<PAGE>
Susquehanna Bancshares, Inc.
April 29, 1996
TO OUR SHAREHOLDERS:
A Notice and Proxy Statement for the Annual Meeting of Shareholders to be
held at the Hershey Country Club, 1000 East Derry Road, Hershey, Pennsylvania,
on May 31, 1996, at 10:00 a.m. is set forth on the following pages.
At this meeting, the four members of the Class of 1999 (as defined herein)
of the Board of Directors of Susquehanna Bancshares, Inc. ("Susquehanna") will
be elected for the coming three years. Your Board of Directors unanimously
recommends that you vote "FOR" the Director nominees presented. You also will be
asked to consider and vote upon Susquehanna's Equity Compensation Plan (the
"Equity Compensation Plan"). The affirmative vote of the holders of a majority
of Susquehanna Common Stock present in person or represented by proxy at the
Annual Meeting is required for approval of the Equity Compensation Plan. Your
Board of Directors unanimously recommends that you vote "FOR" approval of the
Equity Compensation Plan.
Please sign and date the enclosed proxy and return it in the accompanying
envelope as promptly as possible. It is hoped that you will be able to attend
the meeting. The giving of a proxy will not affect your right to vote your
shares if you attend the meeting and desire to vote in person. A proxy is
revocable by the shareholder giving it, provided written notice of the
revocation is received by the Secretary of Susquehanna prior to voting the
proxy. The proxy may be revoked prior to or during the meeting, but if revoked
during the meeting, votes on matters made under the authority of the proxy prior
to such revocation will not be affected.
Robert S. Bolinger
President and
Chief Executive Officer
<PAGE>
Susquehanna Bancshares, Inc.
26 North Cedar Street, P.O. Box 1000
Lititz, PA 17543-7000
April 29, 1996
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on May 31, 1996
THE ANNUAL MEETING OF SHAREHOLDERS OF SUSQUEHANNA BANCSHARES, INC.
("Susquehanna") will be held on May 31, 1996, at 10:00 a.m. at the Hershey
Country Club, 1000 East Derry Road, Hershey, Pennsylvania, for the purposes of:
1. Electing four directors to the Class of 1999;
2. Considering and voting upon Susquehanna's Equity Compensation
Plan; and
3. Transacting such other business as may properly be brought before
the Annual Meeting of Shareholders of Susquehanna or any
adjournment or adjournments thereof.
Only those holders of record of Susquehanna Common Stock, par value $2.00
("Susquehanna Common Stock"), at the close of business on April 23, 1996, are
entitled to notice of and to vote at the Annual Meeting of Shareholders (the
"Annual Meeting") of Susquehanna and any adjournment or adjournments thereof.
The stock transfer books of Susquehanna will not be closed. The affirmative vote
of the holders of a majority of Susquehanna Common Stock present in person or
represented by proxy at the Annual Meeting will be required to approve the
Equity Compensation Plan.
All shareholders are cordially invited to attend the Annual Meeting, but
whether or not you expect to attend the meeting in person, please sign and date
the enclosed proxy and return it promptly in the enclosed, pre-paid, return
addressed envelope. You may revoke the proxy at any time before it is voted, by
written notice to, or a subsequently dated proxy received by, the Secretary of
Susquehanna.
By Order of the Board of Directors
Richard M. Cloney
Secretary
Lititz, Pennsylvania
April 29, 1996
2
<PAGE>
TABLE OF CONTENTS
INTRODUCTION.............................................................. 4
General................................................................... 4
Record Date for, and Voting at, the Annual Meeting........................ 4
Proxies for the Annual Meeting............................................ 5
PRINCIPAL HOLDERS OF VOTING SECURITIES.................................... 5
Compliance with Section 16(a) of the Exchange Act......................... 6
ELECTION OF DIRECTORS AND EXECUTIVE OFFICERS.............................. 7
Board Committees and Meetings............................................. 9
DIRECTOR AND EXECUTIVE OFFICER COMPENSATION.............................. 10
Compensation of Directors and Executive Officers......................... 10
Report of the Compensation Committee..................................... 11
Description of Certain Plans and Employment Contracts.................... 23
Stock Price Performance Graph............................................ 26
APPROVAL OF EQUITY COMPENSATION PLAN..................................... 27
Description of the Equity Compensation Plan.............................. 28
Federal Tax Consequences................................................. 31
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................... 34
INDEPENDENT PUBLIC ACCOUNTANTS........................................... 34
SHAREHOLDER PROPOSALS.................................................... 34
OTHER MATTERS............................................................ 34
Exhibit A (Equity Compensation Plan)..................................... 34
3
<PAGE>
Susquehanna Bancshares, Inc.
26 North Cedar Street, P.O. Box 1000
Lititz, PA 17543-7000
PROXY STATEMENT
April 29, 1996
INTRODUCTION
General
This Proxy Statement is being furnished on or about April 29, 1996, by
Susquehanna Bancshares, Inc. ("Susquehanna") to the holders of Susquehanna
Common Stock, par value $2.00 ("Susquehanna Common Stock"), in connection with
the solicitation of proxies by the Board of Directors of Susquehanna for use at
the Annual Meeting of Shareholders to be held on May 31, 1996, and any
adjournment or adjournments thereof, to consider and vote upon: (i) the election
of four directors to the Class of 1999; (ii) a proposal to approve Susquehanna's
Equity Compensation Plan (the "Equity Compensation Plan"); and (iii) such other
business as may come before the Annual Meeting or any adjournment or
adjournments thereof.
Record Date for, and Voting at, the Annual Meeting
This Proxy Statement and the accompanying form of proxy are being sent
on or about April 29, 1996, to holders of record of Susquehanna Common Stock on
April 23, 1996 (the "Record Date") who are entitled to vote at the Annual
Meeting. As of the close of business on the Record Date, there were
13,155,917 shares of Susquehanna Common Stock outstanding and entitled to
vote at the Annual Meeting.
The holders, present in person or represented by proxy, of a majority
of the issued and outstanding shares entitled to vote, shall be necessary to
constitute a quorum for the transaction of business at the Annual Meeting. Each
share of Susquehanna Common Stock is entitled to one vote on each matter to be
presented at the Annual Meeting.
At the Annual Meeting, each share of Susquehanna Common Stock is entitled
to vote in the election of four directors to the Class of 1999 of the Board of
Directors. Shareholders will be entitled to cast one vote for each share held
for each candidate nominated, but will not be entitled to cumulate such votes.
The four nominees to the Class of 1999 receiving the highest number of votes
shall be elected to the Board of Directors.
Approval of the Equity Compensation Plan will require the affirmative
vote of the holders of a majority of Susquehanna Common Stock present in person
or represented by proxy at the Annual Meeting.
Abstentions may be specified on the proposal to approve the Equity
Compensation Plan. Abstentions will be considered present for purposes of
determining the presence of a quorum, but as unvoted on the proposal to approve
the Equity Compensation Plan. Abstentions will have the same effect as a
negative vote because the Equity Compensation Plan requires the affirmative vote
of the holders of a majority of Susquehanna Common Stock present in person or
represented by proxy at the Annual Meeting.
Brokers that are member firms of the New York Stock Exchange and who hold
shares in street name for customers have the discretion to vote those shares
with respect to certain matters if they have not received instructions from the
beneficial owners. Brokers will have such discretionary authority with respect
to the election of directors and the proposal to approve the Equity Compensation
Plan. A failure by brokers to vote shares will
4
<PAGE>
have no effect in the outcome of the election of directors or the proposal
regarding the Equity Compensation Plan because such shares will not be
considered present and entitled to vote with respect to such matters.
As to all other matters, the vote of the holders of a majority of the
Susquehanna Common Stock present in person or represented by proxy, shall decide
any question brought before the Annual Meeting, unless the question is one for
which, by express provision of statute or of Susquehanna's articles of
incorporation or bylaws, a different vote is required. Generally, abstentions
on these matters will have the same effect as a negative vote because such
matters require the affirmative vote of the holders of a majority of Susquehanna
Common Stock present in person or represented by proxy at the Annual Meeting.
Broker non-votes will have no effect because such shares will not be considered
present and entitled to vote on such matters.
The Board of Directors of Susquehanna has unanimously approved the Equity
Compensation Plan and recommends that Susquehanna shareholders vote "FOR"
approval of the Equity Compensation Plan.
Proxies for the Annual Meeting
The proxy enclosed for purposes of the Annual Meeting may be revoked
by the person giving it, at any time after its submission and before it is
exercised, by: (i) submitting written notice of revocation of such proxy to the
Secretary of Susquehanna prior to vote at the Annual Meeting; (ii) submitting a
later dated proxy received by the Secretary of Susquehanna; or (iii) such person
appearing at the Annual Meeting and requesting a revocation of the proxy.
Appearance alone at the Annual Meeting will not of itself constitute a
revocation of the proxy. All shares represented by valid proxies will be voted
in the manner specified in the proxies.
Each proxy, unless the shareholder otherwise specifies therein, will
be voted FOR the election of Susquehanna Management's nominees for directors and
FOR approval of the Equity Compensation Plan. Each proxy, unless the shareholder
otherwise specifies therein, will be voted FOR adjournment in situations in
which management moves to adjourn the Annual Meeting, for example, if management
determines that it is necessary to solicit additional proxies to approve the
Equity Compensation Plan. In each case where the Susquehanna shareholder has
appropriately specified how the proxy is to be voted, it will be voted in
accordance with such direction. Susquehanna shareholders may designate a person
or persons other than those named in the enclosed proxy to vote their shares at
the Annual Meeting or any adjournment thereof.
The Board of Directors of Susquehanna knows of no business which will be
presented for consideration at the Annual Meeting other than the matters
described in this Proxy Statement and those incidental to the conduct of the
Annual Meeting. It is not anticipated that other matters will be brought before
the Annual Meeting. If, however, other matters are duly brought before the
Annual Meeting or any adjournments thereof, the persons appointed as proxies
will have the discretion to vote or act thereon according to their best
judgment.
Directors, officers and employees of Susquehanna may solicit proxies from
Susquehanna shareholders, either personally or by telephone, telegraph or other
form of communication. Such persons will receive no additional compensation for
such services. Susquehanna will request that the Notice of Annual Meeting, this
Proxy Statement, the proxy and related materials, if any, be forwarded to
beneficial owners and expects to reimburse banks, brokers and other persons for
their reasonable out-of-pocket expenses in handling such materials. All costs of
solicitation will be borne by Susquehanna.
PRINCIPAL HOLDERS OF VOTING SECURITIES AND HOLDINGS OF MANAGEMENT
To the knowledge of Susquehanna Management, no person owns beneficially
more than 5% of the Susquehanna Common Stock.
5
<PAGE>
The following table sets forth, as of April 15, 1996, the shares of
Susquehanna Common Stock deemed to be owned beneficially by each director and by
all directors and executive officers as a group:
<TABLE>
<CAPTION>
Nature and Amount of
Beneficial Percentage of
Ownership of Susquehanna Outstanding
Name of Beneficial Owner Common Stock /(1)/ Susquehanna Common Stock
- ------------------------ ------------------------ ------------------------
<S> <C> <C>
James G. Apple /(5)/ 17,054 0.130%
Robert S. Bolinger 11,286 0.086%
Richard M. Cloney/(2)/ 1,696 0.013%
John M. Denlinger 14,400 0.110%
Richard E. Funke/(2)/(6)/ 39,972 0.304%
Henry H. Gibbel/(3)/ 68,562 0.521%
Marley R. Gross 1,428 0.011%
T. Max Hall/(4)/ 4,581 0.035%
Edward W. Helfrick/(2)/ 116,196 0.884%
C. William Hetzer, Jr./(2)/ 2,000 0.015%
George J. Morgan 4,947 0.038%
Raymond M. O'Connell 49,419 0.376%
Robert C. Reymer, Jr. 3,687 0.028%
Roger V. Wiest 15,500 0.118%
All Directors, Nominees
and Officers as a Group
(26 in number) 376,914 2.867%
- ------------------------
</TABLE>
/(1)/ Unless otherwise indicated, shares shown as beneficially owned are held
individually by the person indicated or jointly with spouse or children
living in the same household, individually by the spouse or children
living in the same household, or as trustee, custodian or guardian for
minor children living in the same household.
/(2)/ Nominee for three year term expiring in 1999.
/(3)/ Mr. Gibbel has sole beneficial ownership with respect to 53,250 shares and
shares beneficial ownership with his wife with respect to 10,812 shares.
4,500 shares are beneficially owned solely by Mr. Gibbel's wife. Mr.
Gibbel is also an officer and director of Gibbel Foundation, Inc., Penn
Charter Mutual Insurance Co., and Lititz Mutual Insurance Co. These three
organizations hold 3,125 shares, 12,500 shares, and 108,750 shares,
respectively, to which Mr. Gibbel disclaims beneficial ownership.
/(4)/ Mr. Hall has sole beneficial ownership of 3,937 shares. In addition, 644
shares are held in a Keogh Plan for the benefit of Mr. Hall.
/(5)/ Mr. Apple has sole beneficial ownership with respect to 5,542 shares. In
addition, 11,512 shares are held in trust under the John A. Apple,
Deceased, Marital Trust with respect to which Mr. Apple shares beneficial
ownership.
/(6)/ Mr. Funke shares beneficial ownership with his wife with respect to 34,931
shares, and with other family members with respect to 3,661 shares. In
addition, 1,380 shares are beneficially owned solely by Mr. Funke's
children.
- ------------------------
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires Susquehanna's officers and directors, and persons who own more than ten
percent of a registered class of Susquehanna's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC"). Officers, directors and greater than ten-percent
shareholders are required by SEC regulation to furnish Susquehanna 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
written representations from certain reporting persons that no Forms 5 were
required for those persons, Susquehanna believes that, during the period January
1 - December 31, 1995, all filing requirements applicable to its officers,
directors and greater than
6
<PAGE>
ten-percent owners were satisfied, except that one report, covering one
transaction, was inadvertently not timely filed by Mr. Reymer.
ELECTION OF DIRECTORS AND EXECUTIVE OFFICERS
Susquehanna's Board of Directors currently consists of fourteen directors.
The Board is classified into three classes, one of which is elected each year to
serve a term of three years. Directors of each class hold office until the
expiration of the term for which they were elected and their successors have
qualified or until the Annual Meeting following their attaining the age of
seventy-two years.
At the Annual Meeting, the shareholders will elect four persons to serve as
directors for three year terms expiring in 1999 ("Class of 1999"). The
candidates nominated to such class who receive the highest number of votes will
be elected. In the election, shareholders will be entitled to cast one vote for
each share held for each of the four candidates to the Class of 1999, but will
not be entitled to cumulate such votes.
Nominations for four members of the Class of 1999 have been made by the
Board of Directors. Additional nominations for election to the Board of
Directors may be made by any holder of Susquehanna Common Stock. Each
nomination shall be made in writing and delivered or mailed to the President of
Susquehanna not less than fourteen days prior to the Annual Meeting. Such
notification shall contain the following information to the extent known by the
notifying shareholder without unreasonable effort or expense: (a) the name and
address of each proposed nominee; (b) the principal occupation of each proposed
nominee; (c) the total number of shares of capital stock of the corporation that
will be voted by the notifying shareholder for such proposed nominee; (d) the
name and residence address of the notifying shareholder; and (e) the number of
shares of capital stock of Susquehanna owned by the notifying shareholder.
Management's nominees for the Class of 1999 are Richard M. Cloney, Richard
E. Funke, Edward W. Helfrick and C. William Hetzer, Jr.
In the absence of instructions to the contrary, proxies will be voted in
favor of the election of Management's nominees. In the event any of the
nominees should become unavailable, it is intended that the proxies will be
voted for such substitute nominee(s) as may be chosen by Management. Management
has no present knowledge that any of the nominees will be unavailable to serve.
The following table sets forth the name and age of each nominee and
continuing director, as well as their business experience, including principal
occupation and the period during which each has served as a director.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Business Experience Including
Principal Occupation for Past Five
Years
Name, Address/(1)/ Age Director Since Present Term Expires
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard M. Cloney/(2)/ 54 Vice President and Secretary, 1985 1996
Susquehanna; Executive Vice
President and Secretary, Farmers
First Bank; President,
Susquehanna Bancshares South, Inc.
Richard E. Funke/(2)/ 60 Chairman of the Board, Atlantic 1995 1996
Federal Savings Bank
Edward W. Helfrick/(2)/ 67 State Senator, Commonwealth of 1985 1996
Pennsylvania since 1980. Other
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Business Experience Including
Principal Occupation for Past Five
Years
Name, Address/(1)/ Age Director Since Present Term Expires
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Directorships: Farragut Anthracite
Co.; Bear Gap Stone, Inc.; Helker
Contracting Co.; Rand Realty Corp.
C. William Hetzer, Jr./(2)/ 63 President, C. William Hetzer, Inc. 1989 1996
(General Contractor)
Robert S. Bolinger 59 President & Chief Executive Officer, 1982 1997
Susquehanna; Chairman & Chief
Executive Officer, Farmers First Bank;
Chairman, Susquehanna Bancshares South,
Inc.
Henry H. Gibbel 60 President, Lititz Mutual Insurance Co. 1982 1997
& Penn Charter Mutual Insurance Co.;
Partner, Hershey & Gibbel
(Insurance Agency)
George J. Morgan 64 President, Morgan, Hallgren, Crosswell 1982 1997
& Kane, P.C. (Law Firm)
Robert C. Reymer, Jr. 69 Retired Vice President, McDowell 1985 1997
Insurance Inc. (Insurance Agency)
Roger V. Wiest 55 Managing and Senior Partner, Wiest, 1992 1997
Wiest, Saylor & Muolo (Law Firm)
James G. Apple 60 President, Butter Krust Baking Co., 1992 1998
Inc.
John M. Denlinger 56 Division Manager, Denlinger, Inc., a 1985 1998
division of Carolina Holdings, Inc.
(Building Materials)
Marley R. Gross 63 President, Marley R. Gross Ford, Inc. 1995 1998
T. Max Hall 61 Attorney/Managing Partner, McNerney, 1986 1998
Page, Vanderlin and Hall; Chairman of
the Board, Data Papers, Inc.;
Chairman of the Board, Data Papers
of North Carolina, Inc.
Raymond M. O'Connell 69 Chairman of the Board, Williamsport 1986 1998
National Bank; Director, Phoenix
Data, Inc.
</TABLE>
8
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--------------------------
/(1)/ The business address for all directors of Susquehanna is Susquehanna
Bancshares, Inc., 26 North Cedar Street, Lititz, Pennsylvania 17543
/(2)/ Management nominees for election at the Annual Meeting for terms expiring
1999.
- --------------------------
Messrs. Gibbel, Morgan, Denlinger and Bolinger are directors of Farmers
First Bank ("Farmers First"), a Susquehanna subsidiary, and have been directors
of that bank and its predecessor for more than five years. In addition, Mr.
Bolinger serves as a Director of Atlantic Federal, Fairfax Savings and
Reisterstown Federal. Messrs. Apple, Helfrick, and Wiest are directors of First
National Trust Bank ("First National"), a Susquehanna subsidiary, and have been
directors of that bank for more than five years. Mr. Reymer is a director of
Citizens National Bank of Southern Pennsylvania ("Citizens"), a Susquehanna
subsidiary, and has been a director of that bank and its predecessors for more
than five years. Messrs. Hall, and O'Connell are directors of Williamsport
National Bank ("Williamsport National"), a Susquehanna subsidiary, and have been
directors of that bank for more than five years. Mr. Gross is a director of
Spring Grove National Bank ("Spring Grove"), a Susquehanna subsidiary, and has
been a director of that bank for more than five years. Mr. Hetzer is a director
of Farmers and Merchants Bank of Hagerstown, Maryland ("F & M"), a Susquehanna
subsidiary, and has been a director of that bank for more than five years. Mr.
Funke is a director of Atlantic Federal Savings Bank ("Atlantic Federal"), a
wholly-owned subsidiary of Susquehanna's wholly-owned subsidiary, Susquehanna
Bancshares South, Inc., and has been a director of that thrift for more than
five years. Messrs. Bolinger, Cloney, Denlinger, Funke and Morgan also serve as
directors of Susquehanna Bancshares South, Inc. In addition, Mr. Cloney is a
director of Atlantic Federal, Fairfax Savings and Reisterstown Federal.
T. Max Hall is a partner in the law firm of McNerney, Page, Vanderlin and
Hall located in Williamsport, Pennsylvania. During the last fiscal year,
McNerney, Page, Vanderlin and Hall was retained to provide legal services to
Williamsport National. Also, Roger V. Wiest is a partner in the law firm of
Wiest, Wiest, Saylor & Muolo located in Sunbury, Pennsylvania. During the last
five years, Wiest, Wiest, Saylor & Muolo was retained to provide services to
First National. George J. Morgan is a shareholder and President in the law firm
of Morgan, Hallgren, Crosswell & Kane, P.C. During the last fiscal year,
Morgan, Hallgren, Crosswell & Kane, P.C., was retained to provide legal services
to Susquebanc Lease Co., a Susquehanna subsidiary. See "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS."
Board Committees and Meetings
The Board of Directors of Susquehanna has two standing committees, an Audit
Committee and a Compensation Committee, both of which were established in 1987.
The members of both committees are all outside directors.
The principal purpose of the Audit Committee is to meet with Susquehanna's
independent public accountants and review the scope and results of Susquehanna's
annual audit, to review the reports of examination of regulatory agencies and
the replies to the reports, and to review information pertaining to internal
auditing and Susquehanna's systems of internal controls. The directors serving
on the Audit Committee in 1995 were James G. Apple, T. Max Hall, Robert C.
Reymer, Jr., and Roger V. Wiest. The Audit Committee met four times during
1995. The Audit Committee currently consists of the same directors who served
in 1995.
The principal purposes of the Compensation Committee are to review and
approve key executive salary policy, systems for distribution of incentive
compensation or bonuses, and the design of any new supplemental compensation
programs applicable to executive compensation. The directors serving on the
Compensation Committee in 1995 were John M. Denlinger, Henry H. Gibbel, Edward
W. Helfrick, George J. Morgan, and C. William Hetzer, Jr. The Compensation
Committee met six times during 1995. The current Compensation Committee
includes the directors who served in 1995.
9
<PAGE>
The Board of Directors has no other standing committees. It operates as a
committee of the whole for all other matters including nominations.
During the last fiscal year the Susquehanna Board of Directors met six
times. Each of the directors attended at least 75% of the meetings of the Board
of Directors that were held in the fiscal year in the period during which he
served as a director, except that two incumbent directors, Mr. Helfrick and Mr.
Apple, attended fewer than 75% of the total meetings of the Board of Directors
and committees of the Board on which they served.
DIRECTOR AND EXECUTIVE OFFICER COMPENSATION
Compensation of Directors and Executive Officers
Directors currently receive an annual fee of $5,000 and a payment of $800
for attendance at each Board of Directors' meeting except telephonic meetings,
where the compensation is $250. Directors are paid $800 for each committee
meeting which they attend, unless the committee meets on the day of a meeting of
the entire Board, in which case the fee is $250.
The following table sets forth the executive officers of Susquehanna, their
ages, and their positions with Susquehanna:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Name Age Title
---- --- -----
--------------------------------------------------------------------------
<S> <C> <C>
Robert S. Bolinger 59 President & Chief Executive Officer
William T. Belden 46 Vice President
Frederick W. Bisbee 57 Vice President
Richard M. Cloney 54 Vice President and Secretary
Gregory A. Duncan 40 Vice President
Charles W. Luppert 54 Vice President
J. Stanley Mull, Jr. 62 Vice President and Treasurer
William J. Reuter 46 Vice President
Robert L. Strausbaugh 64 Vice President
--------------------------------------------------------------------------
</TABLE>
Robert S. Bolinger, Richard M. Cloney and J. Stanley Mull, Jr., are also
principal executive officers of Farmers First and have been employed by Farmers
First in substantially equivalent positions for more than the past five years.
Messrs. Bolinger and Cloney also serve as principal executive officers of
Susquehanna Bancshares South, Inc. William T. Belden is a principal executive
officer of Farmers First, having been appointed as President and Chief Operating
Officer, effective January 17, 1995. Prior to assuming his present position,
Belden served as a Vice President with PNC Bank for more than the past five
years. Frederick W. Bisbee is also the principal executive officer of First
National and has been employed by First National in a substantially equivalent
position for more than the past five years. Gregory A. Duncan is also the
principal executive officer of Citizens. Prior to his present position, Mr.
Duncan served as an executive officer of Citizens for more than the past five
years, including as Executive Vice President from May 1990 until July 1992 when
he assumed his present position as President and Chief Executive Officer of
Citizens. Charles W. Luppert is also a principal executive officer of
Williamsport and has been employed by that bank in a substantially equivalent
position for more than the past five years. William J. Reuter is also the
principal executive officer of Farmers & Merchants Bank and Trust and has been
employed by F & M Bank in a substantially equivalent position for more than the
past five years. Robert L. Strausbaugh is the principal executive officer of
Spring Grove and has been employed by Spring Grove in a substantially equivalent
position for more than the past five years. Richard E. Funke is a director of
Susquehanna and is also Chairman and Chief Executive Officer of Atlantic
Federal. Mr. Funke is not, however, an executive officer of Susquehanna.
10
<PAGE>
There are no family relationships among the executive officers of
Susquehanna nor are there arrangements or understandings between any of them and
any other person pursuant to which any of them was selected as an Officer of
Susquehanna.
Report of the Compensation Committee
The Compensation Committee of the Board of Directors of Susquehanna is
composed entirely of independent outside directors. The Committee is charged
with responsibility for (i) assuring that key management personnel of
Susquehanna and its affiliates are effectively compensated in terms of salaries,
supplemental compensation and benefits which are internally equitable and
externally competitive in order to allow Susquehanna to attract and retain
qualified personnel; and (ii) developing and initiating incentive programs and
plans that will serve to attract and retain qualified personnel in key
management positions of Susquehanna and its affiliates.
Overall Policy
Susquehanna's executive compensation program is designed to be closely
linked to corporate performance and returns to shareholders. To this end,
Susquehanna has developed an overall compensation strategy and specific
compensation plans that tie a significant portion of executive compensation to
Susquehanna's success in meeting specified performance goals and to appreciation
in Susquehanna's stock price. The overall objectives of this strategy are to
attract and retain the best possible executive talent, to motivate these
executives to achieve the goals inherent in Susquehanna's business strategy, to
link executive and shareholder interests through equity based plans and,
finally, to provide a compensation package that recognizes individual
contributions as well as overall business results.
Each year the Compensation Committee conducts a review of Susquehanna's
executive compensation program. The Compensation Committee reviews the
selection of peer companies used for compensation analysis. The Compensation
Committee believes that Susquehanna's most direct competitors for executive
talent are not necessarily all of the companies that would be included in a peer
group established for comparing shareholder returns. Successful executives in
the banking industry have a broad range of opportunities in the financial
industry generally, either with larger or smaller institutions, or with related
industry groups or unrelated industry groups in some instances (a chief
financial officer, for example). Many of these companies are not publicly
traded. The annual compensation reviews permit an ongoing evaluation of the
link between Susquehanna's performance and its executive compensation in the
context of the compensation programs of other companies.
The Compensation Committee determines the compensation for the Susquehanna
officers designated as participants in the Susquehanna Long Term Incentive
Plans, set forth in more detail below. This includes all individuals whose
compensation is set forth in the "Summary Compensation Table" which follows.
The Committee believes that utilization of this approach ensures consistency
throughout the executive compensation program. In reviewing the individual
performance of the executives whose compensation is detailed in this proxy
statement (other than that of the President and Chief Executive Officer of
Susquehanna), the Compensation Committee solicits and considers the views of Mr.
Bolinger.
The key elements of executive compensation consist of base salary, annual
short term and long term incentive bonus, and a Phantom stock appreciation plan.
The Compensation Committee's policies with respect to each of these elements,
including the basis for the compensation awarded to Mr. Bolinger, Susquehanna's
President and Chief Executive Officer, are discussed below. In addition, while
the elements of compensation described below are considered separately, the
Compensation Committee takes into account the full compensation package afforded
by Susquehanna to the individual, including pension benefits, severance plans,
insurance and other benefits, as well as the programs described below.
11
<PAGE>
Base Salaries
Base salaries for new executive officers are initially determined by
evaluating the responsibilities of the position held and the experience of the
individual, and by reference to the competitive marketplace for executive
talent, including a comparison to base salaries for comparable positions at
other companies.
Annual salary adjustments are determined by evaluating the performance of
Susquehanna and of each executive officer, and also take into account new
responsibilities. In the case of executive officers with responsibility for a
particular business unit, such unit's financial results are also considered.
Business units include each of Susquehanna's subsidiary banks, and its leasing
company, as well as discrete and identifiable operating areas, including
commercial lending, retail lending and operations and finance, among others.
In conducting its deliberations, the Compensation Committee makes use of an
executive compensation survey prepared by nationally recognized consultants on
executive compensation matters. The survey for 1995 analyzed compensation paid
to executives at thirteen (13) participating financial institutions with assets
between $500 million and $5 billion.
The survey describes the compensation ranges paid to executives at various
management levels. The base salary of all similar positions within the survey
group was used as the basis for calculating a midpoint for each job description
within Susquehanna's management program. The Compensation Committee then
established a range around the midpoint, with 80% of the midpoint as the minimum
and 120% of the midpoint as the maximum.
The salaries of Susquehanna's principal officers were compared to the
midpoint, and increases were awarded in the context of individual performance
and contribution, as explained below, with each salary targeted to fall within
the midpoint range. Accordingly, salaries which are established by the
Compensation Committee may slightly exceed or fall below the median range. Mr.
Bolinger's salary falls within the range established for the position he
occupies.
In evaluating an executive officer's performance, the Compensation
Committee looks to his/her accomplishments, which are based on qualitative and
quantitative measures, and the results produced by the executive officer, which
are based on quantitative measures. In determining accomplishments and results,
the Compensation Committee considers corporate and business unit performance
factors. Business unit factors include revenues of the business unit for which
the executive officer has responsibility, the business unit's growth in
earnings, the business unit's results expressed in terms of savings realized or
efficiencies achieved, the effective use of the executive officer's time within
his/her business unit, the executive officer's management skills and, finally,
the business unit and/or executive officer's development of new products or
lines of business. Management skills include improving operations, planning and
organizing, responding to change, communication skills and working with others.
The corporate factors which are considered include earnings growth of
Susquehanna and the subsidiary bank with which the executive officer serves,
asset growth of Susquehanna and the subsidiary bank with which the executive
officer serves, and the ability of the executive officer to demonstrate
management skills.
In determining the quantitative measures, the Compensation Committee looks,
in part, to the Uniform Bank Performance Results which is published quarterly by
the Federal Financial Institution Examination Council. This material measures
and compares each Susquehanna bank subsidiary against other banks in its peer
group in over 40 different financial areas. The peer groups used includes banks
between $50 million and $100 million in size; between $100 million and $300
million in size; and between $500 million and $1 billion in size. The basis for
the bank's performance in these areas in relation to the business unit and the
bank in which the executive serves allows the committee to assess such
individual's and his/her business unit's quantitative success.
A majority of the financial institutions participating in the salary survey
are included in the line of business group which is indexed in Susquehanna's
Stock Price Performance Graph. All of the financial institutions which are
indexed in the Stock Price Performance Group are reported in the Uniform Bank
Performance Results.
12
<PAGE>
In considering the various factors that are weighed in this process, no
differentiation as to weighting or relative importance has been established;
rather the members of the Compensation Committee are permitted to assign such
weight and importance to each factor as they, in their discretion, deem
appropriate.
In determining the compensation package to be awarded to Messrs. Bolinger,
Cloney, Mull, Bisbee and Reuter, the Compensation Committee did not attach
particular weight to the employment agreements between these individuals and
Susquehanna other than to recognize that the employment agreements provide that
base salary will be set at a rate agreed between the parties, or in the absence
of agreement, increased on the basis of the Consumer Price Index. These
executive officers have agreed to the base salary increases made by the
Compensation Committee.
With respect to the base salary granted to Mr. Bolinger in 1995, the
Compensation Committee took into account a comparison of base salaries of chief
executive officers of peer companies based on the salary survey, Susquehanna's
success in meeting its return on equity goals in 1994, the performance of
Susquehanna's common stock and the assessment by the Compensation Committee of
Mr. Bolinger's individual performance. The Compensation Committee also took
into account the fact that Mr. Bolinger served in a dual capacity as Chief
Executive Officer of both Susquehanna and Farmers First, the longevity of Mr.
Bolinger's service to Susquehanna and Farmers First, and its belief that Mr.
Bolinger is a representative of Susquehanna and Farmers First to the public by
virtue of his stature in the community and the industry. Mr. Bolinger was
granted a base salary of $337,881 for 1995, an increase of 9.1% over his
$309,804 base salary for 1994.
Annual Bonus
Each subsidiary of Susquehanna ("Subsidiary," collectively, the
"Subsidiaries") maintains an annual cash bonus program in which all persons
employed by that subsidiary on a certain date are eligible to participate. The
amount of the bonus is determined based upon utilization of a "performance bonus
calculation" which is a formula relationship based on return on average assets
and assets per employee that produces a "performance bonus percentage." In
general, as return on assets increase over 1% and as assets per employee
increase over $1 million, the performance bonus percentage is increased. A
"performance bonus percentage" is adopted by the Board of Directors of each
Subsidiary (excluding the thrifts) and uniformly applied to the salaries of each
eligible employee. Performance bonus percentages differed at each bank
Subsidiary (excluding the thrifts) and ranged between 5.75% at F&M to 11% at
Farmers First. The annual cash bonus percentage for 1995 was changed to
incorporate Susquehanna's performance with that of Farmers First for selected
Susquehanna executive officers. For 1995, the applicable ratio for Mr. Bolinger
was 60% Susquehanna and 40% Farmers First. Mr. Bolinger participated in the
Farmers First performance bonus program in 1995 and thus earned a bonus of 9.8%
of his base salary under this plan which represented $33,112. The applicable
ratio for 1996 for Mr. Bolinger is expected to be 75% Susquehanna and 25%
Farmers First, and 100% Susquehanna thereafter. The total of annual bonuses
awarded to all executive officers of Susquehanna in 1995 was $252,665. In
addition, the Compensation Committee awarded a discretionary merit
cash bonus to Mr. Bolinger of $25,000, representing outstanding individual
financial and non-financial contributions to Susquehanna.
Susquehanna's Performance Award Plan
Susquehannana's Performance Award Plan ("Performance Award Plan") is a
long-term incentive program administered by the Compensation Committee, designed
to provide incentives to key executive officers based upon the financial
performance of Susquehanna and its Subsidiaries.
The Performance Award Plan was adopted by the Board of Directors of
Susquehanna on October 14, 1986. The Performance Award Plan was approved for an
initial three-year period, referred to as an Earnout Period, which began on
January 1, 1986, and ended December 31, 1988. Two subsequent Earnout Periods
were approved running from January 1, 1989, through December 31, 1991, and from
January 1, 1992, through
13
<PAGE>
December 31, 1994. The third Earnout Period was approved, running from January
1, 1992, through December 31, 1994. A fourth Earnout Period has also been
approved, which will run from January 1, 1995, through December 31, 1997.
The express purpose of the Performance Award Plan is to provide key
executives with an increased incentive to make significant and extraordinary
contributions to the long-term performance and growth of Susquehanna and its
Subsidiaries; to join the common interests of Susquehanna and key executives;
and to attract and retain executives of exceptional ability.
The Performance Award Plan is administered by the Compensation Committee
which has full and complete authority in its discretion, but subject to the
express provisions of the Performance Award Plan, to select the executives
entitled to participate in the Performance Award Plan; to determine the amount
of such performance awards to be granted; to determine the time or times at
which such awards shall be granted; to establish the terms and conditions upon
which such awards shall become payable under the Performance Award Plan; to
remove any restrictions and conditions upon such awards; and to make all of the
determinations deemed necessary or desirable for the administration of the
Performance Award Plan. As indicated, however, the Board reserves the right to
determine whether the Performance Award Plan will be continued for successive
Earnout Periods.
Pursuant to the Performance Award Plan, a Target Award is established for
each executive officer selected by the Compensation Committee to participate in
the Performance Award Plan ("Participant") for the applicable Earnout Period.
The Earnout Periods are three-year periods coterminous with the corresponding
fiscal years of Susquehanna. As indicated, Earnout Periods ended on December
31, 1988, December 31, 1991; and December 31, 1994; a fourth and the current
Earnout Period has begun for the period January 1, 1995, through December 31,
1997.
At the end of each Earnout Period, the percentage of the Target Award that
was achieved by each Participant with respect to such period is calculated from
Incentive Award Tables which are based on a comparison of the performance of
both Susquehanna and its Subsidiaries for the Earnout Period in relation to
certain Internal and External Criteria designated in advance by the Compensation
Committee. The award actually received by the Participant represents a
percentage of the Target Award and is based on the performance of Susquehanna
and the Subsidiary with which the Participant serves.
During the current Earnout Period, sixty percent of the actual award is
based on the Subsidiary's performance and 40% is based on Susquehanna's
performance. The performance of the Subsidiary and of Susquehanna is measured
against "Internal Criteria" and "External Criteria." In each case the Criteria
consists of return on average assets, return on average equity, equity/asset
ratio and asset/employee ratio. The Internal Criteria assesses Susquehanna and
the Subsidiary's success during the earnout period in achieving certain goals
(i.e., benchmarks) which are established by the Compensation Committee in
consultation with independent consultants, and which constitute returns and
ratios designed to put Susquehanna's consolidated operations at a high level of
profitability and performance if achieved. The External Criteria compare
Susquehanna and the Subsidiary's actual performance in each area of the Criteria
against the performance of their respective peers, on a national, regional and
local level. The peers against which Susquehanna's performance is measured are
generally included within the line of business group indexed in Susquehanna's
Stock Performance Graph, although the national peer group is larger than the
line of business group.
As noted, the award earned by each executive officer is based principally
on the success of the Subsidiary (60%) and the balance (40%) on the success of
Susquehanna. The specific Criteria carry the following aggregated weights:
return on average assets, 42.5%; return on average equity, 20.0%; equity/asset
ratio, 20.0%; asset/employee ratio, 17.5%. Effective with the Fourth Earnout
Period, which began on January 1, 1995, the awards for Messrs. Bolinger, Cloney
and Mull will be computed based principally upon the success of Susquehanna
(60%) and the balance (40%) on the success of the Subsidiaries for 1995;
Susquehanna (75%) and Subsidiaries (25%) for 1996; and Susquehanna (100%) for
1997.
14
<PAGE>
Prior to the commencement of any Earnout Period, the Compensation Committee
designates the Participants in the Performance Award Plan, the Target Award for
each Participant with respect to that Earnout Period, the relevant Internal and
External criteria, the Peer Groups for external comparison with respect to that
Earnout Period, and establishes the Incentive Award Table with respect to such
period.
The percentage of the Target Award achieved by each Performance Award Plan
Participant is payable in three installments with one-half of the amount earned
payable on or before June 1 of the calendar year commencing immediately
following the conclusion of such Earnout Period and the remaining one-half paid
in two equal installments over the next two years with each such subsequent
installment payable on January 1 of each of the two such following years.
From the inception of the Performance Award Plan through December 31, 1991,
each Performance Award Plan Participant had the right to elect to receive the
amount earned in either cash or Susquehanna Common Stock or to defer payments
under the Performance Award Plan for up to ten years (by deferral election prior
to commencement of the Earnout Period). In the event a Participant elected to
receive Susquehanna Common Stock in lieu of cash for any designated performance
award installment, the amount of Susquehanna Common Stock transferred to the
Participant was determined by dividing the earned performance award installment
by the market value of Susquehanna Common Stock: (i) in the case of the first
installment, on the business day immediately preceding the first day of the
first year of the three-year Earnout Period; (ii) in the case of the second
installment, on the business day immediately preceding the first day of the
second year of the three-year Earnout Period; and (iii) in the case of the third
installment, on the business day immediately preceding the first day of the
third year of the three-year Earnout Period. Effective January 1, 1992, amounts
received under the Performance Award Plan are paid only in cash.
No amounts shall be paid to any Participant under the Performance Award
Plan with respect to the Earnout Period if: (i) Susquehanna has experienced a
net loss during the Earnout Period, taken as a whole, but only if the Board is
comprised of a majority of "continuing directors" as defined in Susquehanna's
Articles of Incorporation in effect on January 1, 1987; or (ii) to particular
Participants if the Subsidiary whose performance provides the Subsidiary measure
of the Participant's benefit under the Performance Award Plan has experienced a
net loss over the Earnout Period, taken as a whole (either of which events
hereinafter referred to as an "Event of Nullification").
Under the Performance Award Plan, 100% of the Target Award applicable to a
then-current Earnout Period becomes due and payable to each Participant if (1)
any entity or person becomes the beneficial owner of, or shall obtain voting
control, over 25% or more of the outstanding shares of the Company's Common
Stock; (2) the shareholders of the Company and the shareholders of any other
constituent corporation approve a definitive agreement to merge or consolidate
the Company with or into another corporation other than a merger or
consolidation of the Company in which holders of shares of the Company's Common
Stock immediately prior to the merger or consolidation have at least 60% of the
ownership of common stock of the surviving corporation immediately after the
merger or consolidation, which common stock is then held substantially in the
same proportion as such holders' ownership of Common Stock of the Company
immediately prior to the merger or consolidation; or (3) the shareholders of the
Company approve a definitive agreement to sell or otherwise dispose of all or
substantially all of the assets of the Company. Upon the occurrence of any such
event, the Target Award is deemed earned and immediately payable in full with
the same force and effect as if all performance criteria had been achieved for
the entire Earnout Period, whether or not such is the case.
Earned performance awards may also be forfeited by a Participant if the
Participant's employment with Susquehanna or its Subsidiaries is terminated
pursuant to certain circumstances described in the Performance Award Plan (any
such termination hereinafter referred to as an "Event of Forfeiture").
During the Initial Earnout Period an Event of Nullification occurred with
respect to one subsidiary; no Event of Forfeiture occurred. Accordingly, most
of the Participants during the Initial Earnout Period received performance
awards. Based on the performance of Susquehanna and its Subsidiaries for the
Third Earnout Period which ended December 31, 1994, the performance award
applicable to each qualifying Participant for the first
15
<PAGE>
installment, representing 50% of the total award, under the Third Earnout Period
was as follows: Mr. Bolinger, $64,576; Mr. Cloney, $26,778; Mr. Mull, $14,716;
Mr. Bisbee, $9,157; Mr. Luppert, $14,352; Mr. Strausbaugh, $5,574; Mr. Reuter,
$7,079; Mr. Duncan, $7,299; Mr. Krantz, $5,469; Mr. Walsh, $4,151; and Mr. Keim,
$3,339.
For the current Earnout Period of the Performance Award Plan which began on
January 1, 1995, the Compensation Committee designated the following Performance
Award Plan Participants: Robert S. Bolinger, Richard M. Cloney, J. Stanley
Mull, Jr., Frederick W. Bisbee, Charles W. Luppert, William J. Reuter, Robert L.
Strausbaugh, William T. Belden, Donald J. Showers, Robert E. Krantz, Thomas C.
Walsh, David D. Keim, and Gregory A. Duncan. This Earnout Period will end
December 31, 1997.
Compared to its peers under the External Criteria in 1994, the last year
for which data is available, Susquehanna's performance ranged between the 25th
and 87th percentile brackets. The only measure below the 50th percentile
bracket was return on equity where Susquehanna's strong capital position
impacted its performance. The performance of Farmers First, which represented
the Subsidiary component of Mr. Bolinger's compensation, placed it between the
28th percentile and the 99th percentile brackets measured against the External
Criteria, with the lowest performance in the area of return on average equity
and the highest in return on average assets.
In 1995, Mr. Bolinger received a payment of $64,576, which represented 50%
of the award he earned during the Third Earnout Period, which ended December 31,
1994, representing his attaining 48.8% of the Target Amount. Susquehanna's
executive officers earned $162,490 for the same period. The second installment
under the Third Earnout Period, representing 25% of the awards earned, was paid
on January 2, 1996.
Susquehanna Phantom Stock Appreciation Plan
In recognition of the contributions made by members of management in
improving Susquehanna's performance and the resultant increase in the market
value of its securities, Susquehanna adopted the Susquehanna Phantom Stock
Appreciation Plan ("Phantom Stock Plan") which is designed to provide specific
individuals an award based upon Susquehanna's Common Stock price over a defined
period.
On October 18, 1989, the Susquehanna Board adopted the Phantom Stock Plan
for the purpose of: (i) recognizing key executives who contribute to the
success of Susquehanna; (ii) allowing Susquehanna to keep and attract talented
and qualified executives; and (iii) providing a means of incentive compensation
based on the value of contributions to shareholders as measured by the increase
in value of Susquehanna stock. Under the Phantom Stock Plan, which is also
administered by the Compensation Committee, key executives who have been
selected to participate ("PSP Participants") are awarded Phantom Stock
Appreciation Units ("Units"). On the date Units are "awarded" to a PSP
Participant (the "Award"), the Compensation Committee ascribes a value to each
Unit which is based on the value of Susquehanna Common Stock on such date,
determined in conformity with the formula provided in the Phantom Stock Plan.
The valuation formula looks to the closing price of Susquehanna Common Stock
based on transactions for Nasdaq listed issues or, alternately, on any exchanges
where Susquehanna Common Stock is traded. If Susquehanna Common Stock is not
listed on a national exchange, valuation is based on book value. Currently
Susquehanna Common Stock is listed on the Nasdaq National Market System.
The Phantom Stock Plan allows PSP Participants to enjoy the increase in the
market value of Susquehanna Common Stock from the date they are first awarded
Units to the date their rights under the plan vest. This increase (the
"Appreciation") is the measure of the award. The Appreciation, once vested, is
paid to the PSP Participant in the form of shares of Susquehanna Common Stock,
by dividing the value of a share of Susquehanna Common Stock on the date of
vesting into the dollar value of the Appreciation; the PSP Participant receives
the number of shares of Susquehanna Common Stock resulting from the division.
An Award does not confer upon a PSP Participant any rights as a shareholder
including the right to dividends or to vote, until Units are vested, and the
Appreciation in the form of Susquehanna Common Stock is paid.
The Phantom Stock Plan is designed so that a PSP Participant's entitlement
to Appreciation in Units vest in three equal parts, with the first portion
vesting on the third anniversary of the Award, the second portion vesting
16
<PAGE>
on the fourth anniversary of the Award, and the final portion vesting on the
fifth anniversary of the Award. Thus, if a PSP Participant is awarded thirty
Units on January 1, 1991, he is entitled to Appreciation as to ten of those
Units on January 1, 1994; the second ten on January 1, 1995; and the final ten
on January 1, 1996.
The PSP Participant may lose his rights under the Phantom Stock Plan and
will not vest if the PSP Participant voluntarily terminates his employment with
Susquehanna (other than termination by reason of death or disability or, under
certain circumstances, retirement) or if Susquehanna has terminated his
employment subsequent to a determination by two-thirds of the Board of Directors
acting in good faith and reasonably, that the PSP Participant has either
committed an act which adversely affects the interests of Susquehanna or that
the PSP Participant has been willfully or grossly negligent, or has committed
willful or gross misconduct, in discharging his duties as an employee.
A PSP Participant's right to vest will not be affected by his death,
disability, or retirement after attaining the age of 65; earlier retirement is
permitted with the written consent of Susquehanna.
The Phantom Stock Plan also provides that a PSP Participant's rights to an
award vest immediately on the date of a "Change-of-Control," defined under the
Phantom Stock Plan to include: (i) situations in which any entity or person
becomes a beneficial owner of more than 25% of the outstanding voting stock in
Susquehanna; or (ii) execution of a definitive agreement to merge or consolidate
between Susquehanna and another, unaffiliated corporation, if, immediately
subsequent to the merger, less than 60% of the surviving corporation's common
stock is owned by the persons who owned all of the outstanding Susquehanna
Common Stock immediately prior to the merger, and in the same relative
proportion of ownership; or (iii) shareholder approval of a definitive agreement
to sell or otherwise dispose of all or substantially all of the assets of
Susquehanna. Accordingly, if a Change-of-Control occurs, the PSP Participant's
right to Appreciation vests upon the occurrence of the event giving rise to the
Change-of-Control.
The Compensation Committee may also accelerate vesting of a PSP Participant
in his Award in the event of merger in which the corporation is not the
surviving entity, or an acquisition, divestiture or liquidation or other
significant recapitalization of Susquehanna which would not otherwise constitute
a "Change-of-Control."
In administering the Phantom Stock Plan, the Compensation Committee has
complete authority to interpret its provisions; to prescribe, amend and rescind
rules and regulations relating to it; and to make all other determinations
necessary for its proper implementation. Material changes or modifications to
the Phantom Stock Plan require Board approval. Because the Phantom Stock Plan
is unfunded, benefits are paid from general assets. In making a payment of a
vested Award under the Phantom Stock Plan, Susquehanna may use Treasury shares,
or Common Stock purchased on the market.
If the Equity Compensation Plan, which will be presented for consideration
by shareholders at the Annual Meeting, is approved, the Phantom Stock Plan will
be terminated. All previously awarded interests outstanding under the Phantom
Stock Plan at the time of its termination will be converted into cash and
Susquehanna stock based upon the amount earned by each participant determined in
accordance with generally accepted accounting principles and subject to the PSP
Participant's acceptance.
The Compensation Committee has designated Phantom Stock Participants and
awarded Units as set forth on the following table:
17
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year 1 Year 2 Year 3
------ ------ ------
Participant Base Price* Total Units 4/15/92 4/15/95 4/15/96 4/15/97
----------- ----------- ------------------- ------- ------- -------
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Bolinger $18.60 24,658 8,220 8,219 8,219
Cloney 18.60 12,270 4,090 4,090 4,090
Mull 18.60 8,429 2,810 2,810 2,809
Duncan 18.60 8,270 2,757 2,757 2,756
Luppert 18.60 8,270 2,757 2,757 2,756
Reuter 18.60 8,270 2,757 2,757 2,756
Bisbee 18.60 8,270 2,757 2,757 2,756
Strausbaugh 18.60 6,315 2,105 2,105 2,105
Krantz 18.60 7,171 2,391 2,390 2,390
Walsh 18.60 5,443 1,815 1,814 1,814
Keim 18.60 4,378 1,460 1,459 1,459
------ ----- ----- -----
Total 101,744 33,919 33,915 33,910
- --------------------------------------------------------------------------------
</TABLE>
* Adjusted to reflect 5-for-4 Stock Split during 1993.
Payments during 1995 to Participants in shares of Susquehanna Common Stock,
accompanied by the market value, were as follows: Mr. Bolinger, 1,608 ($37,195);
Mr. Cloney, 800 ($18,507); Mr. Mull, 549 ($12,715); Mr. Reuter, 539 ($12,475);
Mr. Luppert, 539 ($12,475); Mr. Bisbee, 539 ($12,475); Mr. Duncan, 539
($12,475); Mr. Strausbaugh, 411 ($9,506); Mr. Krantz, 467 ($10,819); Mr. Walsh,
355 ($8,213); and Mr. Keim, 285 ($6,606).
During 1995, the Compensation Committee designated PSP Participants and
awarded Units as set forth on the following chart:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year 1 Year 2 Year 3
------ ------ ------
Participant Base Price Total Units 4/19/98 4/19/99 4/19/2000
----------- ----------- ----------- ------- ------- ---------
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Bolinger $22.75 29,142 9,714 9,714 9,714
Cloney 22.75 20,828 6,943 6,943 6,942
Mull 22.75 15,000 5,000 5,000 5,000
Reuter 22.75 13,200 4,400 4,400 4,400
Bisbee 22.75 12,428 4,143 4,143 4,142
Belden 22.75 11,142 3,714 3,714 3,714
Luppert 22.75 10,628 3,543 3,543 3,542
Duncan 22.75 10,628 3,543 3,543 3,542
Krantz 22.75 9,942 3,314 3,314 3,314
Showers 22.75 9,171 3,057 3,057 3,057
Strausbaugh 22.75 7,714 2,572 2,571 2,571
Walsh 22.75 6,857 2,286 2,286 2,285
Keim 22.75 5,828 1,943 1,943 1,942
----- ----- ----- -----
Total 162,508 54,172 54,171 54,165
- --------------------------------------------------------------------------------
</TABLE>
General
Section 162(n) of the Internal Revenue Code of 1986, as amended, generally
provides that a publicly held reporting company such as Susquehanna may not
deduct, as an expense, amounts paid to any executive officer in
18
<PAGE>
excess of $1 million per year. Because the compensation paid Susquehanna's most
highly compensated officer amounted to $512,014, which is substantially below
the $1 million threshold called for in Section 162, the Compensation Committee
has not adopted a formal policy on awarding compensation in excess of such
threshold.
Conclusion
Through the programs described above, a significant portion of
Susquehanna's executive compensation is linked directly to individual and
corporate performance and stock price appreciation. In 1995, as in previous
years, performance-based variable elements played a major role in the
Compensation Committee's executive compensation determinations, including those
relating to Mr. Bolinger. The Compensation Committee intends to continue the
policy of linking executive compensation to Susquehanna's performance and return
to shareholders, recognizing that rises and falls in the business cycle from
time to time must be recognized, and may result in an apparent imbalance for a
particular period.
The Susquehanna Bancshares, Inc., Compensation Committee:
John M. Denlinger C. William Hetzer, Jr.
Henry H. Gibbel George J. Morgan
Edward W. Helfrick
Summary Compensation Table
The following table sets forth the cash compensation paid to, as well as
the value of stock awards and other payments earned by, Susquehanna's five most
highly compensated executive officers during 1995 and the prior two years.
Except for director fees paid by Susquehanna, all "annual compensation" was
received from Farmers First, F & M or Williamsport National.
19
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-------------------
- ---------------------------------------------------------------------------------
Other
Annual
Compen-
Name Principal Position Year Salary/(4)/ Bonus/(5)/ sation/(6)/
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Robert S. President and 1995 $347,631 $58,112 -
Bolinger/(1)/... Chief Executive 1994 321,925 59,078 -
Officer of 1993 294,523 44,224 -
Susquehanna;
Chairman and
Chief Executive
Officer of
Farmers First
Richard M. Vice President 1995 $252,930 $43,832 -
Cloney/(1)/..... and Secretary of 1994 233,565 44,730 -
Susquehanna; 1993 214,507 31,329 -
Executive Vice
President and
Secretary of
Farmers First;
President of
Susquehanna
Bancshares South,
Inc.
J. Stanley Vice President 1995 $185,090 $23,139 -
Mull, Jr./(1)/.. and Treasurer of 1994 166,343 38,298 -
Susquehanna; 1993 143,795 19,755 -
Senior Vice
President and
Treasurer of
Farmers First
William J. Vice President of 1995 $156,542 $15,095 -
Reuter/(2)/..... Susquehanna; 1994 143,083 12,154 -
President of 1993 125,831 8,576 -
F&M
Charles W. Vice President of 1995 $144,324 $20,740 -
Luppert/(3)/.... Susquehanna; 1994 133,264 18,885 -
President of 1993 124,981 13,973 -
Williamsport
National
- --------------------------------------------------------------------------------
<CAPTION>
Long Term Compensation
----------------------
- -------------------------------------------------------------------------------
Stock
Appreciation All Other
Rights LTIP SAR Compen-
Name (# of Units)/(7)/ Payouts/(8)/ Payouts/(9)/ sation/(10)/
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert S. 29,142 $64,576 $37,195 $4,500
Bolinger/(1)/... - None None 4,500
- $70,500 None 8,553
Richard M. 20,828 $26,778 $18,507 $4,500
Cloney/(1)/..... - None None 4,500
- 34,645 None 6,243
J. Stanley 15,000 $14,716 $12,715 $4,500
Mull, Jr./(1)/.. - None None 4,500
- 16,740 None 4,318
William J. 13,200 $7,079 $12,475 $4,500
Reuter/(2)/..... - None None 4,119
- 7,284 None 3,812
Charles W. 10,628 $14,352 $12,475 $4,330
Luppert/(3)/.... - None None 4,330
- 14,517 None 3,749
- --------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
- -------------------------
/(1)/ Messrs. Bolinger, Cloney and Mull have employment contracts with
Susquehanna and receive their annual compensation other than director's
fees (where applicable), from Farmers First.
/(2)/ Mr. Reuter has an employment contract with Susquehanna, and receive his
annual compensation from F&M.
/(3)/ Mr. Luppert has an employment contract with Susquehanna and receives his
annual compensation from Williamsport National.
/(4)/ Includes all fees payable to directors of Susquehanna or its subsidiaries
including fees payable to directors who have elected to defer receipt
under the Directors' Deferred Compensation Plan. Payment of such fees is
deferred until retirement. The sums in participants' accounts are fully
vested and may be withdrawn in accordance with such plan.
/(5)/ Includes any general or performance based bonuses paid by Farmers &
Merchants Bank, Farmers First, or Williamsport.
/(6)/ The aggregate value of perquisites received did not exceed the lesser of
$50,000 or 10% of total salary and bonuses set forth in this table. No
other applicable compensation was received.
/(7)/ Represents number of units awarded under Susquehanna's "Phantom Stock
Appreciation Plan" discussed above.
/(8)/ Represents payments under Susquehanna's "Performance Award Plan"
discussed above.
/(9)/ Represents payments under Susquehanna's "Phantom Stock Appreciation Plan"
discussed above.
/(10)/ Represents payments made by Susquehanna into the "Susquehanna 401(k)
Plan" on behalf of each participant, as more fully discussed below.
- ------------------------------------
The charts below summarize possible payments to the five most highly
compensated executives under the Performance Award Plan, a long term incentive
plan, as determined by the Compensation Committee in 1992, and additional
Performance Award Plan Awards provided by the Compensation Committee on April
19, 1995. A more extensive description of this plan and its participants is
contained in the report from the Compensation Committee.
PERFORMANCE AWARD PLAN
AWARDS GRANTED IN 1992
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Estimated Future Payouts
Under Non-Stock Price-Based Plan
- ----------------------------------------------------------------------
Performance
-----------
Name Period/(1)/ Threshold/(2)/ Target/(3)/ Maximum/(4)/
---- ---------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Bolinger 1/1/92-12/31/94 $397 $182,045 $264,600
Cloney " " 165 75,491 109,725
Mull " " 90 41,486 60,300
Reuter " " 67 n/a 44,370
Luppert " " 67 29,730 44,370
- ----------------------------------------------------------------------
</TABLE>
- --------------------------------
/(1)/ Three year measurement period (See Performance Award Plan described on
Page 13).
/(2)/ Award possible meeting minimum required performance objective from only 1
of 18 peer or internal measurements.
/(3)/ Amount calculated using percentage attained in participation in past award
periods.
/(4)/ Maximum possible award assuming all 18 measurements for each of the three
years included in the plan were met at the highest level.
- -----------------------------------
21
<PAGE>
PERFORMANCE AWARD PLAN
AWARDS GRANTED IN 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Estimated Future Payouts
Under Non-Stock Price-Based Plan
- ----------------------------------------------------------------------
Performance
-----------
Name Period/(1)/ Threshold/(2)/ Target/(3)/ Maximum/(4)/
---- ----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Bolinger 1/1/95-12/31/97 $3,570 $179,316 $306,000
Cloney " " 2,126 106,798 182,250
Mull " " 1,224 61,530 105,000
Reuter " " 808 25,294 69,300
Luppert " " 650 37,721 55,800
- ----------------------------------------------------------------------
- -----------------
</TABLE>
/(1)/ Three year measurement period (See Performance Award Plan described on
Page 13).
/(2)/ Award possible meeting minimum required performance objective from only 1
of 18 peer or internal measurements.
/(3)/ Amount calculated using percentage attained in participation in past award
periods.
/(4)/ Maximum possible award assuming all 18 measurements for each of the three
years included in the plan were met at the highest level.
- -----------------------------------
On April 15, 1992, the Compensation Committee designated participants,
including Mr. Bolinger, and awarded units in its Phantom Stock Plan, an
option/SAR plan, as set forth in the chart below. Additional units were
subsequently awarded by the Compensation Committee on April 19, 1995.
PHANTOM STOCK PLAN GRANTS IN 1992
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Individual Grants
- -----------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
% of Total
----------
Options/SARs
------------
Granted to Exercise or
---------- -----------
Options/SARs Employees in Base Price Expiration
------------ ------------ ----------- ----------
Name Granted(#) Fiscal Year (SH)* Date 5%/(1)/ 10%/(1)/
- ---- --------- ----------- ----- ---- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert S. Bolinger 24,658 24.2 $18.60 4-15-97 $124,028 $ 268,605
Richard M. Cloney 12,270 12.1 18.60 4-15-97 61,718 133,661
J. Stanley Mull, Jr. 8,429 8.3 18.60 4-15-97 42,397 91,817
William J. Reuter 8,270 8.1 18.60 4-15-97 41,598 90,085
Charles W. Luppert 8,270 8.1 18.60 4-15-97 41,598 90,085
- ----------------------
</TABLE>
/(1)/ Potential Realizable Value at Annual Rates of Stock Price Appreciation for
Grant Term.
* Adjusted for 5-for-4 Stock Split during 1993.
22
<PAGE>
PHANTOM STOCK PLAN GRANTS IN 1995
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Individual Grants
- -----------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
% of Total
----------
Options/SARs
------------
Granted to Exercise or
---------- -----------
Options/SARs Employees in Base Price Expiration
------------ ------------ ----------- ----------
Name Granted(#) Fiscal Year (SH) Date 5%/(1)/ 10%/(1)/
- ---- --------- ----------- ---- ---- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert S. Bolinger 29,142 17.9 $22.75 4-19-2000 $143,545 $ 310,630
Richard M. Cloney 20,828 12.8 22.75 4-19-2000 102,570 222,005
J. Stanley Mull, Jr. 15,000 9.2 22.75 4-19-2000 73,869 159,887
William J. Reuter 13,200 8.1 22.75 4-19-2000 65,005 140,701
Charles W. Luppert 10,628 6.5 22.75 4-19-2000 52,339 113,283
</TABLE>
/(1)/ Potential Realizable Value at Annual Rates of Stock Price Appreciation
for Grant Term.
Description of Certain Plans and Employment Contracts
Executive Employment Contracts
Susquehanna has five-year employment contracts with Messrs. Bolinger,
Cloney and Mull which were executed in 1984 and renewed most recently in 1996.
The contracts provide for base salaries for the first twelve months following
execution. In subsequent years, the base compensation is as agreed upon between
Susquehanna and the officers, and in the absence of an agreement, is increased
based on the Suburban Consumer Price Index for Suburban Wage Earners prepared by
the United States Department of Labor. The contracts also provide fringe
benefits comparable to those generally supplied to other salaried employees of
Farmers First. If the officer becomes permanently disabled, he is entitled to
all benefits under the contract, other than bonuses, for a period of not less
than six months.
On each contract anniversary date, Susquehanna may renew the contract with
the effect that it will run for five years from such renewal. If Susquehanna
fails to renew on any such anniversary date, the officer may terminate the
contract. If the officer does not so terminate the contract, it will run for
five years from its execution or latest renewal. As indicated, the contract may
also be terminated by Susquehanna if the officer is responsible for a loss to
Susquehanna or Farmers First in excess of Farmers First's loan loss reserve or
for actions bringing discredit to the business reputation or goodwill of Farmers
First. Upon any termination described above, the officer will be entitled to
receive the base salary and all other benefits provided by the contract for a
period of one year reduced, however, by any compensation received, during the
period, from any other employment entered into. Following any such termination,
Susquehanna may require the officer to perform his duties under the contract for
up to three months and hold himself reasonably available for advice and
consultation for an additional period of nine months.
In addition, the contract can be terminated by the officer on two months'
notice or by Susquehanna immediately for breach of the contract by the officer,
upon a felony conviction of the officer or on commission by the officer of a
material fraudulent act against Susquehanna or Farmers First. If Susquehanna
terminates the contract for any reason other than those set forth above, or if
the officer resigns upon being reduced to a position of materially lesser
authority, stature or responsibility, the officer will be entitled to a lump sum
payment of the amounts he would have received under the contract for the balance
of its term plus the value of other benefits to which he was entitled under the
agreement.
23
<PAGE>
The Board of Directors of Susquehanna has approved three-year employment
contracts with Messrs. Bisbee, Reuter, Luppert, Duncan, and Strausbaugh. The
form of these employment contracts is substantially similar, in material
respects, to the executive employment contracts existing between Susquehanna and
Messrs. Bolinger, Cloney and Mull.
As noted above, Richard E. Funke has served as a director of Susquehanna
since 1995 and is also Chairman and Chief Executive Officer of Atlantic
Federal. Mr. Funke is not, however, an executive officer of Susquehanna. The
form of a three-year Employment Agreement between Susquehanna Bancshares South,
Inc. and Mr. Funke (the "Employment Agreement") is generally the same in
material respects to the three-year executive employment contracts between
Susquehanna and Messrs. Bisbee, Reuter, Luppert, Duncan and Strausbaugh, as
described above. However, unlike the others, Mr. Funke's Employment Agreement
provides certain relief in the event that a change of control occurs. Under the
Employment Agreement, Mr. Funke may terminate his employment with Atlantic
Federal within 12 months following a change of control if there occurs an
adverse change in Mr. Funke's circumstances (as defined in the Agreement). The
Employment Agreement also provides for termination of certain non-competition
provisions contained in the Employment Agreement upon a change of control.
These non-competition provisions do not appear in Susquehanna's other employment
agreements. For purposes of the Employment Agreement, a "change of control" is
deemed to occur when a person shall acquire control of either Atlantic Federal,
Susquehanna Bancshares South, Inc. or Susquehanna.
Change-of-Control Plans
The Phantom Stock Plan, previously described, contains a "Change-of-
Control" provision which will allow executive officers of Susquehanna covered by
the plan to receive the appreciated value of the stock previously granted under
the plan. Under the Phantom Stock Plan, a "Change-of-Control" will be found to
exist and the right to appreciation in stock will vest in three situations: (i)
when any entity or person becomes the beneficial owner or obtains voting control
over more than 25% of Susquehanna's outstanding Common Stock; (ii) when the
shareholders of Susquehanna have approved a definitive agreement to merge or
consolidate Susquehanna with or into an unaffiliated corporation if, as result
of the merger or consolidation, Susquehanna's shareholders hold less than 60% of
the ownership in the surviving corporation; or (iii) when Susquehanna's
shareholders approve a definitive agreement to sell substantially all of
Susquehanna's assets. Upon the occurrence of a Change-of-Control event,
valuation of the vested interest will be made on the basis of the highest value
in Susquehanna's stock within 90 days of the date of the Change-of-Control
event. If Susquehanna's shares are not publicly traded, a valuation will be
made on the basis of book value, at the highest rate within 90 days of the
Change-of-Control event.
The Compensation Committee may also accelerate vesting in the event of a
merger in which Susquehanna is not the surviving entity, or an acquisition,
divestiture or liquidation or other significant recapitalization of Susquehanna,
which would not otherwise constitute a "Change-of-Control."
The Equity Compensation Plan proposed for shareholder consideration at the
Annual Meeting and described in this Proxy Statement under the caption "APPROVAL
OF SUSQUEHANNA BANCSHARES, INC. EQUITY COMPENSATION PLAN -- Description of the
Equity Compensation Plan" also contains Change-of-Control provisions which allow
a grantee under the plan the right, within 10 days after receipt of notice of
the Change-of-Control, to elect to exercise in full any installments of stock
options, Phantom Stock Rights or SARs (all as defined in the Equity Compensation
Plan and as more fully described in this Proxy Statement under the caption
"APPROVAL OF SUSQUEHANNA BANCSHARES, INC. EQUITY COMPENSATION PLAN --
Description of the Equity Compensation Plan") not previously exercised under the
Equity Compensation Plan; provided that in the case of an SAR or Phantom Stock
Right held by a grantee who is subject to Section 16(b) of the Exchange Act, any
surrender or payment will only be made on a date the Compensation Committee
determines consistent with Rule 16b-3 under the Exchange Act.
Under the Equity Compensation Plan, a "Change-of-Control" will be found to
exist in the following situations: (i) if any person or group (except for
Susquehanna or any employee benefit plan of Susquehanna or of any affiliate),
shall become the beneficial owner in the aggregate of 20% or more of the equity
of Susquehanna then outstanding, (ii) if any person or group purchases
substantially all of the assets of Susquehanna, (iii) if
24
<PAGE>
Susquehanna is liquidated or dissolved, (iv) if at least a majority of the Board
of Susquehanna at any time does not consist of individuals who were elected, or
nominated for election, by directors in office at the time of such election or
nomination, or (v) if Susquehanna merges or consolidates with any other
corporation and is not the surviving corporation.
Pension Plans
Effective January 1, 1989, Susquehanna Bancshares, Inc., and each
Subsidiary adopted a defined benefit pension plan (the "Susquehanna Retirement
Plan") under which benefits are determined by "Final Average Compensation" as
defined below. This plan covers employees of Susquehanna and its Subsidiaries
upon their attaining age 21 and the completion of one year's service in which
1,000 hours are worked. All Participants in predecessor plans maintained by
Susquehanna subsidiaries as of January 1, 1989, became members of the
Susquehanna Retirement Plan effective that date.
Participants under the Susquehanna Retirement Plan are entitled to an
annual retirement pension at normal retirement age of 65 equal to 1.5% of Final
Average Compensation up to the Social Security Covered Compensation level plus
2% of Final Average Compensation in excess of Social Security Covered
Compensation, multiplied by years of credited service up to a maximum of 25
years. Final Average Compensation means the average earnings during the five
highest-paid consecutive calendar years of employment with Susquehanna
affiliates. Social Security Covered Compensation means the compensation upon
which a Social Security benefit at Social Security Normal Retirement Age will be
calculated as defined in regulations.
Participants with 15 years of service are eligible for early retirement at
age 55, in which event retirement benefits are actuarially reduced.
Effective January 1, 1994, the Board agreed to adopt a Restoration Plan to
provide for benefits lost under the Susquehanna Retirement Plan on account of
IRC Section 401(a)(17) and 415 which limit the compensation and benefits under a
qualified retirement plan. Selected participants of the Susquehanna Retirement
Plan are eligible for benefits under the Restoration Plan.
The following table sets forth the annual benefits under both the
Susquehanna Retirement and the Restoration Plans upon normal retirement at age
65 to persons in specified salary classifications, assuming election by the
employee of payment only in the form of a life annuity.
THE SUSQUEHANNA BANCSHARES RETIREMENT AND RESTORATION PLANS
ANNUAL NORMAL RETIREMENT BENEFIT FOR PARTICIPANT
TURNING AGE 65 IN 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years of Service at Retirement
- --------------------------------------------------------------------------------
Final Average
- -------------
Compensation 15 20 25 30 35
- ------------- -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$125,000 $ 35,556 $ 47,408 $ 59,260 $ 59,260 $ 59,260
150,000 43,056 57,408 71,760 71,760 71,760
175,000 50,556 67,408 84,260 84,260 84,260
200,000 58,056 77,408 96,760 96,760 96,760
225,000 65,556 87,408 109,260 109,260 109,260
250,000 73,056 97,408 121,760 121,760 121,760
300,000 88,056 117,408 146,760 146,760 146,760
350,000 103,056 137,408 171,760 171,760 171,760
400,000 118,056 157,408 196,760 196,760 196,760
450,000 133,056 177,408 221,760 221,760 221,760
500,000 148,056 197,408 246,760 246,760 246,760
</TABLE>
25
<PAGE>
For purposes of the Susquehanna Retirement Plan, as of December 31, 1995,
Messrs. Bolinger, Cloney, Mull, Luppert, and Reuter had 20, 19, 22, 25 and 21
credited years of service respectively. Only the base salary of Messrs.
Bolinger, Cloney, Mull, Luppert and Reuter is compensation covered under the
Susquehanna Retirement Plan. Other components of such officers' total
compensation do not affect benefits payable under the Susquehanna Retirement
Plan. In 1995, Mr. Bolinger's base salary was $337,881, Mr. Cloney's base
salary was $243,180, Mr. Mull's base salary was $185,090, Mr. Luppert's base
salary was $144,324, and Mr. Reuter's base salary was $156,542.
Also, effective January 1, 1989, Susquehanna and each Subsidiary adopted a
401(k) Plan under which employees may defer portions of their income on a pre-
tax basis. This plan covers employees of Susquehanna and its subsidiaries upon
their attaining age 21 and the completion of one year of service in which 1,000
hours are worked. All members of predecessor thrift or 401(k) plans as of
January 1, 1989, became Participants in the Susquehanna 401(k) Plan effective
that date.
Participants under the Susquehanna 401(k) Plan are allowed to defer between
1% and 15% of their compensation during the year. Subject to Board discretion,
Susquehanna will match 100% of the first 3% of employee deferrals. These funds
will be accumulated under the plan until paid out at termination, disability,
death or retirement. The plan allows for loans and hardship withdrawals within
legal limitations.
The vested portion of matching contributions made to the 401(k) Plan during
1995 on behalf of the individual officers named above and the Executive Officers
as a group are as follows: Mr. Bolinger, $4,500; Mr. Cloney, $4,500; Mr. Mull,
$4,500; Mr. Luppert, $4,330; Mr. Reuter, $4,500; and the Executive Officers as
a group, $45,804.
Stock Price Performance Graph
The following graph compares for fiscal years 1990 through 1995 the yearly
change in the cumulative total return to holders of Susquehanna Common Stock
with the cumulative total return of the Nasdaq Total Return Index (the "Nasdaq
Index"), a broad market in which Susquehanna participates, and of an index
comprised of all publicly traded banks in asset size $1-5 billion, compiled by
an independent research firm (the "Bank Index"). The graph depicts the total
return on an investment of $100 based on both stock price appreciation and
reinvestment of dividends for Susquehanna, and the companies represented by the
Nasdaq Index and the Bank Index.
The Bank Index consists of Susquehanna's bank peers relative to size as
measured by total assets. It is believed that these Bank Index companies are
comparable to Susquehanna in terms of size and all businesses engaged in. There
can be no assurance that Susquehanna's stock performance will continue into the
future with the same or similar trends depicted in the graph below.
26
<PAGE>
Susquehanna Bancshares, Inc.
STOCK PRICE PERFORMANCE
<TABLE>
<CAPTION>
Period Ending
------------------------------------------------------
1990 1991 1992 1993 1994 1995
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
All Nasdaq Stocks $100.00 $160.56 $186.86 $214.51 $209.68 $296.30
$1B-$5B Bank Index 100.00 149.53 217.07 260.24 274.26 379.46
Susquehanna Banc-PA 100.00 138.68 205.03 256.12 217.84 271.31
</TABLE>
APPROVAL OF SUSQUEHANNA BANCSHARES, INC.
EQUITY COMPENSATION PLAN
The Proposal
At the Annual Meeting, there will be presented to the shareholders a
proposal to approve and ratify the adoption of the Equity Compensation Plan.
The Equity Compensation Plan has been created to assist Susquehanna in promoting
the interests of Susquehanna by (a) providing incentives to designated officers
and other employees of Susquehanna or its affiliates, (b) providing incentives
to non-employee members of the Board of Directors to encourage them to acquire a
proprietary interest, or to increase their proprietary interest, in Susquehanna,
and (c) having a broad based, flexible and comprehensive array of incentive
plans which can be used to assimilate corresponding plans in connection with
future acquisitions. On April 17, 1996, the Board of Directors adopted the
Equity Compensation Plan subject to shareholder approval at the Annual Meeting.
This will not be effective unless or until shareholder approval is obtained.
The Equity Compensation Plan is set forth as Exhibit "A" to this Proxy
Statement, and the description of the Equity Compensation Plan contained herein
is qualified in its entirety by reference to Exhibit "A."
27
<PAGE>
Vote Required for Approval
The proposal to approve the adoption of the Equity Compensation Plan
requires the affirmative vote of a majority of shares present in person or
represented by proxy at the Annual Meeting for its approval.
THE BOARD OF DIRECTORS RECOMMENDS THAT ALL SHAREHOLDERS VOTE FOR APPROVAL
OF THE EQUITY COMPENSATION PLAN.
Description of the Equity Compensation Plan
General. Subject to adjustment in certain circumstances as discussed
below, the Equity Compensation Plan authorizes up to 650,000 shares of Common
Stock for issuance pursuant to the terms of the Equity Compensation Plan. If
and to the extent options granted under the Equity Compensation Plan terminate,
expire or cancel without being exercised, or if any shares of restricted stock
are forfeited, the shares subject to such option or award again will be
available for purposes of the Equity Compensation Plan.
Administration of the Equity Compensation Plan. The Equity Compensation
Plan will be administered and interpreted by the Compensation Committee of the
Board of Directors which will consist of not less than two persons appointed by
the Board of Directors from among its members who are not employees of
Susquehanna, who are not entitled to participate in the Equity Compensation
Plan, and who are "outside directors" under Section 162(m) of the Code. After
receiving recommendations from management, the Compensation Committee has the
sole authority to determine (i) the persons to whom options and/or awards are to
be granted under the Equity Compensation Plan, (ii) the type, size and terms of
the options, (iii) the time when the options and/or awards are to be granted and
the duration of the exercise period and (iv) any other matters arising under the
Equity Compensation Plan. A person may serve on the Compensation Committee only
if he or she is not eligible, and has not been eligible, to receive a
discretionary grant under the Equity Compensation Plan for at least one year
before his or her appointment. Nondiscretionary grants of stock options to non-
employee directors under the Stock Option Plan are not included in this
prohibition.
Grants. Incentives under the Equity Compensation Plan consist of incentive
stock options, non-qualified stock options, restricted stock grants, Phantom
Stock Rights and stock appreciation rights (hereinafter collectively referred to
as "Grants"). All Grants are subject to the terms and conditions set forth in
the Equity Compensation Plan and to those other terms and conditions consistent
with the Equity Compensation Plan as the Compensation Committee deems
appropriate and as are specified in writing by the Compensation Committee to the
designated individual (the "Grant Letter"). The Compensation Committee must
approve the form and provisions of each Grant Letter to an individual.
Eligibility for Participation. Officers, employee directors, and other
employees of Susquehanna or an affiliate designated by Susquehanna are eligible
to participate in the Equity Compensation Plan. Non-employee directors will not
participate in the Equity Compensation Plan beyond an initial grant of an option
to acquire 5,000 shares to each present and newly added director. Non-employee
directors will receive a grant of an option to purchase 1,000 shares in their
first year of participation in the plan, and 1,000 shares in each of the next
following years (up to a total, aggregate grant of 5,000 shares). The options
may be exercised to the extent of one-third on the third anniversary of the date
of the grant, one-third on the fourth anniversary of the date of the grant, and
one-third on the fifth anniversary of the date of the grant. At April 17, 1996,
approximately fourteen (14) executive officers and such other as yet
undetermined number of employees as the Compensation Committee shall select were
eligible to participate in the Equity Compensation Plan. After receiving
recommendations from the management of Susquehanna, the Compensation Committee
selects the persons to receive Grants and determines the number of shares of
Common Stock subject to a particular Grant. No grantee may receive options,
stock appreciation rights, Phantom Stock Rights or restricted stock awards for
more than 200,000 shares of Common Stock for any calendar year.
Granting of Options. The Compensation Committee may grant options
qualifying as incentive stock options ("ISOs") within the meaning of Section 422
of the Code and/or other stock options ("NQSOs") in
28
<PAGE>
accordance with the terms and conditions set forth in the Equity Compensation
Plan or any combination of ISOs or NQSOs.
Term, Purchase Price, Vesting and Method of Exercise. The exercise price
of Common Stock subject to an ISO is the fair market value of such stock on the
date the option is granted. The exercise price of Common Stock subject to a
NQSO also is the fair market value of such stock on the date the option is
granted.
The Compensation Committee determines the option exercise period for each
option; provided, however, that the exercise period may not exceed 10 years from
the date of grant. Unless otherwise provided in the Grant Letter, each option
shall fully vest upon the earliest of (i) the grantee's normal retirement date,
(ii) five years from the date of the Grant, (iii) the grantee's death or
disability (within the meaning of Susquehanna's long-term disability program),
or (iv) the occurrence of a Change-of-Control (defined below) of Susquehanna. A
grantee may exercise an option by delivering notice of exercise to the Secretary
of Susquehanna with accompanying full payment of the option price. The grantee
may pay the option price in cash or, with the Compensation Committee's consent,
by delivering shares of Common Stock already owned by the grantee and having a
fair market value on the date of exercise equal to the option price, or with a
combination of cash and shares. The grantee must pay the option price and the
amount of withholding tax due, if any, at the time of exercise. Shares of
Common Stock are not issued or transferred upon exercise of the option until the
option price and the withholding obligation are fully paid. Generally, unless
provided otherwise in the grant letter, the right to exercise any grant
terminates 90 days following termination of the participant's relationship in
Susquehanna.
Restricted Stock Grants. Susquehanna may issue or transfer shares of
Common Stock under a Grant (a "Restricted Stock Grant") pursuant to the Equity
Compensation Plan. Shares of Common Stock issued pursuant to a Restricted Stock
Grant are issued for cash or services rendered having a value, as determined by
the Board of Directors, at least equal to the par value of the Common Stock
subject to the Grant. The Compensation Committee grants to each grantee a
number of shares of Common Stock determined in its sole discretion, but no
greater than the maximum limit described above. If a grantee's employment
terminates during the period, if any, designated in the Grant Letter as the
period during which the transfer of the shares is restricted (the "Restriction
Period"), the Restricted Stock Grant terminates with respect to all shares
covered by the Grant as to which the restrictions on transfer have not lapsed,
and those shares of Common Stock must be immediately returned to Susquehanna.
During the Restriction Period, a grantee may not sell, assign, transfer, pledge
or otherwise dispose of the shares of Common Stock to which such Restriction
Period applies, except to a successor grantee in the event of the grantee's
death. All restrictions imposed under the Restricted Stock Grant lapse upon the
expiration of the applicable Restriction Period. In addition, the Compensation
Committee may determine as to any or all Restricted Grants that all restrictions
will lapse under such other circumstances as it deems equitable.
Stock Appreciation Rights. The Compensation Committee may grant stock
appreciation rights ("SARs") to any grantee in tandem with a stock option, for
all or a portion of the applicable option, either at the time the option is
granted or, in the case of a NQSO, at any time thereafter while the option
remains outstanding. The number of SARs granted to a grantee which are
exercisable during any given period of time may not exceed the number of shares
of Common Stock which the grantee may purchase upon the exercise of the related
stock option during such period of time. Upon the exercise of an option, the
SARs relating to the Common Stock covered by such option terminate. Upon the
exercise of SARs, the related option terminates to the extent of an equal number
of shares of Common Stock.
Upon a grantee's exercise of some or all of his or her SARs, the grantee
receives in settlement of such SARs an amount equal to the value of the stock
appreciation for the number of SARs exercised, payable in cash, Common Stock or
a combination thereof. The stock appreciation for a SAR is the difference
between the exercise price specified for the related option and the fair market
value of the underlying Common Stock on the date of exercise of the SAR. The
Equity Compensation Plan provides that the exercise price of a SAR is the
greater of (i) the exercise price or option price of the related stock option or
(ii) the fair market value of a share of Common Stock as of the date of grant of
the SAR.
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A SAR is exercisable only during the period when the option to which it
relates is also exercisable; provided, however, that in no event may a SAR be
exercisable by any person subject to Section 16 of the Exchange Act during the
first six months after being granted, except in the event of the retirement,
death or disability of the grantee (if the related Stock Option is then
exercisable).
Phantom Stock Appreciation Rights. The Equity Compensation Plan will
include phantom stock appreciation rights under a program substantially similar
to the Phantom Stock Plan currently maintained by Susquehanna. In connection
with adoption of the Equity Compensation Plan, at the time of shareholder
approval of the Equity Compensation Plan, the Phantom Stock Plan will be
terminated as a separate plan but its provisions will be incorporated in and
become a part of the Equity Compensation Plan. Any inconsistency between the
terms of the Equity Compensation Plan and the Phantom Stock Plan will be
resolved in favor of the terms of the Equity Compensation Plan. Interests
previously awarded under the Phantom Stock Plan and outstanding at the time of
adoption of the Equity Compensation Plan will be subject to conversion to cash
and Susquehanna stock based upon the amount earned determined in accordance with
generally accepted accounting principles but subject to the Phantom Stock Plan
participant's acceptance.
Amendment and Termination of the Equity Compensation Plan. The Board of
Directors may amend or terminate the Equity Compensation Plan at any time;
provided, however, that any amendment that materially increases the benefits
accruing to participants under the Equity Compensation Plan, increases the
aggregate number (or individual limit for any grantee) of shares of Common Stock
that may be issued or transferred under the Equity Compensation Plan, materially
modifies the requirements as to eligibility for participation, or modifies the
provisions for determining fair market value of Common Stock will be subject to
approval by the shareholders of Susquehanna. The Equity Compensation Plan will
terminate on May 31, 2006, unless terminated earlier by the Board of Directors
or extended by the Board of Directors with approval of the shareholders.
Amendment and Termination of Outstanding Grants. A termination or
amendment of the Equity Compensation Plan that occurs after a Grant is made will
not result in the termination or amendment of the Grant unless the grantee
consents or unless the Compensation Committee revokes a Grant the terms of which
are contrary to applicable law. The termination of the Equity Compensation Plan
will not impair the power and authority of the Compensation Committee with
respect to outstanding Grants.
Adjustment Provisions; Change-of-Control of Susquehanna. If there is any
change in the number or kind of shares of Common Stock through the declaration
of stock dividends, or through a recapitalization, stock split, or combinations
or exchanges of such shares, or merger, recapitalization or consolidation of
Susquehanna, reclassification or change in the par value or by reason of any
other extraordinary or unusual event, the number of shares of Common Stock
available for Grants and the number of such shares covered by outstanding
Grants, and the price per share of the applicable market value of such Grants,
will be proportionately adjusted by the Compensation Committee to reflect any
increase or decrease in the number or kind of issued shares of Common Stock.
In the event of a Change-of-Control of Susquehanna, (i) all options
outstanding under the Equity Compensation Plan will become immediately
exercisable and (ii) all restrictions on the transfer of shares with respect to
a Restricted Stock Grant which have not, prior to such date, been forfeited will
immediately lapse. A Change-of-Control of Susquehanna will be deemed to have
taken place if (i) any person or group (except for Susquehanna or any employee
benefit plan of Susquehanna or of any affiliate), shall become the beneficial
owner in the aggregate of 20% or more of the equity of Susquehanna then
outstanding, (ii) any person or group purchases substantially all of the assets
of Susquehanna, (iii) Susquehanna is liquidated or dissolved, (iv) at least a
majority of the Board of Directors of Susquehanna at any time does not consist
of individuals who were elected, or nominated for election, by directors in
office at the time of such election or nomination, or (v) Susquehanna merges or
consolidates with any other corporation and is not the surviving corporation.
Other Equity Compensation Plan Provisions. A Grant under the Equity
Compensation Plan will not be construed as conferring upon any grantee a
contract of employment or service, and such Grant will not confer upon
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<PAGE>
the grantee any rights upon termination of employment or service, other than
certain limited rights as to the exercise of a stock option for a designated
period of time following such termination.
Federal Income Tax Consequences under the Equity Compensation Plan.
Set forth below is a general description of the federal income tax
consequences relating to grants made under the Equity Compensation Plan.
Grantees are urged to consult with their personal tax advisors concerning the
application of the principles discussed below to their own situations and the
application of state and local tax laws.
Non-Qualified Stock Options. There are no federal income tax consequences
to grantees or to Susquehanna upon the grant of a NQSO. Upon the exercise of
NQSOs, grantees will recognize ordinary compensation income in an amount equal
to the excess of the fair market value of the shares at the time of exercise
over the exercise price of the NQSO, and Susquehanna generally will be entitled
to a corresponding federal income tax deduction. Upon the sale of shares
acquired by exercise of a NQSO, a grantee will have a capital gain or loss
(long-term or short-term depending upon the length of time the shares were held)
in an amount equal to the difference between the amount realized upon the sale
and the grantee's adjusted tax basis in the shares (the exercise price plus the
amount of ordinary income recognized by the grantee at the time of exercise of
the NQSO).
Incentive Stock Options. Grantees will not be subject to federal income
taxation upon the grant or exercise of ISOs, and Susquehanna will not be
entitled to a federal income tax deduction by reason of such grant or exercise.
However, the amount by which the fair market value of the shares at the time of
exercise exceeds the option exercise price (or the grantee's other tax basis in
the shares) is an item of tax preference subject to the alternative minimum tax
applicable to the person exercising the ISO. A sale of shares acquired by
exercise of an ISO that does not occur within one year after the exercise or
within two years after the grant of the ISO generally will result in the
recognition of long-term capital gain or loss in the amount of the difference
between the amount realized on the sale and the option exercise price (or the
grantee's other tax basis in the shares), and Susquehanna will not be entitled
to any tax deduction in connection therewith.
If such sale occurs within one year from the date of exercise of the ISO or
within two years from the date of grant (a "disqualifying disposition") and is a
transaction in which a loss, if sustained, would be recognized, the grantee
generally will recognize ordinary compensation income equal to the lesser of (i)
the excess of the fair market value of the shares on the date of exercise over
the exercise price (or the grantee's other tax basis in the shares), or (ii) the
excess of the amount realized on the sale of the shares over the exercise price
(or the grantee's other tax basis in the shares). In the case of a
disqualifying disposition where a loss, if sustained, would not be recognized,
the grantee will recognize ordinary income equal to the excess of the fair
market value of the shares on the date of exercise over the option exercise
price (or the grantee's other tax basis in the shares). Any amount realized on
a disqualifying disposition in excess of the amount treated as ordinary
compensation income (or any loss realized) will be a long-term or a short-term
capital gain (or loss), depending upon the length of time the shares were held.
Susquehanna generally will be entitled to a tax deduction on a disqualifying
disposition corresponding to the ordinary compensation income recognized by the
grantee.
Generally, where previously acquired Common Stock is used to exercise an
outstanding ISO or NQSO, appreciation on such stock will not be recognized as
income. However, if such Common Stock was acquired pursuant to the exercise of
an ISO, a disqualifying disposition will be deemed to have occurred if such
stock is used to exercise another ISO prior to the expiration of the applicable
holding periods.
Restricted Stock. A grantee normally will not recognize taxable income
upon the award of a Restricted Stock Grant, and Susquehanna will not be entitled
to a deduction, until such stock is transferable by the grantee or no longer
subject to a substantial risk of forfeiture for federal tax purposes, whichever
occurs earlier. When the Common Stock is either transferrable or is no longer
subject to a substantial risk of forfeiture, the grantee will recognize ordinary
compensation income in an amount equal to the difference between the fair market
value of the Common Stock at that time and the amount paid by the grantee for
the shares, if any (or the grantee's other tax
31
<PAGE>
basis in the shares). Susquehanna will be entitled to a deduction in the same
amount. A participant may, however, elect to recognize ordinary compensation
income in the year the Restricted Stock Grant is awarded in an amount equal to
the difference between the fair market value of the Common Stock at that time,
determined without regard to the restrictions, and the amount paid by the
grantee for the shares, if any (or the grantee's other tax basis in the shares).
In this event, Susquehanna will be entitled to a deduction in the same year,
provided Susquehanna complies with the applicable withholding requirements for
federal tax purposes. Any gain or loss recognized by the grantee upon subsequent
disposition of the Common Stock will be capital gain or loss. If, after making
the election, any Common Stock subject to a Restricted Stock Grant is forfeited,
or if the market value declines during the Restriction Period, the grantee is
not entitled to any tax deduction or tax refund.
Stock Appreciation Rights and Phantom Stock Rights. The grantee will not
recognize any income upon the grant of a SAR or Phantom Stock Rights. Upon the
exercise of a SAR or Phantom Stock Rights, the grantee will recognize ordinary
compensation income in the amount of both the cash, the fair market value of the
shares of Common Stock or any combination of the two received upon such
exercise, and Susquehanna is entitled to a corresponding deduction, provided
Susquehanna complies with the applicable withholding requirements for federal
tax purposes. Shares received in connection with the exercise of Phantom Stock
Rights and, in the event that a grantee receives shares of Common Stock upon the
exercise of a SAR, the shares so acquired will have a tax basis equal to their
fair market value on the date of transfer, and the holding period of the shares
will commence on that date for purposes of determining whether a subsequent
disposition of the shares will result in long-term or short-term capital gain or
loss.
Section 162(m). The Equity Compensation Plan is intended to make grants of
ISOs and NQSOs with an exercise price not less than fair market value at the
date of grant, and related SARs thereunder meet the requirements of
"performance-based compensation" within the meaning of Section 162(m) of the
Code.
Accounting Considerations
Set forth below is a general description of the accounting consequences of
grants which may be made under the Equity Compensation Plan.
There is no charge to the income of Susquehanna in connection with the
grant or exercise of an option under the Equity Compensation Plan as long as the
option price is not below the market price on the date of the grant. Any tax
benefit received by Susquehanna upon the exercise of a NQSO or as a result of a
disqualifying disposition of option shares obtained upon exercise of an ISO is
reflected as a credit to capital in excess of par value and not as income.
The fair market value of the restricted shares of Common Stock granted
under the Equity Compensation Plan as of the date on which they are awarded will
be charged to income of Susquehanna over the vesting period, as a compensation
cost. Although the value of restricted stock at grant is charged to earnings
over the vesting period, there is no charge to earnings on appreciated value
after grant.
Earnings per share may be affected, in certain cases, by the potential
dilution caused by the assumption of the exercise of outstanding stock options.
When shares are actually issued as a result of the exercise of stock options,
additional dilution could occur under certain circumstances.
The assumed value of a SAR or Phantom Stock Rights (generally, the excess
of the market value of the underlying shares over the option price at the end of
each accounting period) is treated as compensation expense that is accrued over
the period the SAR is vested. Deferred tax benefit may also be created if the
related tax deduction occurs in a period later than the one in which the
compensation expense is recognized for accounting purposes.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain directors and executive officers of Susquehanna and its
Subsidiaries, including their immediate families and companies in which they are
principal owners (more than 10%), were indebted to certain Susquehanna banking
subsidiaries. All such transactions were made in the ordinary course of
business, were made on substantially the same, terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons and did not involve more than the normal risk of collectibility or
present other unfavorable features. At December 31, 1995, these loans totaled
$27.6 million, which represented 10% of stockholder's equity.
During 1995, the law firms in which Directors Hall, Morgan, and Wiest are
principals, received fees from Susquehanna affiliates in amounts which did not
exceed 5% of their respective firm's gross revenues for that year. Director
Gibbel is a partner in an insurance agency which received insurance premium
payments from Susquehanna and its subsidiaries during 1995, all of which
resulted from successfully placing competitively bid coverages.
INDEPENDENT PUBLIC ACCOUNTANTS
Susquehanna has engaged Coopers & Lybrand, independent public accountants,
to audit its financial statements for the year ended December 31, 1995.
Susquehanna expects to engage Coopers & Lybrand as its independent public
accountants for the year 1996.
Representatives of Coopers & Lybrand are expected to be present at the
Annual Meeting and will have an opportunity to make a statement if they desire
to do so. They are expected to be available to respond to appropriate questions
from Susquehanna's shareholders.
SHAREHOLDER PROPOSALS
Shareholder proposals for the 1997 Annual Meeting of Susquehanna
shareholders must be received by the Secretary of Susquehanna no later than
December 13, 1996, in order to be considered for inclusion in the proxy
statement relating to such 1997 Susquehanna Annual Meeting.
OTHER MATTERS
Susquehanna knows of no business which will be presented at the Annual
Meeting other than the election of directors and the proposal to approve the
Equity Compensation Plan. However, if other matters come before the meeting, it
is the intention of the proxy agents to vote upon such matters in accordance
with their judgment in such matters.
By Order of the Board of Directors
Richard M. Cloney
Secretary
The Annual Report to Shareholders (forwarded herewith) contains the report
of Susquehanna's independent accountant, Coopers & Lybrand.
33
<PAGE>
EXHIBIT A
SUSQUEHANNA BANCSHARES, INC.
EQUITY COMPENSATION PLAN
------------------------
The purpose of the Susquehanna Bancshares, Inc. Equity Compensation Plan
(the "Plan") is to provide (i) designated officers (including officers who are
also directors) and other employees of Susquehanna Bancshares, Inc. (the
"Company") and its subsidiaries, and (ii) non-employee members of the board of
directors of the Company (the "Board"), with the opportunity to receive grants
of incentive stock options, nonqualified stock options, stock appreciation
rights or phantom stock appreciation rights and restricted stock. The Company
believes that the Plan will cause the participants to contribute materially to
the growth of the Company, thereby benefitting the Company's shareholders and
will align the economic interests of the participants with those of the
shareholders.
1. Administration
--------------
The Plan shall be administered and interpreted by a committee (the
"Committee"), which shall consist of two or more persons appointed by the Board,
all of whom shall be "disinterested persons" as defined under Rule 16b-3 under
the Securities Exchange Act of 1934 (the "Exchange Act") and "outside directors"
as defined under section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code") and related Treasury regulations.
Except as provided in Section 6 hereof, the Committee shall have the sole
authority to (i) determine the individuals to whom grants shall be made under
the Plan, (ii) determine the type, size and terms of the grants to be made to
each such individual, (iii) determine the time when the grants will be made and
the duration of any applicable exercise or restriction period, including the
criteria for vesting and the acceleration of vesting and (iv) deal with any
other matters arising under the Plan.
The Committee may, in its discretion or in accordance with a directive
from the Board, waive or amend any provisions of any Grant, provided such waiver
or amendment is not inconsistent with the terms of this Plan as then in effect.
The Committee may, if it so desires, base any of the foregoing determinations
upon the recommendations of management of the Company. A majority of the
Committee shall constitute a quorum thereof, and the actions of a majority of
the Committee at a meeting at which a quorum is present, or actions unanimously
approved in writing by all members of the Committee, shall be actions of the
Committee.
The Committee shall have full power and authority to administer and
interpret the Plan, to make factual determinations and to adopt or amend such
rules, regulations, agreements and instruments for implementing the Plan and for
the conduct of its business as it deems necessary or advisable, in its sole
discretion. The Committee's interpretations of the Plan and all determinations
made by the Committee pursuant to the powers vested in it hereunder shall be
conclusive and binding on all persons having any interests in the Plan or in any
awards granted hereunder. All powers of the Committee shall be executed in its
sole discretion, in the best interest of the Company and in keeping with the
objectives of the Plan and need not be uniform as to similarly situated
individuals.
2. Grants
------
Incentives under the Plan shall consist of grants of incentive stock
options, nonqualified stock options, stock appreciation rights, phantom stock
appreciation rights and restricted stock (hereinafter collectively referred to
as "Grants"). All Grants shall be subject to the terms and conditions set forth
herein and to those other terms and conditions consistent with this Plan as the
Committee deems appropriate and as are specified in writing by the Committee to
the individual (the "Grant Instrument"). The Committee shall approve the form
and provisions of each Grant Instrument. Grants under a particular section of
the Plan need not be uniform as among the grantees.
<PAGE>
EXHIBIT A
3. Shares Subject to the Plan
--------------------------
(a) Subject to the adjustment specified below, the aggregate number of
shares of the common stock of the Company, par value $2.00 per share (the
"Company Stock") that may be issued or transferred under the Plan is 650,000
shares. Notwithstanding anything in the Plan to the contrary, the maximum
aggregate number of shares of Company Stock that shall be subject to Grants made
under the Plan to any one individual during any calendar year shall be 200,000.
The shares may be authorized but unissued shares of Company Stock or reacquired
shares of Company Stock, including shares purchased by the Company on the open
market for purposes of the Plan. If and to the extent options granted under the
Plan terminate, expire, or are cancelled, forfeited, exchanged or surrendered
without having been exercised or if any shares of restricted stock are
forfeited, the shares subject to such Grants shall again be available for
purposes of the Plan.
(b) If there is any change in the number or kind of shares of Company
Stock outstanding by reason of a stock dividend, a recapitalization, stock
split, or combination or exchange of shares, or merger, reorganization or
consolidation in which the Company is the surviving corporation,
reclassification or change in par value or by reason of any other extraordinary
or unusual events affecting the outstanding Company Stock as a class without the
Company's receipt of consideration, or if the value of outstanding shares of
Company Stock is substantially reduced due to the Company's payment of an
extraordinary dividend or distribution, the maximum number of shares of Company
Stock available for Grants, the maximum number of shares of Company Stock that
may be subject to Grants to any one individual under the Plan in any calendar
year, the number of shares covered by outstanding Grants, and the price per
share or the applicable market value of such Grants shall be proportionately
adjusted by the Committee to reflect any increase or decrease in the number or
kind of issued shares of Company Stock to preclude the enlargement or dilution
of rights and benefits under such Grants; provided, however, that any fractional
shares resulting from such adjustment shall be eliminated by rounding any
portion of a share equal to .500 or greater up, and any portion of a share equal
to less than .500 down, in each case to the nearest whole number. For purposes
of this Section 3(b), "shares of Company Stock" and "shares" include referenced
shares with respect to SARs. The adjustments determined by the Committee shall
be final, binding and conclusive. Notwithstanding the foregoing, no adjustment
shall be authorized or made pursuant to this Section to the extent that such
authority or adjustment would cause any incentive stock option to fail to comply
with section 422 of the Code.
4. Eligibility for Participation
-----------------------------
All employees of the Company and its subsidiaries ("Employees"),
including Employees who are officers or members of the Board, shall be eligible
to participate in the Plan. Members of the Board who are not employees of the
Company or any of its subsidiaries ("Non-Employee Directors") shall be eligible
to participate in the Plan, but shall not be eligible to receive incentive stock
options.
The Board shall select the Employees and Non-Employee Directors to receive
Grants and determine the number of shares of Company Stock subject to a
particular Grant in such manner as the Board determines. Employees and Non-
Employee Directors who receive Grants under this Plan shall hereinafter be
referred to as "Grantees".
Nothing contained in this Plan shall be construed to (i) limit the
right of the Board to make Grants under this Plan in connection with the
acquisition, by purchase, lease, merger, consolidation or otherwise, of the
business or assets of any corporation, firm or association, including options
granted to employees thereof who become Employees of the Company, or for other
proper corporate purpose, or (ii) limit the right of the Company to grant stock
options or make other awards outside of this Plan.
<PAGE>
EXHIBIT A
5. Granting of Options
-------------------
(a) Number of Shares. The Committee, in its sole discretion, shall
----------------
determine the number of shares of Company Stock that will be subject to each
Grant of stock options.
(b) Type of Option and Price. The Committee may grant options
------------------------
intended to qualify as "incentive stock options" within the meaning of section
422 of the Code ("Incentive Stock Options") or options which are not intended to
so qualify ("Nonqualified Stock Options") or any combination of Incentive Stock
Options and Nonqualified Stock Options (hereinafter collectively the "Stock
Options"), all in accordance with the terms and conditions set forth herein.
The purchase price of Company Stock subject to a Stock Option shall be
determined by the Committee and may be equal to, greater than, or less than the
Fair Market Value (as defined below) of a share of such Stock on the date such
Stock Option is granted; provided, however, that (i) the purchase price of
Company Stock subject to an Incentive Stock Option shall be equal to the Fair
Market Value of a share of such Stock on the date such Stock Option is granted;
and (ii) the purchase price of Company Stock subject to a Nonqualified Stock
Option shall not be less than 100% of the Fair Market Value of a share of such
stock on the date such Stock Option is Granted.
If the Company Stock is traded in a public market, then the Fair Market
Value per share shall be, if the principal trading market for the Company Stock
is a national securities exchange or the National Market segment of The NASDAQ
Stock Market, the last reported sale price thereof on the relevant date or (if
there were no trades on that date) the latest preceding date upon which a sale
was reported, or, if the Company Stock is not principally traded on such
exchange or market, the mean between the last reported "bid" and "asked" prices
thereof on the relevant date, as reported on NASDAQ or, if not so reported, as
reported by the National Daily Quotation Bureau, Inc. or as reported in a
customary financial reporting service, as applicable and as the Committee
determines. If the Company Stock is not traded in a public market or subject to
reported transactions or "bid" or "ask" quotations as set forth above, the Fair
Market Value per share shall be as determined by the Committee.
(c) Option Term. The Committee shall determine the term of each Stock
-----------
Option. The term of any Stock Option shall not exceed ten years from the date
of grant.
(d) Exercisability of Options. Stock Options shall become exercisable
-------------------------
in accordance with the terms and conditions determined by the Committee, in its
sole discretion, and specified in the Grant Instrument. The Committee, in its
sole discretion, may accelerate the exercisability of any or all outstanding
Stock Options at any time for any reason. In addition, all outstanding Stock
Options automatically shall become fully and immediately exercisable upon a
Change of Control (as defined herein) in accordance with the provisions of
Section 11.
(e) Vesting of Options and Restrictions on Shares. The vesting period
---------------------------------------------
for Stock Options shall commence on the date of grant and shall end on the date
or dates, determined by the Committee, that shall be specified in the Grant
Instrument. Notwithstanding any other provision of the Plan, except as
otherwise provided by the Committee in the Grant Instrument, all outstanding
Stock Options shall become immediately exercisable upon the earliest to occur of
the following, if at such time the Grantee is an Employee of the Company or a
parent or subsidiary of the Company, or a Non-Employee Director in the case of a
Nonqualified Stock Option: (i) the Grantee's normal retirement date, (ii) five
years from the date of the Grant, (iii) the Grantee's death or Disability (as
defined herein), or (iv) the occurrence of a Change of Control (as defined
herein) of the Company.
(f) Manner of Exercise. A Grantee may exercise a Stock Option which
------------------
has become exercisable, in whole or in part, by delivering a duly completed
notice of exercise to the Secretary of the Company with accompanying payment of
the option price in accordance with Subsection (h) below. Such notice may
instruct the Company to deliver shares of Company Stock due upon the exercise of
the Stock Option to any registered broker or dealer designated by the Committee
("Designated Broker") in lieu of delivery to the Grantee. Such instructions
must designate the account into which the shares are to be deposited. The
Grantee may tender a notice of exercise, which has been properly executed by the
Grantee and the aforementioned delivery instructions to any Designated Broker.
<PAGE>
EXHIBIT A
(g) Termination of Employment, Disability or Death.
----------------------------------------------
(i) Except as provided below, a Stock Option may only be exercised
while the Grantee is employed by the Company as an Employee or Non-Employee
Director. In the event that a Grantee ceases to employed by the Company for any
reason other than a "Disability" or death, any Stock Option which is otherwise
exercisable by the Grantee shall terminate unless exercised within 90 days of
the date on which the Grantee ceases to be employed by the Company (or within
such other period of time as may be specified in the Grant Instrument), but in
any event no later than the date of expiration of the option term. Any of the
Grantee's Stock Options which are not otherwise exercisable as of the date on
which the Grantee ceases to be employed by the Company shall terminate as of
such date.
(ii) In the event the Grantee ceases to be employed by the Company
because the Grantee is "disabled," any Stock Option which is otherwise
exercisable by the Grantee shall terminate unless exercised within one year of
the date on which the Grantee ceases to employed by the Company (or within such
other period of time as may be specified in the Grant Instrument), but in any
event no later than the date of expiration of the option term. Any of the
Grantee's Stock Options which are not otherwise exercisable as of the date on
which the Grantee ceases to be an Employee shall terminate as of such date.
(iii) If (a) the Grantee dies while employed by the Company, or (b)
in the case of disability, during the period provided at Section 5(g)(ii) above,
or (c) within 90 days after the date on which the Grantee ceases to be employed
by the Company on account of a termination of employment specified in Section
5(g)(i) above (or within such other period of time as may be specified in the
Grant Instrument), any Stock Option which is otherwise exercisable by the
Grantee shall terminate unless exercised within one year of the date of death
(or within such other period of time as may be specified in the Grant
Instrument), but in any event no later than the date of expiration of the option
term. Any of the Grantee's Stock Options which are not otherwise exercisable as
of the date on which the Grantee ceases to be employed by the Company shall
terminate as of such date.
(iv) For purposes of this Section 5, the term "Company" shall include
the Company's subsidiaries and the term "Disability" or "Disabled" shall mean a
Grantee's becoming disabled within the meaning of section 22(e)(3) of the Code.
(h) Satisfaction of Option Price. The Grantee shall pay the option
----------------------------
price specified in the Grant Instrument in (i) cash, (ii) with the approval of
the Committee, by delivering shares of Company Stock owned by the Grantee
(including Company Stock acquired in connection with the exercise of a Stock
Option, subject to such restrictions as the Committee deems appropriate) and
having a Fair Market Value on the date of exercise equal to the option price or
(iii) through any combination of (i) and (ii). The Grantee shall pay the option
price and the amount of withholding tax due, if any, at the time of exercise.
Shares of Company Stock shall not be issued or transferred upon exercise of a
Stock Option until the option price is fully paid and any required withholding
is made.
(i) Election to Withhold Shares. Grantees may make an election to
---------------------------
satisfy the Company income tax withholding obligation with respect to a Stock
Option by having shares withheld up to an amount that does not exceed the
Grantee's maximum marginal tax rate for federal (including FICA), state and
local tax liabilities. Such election must be in the form and manner prescribed
by the Committee. If the Grantee is a director or officer within the meaning of
Rule 16a-1(f) promulgated under the Exchange Act, such election must be
irrevocable and must be made six months prior to the date on which the Stock
Option is exercised with respect to such shares.
(j) Rule 16b-3 Restrictions. Unless a Grantee who is an "insider," as
-----------------------
defined under Section 16 of the Exchange Act, could otherwise transfer Company
Stock issued pursuant to a Stock Option without incurring liability under
Section 16(b) of the Exchange Act, at least six months must elapse from the date
of acquisition of a Stock Option by such a Grantee to the date of disposition of
the Company Stock issued upon exercise of such option.
<PAGE>
EXHIBIT A
(k) Limits on Incentive Stock Options. Each Incentive Stock Option
---------------------------------
shall provide that, to the extent that the aggregate Fair Market Value of the
Company Stock on the date of the grant with respect to which Incentive Stock
Options are exercisable for the first time by a Grantee during any calendar year
under the Plan or any other stock option plan of the Company exceeds $100,000,
then such option as to the excess shall be treated as a Nonqualified Stock
Option. An Incentive Stock Option shall not be granted to any participant who
is not an Employee of the Company or any "subsidiary" within the meaning of
section 424(f) of the Code. An Incentive Stock Option shall not be granted to
any Employee who, at the time of grant, owns stock possessing more than 10
percent of the total combined voting power of all classes of stock of the
Company or any "parent" or "subsidiary" of the Company within the meaning of
section 424(e) and (f) of the Code,unless the option price per share is not less
than 110% of the Fair Market Value of Company Stock on the date of grant and the
option exercise period is not more than five years from the date of grant.
6. Formula Option Grants to Non-Employee Directors
-----------------------------------------------
A Non-Employee Director shall be entitled to receive Nonqualified Stock
Options in accordance with this Section 6.
(a) Initial Grant. Each Non-Employee Director who is a member of the
-------------
Board on the effective date of this Plan, as defined in Section 21 hereof, will
receive a grant of a Nonqualified Stock Option to purchase 1,000 shares of
Company Stock as of such date. Each Non-Employee Director who first becomes a
member of the Board after the effective date of this Plan, will receive a grant
of a Nonqualified Stock Option to purchase 1,000 shares immediately upon the
date he or she becomes a member of the Board.
(b) Annual Grants. For a 5-year period beginning from the date of the
-------------
initial grant specified in Section 6(a) above (the "Initial Grant Date"), on
each anniversary date of the Initial Grant Date (the "Annual Automatic Grant
Date"), each Non-Employee Director will receive a grant of a Nonqualified Stock
Option to purchase 1,000 shares of Company Stock for a total, aggregate grant of
5,000 shares, provided that the Non-Employee Director remains as such on the
Annual Automatic Grant Date .
(c) Option Price. The purchase price per share of Company Stock
------------
subject to a Stock Option granted under this Section 6 shall be equal to the
Fair Market Value of a share of Company Stock on the date of grant.
(d) Option Term. The term of each Stock Option granted pursuant to this
-----------
Section 6 shall be ten years.
(e) Exercisability. Options granted under this Section 6 shall be
--------------
exercisable one-third on the third anniversary following the date of the grant,
one-third on the fourth anniversary following the date of the grant, and one-
third on the fifth anniversary following the date of the grant.
(f) Administration. The provisions of this Section 6 are intended to
--------------
operate automatically and not require administration. However, to the extent
that administrative determinations are required, the provisions of this Section
6 shall be made by the members of the Board who are not eligible to receive
grants under this Section 6, but in no event shall such determinations affect
the eligibility of Grantees, the determination of the exercise price, the timing
of the grants or the number of shares subject to Stock Options granted
hereunder.
(g) Applicability of Plan Provisions. Except as otherwise provided
--------------------------------
in, and not inconsistent with, this Section 6, the Nonqualified Stock Options
granted to Non-Employee Directors shall be subject to the provisions of this
Plan applicable to Nonqualified Stock Options granted to other persons.
(h) Amendment. Notwithstanding any other provision of the Plan, this
---------
Section 6 may not be amended more than once every six months, except for
amendments necessary to conform the Plan to changes in the provisions of or the
regulations relating to applicable laws, including the Code or the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
<PAGE>
EXHIBIT A
7. Restricted Stock Grants
-----------------------
The Committee may issue or transfer shares of Company Stock to an
Employee under a Grant (a "Restricted Stock Grant"), upon such terms as the
Committee deems appropriate. The following provisions are applicable to
Restricted Stock Grants:
(a) General Requirements. Shares of Company Stock issued pursuant to
--------------------
Restricted Stock Grants may be issued for cash consideration or for no cash
consideration, at the sole discretion of the Committee. The Committee shall
establish conditions under which restrictions on the transfer of shares of
Company Stock shall lapse over a period of time or according to such other
criteria as the Committee deems appropriate. The period of years during which
the Restricted Stock Grant will remain subject to restrictions will be
designated in the Grant Instrument as the "Restriction Period."
(b) Number of Shares. The Committee shall grant to each Grantee a
----------------
number of shares of Company Stock pursuant to a Restricted Stock Grant in such
manner as the Committee determines.
(c) Termination of Employment or Services. If the Grantee ceases to
-------------------------------------
be employed by the Company (as an Employee or Non-Employee Director) during a
period designated in the Grant Instrument as the Restriction Period, or if other
specified conditions are not met, the Restricted Stock Grant shall terminate as
to all shares covered by the Grant as to which restrictions on transfer have not
lapsed and those shares of Company Stock must be immediately returned to the
Company. The Committee may, however, provide for complete or partial exceptions
to this requirement as it deems equitable.
(d) Restrictions on Transfer and Legend on Stock Certificate. During
--------------------------------------------------------
the Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Company Stock to which such Restriction
Period applies except to a Successor Grantee under Section 10. Each certificate
for a share issued or transferred under a Restricted Stock Grant shall contain a
legend giving appropriate notice of the restrictions in the Grant. The Grantee
shall be entitled to have the legend removed from the stock certificate or
certificates covering any of the shares subject to restrictions when all
restrictions on such shares have lapsed.
(e) Right to Vote and to Receive Cash Dividends. During the Restriction
-------------------------------------------
Period, unless the Committee determines otherwise, the Grantee shall have the
right to vote shares subject to the Restricted Stock Grant and to receive any
dividends or other distributions paid on such shares, subject to any
restrictions deemed appropriate by the Committee.
(f) Lapse of Restrictions. All restrictions imposed under the
---------------------
Restricted Stock Grant shall lapse upon the expiration of the applicable
Restriction Period and the satisfaction of any conditions imposed by the
Committee. The Committee may determine, as to any or all Restricted Stock
Grants, that all the restrictions shall lapse without regard to any Restriction
Period. All restrictions under all outstanding Restricted Stock Grants shall
automatically and immediately lapse upon a Change of Control.
(g) Election to Withhold Shares. Grantees may make an election to
---------------------------
satisfy the Company income tax withholding obligation with respect to a
Restricted Stock Grant by having shares withheld up to an amount that does not
exceed the participant's maximum marginal tax rate for federal (including FICA),
state and local tax liabilities. Such election must be in the form and manner
prescribed by the Committee. If the Grantee is a director or officer within the
meaning of Rule 16a-1(f) promulgated under the Exchange Act, such election must
be irrevocable and must be made six months prior to the date on which all
restrictions lapse with respect to such shares.
<PAGE>
Exhibit A
8. Stock Appreciation Rights
-------------------------
(a) General Requirements. The Committee may grant stock appreciation
--------------------
rights ("SARs") to any Grantee in tandem with any Stock Option, for all or a
portion of the applicable Stock Option, either at the time the Stock Option is
granted or at any time thereafter while the Stock Option remains outstanding;
provided, however, that in the case of an Incentive Stock Option, such rights
may be granted only at the time of the Grant of such Stock Option. Unless the
Committee determines otherwise, the base price of each SAR shall be equal to the
greater of (i) the exercise price of the related Stock Option or (ii) the Fair
Market Value of a share of Company Stock as of the date of Grant of such SAR.
(b) Number of SARs. The number of SARs granted to a Grantee which
--------------
shall be exercisable during any given period of time shall not exceed the number
of shares of Company Stock which the Grantee may purchase upon the exercise of
the related Stock Option during such period of time. Upon the exercise of a
Stock Option, the SARs relating to the Company Stock covered by such Stock
Option shall terminate. Upon the exercise of SARs, the related Stock Option
shall terminate to the extent of an equal number of shares of Company Stock.
(c) Value of SARs. Upon a Grantee's exercise of some or all of the
-------------
Grantee's SARs, the Grantee shall receive in settlement of such SARs an amount
equal to the value of the stock appreciation for the number of SARs exercised,
payable in cash, Company Stock or a combination thereof. The stock appreciation
for an SAR is the difference between the base price of the SAR as described in
subsection (a) and the Fair Market Value of the underlying Company Stock on the
date of exercise of such SAR.
(d) Form of Payment. At the time of such exercise, the Grantee shall
---------------
have the right to elect the portion of the amount to be received that shall
consist of cash and the portion that shall consist of Common Stock, which for
purposes of calculating the number of shares of Company Stock to be received,
shall be valued at their Fair Market Value on the date of exercise of such SARs.
The Committee shall have the right to disapprove a Grantee's election to receive
cash in full or partial settlement of the SARs exercised and to require that
shares of Company Stock be delivered in lieu of cash. If shares of Company
Stock are to be received upon exercise of an SAR, cash shall be delivered in
lieu of any fractional share.
(e) Certain Restrictions. An SAR is exercisable only during the
--------------------
period when the Stock Option to which it is related is also exercisable. No SAR
may be exercised for cash by an officer or director of the Company subject to
Section 16 of the Exchange Act, in whole or in part, except in accordance with
Rule 16b-3 under the Exchange Act.
9. Phantom Stock Appreciation Rights
---------------------------------
The Plan will include phantom stock appreciation rights under a program
substantially similar to the Phantom Stock Appreciation Plan (the "PSAP")
currently maintained by the Company. In connection with adoption of the Plan, at
the time of shareholder approval of the Plan, the PSAP will be terminated as a
separate plan but its provisions will be incorporated herein and become a part
of the Plan. Any inconsistency between the terms of this Plan and the PSAP will
be resolved in favor of the terms of this Plan. Interests previously awarded
under the PSAP and outstanding at the time of adoption of the Plan will be
subject to conversion to cash and Company Stock in an equitable manner but
subject to the PSAP participant's acceptance.
10. Transferability of Grants
-------------------------
Only the Grantee or his or her authorized representative may exercise
rights under a Grant. Such persons may not transfer those rights except by will
or by the laws of descent and distribution or, with respect to Grants other than
Incentive Stock Options, if permitted under Rule 16b-3 of the Exchange Act and
if permitted in any specific case by the Committee in its sole discretion,
pursuant to a qualified domestic relations order as defined
<PAGE>
EXHIBIT A
under the Code or Title I of ERISA or the regulations thereunder . When a
Grantee dies, the representative or other person entitled to succeed to the
rights of the Grantee ("Successor Grantee") may exercise such rights. A
Successor Grantee must furnish proof satisfactory to the Company of his or her
right to receive the Grant under the Grantee's will or under the applicable laws
of descent and distribution. Notwithstanding the foregoing, the Committee may
provide, in a Grant Instrument, that a Grantee may transfer Nonqualified Stock
Options to his or her children, grandchildren or spouse or to one or more trusts
for the benefit of such family members or to partnerships in which such family
members are the only partners (a "Family Transfer"), provided that the Grantee
receives no consideration for a Family Transfer and the Grant Instruments
relating to Nonqualified Stock Options transferred in a Family Transfer continue
to be subject to the same terms and conditions that were applicable to such
Nonqualified Stock Options immediately prior to the Family Transfer.
11. Change of Control of the Company
--------------------------------
As used herein, a "Change of Control" shall be deemed to have occurred if:
(a) A liquidation or dissolution of the Company (excluding transfers to
subsidiaries) or the sale of all or substantially all of the Company's assets
occurs;
(b) As a result of a tender offer, stock purchase, other stock
acquisition, merger, consolidation, recapitalization, reverse split or sale or
transfer of assets, any person or group (as such terms are used in and under
Section 13(d)(3) or 14(d)(2) of the Exchange Act) becomes the beneficial owner
(as defined in Rule 13-d under the Exchange Act), directly or indirectly, of
securities of the Company representing more than 20% of the common stock of the
Company or the combined voting power of the Company's then outstanding
securities; provided, however, that for purposes of this subsection 11(b), a
person or group shall not include the Company or any subsidiary or any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
subsidiary;
(c) If at least a majority of the Board at any time does not consist of
individuals who were elected, or nominated for election, by directors in office
at the time of such election or nomination; or
(d) The Company merges or consolidates with any other corporation (other
than a wholly owned subsidiary) and is not the surviving corporation (or
survives only as a subsidiary of another corporation).
12. Consequences of a Change of Control
-----------------------------------
(a) Notice.
------
(i) If a Change of Control described in Section 11(a), (b) or (d)
will occur, then, not later than 10 days after the approval by the stockholders
of the Company (or approval by the Board, if stockholder action is not required)
of such Change of Control, the Company shall give each Grantee with any
outstanding Stock Options, Phantom Stock Appreciation Rights or SARs written
notice of such proposed Change of Control.
(ii) If a Change of Control described in Section 11(b) may occur
without approval by the shareholders (or approval by the Board) and does so
occur, or if a Change of Control described in Section 11(c) occurs, then, not
later than 10 days after such Change of Control, the Company shall give each
Optionee with any outstanding Stock Options, Phantom Stock Appreciation Rights
or SARs written notice of the Change of Control.
(b) Election Period. In connection with the Change of Control and
---------------
effective only upon such Change of Control, each Grantee shall thereupon have
the right, within 10 days after such written notice is sent by the Company (the
"Election Period"), to make an election as described in Subsection (c) with
respect to all of his or her outstanding Stock Options, Phantom Stock
Appreciation Rights or SARs (whether the right to exercise such Stock
<PAGE>
EXHIBIT A
Options, Phantom Stock Appreciation Rights or SARs has then accrued or the right
to exercise such Stock Options, Phantom Stock Appreciation Rights or SARs will
occur or has occurred upon the Change of Control).
(c) Election Right. During the Election Period, each Grantee shall have
--------------
the right to elect to exercise in full any installments of such Stock Options,
Phantom Stock Appreciation Rights or SARs not previously exercised; provided,
however, that in the case of an SAR or Phantom Stock Appreciation Right held by
a Grantee who is subject to Section 16(b) of the Exchange Act, any such
surrender or payment shall be made on such date as the Committee shall determine
consistent with Rule 16b-3 under the Exchange Act.
(d) Termination of Stock Options. If a Grantee does not make a timely
----------------------------
election in accordance with Subsection (c) in connection with a Change of
Control where the Company is not the surviving corporation (or survives only as
a subsidiary of another corporation), the Grantee's Stock Options, Phantom Stock
Appreciation Rights or SARs shall terminate as of the Change of Control.
Notwithstanding the foregoing, a Stock Option, Phantom Stock Appreciation Right
or SAR will not terminate if assumed by the surviving or acquiring corporation,
or its parent, upon a merger or consolidation and, with respect to an Incentive
Stock Option, the assumption of the Stock Option occurs under circumstances
which are not deemed a modification of the Stock Option within the meaning of
sections 424(a) and 424(h)(3)(A) of the Code.
(e) Accounting and Tax Limitations. Notwithstanding the foregoing,
------------------------------
(i) if the right described in Subsection (c) in connection with SARs
or Phantom Stock Appreciation Rights would make the applicable Change of Control
ineligible for pooling of interest accounting treatment under APB No. 16 or make
such Change of Control ineligible for desired tax treatment with respect to such
Change of Control and, but for those provisions, the Change of Control would
otherwise qualify for such treatment, the Grantee shall receive shares of
Company Stock with a Fair Market Value equal to the cash that would otherwise be
payable pursuant to Subsection (c) in substitution for the cash, and
(ii) if the termination of the Stock Options described in Subsection
(d) would make the applicable Change of Control ineligible for pooling of
interest accounting treatment under APB No. 16 and, but for such provision, the
Change of Control would otherwise qualify for such treatment, each affected
Grantee shall receive a replacement or substitute stock option issued by the
surviving or acquiring corporation.
13. Amendment and Termination of the Plan
-------------------------------------
(a) Amendment. The Board may amend or terminate the Plan at any time;
---------
provided, however, that any amendment that increases the aggregate number (or
individual limit for any single Grantee) of shares of Company Stock that may be
issued or transferred under the Plan (other than by operation of Section 3(b)),
or modifies the requirements as to eligibility for participation in the Plan,
shall be subject to approval by the shareholders of the Company and provided,
further, that the Board shall not amend the Plan without shareholder approval if
such approval is required by Rule 16b-3 of the Exchange Act or Section 162(m) of
the Code.
(b) Termination of Plan. The Plan shall terminate on the day immediately
-------------------
preceding the tenth anniversary of its effective date unless terminated earlier
by the Board or unless extended by the Board with the approval of the
shareholders.
(c) Termination and Amendment of Outstanding Grants. A termination or
-----------------------------------------------
amendment of the Plan that occurs after a Grant is made shall not materially
impair the rights of a Grantee unless the Grantee consents or unless the
Committee acts under Section 20(b) hereof. The termination of the Plan shall
not impair the power and authority of the Committee with respect to an
outstanding Grant. Whether or not the Plan has terminated, an outstanding Grant
may be terminated or amended under Section 20(b) hereof or may be amended by
agreement of the Company and the Grantee consistent with the Plan.
<PAGE>
EXHIBIT A
(d) Governing Document. The Plan shall be the controlling document. No
------------------
other statements, representations, explanatory materials or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company and its successors and assigns.
14. Funding of the Plan
-------------------
This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grants under this Plan. In no event shall
interest be paid or accrued on any Grant, including unpaid installments of
Grants.
15. Rights of Participants
----------------------
Nothing in this Plan shall entitle any Employee or Non-Employee Director or
other person to any claim or right to be granted a Grant under this Plan.
Neither this Plan nor any action taken hereunder shall be construed as giving
any individual any rights to be retained by or in the employ of the Company or
any other employment rights.
16. No Fractional Shares
--------------------
No fractional shares of Company Stock shall be issued or delivered pursuant
to the Plan or any Grant. The Committee shall determine whether cash, other
awards or other property shall be issued or paid in lieu of such fractional
shares or whether such fractional shares or any rights thereto shall be
forfeited or otherwise eliminated.
17. Withholding of Taxes
--------------------
The Company shall have the right to deduct from all Grants paid in cash, or
from other wages paid to an employee of the Company, any federal, state or local
taxes required by law to be withheld with respect to such cash awards and, in
the case of Grants paid in Company Stock, the Grantee or other person receiving
such shares shall be required to pay to the Company the amount of any such taxes
which the Company is required to withhold with respect to such Grants or the
Company shall have the right to deduct from other wages paid to the employee by
the Company the amount of any withholding due with respect to such Grants.
18. Requirements for Issuance of Shares
-----------------------------------
No Company Stock shall be issued or transferred in connection with any
Grant hereunder unless and until all legal requirements applicable to the
issuance or transfer of such Company Stock have been complied with to the
satisfaction of the Committee. The Committee shall have the right to condition
any Grant made to any Grantee hereunder on such Grantee's undertaking in writing
to comply with such restrictions on his or her subsequent disposition of such
shares of Company Stock as the Committee shall deem necessary or advisable as a
result of any applicable law, regulation or official interpretation thereof and
certificates representing such shares may be legended to reflect any such
restrictions. Certificates representing shares of Company Stock issued under
the Plan will be subject to such stop-transfer orders and other restrictions as
may be applicable under such laws, regulations and other obligations of the
Company, including any requirement that a legend or legends be placed thereon.
<PAGE>
EXHIBIT A
19. Headings
--------
Section headings are for reference only. In the event of a conflict
between a title and the content of a Section, the content of the Section shall
control.
20. Miscellaneous
-------------
(a) Substitute Grants. The Committee may make a Grant to an employee of
-----------------
another corporation who becomes an Employee by reason of a corporate merger,
consolidation, acquisition of stock or property, reorganization or liquidation
involving the Company or any of its subsidiaries in substitution for a stock
option or restricted stock grant made by such corporation ("Substituted Stock
Incentives"). The terms and conditions of the substitute grant may vary from
the terms and conditions required by the Plan and from those of the Substituted
Stock Incentives. The Committee shall prescribe the provisions of the
substitute grants.
(b) Compliance with Law. The Plan, the exercise of Stock Options and the
-------------------
obligations of the Company to issue or transfer shares of Company Stock under
Grants shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. With respect to persons
subject to Section 16 of the Exchange Act, it is the intent of the Company that
the Plan and all transactions under the Plan comply with all applicable
provisions of Rule 16b-3 or its successors under the Exchange Act. The
Committee may revoke any Grant if it is contrary to law or modify a Grant to
bring it into compliance with any valid and mandatory government regulation.
The Committee may also adopt rules regarding the withholding of taxes on
payments to Grantees. The Committee may, in its sole discretion, agree to limit
its authority under this Section.
(c) Ownership of Stock. A Grantee or Successor Grantee shall have no
------------------
rights as a shareholder with respect to any shares of Company Stock covered by a
Grant until the shares are issued or transferred to the Grantee or Successor
Grantee on the stock transfer records of the Company.
(d) Governing Law. The validity, construction, interpretation and effect
-------------
of the Plan and Grant Instruments issued under the Plan shall exclusively be
governed by and determined in accordance with the law of the Commonwealth of
Pennsylvania.
21. Effective Date of the Plan. The Plan shall be effective as of the date of
--------------------------
the approval by the Company's shareholders of the Plan.
