DNB FINANCIAL CORPORATION
4 Brandywine Avenue
Downingtown, Pennsylvania 19335
-------------------------------------
NOTICE OF ANNUAL MEETING
To Be Held on April 27, 1999
-------------------------------------
TO THE STOCKHOLDERS OF DNB FINANCIAL CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of DNB
FINANCIAL CORPORATION (the "Corporation") will be held at 10:00 a.m., prevailing
time on Tuesday, April 27, 1999 at the Central Presbyterian Church, 100 W.
Uwchlan Avenue, Downingtown, Pennsylvania 19335 (Route 113, approximately one
half mile south of the Route 30 bypass) for the following purposes:
(1) To elect three directors to serve for three years or until their
successors have been elected and qualified; and
(2) To act upon a proposal to amend the Corporation's 1995 Stock Option
Plan to increase the number of shares for which options may be granted
thereunder, as described in the accompanying Proxy Statement; and
(3) To ratify the appointment of KPMG LLP as the independent auditors for
the fiscal year ending December 31, 1999; and
(4) To transact such other business as may properly come before the Annual
Meeting and any adjournment thereof. Except with respect to procedural
matters incident to the conduct of the meeting, the Board of Directors
is not aware of any other business which may come before the meeting.
Stockholders of record at the close of business on February 26, 1999 are
entitled to notice of and to vote at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Ronald K. Dankanich
Ronald K. Dankanich, Secretary
Downingtown, Pennsylvania
March 26, 1999
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. IT IS IMPORTANT
THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN. EVEN IF YOU
PLAN TO BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THIS MEETING,
YOU MAY VOTE EITHER IN PERSON OR BY PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU
IN WRITING OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE THEREOF.
<PAGE>
DNB FINANCIAL CORPORATION
4 Brandywine Avenue
Downingtown, Pennsylvania 19335
-------------------------------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 27, 1999
-------------------------------------
Solicitation and Voting of Proxies
This Proxy Statement is being furnished to stockholders of DNB Financial
Corporation (the "Corporation") in connection with the solicitation by the Board
of Directors of proxies to be used at the Annual Meeting of Stockholders (the
"Annual Meeting") to be held at the Central Presbyterian Church, 100 W. Uwchlan
Avenue, Downingtown, Pennsylvania 19335, on Tuesday, April 27, 1999 at 10:00
a.m., and at any adjournments thereof. The 1998 Annual Report to Stockholders,
including financial statements for the fiscal year ended December 31, 1998,
accompanies this Proxy Statement, which is first being mailed to stockholders on
or about March 26, 1999.
Regardless of the number of shares of Common Stock owned, it is important
that stockholders be represented by proxy or present in person at the Annual
Meeting. Stockholders are requested to vote by completing the enclosed Proxy and
returning it signed and dated in the enclosed postage-paid envelope.
Stockholders are urged to indicate their vote in the spaces provided on the
Proxy. Proxies solicited by the Board of Directors of DNB Financial Corporation
will be voted in accordance with the directions given therein. Where no
instructions are indicated, proxies will be voted FOR the election of the
nominees for directors named in the Proxy Statement, and FOR the proposal to
amend the Corporation's 1995 Stock Option Plan to increase the number of shares
for which options may be granted thereunder, and FOR the ratification of KPMG
LLP as independent auditors for the fiscal year ending December 31, 1999.
The Board of Directors knows of no additional matters that will be
presented for consideration at the Annual Meeting. Execution of a proxy,
however, confers on the designated proxy holders discretionary authority to vote
the shares in accordance with their best judgment on such other business, if
any, that may properly come before the Annual Meeting or any adjournments
thereof. Abstentions and broker non-votes are counted as present and represented
for quorum purposes, but will not be included in the total number of votes cast
for purposes of determining whether matters to be voted upon at the meeting have
been approved. Abstentions will have the effect of a negative vote.
A proxy may be revoked at any time prior to its exercise by the filing of
a written notice of revocation with the Secretary of the Corporation, by
delivering to the Corporation a duly executed proxy bearing a later date, or by
attending the Annual Meeting, filing a notice of revocation with the Secretary
and voting in person. However, if you are a stockholder whose shares are not
registered in your own name, you will need additional documentation from your
recordholder to vote personally at the Annual Meeting.
The expenses of the solicitation of proxies will be borne by the
Corporation. Certain officers, directors and employees of the Corporation and
Downingtown National Bank (the "Bank") may solicit proxies personally, by mail,
telephone or otherwise. Such persons will not receive any fees or other
compensation for such solicitation. The Corporation will reimburse brokers,
custodians, nominees and fiduciaries for all reasonable expenses which they have
incurred in sending proxy materials to the beneficial owners of the
Corporation's common stock held by them.
<PAGE>
Voting Securities and Beneficial Ownership Thereof
The securities which may be voted at the Annual Meeting consist of shares
of common stock of DNB Financial Corporation, par value $1.00 per share (the
"Common Stock"), with each share entitling its owner to one vote on all matters
to be voted on at the Annual Meeting.
The close of business on February 26, 1999 has been established by the
Board of Directors as the record date (the "Record Date") for the determination
of stockholders entitled to notice of and to vote at this Annual Meeting and any
adjournments thereof. The total number of shares of Common Stock outstanding on
the Record Date was 1,524,229 shares.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of February 26, 1999, with
respect to the beneficial ownership of each director, each nominee for election
as director, each beneficial owner known by the Corporation of more than five
percent (5%) of the outstanding common stock of the Corporation, certain named
executive officers and all directors and executive officers as a group.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership
---------------------------------------------------------------------
Sole Shared
Total Voting and Voting and Percent
Name of Beneficial Investment Investment of
Beneficial Owner Ownership (1,2) Power (2) Power Class (3)
- --------------------- ---------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Richard L. Bergey........................ 12,876 12,876 --- 0.78%
Robert J. Charles........................ 26,845 14,206 12,639 1.62
Thomas R. Greenleaf...................... 12,652 5,470 7,182 0.76
Vernon J. Jameson........................ 23,387 14,457 8,930 1.41
William S. Latoff........................ 14,287 14,287 --- 0.86
Joseph G. Riper.......................... 1,326 1,326 --- 0.08
Louis N. Teti............................ 6,547 5,806 741 0.40
Henry F. Thorne.......................... 23,154 23,154 --- 1.40
James H. Thornton........................ 5,101 5,101 --- 0.31
Downingtown National Bank
Investment Services and
Trust Division....................... 93,244 37,091 56,153 6.12
Directors & Executive Officers
as group (14 Persons)................ 187,496 153,927 33,569 11.33
- ----------------
<FN>
(1) Based upon information furnished by the respective individual and/or
filings made pursuant to the Exchange Act. Under applicable regulations,
shares are deemed to be beneficially owned by a person if he or she
directly or indirectly has or shares the power to vote or dispose of the
shares, whether or not he or she has any economic interest in the shares.
Unless otherwise indicated, the named beneficial owner has sole voting and
dispositive power with respect to the shares.
(2) Includes shares which may be acquired by exercise of vested options
granted under the DNB Financial 1995 Stock Option Plan amounting to 4,860
shares each for Messrs. Charles, Greenleaf, Jameson and Teti, 1,216 shares
for Messrs. Latoff and Riper, 4,545 shares for Mr. Thornton, 20,651 shares
for Mr. Thorne, 12,876 shares for Mr. Bergey and 116,305 total shares for
all Directors and Executive Officers as a group. The number of shares have
been adjusted to reflect the 5% stock dividend paid in December, 1998.
(3) Shares of the Corporation's Common Stock issuable pursuant to options are
deemed outstanding for purposes of computing the percentage of the person
or group holding such options, but are not deemed outstanding for purposes
of computing the percentage of any other person.
</FN>
</TABLE>
2
<PAGE>
PROPOSALS TO BE VOTED ON AT THE ANNUAL MEETING
PROPOSAL 1
ELECTION OF DIRECTORS
Pursuant to its By-laws, the number of directors of the Corporation is set
at eight (8). Each of the members of the Board of Directors of the Corporation
also serves as a Director of the Bank. Directors are elected for staggered terms
of three years each, with a term of office of only one class of directors
expiring in each year. Directors serve until their successors are elected and
qualified. No person being nominated as a director is being proposed for
election pursuant to any agreement or understanding between any person and DNB
Financial Corporation.
The By-laws further provide that vacancies on the Board of Directors,
including vacancies resulting from an increase in the number of directors, shall
be filled by a majority of the remaining members of the Board of Directors,
though less than a quorum, and each person so appointed shall be a director
until the expiration of the term of office of the class of directors to which he
was appointed.
The nominees proposed for election to Class "A" of the Board of Directors
at the Annual Meeting are Messrs. Thomas R. Greenleaf, Louis N. Teti and James
H. Thornton who have consented to being named as nominees and agreed to serve if
elected. If any person named as nominee should become unable to serve, proxies
will be voted in favor of a substitute nominee as the Board of Directors of the
Corporation shall determine. The Board of Directors has no reason to believe
that any of the directors listed above will be unable to serve as director.
In addition, there is no cumulative voting for the election of the
directors. Each share of Common Stock is entitled to cast only one vote for each
nominee. For example, if a shareholder owns ten shares of Common Stock, he or
she may cast up to ten votes for each of the three directors in the class to be
elected, during those years when three directors have been nominated. A majority
vote of shares represented by proxy or in person is required for the election of
directors.
Unless authority to vote for the director is withheld, it is intended that the
shares represented by the enclosed Proxy will be voted FOR the election of the
three nominees.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL
NOMINEES NAMED IN THIS PROXY STATEMENT
3
<PAGE>
Set forth below is certain information as of February 26, 1999 concerning
the nominees for election as directors and each other member of the
Corporation's Board of Directors.
<TABLE>
<CAPTION>
NOMINEES FOR THE THREE-YEAR TERM EXPIRING IN 2002
Principal Occupation During The
Name Age Past Five Years & Service Data (1)
----- ---- ---------------------------------------
<S> <C> <C>
Thomas R. Greenleaf 71 Director; Retired President of
Chemical Leaman Tank Lines
Director Since 1979
Term Expires 2002
Louis N. Teti 48 Director; Attorney with the law firm
of MacElree, Harvey, Gallagher
Featherman & Sebastian, Ltd.
Director Since 1995
Term Expires 2002
James H. Thornton 53 Director; President and Chief Executive
Officer of the Brandywine Hospital
Director Since 1995
Term Expires 2002
OTHER DIRECTORS
Robert J. Charles 70 Director and Chairman of the Board;
President of Charles News Agency, Inc.
Director Since 1976
Term Expires 2000
Vernon J. Jameson 69 Director; President of V. J. Jameson & Son, Inc.
Director Since 1973
Term Expires 2000
William S. Latoff 50 Director; Principal, Bliss & Company, Ltd.
Certified Public Accountants
Director Since 1998
Term Expires 2001
Joseph G. Riper 50 Director; Attorney with the law firm
of Riley, Riper, Hollin & Colagreco
Director Since 1997
Term Expires 2001
Henry F. Thorne 55 Director; President and Chief Executive Officer
of the Corporation and the Bank
Director Since 1992
Term Expires 2000
- --------------
(1) Includes service as a director of Downingtown National Bank prior to the
formation of the Corporation in 1982. All individuals listed are directors
of both the Bank and the Corporation.
</TABLE>
4
<PAGE>
General Information About the Board of Directors
During 1998, the Bank's Board of Directors held 14 meetings, excluding
committee meetings which are described below. Directors, with the exception of
Mr. Thorne, who receives no director or committee fees, receive a quarterly
retainer of $2,900, provided 75% of the meetings are attended. Mr. Charles, the
Corporation's and Bank's Chairman, receives a quarterly retainer of $3,750
provided 75% of the meetings are attended. Outside Directors also receive $125
for each committee meeting attended. All fees are paid by the Bank. During 1998,
the Corporation's Board of Directors held 8 meetings. Directors receive no fees
for these meetings of the Corporation, since they are usually held on the same
day as a Bank Board Meeting. Each of the directors of the Corporation is also a
director of the Bank. During their period of service during 1998, each attended
at least 75% of the combined total number of meetings of the Corporation's Board
of Directors and the committees of which he is a member. Each also attended at
least 75% of the combined total number of meetings of the Bank's Board of
Directors and committees of which he is a member. Each committee described
below, unless otherwise noted, is a committee of the Bank and the Corporation.
Neither the Bank nor the Corporation has a standing Nominating Committee.
The Executive Committee consists of Messrs. Charles, Greenleaf, Jameson
and Thorne. This Committee has the authority to exercise the powers of the Board
of Directors between regular Board meetings. The Committee did not meet during
1998.
The Benefits & Compensation Committee consists of Messrs. Charles,
Greenleaf and Thorne. This Committee oversees the Human Resource policies of the
Bank which includes approving recommendations for salary increases. The
Committee met 2 times during 1998.
The Board Loan Committee consists of Messrs. Charles, Jameson, Latoff,
Riper and Thorne. This Committee reviews and takes action on proposed and
existing loans in excess of Officers' Credit Committee authority. The Committee
met 24 times during 1998.
The Audit/Compliance Committee consists of Messrs. Charles, Greenleaf and
Thornton. This Committee reviews the records and affairs of the Bank and the
Investment Services and Trust Division to determine their financial condition;
reviews with management, the internal auditor and the independent auditors the
systems of internal control; and monitors the adherence in accounting and
financial reporting to generally accepted accounting principles and compliance
with banking laws and regulations. The Committee met 5 times during 1998.
The Trust Committee consists of Messrs. Dankanich, Greenleaf, Jameson,
Stauffer, Teti, Thorne and Thornton. This Committee reviews and recommends the
Investment Services and Trust Division's policies and procedures, approves
estate administration and ensures compliance to applicable Federal regulations.
The Committee met 12 times during 1998.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's executive officers and directors to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission. Executive officers and directors are required by SEC regulations to
furnish the Corporation with copies of all Section 16(a) forms they file.
Executive Officers Who Are Not Directors
The following sets forth information with respect to executive officers of
the Corporation and the Bank who do not serve on the Board of Directors. There
are no arrangements or understanding between the Corporation or the Bank and any
person pursuant to which any such officers were selected.
Richard L. Bergey (Age 58), joined the Bank in September 1992 and
currently serves as Senior Vice President--Credit Services Division of the Bank.
Mr. Bergey is directly responsible for the Bank's lending and loan
administration functions. Prior to joining the Bank, Mr. Bergey was Vice
President of the Wholesale Banking Unit of CoreStates, Lancaster, Pennsylvania
from 1984 to 1992.
Ronald K. Dankanich (Age 44), joined the Bank in October 1972 and
currently serves as Senior Vice President--Operations Division, Cashier of the
Bank and Secretary of the Corporation. Mr. Dankanich is directly responsible for
5
<PAGE>
Data Processing, Bank Reconcilements, Operations, Bank Services and Human
Resources.
J. William Erb (Age 60), joined the Bank in June 1997 and currently serves
as Sr. Vice President Investment Services and Trust Division of the Bank. Mr.
Erb is directly responsible for Personal and Corporate Investment and Trust
Services. Prior to joining the Bank, Mr. Erb was Group Vice President -
Retirement Services of PNC Bank from 1982 to 1997.
Eileen M. Knott (Age 48), joined the Bank in January 1993 and currently
serves as Sr. Vice President--Auditor and Compliance Officer of the Bank. Ms.
Knott is directly responsible for the Bank's Audit and Compliance functions.
Prior to joining the Bank, Ms. Knott was employed by the Royal Bank of
Pennsylvania as its Chief Financial Officer from 1984 to 1993.
Bruce E. Moroney (Age 42), joined the Bank in May 1992 and currently
serves as Chief Financial Officer of both the Corporation and the Bank and as
Senior Vice President--Finance Division of the Bank. Mr. Moroney is directly
responsible for strategic planning, investments, asset/liability management and
financial reporting. Prior to joining the Bank, Mr. Moroney was Vice President,
Treasurer and Chief Financial Officer of Brandywine Savings Bank from 1987 to
1992.
Joseph M. Stauffer (Age 56), joined the Bank in March 1992 and currently
serves as Senior Vice President--Retail Banking Division of the Bank. Mr.
Stauffer is directly responsible for the Bank's community offices and marketing.
Prior to joining the Bank, Mr. Stauffer was President and Chief Executive
Officer of Brandywine Savings Bank from 1985 to 1991.
Management Remuneration
The following table sets forth for the fiscal year ended December 31,
1998, 1997 and 1996, certain information as to the total remuneration received
by any executive officers of the Corporation or the Bank receiving total salary
and bonus in excess of $100,000 during each period.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
---------------------------------
Annual Compensation Awards Payouts
------------------------------------ ---------------------------------
Other
Annual Restricted Securities
Compen- Stock Underlying LTIP All Other
Name and Principal Salary Bonus sation Award(s) Options Payouts Compensation
Position Year $(1) $ $ $ # $ $
- ----------------------- ------------------------------------ ----------------------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Henry F. Thorne 1998 159,130 25,000 -- -- 3,889 -- 15,956(2)
President and Chief 1997 151,560 18,000 -- -- 4,121 -- 17,396
Executive Officer 1996 144,200 15,000 -- -- 4,862 -- 18,363
Richard L. Bergey 1998 101,580 13,000 -- -- 2,431 -- 10,715(2)
Senior Vice President 1997 97,150 12,000 -- -- 2,573 -- 11,665
Credit Services Division 1996 92,790 10,000 -- -- 3,010 -- 11,159
- ------------------
<FN>
(1) Amounts shown include cash compensation earned and received as well as
amounts earned but deferred at the officer's election, pursuant to the
Bank's 40l(k) Plan.
(2) Consists of 25% matching contributions by the Company under the 401(k)
Plan ($1,864 for Mr. Thorne and $1,525 for Mr. Bergey), life insurance
annual premiums ($570 for Mr. Thorne and $465 for Mr. Bergey),
contributions to the Bank's Pension Plan ($13,191 for Mr. Thorne and
$8,491 for Mr. Bergey) and long term disability premiums ($331 for Mr.
Thorne and $234 for Mr. Bergey).
</FN>
</TABLE>
6
<PAGE>
Stock Option Plan
On April 25, 1995, the Stockholders of the Corporation approved DNB
Financial Corporation's 1995 Stock Option Plan. Under the Plan, options (both
qualified and non-qualified) to purchase a maximum of 158,014 shares of the
Corporation's Common Stock may be issued to employees and Directors of the
Corporation.
Option Grants in Last Fiscal Year
The following table provides certain information relating to stock options
granted during 1998. Certain officers not appearing in the Summary Compensation
table above were also granted stock options during 1998.
<TABLE>
<CAPTION>
OPTION GRANTS IN 1998
Individual Grants
--------------------------------------------------------------
Potential Realizable
Number of Percent of Value at Assumed Annual
Shares Total Options Rates of Stock Price
Underlying Granted to Appreciation for
Options Employees in Exercise or Option Term
Granted in 1998 Fiscal Year Base Price Expiration 5% 10%
Name (#) % ($/share) (2) Date $ $
<S> <C> <C> <C> <C> <C> <C>
Henry F. Thorne 3,889 13 33.57 6-30-08 82,105 208,069
Richard L. Bergey 2,431 10 33.57 6-30-08 51,323 130,063
- --------------
<FN>
(1) The options in the above table were granted on June 30, 1998 and became
exercisable on December 31, 1998.
(2) The exercise or base price is equal to the fair market value of the
Corporation's Common Stock on the date of grant, as adjusted, pro rata, to
reflect the 5% stock dividend paid in December 1998.
</FN>
</TABLE>
Aggregated Option Exercises and Year-End Value
The following table summarizes stock options that were exercised during
1998 and the number and value of stock options that were unexercised at December
31, 1998.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUE TABLE
Number of Value of Unexercised
Unexercised Options In-The-Money Options
Shares Acquired Value At Fiscal Year-end At Fiscal Year-end
Name On Exercise Realized Exercisable Unexercisable Exercisable(1) Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Henry F. Thorne -- -- 20,651 -- $302,209 --
Richard L. Bergey -- -- 12,876 -- 188,312 --
- ---------------
<FN>
(1) Represents the difference between market value per share as of December 31,
1998 ($30.50) and specific option prices per share.
</FN>
</TABLE>
Employment Agreement
Effective December 31, 1996, the Bank entered into an employment agreement
(the "Agreement") with Henry F. Thorne, President and Chief Executive Officer of
the Bank, in order to establish his duties and compensation and to provide for
his continued employment with the Bank. The Agreement provides for an initial
term of employment of two years, which will be extended automatically for two
additional years on each
7
<PAGE>
expiration date unless either the Bank or Mr. Thorne gives contrary written
notice of not less than ninety days prior to the expiration date. The Agreement
also provides that Mr. Thorne's base salary shall be reviewed by the Board of
Directors of the Bank at the end of each year. In addition, the Agreement
provides for participation in all employee benefit plans, pension plans
maintained by the Bank on behalf of the respective employees, as well as fringe
benefits normally associated with such officer's position. The Agreement
provides for its termination upon the disability of Mr. Thorne or for cause, as
defined in the Agreement.
The Agreement also provides for restrictions on Mr. Thorne's right to
compete with the Bank within 25 miles of any bank office or branch, directly or
indirectly, for one year following Mr. Thorne's resignation or termination,
pursuant to which he receives severance pay. Under the Agreement, if Mr. Thorne
is terminated without cause or the two year term is not extended, he will
receive severance pay equal to his base annual salary payable over the following
year. If the Bank is liquidated or sold under a regulatory order, he will
receive severance pay equal to his base annual salary for one year payable over
the following year.
The Agreement provides that if Mr. Thorne's employment is terminated at
any time after a change in control of the Bank, or he submits his resignation
within twelve months after the date of the change in control, he will receive as
a severance payment, a lump sum payment equal to two times the higher of (i) his
base salary immediately prior to the change in control or (ii) his base salary
at the time of termination.
For purposes of the Agreement, the term "Change of Control" is defined to
mean: A change in control of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act"), provided that, without
limitation, such a change in control shall be deemed to have occurred if (a) any
"persons" (as such term is used in Sections 13(d) and 14(d) of the Exchange
Act), other than the Bank, Corporation or any "person" who on the date hereof is
a director or officer of the Bank or Corporation, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Bank or Corporation representing fifty percent
(50%) or more of the combined voting power of the Bank's or Corporation's then
outstanding securities, or (b) during any period of two consecutive years during
the term of the Agreement, individuals who at the beginning of such period
constitute the Board of Directors of the Bank or Corporation cease for any
reason to constitute at least a majority thereof, unless the election of each
director who was not a director at the beginning of such period has been
approved in advance by directors representing at least two-thirds of the
directors then in office who were directors at the beginning of the period.
Change of Control Agreements
Effective May 5, 1998 the Bank and the Corporation entered into Change of
Control Agreements (individually referred to as an "Agreement" or collectively
referred to as the "Agreements") with Messrs. Bergey, Dankanich, Erb, Moroney,
Stauffer and Ms. Knott (individually referred to as an "Executive" or
collectively referred to as the "Executives") in order to provide the Executives
with severance payments as additional incentive to induce the Executives to
devote their time and attention to the interest and affairs of the Corporation.
The Agreements provide that if an Executive's employment is terminated
after a change in control of the Corporation or the Bank, that he or she will
receive, as a severance payment an amount equal to: (a) the annual base salary
paid to the Executive and includible in the Executive's gross income for Federal
income tax purposes during the year in which the date of termination occurs by
the Corporation and any of its subsidiaries, subject to United States income
tax; multiplied by (b) 1.00. Such payment shall be made in a lump sum within one
(1) calendar week following the date of termination, subject to withholding by
the Corporation as required by applicable law and regulations. Notwithstanding
any provision of the Agreement or any other agreement of the parties, if the
severance payment or payments under the Agreement, either alone or together with
other payments which the Executive has the right to receive from the
Corporation, would constitute a "parachute payment" (as defined in Section 280G
of the Internal Revenue Code of 1986, as amended (the "Code") or any successor
provision, such lump sum severance payment shall be reduced to the largest
amount as will result in no portion of the lump sum severance payment under the
Agreement being subject to the excise tax imposed by Section 4999 of the Code.
8
<PAGE>
For purposes of the Agreement, the term "Change of Control" is defined to
mean: A change in control of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act"), provided that, without
limitation, such a change in control shall be deemed to have occurred if (a) any
"persons" (as such term is used in Sections 13(d) and 14(d) of the Exchange
Act), other than the Bank, Corporation or any "person" who on the date hereof is
a director or officer of the Bank or Corporation, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Bank or Corporation representing twenty-five
percent (25%) or more of the combined voting power of the Bank's or
Corporation's then outstanding securities, or (b) during any period of two
consecutive years during the term of the Agreement, individuals who at the
beginning of such period constitute the Board of Directors of the Bank or
Corporation cease for any reason to constitute at least a majority thereof,
unless the election of each director who was not a director at the beginning of
such period has been approved in advance by directors representing at least
two-thirds of the directors then in office who were directors at the beginning
of the period or (c) the signing of a letter of intent or a formal acquisition
or merger agreement between the Corporation or Bank, of the one part, and a
third party which contemplates a transaction which would result in a "change of
control".
Certain Indebtedness and Transactions with Management
The Bank makes loans to executive officers and directors of the Bank in
the ordinary course of its business. These loans are currently made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time the transaction is originated for comparable transactions
with nonaffiliated persons, and do not involve more than the normal risk of
collectability or present any other unfavorable features. Federal regulations
prohibit the Bank from making loans to executive officers and directors of the
Corporation or the Bank at terms more favorable than could be obtained by
persons not affiliated with the Corporation or the Bank. The Bank's policy
towards loans to executive officers and directors currently complies with this
limitation. The aggregate outstanding balance of the loans to all executive
officers, directors or their affiliates, whose aggregate indebtedness to the
Bank exceeded $60,000, at December 31, 1998 represented 3.9% of stockholders'
equity of the Corporation on that date.
The report of the Benefits & Compensation Committee is set forth below.
Benefits & Compensation Committee Report
Committee Interlocks and Insider Participation in Group Decisions -- The
Benefits & Compensation Committee of the Board of Directors for the Bank is
comprised of two independent Directors and the Bank's President and Chief
Executive Officer. The Committee has the responsibility for establishing an
appropriate compensation policy for employees, including executive officers of
the Bank, and for overseeing the administration of that policy. The President
and Chief Executive Officer, Mr. Thorne, does not participate in deliberations
relating to his compensation.
Committee Report on Executive Compensation -- The Committee believes that
the overall enhancement of the Corporation's performance and, in turn
shareholder value, depends to a significant extent on the establishment of a
close relationship between the financial interests of shareholders and those of
the Bank's employees, especially its senior management. In addition to a desired
pay-for-performance relationship, the Committee also believes that the Bank must
maintain an attractive compensation package that will attract, motivate and
retain executive officers who are capable of making significant contributions
towards the success of the Bank.
At the Bank, salary levels are based on an evaluation of the individuals
performance and competitive pay practices. The salary levels are then reviewed
and ratified by the Committee. The Committee reviews the evaluations of senior
management and the performance of the President and Chief Executive Officer. It
is the policy of the Bank that the performance of senior management be evaluated
using the same established criteria which are used for other employees,
including: the development and execution of strategies; leadership; the ability
to develop staff; and significant accomplishments which affect the performance
of the Bank. The Committee also considers the economic conditions and other
external events that affect the operations of the Bank, as well as the operating
results of the fiscal year and other measures of progress when establishing
compensation practices. The overall objective of the policy is to provide
competitive levels of compensation for
9
<PAGE>
all employees that are contingent upon individual performance and the
contribution of each individual to the success of the Bank.
Periodically, independent compensation consultants are engaged to review
the compensation and benefits programs of the Bank in relation to similar
programs and practices of other companies who are direct competitors for
employees' services, including executive talent. Salary levels for all employees
are compared to peers who have similar job responsibilities in other companies.
Results of the study, along with recommendations for any changes, are reported
to the Benefits & Compensation Committee.
The Benefits & Compensation Committee
DOWNINGTOWN NATIONAL BANK
/S/ THOMAS R. GREENLEAF /S/ HENRY F. THORNE
--------------------------- ----------------------------------
Thomas R. Greenleaf Henry F. Thorne
/S/ ROBERT J. CHARLES
---------------------------
Robert J. Charles
Pension Plan
The Corporation does not have a retirement or pension plan. The Bank,
however, maintains a noncontributory defined benefit pension plan (the "Plan")
covering all employees of the Bank, including officers, who have been employed
by the Bank for one year and have attained 21 years of age. Prior to May 1,
1985, an individual must have attained the age of 25 and accrued one year of
service. The Plan provides pension benefits to eligible retired employees at 65
years of age equal to 1.5% of their average monthly pay multiplied by their
years of accredited service (maximum 40 years). The accrued benefit is based on
the monthly average of their highest five consecutive years of their last ten
years of service.
The following table shows the estimated annual retirement benefit payable
pursuant to the Plan of an employee currently 65 years of age, whose highest
salary remained unchanged during his last five years of employment and whose
benefit will be paid for the remainder of his life.
During 1999, the Bank does not anticipate making a contribution to the
1998 Plan Year due to the Plan's funding status. The benefits listed in the
table are not subject to any deduction for Social Security or other offset.
Annual retirement benefits are paid monthly to an employee during his lifetime.
An employee may elect to receive lower monthly payments, in order for his or her
surviving spouse to receive monthly payments under the Plan for the remainder of
their life.
<TABLE>
<CAPTION>
Average Amount of Annual Retirement Benefit
Annual With Credited Service Of: (1)
----------------------------------------------------------------
Earnings 10 Years 20 Years 30 Years 40 Years
----------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
$ 25,000 $ 3,750 $ 7,500 $11,250 $15,000
50,000 7,500 15,000 22,500 30,000
75,000 11,250 22,500 33,750 45,000
100,000 15,000 30,000 45,000 60,000
125,000 18,750 37,500 56,250 75,000
150,000 22,500 45,000 67,500 90,000
175,000 22,500 45,000 67,500 90,000
200,000 22,500 45,000 67,500 90,000
- --------------
(1) Mr. Thorne and Mr. Bergey have 7 years and 6 years, respectively, of
credited service under the Plan. Earnings in excess of $150,000 are not
considered in determining the pension benefit.
</TABLE>
10
<PAGE>
401(k) Retirement Savings Plan
During the fourth quarter of 1994, the Bank adopted a retirement savings
plan intended to comply with Section 40l(k) of the Internal Revenue Code of
1986. Employees become eligible to participate after six months of service, and
will thereafter participate in the 401(k) plan for any year in which they have
been employed by the Bank for at least 501 hours. In general, amounts held in a
participant's account are not distributable until the participant terminates
employment with the Bank, reaches age 59 1/2, dies or becomes permanently
disabled.
Participants are permitted to authorize pre-tax savings contributions to a
separate trust established under the 401(k) plan, subject to limitations on
deductibility of contributions imposed by the Internal Revenue Code. The Bank
makes matching contributions of $.25 for every dollar of deferred salary, up to
6% of each participant's annual compensation. Each participant is 100% vested at
all times in employee and employer contributions. The Corporation's matching
contributions to the 40l(k) plan for 1998 was $33,300.
Insurance
All eligible full time employees of the Bank are covered as a group by
basic hospitalization, major medical, long-term disability, term life and a
prescription drug plan. The Bank pays the total cost of the plans for employees
with the exception of medical, in which there is cost sharing by the employees
and a co-payment required by the employee for the prescription drug plan.
Corporation Performance Graph
The following graph presents the five year cumulative total return on DNB
Financial Corporation's common stock, compared to the S&P 500 Index and S&P
Financial Index for the five year period ended December 31, 1998. The comparison
assumes that $100 was invested in the Corporation's common stock and each of the
foregoing indices and that all dividends have been reinvested.
Corporation Performance
Comparison of Five Year Cumulative Total Return
Among DNB Financial Corp., S&P 500 Index & S&P Financial Index
(The Performance Graph appears here. See the table below for plot points.)
<TABLE>
<CAPTION>
December 31,
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
S&P Index 100 101.29 138.88 170.38 226.77 291.04
S&P Financial Index 100 96.59 148.09 199.42 289.60 327.96
DNB Financial Corp. 100 60.68 85.32 124.07 252.33 271.16
</TABLE>
11
<PAGE>
PROPOSAL 2
STOCK OPTION PLAN AMENDMENT
Introduction
On February 24, 1999, the Board of Directors of the Corporation amended and
restated DNB Financial Corporation's 1995 Stock Option Plan (the "Plan"),
subject, however, to shareholder approval of the amendment adopted by the Board
to increase by 100,000 the number of shares for which options may be issued
under the Plan ("Proposal 2"). The Board approved submission of this amendment
to shareholders for approval.
General
On March 7, 1995, the Board of Directors of the Corporation adopted the
1995 Stock Option Plan (the "Plan") subject to Shareholder approval. On April
25, 1995, the Shareholders of the Corporation approved the Plan. The Plan was
adopted to enable the Corporation to attract and retain the services of
qualified employees and non-employee directors by providing them with an
opportunity to acquire a larger personal financial interest in the Corporation
through common stock ownership. This opportunity is intended as an incentive for
individuals in key positions to promote the longer term interests of the
Corporation and its shareholders and to reward key employees for the creation of
incremental shareholder value. Some or all of the Stock Options granted to
employees (but not non-employee directors) pursuant to this Plan may be
structured to qualify as Incentive Stock Options ("ISOs") under Section 422 of
the Internal Revenue Code of 1986 (the "Code"), as amended. There are
approximately 95 employees and 7 non-employee directors eligible to participate
in the Plan at present.
Description of the Plan
The following description of the Plan, including one material change to be
made to the Plan upon shareholder approval, is a summary of its terms and is
qualified in its entirety by reference to the Plan, a copy of which is attached
as Exhibit "A".
Administration
The Plan is administered by the Board, which delegates its powers with
respect to the administration of the Plan (except its powers under Section 14(c)
which deals with termination or amendment of the Plan) to a Committee appointed
by the Board. However, no employee who is also a director can be a member of the
Committee for purposes of determining employees eligible to receive a Stock
Option grant, the timing or exercise price of the grant, or the number of shares
of Common Stock to be granted.
Stock Options for Employees
Within the limits of the Plan, the Board has the authority to determine the
employees to whom Stock Options shall be granted; the time or times at which
Stock Options shall be granted; the amount and form of any Stock Options,
including whether any Stock Option is structured to be an ISO; and any other
conditions applicable to any Stock Option granted to any employee.
In making their determinations, the Board may take into account the nature
of the services rendered by the employees, their present and potential
contributions to the Corporation's success and other factors that the Board
deems relevant.
Stock Options for Non-Employee Directors
Under the Plan, each year commencing on June 30, 1995 for ten years, until
and including June 30, 2004, each non-employee director of the Corporation shall
receive a Nonqualified Stock Option (i.e., a Stock Option that is not an ISO) to
purchase 1,216 shares of Common Stock. No other Stock Options shall be granted
to non-employee directors pursuant to this Plan.
12
<PAGE>
Conditions of Stock Options
The option price for each Stock Option shall be the fair market value of
the number of shares of Common Stock at the time of the grant. The purchase
price for shares of Common Stock purchased pursuant to the exercise of an option
must be paid in full upon exercise of the option. Payment may be made in cash
or, at the discretion of the Board, by delivering shares of Common Stock equal
in fair market value to the purchase price of the shares, or a combination of
cash and Common Stock. Stock Options granted pursuant to the Plan may not be
exercised during the first six months of their term except in the case of death
of the employee or non-employee director. No Stock Option shall be exercisable
after ten years from the date it is granted, and no Stock Option shall be
granted more than ten years from the earlier of the date of adoption of the Plan
by the Board or the date of shareholder approval. Stock Options are
non-transferable except by will or by the laws of descent and distribution.
In the event of the dissolution or liquidation of the Corporation, or upon
a merger or consolidation of the Corporation in which the Corporation is not the
surviving entity, each Stock Option granted shall expire as of the effective
date of such transaction; provided, however, that the Board shall give at least
30 days' prior notice of such event to each optionee during which time he or she
shall have a right to exercise his or her wholly or partially unexercised Stock
Options. In lieu of such notice, each Stock Option shall be converted to an
option to acquire shares of the surviving corporation.
Number of Shares Covered by the Plan
The number of the Corporation's common shares for which Options may be
granted under the Plan will increase by 100,000 if Proposal 2 is approved by
shareholders. This Plan amendment raises the number of such shares from 158,016
(as adjusted to date for one stock split and four five-percent (5%) stock
dividends) to 258,016. At January 1, 1999, only 27,285 shares remained available
for the issuance of Options under the Plan. The purpose of Proposal 2 is to
assure that ample shares will continue to be authorized for future issuance
under the Plan.
Termination and Amendment of the Plan
The Board, without further action on the part of the shareholders of the
Corporation, may from time to time alter, amend or suspend the Plan, or may at
any time terminate the Plan, except that it may not, without the approval of the
shareholders of the Corporation, materially increase the total number of shares
of Common Stock available for grant under the Plan; materially modify the class
of eligible employees under the Plan; materially increase benefits to any
employee or non-employee director who is subject to the restrictions of Section
16 of the Securities Exchange Act of 1934; or effect a change relating to an ISO
granted which is inconsistent with Section 422 of the Code.
No action taken by the Board either with or without the approval of the
shareholders of the Corporation, may materially and adversely affect any
outstanding Stock Option without the consent of the optionee. The Plan shall not
be amended to modify any of the terms of the Plan relating to Stock Options for
non-employee directors.
Application of Funds
The proceeds received by the Corporation from the sale of Common Stock
pursuant to Stock Options will be used for general corporate purposes.
Federal Income Tax Consequences
Under current provisions of the Code, the Federal income tax treatment of
ISOs and Nonqualified Stock Options is different. Options which qualify as ISOs
are entitled to special tax treatment if shares purchased pursuant to the
exercise of such an option are not disposed of by the Optionee within two years
from the date of granting of the ISO, and within one year after the issue of the
shares to the optionee upon exercise of the ISO. If
13
<PAGE>
this condition is satisfied, neither the grant nor the exercise of the ISO will
result in taxable income to the recipient or in a deduction to the Corporation.
The grant of Nonqualified Stock Options will not result in taxable income
to the optionee or in a deduction by the Corporation. However, upon exercise of
a Nonqualified Stock Option, the optionee will realize ordinary income equal to
the excess of the fair market value of the shares on the date of exercise over
the purchase price, and the Corporation will be entitled to a deduction equal to
the amount the employee or non-employee director is required to treat as
ordinary income.
The above description of tax consequences under Federal law is necessarily
general in nature and does not purport to be complete. Moreover, statutory
provisions are subject to change, as are their interpretations, and their
application may vary in individual circumstances. Finally, the consequences
under applicable state and local income tax laws may not be the same as under
Federal income tax laws.
Accounting Treatment
Neither the grant nor the exercise of an ISO or a Nonqualified Stock Option
under the Plan currently requires any charge against earnings under generally
accepted accounting principles.
In accordance with Rule 16b-3 of the Securities and Exchange Commission
("SEC"), the affirmative vote of the holders of a majority of the Corporation's
common shares present, in person or by proxy, and entitled to vote at the
Meeting is required to approve Proposal 2. Absentations will have the effect of
a negative vote. Broker non-votes are treated as shares present but not entitled
to vote, so they will have no effect on the outcome of Proposal 2.
Unless marked to the contrary, the shares represented by the enclosed Proxy
will be voted FOR approval of Proposal 2.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF
PROPOSAL 2.
14
<PAGE>
PROPOSAL 3
RATIFICATION OF INDEPENDENT AUDITORS
The Corporation's independent auditors for the fiscal year ended December
31, 1998 were KPMG LLP. The Corporation's Board of Directors has reappointed
KPMG LLP to continue as independent auditors for the fiscal year ending December
31, 1999 subject to ratification of such appointment by the stockholders.
Representatives of KPMG LLP are expected to attend the Annual Meeting. They will
be given an opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions from stockholders present at the
Annual Meeting.
Unless marked to the contrary, the shares represented by the enclosed Proxy will
be voted FOR the ratification of KPMG LLP as the independent auditors of the
Corporation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION
OF THE APPOINTMENT OF KPMG LLP AS THE INDEPENDENT
AUDITORS OF THE CORPORATION.
Stockholder Proposals
To be eligible for inclusion in the Corporation's proxy materials relating
to the Annual Meeting of Stockholders to be held in 2000, a stockholder proposal
must be received by the Secretary of the Corporation at the address set forth on
the first page of this Proxy Statement, not later than November 29, 1999. Any
such proposal will be subject to Rule 14a-8 of the rules and regulations of the
SEC.
In connection with the Corporation's 2000 annual meeting and pursuant to
recently amended Rule 14a-4 under the Exchange Act, if the shareholder's notice
is not received by the Corporation on or before February 10, 2000, the
Corporation (through management proxy holders) may exercise discretionary voting
authority when the proposal is raised at the annual meeting without any
reference to the matter in the proxy statement.
Other Matters Which May Properly Come Before The Meeting
The Board of Directors knows of no business which will be presented for
consideration at the Annual Meeting other than as stated in the Notice of Annual
Meeting of Stockholders. If, however, other matters are properly brought before
the Annual Meeting, it is the intention of the persons named in the accompanying
proxy to vote the shares represented thereby on such matters in accordance with
their best judgment.
Whether or not you intend to be present at this Annual Meeting, you are
urged to return your proxy promptly. If you are present at this Annual Meeting
and wish to vote your shares in person, your proxy may be revoked upon request.
A COPY OF THE FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 1998 AS FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION WILL BE FURNISHED WITHOUT CHARGE TO
STOCKHOLDERS OF THE RECORD DATE UPON WRITTEN REQUEST TO BRUCE E. MORONEY, DNB
FINANCIAL CORPORATION, 4 BRANDYWINE AVENUE, DOWNINGTOWN, PA 19335 OR BY
CONTACTING MR. MORONEY AT 610-873-5253.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Ronald K. Dankanich
Ronald K. Dankanich, Secretary
Downingtown, Pennsylvania
March 26, 1999
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. WHETHER
OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE REQUESTED TO SIGN AND
PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
15
<PAGE>
REVOCABLE PROXY
DNB FINANCIAL CORPORATION
PLEASE MARK VOTES
_______ AS IN THIS EXAMPLE
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
ANNUAL MEETING OF SHAREHOLDERS
APRIL 27, 1999
The undersigned hereby constitutes and appoints Richard D. Thatcher, Eileen H.
Schafer and Brian R. Formica and each or any of them, proxies of the
undersigned, with full power of substitution, to vote all of the shares of DNB
Financial Corporation (the "Corporation") that the undersigned may be entitled
to vote at the Annual Meeting of Stockolders of the Corporation to be held at
the Central Presbyterian Church, 100 W. Uwchlan Avenue, Downingtown,
Pennsylvania on Tuesday, April 27, 1999 at 10:00 a.m., prevailing time, and at
any adjournment or postponement thereof as follows with respect to the following
matters as described in the Proxy Statement:
Please be sure to sign and date Date____________
this Proxy in the box below.
- -----------------------------------------------------------
- -----------------------------------------------------------
Stockholder sign above Co-holder (if any) sign above
With- For All
For held Except
1. ELECTION OF DIRECTORS: for all [ ] [ ] [ ]
nominees listed below (except as
marked to the contrary below):
Thomas R. Greenleaf; Louis N. Teti and James H. Thornton
INSTRUCTION: To withhold authority to vote for any
individual nominee, mark "For All Except" and write
that nominee's name in the space provided below.
- ----------------------------------------------------------------
2. Amendment of the 1995 Stock Option For Against Abstain
Plan to increase the number of shares [ ] [ ] [ ]
for which options may be granted.
3. To ratify the appointment of For Against Abstain
KPMG LLP as the independent auditors [ ] [ ] [ ]
for the fiscal year ending December 31,
1999.
------------------------
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER HEREIN SPECIFIED
BY THE UNDERSIGNED SHAREHOLDER, IF NO DIRECTION IS INDICATED, THIS PROXY WILL BE
VOTED FOR THE NOMINEES LISTED ABOVE AND FOR PROPOSAL 2 AND PROPOSAL 3, AND IN
ACCORDANCE WITH THE DISCRETION OF THE PROXIES ON ANY OTHER MATTERS TO COME
BEFORE THE ANNUAL MEETING.
Please sign exactly as your name appears on this card, date and return this card
promptly using the enclosed envelope. Executors, administrators, guardians,
officers of corporations, and others signing in a fiduciary capacity should
state their full title as such.
Detach above card, sign, date and mail in postage paid envelope provided.
DNB FINANCIAL CORPORATION
- -------------------------------------------------------------------------------
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING,
PLEASE ACT PROMPTLY SIGN, DATE & MAIL YOUR PROXY CARD
TODAY, USING THE ENCLOSED ENVELOPE.
- -------------------------------------------------------------------------------
<PAGE>
Exhibit "A"
1995 STOCK OPTION PLAN
OF
DNB FINANCIAL CORPORATION
(AS AMENDED AND RESTATED, EFFECTIVE AS OF APRIL 27, 1999)
A-1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
1. Purpose............................................................................................A-3
2. Definitions........................................................................................A-3
3. Administration.....................................................................................A-4
4. Maximum Limitations ...............................................................................A-4
5. Conditions of Options .............................................................................A-5
6. Exercise of Stock Options .........................................................................A-5
7. Transferability ...................................................................................A-6
8. Adjustment Provisions .............................................................................A-6
9. Dissolution, Merger and Consolidation .............................................................A-6
10. Effective Date and Conditions Subsequent to Effective Date ........................................A-6
11. Expiration of Stock Options .......................................................................A-6
12. Incentive Stock Options ...........................................................................A-6
13. Stock Options for Non-Employee Directors ..........................................................A-7
14. Miscellaneous .....................................................................................A-7
</TABLE>
A-2
<PAGE>
1995 STOCK OPTION PLAN
OF
DNB FINANCIAL CORPORATION
(As amended and restated, effective
as of April 27, 1999)
1. Purpose. The purpose of this Plan is: (i) to provide Employees and
Non-Employee Directors of DNB Financial Corporation (the "Company") and its
wholly owned subsidiary, the Downingtown National Bank (the "Bank"), an
opportunity to acquire a larger personal financial interest in the Company
through common stock ownership, (ii) to provide an incentive for Employees and
Non-Employee Directors to continue to promote the best long term interests of
the Company and its shareholders by creating incremental shareholder value and
enhancing its long-term performance, and (iii) to provide an incentive for
Employees and Non-Employee Directors to associate or remain associated with the
Company. Some or all of the Stock Options granted to Employees (but not
Non-Employee Directors) pursuant to this Plan may, but need not, be structured
to qualify as Incentive Stock Options ("ISOs").
2. Definitions. The following definitions shall apply for purposes of
this Plan and any agreement relating to a Stock Option:
(a) "Bank" shall mean Downingtown National Bank.
(b) "Board" shall mean the Board of Directors of DNB Financial
Corporation.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and the rulings
issued thereunder.
(d) "Committee" shall mean the committee of Board members
appointed to administer the Plan pursuant to Section 3(a), below.
(e) "Common Stock" shall mean shares of common stock issued by DNB
Financial Corporation or such class of shares to which such shares are converted
hereafter.
(f) "Company" shall mean DNB Financial Corporation.
(g) "Employee" shall mean an individual who is an employee of the
Company or the Bank under general common law principles. An individual who is an
"Employee", as so defined, may also be a member of the Board (but not a
Non-Employee Director).
(h) "Incentive Stock Option" or "ISO" shall mean a Stock Option
that qualifies under section 422 of the Code.
(i) "Non-Employee Director" shall mean a member of the Board who
is not an Employee.
(j) "Non-Qualified Option" shall mean a Stock Option granted under
this Plan which is not an Incentive Stock Option.
(k) "Plan" shall mean the Stock Option Plan of DNB Financial
Corporation, as evidenced hereby, or as amended from time to time.
(l) "Stock Option" shall mean an option issued pursuant to this
Plan.
(m) "Termination for Cause" shall mean termination of employment
of an Employee or termination of service as a Non-Employee Director due to
conduct which would authorize the forfeiture of fringe benefits or
A-3
<PAGE>
other remuneration under the Employee's written contract of employment with the
Company or the Bank; or, in the absence of a written contract of employment, or
in the case of any Non-Employee Director, (i) willful misconduct materially
injurious to the Company, (ii) dishonesty, including, but not limited to, theft
or falsification of records or the like, (iii) the commission of a crime, or
(iv) gross negligence of the Employee or Non-Employee Director in the
performance of his or her duties.
3. Administration.
(a) Board of Directors. The Plan shall be administered by the
Board, which, to the extent it shall determine, may delegate its powers with
respect to the administration of the Plan (except its powers under Section
14(c)) to a Committee appointed by the Board and composed of not less than three
members of the Board. If the Board chooses to appoint a Committee, references
hereinafter to the Board (except in Section 14 (c)) shall be deemed to refer to
the Committee.
(b) Powers. Within the limits of the express provisions of the
Plan, the Board shall determine:
(i) the Employees to whom Stock Options hereunder shall be
granted,
(ii) the time or times at which such Stock Options shall be
granted,
(iii) the amount and form of any Stock Options to Employees,
including, but not limited to, whether any Stock Option is structured to be an
ISO, and
(iv) the limitations, restrictions and conditions applicable
to any Stock Option granted to any Employee or Non-Employee Director, including,
but not limited to, whether the right to exercise any Stock Option, in whole or
in part, will be subject to a vesting schedule.
In making such determinations, the Board may take into account the nature of the
services rendered by such Employees, or Non-Employee Directors or classes
thereof, their present and potential contributions to the Company's success and
such other factors as the Board in its discretion shall deem relevant.
(c) Interpretations. Subject to the express provisions of the
Plan, the Board may interpret the Plan, prescribe, amend and rescind rules and
regulations relating to it, determine the terms and provisions of the respective
Stock Options and make all other determinations it deems necessary or advisable
for the administration of the Plan.
(d) Determinations. The determinations of the Board on all matters
regarding the Plan shall be conclusive.
(e) Nonuniform Determinations. The Board's determinations under
the Plan, including without limitation, selection of the individuals to receive
Stock Options, the terms and provisions of Stock Options thereof and the
agreements evidencing the same, need not be uniform and may be made by it
selectively among individuals who receive or are eligible to receive Stock
Options under the Plan, whether or not such individuals are similarly situated.
(f) Determinations With Respect to Stock Options Granted to
Employees. All determinations with respect to the identity of any Employee to
whom a Stock Option shall be granted, the timing or exercise price thereof, or
the number of shares of Common Stock subject thereto, shall be made by a
committee comprised of two or more members of the Board, who need not be the
same as the Committee described in Section 3(a), above, none of whom may be an
Employee.
4. Maximum Limitations. The aggregate number of shares of Common Stock
available for grant under the Plan is two hundred fifty-eight thousand, sixteen
(258,016), as of the effective date of this amended and restated plan, subject
to adjustment pursuant to Section 8, below. Shares of Common Stock issued
pursuant to the Plan may be either authorized but unissued shares or shares now
or hereafter held in the treasury of the Company. In the event that, prior to
the end of the period during which Stock Options may be granted under the Plan,
any Stock Option
A-4
<PAGE>
under the Plan expires unexercised or is terminated, surrendered or canceled,
without being exercised, in whole or in part, for any reason, the number of
shares theretofore subject to such Stock Option, or the unexercised, terminated,
forfeited or unearned portion thereof, shall be added to the remaining number of
shares of Common Stock available for grant as a Stock Option under the Plan,
including a grant to a former holder of such Stock Option, upon such terms and
conditions as the Board shall determine, which terms may be more or less
favorable than those applicable to such former Stock Option.
5. Conditions of Options. Any Stock Option granted pursuant to this Plan
shall, by its terms, be subject to the following limitations and conditions:
(a) Option Price. The option price for each Stock Option shall be
the fair market value of the number of shares of Common Stock subject thereto at
the time of the grant thereof.
(b) Term of Option. No Stock Option shall be exercisable after the
date which is 10 years from the date it is granted.
(c) Time of Grants. No Stock Option shall be granted more than 10
years from the earlier of the date of adoption of the Plan by the Board or the
date of shareholder approval hereof; provided, however, that the Plan and all
Stock Options granted prior to such date shall remain in effect and subject to
adjustment and amendment as herein provided until they have been satisfied or
terminated in accordance with their terms.
(d) Expiration of Stock Option. A Stock Option must, by its terms,
expire no later than the date that the employment of the Employee or the service
of the Non-Employee Director with the Company terminates for any reason, except
in the following circumstances:
(i) In the case of an Employee or Non-Employee Director
who dies while employed by or in the service of the
Company, his Stock Option may, by its terms, permit
his estate or the person who acquires the right to
exercise such Stock Option upon his or her death by
bequest or inheritance to exercise the Stock Option,
in whole or in part, at any time on or before the
expiration date set forth therein; and
(ii) In the case of an Employee or Non-Employee Director
whose employment or service with the Company is
terminated for reasons other than pursuant to a
Termination for Cause, his Stock Option may, by its
terms, permit him to exercise the Stock Option, in
whole or in part, at any time on or before the
expiration date set forth therein.
6. Exercise of Stock Options.
(a) In General. Stock Options shall be subject to such terms and
conditions, shall be exercisable at such time or times, and shall be evidenced
by such form of written option agreement between the optionee and the Company,
as the Board shall determine; provided that such determinations are not
inconsistent with the other provisions of the Plan, and with Section 422 of the
Code in the case of an ISO.
(b) Manner of Exercise of Options and Payment for Common Stock.
Stock Options may be exercised by an optionee by giving written notice to the
Corporate Secretary of the Company stating the number of shares of Common Stock
with respect to which the Stock Option is being exercised and tendering payment
therefor. At the time that a Stock Option granted under the Plan, or any part
thereof, is exercised, payment for the Common Stock issuable thereupon shall be
made in full in cash or by certified check or, if the Board in its discretion
agrees to accept, in shares of Common Stock of the Company (the number of such
shares paid for each share subject to the Stock Option, or part thereof, being
exercised shall be determined by dividing the option price by the fair market
value per share of the Common Stock on the date of exercise). As soon as
reasonably possible following such
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exercise, a certificate representing shares of Common Stock purchased,
registered in the name of the optionee, shall be delivered to the optionee.
(c) Timing of Exercise. No Stock Option may be exercised during
the first six months of its term except in the case of death of the Employee or
Non-Employee Director to whom it was granted if, in accordance with Section
5(d)(i), above, the Stock Option has not expired upon the Employee's or
Non-Employee Director's death.
7. Transferability. No Stock Option may be transferred, assigned, pledged
or hypothecated (whether by operation of law or otherwise), except as provided
by will or the applicable laws of descent or distribution as described in
Section 5(d)(i), above, or subject to execution, attachment or similar process.
Any attempted assignment, transfer, pledge, hypothecation or other disposition
of a Stock Option, or levy of attachment or similar process upon the Stock
Option not specifically permitted herein shall be null and void and without
effect. A Stock Option may be exercised only by an Employee or Non-Employee
Director during his or her lifetime, or by his or her estate or the person who
acquires the right to exercise such Stock Option upon his or her death by
bequest or inheritance if permitted by Section 5(d)(i), above.
8. Adjustment Provisions. The aggregate number of shares of Common Stock
with respect to which Stock Options may be granted, the aggregate number of
shares of Common Stock subject to each outstanding Stock Option, and the option
price per share of each such Stock Option, may all be appropriately adjusted as
the Board shall determine for any increase or decrease in the number of shares
of issued Common Stock resulting from a division or consolidation of shares,
whether through reorganization, recapitalization, stock split, stock
distribution or combination of shares, or the payment of a share dividend or
other increase or decrease in the number of such shares outstanding effected
without receipt of consideration by the Company.
9. Dissolution, Merger and Consolidation. Upon the dissolution or
liquidation of the Company, or upon a merger or consolidation of the Company in
which the Company is not the surviving corporation, each Stock Option granted
hereunder shall expire as of the effective date of such transaction; provided,
however, that the Board shall give at least 30 days' prior written notice of
such event to each optionee during which time he or she shall have a right to
exercise his or her wholly or partially unexercised Stock Option (without regard
to installment exercise limitations, if any) and, subject to prior expiration
pursuant to the terms thereof, each Stock Option shall be exercisable after
receipt of such written notice and prior to the effective date of such
transaction; provided further, however, that upon a merger or consolidation of
the Company in which the Company is not the surviving corporation, in lieu of
such notice, each such Stock Option shall be converted to an option to acquire
shares of the surviving corporation, the number of which shall be based on the
relative values of the Common Stock and such surviving corporation's common
stock on the date of such merger or consolidation.
10. Effective Date and Conditions Subsequent to Effective Date. The Plan
shall become effective on the date of approval of the Plan by the holders of a
majority of the shares of Common Stock of the Company; provided, however, that
the adoption of the Plan is subject to such shareholder approval within 12
months before or after the date of adoption of the Plan by the Board. The Plan
shall be null and void and of no effect if the foregoing condition is not
fulfilled, and in such event each Stock Option granted hereunder shall,
notwithstanding any of the preceding provisions of the Plan, be null and void
and of no effect.
11. Expiration of Stock Option. Each Stock Option shall, unless sooner
expired pursuant to Section 5(d), above, expire on the expiration date set forth
in the applicable option agreement.
12. Incentive Stock Options. Some or all of the Stock Options granted to
Employees pursuant to this Plan may be options which are intended to be ISOs.
Only those Stock Options which, by their terms, are expressly intended to
qualify as ISOs shall be considered as such. In addition to the other provisions
of this Plan, the provisions of this Section 12 apply to grants of ISOs
hereunder. In the event of a conflict between any provision of this Section 12
and provision of any other Section of this Plan, the provision of this Section
12 shall prevail.
(a) Identity of Optionees. ISOs may be granted only to Employees
(and not Non-Employee Directors).
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(b) More-than-10% Shareholders. No Employee may receive an ISO
under the Plan if such Employee, at the time the Stock Option is granted, owns
(as defined in Section 424(d) of the Code) stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company, or any
subsidiary, unless the option price for such ISO is at least 110% of the fair
market value of the Common Stock subject to such ISO on the date of grant and
such ISO is not exercisable after the date five years from the date such Option
is granted.
(c) Limitation on Amounts. The aggregate fair market value
(determined with respect to each ISO as of the date of grant) of the capital
stock with respect to which ISOs are exercisable for the first time by an
Employee during any calendar year (under this Plan or any other plan of the
Company or any subsidiary of the Company) shall not exceed $100,000.
13. Stock Options for Non-Employee Directors. As of June 30, 1999, and
June 30 of each year thereafter through June 30, 2004, or until termination of
this Plan, if earlier, the Company shall grant to each Non-Employee director a
Nonqualified Option with respect to one thousand two hundred and sixteen (1,216)
shares of Common Stock, subject to such terms as the Board may determine in
accordance with the terms of the Plan. No other Stock Options shall be granted
to Non-Employee Directors pursuant to this Plan. If the number of shares of
Common Stock remaining for grant under the Plan is not sufficient for each
Non-Employee Director to be granted a Stock Option for one thousand two hundred
and sixteen (1,216) shares on any grant date, then each Non-Employee Director
shall be granted an option for a number of whole shares equal to the number of
shares then remaining available under the Plan, divided by the number of
Non-Employee Directors as of the grant date, disregarding any fractions of a
share.
14. Miscellaneous.
(a) Legal and Other Requirements. The obligation of the Company to
sell and deliver Common Stock under the Plan shall be subject to all applicable
laws, regulations, rules and approvals, including, but not by way of limitation,
the effectiveness of a registration statement under the Securities Act of 1933
if deemed necessary or appropriate by the Company. Certificates for shares of
Common Stock issued hereunder may be legended as the Board shall deem
appropriate.
(b) No Obligation To Exercise Options. The granting of a Stock
Option shall impose no obligation upon an optionee to exercise such Stock
Option.
(c) Termination and Amendment of Plan. The Board, without further
action on the part of the shareholders of the Company, may from time to time
alter, amend or suspend the Plan, or may at any time terminate the Plan, except
that it may not, without the approval of the shareholders of the Company:
(i) Materially increase the total number of shares of
Common Stock available for grant under the Plan
except as provided in Section 8, above;
(ii) Materially modify the class of eligible Employees
under the Plan;
(iii) Materially increase benefits to any Employee or
Non-Employee Director who is subject to the
restrictions of Section 16 of the Securities Exchange
Act of 1934; or
(iv) Effect a change relating to an ISO granted hereunder
which is inconsistent with Section 422 of the Code.
No action taken by the Board under this Section, either with or without the
approval of the shareholders of the Company, may materially and adversely affect
any outstanding Stock Option without the consent of the holder thereof. This
Plan shall not be amended to modify any of the terms of Section 13, above, or to
otherwise modify the terms of the Plan relating to the selection of the
Non-Employee directors to whom Stock Options are to be granted, the timing or
exercise price thereof, or the number of shares of Common Stock subject thereto,
more often than every six months, unless such changes are required to comport
with changes in the Code.
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(d) Application of Funds. The proceeds received by the Company
from the sale of Common Stock pursuant to Stock Options will be used for general
corporate purposes.
(e) Withholding Taxes.
(i) Upon the exercise of any Stock Option, the Company
shall have the right to require the optionee to remit
to the Company an amount sufficient to satisfy all
federal, state and local withholding tax requirements
(if any) then applicable prior to the delivery of any
certificate or certificates for shares of Common
Stock.
(ii) Upon the disposition of any Common Stock acquired by
the exercise of a Stock Option, the Company shall
have the right to require the optionee to remit to
the Company an amount sufficient to satisfy all
federal, state and local withholding tax requirements
(if any) then applicable as a condition to the
registration of the transfer of such Common Stock on
its books. Whenever under the Plan payments are to be
made by the Company in cash or by check, such
payments shall be net of any amounts sufficient to
satisfy all federal, state and local withholding tax
requirements.
(f) Right To Terminate Employment. Nothing in the Plan or any
agreement entered into pursuant to the Plan shall confer upon any Employee or
Non-Employee Director the right to continue in the employment or other service
of the Company, or any subsidiary thereof, or affect any right which the Company
or any subsidiary may have to terminate the employment or service of such
Employee or Non-Employee Director.
(g) Rights as a Shareholder. No optionee shall have any right as a
shareholder with respect to shares of Common Stock subject to a Stock Option
unless and until certificates for such shares are issued to him or her.
(h) Leaves of Absence and Disability. The Board shall be entitled
to make such rules, regulations and determinations as it deems appropriate under
the Plan in respect of any leave of absence taken by or disability of any
Employee or Non-Employee Director. Without limiting the generality of the
foregoing, the Board shall be entitled to determine:
(i) Whether or not any such leave of absence shall
constitute a termination of employment within the
meaning of the Plan, and
(ii) The impact, if any, of any such leave of absence on
Stock Options granted under the Plan theretofore made
to any Employee or Non- Employee Director who takes
such leave of absence.
(i) Fair Market Value. Whenever the fair market value of Common
Stock is to be determined under the Plan as of a given date, such fair market
value shall be:
(i) If the Common Stock is traded on the over-the-counter
market, the average of the mean between the bid and
the asked price for the Common Stock at the close of
trading for the trading day immediately preceding
such given date;
(ii) If the Common Stock is listed on a national
securities exchange, the average of the closing
prices of the Common Stock on the composite tape for
the trading day immediately preceding such given
date; and
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(iii) If the Common Stock is neither traded on the
over-the-counter market nor listed on a national
securities exchange, such value as the Board, in good
faith, shall determine.
Notwithstanding any provision of the Plan to the contrary, no determination made
with respect to the fair market value of Common Stock subject to an ISO shall be
inconsistent with Section 422 of the Code.
(j) Notices. Every direction, revocation or notice authorized or
required by the Plan shall be deemed delivered to the Company on the date it is
personally delivered to the Secretary of the Company at its principal executive
offices or three business days after it is sent by registered or certified mail,
postage prepaid, addressed to the Secretary at such offices, and shall be deemed
delivered to an optionee on the date it is personally delivered to him or her or
three business days after it is sent by registered or certified mail, postage
prepaid, addressed to him or her at the last address shown for him or her on the
records of the Company.
(k) Applicable Law. All questions pertaining to the validity,
construction and administration of the Plan and Stock Options granted hereunder
shall be determined in conformity with the laws of the Commonwealth of
Pennsylvania, to the extent not superseded by federal law.
(l) Elimination of Fractional Shares. If under any provision of
the Plan which requires a computation of the number of shares of Common Stock
subject to a Stock Option, the number so computed is not a whole number of
shares of Common Stock, such number of shares of Common Stock shall be rounded
down to the next whole number.
* * * * *
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