SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant /_/
Check the appropriate box:
/_/ Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/_/ Confidential for use of the Commission only
(as permitted by Rule 14a-6(e)(2))
/_/ Definitive Additional Materials
/_/ Soliciting Material Pursuant to ss. 240.14a-12
Harris Financial, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No Fee Required.
/_/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
_____________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
_____________________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
_____________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
_____________________________________________________________________________
5) Total fee paid:
_____________________________________________________________________________
/_/ Fee paid previously with preliminary materials.
/_/ Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
1) Amount previously paid: _________________________________________________
2) Form, Schedule or Registration No. ______________________________________
3) Filing party: ___________________________________________________________
4) Date filed: _____________________________________________________________
<PAGE>
[HARRIS LOGO]
235 North Second Street
Harrisburg, Pennsylvania 17101
(717) 236-4041
April 18, 2000
Dear Shareholder:
You are cordially invited to attend the 2000 Annual Meeting of Shareholders
of Harris Financial, Inc., a parent of Harris Savings Bank, at the Harrisburg,
Holiday Inn Hotel and Convention Center, I-83 (Exit 18A) and Pennsylvania
Turnpike (Exit 18), New Cumberland, Pennsylvania 17070 on Thursday, May 18,
2000, 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.
Chairman, President and Chief
Executive Officer
<PAGE>
[HARRIS LOGO]
235 North Second Street
Harrisburg, Pennsylvania 17101
(717) 236-4041
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 18, 2000
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 Thursday, May 18, 2000, at
the Holiday Inn Hotel and Conference Center, I-83 (Exit 18A) and Pennsylvania
Turnpike (Exit 18), New Cumberland, Pennsylvania 17070 at 10:00 a.m., prevailing
time, for the following purposes:
o To elect one (1) Class III Director for a one (1) year term; and two
(2) Class III Directors for three (3) year terms; to serve until the
expiration of their terms and until their successors are duly
elected and qualified.
o Transact such other business as may properly come before the Annual
Meeting and any adjournment or postponement thereof. The Board of
Directors is not aware of any other business to come before the
Meeting.
In accordance with the By-laws of the Corporation, and action by the Board
of Directors, only those shareholders of record as of the close of business
April 14, 2000, 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, 1999, 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.
Chairman, President and Chief
Executive Officer
April 18, 2000
Harrisburg, Pennsylvania
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE CORPORATION THE
EXPENSE OF FURTHER REQUESTS FOR PROXIES. A SELF ADDRESSED ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED WITHIN THE
UNITED STATES.
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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......................................................................................... 6
DIVIDEND POLICY............................................................................................ 6
General.................................................................................................. 6
Dividend Waivers by the Mutual Holding Company........................................................... 6
ELECTION OF DIRECTORS...................................................................................... 8
Class III Nominee Proposed By the Board of Directors To Serve Until 2001................................. 8
Class III Nominees Proposed By the Board of Directors To Serve Until 2003................................ 8
Continuing Class I Directors To Serve Until 2001......................................................... 8
Continuing Class II Directors To Serve Until 2002........................................................ 8
Directors Emeritus....................................................................................... 9
Meetings and Committees of the Board..................................................................... 9
Section 16(a) Beneficial Ownership Compliance............................................................ 10
Executive Officers Who Are Not Directors................................................................. 10
Certain Transactions..................................................................................... 11
EXECUTIVE COMPENSATION..................................................................................... 12
Compensation of Directors................................................................................ 15
Compensation Committee Interlocks and Insider Participation.............................................. 16
Board Compensation Committee Report on Executive Compensation............................................ 16
Shareholder Return Performance Graph..................................................................... 17
LEGAL PROCEEDINGS.......................................................................................... 18
INDEPENDENT PUBLIC ACCOUNTANTS............................................................................. 18
ANNUAL REPORT.............................................................................................. 18
SHAREHOLDER PROPOSALS...................................................................................... 18
OTHER MATTERS.............................................................................................. 18
ADDITIONAL INFORMATION..................................................................................... 18
</TABLE>
<PAGE>
HARRIS FINANCIAL, INC.
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 18, 2000
INTRODUCTION HARRIS FINANCIAL, INC.
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 18, 2000
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 Thursday,
May 18, 2000, at the Holiday Inn Hotel and Convention Center, I-83 (Exit 18A)
and Pennsylvania Turnpike (Exit 18), New Cumberland, Pennsylvania 17070 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 incorporated
in February, 1997, and organized in September, 1997, in the reorganization of
Harris Financial, MHC, and Harris Savings Bank's corporate structures.
The organization's corporate structure is now established as set forth in
the following diagram:
[HARRIS DIAGRAM]
Harris Savings Bank is the wholly-owned subsidiary of the Corporation. The
Corporation's stock is owned by Harris Financial, MHC (the "Mutual Holding
Company") approximately 76.0% and minority shareholders, approximately 24.0%.
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 continuing status of Harris Savings Bank as the only subsidiary
of the Corporation information will be provided in the following pages for both
the Corporation and the Bank where deemed appropriate to make the information
provided as accurate and easy to understand as possible.
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 April 18, 2000. 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; 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 soliciting proxies will be borne by the Corporation. The
Corporation may also reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
materials to such beneficial owners. Proxies may also be solicited by certain of
the Corporation's directors, officers, and regular employees, without additional
compensation, personally or by telephone, facsimile or telegram.
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 December 31, 1999, the Corporation had 33,574,325
shares of common stock, par value $.01 per share ("Common Stock") outstanding
and held of record by approximately 3,550 shareholders. The Corporation is also
authorized to issue 10,000,000 shares of series preferred stock, par value $.01
per share of which none are issued to date.
Only holders of record of Common Stock, as of the close of business on
April 14, 2000, 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 76.0% of
the Common Stock outstanding and has indicated its intent to vote for the
nominees for Class III Directors named below.
Assuming the presence of a quorum, the three (3) 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 March 31, 2000, 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:
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL AMOUNT AND NATURE PERCENT
OR IDENTITY OF GROUP OF BENEFICIAL OWNERSHIP(1) OF CLASS
- ------------------------- -------------------------- --------
<S> <C> <C>
Harris Financial, MHC 25,500,000 76.0%
235 North Second Street
Harrisburg, PA 17101
</TABLE>
- ------------------
(1) For the definition of "Beneficial Ownership" please refer to footnote #1
under the caption "Beneficial Ownership by Officers, Directors and
Nominees."
BENEFICIAL OWNERSHIP BY OFFICERS, DIRECTORS AND NOMINEES
The following table sets forth, as of March 31, 2000, 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 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> <C>
Charles C. Pearson(2)................................................ 52,000(16) *
Ernest P. Davis(3)................................................... 14,516(17) *
Jimmie C. George(4).................................................. 40,782(18) *
Robert A. Houck(4)................................................... 20,477(19) *
Bruce S. Isaacman(5.1)............................................... 28,421(20) *
Robert E. Kessler(6)................................................. 28,679(21) *
William E. McClure, Jr.(5)........................................... 38,848(22) *
Robert E. Poole(4)................................................... 15,121(23) *
Robert R. Roebuck(7)................................................. 10,888(24) *
William A. Siverling(4).............................................. 44,499(25) *
Frank R. Sourbeer(3)................................................. 57,423(26) *
Donald B. Springer(5)................................................ 19,789(27) *
James L. Durrell(8).................................................. 74,420(28) *
William M. Long(9)................................................... 59,486(29) *
Lyle B. Shughart(10)................................................. 47,371(30) *
John C. Coulson(11).................................................. 4,650(31) *
Richard C. Ruben(12)................................................. 27,861(32) *
John W. Atkinson(13)................................................. 24,839(33) *
Jane B. Tompkins(14)................................................. 5,223(34) *
Andrew S. Samuel(15)................................................. 5,622(35) *
All Directors and Executive Officers as a Group (20 Persons)......... 620,915(36) 1.8%(36)
</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
(Footnotes continued on next page)
3
<PAGE>
(Footnotes continued from previous page)
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. Beneficial ownership may be disclaimed as to certain of the
securities.
(2) Class I Director whose term expires in 2001. President, Chief Executive
Officer and Chairman of the Board of the Corporation and the Bank.
(3) Class I Director, whose term expires in 2001.
(4) Class II Director, whose term expires in 2002.
(5) Class III Director whose term expires in 2000 and a nominee for Class III
Director whose term will expire in 2003.
(5.1) Class III Director whose term expires 2000 and a nominee for Class III
Director whose term will expire in 2001.
(6) Director Emeritus of the Bank and past Chairman of the Board.
(7) Director Emeritus of the Bank
(8) Executive Vice President, Chief Financial Officer of the Corporation and
the Bank.
(9) Senior Vice President of the Lending Division of the Bank.
(10) Senior Vice President of the Retail Services Division the Bank.
(11) Senior Vice President and Chief Information Officer of the Bank.
(12) Senior Vice President, Chief Legal Officer and Corporate Secretary of the
Corporation and the Bank.
(13) Executive Vice President, Chief Operating Officer of the Corporation and
the Bank.
(14) Senior Vice President, Credit Quality Officer of the Bank.
(15) Senior Vice President, Business Banking Group of the Bank.
(16) Includes 25,000 shares of Common Stock that may be received upon exercise
of options that have vested or will vest prior to sixty (60) days after
March 31, 2000.
(17) Includes 400 shares of Common Stock that may be received upon exercise of
options that have vested or will vest prior to sixty (60) days after March
31, 2000.
(18) Includes 400 shares of Common Stock that may be received upon exercise of
options that have vested or will vest prior to sixty (60) days after March
31, 2000, and includes 13,316 shares held individually by Mr. George's
spouse and 1,200 shares held in trust for Mr. George's children.
(19) Includes 9,275 shares of Common Stock that may be received upon exercise
of options that have vested or will vest prior to sixty (60) days after
March 31, 2000.
(20) Includes 6,025 shares of Common Stock that may be received upon exercise
of options that have vested or will vest prior to sixty (60) days after
March 31, 2000, and; includes 1,000 shares held individually by Mr.
Isaacman's spouse and; 608 shares in the Bank's Deferred Compensation
Plan's Rabbi Trust.
(21) Includes 17,004 shares of Common Stock held individually by Mr. Kessler's
spouse and 800 shares that may be received upon exercise of options that
have vested or will vest prior to sixty (60) days after March 31, 2000.
(22) Includes 400 shares of Common Stock that may be received upon exercise of
options that have vested or will vest prior to sixty (60) days after March
31, 2000, and 500 shares in the Bank's Recognition and Retention Plan and
1976 shares in the Bank's Deferred Compensation Plan's Rabbi Trust.
(23) Includes 5,725 shares of Common Stock that may be received upon exercise
of options that have vested or will vest prior to sixty (60) days after
March 31, 2000, and 698 shares in the Bank's Deferred Compensation Plan's
Rabbi Trust.
(Footnotes continued on next page)
4
<PAGE>
(Footnotes continued from previous page)
(24) Includes 6,988 shares of Common Stock held individually by Mr. Roebuck's
spouse and 400 shares that may be received upon exercise of options that
have vested or will vest prior to sixty (60) days after March 31, 2000.
(25) Includes 8,817 shares of Common Stock held individually by Mr. Siverling's
spouse and 5,241 shares held in a profit sharing plan of which Mr.
Siverling is the beneficiary. Includes 4,498 shares held in the Bank's
Deferred Compensation Plan's Rabbi Trust and 400 shares that may be
received upon exercise of options that have vested or will vest prior to
sixty (60) days after March 31, 2000.
(26) Includes 1,000 shares of Common Stock held individually by Mr. Sourbeer's
spouse and includes 400 shares that may be received upon exercise of
options that have vested or will vest prior to sixty (60) days after March
31, 2000, and 3,072 shares held in the Bank's Deferred Compensation Plan's
Rabbi Trust.
(27) Includes 400 shares of Common Stock that may be received upon exercise of
options that have vested or will vest prior to sixty (60) days after March
31, 2000, and 500 shares held in the Bank's Recognition and Retention Plan
and 3,092 shares held in the Bank's Deferred Compensation Plan's Rabbi
Trust.
(28) Includes 11,156 shares of Common Stock purchased and held by the Bank's
ESOP that are allocated to Mr. Durrell's account and over which he
exercises investment control and 33,500 shares of Common Stock that may be
received upon exercise of options that have vested or will vest prior to
sixty (60) days after March 31, 2000.
(29) Includes 8,468 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 1,200 of Common Stockthat may be received upon
exercise of options that have vested or will vest prior to 60 days after
March 31, 2000.
(30) Includes 7,831 shares purchased and held by the Bank's ESOP that are
allocated to Mr. Shughart's account and over which he exercises investment
control, 8,700 shares of Common Stock that may be received upon exercise
of options that have vested or will vest prior to sixty (60) days after
March 31, 2000.
(31) Includes 4,350 shares of Common Stock that may be received upon exercise
of options that have vested or will vest prior to sixty (60) days after
March 31, 2000.
(32) Includes 852 shares of Common Stock held individually by Mr. Ruben's
spouse. Includes 7,200 shares of Common Stock that may be received upon
exercise of options that have vested or will vest prior to sixty (60) days
after March 31, 2000, and 1,500 shares held in the Bank's Recognition and
Retention Plan.
(33) Includes 3,000 shares of Common Stock that may be received upon exercise
of options that have vested or will vest prior to sixty (60) days after
March 31, 2000, and 10,900 shares held in the Bank's Deferred Compensation
Plan's Rabbi Trust.
(34) Includes 1,200 shares of Common Stock that may be received upon exercise
of options that have vested or will vest prior to sixty (60) days after
March 31, 2000.
(35) Includes 1,200 shares of Common Stock that may be received upon exercise
of options that have vested or will vest prior to sixty (60) after March
31, 2000, and 2,922 shares held by the Bank's ESOP that are allocated to
Mr. Samuel's account over which he exercises investment control.
(36) Assumes all outstanding options issued to the directors and officers have
been exercised.
5
<PAGE>
MARKET INFORMATION
The Corporation's Common Stock is listed on The Nasdaq Stock Market(R)
under the symbol "HARS." As of December 31, 1999, the Corporation had twelve
registered market makers, approximately 3,533 shareholders of record (excluding
the number of persons or entities holding stock in street name through various
brokerage firms), and 34,023,625 shares outstanding, which includes shares held
by the Mutual Holding Company and 449,300 Treasury shares. The following table
sets forth market price and dividend information for the Corporation's Common
Stock in each of the last eight quarterly periods.
<TABLE>
<CAPTION>
SPLIT SPLIT ADJUSTED
QUARTER ENDED HIGH ADJUSTED - LOW DIVIDEND
- ------------------------------------ ----- --------------- ---------------
<S> <C> <C> <C>
1998
March 31 27 7/8 17 5/8 $.0550
June 30 27 3/4 21 1/2 $.0550
September 30 22 1/8 12 $.0550
December 31 16 15/16 11 $.0550
1999
March 31 15 12 $.0600
June 30 12 3/4 10 $.0600
September 30 12 5/8 9 $.0600
December 31 11 1/2 6 15/16 $.0600
</TABLE>
The last trade of the Corporation's Common Stock on March 31, 2000, was at
a price of $7 3/16 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, 1999, 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 and not paying out more than 60% of consolidated earnings of the
Corporation 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 regarding the waiver of dividends by
the Mutual Holding Company. These commitments include the following:
6
<PAGE>
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.
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.
Beginning five (5) 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 the Mutual Holding Company intends to waive
dividends paid by the Corporation.
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.
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.
In the event that the FRB adopts regulations regarding dividend 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, 1999, the Mutual Holding Company had waived $28.4
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.
7
<PAGE>
ELECTION OF DIRECTORS
The By-laws 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 By-laws 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 (3) years except directors who will reach retirement age prior
to the end of their normal term. Pursuant to Article III, Section 3.3 of the
By-laws, 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 2000 Annual Meeting, two (2) directors are to be elected to hold
office for a three (3) year term and one (1) director for a one (1) year term.
The Board of Directors has unanimously nominated Bruce S. Isaacman, William E.
McClure, Jr. and Donald B. Springer for election as Class III Directors of the
Corporation. Messrs. McClure and Springer were elected Class III Directors of
the Bank and the Corporation in 1997. Mr. Isaacman was appointed to the Board of
Directors of the Bank on May 21, 1996 and has been a member of the Corporation's
Board since 1997. Mr. Isaacman will reach retirement age of 70 prior to the May,
2001 Annual Meeting of the Corporation.
The persons named in the enclosed proxy card, Charles C. Pearson, Jr.,
Ernest P. Davis and Frank R. Sourbeer, 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 (3) 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 III NOMINEE PROPOSED BY THE BOARD OF DIRECTORS TO SERVE UNTIL 2001
BRUCE S. ISAACMAN (69) 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. If elected Mr. Isaacman will retire as an
active member of the Board after the 2001 Annual Meeting pursuant to the
Corporation's By-Laws which provide 70 years of age as the superannuation
retirement age for Board Members.
CLASS III NOMINEES PROPOSED BY THE BOARD OF DIRECTORS TO SERVE UNTIL 2003
WILLIAM E. MCCLURE, JR., (58) is Chief Executive Officer of McClure Co.,
Inc. a mechanical contracting and engineering company, a wholly owned subsidiary
of PP&L, Resources. 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, (64) 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 I DIRECTORS TO SERVE UNTIL 2001
CHARLES C. PEARSON, JR. (60) is President and Chief Executive Officer of
Harris Savings Bank, Harris Financial, Inc., and Harris Financial, MHC. He also
assumed the position of Chairman of the Board on April 20, 1999. 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 in 1994.
8
<PAGE>
ERNEST P. DAVIS (67) 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.
FRANK R. SOURBEER (50) 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.
CONTINUING CLASS II DIRECTORS TO SERVE UNTIL 2002
JIMMIE C. GEORGE (70) has been a co-owner of George's Flowers, a local
flower shop, for the past 39 years. Mr. George is 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 (67) 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 (58) 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 24 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.
ROBERT E. POOLE (49) has been the President and Chief Executive Officer of
S&A Custom Built Homes, builders of various types of Single and Multi-Family
Housing, Land Development and Commercial Development since 1980. He has also
been the President and Director on the Second Mile Board.
DIRECTORS EMERITUS
THE CORPORATION HAS NOT ELECTED EMERITUS DIRECTORS. THE FOLLOWING ARE
EMERITUS DIRECTORS OF THE BANK.
ROBERT E. KESSLER (73), retired as President and Chief Executive Officer of
Kessler's, Inc., a meat and food processing and distribution company located in
Lemoyne, Pennsylvania. He is a partner in WEEAL Company, a rental property
management firm. He has been a member of the Bank's Board since 1978 and a
member of the Corporation's Board since 1997. Mr. Kessler is a past Chairman of
the Corporation's Board. He was appointed as an Emeritus member of the Bank's
Board in April, 1999, upon his retirement from the Board.
ROBERT R. ROEBUCK (75) 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 Compensation and Benefits and Audit
Committees.
During 1999, the Board of Directors of the Corporation met eight (8) times
in accordance with the By-laws. One director attended fewer than 75 percent of
the total number of Board of Directors and Committee Meetings of the
Corporation. The Board of Directors of the Bank met 12 times and one member
attended fewer than 75 percent of that number. During 1999, Mr. McClure was
excused from attendance at three (3) Corporation and four (4) Bank Board
Meetings and two (2) Audit Committee Meetings as the result of his service as
President of the Mechanical Contractors Association of America during 1999, his
Company's National Trade Association. This commitment ended in February, 2000.
9
<PAGE>
The membership of the following committees of both the Corporation and the
Bank are currently the same:
The Compensation and Benefits Committee consists of Messrs. George, Houck
(Chairman), Springer, Sourbeer and Poole. The Compensation and Benefits
Committee of the Corporation did not meet in 1999. The Compensation and Benefits
Committee of the Bank met three (3) times in 1999.
The Audit Committee consists of Messrs. Davis, Houck, Isaacman (Chairman),
McClure and Siverling. The Corporation Audit Committee did not meet in 1999. The
Audit Committee of the Bank meets on a quarterly basis with the internal auditor
to review audit programs and the results of audits of specific areas of the Bank
as well as the Bank's regulatory compliance. 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 1999.
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, 1999, through December 31, 1999, its
officers and directors were in compliance with all filing requirements
applicable to them except that Messrs. Durrell and Long reported their exercise
of options after the dates required by SEC Regulations.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The following listed in bold type are Executive Officers of the
Corporation. All except Mr. Atkinson were appointed September 16, 1997, and
re-appointed on April 20, 1999. Mr. Atkinson was originally appointed on May 19,
1998 and re-appointed April 20, 1999. Also listed are Executive Officers of the
Bank who are not officers of the Corporation.
JOHN W. ATKINSON (62) Executive Vice President and Chief Operating Officer
of the Corporation and the Bank since May, 1998. Mr. Atkinson was Executive Vice
President and Chief Operating Officer of United Federal Bancorp and, after it's
acquisition, PNC Bank's State College region from 1992 until 1995. Mr. Atkinson
was retired from 1996 until his employment by the Corporation and Bank in 1998.
JAMES L. DURRELL (63) Executive Vice President and Chief Financial Officer
of the Corporation and the Bank. Mr. Durrell was appointed Executive Vice
President of the Bank in 1995 and has been Chief Financial Officer of the Bank
since 1988 when he began his employment with the Bank. Mr. Durrell is a Director
of H S Service Corporation, First Harrisburg Service Corporation, Avstar
Mortgage Corporation and Chairman of Harris Delaware Corporation wholly owned
subsidiaries of the Bank.
WILLIAM M. LONG (49) Mr. Long has been Senior Vice President of Lending for
the Bank since 1989, and was first employed by the Bank in March 1989. Mr. Long
is Chairman of the Board of Avstar Mortgage Corporation, a wholly owned
subsidiary of the Bank.
LYLE B. SHUGHART (53) Mr. Shughart has been Senior Vice President of Retail
Services for the Bank since 1989. He has been employed by the Bank since 1975.
RICHARD C. RUBEN (56) Senior Vice President and Secretary of the
Corporation. Mr. Ruben has been Senior Vice President, Chief Legal Office and
Corporate Secretary of the Bank since August, 1997. He 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.
10
<PAGE>
JOHN D. COULSON (48) 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 Bancorp's Merger,
Acquisition and Consolidation Group.
ANDREW S. SAMUEL (38) was appointed Senior Vice President, Business Banking
Group in April, 1998. Mr. Samuel has been employed with the Bank since 1996. He
was previously employed by Fulton Bank. He serves on various Community Boards
and Committees.
JANE B. TOMPKINS (47) was appointed Senior Vice President, Chief Credit
Officer in April, 1998, when she was employed by the Bank. Mrs. Tompkins has
spent the past 19 years working in the Banking Industry and most recently
employed by PNC Bank as a Regional Chief Credit Policy Officer and Senior Credit
Officer.
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.
Except as set forth below 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 Bank used the services of NAI/Commercial Industrial Realty Company
(NAI/CIR), a commercial real estate brokerage firm co-owned by Director William
A. Siverling, to represent the Bank in securing new branch locations and for
marketing the sale of raw land taken into its portfolio as the result of a
foreclosure. The total paid in 1999 to NAI/CIR for brokerage commissions was
$70,000.
In February of 1999 the Bank sold a forty (40) plus acre parcel of
undeveloped land in Hampden Township, Cumberland County, Pennsylvania acquired
through foreclosure to Sears Run Associates. Sears Run Associates, is a
partnership in which Mr. Robert E. Poole owns a substantial interest. The
purchase price of $420,000, is consistent with the Bank's independent appraisal
and the market and was negotiated by Mr. William Long, Senior Vice President of
the Bank. After marketing the property for over a year this transaction
represented the highest offer received.
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 as of December 31, 1999, 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 $13,624,713*, which is less
than 7.1% of the Bank's total equity capital. The largest aggregate amount of
indebtedness outstanding at any time during fiscal year 1999 to officers and
directors of the Bank as a group was approximately $13,624,713. 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.
- ------------------
* Includes available but unused lines of credit.
11
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. Executive Officers of the Corporation receive
no compensation directly from the Corporation. Shown below is information
concerning the annual compensation for services in all capacities to the Bank
for the fiscal years ended December 31, 1999, 1998 and 1997, of those persons
who were, at December 31, 1999, (1) the Chief Executive Officer, and (2) the
four other most highly compensated executive officers of the Bank (together,
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------------------
ANNUAL COMPENSATION PAYOUTS
-------------------------------- AWARDS --------------------
(2) --------------------- (3)
OTHER RESTRICTED SHARES (4) (5)
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. 1999 $356,056 $144,324 75,000 $31,181
President and Chief 1998 $275,000 $140,663 $175,221 25,000 $ 2,063
Executive Officer (1) 1997(1)
John W. Atkinson 1999(6) $235,925 $ 61,490 15,000 $20,685
Executive Vice President 1998(7) $128,800 $ 45,102 10,000(6)
and Chief Operating Officer
James L. Durrell 1999 $217,819 $ 51,500 15,000 $34,949
Executive Vice President and 1998 $148,034 $ 56,742 $37,979
Chief Financial Officer 1997 $136,780 $ 39,848 $11,558
Jane B. Tompkins 1999(6) $150,174 $ 36,013 6,000 $13,202
Senior Vice President, 1998(8) $ 94,962 6,000(6) $28,241
Chief Credit Officer
William M. Long 1999 $148,223 $ 31,240 6,000 $17,425
Senior Vice President 1998 $101,697 $ 35,656 $18,367
Lending Division 1997 $ 95,566 $ 26,048 $10,911
</TABLE>
- ------------------
(1) Charles C. Pearson, Jr., was appointed President and CEO effective January
5, 1998. No compensation was earned in 1997.
(2) Includes contractual one time payments of: $157,813 for loss of prior
employment stock options, $2,063 for employer match for 401(k) prior to
enrollment and $15,345 for house settlement fees.
(3) Includes contributions in 1999 of $27,498, $16,498, $31,266, $13,965 and
$9,884, respective for Messrs. Pearson, Atkinson, Durrell, Long and Mrs.
Tompkins for the Supplemental Executive Retirement Plan.
(4) Includes employer matching contributions in 1999 of $2,400, $2,507 $2,400,
$2,177 and $2,035, respectively for Messrs. Pearson, Atkinson, Durrell, Long
and Mrs. Tompkins under the Bank's 401-K Retirement Plan.
(5) Includes contributions in 1999 of $1,283 for each of the following: Messrs.
Pearson, Atkinson, Durrell, Long and Mrs. Tompkins to the Corporation's
Employee Stock Ownership Plan.
(6) Recognition & Retention Plan Stock grant awards of 5,039 and 3,023 shares,
at the closing price of $11.75 per share, were awarded respectively to Mr.
Atkinson and Mrs. Tompkins, based on canceling all Stock Option Plan grants
awarded in 1998.
(7) John W. Atkinson started employment on April 29, 1998.
(8) Jane B. Tompkins started employment on April 14, 1998.
AGGREGATE OPTION AWARDS AND EXERCISES DURING 1999 AND OPTION VALUES AT
DECEMBER 31, 1999. The Bank's 1994, 1996 and 1999 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 tables set forth certain information regarding awards under the Bank's
incentive stock option plans, including the options awarded during 1999, shares
acquired and the value realized during 1999 by Named Executive Officers upon
exercise of options and the number of shares of Corporation Common Stock
underlying options and the value of options held by Named Executive Officers at
December 31, 1999. The stock underlying the options and the stock issued under
the 1994 and 1996 Option
12
<PAGE>
Plan 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.
Set forth in the table that follows is information relating to options
granted under the stock option plan to the Named Executive Officers during 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realized Value at
Percent of Assumed Annual Rates of
Total Options Stock Price Appreciation
Granted to for Option Term(1)
Options Employees in Exercise or Expiration ---------------------------
Name Granted FY 1999(4) Base Price Date(3) 5% 10%
- ---- --------- ------------- ----------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Charles C. Perarson, Jr. 50,000(2) 24.4% $14.5000 01/05/09 457,000 1,160,000
25,000 11.1% $12.5000 02/16/09 194,000 500,000
John W. Atkinson 15,000 6.7% $12.5000 02/16/09 116,000 300,000
James L. Durrell 15,000 6.7% $12.5000 02/16/09 116,000 300,000
Jane B. Tompkins 6,000 2.7% $12.5000 02/16/09 47,000 120,000
William M. Long 6,000 2.7% $12.5000 02/16/09 47,000 120,000
</TABLE>
- ----------
(1) Rounded to nearst thousand dollars.
(2) Awarded pursuant to terms of employment agreement described elsewhere.
(3) the effective date for vesting purposes is April 20, 1999.
(4) Pursuant to regulatory conditions no individual may receive options
exceeding twenty-five (25%) of the shares issued which for any individual
would total an aggregate limit under the 1999 Plans of 250,000 shares.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING OPTIONS UNEXERCISED IN-THE-
AT DECEMBER 31, MONEY OPTIONS AT
NUMBER OF 1999 DECEMBER 31, 1999
SHARES
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE (1)
- -------------------------------------------------- ----------- -------- ------------------ -------------------
<S> <C> <C> <C> <C>
Charles J. Pearson. Jr. 0 -- 5,000/95,000 $ 0/$0
President and Chief Executive Officer
John W. Atkinson -- -- 0/15,000(2) $ 0/$0
Executive Vice President
and Chief Operating Officer
James L. Durrell 4,500 $28,764 30,500/15,000 $111,935/$0
Executive Vice President
and Chief Financial Officer
Jane B. Tompkins -- -- 0/6,000(3) $ 0/$0
Senior Vice President Chief Credit Officer
William M. Long 7,500 $78,127 0/6,000 $ 0/$0
Senior Vice President Lending Division
</TABLE>
- ------------------
(1) Based on the last sale price of the Corporation Common Stock on December 31,
1999, of $7.00 per share.
(2) 10,000 Options granted in 1998 were canceled in 1999 by mutual consent.
(3) 6,000 Options granted in 1998 were canceled in 1999 by mutual consent.
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 stock options to purchase a total of 25,000 shares 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
Corporation further agreed to an award of 50,000 non-qualified options to
purchase Common Stock of the Corporation which were awarded subject to receipt
of all required regulatory and shareholder approvals which were required for the
1999 Plans out of which these options were intended to be granted. The contract
provides for re-pricing the non-qualified options based upon performance of the
corporation stock relative to its peers. Mr. Pearson is also entitled to
participate in all Bank 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.
CHANGE IN CONTROL AGREEMENTS. Effective April 1, 1998, the Bank and the
Mutual Holding Company entered into a Change-In-Control Agreement ("CICA") with
each of Messrs. Pearson, Durrell, Ruben, Long, Shughart and Coulson, and Mrs.
Tompkins and Messrs. Atkinson and Samuel at the dates of their appointment..
Each CICA has a three-year term. The Board of Directors votes annually on
whether to renew the agreements for an additional year. The Board voted at its
February, 2000, Board Meeting to renew this agreement for an additional year.
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 employment following demotion, loss of title, loss of significant
authority, reduction in compensation or relocation of principal place
13
<PAGE>
of employment, the executive, or in the event of death, his/her beneficiary, is
entitled to receive a severance payment equal to three times the 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 hired
before January 1, 1999, 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 1999 no
contribution was required.
The Bank has discontinued the defined benefit pension plan for employees
hired after December 31, 1998. For employees hired on or after January 1, 1999,
the defined benefit plan has been replaced by an increased employer contribution
to the employee's 401K Plan.
The following table illustrates monthly pension benefits at age 65 under
the most advantageous defined benefit 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 $1,031 $1,125 $1,219 $1,313 $1,406
60,000 1,656 1,833 2,011 2,188 2,365
80,000 2,281 2,542 2,802 3,063 3,323
100,000 2,906 3,250 3,594 3,938 4,281
120,000 3,531 3,958 4,386 4,813 5,240
140,000 4,156 4,667 5,177 5,688 6,198
170,000 5,094 5,729 6,365 7,000 7,636
</TABLE>
- ------------------
As of December 31, 1999, Messrs. Durrell, Long, Shughart and Samuel had 12,
15, 25 and 4 years of credited service, respectively. Messrs. Pearson, Ruben and
Coulson and Mrs. Tompkins each had 2 years of credited service.
14
<PAGE>
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, 1994. The compensation
limit for 1999 was $160,000, and is increased to $170,000 for 2000. 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>
$170,000 $ 0 $ 0 $ 0 $ 0 $ 0
200,000 117,000 133,000 149,000 164,000 180,000
225,000 215,000 244,000 273,000 301,000 330,000
250,000 313,000 355,000 396,000 438,000 480,000
275,000 411,000 465,000 520,000 575,000 630,000
300,000 509,000 576,000 644,000 712,000 780,000
</TABLE>
- ------------------
(1) Represents the present value at age 65 of the SERP benefit.
As of December 31, 1999, Messrs. Durrell, Long, Shughart and Samuel had 12,
15, 25 and 4 years of credited service, respectively. Messrs. Pearson, Ruben and
Coulson and Mrs. Tompkins each had 2 years of credited service.
COMPENSATION OF DIRECTORS
FEES. The Corporation has no separate compensation for Corporation Board
Members, all of whom are currently Directors of the Bank and are compensated by
the Bank. Bank Directors receive an aggregate annual fee of $10,000 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 1999, the Board of
Directors received an aggregate of $230,900 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 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, and Mr. Poole appointed in 1998
also received 5,625 options. Share and option numbers and prices are split
adjusted.
The Corporation's 1999 Stock Option Plan for Outside Directors was approved
by Shareholders at the 1999 Annual Meeting. The Plan is administered by the
Corporation's Board as a whole. The Plan authorized the issuance of grants of
2,000 options yearly to each non-employer director (4,000 options to the non-
employee Chairman if applicable) exercisable at the fair market value on the
date of the grant and for the options to vest over five (5) years. The grants
are subject to the meeting of at least 80% of performance objectives set for the
previous year by the Board. Grants were authorized by the Board for fiscal year
1998 and 1999 performance. A total of 125,000 shares of Corporation Common Stock
are authorized to be issued under the Plan.
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.
15
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1999, Directors George, Springer, Houck, Sourbeer and Poole, 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 except
for the single purchase of real estate identified above involving an entity
associated with Mr. Poole.
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. Current comparative market survey data was utilized to
determine competitive salary levels. 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 individual objectives based upon
specific areas of responsibility and their contribution to bank wide
performance.
The internal objectives include return on equity and return on assets all
compared to plan objectives. Bank objectives for 1999, were a return on equity
of 10.05% and earnings per share of $0.61. The Bank achieved a return on equity
of 10.10% and earnings per share of $0.56 for 1999 for a combined performance of
96% of goal.
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 1999, the base compensation of Chairman, President and Chief
Executive Officer Charles C. Pearson, Jr. was set at a salary of $365,000 and a
bonus of $140,663 was authorized for 1998's performance. In recognition of the
Bank's 1999 performance and the major strides made towards moving the Bank from
a thrift to a full service financial institution the Committee recommended, and
the Board of Directors authorized a bonus of $144,324.
The Committee believes the bonus was earned and reflects the high level of
achievement of the Bank and its officers and employees under Mr. Pearson's
leadership. The Committee further believes that his total compensation is
consistent overall with the compensation of the Chief Executive Officers of peer
group banks with Mr. Pearson's management strengths and experience.
COMPENSATION AND BENEFITS COMMITTEE
Jimmie C. George
Robert A. Houck (Chairman)
Donald B. Springer
Frank R. Sourbeer
Robert E. Poole
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 Corporation Common Stock over the period commencing with the December
31, 1994 closing price through December 31, 1999; (2) all issues traded on The
Nasdaq Stock Market(R) from December 31, 1994 through December 31, 1999; and (3)
all publicly traded thrifts with assets of between $1 and $5 billion from
December 31, 1994, through December 31, 1999. The shareholder return shown on
the graph below is not necessarily indicative of future performance.
[GRAPHIC]
In the printed version of the document, a line graph appears
which depicts the following plot points:
<TABLE>
<CAPTION>
PERIOD ENDING
------------------------------------------------------------------------
INDEX 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------------------------------------------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Harris Financial, Inc. (MHC) 100.00 150.15 141.85 474.38 328.96 184.80
NASDAQ -- Total US* 100.00 141.33 173.89 213.07 300.25 542.43
SNL $1B-$5B Thrift Index 100.00 153.72 201.70 358.03 321.38 287.80
</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 and one on-going suit involving an insurance
coverage issue with the Bank's former bond carrier which arose out of the 1996
acquisition of First Harrisburg. 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 1999 fiscal year and is
expected to be selected to act as the Corporation's and the Bank's independent
public accountant for the 2000 fiscal year.
ANNUAL REPORT
A copy of the Corporation's Annual Report for its fiscal year ended
December 31, 1999 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 2001 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 December 22, 2000 (January 19, 2001, 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, 1999, 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 MAY 18, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Charles C. Pearson, Jr.,
Ernest P. Davis 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 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 Holiday Inn Hotel and Convention Center, I-83 (Exit 18A) and Pennsylvania
Turnpike (Exit 18), New Cumberland, Pennsylvania 17070 on Thursday, May 18,
2000, at 10:00 a.m., prevailing time, and at any adjournment or postponement of
the Annual Meeting.
(Continued on reverse side)
FOLD AND DETACH HERE
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.
Please mark your vote as indicated in this example |X|
ELECTION OF THREE (3) CLASS III DIRECTORS, TWO (2) TO SERVE FOR A THREE-YEAR
TERM AND ONE (1) TO SERVE A ONE-YEAR TERM.
FOR all nominees listed to the right (except as marked to the contrary) | |
WITHHOLD AUTHORITY to vote for all nominees listed to the right. | |
NOMINEES FOR 3 YR. TERM: WILLIAM E. McCLURE, JR. and DONALD B. SPRINGER
NOMINEE FOR 1 YR. TERM: BRUCE S. ISAACMAN
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
_______________________________________________________________________________
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 III
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: ______________________, 2000
___________________________________
Signature
___________________________________
Signature
FOLD AND DETACH HERE
