<PAGE>
SUSQUEHANNA BANCSHARES, INC.
April 30, 1997
TO OUR SHAREHOLDERS:
A Notice and Proxy Statement for the Annual Meeting of Shareholders to
be held at the Country Club of Hershey, PA, 1000 East Derry Road, Hershey,
Pennsylvania, on May 30, 1997, at 10:00 a.m. is set forth on the following
pages.
At this meeting, the five members of the Class of 2000 (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.
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
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SUSQUEHANNA BANCSHARES, INC.
26 North Cedar Street, P.O. Box 1000
Lititz, PA 17543-7000
April 30, 1997
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on May 30, 1997
THE ANNUAL MEETING OF SHAREHOLDERS OF SUSQUEHANNA BANCSHARES, INC.
("Susquehanna") will be held on May 30, 1997, at 10:00 a.m. at the Country Club
of Hershey, PA, 1000 East Derry Road, Hershey, Pennsylvania, for the purposes
of:
1. Electing five directors to the Class of 2000;
2. 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
per share ("Susquehanna Common Stock"), at the close of business on April 23,
1997, 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.
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 30, 1997
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TABLE OF CONTENTS
<TABLE>
<S> <C>
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 AND HOLDINGS OF MANAGEMENT............ 5
ELECTION OF DIRECTORS AND EXECUTIVE OFFICERS................................. 6
Board Committees and Meetings................................................ 9
DIRECTOR AND EXECUTIVE OFFICER COMPENSATION.................................. 9
Compensation of Directors and Executive Officers............................. 9
Compliance with Section 16(a) of the Exchange Act............................ 10
Report of the Compensation Committee......................................... 11
Description of Certain Plans and Employment Contracts........................ 26
Stock Price Performance Graph................................................ 30
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................... 30
INDEPENDENT PUBLIC ACCOUNTANTS............................................... 30
SHAREHOLDER PROPOSALS........................................................ 31
OTHER MATTERS................................................................ 31
</TABLE>
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SUSQUEHANNA BANCSHARES, INC.
26 North Cedar Street, P.O. Box 1000
Lititz, PA 17543-7000
PROXY STATEMENT
April 30, 1997
INTRODUCTION
General
This Proxy Statement is being furnished on or about April 30, 1997, by
Susquehanna Bancshares, Inc. ("Susquehanna") to the holders of Susquehanna
Common Stock, par value $2.00 per share ("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 ("Annual Meeting") to
be held on May 30, 1997, and any adjournment or adjournments thereof, to
consider and vote upon: (i) the election of five directors to the Class of
2000; and (ii) 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 30, 1997, to holders of record of Susquehanna Common Stock on
April 23, 1997 (the "Record Date") who are entitled to vote at the Annual
Meeting. As of the close of business on the Record Date, there were 14,645,335
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 five directors to the Class of 2000 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 five nominees to the Class of 2000 receiving the highest number
of votes shall be elected to the Board of Directors.
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. A failure by brokers to vote shares will
have no effect in the outcome of the election of directors 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.
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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 voting 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 the persons nominated for directors by the
management of Susquehanna ("Susquehanna Management"). Each proxy, unless the
shareholder otherwise specifies therein, will be voted FOR adjournment in
situations in which management moves to adjourn the Annual Meeting. 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.
The following table sets forth, as of February 14, 1997, the shares of
Susquehanna Common Stock deemed to be owned beneficially by each director and by
all directors and executive officers as a group:
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<TABLE>
<CAPTION>
==============================================================================
Name of Beneficial Owner Nature and Amount of Percentage of
Beneficial Ownership of Outstanding Susquehanna
Susquehanna Common Common Stock
Stock/(1)/
- ------------------------------------------------------------------------------
<S> <C> <C>
James G. Apple/(5)/ 17,054 0.129%
Robert S. Bolinger/(2)/ 17,531 0.133%
Richard M. Cloney 3,760 0.029%
John M. Denlinger 14,819 0.112%
Richard E. Funke/(6)/ 34,972 0.265%
Henry H. Gibbel/(2,3)/ 68,662 0.521%
Marley R. Gross 1,428 0.011%
T. Max Hall/(4)/ 4,581 0.035%
Edward W. Helfrick 116,196 0.882%
C. William Hetzer, Jr. 3,000 0.023%
George J. Morgan/(2)/ 4,947 0.038%
Raymond M. O'Connell 49,419 0.375%
Robert C. Reymer, Jr./(2)/ 3,789 0.029%
Roger V. Wiest/(2)/ 15,500 0.118%
All Directors, Nominees and
Officers as a Group
(25 in number) 385,990 2.93%
- ------------------------------------------------------------------------------
</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 2000.
/(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.
4,600 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 has sole beneficial ownership with respect to 11,931 shares.
18,000 shares are beneficially owned solely by Mr. Funke's wife, and 1,380
shares are beneficially owned solely by his children. In addition, Mr. Funke
shares joint ownership with his mother with respect to 3,661 shares.
- ------------------
ELECTION OF DIRECTORS AND EXECUTIVE OFFICERS
Susquehanna's Board of Directors currently consists of 14 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 72
years.
At the Susquehanna Annual Meeting, the shareholders will elect five
persons to serve as directors for three year terms expiring in 2000 ("Class of
2000"). The candidates nominated to such class who receive the
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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 five candidates to
the Class of 2000 but will not be entitled to cumulate such votes.
Nominations for five members of the Class of 2000 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 14 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 2000 are Robert S. Bolinger,
Henry H. Gibbel, George J. Morgan, Robert C. Reymer, Jr., and Roger V. Wiest.
In the absence of instructions to the contrary, proxies will be voted
in favor of the election of Susquehanna 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.
Susquehanna 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 Director Present Term
Name, Address/(1)/ Age for Past Five Years Since Expires
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert S. Bolinger/(2)/ 60 President & Chief Executive Officer, 1982 1997
Susquehanna; Chairman & Chief Executive
Officer, Farmers First Bank; Chairman & Chief
Executive Officer, Susquehanna Bancshares
South, Inc.
Henry H. Gibbel/(2)/ 61 President, Lititz Mutual Insurance Co. & Penn 1982 1997
Charter Mutual Insurance Co. (Insurance
Company)
George J. Morgan/(2)/ 65 President, Morgan, Hallgren, Crosswell & 1982 1997
Kane, P.C. (Law Firm)
Robert C. Reymer, Jr./(2)/ 70 Retired Vice President, McDowell Insurance 1985 1997
Inc. (Insurance Agency)
Roger V. Wiest/(2)/ 56 Managing and Senior Partner, Wiest, 1992 1997
Wiest, Saylor & Muolo (Law Firm)
James G. Apple 61 President, Butter Krust Baking Co., Inc. 1992 1998
John M. Denlinger 57 Division Manager, Denlinger Building 1985 1998
Materials, a Division of Carolina Holdings, Inc.
Marley R. Gross 64 President, Marley R. Gross Ford, Inc. 1995 1998
</TABLE>
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<TABLE>
<CAPTION>
======================================================================================================================
Business Experience
Including Principal Occupation Director Present Term
Name, Address/(1)/ Age for Past Five Years Since Expires
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
T. Max Hall 62 Attorney, McNerney, Page, Vanderlin and Hall; 1986 1998
Chairman of the Board, Data Papers, Inc.;
Chairman of the Board, Data Papers of North
Carolina, Inc.
Raymond M. O'Connell 70 Chairman of the Board, Williamsport National 1986 1998
Bank; Director, Phoenix Data, Inc.
Richard M. Cloney 55 Vice President and Secretary, Susquehanna; 1985 1999
Executive Vice President, Farmers First Bank;
President, Susque-Bancshares Leasing Co., Inc.,
Vice Chairman, Susquehanna Bancshares
South, Inc.
Richard E. Funke 61 Chairman of the Board, Atlantic Federal 1995 1999
Savings Bank
Edward W. Helfrick 68 State Senator, Commonwealth of Pennsylvania 1985 1999
since 1980. Other Directorships: Farragut
Anthracite Co.; Bear Gap Stone, Inc.; Helker
Contracting Co.; Rand Realty Corp.
C. William Hetzer, Jr. 64 President, C. William Hetzer, Inc. (General 1989 1999
Contractor)
======================================================================================================================
</TABLE>
- -----------------------------
(/1)/ The business address for all directors of Susquehanna is Susquehanna
Bancshares, Inc., 26 North Cedar Street, Lititz, Pennsylvania 17543.
(/2)/ Susquehanna Management nominees for election at the Annual Meeting for
terms expiring 2000.
- -----------------------------
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 was formerly a
director for more than five years of Spring Grove National Bank ("Spring
Grove"), a Susquehanna subsidiary, which was merged into Farmers First in 1996.
Mr. Hetzer is a director of Farmers & Merchants Bank and Trust ("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. ("Susquehanna South"), 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 South.
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 &
8
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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 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 1996 were James G. Apple, T. Max Hall, Robert
C. Reymer, Jr., and Roger V. Wiest. The Audit Committee met four times during
1996.
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 1996 were John M. Denlinger, Henry H. Gibbel, Edward
W. Helfrick, C. William Hetzer, Jr., and George J. Morgan. The Compensation
Committee met six times during 1996.
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
eight times. Each of the directors attended at least 75% of the meetings of the
Board of Directors and the committees of the Board on which they served that
were held in the fiscal year in the period during which they served as a
director, except that one incumbent director, Mr. Helfrick, attended fewer than
75% of the total meetings of the Board of Directors and committees of the Board
on which he 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:
9
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<TABLE>
<CAPTION>
--------------------------------------------------------------------
Name Age Title
--------------------------------------------------------------------
<S> <C> <C>
Robert S. Bolinger 60 President & Chief Executive Officer
William T. Belden 47 Vice President
Frederick W. Bisbee 58 Vice President
Richard M. Cloney 55 Vice President and Secretary
Gregory A. Duncan 41 Vice President
Drew K. Hostetter 42 Treasurer
Charles W. Luppert 55 Vice President
William J. Reuter 47 Vice President
--------------------------------------------------------------------
</TABLE>
Robert S. Bolinger and Richard M. Cloney 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
South. 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 Executive Vice
President from May 1990. He assumed his present position as President and Chief
Executive Officer of Citizens in July 1992. Drew K. Hostetter was appointed
Treasurer of Susquehanna, effective May 31, 1996, replacing J. Stanley Mull,
Jr., who retired. He previously served as Assistant Treasurer at Susquehanna,
having joined the company in December, 1994. Prior to joining Susquehanna, Mr.
Hostetter served as Senior Vice President and Corporate Controller of MNC
Financial, Baltimore, Md., from January 1990 to March 1994. Charles W.
Luppert is also the principal executive officer of Williamsport National and has
been employed by Williamsport National in a substantially equivalent position
for more than the past five years. William J. Reuter is also the principal
executive officer of F&M and has been employed by F&M in a substantially
equivalent position for more than the past five years. In 1996, he was also
named an executive officer of Susquehanna South. During 1996, Susquehanna
announced the retirements of J. Stanley Mull, Jr., Vice President and
Treasurer, and Robert L. Strausbaugh, Vice President.
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.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 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, 1996, all filing requirements applicable to its officers,
directors and greater than ten-percent beneficial owners were satisfied, except
that one report, covering one transaction, was inadvertently not timely filed by
Mr. Hetzer.
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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 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 Compensation 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 in the past, a "Phantom" stock
appreciation plan, which has been superseded by an Equity Compensation 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.
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.
11
<PAGE>
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 thrifts, 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 1996 analyzed compensation paid
to executives at participating financial institutions with assets between $100
million and $5 billion.
The survey describes the compensation 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 include banks
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, set forth in Susquehanna's proxy statement. All
of the financial institutions which are indexed in the Stock Price Performance
Group are reported in the Uniform Bank Performance Results.
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, Luppert, Bisbee and Reuter, the Compensation Committee did not attach
particular weight to the employment agreements between
12
<PAGE>
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 1996, 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 1995, the performance of
Susquehanna 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 $354,619 for 1996, an increase of 4.95% over his $337,881 base salary
for 1995.
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 Subsidiary and
ranged between 4.50% at Susquehanna South to 11.5% at Williamsport National. The
annual cash bonus percentage for 1996 was changed to incorporate Susquehanna's
performance with that of Farmers First for selected Susquehanna executive
officers. For 1996, the applicable ratio for Mr. Bolinger was 75% Susquehanna
and 25% Farmers First. Mr. Bolinger participated in the Farmers First
performance bonus program in 1996 and thus earned a bonus of 9.15% of his base
salary under this plan which represented $32,448. The applicable ratio for 1997
for Mr. Bolinger is expected to be 100% Susquehanna. The total of annual bonuses
awarded to all executive officers of Susquehanna in 1996 was $125,006. In
addition, the Susquehanna Compensation Committee awarded a discretionary merit
cash bonus to Mr. Bolinger of $35,000, representing outstanding individual
financial and non-financial contributions to Susquehanna.
In 1997, the "performance bonus calculation" will be based 50% on
Subsidiary results and 50% on Susquehanna results. The Subsidiary formula will
be based on return on assets and net income growth while the Susquehanna formula
will be based on return on capital and earnings per share growth.
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 December 31, 1994. A fourth Earnout Period was
approved, which runs 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
13
<PAGE>
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 of Directors 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 began January 1, 1995, and will run 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, 60% 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 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 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 and Cloney will
be computed based principally upon the success of Susquehanna (78%) and the
balance (22%) on the success of the Subsidiaries.
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 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
14
<PAGE>
the next two years with each such subsequent installment payable on January 1 of
each of the two such following years. 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 are
hereinafter referred to as an "Event of Nullification").
The Performance Award Plan provides for acceleration under certain
circumstances, as set forth therein.
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").
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 second installment, representing 25% of
the total award, under the Third Earnout Period was as follows: Mr. Bolinger,
$32,288; Mr. Cloney, $13,389; Mr. Mull, $14,716; Mr. Bisbee, $4,578;
Mr. Luppert, $7,176; Mr. Strausbaugh, $5,574; Mr. Reuter, $3,539; Mr. Duncan,
$3,649; Mr. Krantz, $2,735; Mr. Walsh, $2,076; and Mr. Keim, $1,670.
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 1995, the last year
for which data is available, Susquehanna's performance ranged between the 31st
and 86th percentile brackets with the lowest performance in return on equity and
the highest in equity/asset ratio. The performance of Farmers First, which
represented the Subsidiary component of Mr. Bolinger's compensation, placed it
between the 20th percentile and the 87th percentile brackets measured against
the External Criteria, with the lowest performance in return on equity and the
highest in return on assets.
In 1996, Mr. Bolinger received a payment of $32,288, which represented 25%
of the award he earned during the Third Earnout Period, which ended December 31,
1994, for having attained 48.8% of the Target Amount. Susquehanna's executive
officers earned $91,390 for the same period. The third installment under the
Third Earnout Period, representing 25% of the awards earned, was paid on January
3, 1997.
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, in 1989, the Susquehanna Phantom
Stock Appreciation Plan ("Phantom Stock Plan") which was designed to provide
specific individuals an award based upon Susquehanna's Common Stock price over a
defined period. As noted under the heading "Equity Compensation Plan" below, the
Phantom Stock Plan was superseded by the Equity Compensation Plan on May 31,
1996.
The Phantom Stock Plan was adopted 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 was also administered by the
15
<PAGE>
Compensation Committee, key executives who were selected to participate ("PSP
Participants") were awarded Phantom Stock Appreciation Units ("Units"). On the
date Units were "awarded" to a PSP Participant (the "Award"), the Compensation
Committee ascribed a value to each Unit which was 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 looked to the closing
price of Susquehanna Common Stock based on transactions for Nasdaq listed issues
or, alternately, on any exchanges where Susquehanna Common Stock was traded. If
Susquehanna Common Stock was not listed on a national exchange, valuation was
based on book value.
The Phantom Stock Plan allowed PSP Participants to enjoy the increase in
the market value of Susquehanna Common Stock from the date they were first
awarded Units to the date their rights under the plan vested. This increase (the
"Appreciation") was the measure of the award. The Appreciation, once vested, was
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 received
the number of shares of Susquehanna Common Stock resulting from the division. An
Award did not confer upon a PSP Participant any rights as a shareholder
including the right to dividends or to vote, until Units were vested, and the
Appreciation in the form of Susquehanna Common Stock was paid.
The Phantom Stock Plan was designed so that a PSP Participant's entitlement
to Appreciation in Units vested in three equal parts, with the first portion
vesting on the third anniversary of the Award, the second portion vesting on the
fourth anniversary of the Award, and the final portion vesting on the fifth
anniversary of the Award. Thus, if a PSP Participant was awarded thirty Units on
January 1, 1991, he was 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 could lose his rights under the Phantom Stock Plan and
would not vest if the PSP Participant voluntarily terminated his employment with
Susquehanna (other than termination by reason of death or disability or, under
certain circumstances, retirement) or if Susquehanna had 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 had either
committed an act which adversely affects the interests of Susquehanna or that
the PSP Participant had been willfully or grossly negligent, or had committed
willful or gross misconduct, in discharging his duties as an employee.
A PSP Participant's right to vest was not affected by his death,
disability, or retirement after attaining the age of 65; earlier retirement was
permitted with the written consent of Susquehanna.
The Phantom Stock Plan also provided 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 occured, the PSP Participant's
right to Appreciation vested upon the occurrence of the event giving rise to the
Change-of-Control.
The Compensation Committee could also accelerate vesting of a PSP
Participant in his Award in the event of merger in which the corporation was 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 had
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 required Board approval. Because the Phantom Stock Plan
was unfunded, benefits were paid from general
16
<PAGE>
assets. In making a payment of a vested Award under the Phantom Stock Plan,
Susquehanna could use Treasury shares, or Susquehanna Common Stock purchased on
the market.
The Compensation Committee designated Phantom Stock Participants and
awarded Units as set forth on the following table:
<TABLE>
<CAPTION>
===================================================================
Total Units Year 1 Year 2 Year 3
Participant Base Price* 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
===================================================================
* Adjusted to reflect 5-for-4 Stock Split during 1993.
</TABLE>
Payments in April 1996 to Participants in shares of Susquehanna Common
Stock, accompanied by the market value, were as follows: Mr. Bolinger, 2,947
($85,478); Mr. Cloney, 1,466 ($42,536); Mr. Mull, 1,007 ($29,224); Mr. Reuter,
988 ($28,673); Mr. Luppert, 988 ($28,673); Mr. Bisbee, 988 ($28,673);
Mr. Duncan, 988 ($28,673); Mr. Strausbaugh, 754 ($21,892); Mr. Krantz, 857
($24,856); Mr. Walsh, 650 ($18,866); and Mr. Keim, 523 ($15,174).
During 1995, the Compensation Committee designated Phantom Stock
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>
17
<PAGE>
On May 31, 1996, the Phantom Stock Plan was terminated and replaced by the
Equity Compensation Plan. All previously awarded interests outstanding under the
Phantom Stock Plan on May 31, 1996, were converted into cash and Susquehanna
stock based upon the amount earned by each participant determined in accordance
with generally accepted accounting principles. To replace the Phantom Stock
Plan, the Compensation Committee granted stock options under the Equity
Compensation Plan to participants included in the Phantom Stock Plan and
directors as set forth on the following table:
<TABLE>
<CAPTION>
==============================================================================
Options Exercise
Participant Granted* Price Grant Date Expiration Date
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bolinger 29,142 $29.25 5-31-96 5-31-2006
Cloney 20,828 $29.25 5-31-96 5-31-2006
Mull 15,000 $29.25 5-31-96 5-31-2006
Reuter 13,200 $29.25 5-31-96 5-31-2006
Bisbee 12,428 $29.25 5-31-96 5-31-2006
Belden 11,142 $29.25 5-31-96 5-31-2006
Luppert 10,628 $29.25 5-31-96 5-31-2006
Duncan 10,628 $29.25 5-31-96 5-31-2006
Krantz 9,942 $29.25 5-31-96 5-31-2006
Showers 9,171 $29.25 5-31-96 5-31-2006
Strausbaugh 7,714 $29.25 5-31-96 5-31-2006
Walsh 6,857 $29.25 5-31-96 5-31-2006
Keim 5,828 $29.25 5-31-96 5-31-2006
Apple 1,000 $29.25 5-31-96 5-31-2006
Denlinger 1,000 $29.25 5-31-96 5-31-2006
Gibbel 1,000 $29.25 5-31-96 5-31-2006
Gross 1,000 $29.25 5-31-96 5-31-2006
Hall 1,000 $29.25 5-31-96 5-31-2006
Helfrick 1,000 $29.25 5-31-96 5-31-2006
Hetzer 1,000 $29.25 5-31-96 5-31-2006
Morgan 1,000 $29.25 5-31-96 5-31-2006
O'Connell 1,000 $29.25 5-31-96 5-31-2006
Reymer 1,000 $29.25 5-31-96 5-31-2006
Wiest 1,000 $29.25 5-31-96 5-31-2006
-------
Total 173,508
------------------------------------------------------------------------------
</TABLE>
*These stock options become exercisable one-third on May 31, 1999, one-third on
May 31, 2000, and one-third on May 31, 2001.
Payments in June 1996 represent amounts earned under the Phantom Stock
Plan prior to its cancellation on May 31, 1996, and are as follows:
<TABLE>
<CAPTION>
==============================================================================
Shares of Market Value Total
Participant Stock of Stock Cash Value
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bolinger 2,394 $70,026 $49,249 $119,275
Cloney 1,191 34,847 35,200 70,047
Mull 818 23,933 25,350 49,283
Reuter 802 23,481 22,308 45,789
Bisbee 802 23,481 21,004 44,485
Belden - - 18,830 18,830
Luppert 802 23,481 17,962 41,443
Duncan 802 23,481 17,962 41,443
Krantz 696 20,363 16,802 37,165
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Showers - - 15,499 15,499
Strausbaugh 613 17,935 13,037 30,972
Walsh 528 15,455 11,589 27,044
Keim 424 12,431 9,850 22,281
----------------------------------------------------------
</TABLE>
Equity Compensation Plan
On April 17, 1996, the Board of Directors adopted the Equity Compensation
Plan, which supersedes the Phantom Stock Plan. The shareholders of Susquehanna
approved the Equity Compensation Plan on May 31, 1996 at the Annual Meeting of
Shareholders. Subject to adjustment in certain circumstances as discussed
below, the Equity Compensation Plan authorizes up to 650,000 shares of
Susquehanna 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.
The Equity Compensation Plan is administered and interpreted by the
Compensation Committee. 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.
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.
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 grant. At April 17, 1996, approximately 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 Susquehanna Management,
the Compensation Committee selects the persons to receive Grants and determines
the number of shares of Susquehanna 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 Susquehanna Common
Stock for any calendar year.
The Compensation Committee may grant options qualifying as incentive stock
options ("ISOs") within the meaning of Section 422 of the Internal Revenue Code
of 1996, as amended (the "Code") and/or other stock options ("NQSOs") in
accordance with the terms and conditions set forth in the Equity Compensation
Plan or any combination of ISOs or NQSOs.
19
<PAGE>
The exercise price of Susquehanna 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 Susquehanna 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 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 Susquehanna 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 Susquehanna 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.
Susquehanna may issue or transfer shares of Susquehanna Common Stock under
a Grant (a "Restricted Stock Grant") pursuant to the Equity Compensation Plan.
Shares of Susquehanna 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 Susquehanna Common
Stock subject to the Grant. The Compensation Committee grants to each grantee a
number of shares of Susquehanna 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 Susquehanna 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 Susquehanna
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.
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 Susquehanna Common Stock which the
grantee may purchase upon the exercise of the related stock option during such
period of time. Upon the exercise of such option, the SARs relating to the
Susquehanna 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 Susquehanna 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, Susquehanna
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 Susquehanna 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 Susquehanna
Common Stock as of the date of grant of the SAR.
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 Securities
20
<PAGE>
Exchange Act of 1934, as amended, 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).
The Equity Compensation Plan includes phantom stock appreciation rights
under a program substantially similar to the Phantom Stock Plan that was
maintained by Susquehanna. With the adoption of the Equity Compensation Plan,
the Phantom Stock Plan was terminated as a separate plan but its provisions have
been incorporated in and have 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.
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
Susquehanna 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
Susquehanna 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.
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.
If there is any change in the number or kind of shares of Susquehanna
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 Susquehanna 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 Susquehanna 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.
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 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.
21
<PAGE>
General
Section 162(m) of the Code generally provides that a publicly held
reporting company such as Susquehanna may not deduct, as an expense, amounts
paid to any executive officer in excess of $1 million per year. Because the
compensation paid Susquehanna's most highly compensated officer amounted to
$670,458, 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 1996, 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 1996 and the prior two years.
Except for director fees paid by Susquehanna, all "annual compensation" was
received from Farmers First, F & M, First National, Susquehanna South, or
Williamsport National.
[Table on following page]
22
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
- -----------------------------------------------------------------------------------------------------------------------------------
Other Stock
Annual Appreciation Stock
Compen- Rights Options LTIP
Name Principal Year Salary/(5)/ Bonus/(6)/ sation/(7)/ (# of Granted/(9)/ Payouts/(10)/
Position Units)/(8)/
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert S. President and 1996 $365,969 $67,448 - - 29,142 $32,288
Bolinger/(1)/ Chief Executive 1995 347,631 58,112 - 29,142 - 64,576
Officer of 1994 321,925 59,078 - - - None
Susquehanna
Richard M. Vice President 1996 $259,464 $52,702 - - 20,828 $13,389
Cloney/(1)/ and Secretary 1995 252,930 43,832 - 20,828 - 26,778
of Susquehanna 1994 233,565 44,730 - - - None
William J. Vice President 1996 $170,385 $24,453 - - 13,200 $3,539
Reuter/(2)/ of Susquehanna; 1995 156,542 15,095 - 13,200 - 7,079
President of 1994 143,083 12,154 - - - None
F & M; President
of Susquehanna
South
Frederick W. Vice President 1996 $148,467 $16,877 - - 12,428 $4,578
Bisbee/(3)/ of Susquehanna; 1995 143,065 17,186 - 12,428 - 9,157
President of 1994 138,366 16,761 - - - None
First National
Charles W. Vice President 1996 $148,462 $22,073 - - 10,628 $7,176
Luppert/(4)/ of Susquehanna; 1995 144,324 20,740 - 10,628 - 14,352
President of 1994 133,264 18,885 - - - None
Williamsport
National
<CAPTION>
All Other
Name Principal SAR Compensation
Position Payouts /(11)/ /(12)/
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Robert S. President and $204,753 $4,500
Bolinger/(1)/ Chief Executive 37,195 4,500
Officer of None 4,500
Susquehanna
Richard M. Vice President $112,583 $4,500
Cloney/(1)/ and Secretary 18,507 4,500
of Susquehanna None 4,500
William J. Vice President $74,462 $4,500
Reuter/(2)/ of Susquehanna; 12,475 4,500
President of None 4,119
F & M; President
of Susquehanna
South
Frederick W. Vice President $73,158 $4,454
Bisbee/(3)/ of Susquehanna; 12,475 4,301
President of None 4,151
First National
Charles W. Vice President $70,116 4,454
Luppert/(4)/ of Susquehanna; 12,475 4,330
President of None 4,330
Williamsport
National
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
- ------------------
/(1)/Messrs. Bolinger and Cloney 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 receives his
annual compensation from F& M and Susquehanna South.
/(3)/Mr. Bisbee has an employment contract with Susquehanna and receives his
annual compensation from First National.
/(4)/Mr. Luppert has an employment contract with Susquehanna and receives his
annual compensation from Williamsport National.
/(5)/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.
/(6)/Includes any general or performance based bonuses paid by F&M, Farmers
First, First National, or Williamsport National.
/(7)/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.
/(8)/Represents number of units awarded under Susquehanna's Phantom Stock Plan
discussed above.
/(9)/Represents number of stock options granted under Susquehanna's "Equity
Compensation Plan" discussed above.
/(10)/Represents payments under Susquehanna's "Performance Award Plan" discussed
above.
/(11)/Represents payments under Susquehanna's "Phantom Stock Appreciation Plan"
discussed above. In June 1996, payments on the 1992 and 1995 grants based upon
amounts earned through May 31, 1996, in accordance with generally accepted
accounting principles were accelerated as the Phantom Stock Plan was terminated
and replaced by the Equity Compensation Plan (stock options).
/(12)/Represents payments made by Susquehanna into the "Susquehanna 401(k) Plan"
on behalf of each participant, as more fully discussed below.
- ---------------------
The chart below summarizes 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 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
Reuter " " 67 n/a 44,370
Bisbee " " 67 17,326 44,370
Luppert " " 67 29,730 44,370
- ----------------------------------------------------------------------
</TABLE>
-----------------------------
/(1)/Three year measurement period.
/(2)/Award possible meeting minimum required performance objective from only 1
of 18 peer or internal measurements.
24
<PAGE>
/(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.
- --------------------
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
Reuter " " 808 25,294 69,300
Bisbee " " 761 27,947 65,250
Luppert " " 650 37,721 55,800
----------------------------------------------------------------------
- --------------------
</TABLE>
/(1)/Three year measurement period.
/(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 granted units in its Phantom Stock Plan, an
option/SAR plan. Additional units were subsequently granted by the Compensation
Committee on April 19, 1995. On May 31, 1996, the Compensation Committee
designated participants and granted stock options in its Equity Compensation
Plan. These grants are set forth in the charts below.
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)/(1)/ Date 5%/(2)/ 10%/(2)/
---- ---------- ----------- --------- ---- ------- --------
<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
William J. Reuter 8,270 8.1 18.60 4-15-97 41,598 90,085
Frederick W. Bisbee 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)/Adjusted for 5-for-4 Stock Split during 1993.
/(2)/ Potential Realizable Value at Annual Rates of Stock Price Appreciation for
Grant Term.
____________________
25
<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
William J. Reuter 13,200 8.1 22.75 4-19-2000 65,005 140,701
Frederick W. Bisbee 12,428 7.6 22.75 4-19-2000 61,227 132,479
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.
- --------------------
STOCK OPTION GRANTS IN 1996
<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 $29.25 5-31-2006 $536,213 $1,358,600
Richard M. Cloney 20,828 12.8 $29.25 5-31-2006 383,235 971,001
William J. Reuter 13,200 8.1 $29.25 5-31-2006 242,880 615,384
Frederick W. Bisbee 12,428 7.6 $29.25 5-31-2006 228,675 579,393
Charles W. Luppert 10,628 6.5 $29.25 5-31-2006 195,555 495,477
====================================================================================================
</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 and
Cloney which were executed in 1984 and renewed most recently in 1996. The
employment contracts for Messrs. Bolinger and Cloney were not renewed in 1997,
with the effect that such employment contracts will expire on February 28, 2001.
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.
26
<PAGE>
The employment contracts may 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.
The Board of Directors of Susquehanna has approved three-year employment
contracts with Messrs. Bisbee, Reuter, Luppert and Duncan. The form of these
employment contracts is substantially similar, in material respects, to the
executive employment contracts existing between Susquehanna and Messrs. Bolinger
and Cloney.
As noted above, Richard E. Funke has served as a director of Susquehanna
since 1995 and is also President 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 South 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 and Duncan, 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 Employment Agreement). The Employment Agreement also provides
for termination of certain non-competition provisions contained in the
Employment Agreement upon a change of control. These noncompetition 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 South or
Susquehanna.
Change-of-Control Plans
Susquehanna's Equity Compensation Plan, which supersedes the Phantom Stock
Plan, and Performance Award Plan contain Change-of-Control provisions.
Equity Compensation: 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.
Performance Award Plan: 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: (i) any entity or person becomes the beneficial owner
of, or shall obtain voting control, over 25% or more of the outstanding shares
of Susquehanna
27
<PAGE>
Common Stock; (ii) the shareholders of Susquehanna and the shareholders of any
other constituent corporation approve a definitive agreement to merge or
consolidate Susquehanna with or into another corporation other than a merger or
consolidation of Susquehanna in which holders of shares of Susquehanna 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 Susquehanna Common Stock
immediately prior to the merger or consolidation; or (iii) the shareholders of
Susquehanna approve a definitive agreement to sell or otherwise dispose of all
or substantially all of the assets of Susquehanna. 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.
Pension Plans
Effective January 1, 1989, Susquehanna 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 adopted a Supplemental Executive
Retirement Plan ("Supplemental Plan") which will provide for benefits lost under
the Susquehanna Retirement Plan on account of Code Sections 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 Supplemental Plan.
The following table sets forth the annual benefits under both the
Susquehanna Retirement and the Supplemental 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. [table on following
page]
28
<PAGE>
THE SUSQUEHANNA BANCSHARES RETIREMENT AND RESTORATION PLANS
ANNUAL NORMAL RETIREMENT BENEFIT FOR PARTICIPANT
TURNING AGE 65 IN 1996
<TABLE>
<CAPTION>
==================================================================
Years of Service at Retirement
- ------------------------------------------------------------------
Final Average
Compensation 15 20 25 30 35
------------ -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$125,000 $ 35,432 $ 47,242 $ 59,053 $ 59,053 $ 59,053
150,000 42,932 57,242 71,553 71,553 71,553
175,000 50,432 67,242 84,053 84,053 84,053
200,000 57,932 77,242 96,553 96,553 96,553
225,000 65,432 87,242 109,053 109,053 109,053
250,000 72,932 97,242 121,553 121,553 121,553
300,000 87,932 117,242 146,553 146,553 146,553
350,000 102,932 137,242 171,553 171,553 171,553
400,000 117,932 157,242 196,553 196,553 196,553
450,000 132,932 177,242 221,553 221,553 221,553
500,000 147,932 197,242 246,553 246,553 246,553
==================================================================
</TABLE>
For purposes of the Susquehanna Retirement Plan, as of December 31, 1996,
Messrs. Bolinger, Cloney, Luppert, Bisbee, and Reuter had 21, 20, 26, 23 and 22
credited years of service respectively. Only the base salary of Messrs.
Bolinger, Cloney, Luppert, Bisbee 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 1996, Mr. Bolinger's base salary was $354,619, Mr. Cloney's base salary
was $248,114, Mr. Bisbee's base salary was $148,467, Mr. Luppert's base salary
was $148,462, and Mr. Reuter's base salary was $170,385.
Also, effective January 1, 1989, Susquehanna and each Subsidiary adopted a
401(k) plan ("401(k) Plan") under which employees may defer portions of their
income on a pre-tax basis. The 401(k) 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 401(k) Plan until paid out at termination,
disability, death or retirement. The 401(k) Plan allows for loans and hardship
withdrawals within legal limitations.
The vested portion of matching contributions made to the 401(k) Plan during
1996 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. Bisbee,
$4,454; Mr. Luppert, $4,454; Mr. Reuter, $4,500; and the Executive Officers as a
group, $31,996.
Stock Price Performance Graph
The following graph compares for fiscal years 1991 through 1996 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
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<PAGE>
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.
SUSQUEHANNA BANCSHARES, INC.
[CHART OF SUSQUEHANNA BANCSHARES, INC. APPEARS HERE]
<TABLE>
<CAPTION>
====================================================================================
Period Ending December 31
- ------------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Susquehanna Bancshares, Inc. $100.00 $147.85 $184.68 $157.09 $195.64 $266.37
NASDAQ Total Return 100.00 116.38 133.60 130.59 184.67 227.16
Banks ($1B to $5B) 100.00 144.84 174.08 183.28 246.47 319.51
====================================================================================
</TABLE>
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 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, 1996, these loans totaled $23 million,
which represented 8% of stockholder's equity.
During 1996 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.
INDEPENDENT PUBLIC ACCOUNTANTS
Susquehanna has engaged Coopers & Lybrand, L.L.P. ("Coopers & Lybrand"),
independent public accountants, to audit its financial statements for the year
ended December 31, 1996. Susquehanna expects to
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<PAGE>
engage Coopers & Lybrand as its independent public accountants for the year
1997. 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 1998 Annual Meeting of Susquehanna
shareholders must be received by the Secretary of Susquehanna no later than
December 12, 1997, in order to be considered for inclusion in the proxy
statement relating to such 1998 Susquehanna Annual Meeting.
OTHER MATTERS
Susquehanna knows of no business which will be presented at the Annual
Meeting other than the election of directors. 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.
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