<PAGE>
SUSQUEHANNA BANCSHARES, INC.
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
FRIDAY, MAY 29, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints James H. Shreiner and
Kenneth E. Miller, and each of them, proxies of the undersigned, with full power
of substitution, to vote all of the shares of common stock of Susquehanna
Bancshares, Inc. ("Susquehanna") which the undersigned may be entitled to vote
at the Annual Meeting of Shareholders of Susquehanna to be held at the Country
Club of Hershey, PA, 1000 East Derry Road, Hershey, Pennsylvania, on Friday, May
29, 1998, at 10:00 a.m., prevailing time, and at any adjournment thereof, as set
forth in this Proxy.
THIS PROXY WILL BE VOTED AS SPECIFIED. IF A CHOICE IS NOT SPECIFIED, THIS
PROXY WILL BE VOTED FOR THE NOMINEES FOR DIRECTORS AND FOR THE AMENDMENT TO
--- ---
SUSQUEHANNA'S ARTICLES OF INCORPORATION TO INCREASE THE AGGREGATE AUTHORIZED
CAPITAL OF SUSQUEHANNA BY INCREASING THE AUTHORIZED COMMON STOCK OF SUSQUEHANNA
FROM THIRTY-TWO MILLION (32,000,000) SHARES, PAR VALUE $2.00 PER SHARE, TO ONE
HUNDRED MILLION (100,000,000) SHARES, PAR VALUE $2.00 PER SHARE.
(1) Election of Directors to the Class of 2001
FOR WITHHOLD AUTHORITY
all the nominees or to vote for all nominees
listed -- ---
[_] [_]
INSTRUCTIONS to withhold
--------
or authority to vote for any James G. Apple
-- ------------------------- Trudy B. Cunningham
individual nominee, strike a line John M. Denlinger
------------------ Marley R. Gross
through the nominee's name in the T. Max Hall
list: Raymond M. O'Connell
(2) Proposal to amend Susquehanna's Articles of Incorporation to increase the
aggregate authorized capital of Susquehanna by increasing the authorized
common stock of Susquehanna from thirty-two million (32,000,000) shares,
par value $2.00 per share, to one hundred million (100,000,000) shares, par
value $2.00 per share.
For [_] Against [_] Abstain [_]
(3) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY REVOKES ALL PRIOR PROXIES.
IN WITNESS WHEREOF, I have hereunto set my hand this _____ day of
__________________, 1998.
- ------------------------ --------------------------------------(SEAL)
Number of Shares Signature
--------------------------------------(SEAL)
Signature
PLEASE SIGN EXACTLY AS YOUR SHARES ARE ISSUED. IF SHARES ARE ISSUED IN JOINT
NAMES, ALL MUST SIGN. WHEN SIGNING AS POWER OF ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE. IF MORE THAN ONE
TRUSTEE, ALL SHOULD SIGN.
<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[x] Preliminary Proxy Statement [_] Confidential, For Use
of the Commission Only
(as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SUSQUEHANNA BANCSHARES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials:
- --------------------------------------------------------------------------------
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
Susquehanna Bancshares, Inc.
April 27, 1998
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 Friday, May 29, 1998, at 10:00 a.m. is set forth on the following pages.
At this meeting, the six members of the Class of 2001 (as defined herein) of
the Board of Directors of Susquehanna Bancshares, Inc. ("Susquehanna") will be
elected for the coming three years.
You will also be asked to approve an amendment to the Articles of
Incorporation of Susquehanna which would increase the aggregate authorized
capital of Susquehanna by increasing the number of authorized shares of common
stock of Susquehanna from thirty-two million (32,000,000) shares, par value
$2.00 per share, to one hundred million (100,000,000) shares, par value $2.00
per share (the "Amendment").
Your Board of Directors unanimously recommends that you vote "FOR" the
Director nominees presented, and "FOR" approval of the Amendment as proposed.
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.
/s/ Robert S. Bolinger
Robert S. Bolinger
President and
Chief Executive Officer
1
<PAGE>
Susquehanna Bancshares, Inc.
26 North Cedar Street, P.O. Box 1000
Lititz, PA 17543-7000
April 27, 1998
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on Friday, May 29, 1998
THE ANNUAL MEETING OF SHAREHOLDERS OF SUSQUEHANNA BANCSHARES, INC.
("Susquehanna") will be held on Friday, May 29, 1998, at 10:00 a.m. at the
Country Club of Hershey, PA, 1000 East Derry Road, Hershey, Pennsylvania, for
the purposes of:
1. Electing six directors for a three year term to expire at the
2001 annual meeting of shareholders of Susquehanna (the "Class of
2001");
2. Approving an amendment to Susquehanna's Articles of Incorporation
to increase the aggregate authorized capital of Susquehanna by
increasing the authorized common stock of Susquehanna from
thirty-two million (32,000,000) shares, par value $2.00 per
share, to one hundred million (100,000,000) shares, par value
$2.00 per share (the "Amendment"). If the Amendment is approved,
a portion of the additional shares of common stock will be used
to effectuate a _____ for _____ split of Susquehanna common stock
(effected in the form of a _____% dividend) approved by
Susquehanna's Board of Directors (the "Stock Split"). The
proposed Stock Split is expressly conditioned upon shareholder
approval of the Amendment; and
3. Transacting such other business as may properly be brought before
the Annual Meeting of Shareholders of Susquehanna or any
adjournment or adjournments thereof.
Only shareholders of record of Susquehanna common stock, par value $2.00
per share, at the close of business on April 21, 1998, will be 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.
A copy of the 1997 Annual Report of Susquehanna is enclosed.
By Order of the Board of Directors
/s/ Richard M. Cloney
Richard M. Cloney
Secretary
Lititz, Pennsylvania
April 27, 1998
2
<PAGE>
TABLE OF CONTENTS
INTRODUCTION....................................................... 4
General............................................................ 4
Record Date for, and Voting at, the Annual Meeting................. 4
Proxies for the Annual Meeting..................................... 5
PRINCIPAL HOLDERS OF VOTING SECURITIES AND HOLDINGS OF MANAGEMENT.. 6
ELECTION OF DIRECTORS AND EXECUTIVE OFFICERS....................... 7
Board Committees and Meetings...................................... 9
DIRECTOR AND EXECUTIVE OFFICER COMPENSATION........................ 10
Compensation of Directors and Executive Officers................... 10
Compliance with Section 16(a) of the Exchange Act.................. 11
Report of the Compensation Committee............................... 11
Description of Certain Plans and Employment Contracts.............. 23
Cash Balance Pension Plan.......................................... 26
Stock Price Performance Graph...................................... 28
APPROVAL OF AMENDMENT TO SUSQUEHANNA'S ARTICLES OF INCORPORATION... 29
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................... 30
INDEPENDENT PUBLIC ACCOUNTANTS..................................... 30
SHAREHOLDER PROPOSALS.............................................. 30
OTHER MATTERS...................................................... 31
3
<PAGE>
Susquehanna Bancshares, Inc.
26 North Cedar Street, P.O. Box 1000
Lititz, PA 17543-7000
PROXY STATEMENT
April 27, 1998
INTRODUCTION
General
This Proxy Statement is being furnished on or about April 27, 1998, 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 Friday, May 29, 1998, and any adjournment or adjournments thereof, to
consider and vote upon: (i) the election of six directors for a three year term
to expire at the 2001 annual meeting of shareholders of Susquehanna (the "Class
of 2001"); (ii) approving an amendment to Susquehanna's Articles of
Incorporation ("Articles") to increase the aggregate authorized capital of
Susquehanna by increasing the authorized Common Stock of Susquehanna from
thirty-two million (32,000,000) shares, par value $2.00 per share, to one
hundred million (100,000,000) shares, par value $2.00 per share (the
"Amendment"); and (iii) such other business as may come before the Annual
Meeting or any adjournment or adjournments thereof.
If the Amendment is approved, a portion of the additional shares of Common
Stock will be used to effectuate a _____ for _____ split of Susquehanna Common
Stock (effected in the form of a _____% stock dividend) (the "Stock Split").
The proposed Stock Split is expressly conditioned upon shareholder approval of
the Amendment.
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 27, 1998, to holders of record of Susquehanna Common Stock on April
21, 1998 (the "Record Date") who are entitled to vote at the Annual Meeting. As
of the close of business on the Record Date, there were __________ 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 six directors to the Class of 2001 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 six nominees to the Class of 2001 receiving the highest number of votes
shall be elected to the Board of Directors.
Approval of the Amendment will require the affirmative vote of the holders of
a majority of Susquehanna Common Stock present in person or represented by proxy
at the Annual Meeting.
Abstentions may be specified on the proposal to approve the Amendment.
Abstentions will be considered present for purposes of determining the presence
of a quorum, but as unvoted on the proposal to approve the Amendment.
Abstentions will have the same effect as a negative vote because the Amendment
requires the
4
<PAGE>
affirmative vote of the holders of a majority of Susquehanna Common Stock
present in person or represented by proxy at the Annual Meeting.
Brokers that are member firms of the New York Stock Exchange and who hold
shares in street name for customers have the discretion to vote those shares
with respect to certain matters if they have not received instructions from the
beneficial owners. Brokers will have such discretionary authority with respect
to the election of directors and the proposal to approve the Amendment. A
failure by brokers to vote shares will have no effect in the outcome of the
election of directors or the proposal regarding the Amendment 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 or Bylaws, a
different vote is required. Generally, abstentions on these matters will have
the same effect as a negative vote because such matters under Susquehanna's
Bylaws require the affirmative vote of the holders of a majority of Susquehanna
Common Stock present in person or represented by proxy at the Annual Meeting.
Broker non-votes will have no effect because such shares will not be considered
present and entitled to vote on such matters.
The Board of Directors of Susquehanna has unanimously approved the Amendment
and recommends that Susquehanna shareholders vote "FOR" approval of the
Amendment, and "FOR" the election of the six director nominees to the Class of
2001.
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, (i) will be
voted FOR the election of the persons nominated for directors by the management
of Susquehanna ("Susquehanna Management"); (ii) will be voted FOR the approval
of the Amendment; and (iii) will be voted FOR adjournment in situations in which
Susquehanna 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.
5
<PAGE>
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 27, 1998, the shares of
Susquehanna Common Stock deemed to be owned beneficially by each director and by
all directors and executive officers as a group:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Name of Beneficial Owner Nature and Amount of Beneficial Percentage of Outstanding
Ownership of Susquehanna Common Susquehanna Common Stock
Stock/(1)/
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
James G. Apple/(2)//(5)/ 26,045 0.115%
Robert S. Bolinger 27,791 0.123
Richard M. Cloney 5,772 0.026
Trudy B. Cunningham/(2)/ 158 0.000
John M. Denlinger/(2)/ 30,840 0.137
Richard E. Funke/(6)/ 32,457 0.144
Henry H. Gibbel/(3)/ 102,993 0.457
Marley R. Gross/(2)/ 2,141 0.009
T. Max Hall/(2)//(4)/ 6,871 0.030
Edward W. Helfrick 161,544 0.716
C. William Hetzer, Jr. 4,500 0.020
George J. Morgan 7,420 0.033
Raymond M. O'Connell/(2)/ 74,128 0.329
Robert C. Reymer, Jr. 5,879 0.026
Roger V. Wiest 23,250 0.103
All Directors, Nominees and
Officers as a Group
(26 in number) 559,564 2.48
- -------------------------------------------------------------------------------------------------------------------
</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 2001.
/(3)/ Mr. Gibbel has sole beneficial ownership with respect to 79,875 shares
and shares beneficial ownership with his wife with respect to 16,218 shares.
6,900 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
4,687 shares, 18,750 shares, and 163,125 shares, respectively, to which Mr.
Gibbel disclaims beneficial ownership.
/(4)/ Mr. Hall has sole beneficial ownership of 5,905 shares. In addition, 966
shares are held in a Keogh Plan for the benefit of Mr. Hall.
/(5)/ Mr. Apple has sole beneficial ownership with respect to 8,777 shares. In
addition, 17,268 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 6,896 shares.
18,000 shares are beneficially owned solely by Mr. Funke's wife, and 2,070
shares are beneficially owned solely by his children. In addition, Mr. Funke
shares joint ownership with his mother with respect to 5,491 shares.
- ------------------
6
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ELECTION OF DIRECTORS AND EXECUTIVE OFFICERS
Susquehanna's Board of Directors currently consists of 14 directors.
Election of Trudy B. Cunningham to the Class of 2001 will result in an increase
in the Board to 15 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 six persons
to the Class of 2001. The candidates nominated to such class who receive the
highest number of votes will be elected. In the election, shareholders will be
entitled to cast one vote for each share held for each of the six candidates to
the Class of 2001 but will not be entitled to cumulate such votes.
Nominations for six members of the Class of 2001 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 2001 are James G. Apple, Trudy B.
Cunningham, John M. Denlinger, Marley R. Gross, T. Max Hall, and Raymond M.
O'Connell. All nominees are currently directors of Susquehanna, except for Ms.
Cunningham, who is currently a director of First National Trust Bank, a
Susquehanna subsidiary.
Ms. Cunningham currently serves as an Associate Dean of Engineering at the
College of Engineering at Bucknell University in Lewisburg, Pennsylvania. She
has served in that capacity since 1983. She received her Bachelor of Arts
degree in Mathematics and Psychology in 1965 from the University of Chattanooga,
her Master of Arts degree in Interdisciplinary Studies-Mathematics in 1968 from
the University of Oregon and her Education Doctorate degree in Curriculum and
Instruction in 1978 from the University of Tennessee. In addition to being a
director of First National Trust Bank, Ms. Cunningham has also been appointed to
the board of directors of Suncom Industries, the Advisory Committee of the Sloan
Resource Center, a Fellow for the Society for Values in Higher Education and the
AAUW International Fellowship Panel. In the past she has also chaired the AAUW
International Fellowship Panel (1993-1996), the ASEE Middle Atlantic Section
Meeting (1994), the Bucknell Technology Seminars (1985-1988) and the PCTM
Publications Committee (1983). Ms. Cunningham is also the author of numerous
publications and has participated in a variety of professional and social
committees.
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.
7
<PAGE>
<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>
James G. Apple/(2)/ 62 President, Butter Krust Baking Co., Inc. 1992 1998
Trudy B. Cunningham/(2)/ 55 Associate Dean of Engineering, Bucknell -- --
University; Director, First National Trust
Bank; Director, Suncom Industries
John M. Denlinger/(2)/ 58 Division Manager, Denlinger Building Materials, 1985 1998
a Division of Carolina Holdings, Inc.
Marley R. Gross/(2)/ 65 President, Marley R. Gross Ford, Inc. 1995 1998
T. Max Hall/(2)/ 63 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/(2)/ 71 Chairman of the Board, Williamsport National 1986 1998
Bank; Director (Retired), Phoenix Data, Inc.
Richard M. Cloney 56 Vice President and Secretary, Susquehanna; 1985 1999
Executive Vice President, Farmers First Bank;
Director and President, Susque-Bancshares
Leasing Co., Inc., Director and Vice Chairman,
Susquehanna Bancshares South, Inc.
Richard E. Funke 62 Director and Vice Chairman, Susquehanna 1995 1999
Bancshares South, Inc.
Edward W. Helfrick 69 State Senator, Commonwealth of Pennsylvania 1985 1999
since 1980. Other Affiliations: President,
Rand Realty Co.; President and Treasurer, Norco
Equipment Co.
C. William Hetzer, Jr. 65 President, C. William Hetzer, Inc. (General 1989 1999
Contractor)
Robert S. Bolinger 61 President & Chief Executive Officer, 1982 2000
Susquehanna; Chairman & Chief Executive
Officer, Farmers First Bank; Chairman,
Susquehanna Bancshares South, Inc.; President &
CEO, Susquehanna Bancshares East, Inc.
Henry H. Gibbel 62 President, Lititz Mutual Insurance Co. & Penn 1982 2000
Charter Mutual Insurance Co. (Insurance Company)
George J. Morgan 66 President, Morgan, Hallgren, Crosswell & Kane, 1982 2000
P.C. (Law Firm)
</TABLE>
8
<PAGE>
<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 C. Reymer, Jr. 71 Retired Vice President, McDowell Insurance Inc. 1985 2000
(Insurance Agency)
Roger V. Wiest 57 Managing and Senior Partner, Wiest, Wiest, 1992 2000
Saylor & Muolo (Law Firm)
- ------------------------------------------------------------------------------------------------------------
</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 2001.
- -----------------------
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. 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. Ms. Cunningham, nominee for election to the Class of
2001, has been a director of First National since 1996. 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. Messrs. Bolinger, Cloney, Denlinger, Funke and Morgan also
serve as directors of Susquehanna Bancshares South, Inc., ("Susquehanna South"),
a wholly-owned subsidiary of Susquehanna. Messrs. Bolinger, Denlinger, Morgan
and Wiest also serve as directors of Susquehanna Bancshares East, Inc.
("Susquehanna East"), a wholly-owned subsidiary of Susquehanna.
T. Max Hall is a partner in the law firm of McNerney, Page, Vanderlin and
Hall located in Williamsport, Pennsylvania. During the last fiscal year,
McNerney, Page, Vanderlin and Hall was retained to provide legal services to
Williamsport National. Also, Roger V. Wiest is a partner in the law firm of
Wiest, Wiest, Saylor & Muolo located in Sunbury, Pennsylvania. During the last
five years, Wiest, Wiest, Saylor & Muolo was retained to provide services to
First National. George J. Morgan is a shareholder and President in the law firm
of Morgan, Hallgren, Crosswell & Kane, P.C. During the last fiscal year,
Morgan, Hallgren, Crosswell & Kane, P.C., was retained to provide legal services
to Susquebanc Lease Co., a Susquehanna subsidiary. See "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS."
All of the directors of Susquehanna are outside directors except Messrs.
Bolinger, Cloney and Funke.
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
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Susquehanna's systems of internal controls. The directors serving on the Audit
Committee in 1997 were James G. Apple, T. Max Hall, Robert C. Reymer, Jr., and
Roger V. Wiest. The Audit Committee met four times during 1997.
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 1997 were John M. Denlinger, Henry H. Gibbel, Edward
W. Helfrick, C. William Hetzer, Jr., and George J. Morgan. The Compensation
Committee met seven times during 1997.
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 ten 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:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Name Age Title
------------------------------------------------------------------------------------------
<S> <C> <C>
Robert S. Bolinger 61 President & Chief Executive Officer
William J. Reuter/(1)/ 48 Senior Vice President
Gregory A. Duncan/(1)/ 42 Senior Vice President - Administration
William T. Belden 48 Vice President
Frederick W. Bisbee 59 Vice President
Richard M. Cloney 56 Vice President and Secretary
Drew K. Hostetter 43 Vice President, Treasurer and Chief Financial Officer
Charles W. Luppert 56 Vice President
------------------------------------------------------------------------------------------
</TABLE>
/(1)/ Messrs. Reuter and Duncan have each been promoted to Senior Vice
President, effective January 21, 1998, in connection with the adoption of a
succession plan by the Board of Directors for the senior executive management of
Susquehanna.
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. Mr.
Bolinger also serves as a principal executive officer of Susquehanna South and
is also a principal executive officer of Susquehanna Bancshares East, Inc.,
since its inception in April 1997. 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,
Mr. Belden served as a Vice President with PNC Bank from January 1973 to January
1995. 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.
10
<PAGE>
Gregory A. Duncan is also the principal executive officer of Citizens and has
been employed by Citizens in a substantially equivalent position since 1992.
Drew K. Hostetter was appointed Treasurer of Susquehanna, effective May 31,
1996, replacing J. Stanley Mull, Jr., who retired, and was appointed to his
present position effective January 1, 1998. 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 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 Mr.
Reuter was named an executive officer of Susquehanna South and, in 1997, its
wholly-owned subsidiary, Susquehanna Bank.
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, 1997, all filing requirements applicable to its officers,
directors and greater than ten-percent beneficial owners were satisfied.
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
11
<PAGE>
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.
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 1997 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.
12
<PAGE>
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 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 1997, 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 1996, 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 $369,000 for 1997, an increase of 4% over his $354,619 base salary for
1996.
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 net income growth for the Subsidiary and return on average capital and
earnings per share growth for Susquehanna that produces a "performance bonus
percentage." In
13
<PAGE>
general, the Subsidiary employees' performance bonus percentage is based 50% on
the performance of their respective Subsidiary and 50% on the performance of
Susquehanna, while Susquehanna employees' performance bonus is based 100% on the
performance of Susquehanna. A "performance bonus percentage" is adopted by the
Board of Directors of each Subsidiary and Susquehanna and uniformly applied to
the salaries of each eligible employee. Performance bonus percentages differed
at each Subsidiary and Susquehanna and ranged between 7.50% at Susque-Bancshares
Leasing Co., Inc., to 12.20% at Williamsport National. Mr. Bolinger participated
in the Susquehanna performance bonus program in 1997 and thus earned a bonus of
11.40% of his base salary under this plan which represented $41,750. The total
of annual bonuses awarded to all executive officers of Susquehanna in 1997 was
$283,468. In addition, the Susquehanna Compensation Committee awarded a
discretionary merit cash bonus to Mr. Bolinger of $30,000, representing
outstanding individual financial and non-financial contributions to Susquehanna.
Susquehanna's Performance Award Plan
Susquehannana's Performance Award Plan ("Performance Award Plan") is a
long-term incentive program administered by the Compensation Committee, designed
to provide incentives to key executive officers based upon the financial
performance of Susquehanna and its Subsidiaries.
The Performance Award Plan was adopted by the Board of Directors of
Susquehanna on October 14, 1986. The Performance Award Plan was approved for an
initial three-year period, referred to as an Earnout Period, which began on
January 1, 1986, and ended December 31, 1988. Three subsequent Earnout Periods
were approved running from January 1, 1989, through December 31, 1991, from
January 1, 1992, through December 31, 1994, and from January 1, 1995, through
December 31, 1997. No additional Earnout Periods have been approved.
The express purpose of the Performance Award Plan is to provide key
executives with an increased incentive to make significant and extraordinary
contributions to the long-term performance and growth of Susquehanna and its
Subsidiaries; to join the common interests of Susquehanna and key executives;
and to attract and retain executives of exceptional ability.
The Performance Award Plan is administered by the Compensation Committee
which has full and complete authority in its discretion, but subject to the
express provisions of the Performance Award Plan, to select the executives
entitled to participate in the Performance Award Plan; to determine the amount
of such performance awards to be granted; to determine the time or times at
which such awards shall be granted; to establish the terms and conditions upon
which such awards shall become payable under the Performance Award Plan; to
remove any restrictions and conditions upon such awards; and to make all of the
determinations deemed necessary or desirable for the administration of the
Performance Award Plan. As indicated, however, the Board 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, December 31, 1994 and 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 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
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<PAGE>
"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 ended on December 31, 1997, 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 Farmers First.
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 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 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 third installment, representing 25% of
the total award, under the Third Earnout Period was as follows: Mr. Bolinger,
$32,288; Mr. Cloney, $13,389; Mr. Bisbee, $4,578; Mr. Luppert, $7,176; Mr.
Reuter, $3,539; Mr. Duncan, $3,649; Mr. Krantz, $2,735; Mr. Walsh, $2,076; and
Mr. Keim, $1,670.
For the Fourth Earnout Period of the Performance Award Plan which ended
December 31, 1997, the Compensation Committee designated the following
Performance Award Plan Participants: Robert S. Bolinger, Richard M. Cloney, J.
Stanley Mull, Jr., Edward Balderston, Jr., Frederick W. Bisbee, Charles W.
Luppert, William J. Reuter, Robert L. Strausbaugh, Drew K. Hostetter, William T.
Belden, Donald J. Showers, Robert E. Krantz, Thomas C. Walsh, David D. Keim, and
Gregory A. Duncan.
15
<PAGE>
Compared to its peers under the External Criteria in 1996, the last year
for which data is available, Susquehanna's performance ranged between the 10th
and 78th 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 29th percentile and the 79th percentile brackets measured against
the External Criteria, with the lowest performance in return on equity and the
highest in return on assets.
In 1997, 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 $64,619 for the same period.
Susquehanna Phantom Stock Appreciation Plan
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 43,713 $19.50 5-31-96 5-31-2006
Cloney 31,242 19.50 5-31-96 5-31-2006
Mull 22,500 19.50 5-31-96 5-31-2000
Reuter 19,800 19.50 5-31-96 5-31-2006
Bisbee 18,642 19.50 5-31-96 5-31-2006
Belden 16,713 19.50 5-31-96 5-31-2006
Luppert 15,942 19.50 5-31-96 5-31-2006
Duncan 15,942 19.50 5-31-96 5-31-2006
Krantz 14,913 19.50 5-31-96 5-31-2006
Showers 13,757 19.50 5-31-96 5-31-2006
Strausbaugh 11,571 19.50 5-31-96 5-31-2000
Walsh 10,286 19.50 5-31-96 5-31-2006
Keim 8,742 19.50 5-31-96 5-31-2006
Apple 1,500 19.50 5-31-96 5-31-2006
Denlinger 1,500 19.50 5-31-96 5-31-2006
Gibbel 1,500 19.50 5-31-96 5-31-2006
Gross 1,500 19.50 5-31-96 5-31-2006
Hall 1,500 19.50 5-31-96 5-31-2006
Helfrick 1,500 19.50 5-31-96 5-31-2006
Hetzer 1,500 19.50 5-31-96 5-31-2006
Morgan 1,500 19.50 5-31-96 5-31-2006
O'Connell 1,500 19.50 5-31-96 5-31-2006
Reymer 1,500 19.50 5-31-96 5-31-2006
Wiest 1,500 19.50 5-31-96 5-31-2006
-------
Total 260,263
- -------------------------------------------------------------------------------
</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, except for Mull and Strausbaugh
whose options were exercisable immediately. Adjusted to reflect 3-for-2 stock
split in 1997.
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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 975,000 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 7,500 shares
to each present and newly added director. Non-employee directors will receive a
grant of an option to purchase 1,500 shares in their first year of participation
in the plan, and 1,500 shares in each of the next following years (up to a
total, aggregate grant of 7,500 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 15, 1998, approximately ____
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 300,000 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.
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.
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<PAGE>
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 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
18
<PAGE>
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.
On May 30, 1997, additional non-qualified stock options to acquire 69,663
shares were granted to directors and officers of Susquehanna.
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
19
<PAGE>
year. Because the compensation paid Susquehanna's most highly compensated
officer amounted to $463,290, 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 1997, 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 1997 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]
20
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Annual Compensation
...................................................................................
Other
Annual
Compen-
Name Principal Position Year Salary/(5)/ Bonus/(6)/ sation/(7)/
- -----------------------------------------------------------------------------------
Robert S. President and 1997 $366,227 $71,750 -
Bolinger/(1)/ Chief Executive 1996 365,969 67,448 -
Officer of 1995 347,631 58,112 -
Susquehanna
Richard M. Vice President 1997 $254,330 $28,994 -
Cloney/(1)/ and Secretary of 1996 259,464 52,702 -
Susquehanna 1995 252,930 43,832 -
William J. Vice President of 1997 $213,846 $35,529 -
Reuter/(2)/ Susquehanna; 1996 170,385 24,453 -
President of 1995 156,542 15,095 -
F & M; President
of Susquehanna
South; President
of Susquehanna
Bank
Frederick W. Vice President of 1997 $153,293 $20,329 -
Bisbee/(3)/ Susquehanna; 1996 148,467 16,877 -
President of 1995 143,065 17,186 -
First National
Charles W. Vice President of 1997 $152,596 $18,617 -
Luppert/(4)/ Susquehanna; 1996 148,462 22,073 -
President of 1995 144,324 20,740 -
Williamsport
National
- -----------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Long Term Compensation
..................................................................................................................................
Stock
Appreciation Stock All Other
Rights Options LTIP SAR Compensation
Name Principal Position Year (# of Units)/(8)/ Granted/(9)/ Payouts/(10)/ Payouts/(11)/ /(12)/
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert S. President and 1997 - 9,248 $32,288 $ 0 $4,800
Bolinger/(1)/ Chief Executive 1996 - 43,713 32,288 204,753 4,500
Officer of 1995 29,142 - 64,576 37,195 4,500
Susquehanna
Richard M. Vice President 1997 - 4,602 $13,389 $ 0 $4,800
Cloney/(1)/ and Secretary of 1996 - 31,242 13,389 112,583 4,500
Susquehanna 1995 20,828 - 26,778 18,507 4,500
William J. Vice President of 1997 - 3,102 $3,539 $ 0 $4,800
Reuter/(2)/ Susquehanna; 1996 - 19,800 3,539 74,462 4,500
President of 1995 13,200 - 7,079 12,475 4,500
F & M; President
of Susquehanna
South; President
of Susquehanna
Bank
Frederick W. Vice President of 1997 - 3,102 $4,578 $ 0 $4,599
Bisbee/(3)/ Susquehanna; 1996 - 18,642 4,578 73,158 4,454
President of 1995 12,428 - 9,157 12,475 4,301
First National
Charles W. Vice President of 1997 - 3,102 $7,176 $ 0 $4,574
Luppert/(4)/ Susquehanna; 1996 - 15,942 7,176 70,116 4,454
President of 1995 10,628 - 14,352 12,475 4,330
Williamsport
National
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<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 Bank.
/(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. Adjusted to reflect 3-for-2 stock split in
1997.
/(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.
- --------------
STOCK OPTION GRANTS IN 1997
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
Number of % of Total Potential Realizable Value
--------- ---------- --------------------------
Securities Options at Assumed Annual Rates of
---------- ------- --------------------------
Underlying Granted to Stock Price Appreciation
---------- ---------- ------------------------
Options Employees in Exercise Expiration for Option Term
------- ------------ -------- ---------- ---------------
Name Granted* Fiscal Year Price* Date 5% 10%
---- ------- ----------- ------ ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Robert S. Bolinger 9,248 13.3 $26.17 5-30-2007 $152,222 $385,734
Richard M. Cloney 4,602 6.6 26.17 5-30-2007 75,749 191,949
William J. Reuter 3,102 4.5 26.17 5-30-2007 51,059 129,384
Frederick W. Bisbee 3,102 4.5 26.17 5-30-2007 51,059 129,384
Charles W. Luppert 3,102 4.5 26.17 5-30-2007 51,059 129,384
</TABLE>
*Adjusted to reflect 3-for-2 stock split in 1997.
22
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTIONS EXERCISED IN 1997 AND DECEMBER 31, 1997 OPTION VALUES
SHARES NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
------ ------------------------------- --------------------
ACQUIRED UNEXERCISED OPTIONS AT DECEMBER IN-THE-MONEY OPTIONS AT
-------- ------------------------------- -----------------------
ON VALUE 31, 1997 DECEMBER 31, 1997
-- ----- -------- -----------------
EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE* EXERCISABLE/UNEXERCISABLE
-------- -------- ------------------------- -------------------------
NAME (#) ($) (#) ($)
---- --- --- ---
<S> <C> <C> <C> <C>
Robert S. Bolinger 0 0 9,248 / 43,713 $111,716 / $819,619
Richard M. Cloney 0 0 4,602 / 31,242 55,592 / 585,788
William J. Reuter 0 0 3,102 / 19,800 37,472 / 371,250
Frederick W. Bisbee 0 0 3,102 / 18,642 37,472 / 349,538
Charles W. Luppert 0 0 3,102 / 15,942 37,472 / 298,913
</TABLE>
*Adjusted to reflect 3-for-2 stock split in 1997.
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.
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. Messrs. Bisbee's, Reuter's, Luppert's and Duncan's contracts,
however, provide certain relief in the event that a change of control occurs.
Each may terminate his employment within twelve months following a change of
control
23
<PAGE>
if there occurs an adverse change in his respective circumstances (as set forth
in his respective employment contracts). For purposes of these contracts, a
"change of control" is deemed to occur when a person shall acquire control of
Susquehanna or applicable Subsidiary.
As noted above, Richard E. Funke has served as a director of Susquehanna
since 1995 and is also a director of Susquehanna South. 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. The Employment Agreement, however, also
provides for termination of certain non-competition provisions contained in the
Employment Agreement upon a change of control.
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 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 "Retirement Income 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 Retirement Income Plan effective that
date.
Participants under the Retirement Income 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
24
<PAGE>
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 Retirement Income 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 Retirement Income Plan are eligible for benefits under the
Supplemental Plan.
The following table sets forth the annual benefits under both the
Retirement Income 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.
THE SUSQUEHANNA BANCSHARES RETIREMENT AND RESTORATION PLANS
ANNUAL NORMAL RETIREMENT BENEFIT FOR PARTICIPANT
TURNING AGE 65 IN 1997
<TABLE>
<CAPTION>
YEARS OF SERVICE AT RETIREMENT
--------------------------------------------------
FINAL AVERAGE
COMPENSATION 15 20 25 30 35
------------ -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$125,000 $ 35,302 $ 47,070 $ 58,837 $ 58,837 $ 58,837
150,000 42,802 57,070 71,337 71,337 71,337
175,000 50,302 67,070 83,837 83,837 83,837
200,000 57,802 77,070 96,337 96,337 96,337
225,000 65,302 87,070 108,837 108,837 108,837
250,000 72,802 97,070 121,337 121,337 121,337
300,000 87,802 117,070 146,337 146,337 146,337
350,000 102,802 137,070 171,337 171,337 171,337
400,000 117,802 157,070 196,337 196,337 196,337
450,000 132,802 177,070 221,337 221,337 221,337
500,000 147,802 197,070 246,337 246,337 246,337
</TABLE>
For purposes of the Retirement Income Plan, as of December 31, 1997,
Messrs. Bolinger, Cloney, Luppert, Bisbee, and Reuter had 22, 21, 27, 24 and 23
credited years of service respectively. Only the base salary of Messrs.
Bolinger, Cloney, Luppert, Bisbee and Reuter is compensation covered under the
Retirement Income Plan. Other components of such officers' total compensation
do not affect benefits payable under the Retirement Income Plan. In 1997, Mr.
Bolinger's base salary was $369,000, Mr. Cloney's base salary was $254,330, Mr.
Bisbee's base salary was $153,293, Mr. Luppert's base salary was $152,596, and
Mr. Reuter's base salary was $213,846.
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.
25
<PAGE>
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
1997 on behalf of the individual officers named above and the Executive Officers
as a group are as follows: Mr. Bolinger, $4,800; Mr. Cloney, $4,800; Mr.
Bisbee, $4,599; Mr. Luppert, $4,574; Mr. Reuter, $4,800; and the Executive
Officers as a group, $40,770.
Cash Balance Pension Plan
Effective January 1, 1998, Susquehanna converted the Retirement Income Plan
into a Defined Benefit Cash Balance Pension Plan ("Cash Balance Pension Plan").
All employees who were a participant in the Retirement Income Plan had the
value of their benefit under that plan converted into the opening Cash Balance
Account under the new Cash Balance Pension Plan. The opening balance equals
105% of the present value of each employee's total future benefit payments
carried through December 31, 1997, under the Retirement Income Plan.
Employees age 55 and older with 10 or more years of service as of January
1, 1998, are "grandfathered" and will receive a benefit no less than the amount
determined under the plan provisions in effect December 31, 1997.
Contributions on behalf of participants are made at the end of the year (or
at the time of termination of employment if the participant was working at a
pace to get 1,000 hours and receiving a benefit payout immediately).
Contributions are based on a formula that provides participants an employer
credit, or allocation each year as a percentage of the participant's pay. The
employer credit is based on the sum of the employee's attained age and credited
service.
Annual Employer
---------------
Employee's Age Allocation
-------------- ----------
Plus Service* (% of Pay)
------------- ----------
Less than 30 3%
30-39 4%
40-49 5%
50-59 6%
60-69 7%
70-79 8%
80-89 9%
90-99 10%
100 or more 11%
*Age is determined based on completed years as of January 1, and
Service is full years of Credited Service as defined in the Plan as of
January 1.
Interest is credited to each participant based on the 1-Year U.S. Treasury
Bill (the auction average for the August preceeding the Plan Year; for example,
5.46% for the 1998 calendar year). Interest credits are on a daily basis until
retirement benefits commence.
26
<PAGE>
The Cash Balance Pension Plan defines eligible compensation as W-2 pay
during the Plan Year, including deferrals to any 401(k) Plan and pretax
contributions for health and welfare premiums. This includes bonus, incentives,
and commissions which were not included under the Retirement Income Plan.
Participation begins on the July 1 or January 1 nearest attainment of age
21 and completion of a year of service (with 1,000 hours). Participants who
complete one thousand hours of service in a plan year (or who are on a pace and
terminate during a plan year) are eligible for an employer allocation.
Participants have the same optional forms of payment under the Cash Balance
Pension Plan that were available under the Retirement Income Plan.
The death benefit is the annuitized value of the participant's Cash Balance
Account payable at what would have been the participant's earliest retirement
age, after adjustment to reflect 100% Joint and Survivor annuity payment form.
Normal Retirement is age 65. Early retirement is attained by reaching age
55 with 15 years of service. The benefit equals the annuitized value of the
participant's Cash Balance Account as of the retirement commencement date.
Transitioning to the new plan will require the creation of an "opening
account balance." The opening account balance will be calculated based upon
each participant's accrued benefit under the former plan as of December 31,
1997. The initial balance will equal 105% of the present value of their accrued
benefit under the former plan. The actuarial assumptions used to determine the
opening balance are as follows:
. Interest Rate: 30 year Treasury rate as of August 1997 (6.58%)
. Mortality Table: 1983 GAM, weighted 50% male and 50% female
. Retirement Age: Age 65 for all employees
Any benefits, rights and features that were available to participants under
the Retirement Income Plan as of December 31, 1997, will continue to be
available to participants in the future (with respect to the benefits they had
accrued under the Retirement Income and predecessor plans through December 31,
1997).
THE SUSQUEHANNA BANCSHARES CASH BALANCE AND RESTORATION PLANS
ANNUAL NORMAL RETIREMENT BENEFIT FOR PARTICIPANT
TURNING AGE 65 IN 1997
<TABLE>
<CAPTION>
YEARS OF SERVICE AT RETIREMENT
-------------------------------------------------
FINAL AVERAGE
COMPENSATION 15 20 25 30 35
------------ -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$125,000 $17,721 $ 25,833 $ 34,424 $ 45,006 $ 55,705
150,000 21,265 31,000 41,309 54,009 66,848
175,000 24,809 36,166 48,194 63,011 77,990
200,000 28,353 41,332 55,078 72,011 89,131
225,000 31,897 46,499 61,964 81,013 100,274
250,000 35,441 51,667 68,847 90,014 111,412
300,000 42,530 61,999 82,617 108,016 133,695
350,000 49,618 72,333 96,387 126,020 155,979
400,000 56,706 82,667 110,158 144,022 178,262
450,000 63,794 92,999 123,925 162,024 200,543
500,000 70,883 103,333 137,696 180,028 222,830
</TABLE>
- ---------------------
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<PAGE>
Assumptions:
Cash Balance Plan in effect all years.
Salary Scale............................3.0%
Interest credit rate....................6.5%
Interest rate for annuity conversion....7.0%
Mortality...............................GAM83 unisex
- ----------------------
Stock Price Performance Graph
The following graph compares for fiscal years 1992 through 1997 the
yearly change in the cumulative total return to holders of Susquehanna Common
Stock with the cumulative total return of the Nasdaq Total Return Index (the
"Nasdaq Index"), a broad market in which Susquehanna participates, and of an
index comprised of all publicly traded banks in asset size $1-5 billion,
compiled by an independent research firm (the "Bank Index"). The graph depicts
the total return on an investment of $100 based on both stock price appreciation
and reinvestment of dividends for Susquehanna, and the companies represented by
the Nasdaq Index and the Bank Index.
The Bank Index consists of Susquehanna's bank peers relative to size as
measured by total assets. It is believed that these Bank Index companies are
comparable to Susquehanna in terms of size and all businesses engaged in. There
can be no assurance that Susquehanna's stock performance will continue into the
future with the same or similar trends depicted in the graph below.
SUSQUEHANNA BANCSHARES, INC.
Stock Price Performance
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Period Ending December 31
- -------------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Susquehanna Bancshares, Inc. $100.00 $124.91 $106.24 $132.32 $180.16 $308.28
NASDAQ - Total US 100.00 114.80 112.21 158.70 195.19 239.53
SNL $1B-$5B Bank Index 100.00 120.19 126.54 170.16 220.59 367.88
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
APPROVAL OF AMENDMENT TO SUSQUEHANNA'S ARTICLES OF INCORPORATION
On _______________, the Board of Directors approved a proposal to
amend Susquehanna's Articles to increase the number of shares of Common Stock,
par value $2.00 per share, which Susquehanna is authorized to issue from
32,000,000 to 100,000,000. There will be no change in the par value of each
share of Common Stock and the Amendment will not affect the number of shares of
preferred stock authorized, which is 5,000,000 shares. The full text of the
proposed Amendment to Article 5 of Susquehanna's Articles is set forth below:
Article 5. The aggregate number of shares which the corporation will have
the authority to issue is one hundred five million
(105,000,000) shares, divided into two classes consisting of
five million (5,000,000) shares of Preferred Stock, without par
value ("Preferred Stock") and one hundred million (100,000,000)
shares of Common Stock, par value $2.00 per share ("Common
Stock").
The Board of Directors shall have the full authority permitted
by law to fix by resolution full, limited, multiple or
fractional, or no voting rights, and such designations and
preferences, priorities, qualifications, privileges,
limitations, restrictions, options, conversion rights, dividend
features, retirement features, liquidation features, redemption
features and any other special or relative rights that may be
desired for the Preferred Stock and any series thereof, and to
issue such Preferred Stock from time to time in one or more
series. The designations, preferences, priorities,
qualifications, privileges, limitations, restrictions, options,
conversion rights, dividend features, retirement features,
liquidation features, redemption features and any other special
or relative rights of any series of Preferred Stock may differ
from those of any and all series at any time outstanding.
As of April 21, 1998, Susquehanna had ______________ shares of Common
Stock issued, of which _______________ were held in the treasury of Susquehanna.
If the proposed Amendment is approved, the newly authorized but
unissued shares will be available for issuance from time to time at the
discretion of the Board of Directors for such purposes and consideration as the
Board may approve. Generally no shareholder approval is required for the
issuance of authorized but unissued shares of Common Stock, except as provided
by the rules of the National Association of Securities Dealers Automated
Quotations National Market System ("NASDAQ/NSM") and as required by
Susquehanna's Articles. Unissued shares of Common Stock will be available at
the discretion of the Board of Directors for, among other things, the Stock
Split, future stock splits, stock dividends, acquisitions, or issuance upon
exercise of stock options or to raise additional capital in public or private
sales. The Board of Directors has authorized the issuance of shares for such
purposes in the past.
Shareholders have no preemptive rights to acquire shares issued by
Susquehanna under its existing Articles, and shareholders would not acquire any
such rights with respect to such additional shares under the proposed Amendment
to Susquehanna's Articles. Under some circumstances, issuance of additional
shares of Common Stock could dilute the voting rights, equity and earnings per
share of existing shareholders. This increase in authorized but unissued Common
Stock could be considered an anti-takeover measure because the additional
authorized but unissued shares of Common Stock could be used by the Board of
Directors to make a change in the control of Susquehanna more difficult. The
Board of Directors' purpose for recommending this proposal is not as an anti-
takeover measure, but for the reasons discussed above.
The Board of Directors believes that the Amendment to increase the
number of authorized shares is advisable in order to give Susquehanna additional
flexibility. The affirmative vote of a majority of the holders of a majority of
Susquehanna Common Stock present in person or represented by proxy at the Annual
Meeting is
29
<PAGE>
necessary to adopt the proposed Amendment. The Board of Directors recommends a
vote FOR approval of the Amendment.
On April 15, 1998, the Susquehanna Board of Directors declared a _____
for _____ Stock Split to be effected in the form of a _____% stock dividend,
payable on July 1, 1998, to shareholders of record as of the close of business
on June 15, 1998 (the "Stock Split Record Date"). This Stock Split is expressly
conditioned upon shareholder approval of the Amendment. IF THE AMENDMENT
INCREASING THE AUTHORIZED COMMON STOCK IS NOT APPROVED BY THE SUSQUEHANNA
SHAREHOLDERS, THE STOCK SPLIT WILL NOT BE MADE.
Assuming that the Susquehanna Shareholders approve the Amendment as
proposed, the Stock Split will not change a holder of Susquehanna's Common
Stock's proportionate ownership interest in Susquehanna if the shareholder
retains the original shares and the new shares issued to him or her. If a
shareholder were to dispose of all or some portion of his or her existing or new
shares, however, his or her proportionate interest in the ownership of
Susquehanna would be reduced.
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, 1997, these loans totaled $24 million,
which represented 7% of stockholder's equity.
During 1997, 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, 1997. Susquehanna expects to engage Coopers & Lybrand as its
independent public accountants for the year 1998. 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 1999 Annual Meeting of Susquehanna
shareholders must be received by the Secretary of Susquehanna no later than
December 28, 1998, in order to be considered for inclusion in the proxy
statement and form of proxy relating to such 1999 Susquehanna Annual Meeting.
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<PAGE>
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,
/s/ Richard M. Cloney
Richard M. Cloney
Secretary
31
