<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant |_|
Filed by a Party other than the Registrant |_|
Check the Appropriate Box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission only (as permitted by Rule
14a-6(e)(2)
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
HARLEYSVILLE NATIONAL CORPORATION
(Name of Registrant as Specified in Its Charter)
Bowne of Philadelphia
(Name of Person(s) Filing Proxy Statement)
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)
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 transactions
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 O-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> 2
HARLEYSVILLE NATIONAL CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 13, 1999
TO THE SHAREHOLDERS OF HARLEYSVILLE NATIONAL CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Harleysville National Corporation will be held at 9:30 a.m., prevailing time, on
Tuesday, April 13, 1999, at Presidential Caterers, 2910 DeKalb Pike, Norristown,
Pennsylvania 19401, for the following purposes:
1. Election of three Class A Directors: Harold A. Herr, Henry M. Pollak,
and Walter F. Vilsmeier, each for a term of 4 years;
2. Approval and adoption of the Harleysville National Corporation 1998
Stock Incentive Plan;
3. Approval and adoption of the Harleysville National Corporation 1998
Independent Directors Stock Option Plan; and
4. Transaction of any other business properly brought before the Annual
Meeting and at any adjournment or postponement of the meeting.
In accordance with the by-laws of the corporation and action of the
Board of Directors, only those shareholders of record at the close of business
on February 26, 1999, will be entitled to notice of and to vote at the Annual
Meeting and any adjournment or postponement thereof.
A copy of the corporation's Annual Report for the fiscal year ended
December 31, 1998, accompanies this Notice. Copies of the corporation's Annual
Report for the 1997 fiscal year may be obtained at no cost by contacting the
Secretary of the corporation, Harleysville National Corporation, 483 Main
Street, P.O. Box 195, Harleysville, Pennsylvania 19438, telephone 215-256-8851.
The corporation urges you to mark, sign, date, and promptly return your
proxy in the enclosed envelope so that your shares may be voted in accordance
with your wishes and to assure the presence of a quorum. The prompt return of
your signed proxy, regardless of the number of shares you hold, will aid the
corporation in reducing the expense of additional proxy solicitations. Giving
your proxy does not affect your right to vote in person if you attend the
meeting and give written notice to the Secretary of the corporation.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Walter E. Daller, Jr.
--------------------------------------
Walter E. Daller, Jr.
Chairman of the Board,
President and Chief Executive Officer
March 15, 1999
Harleysville, Pennsylvania
<PAGE> 3
[HARLEYSVILLE NATIONAL CORPORATION LOGO]
[Letterhead]
March 15, 1999
Dear Shareholder:
There are exciting things happening at Harleysville National
Corporation. 1998 was another record breaking year with a 12.2% increase in
basic and diluted earnings, accompanied by a 19.4% increase in total assets to
$1,332,389,000. This was our 23rd consecutive year of earnings per share
increases!
On January 20, 1999, we consummated the acquisition of Northern Lehigh
Bancorp, Inc. As a result of the merger, the subsidiary of Northern Lehigh
Bancorp, Inc., Citizens National Bank of Slatington, was merged with and into
our subsidiary, The Citizens National Bank of Lansford. The name of this
combination has been shortened to Citizens National Bank.
The Corporations' wholly-owned subsidiaries are The Harleysville
National Bank and Trust Company, headquartered in Harleysville, which operates
21 offices in Montgomery, Bucks and Chester Counties; Citizens National Bank,
which operates 8 offices in Carbon, Wayne, Lehigh, Northampton and Schuykill
Counties; Security National Bank, headquartered in Pottstown, which operates 4
offices throughout Montgomery County; and, HNC Financial Company.
You will notice that our Proxy Statement has taken on a "new" look. The
Proxy Statement is prepared in "Plain English", as recommended by the U.S.
Securities and Exchange Commission. We are pleased with the results and hope you
find it easier to read.
I look forward to seeing you at the Annual Meeting.
Sincerely,
/s/ Walter E. Daller, Jr.
--------------------------
Walter E. Daller, Jr.
President and
Chief Executive Officer
<PAGE> 4
PROXY STATEMENT
Dated and to be mailed March 15, 1999
HARLEYSVILLE NATIONAL CORPORATION
483 MAIN STREET
HARLEYSVILLE, PENNSYLVANIA 19438-0195
(215) 256-8851
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 13, 1999
TABLE OF CONTENTS
QUESTIONS AND ANSWERS........................................................4
VOTING METHODS...............................................................5
PROPOSAL NO. 1 - Election of Class A Directors...............................6
PROPOSAL NO. 2 - 1998 Stock Incentive Plan...................................7
PROPOSAL NO. 3 - 1998 Independent Directors Stock Option Plan...............12
PRINCIPAL OWNERS............................................................15
BENEFICIAL OWNERSHIP BY OFFICERS, DIRECTORS AND NOMINEES....................15
INFORMATION CONCERNING DIRECTORS............................................16
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS...........................17
COMPENSATION OF DIRECTORS...................................................18
EXECUTIVE COMPENSATION......................................................19
REPORT OF THE COMPENSATION COMMITTEE........................................24
SHAREHOLDER RETURN PERFORMANCE GRAPH........................................27
SECTION 16(A) REPORTING COMPLIANCE..........................................28
INDEPENDENT AUDITORS........................................................28
ADDITIONAL INFORMATION......................................................29
OTHER MATTERS...............................................................29
EXHIBIT "A" - 1998 STOCK INCENTIVE PLAN.....................................31
EXHIBIT "B" - 1998 INDEPENDENT DIRECTORS STOCK OPTION PLAN..................39
3
<PAGE> 5
QUESTIONS AND ANSWERS
Q: WHAT AM I VOTING ON?
A: - Election of 3 Class A Directors:
- Harold A. Herr
- Henry M. Pollak
- Walter F. Vilsmeier
- Approval and adoption of Harleysville National Corporation's 1998 Stock
Incentive Plan
- Approval and adoption of Harleysville National Corporation's 1998
Independent Directors Stock Option Plan
Q: WHO IS ENTITLED TO VOTE?
A: Shareholders on the record date, the close of business on February 26, 1999.
Q: HOW MANY VOTES DO I HAVE?
A: Each share of common stock is entitled to one vote.
Q: HOW DO I VOTE?
A: You may cast your vote by completing and mailing your proxy card or by
attending the meeting in person.
Q: HOW DOES DISCRETIONARY AUTHORITY APPLY?
A: If you sign your proxy card, and do not make any selections, you give
authority to James W. Hamilton and Vernon L. Hunsberger to vote on the
three proposals and any other matter that may arise at the meeting.
Q: IS MY VOTE CONFIDENTIAL?
A: Yes. Only the inspector, American Stock Transfer and Trust
Company/Shareholder Services, and certain employees have access to your
card. All comments remain confidential, unless you ask that your name be
disclosed.
Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
A: Your shares are probably registered differently or are in more than one
account. Sign and return all proxy cards to ensure that all your shares are
voted. Please have all of your accounts registered in the same name and
address. You may do this by contacting our transfer agent, American Stock
Transfer and Trust Company Shareholder Services, 800-937-5449.
Q: WHAT CONSTITUTES A QUORUM?
A: The corporation is currently authorized to issue 30,000,000 shares of
common stock, par value $1.00 per share, and 3,000,000 shares of series
preferred stock, par value $1.00 per share. As of February 26, 1999,
7,535,899 shares of Harleysville National Corporation's common stock were
issued and outstanding. No shares of preferred stock are outstanding. A
majority of the outstanding shares, present or represented by proxy,
constitutes a quorum. If you vote by proxy card, you will be considered
part of the quorum. If you are present or represented by a proxy at the
Annual Meeting and you abstain, your abstention will have the same effect
as a vote against the proposals.
Q: WHEN ARE THE SHAREHOLDER PROPOSALS DUE FOR YEAR 2000 ANNUAL MEETING?
A: Shareholder proposals must be submitted in writing by Tuesday, November 9,
1999, to the Secretary of Harleysville National Corporation at 483 Main
Street, P.O. Box 195, Harleysville, PA 19438-0195.
Q: HOW DOES A SHAREHOLDER NOMINATE A DIRECTOR OF HARLEYSVILLE NATIONAL
CORPORATION?
A: Submit a written recommendation to the Chairman of the Nominating
Committee, c/o Secretary of the corporation, Harleysville National
Corporation, 483 Main Street, P.O. Box 195, Harleysville, PA 19438. The
recommendation must include a notarized statement from the nominee
indicating willingness to serve, if elected, and principal occupations or
employment over the past five years.
4
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QUESTIONS AND ANSWERS
Q: WHO IS RESPONSIBLE FOR THE SOLICITATION EXPENSES?
A: American Stock Transfer and Trust Company, the corporation's transfer agent
and registrar, will assist in the distribution of proxy materials and
solicitation of votes according to the terms of the corporation's present
contract with the transfer agent.
The corporation is responsible for expenses related to distribution of proxy
materials and solicitation of votes and will reimburse American Stock Transfer
and Trust Company, stockbrokers and other custodians, nominees and fiduciaries
for their reasonable out-of pocket expenses for forwarding proxy and
solicitation material to the owners of the corporation's common stock.
VOTING METHODS
YOU HAVE THE RIGHT TO VOTE AND, IF DESIRED, TO REVOKE YOUR PROXY AT ANY TIME
BEFORE THE ANNUAL MEETING:
- BY GIVING WRITTEN NOTICE OF REVOCATION TO THE SECRETARY OF
HARLEYSVILLE NATIONAL CORPORATION AT 483 MAIN STREET, P.O. BOX 195,
HARLEYSVILLE, PA 19438;
- BY EXECUTING A LATER-DATED PROXY AND GIVING WRITTEN NOTICE THEREOF
TO THE SECRETARY OF THE CORPORATION; OR
- BY VOTING IN PERSON AFTER GIVING WRITTEN NOTICE TO THE SECRETARY OF
THE CORPORATION.
SHOULD YOU HAVE ANY QUESTIONS, PLEASE CALL AMERICAN STOCK TRANSFER AND TRUST
COMPANY 800-937-5449.
- Mark your selections
- Date and sign your name exactly as it appears on your card
- Mail to American Stock Transfer and Trust Company Shareholder
Services in the return envelope
[MAILBOX GRAPHIC]
5
<PAGE> 7
PROPOSAL NO. 1
ELECTION OF CLASS A DIRECTORS
Nominees for election this year are:
- - Harold A. Herr - director since 1987
- - Henry M. Pollak - director since 1996
- - Walter F. Vilsmeier - director since 1987
Each nominee has consented to serve a 4 year term and until their
successors are elected and qualified.
The by-laws of Harleysville National Corporation provide that the Board
of Directors will not have less than 5 members or more than 25 members. The
Board of Directors is divided into 4 classes. Each class is elected for a 4 year
term. The Board of Directors has authority to fix the number of directors in
each class, and the authority to change that number at any time. No person may
be elected to serve as a director if they are not of legal age. No person over
72 may serve as a director . The Board of Directors has fixed the number of
Board members at 10 with 2 directors in each of Classes B and C, and 3 directors
in each of Classes A and D. Section 11.1 of the by-laws requires that a majority
of the remaining members of the Board of Directors select and appoint directors
to fill vacancies, even if the number of remaining members are less than a
quorum. Each person who is appointed in this manner serves as a director until
the expiration of the term of office of the class of directors to which he or
she was appointed.
The Board of Directors recommends a vote FOR the election of these
Class A Directors.
6
<PAGE> 8
PROPOSAL NO. 2
APPROVAL AND ADOPTION OF THE
1998 STOCK INCENTIVE PLAN
On October 8, 1998, the Board of Directors adopted the corporation's
1998 Stock Incentive Plan subject to approval by the shareholders at the Annual
Meeting. The Board of Directors reserved 575,000 shares of common stock for
issuance under the Stock Incentive Plan. The terms and effect of the Stock
Incentive Plan are summarized below. This summary highlights selected
information from the Stock Incentive Plan and may not contain all of the
information that is important to you. To understand the Stock Incentive Plan
fully, and for more complete descriptions of the terms of the Stock Incentive
Plan, you should read carefully the Stock Incentive Plan that is attached as
Exhibit "A."
The purposes of the Stock Incentive Plan are to:
- - advance the development, growth and financial condition of the
corporation and its subsidiaries by providing additional
incentives to key officers and other employees by encouraging them
to acquire stock ownership in the corporation; and
- - secure, retain and motivate personnel who may be responsible for
the operation and management of the corporation and its
subsidiaries.
The Stock Incentive Plan is designed to:
- - attract and retain individuals of outstanding ability as employees
of the corporation and its subsidiaries;
- - encourage employees to acquire a proprietary interest in the
corporation's business and an incentive to remain in the employ of
the corporation and its subsidiaries;
- - encourage employees to render superior performance during his or
her employment.
Term
If approved by shareholders at the meeting, the Stock Incentive Plan
will become effective as of October 8, 1998, the date it is adopted by the
corporation's Board of Directors. The Stock Incentive Plan will continue in
effect until all awards under the Stock Incentive Plan either have lapsed, been
exercised, satisfied or canceled. No awards shall be granted after the 10th
anniversary of the Stock Incentive Plan's effective date, October 8, 2008. The
maximum number of shares of stock that the corporation may issue under the Stock
Incentive Plan is 575,000, adjusted from time to time to reflect stock splits,
payments of stock dividends or other changes in the structure of the
corporation's capital.
Administration
A committee consisting of two or more members of the Board of Directors
will administer the Stock Incentive Plan. The committee has the authority and
discretion to determine the recipients and conditions under which stock options
may be granted. The committee will determine which key officers and other
employees of the corporation qualify as eligible to receive awards under the
Stock Incentive Plan. A person's eligibility to receive an actual receipt of any
award will not prevent him or her from receiving any other incentive or benefit
plan or program of the corporation or its subsidiaries.
Awards
The corporation may issue awards under the Stock Incentive Plan in the form of:
- - Qualified Options -- options to purchase stock intended to qualify
as incentive stock options under Sections 421 and 422 of the
Internal Revenue Code; or
7
<PAGE> 9
- - Non-Qualified Options -- options to purchase stock that do not qualify
under Sections 421 through 424 of the Internal Revenue Code; or
- - Stock Appreciation Rights -- rights that entitle its holder, upon
exercise of the right, to receive cash or common stock, an amount equal
to the difference between the market value of the underlying common
stock and the exercise price of the right; or
- - Restricted Stock -- stock that is restricted as to transferability and
subject to forfeiture for a certain period of time unless certain
conditions are met.
The corporation may grant more than one award to an eligible person,
and the grant of any award does not prohibit the grant of another award to that
person or any other person. All awards and the terms and conditions of the grant
must be made in writing.
The Board or the committee, in its sole discretion, determines if the
awards may be transferred by the recipient. If not transferable, only the
recipient of the award(s) may exercise the award(s) during his or her lifetime,
and the awards will not be saleable, transferable or assignable by the
recipient, except by estate laws. Generally, awards may be exercised in whole or
in part. The corporation will use any funds received from the exercise of any
award for its general corporate purposes. The committee may permit acceleration
of exercise terms of any award when the committee determines that the situation
warrants acceleration. The committee may impose other requirements and
conditions, as the committee determines. In addition, the Stock Incentive Plan
provides for an acceleration of exercise terms upon a change of control of the
corporation.
Qualified Options
All awards of qualified options are subject to the following terms and
conditions:
- - The corporation shall issue no more than 575,000 shares of stock as
qualified options.
- - The corporation may not award any qualified options after October 8,
2008.
- - An option holder may not exercise a qualified option sooner than 6
months after the date of grant and may not exercise a qualified option
more than 10 years after the date of grant.
- - A qualified option holder terminating employment with the corporation
or any subsidiary for any reason other than death, may be permitted by
the committee to exercise the option for a period of not more than 3
months after the date of termination. If the termination of employment
was due to disability, the 3 month period is extended to 12 months. If
the person dies while employed by the corporation or any of its
subsidiaries, the committee may permit that person's legal
representative or beneficiary to exercise the qualified option for not
more than 12 months after the person's death.
- - The purchase price of the stock subject to the qualified option may not
be less than the stock's fair market value at the time the option is
awarded.
- - The recipient may not sell, transfer or assign the qualified options
except by will or estate laws.
Non-Qualified Options
All awards of non-qualified options are subject to the following terms and
conditions:
- - An option holder may not exercise a non-qualified option sooner than 6
months after the date of grant and may not exercise it later than 10
years after the date of grant.
- - If a recipient ceases to be eligible under the Stock Incentive Plan,
the committee may permit the recipient to exercise non-qualified
options during the remaining term, under the terms and conditions set
by the committee.
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<PAGE> 10
- - The purchase price of the stock subject to the non-qualified option may
not be less than the stock's par value.
- - Except as otherwise provided by the committee or by estate laws, a
recipient may not transfer any non-qualified options.
Stock Appreciation Rights
An award of a stock appreciation right entitles the recipient to
receive, in cash or stock, upon the exercise of the stock appreciation right,
all or a portion of the excess of the fair market value of a specified number of
shares of stock over a specified price, on a per share basis. If the stock
appreciation right is not connected with another award, the specified price of
the stock cannot be less than the stock's fair market value at the time the
stock appreciation right is awarded. If a recipient holding a stock appreciation
right ceases to be eligible under the Stock Incentive Plan, the committee may
permit the recipient to exercise the stock appreciation right during its
remaining term, pursuant to any terms and conditions prescribed by the
committee. A stock appreciation right can be granted either alone or in
connection with another award, other than another stock appreciation right, so
as to operate in tandem with the other award. However, if related to another
award, a stock appreciation right is not exercisable later than the last day
that the related award is exercisable.
Stock appreciation rights awarded in conjunction with qualified options
are subject to the following terms and conditions:
- - The corporation will not award a stock appreciation right after October
8, 2008.
- - A stock appreciation right is not exercisable before 6 months after the
date of the grant.
- - Stock appreciation rights will expire no later than the expiration date
of related qualified options.
- - Payment to the recipient upon the exercise of a stock appreciation
right can be made in either cash or in stock.
- - A stock appreciation right is not to be for more than the difference
between the stock purchase price under the related qualified option and
the stock's fair market value at the time the stock appreciation right
is exercised.
- - A stock appreciation right is transferable only in conjunction with the
qualified option.
- - A stock appreciation right is exercisable only at the time when the
qualified option is exercisable.
- - A stock appreciation right may be exercised only when the stock's fair
market value exceeds the stock purchase price under the qualified
option.
Restricted Stock
The committee, in its discretion, may issue restricted stock to a
recipient. Except as otherwise provided in the Stock Incentive Plan or the
restricted stock award, a restricted stockholder has the same rights as a holder
of common stock, including the right to vote the shares and receive dividends.
However, as long as there are restrictions on the award, the shares, the right
to vote the shares and the right to receive dividends may not be sold,
transferred, encumbered or otherwise disposed of. If a recipient's employment
with the corporation ceases for any reason before the lapse of the restrictions
on the restricted stock, all of the restricted stock still subject to unexpired
restrictions shall be forfeited to the corporation by the recipient.
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Federal Tax Consequences
An employee who receives qualified options will not recognize taxable
income on the grant or the exercise of the option. If the stock acquired by the
exercise of a qualified option is held until the later of:
- - 2 years from the date of the grant; and
- - 1 year from the date of exercise,
any gain (or loss) recognized on the sale or exchange of the stock will be
treated as long-term capital gain (or loss), and the corporation will not be
entitled to any income tax deduction. If stock acquired on the exercise of a
qualified option is sold or exchanged before the expiration of the required
holding period, the employee will recognize ordinary income in the year of
disposition in an amount equal to the difference between the option price and
the lesser of the fair market value of the stock on the date of exercise, or the
selling price. In the event of a disqualifying disposition, the corporation will
be entitled to an income tax deduction in the year of such disposition in an
amount equal to the amount of ordinary income recognized by the employee.
An employee who receives a non-qualified option will not recognize
taxable income on the grant of the option. However, upon exercise, he or she
will recognize ordinary income in an amount equal to the excess of the fair
market value of the stock on the date that the option is exercised over the
purchase price paid for the stock. The corporation is entitled to an income tax
deduction in the year of exercise in an amount equal to the amount of income
recognized by the employee.
An employee who receives a stock appreciation right will not recognize
taxable income on the grant of the stock appreciation right. However, upon the
exercise of the stock appreciation right, the employee will recognize ordinary
income in an amount equal to the cash or the fair market value of the stock
received. The corporation will be entitled to an income tax deduction in the
year the employee exercises the stock appreciation in an amount equal to the
amount of income recognized by the employee.
An employee who receives restricted stock will not recognize taxable
income on the award of the restricted stock if the restricted stock is
non-transferable and subject to a substantial risk of forfeiture. The employee
shall recognize taxable income at the first time that
- - the rights in the restricted stock are transferable, or
- - are not subject to a substantial risk of forfeiture, whichever occurs
earlier.
The employee will recognize taxable income in an amount equal to the
excess of the fair market value of the restricted stock at such first time, over
the amount paid for the restricted stock. However, an employee may elect to
include in his or her taxable income for the tax year when the stock is deemed
transferred to the employee the excess of the fair market value of the
restricted stock at the time of the award, over the amount paid for the
restricted stock. The corporation will be entitled to an income tax deduction,
in an amount equal to the taxable income recognized by the employee, for the
corporation's taxable year in which the taxable income is recognized by the
employee.
This tax discussion is intended only as a summary. The federal income
tax consequences to any person who participates in the Stock Incentive Plan and
to the corporation may vary from those described above, depending upon
individual actions and circumstances.
As of February 26, 1999, approximately 41 executive officers may
participate in the Stock Incentive Plan. The Committee, in its discretion, will
determine the size and type of awards. Such future grants by the Committee are
not presently determinable, nor is it possible to predict the benefits that may
be granted or allocated to particular individuals or groups for 1999.
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<PAGE> 12
The following table sets forth the benefits that would have been
granted under the Stock Incentive Plan had it been in effect during 1998. The
table assumes that the grants would have been made on October 7, 1998. On that
date, the approximate fair market value of the corporation's common stock was
$34.00 per share.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
Name and Position Dollar Value Number of Units
----------------- ------------ ---------------
<S> <C> <C>
Walter E. Daller, Jr. $102,000 3,000
President and CEO
Demetra M. Takes $51,000 1,500
Executive Vice President and COO
Fred C. Reim, Jr. $51,000 1,500
President and CEO, Security National Bank
Thomas D. Oleksa $51,000 1,500
President and CEO, Citizens National Bank
Dennis L. Detwiler $34,000 1,000
Senior Vice President
Vernon L. Hunsberger $34,000 1,000
Senior Vice President, CFO and Cashier
Executive Group $323,000 9,500
Non-Executive Director Group $0 0
Non-Executive Officer Employee Group $459,000 13,500
</TABLE>
The Board of Directors may amend, suspend or terminate the
Stock Incentive Plan at any time without shareholder approval. However, the
amendment or termination of this Plan shall not, without the consent of the
recipients, alter or impair any rights or obligations under any award previously
granted under this Plan.
The Board of Directors unanimously recommends a vote FOR the
following resolution that will be presented at the Annual Meeting:
RESOLVED, that the shareholders of the corporation hereby approve,
adopt, ratify and confirm the 1998 Stock Incentive Plan, the text of
which is set forth in its entirety in the proxy statement for the 1999
Annual Meeting of Shareholders as Exhibit "A."
A majority of shareholders entitled to vote must vote in the
affirmative to approve and adopt the Stock Incentive Plan. The proxy holders
will vote FOR the above resolution unless shareholders specify otherwise on
their proxy cards.
The Board of Directors unanimously recommends a vote FOR the
proposal to approve and adopt the 1998 Stock Incentive Plan.
11
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PROPOSAL NO. 3
APPROVAL OF THE
1998 INDEPENDENT DIRECTORS STOCK OPTION PLAN
On October 8, 1998, the Board of Directors adopted the
corporation's 1998 Independent Directors Stock Option Plan, subject to approval
by the shareholders at the Annual Meeting. The Board of Directors reserved
75,000 shares of common stock for issuance under the director plan. The terms
and effect of the director plan are summarized below. This summary highlights
selected information from the director plan and may not contain all of the
information that is important to you. To understand the director plan fully, and
for more complete descriptions of the terms of the director plan, you should
read carefully the plan that is attached as Exhibit "B."
The purposes of the director plan are to:
- - advance the development, growth and financial condition of the
corporation and its subsidiaries by providing an additional incentive
to non-employee directors by encouraging them to acquire stock
ownership in the corporation; and
- - secure, retain, and motivate non-employee directors.
The director plan will benefit the corporation and its shareholders
because it will:
- - encourage directors to have a greater personal financial stake in the
corporation's business through the ownership of the corporation's
common stock; and
- - align the directors' common interest with that of shareholders; and
- - increase the long-term value of the corporation's stock.
Under the plan, the corporation will issue stock only to
non-employee directors of the corporation or its subsidiaries. The corporation
will not issue stock to executive officers who are also directors.
Term
If approved by shareholders at the meeting, the plan will
become effective as of October 8, 1998, the date it was adopted by the
corporation's Board of Directors. The plan will continue in effect until all
awards under this plan either have lapsed, been exercised, satisfied or
canceled. No awards shall be granted after the 10th anniversary of the plan's
effective date, October 8, 2008. The maximum number of shares of stock that the
corporation may issue under the plan is 75,000, adjusted from time to time to
reflect stock splits, payments of stock dividends or other changes in the
structure of the corporation's capital.
Eligibility
Under the plan, the corporation may grant awards to
non-employee or "independent" directors. The corporation will grant a stock
option to each non-employee director on April 13, 1999, and on the first
business day of January 2000. On each date of grant, the corporation will grant
an option to purchase 3,750 shares of common stock to each non-employee
director. The purchase price of a share of the common stock subject to a stock
option will be the fair market value of the common stock at the date of grant.
The recipient may exercise these stock options for a period of 10 years from the
date of grant. The remaining shares under the plan shall be awarded and granted
on the first business day of January of each following year beginning in 2001 at
the rate of 500 shares of common stock options per each non-employee director of
the corporation until such time as no shares remain available under the plan.
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<PAGE> 14
If a non-employee director ceases to be a director of the
corporation for any reason and is not designated as "Director Emeritus," then he
or she may not exercise the remaining portion of his or her stock options later
than 12 months after ceasing to be a non-employee director. If a non-employee
director dies prior to the expiration of his or her stock options, and without
having fully exercised exercisable stock options, the director's legal
representative or beneficiary may exercise the stock options only during the 12
month period immediately following the director's death.
Transferability
Except as otherwise provided by the Board of Directors or by
estate laws, the recipient may not transfer stock options under this plan.
If the shareholders approve the director plan, the plan will
cover certain stock options granted after April 13, 1999. The table below
assumes that the corporation made grants on April 14, 1998.
NEW PLAN BENEFITS*
<TABLE>
<CAPTION>
Name and Position Dollar Value Number of Units
- ----------------- ------------ ---------------
<S> <C> <C>
Walter E. Daller, Jr $0 0
President and CEO
Demetra M. Takes $0 0
Executive Vice President and COO
Fred C. Reim, Jr $0 0
President and CEO, Security National Bank
Thomas D. Oleksa $0 0
President and CEO, Citizens National Bank
Vernon L. Hunsberger $0 0
Senior Vice President, CFO and Cashier
Dennis L. Detwiler $0 0
Senior Vice President
Executive Group $0 0
Non-Executive Director Group $1,457,663 33,750
Non-Executive Officer Employee Group $0 0
</TABLE>
* If this plan had been in effect during calendar year 1998, the dollar value of
33,750 stock options, issued on April 14, 1998, following the Board of
Directors' annual reorganization meeting, would be $1,457,663, or $43.19 per
share, based on the fair market value of the corporation's common stock on April
14, 1998.
Adjustments
The plan provides for changes in the outstanding shares issued by the
corporation, such as splits and dividends. If any change occurs, the corporation
will adjust the number of shares in the plan and the number of shares of each
option.
Amendment
The Board of Directors may amend, suspend or terminate the plan at any
time without shareholder approval, subject to requirements under applicable
securities and tax laws or regulations. However, any amendment of the plan may
not materially or adversely affect any right of a director with respect to
shares of common stock previously issued without the director's written consent.
13
<PAGE> 15
Termination
The director plan will terminate upon the earlier of:
- - the Board's adoption of a resolution terminating the director plan; or
- - the 10th anniversary of the effective date of the director plan, or
October 8, 2008.
General Information
If the shareholders approve the plan, it will cover stock options
granted to directors on April 13, 1999. The corporation will register the plan
with the Securities and Exchange Commission and with any applicable state
securities commissions. The corporation will bear the cost of any registration.
Federal Income Tax Consequences of Director Plan
The plan permits non-employee directors to receive grants of
non-qualified stock options. A non-employee director receiving a stock option
will not recognize taxable income on the grant of the option. However, upon
exercise, he or she will recognize ordinary income in an amount equal to the
excess of the fair market value of the stock on the date that the option is
exercised over the purchase price paid for the stock. The corporation will be
entitled to an income tax deduction in the year of exercise in an amount equal
to the amount of income recognized by the director.
This tax discussion is intended as a summary only. The federal income
tax consequences to any recipient of options under the plan and to the
corporation may vary from those described above, depending upon individual
actions and circumstances.
The Board of Directors unanimously recommends a vote FOR the following
resolution that will be presented at the Annual Meeting:
RESOLVED, that the shareholders of the corporation hereby
approve, adopt, ratify and confirm the 1998 Independent
Directors Stock Option Plan, the text of which is attached to
the proxy statement for the 1999 Annual Meeting of
Shareholders as Exhibit "B."
A majority of all shareholders entitled to vote must vote in
the affirmative to approve and adopt the director plan. The proxy holders will
vote FOR the above resolution unless shareholders specify otherwise on their
proxy cards.
The Board of Directors unanimously recommends a vote FOR the
proposal to approve and adopt the 1998 Independent Directors Stock Option Plan.
14
<PAGE> 16
PRINCIPAL OWNERS
The following table indicates the name and address of each person or
business group who owns more than 5% of Harleysville National Corporation's
total outstanding shares of common stock as of February 26, 1999. The
corporation also lists the number of shares and the percentage of total
outstanding shares beneficially owned by each person or business group.
<TABLE>
<CAPTION>
SHARES PERCENT OF OUTSTANDING
BENEFICIALLY COMMON STOCK
NAME AND ADDRESS OWNED (1) BENEFICIALLY OWNED
- ---------------- --------- ------------------
<S> <C> <C>
The Harleysville National Bank and Trust Company ... 449,163 (2) 5.89%
Trust Department
483 Main Street
P.O. Box 195
Harleysville, Pennsylvania 19438
</TABLE>
- ----------------------------
(1) The securities "beneficially owned" by an individual are determined
according to the definitions of "beneficial ownership" found in the General
Rules and Regulations of the Securities and Exchange Commission and may
include securities owned by or for the individual's spouse and minor
children and any other relative who resides in the same home, as well as
securities that the individual has or shares the right to vote or the
authority to make investment decisions or any shares the individual has the
right to acquire beneficial ownership of within 60 days after February 26,
1999. Beneficial ownership may be disclaimed under certain circumstances.
(2) Shares held by Harleysville National Bank and Trust Company's Trust
Department are held in its fiduciary capacity. Harleysville National Bank
and Trust Company's Trust Department has sole power to vote or to direct
the vote of 449,163 shares and sole power to make investment decisions for
449,163 shares. Harleysville National Bank and Trust Company's Trust
Department intends to vote all shares under its control FOR the election of
the nominees for Class A Directors and the Stock Option Plans proposed in
this proxy statement.
BENEFICIAL OWNERSHIP BY OFFICERS, DIRECTORS AND NOMINEES
The following table indicates the amount and percentage of Harleysville
National Corporation's total outstanding shares of common stock beneficially
owned by each named officer, director and nominee for director and by all
officers of Harleysville National Corporation and its banking subsidiaries as a
group, as of February 26, 1999.
<TABLE>
<CAPTION>
SHARES PERCENT OF OUTSTANDING
BENEFICIALLY COMMON STOCK
NAME AND POSITION OWNED BENEFICIALLY OWNED
- ----------------- ------------ ------------------
<S> <C> <C>
Walter E. Daller, Jr., Director and Officer (4)................ 165,249 (5) 2.17%
LeeAnn Bergey, Director (2).................................... 100 (6) *
Martin E. Fossler, Director (4)................................ 11,657 (7) *
Harold A. Herr, Director (1)................................... 11,836 (8) *
Thomas S. McCready, Director (4)............................... 126,587 (9) 1.66%
Henry M. Pollak, Director (1).................................. 17,926 (10) *
Palmer E. Retzlaff, Director (2)............................... 1,677 (8) *
Walter F. Vilsmeier, Director (1).............................. 5,891 (8) *
William M. Yocum, Director (3)................................. 33,222 (8) *
All Officers and Directors as a Group (25 persons)............. 458,442 (11) 6.01%(12)
</TABLE>
- ----------------------
*Less than one percent (1%) unless otherwise indicated.
(1) Class A Director whose term expires in 1999 and a nominee for Class A
Director whose term will expire in 2003.
(2) Class B Director whose term expires in 2000.
15
<PAGE> 17
(3) Class C Director whose term expires in 2001.
(4) Class D Director whose term expires in 2002.
(5) Includes: 24,103 shares solely owned by W. Daller; 119,307 shares owned
jointly with spouse; 12,339 shares owned solely by spouse; and, 9,500
stock options, none of which are exercisable.
(6) Shares owned jointly with spouse.
(7) Includes: 11,131 shares solely owned by M. Fossler; and 526 shares
owned by spouse.
(8) Shares are solely owned.
(9) Includes: 66,409 shares owned as Trustee of his personal trust; and
60,178 shares owned by his spouse as Trustee of her personal trust.
(10) Includes: 17,926 shares owned jointly with spouse.
(11) Does not include 449,163 shares held by the Trust Department of The
Harleysville National Bank and Trust Company in its fiduciary capacity.
(12) The percent of class assumes the exercise of all outstanding options
issued to directors, employee directors, and officers and, therefore,
on a pro forma basis, 7,627,986 shares of common stock outstanding.
INFORMATION CONCERNING DIRECTORS
Three Directors will be elected at the Annual Meeting to serve as Class A
Directors for a four-year term expiring in the year 2003.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DIRECTOR OF
FOR PAST FIVE YEARS AND CORPORATION
NAME AGE POSITION HELD WITH THE CORPORATION SINCE
- ---- --- ---------------------------------- -----
<S> <C> <C> <C>
CURRENT CLASS A DIRECTORS AND
NOMINEES FOR CLASS A DIRECTOR
TO SERVE UNTIL 2003
Walter F. Vilsmeier........................... 69 Chief Executive Officer - Vilsmeier 1987
Auction Co., Inc., auction and
appraisal services
Harold A. Herr................................ 51 Partner - Albert S. Herr & Sons, 1987
Agri-Business
Henry M. Pollak............................... 67 President - American Machine and 1996
Tool, manufacturer of pumps and
woodworking tools; Director of
Security National Bank
CLASS B DIRECTORS
TO SERVE UNTIL 2000
Palmer E. Retzlaff........................... 67 President - Southwest Grain 1996
Company, a grain import and
export business; Director,
Teleflex, Inc.; and Paris
Business Corp.
LeeAnn Bergey................................ 45 President - Bergey's Leasing 1999
Associates, a full-service
truck leasing and rental company
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DIRECTOR OF
FOR PAST FIVE YEARS AND CORPORATION
NAME AGE POSITION HELD WITH THE CORPORATION SINCE
- ---- --- ---------------------------------- -----
<S> <C> <C> <C>
CLASS C DIRECTORS
TO SERVE UNTIL 2001
William M. Yocum............................ 64 President - W. M. Yocum Machine 1984
Company
CLASS D DIRECTORS
TO SERVE UNTIL 2002
Walter E. Daller Jr......................... 59 Chairman of the Board, President and 1977
Chief Executive Officer of the
corporation; President and Chief
Executive Officer of Harleysville;
Director of Citizens National Bank
since 1991; and Director of Security
National Bank since 1994
Martin E. Fossler........................... 70 Retired-formerly President MEFCO, 1984
a manufacturer of industrial packaging
Thomas S. McCready.......................... 68 Attorney-at-law; Chairman of the 1996
Board and Director of Citizens
National Bank
</TABLE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
<TABLE>
<CAPTION>
- ----------------- ---------- ------- ------------ ---------- ---------- ---------- ------------ ----------- -------
INVESTMENT
BOARD MEMBER CORPORATE AUDIT COMPENSATION COMPLIANCE EXECUTIVE AND FUNDS NOMINATING PENSION & TRUST
BOARD MANAGEMENT 401(K) PLAN
- ----------------- ---------- ------- ------------ ---------- ---------- ---------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
W. E. Daller, Jr. [CHECK] [CHECK]
- ----------------- ---------- ------- ------------ ---------- ---------- ---------- ------------ ---------- -------
M. E. Fossler [CHECK] [CHECK] [CHECK] [CHECK] [CHECK]
- ----------------- ---------- ------- ------------ ---------- ---------- ---------- ------------ ---------- -------
H. A. Herr [CHECK] [CHECK] [CHECK]
- ----------------- ---------- ------- ------------ ---------- ---------- ---------- ------------ ---------- -------
T. S. McCready [CHECK] [CHECK]
- ----------------- ---------- ------- ------------ ---------- ---------- ---------- ------------ ---------- -------
H. M. Pollak [CHECK] [CHECK]
- ----------------- ---------- ------- ------------ ---------- ---------- ---------- ------------ ---------- -------
P. E. Retzlaff [CHECK] [CHECK] [CHECK] [CHECK] [CHECK]
- ----------------- ---------- ------- ------------ ---------- ---------- ---------- ------------ ---------- -------
W. F. Vilsmeier [CHECK] [CHECK] [CHECK] [CHECK]
- ----------------- ---------- ------- ------------ ---------- ---------- ---------- ------------ ---------- -------
W. M. Yocum [CHECK] [CHECK] [CHECK]
- ----------------- ---------- ------- ------------ ---------- ---------- ---------- ------------ ---------- -------
MEETINGS HELD IN 10 3 5 4 6 4 3 4 4
1998
- ----------------- ---------- ------- ------------ ---------- ---------- ---------- ------------ ---------- -------
</TABLE>
- - AUDIT:
Reviews auditing, accounting, financial reporting and internal control
functions. Recommends our independent accountant and reviews their services.
All members are non-employee directors.
- - COMPENSATION:
Administers executive compensation programs, policies, and practices. Acts in
an advisory role on employee compensation. All members are non-employee
directors.
- - COMPLIANCE:
Assures the Board of Directors that Harleysville National Corporation's
banking subsidiaries are in compliance with all applicable laws and
regulations.
17
<PAGE> 19
- - EXECUTIVE:
Acts, with limited powers, on behalf of the Board whenever the Board is
not in session. Meets only as needed.
- - INVESTMENT AND FUNDS MANAGEMENT:
Oversees the Investment Policy, reviews liquidity, and approves the
type and maturity of investments.
- - NOMINATING:
Considers and recommends nominees for election as directors and
officers. Reviews and evaluates the Board and its members. All members
are non-employee directors.
- - PENSION & 401(K) PLAN:
Ensures the retirement plans are meeting the needs of the employees at
a reasonable cost to the corporation. Evaluates the investment
performance, recommends plan revisions and reviews the performance of
the plan administrators and investment managers.
- - TRUST:
Administers policies and procedures for the Investment Management and
Trust Division. Reviews all exceptions to Trust accounts. Reviews
financial reporting for division.
The members of the Board of Directors of the corporation also serve
as the members of the Board of Directors of the Harleysville National Bank
and Trust Company, with the exception of Mr. McCready and Mr. Pollak. During
1998, the corporation held 10 regular monthly board meetings, the Annual
Meeting and the annual reorganization meeting. All of the directors attended
at least 75% of the meetings of the Boards of Directors of the corporation
and the bank and of the committees of which they were members.
COMPENSATION OF DIRECTORS
Directors of Harleysville National Corporation do not receive a fee
for meetings attended, with the exception of Mr. McCready and Mr. Pollak who
receive one-half of the annual retainer fee and one-half of the meeting fee
paid to Directors of the Harleysville National Bank and Trust Company for
each meeting of the corporation attended. These reduced fees are paid to
Messrs. McCready and Pollak in recognition of the time and travel necessary
to attend the meetings of the corporation. Historically, the corporation
holds fewer meetings than each of its banking subsidiaries. Directors of the
Harleysville National Bank and Trust Company received a fee of $425 for each
board meeting attended, an annual retainer fee of $7,000, and also received a
fee of $310 for each committee meeting they attended. Directors were not
compensated for committee meetings less than 15 minutes in duration or for
committee meetings held prior to a Board meeting. Each Director of the
Harleysville National Bank and Trust Company received a bonus of $2,500. In
the aggregate, the Board of Directors of Harleysville received $146,378.
Harleysville National Corporation maintains deferred compensation
plans for its directors. In the past, certain directors elected to defer,
with interest, all or part of their compensation for future distribution.
Under the terms of the plan, benefits can be paid out to the respective
directors over a ten-year period. Should the director die before age 70 or
before receiving all of the benefits, those benefits would be paid to his or
her beneficiary until age 70 or for ten years, whichever shall be greater.
This plan is considered an unfunded plan, which is subject to substantial
risk of forfeiture, and the director is not considered to be vested according
to the plan.
18
<PAGE> 20
EXECUTIVE COMPENSATION
Shown below is information concerning annual and long-term
compensation for services in all capacities to Harleysville National
Corporation and its banking subsidiaries for the fiscal years ending December
31, 1998, 1997, and 1996 for those individuals who served as Harleysville
National Corporation's Chief Executive Officer, and were executive officers
(other than the Chief Executive Officer) whose total annual salary and bonus
exceeded $100,000 at December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
RESTRICTED OPTIONS LTIP ALL OTHER
NAME AND POSITION YEAR SALARY BONUS OTHER STOCK (SHARES) PAYOUTS COMPENSATION(2)
----------------- ---- ------ ----- ----- ----- -------- ------- -------------
($) ($) ($) ($) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Walter E. Daller, Jr. 1998 358,183 193,100 -- -- 9,500 -- 144,444
Chairman, President and CEO 1997 336,680 171,400 -- -- -- -- 144,194
1996 316,750 160,800 -- -- -- -- 153,694
Demetra M. Takes 1998 168,173 67,000 -- -- 5,000 -- 62,211
Executive Vice President 1997 158,000 60,000 -- -- -- -- 61,951
and COO 1996 148,750 57,000 -- -- -- -- 64,649
Vernon L. Hunsberger 1998 106,510 27,500 -- -- 2,500 -- 16,704
Senior Vice President, 1997 100,000 25,000 -- -- -- -- 16,440
CFO and Cashier 1996 95,400 23,850 -- -- -- -- 17,845
Dennis L. Detwiler 1998 87,170 21,700 -- -- 2,500 -- 13,602
Senior Vice President 1997 77,750 19,450 -- -- -- -- 13,320
1996 72,664 16,500 -- -- -- -- 12,042
Fred C. Reim, Jr. 1998 120,464 25,000 -- -- 5,000 -- 3,614
President and CEO 1997 107,585 26,900 -- -- -- -- 3,228
Security National Bank 1996 102,462 20,500 -- -- -- -- 7,666
</TABLE>
(2)MAJOR COMPONENTS OF ALL OTHER COMPENSATION INCLUDE:
<TABLE>
<CAPTION>
DIRECTORS SUPPLEMENTAL HARLEYSVILLE'S STOCK BONUS
DEFERRED EXECUTIVE RETIREMENT PROFIT 30 SHARES AWARDED
COMPENSATION PLAN PLAN SHARING PLAN DECEMBER 24, 1996
----------------- ---- ------------ -----------------
<S> <C> <C> <C> <C>
Walter E. Daller, Jr.
1998 6,990 132,454 5,000 --
1997 6,990 132,454 4,750 --
1996 6,990 132,454 13,500 $750
Demetra M. Takes
1998 -- 57,211 5,000 --
1997 -- 57,211 4,740 --
1996 -- 50,511 13,388 $750
Vernon L. Hunsberger
1998 -- 13,509 3,195 --
1997 -- 13,509 2,931 --
1996 -- 8,509 8,586 $750
Dennis L. Detwiler
1998 -- 10,987 2,615 --
1997 -- 10,987 2,333 --
1996 -- 6,387 4,905 $750
Fred C. Reim, Jr.
1998 -- -- 3,614 --
1997 -- -- 3,228 --
1996 -- -- 6,916 $750
</TABLE>
19
<PAGE> 21
EXECUTIVE COMPENSATION
During 1998, Harleysville National Corporation and/or the
Harleysville National Bank and Trust Company, and/or Security National Bank
and/or Citizens National Bank entered into employment agreements with certain
key executives.
Harleysville National Corporation and the Harleysville National Bank
and Trust Company entered into an employment agreement with Mr. Walter E.
Daller, Jr., Chairman, President and Chief Executive Officer of the
corporation and the bank. The agreement is for a term of 5 years. The term
renews automatically at the end of the five-year period for an additional
three-year term. The employment agreement renews automatically at the end of
the three-year extension for additional one-year terms. The corporation and
the bank must provide written notice to Mr. Daller of non-renewal prior to
the automatic extension dates if they do not want the agreement to
automatically renew. The agreement specifies Mr. Daller's position and
duties, compensation and benefits, and indemnification and termination
provisions. The agreement also contains a non-competition provision and a
confidentiality provision.
Under the terms of his employment agreement, Mr. Daller serves as the
Chairman, President and Chief Executive Officer of the Harleysville National
Corporation and of the Harleysville National Bank and Trust Company. Mr.
Daller is entitled to an annual direct salary of $340,000 for 1998 and
$357,000 in 1999. This salary may be increased in subsequent years as the
Board of Directors deems appropriate. In addition, the Boards of Directors of
the corporation and the bank may pay a periodic bonus to Mr. Daller.
Effective January 1, 1999, Mr. Daller is not entitled to receive director's
fees or other compensation for serving on the corporation's and the bank's
Boards of Directors or committees. Mr. Daller is also entitled to receive
employee benefits made available by the Harleysville National Bank and Trust
Company to its employees and to the use of an automobile.
If the corporation terminates Mr. Daller's employment for cause, then
his rights under the agreement terminate as of the effective date of his
termination. If Mr. Daller terminates his employment for good reason, then he
is entitled to an amount equal to the balance of his "Agreed Compensation"
for the then remaining employment period or 2.99 times his "Agreed
Compensation," whichever is greater. Mr. Daller's rights under the agreement
terminate automatically upon his disability, except, however, that Mr. Daller
will receive an amount equal to and no greater than 70% of his "Agreed
Compensation" until the earliest to occur of his return to work, his
attainment of age 65 or his death. Mr. Daller's rights under the agreement
terminate upon his death and Harleysville National Corporation and the
Harleysville National Bank and Trust Company will pay 2.99 times his annual
base salary to his designated beneficiary. If Mr. Daller retires prior to the
expiration of the agreement, the corporation and the bank will pay Mr. Daller
a lump sum of 1.5 times his "Agreed Compensation." If Mr. Daller's employment
is terminated as a result of a change in control, then he is entitled to
receive a lump sum payment equal to no greater than 2.99 times his "Agreed
Compensation". In addition, Mr. Daller has certain rights to continuation of
his life, disability, medical insurance, and other normal health and welfare
benefits.
During 1998, Harleysville National Corporation and its banking
subsidiaries also entered into employment agreements with:
- Demetra M. Takes, Executive Vice President and Chief Operating
Officer, the Harleysville National Bank and Trust Company
- Vernon L. Hunsberger, Chief Financial Officer and Cashier,
the Harleysville National Bank and Trust Company
- Fred C. Reim, Jr., President and Chief Executive Officer, Security
National Bank
- Thomas D. Oleksa, President and Chief Executive Officer, Citizens
National Bank
These employment agreements are similar to Walter E. Daller,
Jr.'s agreement, except that the term is for 3 years and renews automatically
at the end of the three-year period for additional one-year terms.
20
<PAGE> 22
OPTION GRANTS TABLE
Stock options were granted to executive officers during the fiscal
year ended December 31, 1998. All options were granted under the 1993 Stock
Incentive Plan.
<TABLE>
<CAPTION>
NO. OF SECURITIES PERCENT OF TOTAL EXERCISE OR GRANT
UNDERLYING OPTIONS GRANTED BASE PRICE EXPIRATION DATE
NAME OPTIONS GRANTED TO EMPLOYEES ($/SH) DATE VALUE(1)
---- --------------- ------------ ------ ---- ------
<S> <C> <C> <C> <C> <C>
W. E. Daller, Jr. 9,500(2) 13.0% $35.00 10/27/08 $332,500
President and CEO
D. M. Takes 5,000(3) 6.9% $35.00 10/27/08 175,000
Executive Vice President and COO
V. L. Hunsberger 2,500(3) 3.4% $35.00 10/27/08 87,500
Senior Vice President and CFO
D. L. Detwiler 2,500(3) 3.4% $35.00 10/27/08 87,500
Senior Vice President
F. C. Reim, Jr. 5,000(3) 6.9% $35.00 10/27/08 175,000
President and CEO
Security National Bank
</TABLE>
(1) Fair market value of underlying securities based on the average of the
closing bid and asked prices of the corporation's common shares on the
NASDAQ Stock Exchange on the date of grant, October 27, 1998.
(2) Vesting schedule is 25% on 10/27/99; 25% on 10/27/00; 25% on 10/27/01; and,
25% on 10/27/02.
(3) Vesting schedule is 50% on 10/27/99; and, 50% on 10/27/00.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END VALUES
The table below shows information about all exercises of stock
options by the named officers during the last fiscal year as well as the
fiscal year-end option values for each named executive officer under the 1993
Stock Incentive Plan and held by them at December 31, 1998.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS/AT OPTIONS/AT
NAME AND ON VALUE FY-END FY-END(1)
PRINCIPAL POSITION EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE(2) EXERCISABLE/UNEXERCISABLE
- ------------------ -------- -------- -------------------------- -------------------------
(#) ($) (#) ($)
<S> <C> <C> <C> <C>
W. E. Daller, Jr. -- -- --/9,500 --/38,000
President and CEO
D. M. Takes -- -- --/5,000 --/20,000
Executive Vice President and COO
V. L. Hunsberger -- -- --/2,500 --/10,000
Senior Vice President and CFO
D. L. Detwiler -- -- --/2,500 --/10,000
Senior Vice President
F. C. Reim, Jr. -- -- 1,042/5,695 15,234/30,161
President and CEO
Security National Bank
</TABLE>
(1) Market value of underlying securities based on the closing price of the
corporation's common shares on the NASDAQ Stock Exchange on December 31,
1998, minus the exercise price.
(2) Shares granted under the 1993 Stock Incentive Plan.
21
<PAGE> 23
PENSION PLAN
Harleysville National Corporation maintains a non-contributory funded
pension plan for all full-time employees of its banking subsidiaries over age
21 who have completed 1 year of service. Annual benefits to eligible retired
employees at age 65 or, if later, the 5th anniversary of the first day of the
plan year in which they began to participate in the plan, are provided
according to the following formula:
The product of (A) and (B),
(A) equals the sum of:
(i) .65% of average compensation, plus
(ii) .60%, (.56% or .52% for participants whose social security
retirement age is 66 or 67, respectively) of average
compensation above the covered compensation level of an
individual attaining the social security retirement age in
the current plan year, and
(B) equals the participant's years of service as of his normal
retirement date, but not in excess of 25 years.
Average compensation is the average of the highest 5 consecutive
salaries, excluding bonuses, during the last 10 years of employment.
Compensation for pension purposes is limited to $160,000 for calendar year
1998 (for 1996 and earlier the compensation limit was $150,000) as required
under federal pension law. Total contributions by the bank to the pension
plan for the years ending December 31, 1998, December 31, 1997, and December
31, 1996, were $0, $0, and $407,482.
The following table shows the estimated annual retirement benefit
payable according to the pension plan to an officer currently age 65 for his
lifetime. The table does not reflect any limitations on benefits to
participants that may apply under the Internal Revenue Code. Benefits listed
in the table below are integrated with Social Security.
<TABLE>
<CAPTION>
AVERAGE
ANNUAL 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS
EARNINGS OF SERVICE OF SERVICE OF SERVICE OF SERVICE OF SERVICE
-------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 75,000 $ 7,617 $11,425 $15,234 $19,042 $19,402
100,000 10,742 16,113 21,484 26,854 26,854
125,000 13,867 20,800 27,734 34,667 34,667
150,000 16,992 25,488 33,984 42,479 42,479
160,000 18,242 27,633 36,484 45,604 45,604
</TABLE>
Walter E. Daller, Jr., President and Chief Executive Officer of the
Harleysville National Corporation has 25 years of credited service under the
pension plan. Average salary upon which benefits would be calculated at
December 31, 1998, is $154,000.
Demetra M. Takes, Executive Vice President of the Harleysville
National Bank and Trust Company, has 25 years of credited service under the
pension plan. Average salary upon which benefits would be calculated at
December 31, 1998, is $148,150.
Vernon L. Hunsberger, Senior Vice President of the Harleysville
National Bank and Trust Company, has 25 years of credited service under the
pension plan. Average salary upon which benefits would be calculated at
December 31, 1998, is $95,242.
Dennis L. Detwiler, Senior Vice President of the Harleysville
National Bank and Trust Company, has 14 years of credited service under the
pension plan. Average salary upon which benefits would be calculated at
December 31, 1998, is $74,595.
Fred C. Reim, Jr., President and Chief Executive Officer of Security
National Bank, has 5 years of credited service under the pension plan.
Average salary upon which benefits would be calculated at December 31, 1998,
is $104,212.
22
<PAGE> 24
401(k) PLAN
Harleysville National Corporation maintains a 401(k) plan. It is a
tax-exempt profit-sharing plan, qualified under 401(k) of the Internal
Revenue Code. All employees are eligible to participate on the first day of
the calendar quarter following six months of service, if they are 21 years of
age, and they may contribute a maximum of 15% salary on a pre-tax basis with
a 50% employer match up to a maximum of 3% of salary. The funds in the 401(k)
plan are managed by an independent investment manager. Distributions are made
upon normal retirement at age 65, early retirement at age 55 with a minimum
of 15 years of service, or upon disability, death, termination or hardship. A
participant may elect distributions in a lump sum, in installments, or as an
annuity for life.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Harleysville National Bank and Trust Company maintains a
Supplemental Executive Retirement Plan for certain officers and key employees
of the banking subsidiaries. The plan provides for payment to the covered
employee of an annual supplemental retirement benefit equal to 50% of their
annual base salary upon retirement, thereafter offset by the employer's share
of social security, defined benefit pension and available employer's share of
social security, defined benefit pension and available employer's 401(k)
matching contribution. There is a lifetime payout in retirement benefits with
a minimum payout of 10 years. There is a pre-retirement death benefit,
payable for 10 years, of 100% of the annual base salary for the first year,
and 50% of the annual base salary for the next 9 years.
The following table shows the estimated annual retirement benefit
payable according to the Supplemental Executive Retirement Plan to an
employee covered under the Plan:
<TABLE>
<CAPTION>
Base Salary Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
----------- ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$100,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000
125,000 62,500 62,500 62,500 62,500 62,500 62,500 62,500 62,500 62,500 62,500
150,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000
175,000 87,500 87,500 87,500 87,500 87,500 87,500 87,500 87,500 87,500 87,500
200,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000
225,000 112,500 112,500 112,500 112,500 112,500 112,500 112,500 112,500 112,500 112,500
250,000 125,000 125,000 125,000 125,000 125,000 125,000 125,000 125,000 125,000 125,000
275,000 137,500 137,500 137,500 137,500 137,500 137,500 137,500 137,500 137,500 137,500
300,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000
325,000 162,500 162,500 162,500 162,500 162,500 162,500 162,500 162,500 162,500 162,500
350,000 175,000 175,000 175,000 175,000 175,000 175,000 175,000 175,000 175,000 175,000
375,000 187,500 187,500 187,500 187,500 187,500 187,500 187,500 187,500 187,500 187,500
400,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000
</TABLE>
Salary upon which benefits would be calculated at December 31, 1998,
under the Supplemental Executive Retirement Plan is $346,538 for Walter E.
Daller, Jr., President and Chief Executive Officer of Harleysville National
Corporation and of the Harleysville National Bank and Trust Company; credited
coverage under the plan is 13 years.
Salary upon which benefits would be calculated at December 31, 1998,
under the Supplemental Executive Retirement Plan is $168,173 for Demetra M.
Takes, Vice President of Harleysville National Corporation and Executive Vice
President of the Harleysville National Bank and Trust Company; credited
coverage under the plan is 8 years.
Salary upon which benefits would be calculated at December 31, 1998,
under the Supplemental Executive Retirement Plan is $106,510 for Vernon L.
Hunsberger, Treasurer of Harleysville National Corporation and Senior Vice
President, Chief Financial Officer, and Cashier of the Harleysville National
Bank and Trust Company; credited coverage under the plan is 3 years.
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<PAGE> 25
Salary upon which benefits would be calculated at December 31, 1998,
under the Supplemental Executive Retirement Plan is $87,170 for Dennis L.
Detwiler, Senior Vice President of the Harleysville National Bank and Trust
Company; credited coverage under the plan is 3 years.
Fred C. Reim, Jr., President and Chief Executive Officer of Security
National Bank may become eligible to participate in the plan following 5
years of service.
1993 STOCK INCENTIVE PLAN
Harleysville National Corporation maintains the 1993 Stock Incentive
Plan. The plan's purpose is to advance the development, growth and financial
condition of the corporation. The plan provides that shares of our common
stock be issued to certain employees of the corporation and banking
subsidiaries.
A disinterested committee of the corporation's Board of Directors
administers the plan. Awards can be made in the form of incentive stock
options, non-qualified stock options, stock appreciation rights or restricted
stock as the disinterested committee deems appropriate. During 1998, the
corporation granted 72,500 incentive stock options. The total number of
options exercised under the Stock Incentive Plan during 1998 was 1,984.
HARLEYSVILLE NATIONAL CORPORATION STOCK BONUS PLAN
Harleysville National Corporation maintains the Harleysville National
Corporation Stock Bonus Plan to recognize employees who have -
- - a strong interest in the successful operation of the business,
- - loyalty to the corporation and banking subsidiaries, and
- - visible evidence of increased efficiency.
The Stock Bonus Plan is administered by the compensation committee of
Harleysville National Corporation. The committee determines, annually, in its
sole discretion, the amount of shares the corporation awards.
Harleysville National Corporation awarded 126 shares at the annual
employee awards meeting on January 13, 1998, to certain employees for
exemplary service throughout 1997.
REPORT OF THE COMPENSATION COMMITTEE
The Board of Directors of Harleysville National Corporation is
responsible for governance of the corporation and its banking subsidiaries.
In fulfilling its fiduciary duties, the Board of Directors acts in the best
interests of our shareholders, customers and the communities served by the
corporation and its banking subsidiaries. To accomplish the strategic goals
and objectives of Harleysville National Corporation, the Board of Directors
employs competent persons who undertake to accomplish these objectives with
integrity and in a cost-effective manner. The compensation of these
individuals is part of the Board of Directors' fulfillment of its duties to
accomplish the corporation's strategic mission. The wholly-owned banking
subsidiaries of the corporation provide compensation to the respective
employees of the corporation and its banking subsidiaries.
The basic philosophy of Harleysville National Corporation and its
banking subsidiaries' compensation program is to offer competitive
compensation opportunities for all employees based on the individual's
contribution and personal performance. The compensation committee, comprised
of 2 outside directors whose names are listed at the end of this report,
administers the compensation program. Mr. John W. Clemens also sat on the
committee until becoming Director Emeritus in December 1998. The objectives
of the committee are to establish:
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<PAGE> 26
- - a fair compensation policy to govern executive officers' base salaries,
and
- - incentive plans
to attract and motivate competent, dedicated and ambitious managers whose
efforts will enhance the products and services of Harleysville National
Corporation and its banking subsidiaries. Management believes that this will
result in:
- - improved profitability
- - increased dividends to our shareholders
- - subsequent appreciation in the market value of shares of the
corporation's common stock.
Annually, the Board of Directors reviews and approves the
compensation of the corporation's and its banking subsidiaries' top
executives. The top executives, whose compensation is determined by the
committee, include the chief executive officer, the executive vice president
and all senior vice presidents. As a guideline for review in determining
appropriate compensation, the committee considers:
- - various resource materials
- - the corporation's earnings and overall performance relative to various
peer groups both in the short term and long term historically.
This peer group of banks with assets of $500 Million to $1 Billion is
different than the peer group used for the Shareholder Return Performance
Graph. The principal resources used for peer group comparisons are:
- - 1998 edition of the annual SNL Executive Compensation Review of
Commercial Banks
- - 1998 edition of the L. R. Webber Associates Salary/Benefits Survey of
the Pennsylvania Financial Services Industry.
The peer group on the "Shareholder Return Performance Graph" includes
bank holding companies and banks listed on NASDAQ which may not be located in
Pennsylvania.
The compensation committee does not deem Section 162 (m) of the
Internal Revenue Code to be applicable to the corporation at this time. The
compensation committee intends to monitor the future application of Section
162 (m) of the Internal Revenue Code to the compensation paid to its
executives, officers and, in the event that this section becomes applicable,
the compensation committee intends to amend the corporation's compensation
plans to preserve the deductibility of compensation payable under the plans.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Board of Directors has determined that the compensation of the
chief executive officer as increased by 5% over 1998 compensation of $340,000
is appropriate in light of the following 1998 performance accomplishments as
of September 30, 1998:
for the Harleysville National Bank and Trust Company:
- - a 15.5% increase in net income
- - a 18.1% return on equity
- - a 14.1% increase in assets
- - a 1.54% return on assets
for The Harleysville National Corporation:
- - a 12.3% increase in stockholder dividends.
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<PAGE> 27
There is, however, no direct correlation between the chief executive
officer's compensation, the chief executive officer's increase in
compensation and any of the above criteria, nor is there any specific weight
given by the committee to any of the above individual criteria. The increase
in the chief executive officer's compensation is based on the committee's
subjective determination after review of all information, including the
above, that it deems relevant.
EXECUTIVE OFFICERS
The Board of Directors has established that the compensation of the
executive officers of Harleysville National Corporation and its banking
subsidiaries will increase by 7.98% over 1998 compensation of $1,018,050 in
the aggregate. Compensation increases were determined by the committee based
on its subjective analysis of the individual's contribution to the
corporation's strategic goals and objectives. In determining whether
strategic goals have been achieved, the Board of Directors considers among
numerous factors the corporation's performance as measured by:
- - earnings,
- - revenues,
- - return on assets,
- - return on equity,
- - market share,
- - total assets,
- - non-performing loans.
Although the performance and increases in compensation were measured in
light of these factors, there is no direct correlation between any specific
criterion and the employee's compensation, nor is there any specific weight
provided to any such criteria in the committee's analysis. The determination by
the committee is subjective after review of all information, including the
above, as it deems relevant.
In addition to base salary, executive officers of Harleysville National
Corporation and its banking subsidiaries may participate currently in the
following annual and long-term incentive plans:
- - Pension Plan,
- - 401(k) Plan,
- - Non-qualified Supplement Retirement Benefit Plan,
- - 1993 Stock Incentive Plan.
Total compensation opportunities available to the employees of the
corporation and its banking subsidiaries are influenced by:
- - general labor market conditions,
- - the individual's specific responsibilities,
- - the individual's contributions to our success.
Individuals are reviewed annually on a calendar year basis.
Harleysville National Corporation and its banking subsidiaries strive to offer
compensation that is competitive with that offered by employers of comparable
size in our industry. Through these compensation policies, Harleysville National
Corporation strives to meet its strategic goals and objectives to its
constituencies and to provide compensation that is fair and meaningful to its
employees.
COMPENSATION COMMITTEE
MARTIN E. FOSSLER
PALMER E. RETZLAFF
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<PAGE> 28
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, no current or former officer or employee of Harleysville
National Corporation or of any of its banking subsidiaries served on the
compensation committee. In addition, none of the members of the committee had
any relationship with Harleysville National Corporation or of any of its
subsidiaries that would require disclosure under Item 404 of the Securities
Exchange Commission's Regulation S-K, relating to insider transactions and
indebtedness of management.
SHAREHOLDER RETURN PERFORMANCE GRAPH
A line graph comparing the yearly change in the cumulative total
shareholder return on the corporation's common stock against the cumulative
total return of the NASDAQ Stock Market (U.S. Companies) Index and the NASDAQ
Bank Stocks Index for the period of 5 fiscal years commencing January 1, 1994
and ending December 31, 1998, follows. The shareholder return shown on the graph
below is not necessarily indicative of future performance.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
PERFORMANCE GRAPH FOR HARLEYSVILLE NATIONAL CORPORATION
[LINE GRAPH]
Legend
<TABLE>
<CAPTION>
CRSP Total Returns Index for: 12/1993 12/1994 12/1995 12/1996 12/1997 12/1998
- ----------------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Harleysville National Corporation 100.0 134.9 141.4 130.5 244.2 232.4
Nasdaq Stock Market (US Companies) 100.0 97.8 138.3 170.0 208.6 293.2
Nasdaq Bank Stocks 100.0 99.6 148.4 195.9 328.0 324.9
SIC 6020-6029, 6710-6719 US & Foreign
</TABLE>
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 12/31/1993.
27
<PAGE> 29
CERTAIN TRANSACTIONS
There have been no material transactions between any director or
executive officer of Harleysville National Corporation or its banking
subsidiaries or any of their associates, and Harleysville National Corporation
or its banking subsidiaries, nor are any such material transactions proposed.
The corporation and its banking subsidiaries have had and intend to continue to
have banking and financial transactions in the ordinary course of business with
directors and executive officers of the corporation and its banking subsidiaries
and their associates on comparable terms and with similar interest rates as
those prevailing from time to time for other customers of its banking
subsidiaries. Total loans outstanding from Harleysville National Corporation and
its banking subsidiaries at December 31, 1998, to the corporation and its
banking subsidiaries' executive officers and directors as a group and members of
their immediate families and companies in which they had an ownership interest
of 10% or more was $4,470,853 or approximately 3.64% of the total equity capital
of Harleysville National Corporation. Loans to such persons were made in the
ordinary course of business and 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. Total
interest paid by the banks during 1998 on deposits held by such persons was
$239,100.
COMPLIANCE WITH SECTION 16(A) REPORTING
The rules of the Securities and Exchange Commission require that the
corporation disclose late filings of reports of stock ownership (and changes in
stock ownership) by its directors and executive officers. To the best of the
corporation's knowledge, there were no late filings during 1998.
INDEPENDENT AUDITORS
Grant Thornton LLP, Certified Public Accountants, of Philadelphia,
Pennsylvania, served as Harleysville National Corporation's independent auditors
for the 1998 fiscal year. Grant Thornton LLP assisted the corporation and its
subsidiaries with:
- - preparation of federal and state tax returns; and
- - assistance in connection with regulatory matters
charging the banking subsidiaries for such services at its customary hourly
billing rates. These non-audit services were approved by the corporation's Board
of Directors after due consideration of the effect of the performance thereof on
the independence of the auditors. Grant Thornton LLP has advised the corporation
that none of its members has any financial interest in Harleysville National
Corporation. The Board of Directors of Harleysville National Corporation has
appointed Grant Thornton LLP, Certified Public Accountants, as the corporation's
auditors for the fiscal year ending December 31, 1999.
LEGAL PROCEEDINGS
In the opinion of the management of Harleysville National Corporation
and its banking subsidiaries, there are no proceedings pending to which the
corporation and its banking subsidiaries are a party or to which their property
is subject, which, if determined adversely to the corporation and its banking
subsidiaries, would be material in relation to the corporation's and its banking
subsidiaries' undivided profits or financial condition. There are no proceedings
pending other than routine litigation incident to the business of the
corporation and its banking subsidiaries. In addition, no material proceedings
are pending or are known to be threatened or contemplated against Harleysville
National Corporation and its banking subsidiaries by government authorities.
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<PAGE> 30
ANNUAL REPORT
We enclose a copy of Harleysville National Corporation's annual report
for the fiscal year ended December 31, 1998 with this proxy statement. We
furnish the annual report to shareholders for their information. We have not
incorporated the annual report, or any part of the annual report in this proxy
statement. A representative of Grant Thornton LLP will attend the annual
meeting, and will have the opportunity to make a statement, if he desires to do
so, and will be available to respond to any appropriate questions presented by
shareholders.
SHAREHOLDER PROPOSALS
Any shareholder who, in accordance with and subject to the provisions
of the proxy rules of the Securities and Exchange Commission, wishes to submit a
proposal for inclusion in Harleysville National Corporation's proxy statement
for the year 2000 Annual Meeting of Shareholders, must deliver the proposal in
writing to the Secretary of the corporation at the principal executive offices
of Harleysville National Corporation at 483 Main Street, P.O. Box 195,
Harleysville, Pennsylvania 19438, on or before Tuesday, November 9, 1999.
ADDITIONAL INFORMATION
Any shareholder may obtain a copy of Harleysville National
Corporation's Annual Report on Form 10-K for the fiscal year ended December 31,
1998, including the financial statements and the Schedules thereto, required to
be filed with the Securities and Exchange Commission, without charge, by
submitting a written request to the Secretary of the corporation, Harleysville
National Corporation, 483 Main Street, P.O. Box 195, Harleysville, Pennsylvania
19438, telephone 215-256-8851.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented for
consideration other than the matters described in the accompanying Notice of
Annual Meeting of Shareholders, but, if any matters are properly presented,
persons named in the accompanying proxy intend to vote on such matters in
accordance with their best judgment.
By Order of the Board of Directors,
/s/ Walter E. Daller, Jr.
Walter E. Daller, Jr.
President and
Chief Executive Officer
Date: March 15, 1999
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<PAGE> 31
EXHIBIT "A"
HARLEYSVILLE NATIONAL CORPORATION
1998 STOCK INCENTIVE PLAN
1. Purpose. The purpose of this Stock Incentive Plan (the "Plan") is to
advance the development, growth and financial condition of Harleysville
National Corporation (the "corporation") and each subsidiary thereof,
as defined in Section 424 of the Internal Revenue Code of 1986, as
amended (the "Code"), by providing incentives through participation in
the appreciation of the common stock of the corporation to secure,
retain and motivate personnel who may be responsible for the operation
and for management of the affairs of the corporation and any subsidiary
now or hereafter existing ("Subsidiary").
2. Term. The Plan shall become effective as of the date it is adopted by
the corporation's Board of Directors (the "Board"), and shall be
presented for approval at the next meeting of the corporation's
shareholders. Any and all options and rights awarded under the Plan
(the "Awards") before it is approved by the corporation's shareholders
shall be conditioned upon, and may not be exercised before, receipt of
shareholder approval, and shall lapse upon failure to receive such
approval. Unless previously terminated by the Board, the Plan shall
terminate on, and no options shall be granted after the tenth
anniversary of the effective date of the Plan.
3. Stock. Shares of the corporation's common stock (the "Stock"), that may
be issued under the Plan shall not exceed, in the aggregate, 575,000
shares, as may be adjusted pursuant to Section 19 hereof. Shares may be
either authorized and unissued shares, or authorized shares, issued by
and subsequently reacquired by the corporation as treasury stock. Under
no circumstances shall any fractional shares be awarded under the Plan.
Except as may be otherwise provided in the Plan, any Stock subject to
an Award that, for any reason, lapses or terminates prior to exercise,
shall again become available for grant under the Plan. While the Plan
is in effect, the corporation shall reserve and keep available the
number of shares of Stock needed to satisfy the requirements of the
Plan. The corporation shall apply for any requisite governmental
authority to issue shares under the Plan. The corporation's failure to
obtain any such governmental authority, deemed necessary by the
corporation's legal counsel for the lawful issuance and sale of Stock
under the Plan, shall relieve the corporation of any duty, or liability
for the failure to issue or sell the Stock.
4. Administration. The ability to control and manage the operation and
administration of the Plan shall be vested in the Board or in a
committee of two or more members of the Board, selected by the Board
(the "Committee"). The Committee shall have the authority and
discretion to interpret the Plan, to establish, amend and rescind any
rules and regulations relating to the Plan, to determine the terms and
provisions of any agreements made pursuant to the Plan, and to make any
and all determinations that may be necessary or advisable for the
administration of the Plan. Any interpretation of the Plan by the
Committee and any decision made by the Committee under the Plan is
final and binding.
The Committee shall be responsible and shall have full, absolute and
final power of authority to determine what, to whom, when and under
what facts and circumstances Awards shall be made, and the form,
number, terms, conditions and duration thereof, including but not
limited to when exercisable, the number of shares of Stock subject
thereto, and the stock option exercise prices. The Committee shall make
all other determinations and decisions, take all actions and do all
things necessary or appropriate in and for the administration of the
Plan. No member of the Committee or of the Board shall be liable for
any decision, determination or action made or taken in good faith by
such person under or with respect to the Plan or its administration.
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<PAGE> 32
5. Awards. Awards may be made under the Plan in the form of: (a)
"Qualified Options" to purchase Stock, which are intended to qualify
for certain tax treatment as incentive stock options under Sections 421
and 422 of the Code, (b) "Non-Qualified Options" to purchase Stock,
which are not intended to qualify under Sections 421 through 424 of the
Code, (c) Stock Appreciation Rights ("SARs"), or (d) "Restricted
Stock". More than one Award may be granted to an eligible person, and
the grant of any Award shall not prohibit the grant of another Award,
either to the same person or otherwise, or impose any obligation to
exercise on the participant. All Awards and the terms and conditions
thereof shall be set forth in written agreements, in such form and
content as approved by the Committee from time to time, and shall be
subject to the provisions of the Plan whether or not contained in such
agreements. Multiple Awards for a particular person may be set forth in
a single written agreement or in multiple agreements, as determined by
the Committee, but in all cases each agreement for one or more Awards
shall identify each of the Awards thereby represented as a Qualified
Option, Non-Qualified Option or Stock Appreciation Right, as the case
may be.
6. Eligibility. Persons eligible to receive Awards shall be those key
officers and other employees of the corporation and each Subsidiary, as
determined by the Committee. A person's eligibility to receive an Award
shall not confer upon him or her any right to receive an Award. Except
as otherwise provided, a person's eligibility to receive, or actual
receipt of an Award under the Plan shall not limit or affect his or her
benefits under or eligibility to participate in any other incentive or
benefit plan or program of the corporation or of its affiliates.
7. Qualified Options. In addition to other applicable provisions of the
Plan, all Qualified Options and Awards thereof shall be under and
subject to the following terms and conditions:
(a) The maximum number of shares of Stock that may be issued by
options intended to be Qualified Options shall be 575,000
shares.
(b) No Qualified Option shall be awarded more than ten (10) years
after the date the Plan is adopted by the Board or the date
the Plan is approved by the corporation's shareholders,
whichever is earlier;
(c) The time period during which any Qualified Option is
exercisable, as determined by the Committee, shall not
commence before the expiration of six (6) months or continue
beyond the expiration of ten (10) years after the date the
Qualified Option is awarded;
(d) If a participant, who was awarded a Qualified Option, ceases
to be employed by the corporation or any Subsidiary for any
reason other than his or her death, the Committee may permit
the participant thereafter to exercise the option during its
remaining term for a period of not more than three (3) months
after cessation of employment to the extent that the Qualified
Option was then and remains exercisable, unless such
employment cessation was due to the participant's disability,
as defined in Section 22(e)(3) of the Code, in which case the
three (3) month period shall be twelve (12) months; if the
participant dies while employed by the corporation or a
Subsidiary, the Committee may permit the participant's
qualified personal representatives, or any persons who acquire
the Qualified Option pursuant to his or her Will or laws of
descent and distribution, to exercise the Qualified Option
during its remaining term for a period of not more than twelve
(12) months after the participant's death to the extent that
the Qualified Option was then and remains exercisable; the
Committee may impose terms and conditions upon and for the
exercise of a Qualified Option after the cessation of the
participant's employment or his or her death;
(e) The purchase price of Stock subject to any Qualified Option
shall not be less than the Stock's fair market value at the
time the Qualified Option is awarded and shall not be less
than the Stock's par value; and
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<PAGE> 33
(f) Qualified Options may not be sold, transferred or assigned by
the participant except by Will or the laws of descent and
distribution.
8. Non-Qualified Options. In addition to other applicable provisions of
the Plan, all Non-Qualified Options and Awards thereof shall be under
and subject to the following terms and conditions:
(a) The time period during which any Non-Qualified Option is
exercisable shall not commence before the expiration of six
(6) months or continue beyond the expiration of ten (10) years
after the date the Non-Qualified Option is awarded;
(b) If a participant, who was awarded a Non-Qualified Option,
ceases to be eligible under the Plan, before lapse or full
exercise of the option, the Committee may permit the
participant to exercise the option during its remaining term,
to the extent that the option was then and remains
exercisable, or for such time period and under such terms and
conditions as may be prescribed by the Committee;
(c) The purchase price of a share of Stock subject to any
Non-Qualified Option shall not be less than the Stock's par
value; and
(d) Except as otherwise provided by the Committee, Non-Qualified
Stock Options granted under the Plan are not transferable
except as designated by the participant by Will and the laws
of descent and distribution.
9. Stock Appreciation Rights. In addition to other applicable provisions
of the Plan, all SARs and Awards thereof shall be under and subject to
the following terms and conditions:
(a) SARs may be granted either alone, or in connection with
another previously or contemporaneously granted Award (other
than another SAR) so as to operate in tandem therewith by
having the exercise of one affect the right to exercise the
other, as and when the Committee may determine; however, no
SAR shall be awarded in connection with a Qualified Option
more than ten (10) years after the date the Plan is adopted by
the Board or the date the Plan is approved by the
corporation's shareholders, whichever date is earlier;
(b) Each SAR shall entitle the participant to receive upon
exercise of the SAR all or a portion of the excess of (i) the
fair market value at the time of such exercise of a specified
number of shares of Stock as determined by the Committee, over
(ii) a specified price as determined by the Committee of such
number of shares of Stock that, on a per share basis, is not
less than the Stock's fair market value at the time the SAR is
awarded, or if the SAR is connected with another Award, such
lesser percentage of the Stock purchase price thereunder as
may be determined by the Committee;
(c) Upon exercise of any SAR, the participant shall be paid either
in cash or in Stock, or in any combination thereof, as the
Committee shall determine; if such payment is to be made in
Stock, the number of shares thereof to be issued pursuant to
the exercise shall be determined by dividing the amount
payable upon exercise by the Stock's fair market value at the
time of exercise;
(d) The time period during which any SAR is exercisable, as
determined by the Committee, shall not commence before the
expiration of six (6) months; however, no SAR connected with
another Award shall be exercisable beyond the last date that
such other connected Award may be exercised;
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<PAGE> 34
(e) If a participant holding a SAR, before its lapse or full
exercise, ceases to be eligible under the Plan, the Committee
may permit the participant thereafter to exercise such SAR
during its remaining term, to the extent that the SAR was then
and remains exercisable, for such time period and under such
terms and conditions as may be prescribed by the Committee;
(f) No SAR shall be awarded in connection with any Qualified
Option unless the SAR (i) lapses no later than the expiration
date of such connected Option, (ii) is for not more than the
difference between the Stock purchase price under such
connected Option and the Stock's fair market value at the time
the SAR is exercised, (iii) is transferable only when and as
such connected Option is transferable and under the same
conditions, (iv) may be exercised only when such connected
Option may be exercised, and (v) may be exercised only when
the Stock's fair market value exceeds the Stock purchase price
under such connected Option.
10. Restricted Stock. In addition to other applicable provisions of the
Plan, all Restricted Stock and Awards thereof shall be under and
subject to the following terms and conditions:
(a) Restricted Stock shall consist of shares of Stock that may be
acquired by and issued to a participant at such time, for such
or no purchase price, and under and subject to such transfer,
forfeiture and other restrictions, conditions or terms as
shall be determined by the Committee, including but not
limited to prohibitions against transfer, substantial risks of
forfeiture within the meaning of Section 83 of the Code, and
attainment of performance or other goals, objectives or
standards, all for or applicable to such time periods as
determined by the Committee;
(b) Except as otherwise provided in the Plan or the Restricted
Stock Award, a recipient holding shares of Restricted Stock
shall have all the rights as does a holder of Stock, including
without limitation the right to vote such shares and receive
dividends with respect thereto; however, during the time
period of any restrictions, conditions or terms applicable to
such Restricted Stock, the shares thereof and the right to
vote the same and receive dividends thereon shall not be sold,
assigned, transferred, exchanged, pledged, hypothecated,
encumbered or otherwise disposed of except as permitted by the
Plan or the Restricted Stock Award;
(c) Each certificate issued for shares of Restricted Stock shall
be deposited with the Secretary of the corporation, or the
office thereof, and shall bear a legend in substantially the
following form and content:
THIS CERTIFICATE AND THE SHARES OF STOCK HEREBY
REPRESENTED ARE SUBJECT TO THE PROVISIONS OF THE
CORPORATION'S 1998 STOCK INCENTIVE PLAN AND A CERTAIN
AGREEMENT ENTERED INTO BETWEEN THE HOLDER AND THE
CORPORATION PURSUANT TO THE PLAN. THE RELEASE OF THIS
CERTIFICATE AND THE SHARES OF STOCK HEREBY
REPRESENTED FROM SUCH PROVISIONS SHALL OCCUR ONLY AS
PROVIDED BY THE PLAN AND AGREEMENT, A COPY OF WHICH
ARE ON FILE IN THE OFFICE OF THE SECRETARY OF THE
CORPORATION.
Upon the lapse or satisfaction of the restrictions, conditions
and terms applicable to the Restricted Stock, a certificate
for the shares of Stock free of restrictions and without the
legend shall be issued to the recipient;
(d) If a recipient's employment with the corporation or a
Subsidiary ceases for any reason prior to the lapse of the
restrictions, conditions or terms applicable to his or her
Restricted Stock, all of the recipient's Restricted Stock
still subject to unexpired restrictions, conditions or terms
shall be forfeited absolutely by the recipient to the
corporation without payment or delivery of any consideration
or other thing of value by the corporation or its affiliates,
and thereupon and thereafter neither the recipient nor his or
her heirs, personal or legal representatives, successors,
assigns, beneficiaries, or any claimants under the recipient's
Last Will or laws of descent and distribution, shall have any
rights or claims to or interests in the forfeited Restricted
Stock or
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any certificates representing shares thereof, or claims
against the corporation or its affiliates with respect
thereto.
11. Exercise. Except as otherwise provided in the Plan, Awards may be
exercised in whole or in part by giving written notice thereof to the
Secretary of the corporation, or his or her designee, identifying the
Award to be exercised, the number of shares of Stock with respect
thereto, and other information pertinent to exercise of the Award. The
purchase price of the shares of Stock with respect to which an Award is
exercised shall be paid with the written notice of exercise, either in
cash or in securities of the corporation, including securities issuable
hereunder, at its then current fair market value, or in any combination
thereof, as the Committee shall determine. Funds received by the
corporation from the exercise of any Award shall be used for its
general corporate purposes.
The number of shares of Stock subject to an Award shall be
reduced by the number of shares of Stock with respect to which the
participant has exercised rights under the Award. If a SAR is awarded
in connection with another Award, the number of shares of Stock that
may be acquired by the participant under the other connected Award
shall be reduced by the number of shares of Stock with respect to which
the participant has exercised his or her SAR, and the number of shares
of Stock subject to the participant's SAR shall be reduced by the
number of shares of Stock acquired by the participant pursuant to the
other connected Award.
The Committee may permit an acceleration of previously
established exercise terms of any Awards as, when, under such facts and
circumstances, and subject to such other or further requirements and
conditions as the Committee may deem necessary or appropriate.
In addition:
(a) if the corporation or its shareholders execute an agreement to
dispose of all or substantially all of the corporation's
assets or stock by means of sale, merger, consolidation,
reorganization, liquidation or otherwise, as a result of which
the corporation's shareholders, immediately before the
transaction, will not own at least fifty percent (50%) of the
total combined voting power of all classes of voting stock of
the surviving entity (be it the corporation or otherwise)
immediately after the consummation of the transaction, then
any and all outstanding Awards shall immediately become and
remain exercisable or, if the transaction is not consummated,
until the agreement relating to the transaction expires or is
terminated, in which case, all Awards shall be treated as if
the agreement was never executed;
(b) if there is an actual, attempted or threatened change in the
ownership of at least twenty-five percent (25%) of all classes
of voting stock of the corporation through the acquisition of,
or an offer to acquire such percentage of the corporation's
voting stock by any person or entity, or persons or entities
acting in concert or as a group, and such acquisition or offer
has not been duly approved by the Board, then any and all
outstanding awards shall immediately become and remain
exercisable; or
(c) if during any period of two (2) consecutive years, the
individuals who at the beginning of such period constituted
the Board cease, for any reason, to constitute at least a
majority of the Board (unless the election of each director of
the Board, who was not a director of the Board at the
beginning of such period, was approved by a vote of at least
two-thirds of the directors then still in office who were
directors at the beginning of such period) then any and all
Awards shall immediately become and remain exercisable.
12. Right of First Refusal. Each written agreement for an Award may contain
a provision that requires as a condition to exercising a Qualified
Option or a Non Qualified Option that the participant agree prior to
selling, transferring or otherwise disposing of any shares of Stock
obtained through the exercise of the Award to first offer such shares
of Stock to the corporation for purchase. The terms and conditions of
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<PAGE> 36
such right of first refusal shall be determined by the Committee in its
sole and absolute discretion, provided that the purchase price shall be
at least equal to the Stock's fair market value as determined under
paragraph 14 below, and shall be subject to all applicable federal and
state laws, rules and regulations.
13. Withholding. When a participant exercises a stock option or Stock
Appreciation Right awarded under the Plan, the corporation, in its
discretion and as required by law, may require the participant to remit
to the corporation an amount sufficient to satisfy fully any federal,
state and other jurisdictions' income and other tax withholding
requirements prior to the delivery of any certificates for shares of
Stock. At the Committee's discretion, remittance may be made in cash,
shares already held by the participant or by the withholding by the
corporation of sufficient shares issuable pursuant to the option to
satisfy the participant's withholding obligation.
14. Value. Where used in the Plan, the "fair market value" of Stock or any
options or rights with respect thereto, including Awards, shall mean
and be determined by (a) the average of the highest and lowest reported
sales prices thereof on the principal established domestic securities
exchange on which listed, and if not listed, then (b) the average of
the dealer "bid" and "ask" prices thereof on the over-the-counter
market, as reported by the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), in either case as of the
specified or otherwise required or relevant time, or if not traded as
of such specified, required or relevant time, then based upon such
reported sales or "bid" and "ask" prices before and/or after such time
in accordance with pertinent provisions of and principles under the
Code and the regulations promulgated thereunder.
15. Amendment. To the extent permitted by applicable law, the Board may
amend, suspend, or terminate the Plan at any time. The amendment or
termination of this Plan shall not, without the consent of the
participants, alter or impair any rights or obligations under any Award
previously granted hereunder.
From time to time, the Committee may rescind, revise and add
to any of the terms, conditions and provisions of the Plan or of an
Award as necessary or appropriate to have the Plan and any Awards
thereunder be or remain qualified and in compliance with all applicable
laws, rules and regulations, and the Committee may delete, omit or
waive any of the terms, conditions or provisions that are no longer
required by reason of changes of applicable laws, rules or regulations,
including but not limited to, the provisions of Sections 421 and 422 of
the Code, Section 16 of the Securities Exchange Act of 1934, as
amended, (the "1934 Act") and the rules and regulations promulgated by
the Securities and Exchange Commission. Without limiting the generality
of the preceding sentence, each Qualified Option shall be subject to
such other and additional terms, conditions and provisions as the
Committee may deem necessary or appropriate in order to qualify as a
Qualified Option under Section 422 of the Code, including, but not
limited to, the following provisions:
(a) At the time a Qualified Option is awarded, the aggregate fair
market value of the Stock subject thereto and of any Stock or
other capital stock with respect to which incentive stock
options qualifying under Sections 421 and 422 of the Code are
exercisable for the first time by the participant during any
calendar year under the Plan and any other plans of the
corporation or its affiliates, shall not exceed $100,000.00;
and
(b) No Qualified Option shall be awarded to any person if, at the
time of the Award, the person owns shares of the stock of the
corporation possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the
corporation or its affiliates, unless, at the time the
Qualified Option is awarded, the exercise price of the
Qualified Option is at least one hundred and ten percent
(110%) of the fair market value of the Stock on the date of
grant and the option, by its terms, is not exercisable after
the expiration of five (5) years from the date it is awarded.
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<PAGE> 37
16. Continued Employment. Nothing in the Plan or any Award shall confer
upon any participant or other persons any right to continue in the
employ of, or maintain any particular relationship with, the
corporation or its affiliates, or limit or affect any rights, powers or
privileges that the corporation or its affiliates may have to
supervise, discipline and terminate the participant. However, the
Committee may require, as a condition of making and/or exercising any
Award, that a participant agree to, and in fact provide services,
either as an employee or in another capacity, to or for the corporation
or any Subsidiary for such time period as the Committee may prescribe.
The immediately preceding sentence shall not apply to any Qualified
Option, to the extent such application would result in disqualification
of the option under Sections 421 and 422 of the Code.
17. General Restrictions. If the Committee or Board determines that it is
necessary or desirable to: (a) list, register or qualify the Stock
subject to the Award, or the Award itself, upon any securities exchange
or under any federal or state securities or other laws, (b) obtain the
approval of any governmental authority, or (c) enter into an agreement
with the participant with respect to disposition of any Stock
(including, without limitation, an agreement that, at the time of the
participant's exercise of the Award, any Stock thereby acquired is and
will be acquired solely for investment purposes and without any
intention to sell or distribute the Stock), then such Award shall not
be consummated in whole or in part unless the listing, registration,
qualification, approval or agreement, as the case may be, shall have
been appropriately effected or obtained to the satisfaction of the
Committee and legal counsel for the corporation.
18. Rights. Except as otherwise provided in the Plan, participants shall
have no rights as a holder of the Stock unless and until one or more
certificates for the shares of Stock are issued and delivered to the
participant.
19. Adjustments. In the event that the shares of common stock of the
corporation, as presently constituted, shall be changed into or
exchanged for a different number or kind of shares of common stock or
other securities of the corporation or of other securities of the
corporation or of another corporation (whether by reason of merger,
consolidation, recapitalization, reclassification, split-up,
combination of shares or otherwise) or if the number of such shares of
common stock shall be increased through the payment of a stock
dividend, stock split or similar transaction, then, there shall be
substituted for or added to each share of common stock of the
corporation that was theretofore appropriated, or which thereafter may
become subject to an option under the Plan, the number and kind of
shares of common stock or other securities into which each outstanding
share of the common stock of the corporation shall be so changed or for
which each such share shall be exchanged or to which each such shares
shall be entitled, as the case may be. Each outstanding Award shall be
appropriately amended as to price and other terms, as may be necessary
to reflect the foregoing events.
If there shall be any other change in the number or kind of
the outstanding shares of the common stock of the corporation, or of
any common stock or other securities in which such common stock shall
have been changed, or for which it shall have been exchanged, and if a
majority of the disinterested members of the Committee shall, in its
sole discretion, determine that such change equitably requires an
adjustment in any Award that was theretofore granted or that may
thereafter be granted under the Plan, then such adjustment shall be
made in accordance with such determination.
The grant of an Award under the Plan shall not affect in any
way the right or power of the corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or
business structure, to merge, to consolidate, to dissolve, to liquidate
or to sell or transfer all or any part of its business or assets.
Fractional shares resulting from any adjustment in Awards
pursuant to this Section 19 may be settled as a majority of the members
of the Board of Directors or of the Committee, as the case may be,
shall determine.
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To the extent that the foregoing adjustments relate to common
stock or securities of the corporation, such adjustments shall be made
by a majority of the members of the Board or of the Committee, as the
case may be, whose determination in that respect shall be final,
binding and conclusive. Notice of any adjustment shall be given by the
corporation to each holder of an Award that is so adjusted.
20. Forfeiture. Notwithstanding anything to the contrary in this Plan, if
the Committee finds, after full consideration of the facts presented on
behalf of the corporation and the involved participant, that he or she
has been engaged in fraud, embezzlement, theft, commission of a felony,
or dishonesty in the course of his or her employment by the corporation
or by any Subsidiary and such action has damaged the corporation or the
Subsidiary, as the case may be, or that the participant has disclosed
trade secrets of the corporation or its affiliates, the participant
shall forfeit all rights under and to all unexercised Awards, and under
and to all exercised Awards under which the corporation has not yet
delivered payment or certificates for shares of Stock (as the case may
be), all of which Awards and rights shall be automatically canceled.
The decision of the Committee as to the cause of the participant's
discharge from employment with the corporation or any Subsidiary and
the damage thereby suffered shall be final for purposes of the Plan,
but shall not affect the finality of the participant's discharge by the
corporation or Subsidiary for any other purposes. The preceding
provisions of this paragraph shall not apply to any Qualified Option to
the extent such application would result in disqualification of the
option as an incentive stock option under Sections 421 and 422 of the
Code.
21. Indemnification. In and with respect to the administration of the Plan,
the corporation shall indemnify each member of the Committee and/or of
the Board, each of whom shall be entitled, without further action on
his or her part, to indemnification from the corporation for all
damages, losses, judgments, settlement amounts, punitive damages,
excise taxes, fines, penalties, costs and expenses (including without
limitation attorneys' fees and disbursements) incurred by the member in
connection with any threatened, pending or completed action, suit or
other proceedings of any nature, whether civil, administrative,
investigative or criminal, whether formal or informal, and whether by
or in the right or name of the corporation, any class of its security
holders, or otherwise, in which the member may be or may have been
involved, as a party or otherwise, by reason of his or her being or
having been a member of the Committee and/or of the Board, whether or
not he or she continues to be a member of the Committee or of the
Board. The provisions, protection and benefits of this Section shall
apply and exist to the fullest extent permitted by applicable law to
and for the benefit of all present and future members of the Committee
and/or of the Board and their respective heirs, personal and legal
representatives, successors and assigns, in addition to all other
rights that they may have as a matter of law, by contract, or
otherwise, except (a) to the extent there is entitlement to insurance
proceeds under insurance coverages provided by the corporation on
account of the same matter or proceeding for which indemnification
hereunder is claimed, or (b) to the extent there is entitlement to
indemnification from the corporation, other than under this Section, on
account of the same matter or proceeding for which indemnification
hereunder is claimed.
22. Taxes. The issuance of shares of common stock under the Plan shall be
subject to any applicable taxes or other laws or regulations of the
United States of America and any state or local authority having
jurisdiction there over.
23. Miscellaneous.
(a) Any reference contained in this Plan to particular section or
provision of law, rule or regulation, including but not
limited to the Code and the 1934 Act, shall include any
subsequently enacted or promulgated section or provision of
law, rule or regulation, as the case may be. With respect to
persons subject to Section 16 of the 1934 Act, transactions
under this Plan are intended to comply with all applicable
conditions of Section 16 and the rules and regulations
promulgated thereunder, or any successor rules and regulations
that may be promulgated by the Securities and Exchange
Commission, and to the extent any provision of this Plan or
action by the Committee fails to so comply,
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<PAGE> 39
it shall be deemed null and void, to the extent permitted by
applicable law and deemed advisable by the Committee.
(b) Where used in this Plan: the plural shall include the
singular, and unless the context otherwise clearly requires,
the singular shall include the plural; and the term
"affiliates" shall mean each and every Subsidiary and any
parent of the corporation.
(c) The captions of the numbered Sections contained in this Plan
are for convenience only, and shall not limit or affect the
meaning, interpretation or construction of any of the
provisions of the Plan.
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EXHIBIT "B"
HARLEYSVILLE NATIONAL CORPORATION
1998 INDEPENDENT DIRECTORS STOCK OPTION PLAN
1. Purpose. The 1998 Independent Directors Stock Option Plan (the
"Plan") was established to advance the development, growth and financial
condition of Harleysville National Corporation (the "corporation") and its
subsidiaries, by providing an incentive, through participation in the
appreciation of the capital stock of the corporation, and thereby securing,
retaining and motivating members of the corporation's Board of Directors who are
not officers or employees of the corporation or any subsidiary thereof (the
"non-employee directors").
2. Term. The Plan shall become effective as of the date it is adopted
by the corporation's Board of Directors (the "Board"), and shall be presented
for approval at the next meeting of the corporation's shareholders. Any and all
options awarded under the Plan before it is approved by the corporation's
shareholders shall be conditioned upon, and may not be exercised before, receipt
of shareholder approval, and shall lapse upon failure to receive such approval.
Unless previously terminated by the Board, the Plan shall terminate on, and no
options shall be granted after the tenth anniversary of the effective date of
the Plan.
3. Stock. The shares of the corporation's common stock (the "common
stock") issuable under the Plan shall not exceed 75,000 shares. The amount of
common stock issuable under the Plan may be adjusted pursuant to Section 10
hereof. The common stock issuable hereunder may be either authorized and
unissued shares of common stock, or authorized shares of common stock issued by
the corporation and subsequently reacquired by it as treasury stock, or shares
purchased in open market transactions. Under no circumstances shall fractional
shares be issued under the Plan. The corporation's failure to obtain any
governmental authority deemed necessary by the corporation's legal counsel for
the proper grant of the stock options under this Plan and/or the issuance of
common stock under the Plan shall relieve the corporation of any duty or
liability for the failure to grant stock options under the Plan and/or issue
common stock under the Plan as to which such authority has not been obtained.
4. Stock Options. Stock options shall be granted and awarded under the
Plan to each non-employee director of the corporation who is a member of the
corporation's Board of Directors on the grant dates as follows:
3,750 shares of Common Stock (the "Stock Options") shall be
granted and awarded to each non-employee director at the first
organizational meeting of the Board of Directors immediately following
the 1999 Annual Meeting of Shareholders; and
3,750 shares of common Stock Options shall be granted and
awarded to each non-employee director on the first business day of
January in 2000;
the remaining shares under the Plan shall be awarded and
granted on the first business day of January of each following year
beginning in 2001 at the rate of 500 shares of common Stock Options per
each non-employee director of the corporation until such time as no
shares remain available under the Plan;
under the following terms and conditions:
(a) The time period during which any Stock Option is
exercisable shall be ten (10) years after the date of grant.
(b) If a director, who has received an award pursuant to the
Plan, ceases to be a member of the Board of Directors for any reason
and is not designated as "Director Emeritus" by the remaining members
of the Board of Directors at the time of such cessation, then the
director may exercise the Stock Option not more than twelve (12) months
after such cessation. If named Director Emeritus, then such Director
Emeritus may exercise his or her Stock Options for the remaining term.
If a director, who
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has received an award pursuant to the Plan dies, the director's
qualified personal representative, or any person who acquires a Stock
Option pursuant to the director's Will or the laws of descent and
distribution, may exercise such Stock Option during its remaining term
for a period of not more than twelve (12) months after the director's
death to the extent that the Stock Option would then be and remains
exercisable.
(c) The purchase price of a share of common stock subject to a
Stock Option shall be the fair market value of the common stock on the
date of grant, as determined under Section 6 hereof.
(d) The Stock Option shall be made by a written agreement in
the form, attached hereto as Exhibit "A," with such changes therein as
may be determined by the Committee (as such term is defined in Section
12 hereof) (the "Stock Option Agreement").
5. Exercise. Except as otherwise provided in the Plan, a Stock Option
may be exercised in whole or in part by giving written notice thereof to the
Secretary of the corporation, or his/her designee, identifying the Stock Option
being exercised, the number of shares of common stock with respect thereto, and
other information pertinent to the exercise of the Stock Option. The purchase
price of the shares of common stock with respect to which a Stock Option is
exercised shall be paid with the written notice of exercise, either in cash or
in common stock, including common stock issuable hereunder, at its then current
fair market value, or any combination of cash or common stock. Funds received by
the corporation from the exercise of any Stock Option shall be used for its
general corporate purposes. The number of shares of common stock subject to a
Stock Option shall be reduced by the number of shares of common stock with
respect to which the director has exercised rights under the related Stock
Option Agreement.
If the corporation or its shareholders execute an agreement to dispose
of all or substantially all of the corporation's assets or capital stock by
means of sale, merger, consolidation, reorganization, liquidation or otherwise,
as a result of which the corporation's shareholders as of immediately before
such transaction will not own at least fifty percent (50%) of the total combined
voting power of all classes of voting capital stock of the surviving entity (be
it the corporation or otherwise) immediately after the consummation of such
transaction, thereupon any and all outstanding Stock Options shall immediately
become exercisable until the consummation of such transaction, or if not
consummated, until the agreement therefor expires or is terminated, in which
case thereafter all Stock Options shall be treated as if the agreement never had
been executed. If during any period of two (2) consecutive years, the
individuals, who at the beginning of such period, constituted the Board of
Directors, cease for any reason to constitute at least a majority of the Board
of Directors (unless the election of each director of the Board of Directors,
who was not a director of the Board of Directors at the beginning of such
period, was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of such period) thereupon
any and all outstanding Stock Options shall immediately become exercisable. If
there is an actual, attempted or threatened change in the ownership of at least
twenty-five percent (25%) of any class of voting stock of the corporation
through the acquisition of, or an offer to acquire, such percentage of the
corporation's voting stock by any person or entity, or persons or entities
acting in concert or as a group, and such acquisition or offer has not been duly
approved by the Board of Directors, thereupon any and all outstanding Stock
Options shall immediately become exercisable.
6. Value. Where used in the Plan, the "fair market value" of Stock or
any options or rights with respect thereto, including Awards, shall mean and be
determined by (a) the average of the highest and lowest reported sales prices
thereof on the principal established domestic securities exchange on which
listed, and if not listed, then (b) the average of the dealer "bid" and "ask"
prices thereof on the over-the-counter market, as reported by the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), in
either case as of the specified or otherwise required or relevant time, or if
not traded as of such specified, required or relevant time, then based upon such
reported sales or "bid" and "ask" prices before and/or after such time in
accordance with pertinent provisions of and principles under the Code and the
regulations promulgated thereunder.
7. Continued Relationship. Nothing in the Plan or in any Stock Option
shall confer upon any director any right to continue his relationship with the
corporation as a director, or limit or affect any rights, powers or
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privileges that the corporation or its affiliates may have to supervise,
discipline and terminate such director, and the relationships thereof.
8. General Restrictions. The Board of Directors may require, in its
discretion, (a) the listing, registration or qualification of the common stock
issuable pursuant to the Plan on any securities exchange or under any federal or
state securities or other laws, (b) the approval of any governmental authority,
or (c) an execution of an agreement by any director with respect to disposition
of any common stock (including, without limitation, that at the time of the
director's exercise of the Stock Option, any common stock thereby acquired is
being and will be acquired solely for investment purposes and without any
intention to sell or distribute the common stock). If the Board of Directors so
requires, then Stock Options shall not be exercised, in whole or in part, unless
such listing, registration, qualification, approval or agreement has been
appropriately effected or obtained to the satisfaction of the Board of Directors
and legal counsel for the corporation. Notwithstanding anything to the contrary
herein, a director shall not sell, transfer or otherwise dispose of any shares
of common stock acquired pursuant to a Stock Option unless at least six (6)
months have elapsed from the date the Stock Option was granted and, in any
event, the transfer or disposition is made in accordance with Section 16 of the
Securities Exchange Act of 1934, as amended, and as the same may be amended from
time to time.
9. Rights. Except as otherwise provided in the Plan, a director shall
have no rights as a holder of the common stock subject to a Stock Option unless
and until one or more certificates for the shares of common stock are issued and
delivered to the director. No Stock Option, or the grant thereof, shall limit or
affect the right or power of the corporation or its affiliates to adjust,
reclassify, recapitalize, reorganize or otherwise change its or their capital or
business structure, or to merge, consolidate, dissolve, liquidate or sell any or
all of its or their business, property or assets.
10. Adjustments. In the event that the shares of common stock of the
corporation, as presently constituted, shall be changed into or exchanged for a
different number or kind of shares of common stock or other securities of the
corporation or of other securities of the corporation or of another corporation
(whether by reason of merger, consolidation, recapitalization, reclassification,
split-up, combination of shares or otherwise) or if the number of such shares of
common stock shall be increased through the payment of a stock dividend, stock
split or similar transaction, then, there shall be substituted for or added to
each share of common stock of the corporation that was theretofore appropriated,
or that thereafter may become subject to a Stock Option under the Plan, the
number and kind of shares of common stock or other securities into which each
outstanding share of the common stock of the corporation shall be so changed or
for which each such share shall be exchanged or to which each share shall be
entitled, as the case may be. Each outstanding Stock Option shall be
appropriately amended as to price and other terms, as may be necessary to
reflect the foregoing events.
If there shall be any other change in the number or kind of the
outstanding shares of common stock of the corporation, or of any common stock or
other securities into which such common stock shall have been changed, or for
which it shall have been exchanged, and if a majority of the members of the
Board of Directors shall, in their sole discretion, determine that the change
equitably requires an adjustment in any Stock Option that was theretofore
granted or that may thereafter be granted under the Plan, then such adjustment
shall be made in accordance with the determination.
The grant of a Stock Option pursuant to the Plan shall not affect, in
any way, the right or power of the corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, to merge, to consolidate, to dissolve, to liquidate or to sell or
transfer all or any part of its business or assets.
Fractional shares resulting from any adjustment in a Stock Option
pursuant to this Section 10 may be settled as a majority of the members of the
Board of Directors or of the Committee, as the case may be, shall determine.
To the extent that the foregoing adjustments relate to common stock or
securities of the corporation, such adjustments shall be made by a majority of
the members of the Board of Directors or of the Committee, as the case may be,
whose determination in that respect shall be final, binding and conclusive.
Notice of any adjustment shall be given by the corporation to each holder of a
Stock Option that is so adjusted.
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11. Forfeiture. Notwithstanding anything to the contrary in this Plan,
if an option holder is engaged in fraud, embezzlement, theft, commission of a
felony, or dishonesty in the course of his relationship with the corporation or
its affiliates, or has disclosed trade secrets of the corporation or its
affiliates, the option holder shall forfeit all rights under and to all
unexercised Stock Options, and all exercised Stock Options for which the
corporation has not yet delivered certificates for shares of common stock, and
all rights to receive Stock Options shall be automatically canceled.
12. Administration. The ability to control and manage the operation and
administration of the Plan shall be vested in the Board of Directors or in a
committee of two or more members of the Board of Directors, selected by the
Board of Directors (the "Committee"). The Committee shall have the authority and
discretion to interpret the Plan, to establish, amend and rescind any rules and
regulations relating to the Plan, to determine the terms and provisions of any
agreements made pursuant to the Plan, and to make any and all determinations
that may be necessary or advisable for the administration of the Plan. Any
interpretation of the Plan by the Committee and any decision made by it under
the Plan is final and binding.
13. Miscellaneous. Any reference contained in this Plan to a particular
section or provision of law, rule or regulation shall include any subsequently
enacted or promulgated section or provision of law, rule or regulation, as the
case may be. With respect to persons subject to Section 16 of the Securities
Exchange Act of 1934, as amended, transactions under this Plan are intended to
comply with all applicable conditions of the Rule and the regulations
promulgated thereunder or any successor rule that may be promulgated by the
Securities and Exchange Commission. To the extent any provision of this Plan
fails to so comply, it shall be deemed null and void, to the extent permitted by
applicable law, subject to the provisions of Section 15, below. Where used in
this Plan, the plural shall include the singular, and, unless the context
otherwise clearly requires, the singular shall include the plural and the
masculine shall include the feminine. The captions of the numbered Sections
contained in this Plan are for convenience only, and shall not limit or affect
the meaning, interpretation or construction of any of the provisions of the
Plan.
14. Transferability. Except as otherwise provided by the Board of
Directors, Stock Options granted under the Plan are not transferable except as
designated by the participant by Will and the laws of descent and distribution.
15. Amendment. The Plan may be amended, suspended or terminated,
without notice, by a majority vote of the Board of Directors of the corporation.
16. Taxes. The issuance of shares of common stock under the Plan shall
be subject to any applicable taxes or other laws or regulations of the United
States of America and any state or local authority having jurisdiction there
over.
42
<PAGE> 44
EXHIBIT A
HARLEYSVILLE NATIONAL CORPORATION
1998 INDEPENDENT DIRECTORS STOCK OPTION PLAN
STOCK OPTION AGREEMENT
A STOCK OPTION (the " Stock Option") for________ (______) shares of
common stock, (the "common stock"), of Harleysville National Corporation, a
Pennsylvania business corporation (the "corporation") is hereby granted to
(the "Director"), subject in all respects to the terms and provisions of
the Harleysville National Corporation 1998 Independent Directors Stock Option
Plan (the "Plan"). The option price as determined under Section 6 of the Plan is
$ per share.
This Stock Option shall vest and become exercisable six (6) months from
the date of this Agreement. This Option may not be exercised more than ten (10)
years from the date of grant, and may be exercised during such term only in
accordance with the terms of the Plan and this Agreement.
ATTEST: HARLEYSVILLE NATIONAL CORPORATION
By
- -------------------------- --------------------------------------------
Secretary Walter E. Daller, Jr., President and Chief
Executive Officer
Dated:
--------------------
The Director acknowledges receipt of a copy of the Plan, and represents
that he or she is familiar with the terms and provisions thereof. The Director
hereby accepts this Stock Option subject to all the terms and provisions of the
Plan.
Dated:
--------------------
--------------------------------------------
Director
43
<PAGE> 45
HARLEYSVILLE NATIONAL CORPORATION
ANNUAL MEETING -- 9:30 A.M.
BREAKFAST -- 8:30 A.M.
APRIL 13, 1999
FOR YOUR CONVENIENCE - RETAIN FOR YOUR REFERENCE
Harleysville National Corporation will conduct its Annual Meeting of
Shareholders on Tuesday, April 13, 1999 at 9:30 a.m. at Presidential Caterers,
2910 DeKalb Pike, Norristown, Pennsylvania 19401.
Breakfast will be served prior to the Annual Meeting, beginning at 8:30 a.m. The
meeting will convene promptly at 9:30 a.m.
PLEASE RETURN YOUR PROXY VOTE IF YOU HAVE NOT ALREADY DONE SO.
- --------------------------------------------------------------------------------
IF YOU FIND THAT YOUR PLANS HAVE CHANGED AND YOU WILL BE UNABLE TO JOIN US FOR
THE ANNUAL MEETING AND BREAKFAST, KINDLY CALL HARLEYSVILLE NATIONAL
CORPORATION'S SHAREHOLDER SERVICES DEPARTMENT AT 215-256-8851 EXT. 1312, AND
HELP US ELIMINATE UNNECESSARY CHARGES. THANK YOU.
- --------------------------------------------------------------------------------
<PAGE> 46
Breakfast Invitation Response
Harleysville National Corporation will conduct its Annual Meeting of
Shareholders on Tuesday, April 13, 1999 at 9:30 a.m. at Presidential Caterers,
2910 DeKalb Pike, Norristown, Pennsylvania 19401.
You are cordially invited to join us for breakfast prior to the Annual Meeting,
beginning at 8:30 a.m. The meeting will convene promptly at 9:30 a.m.
Would you be kind enough to help us make appropriate arrangements by filling out
and returning this self-addressed, stamped response card?
For your convenience, enclosed are directions to Presidential Caterers.
Please print
name(s)
( ) Yes, I will join you for breakfast and the Annual Meeting at
Presidential Caterers on Tuesday, April 13, 1999.
<PAGE> 47
DIRECTIONS TO PRESIDENTIAL CATERERS
2910 DEKALB PIKE - NORRISTOWN, PA 19401
610-275-7300
NOTE TO ALL DRIVERS: There is a traffic island in the middle of the
road on Route 202 just in front of Presidential's driveway so you CANNOT make a
left turn off Route 202 into the driveway. You MUST enter the driveway with a
right turn.
******
FROM KING OF PRUSSIA - Take Route 202 North through Norristown to East
Norriton. After crossing the intersection at Germantown Pike (Route 422), the
driveway to Presidential will be on your right.
FROM MONTGOMERYVILLE & LANSDALE - Take Route 202 South to East
Norriton. Turn Right at Township Line Road (CVS Pharmacy on corner). Go one
block and turn left at Swede Road. Proceed to Germantown Pike and turn Left.
Next light, Route 202 (DeKalb Pike) turn left. Driveway to Presidential will be
on your right.
<PAGE> 48
FROM PHILADELPHIA - Take Schuylkill Expressway to Plymouth Meeting.
Exit Route 476 North to Germantown Pike-West Exit. Follow Germantown Pike-West
to Route 202 North (DeKalb Pike). Make a Right onto Route 202; driveway to
Presidential will be on your right.
FROM MAIN LINE - Take Blue Route, 476 North, to Germantown Pike-West
Exit. Follow Germantown Pike-West to Route 202 North (DeKalb Pike). Make a Right
onto Route 202; driveway to Presidential will be on your right.
FROM WILLOW GROVE - Take PA-Turnpike (Route 276) to Norristown Exit.
Follow Germantown Pike-West to Route 202 North (DeKalb Pike). Make a Right onto
Route 202; driveway to Presidential will be on your right.
<PAGE> 49
HARLEYSVILLE NATIONAL CORPORATION
PROXY
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 13, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints James W. Hamilton and
Vernon L. Hunsberger, and each or any of them, proxies of the undersigned, with
full power of substitution, to vote all of the shares of Harleysville National
Corporation (the "Corporation") which the undersigned may be entitled to vote at
the Annual Meeting of Shareholders of the Corporation to be held at Presidential
Caterers, 2910 DeKalb Pike, Norristown, Pennsylvania 19401, on Tuesday, April
13, 1999, at 9:30 a.m., prevailing time, and at any adjournment or postponement
thereof, as follows:
1. ELECTION OF CLASS A DIRECTORS TO SERVE FOR A FOUR-YEAR TERM
|_| FOR all nominees listed below (except as marked to the
contrary)
|_| WITHHOLD AUTHORITY
to vote for all nominees listed below
(To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
Walter F. Vilsmeier Harold A. Herr Henry M. Pollak.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF
THE CLASS A DIRECTORS LISTED ABOVE.
2. PROPOSAL TO APPROVE AND ADOPT THE HARLEYSVILLE NATIONAL CORPORATION
1998 STOCK INCENTIVE PLAN FOR EMPLOYEES OF THE CORPORATION AND ITS
SUBSIDIARIES.
|_| FOR |_| AGAINST |_| ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
<PAGE> 50
3. PROPOSAL TO APPROVE AND ADOPT THE HARLEYSVILLE NATIONAL CORPORATION
1998 INDEPENDENT DIRECTORS STOCK OPTION PLAN.
|_| FOR |_| AGAINST |_| ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
4. In their discretion the proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting and any
adjournment or postponement thereof.
THIS PROXY WHEN PROPERLY SIGNED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR ALL NOMINEES LISTED AT LEFT AND FOR PROPOSALS 2 AND 3.
PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
ENVELOPE.
Signature______________________(SEAL) Signature______________________
(SEAL) Dated:_______________, 1999
NOTE: WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE FULL TITLE. IF MORE THAN ONE TRUSTEE, ALL SHOULD SIGN. IF STOCK IS
HELD JOINTLY, EACH OWNER SHOULD SIGN.
