entities holding stock in street name through various
brokerage firms), and 33,910,400 shares outstanding, which includes shares held
by the Mutual Holding Company. The following table sets forth market price and
dividend information for the Corporation's Common Stock (Bank Common Stock prior
to September, 1997) in each of the last eight quarterly periods adjusted to
reflect the three-for-one split (effected in the form of a stock dividend) on
November 18, 1997.
<TABLE>
<CAPTION>
SPLIT SPLIT SPLIT ADJUSTED
QUARTER ENDED ADJUSTED - HIGH ADJUSTED - LOW DIVIDEND
- ------------- ---------------- -------------- --------------
<S> <C> <C> <C>
1996
March 31 6 48/64 5 59/64 $.0483
June 30 6 16/64 5 $.0483
September 30 5 43/64 4 59/64 $.0483
December 31 6 13/64 5 $.0483
1997
March 31 7 37/64 6 5/64 $.0483
June 30 7 11/64 6 3/64 $.0483
September 30 16 27/64 7 $.0483
December 31 21 1/2 15 43/64 $.0550
</TABLE>
The last trade of the Corporation's Common Stock on January 31, 1998 was at
a price of 1815/16 per share.
DIVIDEND POLICY
GENERAL
The Bank paid quarterly cash dividends every quarter since the completion
of its mutual holding company reorganization and minority stock issuance in
January, 1994. Although the Corporation expects to continue to pay cash
dividends in at least the same amount per share as the November, 1997 dividend
going forward, its principal source of income presently consists of dividends
from the Bank. Dividends paid by Harris Financial, Inc., will be determined by
the Corporation'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 Corporation, and other factors. In addition, the Corporation's
ability to pay dividends is subject to limitations under Pennsylvania law. There
can be no assurance that dividends will be paid on Corporation Common Stock or
that, if paid, such dividends will not be reduced or eliminated in the future.
The Corporation is not subject to regulatory restrictions of the Board of
Governors of the Federal Reserve System (the "FRB") on the payment of dividends
to its shareholders other than with respect to maintaining minimum levels of
capital, although the source of such dividends will be dependent upon the
factors set forth above.
DIVIDEND WAIVERS BY THE MUTUAL HOLDING COMPANY
The Mutual Holding Company generally waived the receipt of cash dividends
declared by the Bank and now the Corporation. The Mutual Holding Company has not
been required to obtain approval of the FRB prior to any such waiver, and
through the date hereof has not sought or received FRB approval of any such
waiver. In connection with the FRB and Federal Deposit Insurance Corporation
("FDIC") approvals of the Bank's acquisition of First Harrisburg Bancor, 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
5
<PAGE>
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 Corporation shares for holding company
shares in any subsequent conversion of the Mutual Holding Company to
stock form.
2. Dividends waived by the Mutual Holding Company shall not be available
for payment to or the value thereof transferred to shareholders of the
Corporation other than the Mutual Holding Company ("Minority
Shareholders") by any means including through dividend payments or at
liquidation.
3. Beginning five years after April 19, 1996, the date of consummation of
the Bank's acquisition of First Federal, the Mutual Holding Company will
make prior application to and shall receive the approval of the FRB
prior to waiving any dividends declared on the capital stock of the
Corporation, 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 Corporation.
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 Corporation,
upon the Corporation's issuance of additional shares, at liquidation, or
by any other means. The Mutual Holding Company shall notify the FRB of
all such transactions and will make available to the FRB such
information as the FRB determines to be appropriate.
5. The Corporation will take into account when setting its dividend rate
the declaration rate in relation to net income and the rate's effect on
the Corporation'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.
Although not specifically made a condition of the FRBs approval of the
reorganization into the present two-tier holding company structure, the
Corporation believes that the FRB intends to and will impose adherence to the
above commitments as to dividends paid by the Corporation at least with respect
to dividends attributable to earnings of the Bank.
As of December 31, 1997, the Mutual Holding Company had waived $16.3
million of dividends declared by the Bank and the Corporation combined.
In the future, 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 Corporation and
the Bank and the receipt of required regulatory approvals. There can be no
assurance that (1) in the future, the Mutual Holding Company will waive
dividends paid by the Corporation, (2) the FRB will approve any dividend waivers
by the Mutual Holding Company after April, 2001, or (3) the terms that may be
imposed by the FRB on any dividend waiver will not be unfavorable to
shareholders.
6
<PAGE>
ELECTION OF DIRECTORS
The Bylaws of the Corporation provide that the Corporation's business shall
be managed under the direction of its Board of Directors. Article III, Section
3.1 of the Bylaws provides that the number of directors that shall constitute
the whole Board of Directors shall consist of no less than five (5) nor more
than twenty (20) members and shall be divided into three (3) 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 3.3 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 term of the class to which he was appointed shall
expire.
At the 1998 Annual Meeting, three 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 Charles C.
Pearson, Jr., Ernest P. Davis and Frank R. Sourbeer for election as Class I
Directors of the Corporation. Messrs. Davis and Sourbeer were appointed Class I
Directors at the organizational meeting of the Corporation held February 26,
1997 and each has been a Director of the Bank since 1989. Mr. Pearson was
appointed by the Board of Directors as President and Chief Executive Officer of
the Corporation and the Bank effective January 5, 1998. Mr. Pearson was
appointed to fill executive positions and nominated to fill the Director vacancy
created by the resignation of Mr. William J. McLaughlin. Mr. James L. Durrell
was appointed on an interim basis to fill Mr. McLaughlin's Board position and
will not stand for election as a permanent member. Mr. Samuel M. Altdoerffer,
Sr., will retire after the annual meeting. In light of the retirement of Mr.
Altdoerffer, the Board of Directors at the Board Meeting held February 17, 1998,
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 four (4)
members to take effect at the Annual Meeting. The number of Directors is thus
set at ten (10). The names of the nominees, the current Directors, Directors
Emeritus and a brief statement 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, Robert E. Kessler, Bruce S.
Isaacman, Samuel M. Altdoerffer, Sr., William E. McClure and Donald B. Springer,
have advised the Corporation that, unless a contrary direction is indicated on
the proxy card, they intend to vote for the election of the nominees proposed.
They have also advised that in the event any of the three 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 three nominees in the class to be elected.
CLASS I NOMINEES PROPOSED BY THE BOARD OF DIRECTORS TO SERVE UNTIL 2001
CHARLES C. PEARSON, JR. (58) is President and Chief Executive Officer of
Harris Savings Bank, Harris Financial, Inc., and Harris Financial, MHC, since
January 5, 1998. Before his appointment as an Officer and Director in 1998, Mr.
Pearson was Regional President of PNC Bank, Central Pennsylvania Region. Prior
to that, he was President and Chief Executive Officer of United Federal Bancorp
of State College, Pennsylvania, which was acquired by PNC. He is a nominee for
Class I Director.
ERNEST P. DAVIS (65) 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 Bank's Board since 1989 and a
member of the Corporation's Board since 1997. He is a nominee for Class I
Director.
FRANK R. SOURBEER (47) has been President, Chairman of the Board of
Directors and controlling owner of Wilsbach Distributors, 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 Bank's Board since 1989 and a member of the
Corporation's Board since 1997. He is a nominee for Class I Director.
7
<PAGE>
CONTINUING CLASS II DIRECTORS TO SERVE UNTIL 1999
JIMMIE C. GEORGE (67) has been a co-owner of George's Flowers, a local
flower shop, for the past 37 years. He has 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 Bank's Board since 1988 and a member of
the Corporation's Board since 1997.
ROBERT A. HOUCK (65) 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 Bank's Board since 1979 and a member of the Corporation's
Board since 1997.
WILLIAM A. SIVERLING (56) is the President and co-owner of Commercial
Industrial Realty Company, a commercial real estate brokerage firm with which he
has been associated for over 23 years. He has been a member of the Bank's Board
since 1989 and a member of the Corporation's Board since 1997. Mr. Siverling is
also a director of H S Service Corporation, a wholly-owned subsidiary of the
Bank.
CONTINUING CLASS III DIRECTORS TO SERVE UNTIL 2000
BRUCE S. ISAACMAN (66) 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. He has also been a member of
the Corporation's Board since 1997.
WILLIAM E. MCCLURE, JR., (56) is President of McClure Company, a commercial
and residential plumbing contractor. On April 15, 1997, Mr. McClure was elected
to the Board of the Bank. He has been a member of the Corporation's Board since
1997.
DONALD B. SPRINGER, (62) is founder and President of Phoenix Contact, Inc.,
a manufacturer of electrical and electronic components. On April 15, 1997, Mr.
Springer was elected to the Board of the Bank. He has also been a member of the
Corporation's Board since 1997.
CONTINUING CLASS III DIRECTOR TO SERVE UNTIL 1999
ROBERT E. KESSLER (71), Chairman of the Board, 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 Bank's Board since 1978 and a member
of the Corporation's Board since 1997. Mr. Kessler will retire as an active
member of the Corporation's Board at the 1999 Annual Meeting in accordance with
the Bylaws.
CLASS III DIRECTOR TO SERVE UNTIL 1998
SAMUEL M. ALTDOERFFER, SR., (71) 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 Bank's Board since 1982 and a member of the Corporation's
Board since 1997. Mr. Altdoerffer will retire as an active member of the
Corporation's Board after the 1998 Annual Meeting.
INTERIM DIRECTOR
JAMES L. DURRELL (61) was appointed an interim director of the Corporation
and the Bank effective November 1, 1997 to temporarily fill the vacancy created
by the retirement of William J. McLaughlin. Mr. Durrell will not stand for
election as a permanent board member at the Annual Meeting.
DIRECTORS EMERITUS
The Corporation has not elected Emeritus Directors. The following are
Emeritus Directors of the Bank.
C. TED LICK (74) 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 Bank's Board from 1966 to 1996, when he was elected as an Emeritus
member.
8
<PAGE>
ROBERT R. ROEBUCK (73) 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. He served as a member of the Bank's
Board from 1966 to 1997 when he was elected as an Emeritus member of the Board
of the Bank.
MEETINGS AND COMMITTEES OF THE BOARD
The business of the Corporation 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 and Audit Committees.
During 1997, the Board of Directors of the Corporation met four 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 Corporation of
which he or she was a member. The Board of Directors of the Bank met 17 times
and no members attended fewer than 75 percent of that number. The membership of
the following committees of both the Corporation and the Bank are currently the
same.
The Executive Committee consists of Messrs. Altdoerffer, Davis, Houck,
Kessler (Chairman), and George. The entire Board of Directors may delegate to
the Executive Committee, except as otherwise restricted by Law, the Articles of
Incorporation or the Bylaws, 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. The Executive Committee of the
Corporation met concurrently with the Executive Committee of the Bank once in
1997. The Bank's Committee met two additional times.
The Compensation and Benefits Committee consists of Messrs. George, Houck
(Chairman), Kessler, Siverling and Sourbeer. The Compensation and Benefits
Committee of the Corporation met four times in 1997 concurrently with the
Compensation and Benefits Committee of the Bank. The Committee of the Bank met
four times prior to the reorganization.
The Pension Committee consists of Messrs. Davis (Chairman), Isaacman,
McClure and Springer. The Committee meets at least annually and reviews and
approves all matters relating to pension plan additions and/or distributions.
The Committee of the Corporation did not meet in 1997. The Committee of the Bank
met three times in 1997.
The Nominating Committee consists of Messrs. George, McClure, Sourbeer and
Springer and is responsible for selecting nominees for election to the Board
when requested by the Board. The Nominating Committee has no formal procedures
in effect for receiving recommendations for nominees. This Committee did not
meet during 1997.
The Audit Committee consists of Messrs. Davis, Houck, Isaacman (Chairman),
McClure 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 of
the Bank met four times in 1997.
SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act"),
require the Corporation'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 SEC. Officers, directors
and greater than 10 percent shareholders are required by SEC regulation to
furnish the Corporation 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 from the officers and directors, the corporation
believes that, during the period January 1, 1997, through December 31, 1997, its
officers and directors were in compliance with all filing requirements
applicable to them.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Each of the following are Senior Officers of the Corporation who were
appointed on September 16, 1997, except Mr. Coulson who is an officer of the
Bank only. Their tenures with the Bank are set forth below.
9
<PAGE>
JAMES L. DURRELL (61) was appointed Executive Vice President in April 1995,
and has been Chief Financial Officer since 1988 when he commenced his employment
with the Bank. Mr. Durrell is a director of H S Service Corporation, a
wholly-owned subsidiary of the Bank.
WILLIAM M. LONG (47) has been Senior Vice President of Lending since 1989,
and has been employed by the Bank since March 1984.
LYLE B. SHUGHART (51) has been Senior Vice President of Retail Services
since 1989, and has been employed by the Bank since 1975.
RICHARD C. RUBEN (54) was appointed Senior Vice President, Chief Legal
Officer and Corporate Secretary in August 1997. Mr. Ruben was engaged in the
private practice of law in Harrisburg, Pennsylvania, between 1978 and 1997. Mr.
Ruben is President and a Director of H S Service Corporation, a wholly-owned
subsidiary of the Bank.
JOHN C. COULSON (46) was appointed Senior Vice President, Chief Information
Officer of the Bank in August, 1997. From 1993 to 1997, he was employed by
Dauphin Deposit Bank & Trust Company in various positions including Chief
Information Officer and as a member of First Maryland Bankcorp's Merger,
Acquisition and Consolidation Group. Prior to 1993, he was employed by Farmers
Bank and Trust Company.
CERTAIN TRANSACTIONS
The Corporation has engaged in consumer loans and provides loans to its
officers, directors and employees to purchase or refinance personal residences.
All of these loans are made in the ordinary course of business, on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons, and do not involve more
than the normal risk of collectibility or present other unfavorable features.
The Bank makes loans available to its officers, directors and employees on a
basis consistent with statutory requirements. In prior years, the Bank waived
application fees on loans made to officers and directors in accordance with
regulations then in effect.
There have been no material transactions between the Bank, nor are any
material transactions proposed, with any director or executive officer of the
Corporation or the Bank, or any associate of the foregoing persons. The
Corporation is not involved in any lending operations at this time. 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 the Corporation and their associates on comparable terms and with
similar interest rates as those prevailing from time to time as an employee
benefit equally available to all Bank employees without preference to insiders
over other employees of the Bank. Total loans outstanding from the Bank at
December 31, 1997 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 $1,149,071, which is less than 1% of the Bank's
total equity capital. The largest aggregate amount of indebtedness outstanding
at any time during fiscal year 1997 to officers and directors of the Bank as a
group was approximately $1,238,404. 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 makes available generally to
its non-insider employees as an employee benefit. A majority of the Bank's
independent outside directors, not having any interest in the transaction, will
approve future transactions.
The Bank and its subsidiaries used the services of Richard C. Ruben as its
outside General Counsel prior to his appointment as an Officer of the
Corporation and the Bank in August of 1997. Prior to Mr. Ruben's becoming an
employee, he was paid $79,779 in 1997 for legal fees, costs and expenses.
10
<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, 1997, 1996 and 1995 of those persons who were, at
December 31, 1997, (1) the Chief Executive Officer, and (2) the four other most
highly compensated executive officers or former executive officers of the Bank
(together, "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------- ------------------------------------------
AWARDS PAYOUTS
-------------------- -------------------
(4) (5)
OTHER RESTRICTED SHARES (6) (7)
ANNUAL STOCK UNDER- ALL OTHER
COMPEN- AWARDS LYING COMPEN-
NAME AND SALARY BONUS SATION SHARES OPTIONS PAYOUTS SATION
PRINCIPAL POSITION YEAR $ $ $ # # $ $
------------------ -------- -------- ------- ------- ---------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles C. Pearson, Jr. 1997
President and Chief
Executive Officer (1)
William J. McLaughlin 1997 $217,533 $40,000 $32,279 $48,740
President and Chief 1996 $200,039 $49,517 $15,359
Executive Officer (2) 1995 $187,820 $45,213 $12,969
James L. Durrell 1997 $136,780 $39,849 $11,558
President and Chief 1996 $117,933 $26,591 $ 8,098
Executive Officer (3) 1995 $112,655 $24,625 $ 7,818
Executive Vice President and
Chief Financial Officer
William M. Long 1997 $ 95,566 $26,048 $10,911
Senior Vice President 1996 $ 86,813 $23,932 $ 6,001
Lending Division 1995 $ 83,637 $16,912 $ 5,766
Lyle B. Shughart 1997 $ 87,430 $23,702 $ 7,384
Senior Vice President 1996 $ 83,922 $15,111 $ 5,687
Retail Services Division 1995 $ 81,645 $14,701 $ 5,605
</TABLE>
- ------------------
(1) Charles C. Pearson, Jr., was appointed President and CEO effective January
5, 1998. No compensation was earned in 1997.
(2) William J. McLaughlin retired effective October 31, 1997.
(3) James L. Durrell served as Acting President and Chief Executive Officer from
September 24, 1997 through January 4, 1998.
(4) Amounts for officers other than Mr. McLaughlin are not reportable as they do
not exceed the lesser of $50,000 or 10% of salary and bonus.
(5) Includes contributions in 1997 of $9,440, $7,051 and $6,050, respectively,
for Messrs. Durrell, Long and Shughart to HFIs Employee Stock Ownership
Plan.
(6) Includes contributions in 1997 of $48,782, $97 and $2,258, respectively, for
Messrs. McLaughlin, Durrell and Long to HFIs Supplemental Executive
Retirement Plan.
(7) Includes employer matching contributions of $1,958, $2,021, $1,602 and
$1,334, respectively, for Messrs. McLaughlin, Durrell, Long and Shughart for
1997 under the Bank's 401-K retirement plan.
(8) No other executive officers of the Corporation or the Bank earned salary and
bonus in 1997 in excess of $100,000.
AGGREGATE OPTION EXERCISES DURING 1997 AND OPTION VALUES AT DECEMBER 31,
1997. 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 and now following
the two-tier reorganization, the Corporation. 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 1997 by Named
Executive Officers upon exercise of options and the number of shares of
Corporation Common Stock underlying options
11
<PAGE>
and the value of options held by Named Executive Officers at December 31, 1997.
The stock underlying the options and the stock issued was converted to Harris
Financial, Inc. ("Corporation") Common Stock pursuant to the Plan of
Reorganization approved at the 1997 Annual Meeting of the Bank and completed
upon the Reorganization on September 16, 1997.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING OPTIONS UNEXERCISED IN-THE-
NUMBER OF AT DECEMBER 31, MONEY OPTIONS AT
SHARES 1996 DECEMBER 31, 1996
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE (1)
---- ----------- -------- ------------------ -------------------
<S> <C> <C> <C> <C>
Charles J. Pearson. Jr.
President and Chief Executive Officer
James L. Durrell
Executive Vice President and Chief Financial
Officer -- -- 21,300/15,000 $423,338/$298,125
William M. Long
Senior Vice President -- -- 15,000/15,000 $298,125/$298,125
Lyle B. Shughart
Senior Vice President -- -- 0/15,000 $ 0/$298,125
Richard C. Ruben
Senior Vice President
Chief Legal Officer
John C. Coulson
Senior Vice President
Chief Information Officer
</TABLE>
- ------------------
(1) Based on the last sale price of the Bank Common Stock on December 31, 1997.
EMPLOYMENT CONTRACTS. The Mutual Holding Company, parent of the
Corporation, entered into a rolling three-year Employment Agreement with Mr.
Pearson on December 19, 1997 effective January 5, 1998 through December 31,
2000. Mr. Pearson was employed as President and Chief Executive Officer of the
Mutual Holding Company and its subsidiaries at an initial annual salary of
$275,000 per year with a guaranteed first year bonus of 30% of base salary. In
addition, Mr. Pearson was promised other material considerations. He was awarded
qualified and non-qualified stock options to purchase a total of 25,000 and
50,000 shares, respectively, of Corporation Common Stock at an exercise price of
$20.25 per share in equal installments on the first five anniversaries of the
effective date of his employment. The contract provides for repricing the
options based upon performance of the company stock relative to its peers. Mr.
Pearson is also entitled to participate in all company benefit plans generally
available to executive officers, a company vehicle, country club membership, a
relocation allowance and legal fees. He was furthermore granted an alternative
payment to compensate for in-the-money options lost as the result of his
employment by the Corporation. His contract includes a Change-in-Control
Agreement (discussed below) and provisions in the event of termination or
resignation.
The Bank entered into a three-year Employment Agreement with Mr. Ruben to
be employed by the Bank as Senior Vice President, General Counsel and Corporate
Secretary at an initial annual salary of $115,000 per year. He is serving the
Corporation in the same executive capacities. Mr. Ruben will participate in
bonus, benefits and other plans as are standard for other executive officers.
Mr. Ruben was granted 1,500 shares of Company Stock per year and options to
purchase an additional 3,000 shares of Company Stock per year at $12.00 per
share on each of the first three anniversaries of his employment beginning
August 25, 1998.
12
<PAGE>
CHANGE IN CONTROL AGREEMENTS. In January, 1994, the Bank and the Mutual
Holding Company entered into a change-in-control agreement ("CICA") with each of
Messrs. Durrell, Long and Shughart; in August, 1997, with Messrs. Ruben and
Coulson and in December, 1997, with Mr. Pearson. Each CICA has a three-year
term. Commencing on the first anniversary date and continuing on each
anniversary date thereafter, each CICA will renew for an additional year, so
that the term of each CICA will be three years, unless written notice is
provided by either party. Each CICA provides that, at any time following a
change-in-control of the Bank or of the Holding Company, if the Bank or the
Holding Company terminates the executive's employment for any reason, other than
for cause, or if the executive terminates his employment following his demotion,
loss of title, loss of significant authority, reduction in his compensation or
relocation of his principal place of employment, the executive, or in the event
of death, his beneficiary, is entitled to receive a severance payment equal to
three times his annual compensation. Each CICA also provides that the Bank
and/or the Holding Company will continue the executive's life, health, dental
and disability coverage for a three-year period. A change-in-control is defined,
in the CICA, to mean an event that would constitute a change-in-control of the
Bank or the Holding Company, as the case may be, under the Bank Holding Company
Act or the Change in Bank Control Act; a plan of reorganization, merger, merger
conversion, consolidation or sale of all or substantially all of the assets of
the Bank or of the Holding Company or a similar transaction in which the Bank or
the Holding Company is not the resulting entity; or a change in the composition
of the Board of Directors of the Bank or of the Holding Company that results in
a change of a majority of such directors. If payments and benefits under a CICA
would constitute an excess parachute payment under Section 280G of the Code,
then such payment may be reduced to one dollar less than the excess parachute
amounts if the reduced amount would be greater than the unreduced payments less
the excise tax that the executive would owe under Section 4999 of the Code.
PENSION PLAN. The Corporation presently has no separate 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 1997, no contribution was
required.
13
<PAGE>
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.
YEARS OF SERVICE
<TABLE>
<CAPTION>
COMPENSATION 15 20 25 30 35
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 40,000 $1,055 $1,157 $1,259 $1,361 $1,463
60,000 1,680 1,866 2,051 2,236 2,421
80,000 2,305 2,574 2,842 3,111 3,379
100,000 2,930 3,282 3,634 3,986 4,338
120,000 3,555 3,991 4,426 4,861 5,296
140,000 4,180 4,699 5,217 5,736 6,254
160,000 4,805 5,407 6,009 6,611 7,213
</TABLE>
- ------------------
As of December 31, 1997, Messrs. Durrell, Long and Shughart had 10, 14, and 23
years of credited service, respectively.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Corporation currently
maintains no 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 1997 was $160,000, and remains $160,000 for 1998. 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.
YEARS OF SERVICE (1)
<TABLE>
<CAPTION>
COMPENSATION 15 20 25 30 35
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$160,000 $ 0 $ 0 $ 0 $ 0 $ 0
200,000 156,000 177,000 198,000 219,000 240,000
225,000 254,000 288,000 322,000 356,000 390,000
250,000 352,000 399,000 446,000 493,000 540,000
275,000 450,000 510,000 570,000 630,000 690,000
300,000 548,000 621,000 694,000 767,000 840,000
</TABLE>
- ------------------
(1) Represents the present value at age 65 of the SERP benefit.
As of December 31, 1997, Messrs. Durrell, Long and Shughart had 10, 14, and
23 years of credited service, respectively.
FEES. The Corporation has no separate compensation for Corporation Board
Members, all of whom are currently directors of the Bank. The Chairman of the
Board receives an annual fee of $26,400 paid monthly and $2,000 for each board
meeting attended. The Chairman receives no additional compensation for committee
meetings. Directors receive an aggregate annual fee of $9,000 and $1,000 for
each regular board meeting attended, including consolidated meetings of the
Corporation and the Bank and $600 for each special board meeting. Members of
committees receive $550 for each committee meeting attended. Employees who are
also directors are not paid for attending board or committee meetings. Directors
Emeritus receive $850 for each board meeting attended. In 1997, the Board of
Directors received an aggregate of $313,425 of fees.
14
<PAGE>
STOCK OPTION PLAN FOR OUTSIDE DIRECTORS. The Bank's 1994 Stock Option Plan
for Outside Directors is self-administering, and a total of 236,250 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 225,000 options
to purchase shares of Bank, now Corporation, Common Stock at a price of
$3.33 1/3 per share were issued in connection with the initial grant in 1994.
Since the initial grants, Mr. Isaacman, elected in 1996 received 5,625 options
and Messrs. McClure and Springer, elected 1997, also received 5,625 options.
Share and option numbers and prices are split adjusted.
RECOGNITION AND RETENTION PLAN FOR OUTSIDE DIRECTORS. Awards of between
3,000 and 6,000 shares of Bank Common Stock were made in 1994 under the Bank's
Recognition and Retention Plan for Outside Directors to each outside director of
the Bank at such time. Awards under the plan were fixed pursuant to a formula
based upon years of Service. Mr. Isaacman received 1,500 shares at the time of
his appointment in 1996. Share numbers are split adjusted.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1997, Directors George, Kessler, Siverling, Houck 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 Corporation, the Bank
or any subsidiary of the Bank. In addition, none of the members of the committee
had any relationship with the Corporation or the Bank that would require
disclosure under Item 404 of Regulation S-K of the Securities and Exchange
Commission (the "SEC"), relating to insider transactions and indebtedness of
management.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation and Benefits Committee of the Board of Directors of the
Corporation and the Bank is responsible for establishing, implementing and
monitoring all executive compensation policies of the Corporation and the Bank.
The Committee is also responsible for evaluating the performance of the Chief
Executive Officer of the Corporation and the Bank and recommending appropriate
compensation levels. The Chief Executive Officer evaluates the performance of
the Executive Vice President 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
Corporation, 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: (1) the attraction and retention of highly-qualified
executives; (2) motivation of executives that is related to the performance of
the individual and the Corporation and its subsidiaries; (3) current and
long-term performance; and (4) a financial interest in the success of the
corporation similar to the interests of its shareholders and other
constituencies.
The Corporation's and 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. A consultant was utilized to determine competitive salary
levels and individual performance is reviewed to determine appropriate salary
adjustments. Executive officers of the Bank were eligible to participate in a
corporate bonus plan which provides a bonus upon achievement of certain internal
objectives and external objectives based on stock price compared to peers, which
peers are disclosed in the Shareholder Return Performance Graph, set forth
below.
The internal objectives include return on equity, return on assets and an
efficiency ratio all compared to plan objectives.
15
<PAGE>
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.
For the year 1997, the base compensation of Chief Executive Officer William
J. McLaughlin was set to have been at $278,736 (salary and bonus) which
represented approximately a 13% increase from the previous year. The Committee
believed the increase was appropriate based on competitive salary surveys and
the performance of the Bank. Mr. McLaughlin resigned in September, 1997
effective October 31, 1997. In appreciation of his 19 years of service to the
Harris organization and in recognition of the extraordinary enhancement in value
to Harris shareholders during his service as President, the Committee awarded
Mr. McLaughlin a separation package of 2 1/2 years of continuation of his 1997
base salary (a total of $544,830) to be paid monthly, a pro-rated bonus for 1997
of up to $40,000, insurance and benefit contributions for 2 1/2 years,
Supplemental Executive Retirement Plan equivalent contributions to achieve a
20-year service equivalent, country club dues and his company automobile. The
total value of Mr. McLaughlin's separation package is approximately $775,000.
The Committee recommended and the Board of Directors authorized entering
into an employment agreement with Charles C. Pearson, Jr., to serve the
Corporation and the Bank as President and Chief Executive Officer beginning
January, 1998. The compensation of Mr. Pearson includes a base salary of
$275,000 per year and provisions for bonuses in the amount of 30% of base
salary. Mr. Pearson's cash compensation is supplemented by options to purchase
75,000 shares of Corporation Common Stock vesting over a five-year period, a
buy-out of the in-the-money options forfeited at his prior employment as the
result of moving to Harris, relocation and legal expenses as well as
participation in the Bank's benefit plans on a basis materially equivalent to
that of the other senior officers. The Committee believes that the agreement
entered into with Mr. Pearson is consistent overall with the compensation of the
Chief Executive Officers of peer group thrifts and recognizes both Mr. Pearson's
strength and experience in the thrift industry and his abilities in the
management of a full-service financial institution, which the Bank intends to
become.
COMPENSATION AND BENEFITS COMMITTEE
Jimmie C. George
Robert A. Houck (Chairman)
Robert E. Kessler
William A. Siverling
Frank R. Sourbeer
16
<PAGE>
SHAREHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly dollar change in the
cumulative total shareholder return assuming the reinvestment of dividends for:
(1) the Bank and now the Corporation Common Stock over the period commencing
with the January 25, 1994 public offering first-day closing price through
December 31, 1997; (2) all issues traded on the Nasdaq Stock Market from January
25, 1994 through December 31, 1997; and (3) all publicly traded thrifts with
assets of between $1 and $5 billion from January 25, 1994 through December 31,
1997. The shareholder return shown on the graph below is not necessarily
indicative of future performance.
[In the printed version there appears a line graph with the following plot
points depicted.]
<TABLE>
<CAPTION>
PERIOD ENDING
---------------------------------------------------------------
INDEX 1/25/94 12/31/94 12/31/95 12/31/96 12/31/97
- ----- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Harris Financial, Inc. 100.00 78.73 118.22 111.68 373.48
NASDAQ -- Total US 100.00 96.62 136.65 168.07 206.24
SNL $1B-$5B Thrift Index 100.00 99.53 153.00 200.76 356.35
</TABLE>
17
<PAGE>
LEGAL PROCEEDINGS
In the opinion of the management of the Corporation, there are no
proceedings pending to which the Corporation is a party or to which its property
is subject, which, if determined adversely to the Corporation, would be material
in relation to the Corporation's undivided profits or financial condition. There
are no proceedings pending other than routine litigation incident to the
business of the Corporation. In addition, no material proceedings are pending or
are known to be threatened or contemplated against the Corporation by government
authorities.
INDEPENDENT PUBLIC ACCOUNTANTS
The accounting firm of Arthur Andersen, LLP, acted as the Bank's and the
Corporation's independent public accountant for the 1997 fiscal year and has
been selected to act as the Corporation's and the Bank's independent public
accountant for the 1998 fiscal year. KPMG Peat Marwick, LLP, was the Bank's
independent public accountant for fiscal years 1995 and 1996. The decision to
change accountants was recommended to the Board of Directors of the Bank by the
Audit Committee and ratified by the Board in May, 1997. This was done after a
review of proposals submitted by several public accounting firms, including KPMG
Peat Marwick, LLP, in response to the Bank's request for proposals. KPMG Peat
Marwick's prior reports contained no adverse opinions nor did the Bank's change
of accountants result from disagreements with KPMG Peat Marwick, LLP. KPMG Peat
Marwick, LLP, has not advised the Bank of any reportable issues.
ANNUAL REPORT
A copy of the Corporation's Annual Report for its fiscal year ended
December 31, 1997 is enclosed with this Proxy Statement. A representative of
Arthur Andersen, 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 SEC, wishes to submit a proposal for inclusion in the
Corporation's Proxy Statement for its 1999 Annual Meeting of Shareholders must
deliver such proposal in writing to the Secretary of Harris Financial, Inc., at
its principal executive offices, 235 North Second Street, Harrisburg,
Pennsylvania 17101, not later than November 18, 1998 (December 18, 1998 to
submit a Director nomination).
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 10-K FOR ITS FISCAL YEAR ENDED DECEMBER 31, 1997, INCLUDING THE FINANCIAL
STATEMENTS AND THE SCHEDULES THERETO, REQUIRED TO BE FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION AND WHICH SERVES AS THE BANK'S ANNUAL DISCLOSURE
STATEMENT UNDER SEC RULE 13A-1 OF THE SECURITIES EXCHANGE ACT OF 1934, MAY BE
OBTAINED, WITHOUT CHARGE, FROM JAMES L. DURRELL, EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER, HARRIS FINANCIAL, INC., 235 NORTH SECOND STREET,
HARRISBURG, PENNSYLVANIA 17101.
18
<PAGE>
HARRIS FINANCIAL, INC.
PROXY
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 21, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Robert E. Kessler, Bruce S.
Isaacman, Samuel M. Altdoerffer, William E. McClure and Donald B. Springer and
each or any of them, proxies of the undersigned, with full power of
substitution, to vote all of the shares of Harris Financial, Inc. (the
"Corporation") which the undersigned may be entitled to vote at the Annual
Meeting of Shareholders of the Corporation to be held at the Zembo Temple, Third
and Division Streets, Harrisburg, Pennsylvania 17110 on Tuesday, April 21, 1998,
at 10:00 a.m., prevailing time, and at any adjournment or postponement thereof,
as follows:
(Continued on reverse side)
FOLD AND DETACH HERE
<PAGE>
1. ELECTION OF THREE (3) CLASS I DIRECTORS TO SERVE FOR A THREE-YEAR TERM.
FOR all nominees WITHHOLD NOMINEES: CHARLES C. PEARSON, JR.
listed to the right AUTHORITY ERNEST P. DAVIS, FRANK R. SOURBEER
(except as marked to vote for all
to the contrary) nominees listed
to the right
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
- -----------------------------------------------------------------------------
2. 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.
THE BOARD OF DIRECTORS RECOMMENDS A
VOTE FOR THE ELECTION OF THE CLASS I
DIRECTORS LISTED ABOVE.
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: ___________________________, 1998
________________________________________
Signature
________________________________________
Signature
FOLD AND DETACH HERE
