<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] 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 (S)240.14a-11(c) or (S)240.14a-12
Harleysville Group Inc.
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(Name of Registrant as Specified In Its Charter)
-----------------------------------------
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-16(i)(4)
and 0-11.
1) Title of each class of securities to which transaction
applies:
------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
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4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------
5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule, or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
[LOGO OF HARLEYSVILLE GROUP INC. APPEARS HERE]
HARLEYSVILLE GROUP INC.
A NATIONAL NETWORK OF REGIONAL INSURERS
March 21, 1997
Dear Harleysville Group Inc. Stockholder:
You are cordially invited to attend the Annual Meeting of the Stockholders
of Harleysville Group Inc. which will be held at the Home Office of the
Company at 355 Maple Avenue, Harleysville, Pennsylvania on Wednesday, April
23, 1997, at 10:00 A.M.
Stockholders will elect a class of directors and will act upon proposals to
approve the adoption of the Amended and Restated Equity Incentive Plan and an
amendment to the Employee Stock Purchase Plan to increase the maximum
contribution.
We hope to see you on April 23, 1997. Whether or not you plan to attend the
meeting in person, it is important that you complete and return the enclosed
proxy card in the envelope provided so that your shares can be voted at the
meeting in accordance with your instructions.
Sincerely,
/s/ Bradford W. Mitchell
Bradford W. Mitchell
Chairman of the Board
<PAGE>
HARLEYSVILLE GROUP INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 23, 1997
To the Stockholders of
Harleysville Group Inc.
The Annual Meeting of Stockholders of HARLEYSVILLE GROUP INC. ("Harleysville
Group") will be held at 10:00 A.M., local time, on Wednesday, April 23, 1997,
at 355 Maple Avenue, Harleysville, Pennsylvania 19438, for the following
purposes:
1. To elect two Class B directors to serve until the expiration of their
terms and until their successors are elected;
2. To approve the adoption of the Amended and Restated Equity Incentive
Plan;
3. To approve an amendment to the Employee Stock Purchase Plan; and
4. To transact such other business as may properly come before the Annual
Meeting and any adjournment thereof.
The Board of Directors has fixed the close of business on March 12, 1997 as
the record date for determining the stockholders entitled to notice of and to
vote at the Annual Meeting.
For further information on the individuals nominated as directors, the
Amended and Restated Equity Incentive Plan and the amendment to the Employee
Stock Purchase Plan, you are urged to read the Proxy Statement on the
following pages.
A copy of Harleysville Group's Annual Report for its fiscal year ended
December 31, 1996 is being mailed to stockholders together with this Notice.
By Order of the Board of Directors,
/s/ Roger A. Brown
Roger A. Brown
Secretary
March 21, 1997
Harleysville, Pennsylvania
<PAGE>
HARLEYSVILLE GROUP INC.
PROXY STATEMENT
General. This Proxy Statement and the form of proxy enclosed herewith, which
are first being mailed to stockholders on or about March 21, 1997, are being
furnished in connection with the solicitation by the Board of Directors of
Harleysville Group Inc. ("Harleysville Group") of proxies to be voted at the
Annual Meeting of Stockholders (the "Annual Meeting") to be held at 10:00
A.M., local time, on April 23, 1997 and at any adjournment thereof, at
Harleysville Group's principal executive offices, which are located at 355
Maple Avenue, Harleysville, Pennsylvania 19438.
Voting. Shares represented by proxies in the accompanying form, if properly
signed and returned, will be voted in accordance with the specifications made
thereon by the stockholders. Any proxy not specifying to the contrary will be
voted for the election of the nominees for director named below, for the
adoption of the Amended and Restated Equity Incentive Plan, and for the
adoption of the amendment to the Employee Stock Purchase Plan.
Holders of Common Stock of record at the close of business on March 12, 1997
will be entitled to receive notice of and to vote at the Annual Meeting. Every
stockholder entitled to vote at the meeting shall have the right to one vote
for every share having voting power standing in his or her name on the record
date fixed for the meeting. Cumulative voting rights do not exist with respect
to the election of Directors.
Under Section 216 of the Delaware General Corporation Law and Harleysville
Group's By-Laws, a majority of the shares of Harleysville Group's Common
Stock, present in person or represented by proxy, including abstentions and
broker non-votes, constitute a quorum for purposes of the Annual Meeting.
Directors are elected by a plurality of votes cast at the meeting. The
affirmative vote of the majority of shares present in person or represented by
proxy at the Annual Meeting and entitled to vote is required for stockholder
action on the other proposals. In the election of Directors, stockholders may
cast votes for, or withhold votes from, any nominee; votes that are withheld
and broker non-votes will not be included in the vote, and will have no effect
on the outcome. Stockholders may abstain from voting on any other proposal
(except as to the election of Directors). Because approval of the proposal
requires an affirmative vote of a majority of shares present (in person or by
proxy) and entitled to vote, abstentions and broker non-votes will have the
effect of a negative vote.
As of the close of business on March 12, 1997, Harleysville Group had
outstanding 14,202,394 shares of Common Stock, $1.00 par value (the "Common
Stock"). As of March 12, 1997 Harleysville Mutual Insurance Company
("Harleysville Mutual") owned 7,804,693 shares of Harleysville Group's
outstanding Common Stock, or approximately 55% of Harleysville Group's
outstanding Common Stock. Harleysville Mutual has advised Harleysville Group
that Harleysville Mutual will vote its shares in favor of the election of
Messrs. Browne and Reed, to approve the adoption of the Amended and Restated
Equity Incentive Plan and to approve the proposal to amend the Employee Stock
Purchase Plan to increase the maximum contribution from 10% to 15% of base
pay. Messrs. Browne and Reed will be elected regardless of the votes of
Harleysville Group's stockholders other than Harleysville Mutual and the
adoption of the Amended and Restated Equity Incentive Plan and amendment of
the Employee Stock Purchase Plan will be approved regardless of the votes of
Harleysville Group's stockholders other than Harleysville Mutual.
Solicitation of Proxies. The cost of solicitation of proxies in the
accompanying form will be borne by Harleysville Group, including expenses in
connection with preparing and mailing this Proxy Statement. Such solicitation
will be made by mail and may also be made on behalf of Harleysville Group by
Harleysville Group's regular officers and employees in person or by telephone
or telegram for which they will receive no additional compensation.
Harleysville Group, upon request therefor, will also reimburse brokers or
banks or persons holding shares in their names or in the names of nominees for
their reasonable expenses in sending proxies and proxy material to beneficial
owners.
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Revocability of Proxies. A stockholder who signs and returns a proxy in the
accompanying form may revoke it at any time before it is voted by giving
written notice thereof to the Secretary of Harleysville Group, by a duly
executed proxy bearing a later date, or by voting by ballot at the Annual
Meeting.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth, as of December 31, 1996, the amount and
percentage of Harleysville Group's outstanding Common Stock beneficially owned
by each person who is known by Harleysville Group to own beneficially more
than five percent of its Common Stock. The table also lists beneficial
ownership, as of February 1, 1997, of (i) each director and nominee for
director; (ii) each of the executive officers of Harleysville Group named in
the Summary Compensation Table beginning on page 9 (the "Summary Compensation
Table"); and (iii) all executive officers and directors of Harleysville Group
as a group.
<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS OF AMOUNT OF BENEFICIAL CLASS OF
BENEFICIAL OWNER OWNERSHIP COMMON STOCK (1)(2)
------------------- -------------------- -------------------
<S> <C> <C>
Harleysville Mutual Insurance Com-
pany
Harleysville, PA 19438-2297....... 7,804,693 55%
The Capital Group Companies Inc.(3)
("Capital Group")
333 South Hope Street
Los Angeles, CA 90071............. 1,005,500 7%
T. Rowe Price, Associates(4)
("T. Rowe Price")
100 E. Pratt Street
Baltimore, MD 21202............... 868,800 6%
<CAPTION>
DIRECTORS AND NAMED EXECUTIVE
OFFICERS
-----------------------------
<S> <C> <C>
Bradford W. Mitchell............... 32,286(5)
Walter R. Bateman.................. 59,915(6)
Lowell R. Beck..................... 300
Michael L. Browne.................. 8,431(5)(7)
Robert D. Buzzell.................. 8,221(5)
Gerard G. Johnson.................. 8,119(5)(8)
H. Bryce Jordan.................... 9,439(5)
Frank E. Reed...................... 9,640(5)
William E. Strasburg............... 11,428(5)
Thomas E. Roden.................... 28,487(9)
Mark R. Cummins.................... 24,663(10)
Spencer M. Roman................... 11,877(11)
Bruce J. Magee..................... 20,063(12)
All directors and executive offi-
cers as a group (16 persons)...... 264,418(5)(13) 2%
</TABLE>
- - --------
(1) At December 31, 1996 and February 1, 1997, Harleysville Group had
14,139,861 and 14,193,869 shares of Common Stock outstanding,
respectively.
(2) Less than 1% unless otherwise indicated.
(3) Capital Group is the parent company of several investment management and
advisory companies, including Capital Guardian Trust Company, Capital
Research and Management Company and Capital International Research and
Management Inc. In a Schedule 13G, dated February 12, 1997, filed with
the Securities and Exchange Commission ("SEC"), Capital Group reported,
as of December 31, 1996, beneficial ownership of 1,005,500 shares of
Harleysville Group stock by its operating subsidiaries for the accounts
of clients for whom it provides investment advisory and management
services. Capital Group reported sole voting power as to 515,500 of these
shares and sole dispositive power as to all 1,005,500. Capital Group
disclaims beneficial ownership as to all 1,005,500 such shares. Capital
Group has
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represented that the shares reported were acquired in the ordinary course
of business, and were not acquired for the purpose of, and do not have the
effect of, changing or influencing control of Harleysville Group.
(4) T. Rowe Price filed a Schedule 13G, dated February 14, 1997, with the SEC
and reported as of December 31, 1996, beneficial ownership of 868,800
shares of Harleysville Group stock. T. Rowe Price reported sole voting
power as to 66,500 shares and sole dispositive power as to all 868,800
shares. T. Rowe Price has represented that the shares reported were
acquired in the ordinary course of business and were not acquired for the
purpose of and do not have the effect of changing or influencing the
control of Harleysville Group. T. Rowe Price further expressly disclaims
beneficial ownership of all such shares.
(5) Includes shares of Common Stock which the non-employee directors have the
option to purchase within sixty days under the 1990 and 1995 Directors'
Stock Option Programs as follows: Bradford W. Mitchell--3,134; Michael L.
Browne--5,150; Robert D. Buzzell--4,898; Gerard G. Johnson--4,016; H.
Bryce Jordan--5,150; Frank E. Reed --5,150; and William E. Strasburg--
5,150.
(6) Includes 38,946 shares of Common Stock which Mr. Bateman has the right to
acquire within sixty days under the Equity Incentive Plan.
(7) Includes 65 shares of Common Stock held by Mr. Browne as custodian for a
minor child, as to which shares Mr. Browne disclaims beneficial
ownership.
(8) Includes 440 shares of Common Stock held by Mr. Johnson's spouse as to
which shares Mr. Johnson disclaims beneficial ownership.
(9) Includes 20,935 shares of Common Stock which Mr. Roden has the right to
acquire within sixty days under the Equity Incentive Plan. Also includes
38 shares held by Mr. Roden as custodian for a minor child, as to which
shares Mr. Roden disclaims beneficial ownership.
(10) Includes 22,463 shares of Common Stock which Mr. Cummins has the right to
acquire within sixty days under the Equity Incentive Plan. Also includes
1,176 shares held by Mr. Cummins' spouse, as to which shares Mr. Cummins
disclaims beneficial ownership.
(11) Includes 10,161 shares of Common Stock which Mr. Roman has the right to
acquire within sixty days under the Equity Incentive Plan. Also includes
100 shares owned by Mr. Roman's spouse as custodian for a minor child as
to which shares Mr. Roman disclaims beneficial ownership.
(12) Includes 15,369 shares of Common Stock which Mr. Magee has the right to
acquire within sixty days under the Equity Incentive Plan.
(13) Includes 129,584 shares of Common Stock which all the executive officers
as a group have the right to acquire within sixty days under the Equity
Incentive Plan.
ELECTION OF DIRECTORS
Harleysville Group's Board of Directors currently consists of nine members
but will consist of eight directors following the Annual Meeting because of H.
Bryce Jordan's retirement. Each director is elected for a three-year term and
until his successor has been duly elected, except that if a nominee will
attain the age of 72 within the next two years following such nominee's
election, such nominee will be nominated for a term of one or two years, as
the case may be, to expire on the first Annual Meeting date following the
nominee's attainment of age 72. The current three-year terms of Class A, B and
C directors expire in the years 1998, 1997 and 1999 respectively.
Two Class B directors are to be elected at the Annual Meeting. Unless
otherwise instructed, proxy holders will vote the proxies received by them for
the election of the nominees named below. If any nominee becomes unavailable
for any reason, it is intended that the proxies will be voted for a substitute
nominee designated by the Board of Directors or the number of directors to be
elected at the meeting will be reduced accordingly. The Board of Directors has
no reason to believe the nominees named will be unable to serve if elected.
Any vacancy occurring on the Board of Directors for any reason may be filled
by a majority of the directors then in office until the expiration of the term
of the class of directors in which the vacancy exists.
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The names of the nominees for Class B directors and the Class A and C
directors who will continue in office after the Annual Meeting until the
expiration of their respective terms, together with certain information
regarding them, are as follows:
NOMINEES FOR CLASS B DIRECTOR
<TABLE>
<CAPTION>
DIRECTOR YEAR TERM
NAME AGE SINCE WILL EXPIRE
---- --- -------- -----------
<S> <C> <C> <C>
Michael L. Browne................................... 50 1986 2000*
Frank E. Reed....................................... 62 1986 2000*
</TABLE>
- - --------
* If elected at the Annual Meeting.
DIRECTORS CONTINUING IN OFFICE
CLASS A DIRECTORS
<TABLE>
<CAPTION>
DIRECTOR YEAR TERM
NAME AGE SINCE EXPIRE WILL
---- --- -------- -----------
<S> <C> <C> <C>
Bradford W. Mitchell................................ 69 1979 1998
Robert D. Buzzell................................... 63 1992 1998
Lowell R. Beck...................................... 62 1996 1998
CLASS C DIRECTORS
<CAPTION>
DIRECTOR YEAR TERM
NAME AGE SINCE WILL EXPIRE
---- --- -------- -----------
<S> <C> <C> <C>
Walter R. Bateman................................... 49 1992 1999
Gerard G. Johnson................................... 56 1993 1999
William E. Strasburg................................ 69 1986 1999
</TABLE>
Mr. Browne was elected a director of Harleysville Group in February 1986. In
1983, Mr. Browne joined the law firm of Reed, Smith, Shaw & McClay in
Philadelphia, Pennsylvania, as a partner. He became managing partner in
January 1993. From 1980 to 1983, Mr. Browne was the Insurance Commissioner of
the Commonwealth of Pennsylvania. He is a member of the Executive Committee,
Finance Committee, Nominating Committee, Audit Committee, and Coordinating
Committee.
Mr. Reed was elected a director of Harleysville Group in February 1986 and
has been a director of Harleysville Mutual since 1985. From 1984 to March
1990, Mr. Reed served as President and Chief Operating Officer of First
Pennsylvania Corporation and First Pennsylvania Bank, Philadelphia,
Pennsylvania. Beginning in March 1990, Mr. Reed became, as a result of a
merger between First Pennsylvania Corporation and CoreStates Financial Corp.,
President and Chief Executive Officer of CoreStates Philadelphia National
Bank. Mr. Reed retired from that position in March 1995. Mr. Reed was a
director of Centel Corporation until March 1993 when it merged with Sprint
Corporation. He served as a director of Sprint Corporation until March 1996,
at which time he became Chairman of the Board and a director of 360(degrees)
Communications Company. He is a member of the Executive Committee and the
Finance Committee and serves as Chairperson of the Coordinating Committee,
representing both Harleysville Group and Harleysville Mutual.
Mr. Mitchell has been a director of Harleysville Group since its formation
in 1979, and its Chairman since 1986. He served as President from 1979 to 1988
and from 1991 to November 1992, and as Chief Executive Officer from April 1988
until his retirement on December 31, 1993. Mr. Mitchell is also the Chairman
of the Board and a director of Harleysville Mutual and has served in various
capacities, including President and Chief Executive Officer, since 1976. He
retired as Chief Executive Officer of Harleysville Mutual on December 31,
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1993. He is also a director of Harleysville National Corporation, a bank
holding company located in Harleysville, Pennsylvania. Mr. Mitchell is the
Chairperson of the Finance Committee and the Executive Committee, and serves
on the Nominating Committee.
Dr. Buzzell was elected a director of Harleysville Group and Harleysville
Mutual in April 1992. Dr. Buzzell is currently Distinguished Professor of
Marketing, George Mason University, School of Business Administration,
Fairfax, Virginia, a position he has held since September 1, 1993. Prior
thereto, he was Sebastian S. Kresge Professor of Business Administration at
Harvard University, Graduate School of Business Administration. Dr. Buzzell
currently serves on the board of directors of VF Corporation. He serves on the
Compensation & Personnel Development Committee and the Nominating Committee.
Mr. Beck was elected a director of Harleysville Group in August, 1996. From
1982 until his retirement in 1996, Mr. Beck was president of the National
Association of Independent Insurers, an insurance industry trade group
headquartered in Des Plaines, Illinois. Prior thereto he served in various
executive capacities with the American Bar Association in Chicago, Illinois.
He serves on the Audit Committee and Coordinating Committee.
Mr. Bateman has served as a director of Harleysville Group and Harleysville
Mutual since November 1992 when he was also elected President and Chief
Operating Officer of both companies. Mr. Bateman was elected President and
Chief Executive Officer of Harleysville Group and Harleysville Mutual,
effective January 1, 1994. Prior thereto, from July 1988 to July 1991, Mr.
Bateman was in charge of field operations for Harleysville Group and
Harleysville Mutual. He was Executive Vice President of both companies and
responsible for all insurance operations from July 1991 to November 1992. Mr.
Bateman is a member of the Executive Committee and the Finance Committee.
Mr. Johnson was elected a director of Harleysville Group in April 1993. Mr.
Johnson is Vice President--Finance and Chief Financial Officer of VF
Corporation, Wyomissing, Pennsylvania, a position he has held since 1988. Mr.
Johnson is Chairperson of the Audit Committee and serves on the Coordinating
Committee.
Mr. Strasburg became a director of Harleysville Group in February 1986. Mr.
Strasburg is also a director of Harleysville Mutual, a position he has held
since 1975. In 1989, Mr. Strasburg became Publisher Emeritus of Montgomery
Publishing Company, a newspaper publishing firm located in Fort Washington,
Pennsylvania. In 1991, Mr. Strasburg retired as Vice President of Independent
Publications, Inc., and retired as a member of its Board of Directors in
December 1994. Mr. Strasburg serves on the Executive Committee and the
Compensation & Personnel Development Committee, and is Chairperson of the
Nominating Committee.
5
<PAGE>
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The full Board of Directors met five times during 1996. During 1996, the
Board of Directors had an Executive Committee, a Finance Committee, a
Compensation & Personnel Development Committee, a Nominating Committee, an
Audit Committee, and a Coordinating Committee. These Committees met as
described below.
Harleysville Group's Executive Committee met seven times in 1996. Messrs.
Mitchell, Bateman, Browne, Jordan, Reed, and Strasburg are the current members
of the Executive Committee. The Executive Committee meets during the intervals
between meetings of the Board of Directors and has the right and authority to
exercise the full powers of the Board of Directors.
The Finance Committee, on which Messrs. Mitchell, Bateman, Browne, Jordan,
and Reed currently serve, met twelve times in 1996. This Committee establishes
overall investment policies and guidelines, and also reviews and approves
investments made by Harleysville Group.
The Compensation & Personnel Development Committee of Harleysville Group
consists of Messrs. Jordan, Buzzell, and Strasburg. The Committee met four
times in 1996 to determine compensation policies; to review and recommend
compensation plans; to approve certain compensation changes; and to establish
awards under and determine participants in the Equity Incentive Plan, the
Senior Management Incentive Bonus Plan, and the Long-Term Incentive Plan.
Harleysville Group's Nominating Committee met two times in 1996. The persons
nominated for Class B Directors by the Board of Directors were recommended by
the Nominating Committee. Messrs. Strasburg, Browne, Buzzell and Mitchell
serve on the Committee. The Nominating Committee will consider written
nominations from stockholders, who should submit them to the Secretary of
Harleysville Group.
The Audit Committee met three times in 1996. The Audit Committee reviews the
performance and independence of Harleysville Group's independent accounting
firm, makes an annual recommendation to the Board of Directors with respect to
the appointment of such accounting firm, approves the general nature of the
services to be performed by such accounting firm and solicits and reviews the
accounting firm's recommendations. The Audit Committee also consults with
Harleysville Group's internal audit group and periodically reviews the
relationships among that group, Harleysville Group's management and
Harleysville Group's independent accountants. The members of the Audit
Committee are Gerard G. Johnson, Lowell R. Beck and Michael L. Browne.
The Coordinating Committee met two times in 1996. It is generally
responsible for reviewing matters involving actual or potential conflicts
between Harleysville Group and Harleysville Mutual. The decisions of the
Coordinating Committee are binding on Harleysville Group and Harleysville
Mutual. No intercompany transaction between Harleysville Group Inc. and
Harleysville Mutual Insurance Company presented to the Committee can be
authorized by the Coordinating Committee unless Harleysville Group's Committee
members conclude that such transaction is fair and equitable to Harleysville
Group. The Coordinating Committee is composed of Lowell R. Beck, Michael L.
Browne, and Gerard G. Johnson representing Harleysville Group, and W. Thacher
Brown, Muriel Fox, and Jerry S. Rosenbloom representing Harleysville Mutual.
It is chaired by Frank E. Reed.
Compensation of Directors. Directors of Harleysville Group who are also
officers of Harleysville Group or Harleysville Mutual receive no fees for
services as directors. Outside directors are currently paid an annual retainer
of $17,000 and are paid $1,000 for each Board meeting attended and $900 for
each committee meeting attended, plus travel expenses. The non-employee
Chairman of the Board currently receives an additional $17,000 as a retainer.
Outside directors who chair committees of the Board of Directors receive
annual retainers of $3,500. Effective at the Annual Meeting, the annual
retainers paid to outside directors will be increased to $18,000. As of the
1997 Annual Meeting the fee paid for each committee meeting attended will be
$1,000. If a
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<PAGE>
director serves on the Board of Directors of both Harleysville Mutual and
Harleysville Group he or she receives only one annual retainer; and if the
Boards of Directors of both companies meet on the same day, he or she receives
only one Board meeting fee. In such event, the cost of the retainers, meeting
fees and expense reimbursements are allocated 50% to Harleysville Mutual and
50% to Harleysville Group. If a Board meeting and a committee meeting, or two
committee meetings, are held on the same day, a director currently receives
$600 for the second meeting attended and will receive $650 for the second
meeting attended effective as of the 1997 Annual Meeting.
Harleysville Group entered into a one-year agreement with Bradford W.
Mitchell, its Chairman and former Chief Executive Officer, for consultant and
advisory services, effective January 1, 1996 which was renewed January 1, 1997
for an additional one-year period. Under the agreement, Mr. Mitchell advises
management on corporate matters, as requested, at a per diem rate of $5,000
plus reasonable verified expenses. Mr. Mitchell earned $130,000 under the
Agreement in 1996.
Directors' Stock Option Programs. In 1990, Harleysville Group adopted the
1990 Directors' Stock Option Program (the "1990 Program") which provides for
the issuance of an aggregate of 47,250 shares of Common Stock, subject to
adjustment for stock splits or other changes. Under the 1990 Program non-
qualified stock options to purchase 3,150 shares were awarded to all non-
employee directors of Harleysville Group and Harleysville Mutual during the
period 1990 through May 1994. The options vest and become exercisable at the
rate of 20% per year of active Board service. The option price per share is
100% of the fair market value of a share of Common Stock on the date of grant.
The 1990 Program is administered by the Compensation and Personnel Development
Committee of the Board of Directors of Harleysville Group. The Committee has
no discretion with regard to the eligibility or selection of directors to
receive options under the 1990 Program, the number of shares of stock subject
to such options under the 1990 Program, or the purchase price thereunder. On
February 1, 1997, there were 28,665 shares subject to such options outstanding
under this program and the range of per share exercise prices was $15.00 to
$28.00. The 1990 Program does not provide for stock appreciation rights.
In 1994, Harleysville Group adopted the 1995 Directors' Stock Option Program
(the "1995 Program"), which provides for the issuance of an aggregate of
65,000 shares subject to adjustment for stock splits or other changes. Except
for options already granted as described above, the 1995 Program supersedes
the 1990 Program. Under the 1995 Program, each existing non-employee director
of Harleysville Group and Harleysville Mutual received a one-time grant of
5,000 non-qualified stock options, less the amount of non-vested options, if
any, under the 1990 Program, on May 24, 1995 at the then fair market value and
option price of $25.00. Accordingly, a total of 46,220 options were granted.
Thereafter, a newly elected non-employee director or an employee director who
becomes a non-employee director of Harleysville Group or Harleysville Mutual
will receive a one-time grant of 5,000 non-qualified stock options at the
first May Board meeting following his or her election or becoming a non-
employee director. 5,000 shares were granted to a newly elected director of
Harleysville Mutual in May 1996 at the then fair market value and option price
of $26.50 per share increasing the total to 51,220 options granted. The
options vest at the rate of 20% per year of active Board service with the
first 20% vesting as of the date of grant although no option is exercisable
until six months after the date of grant. The option price per share is 100%
of the fair market value of a share of Common Stock on the date of grant. The
1995 Program is administered by the Compensation and Personnel Development
Committee of the Board of Directors of Harleysville Group. The Committee has
no discretion with regard to the eligibility or selection of directors to
receive options under the 1995 Program, the number of shares of stock subject
to such options under the 1995 Program, or the purchase price thereunder. The
1995 Program does not provide for stock appreciation rights.
Directors Equity Award Program. Each Harleysville Group Board member who was
an existing Board member on April 25, 1996 and remained an active Board member
on August 28, 1996 received a grant of 2,823 shares of Harleysville Group
Common Stock restricted against transfer until the first to occur of his or
her retirement from the Board after attaining age 72, death or disability. A
total of 22,584 shares were awarded to eight directors who possess the right
to vote said shares and receive dividends thereon. Concurrently, the Board
determined that it would no longer elect any current or future director as a
Director Emeritus. Formerly, a
7
<PAGE>
director of Harleysville Group, upon ceasing to be a Board member as of the
annual meeting following attainment of age 72, in accordance with the by-laws,
was eligible to be elected a Director Emeritus for up to three one-year terms.
Director Emeriti were paid a retainer and attendance fees for attendance at
the Board meetings with re-election being contingent upon satisfactory
attendance at the Board meetings.
Directors' Stock Purchase Plan. In 1996, Harleysville Group adopted the
Directors' Stock Purchase Plan, which permits non-employee directors of
Harleysville Group and Harleysville Mutual to purchase Company stock at the
lower of 85% of the Fair Market Value of the shares at the start or end of a
six month subscription period, which runs from July 15 to January 14, and
January 15 to July 14. Directors are permitted to contribute, through
withholding from fees or a lump sum payment, up to $20,000 per subscription
period with the number of shares, including fractional shares, purchased being
equal to the dollar amount contributed divided by the purchase price. 100,000
shares of Harleysville Group stock have been reserved for this program. During
the subscription period July 15, 1996 to January 14, 1997 a total of 7,959.54
shares were purchased by directors. The Plan provides for up to 20
subscription periods.
8
<PAGE>
EXECUTIVE COMPENSATION AND
OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION. The following table provides
certain information concerning compensation received by Harleysville Group's
Chief Executive Officer and the four remaining most highly paid executive
officers (hereinafter "Named Executive Officers") as of the last fiscal year,
for the three fiscal years ended December 31, 1996, 1995, and 1994. All
bonuses and salaries are paid by Harleysville Group, and Harleysville Mutual
is charged for its proportional share pursuant to the terms of an intercompany
allocation agreement.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ALL OTHER
ANNUAL COMPENSATION LONG-TERM COMPENSATION COMPENSATION ($)(5)
---------------------------- ---------------------------- -------------------
AWARDS PAYOUTS
------------- --------------
SECURITIES
UNDERLYING
STOCK LONG-TERM
NAME AND PRINCIPAL OPTIONS(3) INCENTIVE
POSITION(1) YEAR SALARY ($) BONUS ($)(2) (# OF SHARES) PAYOUTS ($)(4)
- - ------------------ ---- ---------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Walter R. Bateman, II... 1996 $363,800 $ 16,614 16,337 $ 87,676 $16,371
President & Chief 1995 $340,000 $126,516 15,679 $ 77,375 $15,300
Executive Officer 1994 $300,000 $ -0- 8,500 $ 33,661 $ 4,500
Thomas E. Roden......... 1996 $208,300 $ 9,105 8,058 $ 45,514 $ 9,374
Executive Vice
President Insurance 1995 $196,500 $ 68,596 7,734 $ 43,779 $ 8,843
Operations & Branch
Operations 1994 $163,400 $ -0- 4,550 $ -0- $ 2,451
Mark R. Cummins......... 1996 $207,300 $ 6,332 7,005 $ 48,808 $ 9,329
Senior Vice President
Chief 1995 $193,700 $ 47,196 6,725 $ 45,434 $ 8,717
Investment Officer &
Treasurer 1994 $163,400 $ -0- 4,550 $ -0- $ 2,451
Spencer M. Roman........ 1996 $161,800 $ 4,789 5,298 $ -0- $ 7,281
Senior Vice President
Marketing 1995 $139,300 $ 31,033 4,422 $ -0- $ 6,269
& Home Office
Operations 1994 $131,400 $ -0- 3,950 $ -0- $ 1,971
Bruce J. Magee.......... 1996 $161,600 $ 4,789 5,298 $ -0- $ 7,272
Senior Vice President &
Chief 1995 $146,400 $ 35,682 5,084 $ -0- $ 6,588
Financial Officer 1994 $123,700 $ -0- 3,950 $ -0- $ 1,855
</TABLE>
- - --------
(1) Principal position as of December 31, 1996.
(2) Cash bonuses under the Senior Management Incentive Bonus Plan (the "SMIP")
for services rendered in fiscal years 1996, 1995, and 1994, have been
listed in the year earned, but were actually paid in the following year.
(3) The terms of stock options granted in fiscal years 1996, 1995, and 1994
are described in Footnote (1) to the "Option Grants in Last Fiscal Year"
Table on page 11.
(4) Cash bonuses under the Long-Term Incentive Plan (the "LTIP") for services
rendered in fiscal years 1991-1994, 1992-1995, and 1993-1996 have been
listed in 1994, 1995, and 1996 respectively, the years in which earned,
although paid in the subsequent year.
(5) Executive officers are eligible to participate in a tax-qualified Extra
Compensation Plan (a 401(k) plan) and an Unqualified Match Program
("Excess Match") for executives whose benefits under the Extra
Compensation Plan are affected by participation limits imposed on higher-
paid individuals by federal tax law. Provided net income as a percentage
of premium earned meets or exceeds prescribed limits set by the Board of
Directors each year, there is a 25%, 50%, or 75% match to the Extra
Compensation Plan for all employee participants and an allocation under
the Excess Match for a percentage of each higher paid participant's salary
up to 6%. The amounts shown reflect contributions to the Extra
Compensation Plan: a) for 1996, of $6,750 on behalf of each of the Named
Executive Officers to match 1996 pre-tax elective
9
<PAGE>
deferral contributions made by each to the Extra Compensation Plan; b) for
1995, of $6,750 on behalf of each of the Named Executive Officers to match
1995 pre-tax elective deferral contributions made by each to such plan,
except Mr. Roman who received $6,269 and Mr. Magee who received $6,588; and
c) for 1994, of $2,250 on behalf of each of the Named Executive Officers to
match 1994 pre-tax elective deferral contributions made by each to such
plan, except Mr. Roman who received $1,971 and Mr. Magee who received
$1,855. The remainder of each amount is the allocation for each Named
Executive Officer under the Excess Match.
10
<PAGE>
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. The following table shows, as
to the Named Executive Officers in the Summary Compensation Table, certain
information concerning stock options granted during the 1996 year under
Harleysville Group's Equity Incentive Plan.
OPTION GRANTS IN LAST FISCAL YEAR(1)
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE GRANT DATE
OPTIONS IN FISCAL PRICE EXPIRATION PRESENT
NAME GRANTED (#) YEAR(2) PER SHARE ($/SH) DATE VALUE ($)(3)
- - ---- ----------- ---------- ---------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Walter R. Bateman, II... 16,337 11% $26.50 05/21/06 $124,978
Thomas E. Roden......... 8,058 5% $26.50 05/21/06 $ 61,644
Mark R. Cummins......... 7,005 5% $26.50 05/21/06 $ 53,588
Spencer M. Roman........ 5,298 4% $26.50 05/21/06 $ 40,530
Bruce J. Magee.......... 5,298 4% $26.50 05/21/06 $ 40,530
</TABLE>
- - --------
(1) All stock options granted under the Harleysville Group Equity Incentive
Plan in fiscal years 1996, 1995, and 1994, are non-qualified options
receiving no special tax benefit, have an exercise price equal to the fair
market value of the Common Stock on the date of grant, have a term of ten
years, and vest at the rate of 50 percent each on the first and second
anniversary dates of award, except that options become immediately
exercisable upon an optionee's retirement, death or disability (but not
prior to six months from the date of grant). Retired optionees, age 61 and
younger, may exercise non-qualified options within one year of retirement
and retired optionees, age 62 and older, may exercise non-qualified
options within two years of retirement, if the options have not otherwise
expired. The exercise price may be paid by delivery of already-owned
shares. No stock appreciation rights ("SARs") were granted in 1996, 1995
or 1994 to any Named Executive Officer. The option agreements provide that
the Compensation Committee may, in its absolute discretion and upon such
terms and conditions as it deems appropriate, provide for the acceleration
of exercisability of options in the event of the merger or consolidation
of Harleysville Group into another corporation, or the acquisition by
another corporation of all or substantially all of Harleysville Group's
assets, or of a controlling interest in Harleysville Group by means of
stock acquisition, or in the event of its liquidation or dissolution.
(2) In calendar year 1996, Harleysville Group granted a total of 151,760
options representing the right to purchase 151,760 shares of Common Stock
to 129 officers and key employees under the Equity Incentive Plan.
(3) The grant date present value was determined using the Black-Scholes option
pricing model. These numbers are calculated based on the requirements
promulgated by the SEC and do not reflect Harleysville Group's estimate of
future stock price growth. Use of this model should not be viewed in any
way as a forecast of the future performance of Harleysville Group's Common
Stock, which will be determined by future events and unknown factors.
11
<PAGE>
OPTION/SAR EXERCISES AND HOLDINGS. The following table provides information,
with respect to the Named Executive Officers, concerning the exercise of
options and/or SARs during 1996 and unexercised options and SARs held as of
fiscal year-end, December 31, 1996, under Harleysville Group's Equity
Incentive Plan.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
SECURITIES OPTIONS/SARS AT OPTIONS/SARS AT
UNDERLYING FISCAL YEAR-END(#) FISCAL YEAR-END($)(1)
OPTIONS/ SARS VALUE ------------------------- -------------------------
NAME EXERCISED(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Walter R. Bateman, II... 14,964 $300,327.48 38,946 24,176 $356,590 $108,465
Thomas E. Roden......... 8,017 $147,753.31 20,935 11,925 $218,050 $ 53,501
Mark R. Cummins......... -0- -0- 22,463 10,367 $182,409 $ 46,514
Spencer M. Roman........ -0- -0- 10,161 7,509 $ 50,248 $ 33,353
Bruce J. Magee.......... 3,325 $ 54,861.10 15,369 7,840 $173,391 $ 35,173
</TABLE>
- - --------
(1) Value reflects, as to both options and SARs, if any, the fair market value
of the underlying security less the option exercise price. Market value of
Common Stock at year-end 1996 was $30.50 per share.
LONG-TERM INCENTIVE PLAN. The following table provides information
concerning awards made during the last fiscal year to the Named Executive
Officers under the Long-Term Incentive Plan. Subject to the fulfillment of
certain conditions, awards are designed to provide payments at the end of each
successive four-year performance period in amounts approximating a percentage
of each participant's salary at January 1st of the first year of each period.
Subject to the satisfaction of the Plan's conditions, each award represents
the right to receive an amount in cash on the date of payout, the amount of
which depends on Harleysville Group's average annual rate of return on equity
("ROE") from the time of the award until the payout date. The target amount is
payable if Harleysville Group's average ROE exceeds certain levels of targeted
ROE. The maximum payment is payable if Harleysville Group's average ROE
exceeds certain higher levels of targeted ROE. If ROE falls between the target
level and the maximum level then the amount of award is prorated accordingly.
Once an ROE resulting in a 40% of Target Award is achieved, an additional
incentive award based on written premium growth takes effect. If less than the
targeted level is reached, a reduced percentage of target award may be
granted. In the event that ROE falls below a stated level, a negative
percentage of the target award will be assessed, and previously credited
awards will be proportionately reduced. Under the terms of the Long-Term
Incentive Plan, the Compensation Committee retains discretion, subject to plan
limits, to modify the terms of outstanding awards to take into account the
effect of unforeseen or extraordinary events and accounting changes. Awards,
if earned, are paid in cash at the end of the four-year performance period.
Cash payments made under awards for the four-year periods 1991-1994, 1992-
1995, and 1993-1996, are reported in the Summary Compensation Table under the
years 1994, 1995, and 1996 respectively, although paid in the following year.
12
<PAGE>
LONG-TERM INCENTIVE PLANS--PERFORMANCE OPPORTUNITY
AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYMENTS UNDER
NON-STOCK PRICE-BASED PLANS
-----------------------------------
PERFORMANCE OR
OTHER PERIOD TARGET AWARD
UNTIL MATURATION PERCENT OF THRESHOLD TARGET MAXIMUM
OR PAYOUT(1) 1/1/96 SALARY ($) ($) ($)(2)
---------------- ------------- ----------------------- -----------
<S> <C> <C> <C> <C> <C>
Walter R. Bateman, II... 4 years 45% 0 163,710 245,565
Thomas E. Roden......... 4 years 35% 0 72,905 109,358
Mark R. Cummins......... 4 years 25% 0 51,825 77,738
Spencer M. Roman........ 4 years 25% 0 40,450 60,675
Bruce J. Magee.......... 4 years 25% 0 40,400 60,600
</TABLE>
- - --------
(1) The table shows the range of potential payouts under the Plan for a four-
year performance period commencing in 1996. Four-year performance periods
under the LTIP were completed in 1994, 1995 and 1996 and actual payments
thereunder are shown in the Summary Compensation Table for those years.
Since the Plan's inception in 1988, successive four-year performance
periods have begun in each fiscal year, and it is intended that additional
four-year performance periods will commence each year.
(2) The Maximum Award is set at 150% of the Target Award; if performance
computations would result in a higher award, it will be reduced to the
Maximum Award amount.
13
<PAGE>
PENSION PLANS. The tables below show certain estimated annual benefits
payable upon retirement to the Named Executive Officers under the Pension Plan
in conjunction with a Supplemental Pension Plan. (The Pension Plan and the
Supplemental Pension Plan are together referred to as the "Pension Plans").
Pension Plan Table I shows the estimated annual benefits payable upon
retirement under the Pension Plans to Mr. Bateman, Mr. Roden, and Mr. Magee,
who were first employed prior to January 1, 1989.
PENSION PLAN TABLE I
<TABLE>
<CAPTION>
AVERAGE
5 YEAR ESTIMATED AMOUNT OF ANNUAL PENSION BENEFIT
CREDITED -----------------------------------------------------
SALARY 10 15 20 25 30 35
@ 12/31/96 YEARS YEARS YEARS YEARS YEARS YEARS
- - ---------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$600,000.................. $132,005 $198,007 $264,010 $330,012 $330,012 $330,012
$550,000.................. $120,755 $181,132 $241,510 $301,887 $301,887 $301,887
$500,000.................. $109,505 $164,257 $219,010 $273,762 $273,762 $273,762
$450,000.................. $ 98,255 $147,382 $196,510 $245,637 $245,637 $245,637
$400,000.................. $ 87,005 $130,507 $174,010 $217,512 $217,512 $217,512
$350,000.................. $ 75,755 $113,632 $151,510 $189,387 $189,387 $189,387
$300,000.................. $ 64,505 $ 96,757 $129,010 $161,262 $161,262 $161,262
$250,000.................. $ 53,255 $ 79,882 $106,510 $133,137 $133,137 $133,137
$200,000.................. $ 42,005 $ 63,007 $ 84,010 $105,012 $105,012 $105,012
$150,000.................. $ 30,755 $ 46,132 $ 61,510 $ 76,887 $ 76,887 $ 76,887
$125,000.................. $ 25,130 $ 37,695 $ 50,260 $ 62,825 $ 62,825 $ 62,825
</TABLE>
Pension Plan Table II shows the estimated annual benefits payable upon
retirement under the Pension Plans to Mr. Cummins and Mr. Roman who were first
employed after January 1, 1989.
PENSION PLAN TABLE II
<TABLE>
<CAPTION>
AVERAGE
5 YEAR ESTIMATED AMOUNT OF ANNUAL PENSION BENEFIT
CREDITED -----------------------------------------------------
SALARY 10 15 20 25 30 35
@12/31/96 YEARS YEARS YEARS YEARS YEARS YEARS
- - ---------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$600,000................. $115,621 $173,432 $231,242 $289,053 $289,053 $289,053
$550,000................. $105,871 $158,807 $211,742 $264,678 $264,678 $264,678
$500,000................. $ 96,121 $144,182 $192,242 $240,303 $240,303 $240,303
$450,000................. $ 86,371 $129,557 $172,742 $215,928 $215,928 $215,928
$400,000................. $ 76,621 $114,932 $153,242 $191,553 $191,553 $191,553
$350,000................. $ 66,871 $100,307 $133,742 $167,178 $167,178 $167,178
$300,000................. $ 57,121 $ 85,682 $114,242 $142,803 $142,803 $142,803
$250,000................. $ 47,371 $ 71,057 $ 94,742 $118,428 $118,428 $118,428
$200,000................. $ 37,621 $ 56,432 $ 75,242 $ 94,053 $ 94,053 $ 94,053
$150,000................. $ 27,871 $ 41,807 $ 55,742 $ 69,678 $ 69,678 $ 69,678
$125,000................. $ 22,996 $ 34,494 $ 45,992 $ 57,491 $ 57,491 $ 57,491
</TABLE>
Covered compensation is the highest five-year average of the amounts shown
in the "Salary" column of the Summary Compensation Table.
For the purposes of the Pension Plans, executive officers named in the
Summary Compensation Table have been credited with the following years of
service: Mr. Bateman, 9 years; Mr. Roden, 13 years; Mr. Cummins, 5 years; Mr.
Roman, 3 years; and Mr. Magee, 11 years.
14
<PAGE>
The retirement benefits shown in the Pension Plan Tables assume that
benefits will be payable at age 65 in the form of a single life annuity, and
are not subject to any deduction for Social Security or other offset amounts.
For the purposes of calculating benefits under the Pension Plans, no Named
Executive Officer may be credited with more than 25 years of service.
----------------
Notwithstanding anything to the contrary set forth in any of Harleysville
Group's previous filings under the Securities Act of 1933 or the Securities
Exchange Act of 1934 that might incorporate future filings, including this
Proxy Statement, in whole or in part, the following report and performance
graphs on pages 18 and 19 shall not be incorporated by reference into any such
filings.
REPORT OF THE COMPENSATION
& PERSONNEL DEVELOPMENT COMMITTEE
The Compensation & Personnel Development Committee (the "Compensation
Committee") is charged generally with the review and development of
compensation and personnel practices regarding Harleysville Group and its
employees, including executive officers. In addition to setting compensation
policies, the Compensation Committee oversees Harleysville Group's management
development and succession programs.
The Compensation Committee bases its compensation recommendations upon
information derived from multiple sources including the Human Resources
Department of Harleysville Group, outside compensation consultants, industry
surveys, and recommendations of management. The Committee believes that
consideration of these diverse sources of information helps to create a
balanced and appropriate compensation program.
The Compensation Committee considers factors such as the following in
establishing executive compensation:
. the personal performance of the executive officer;
. the achievement by Harleysville Group of annual corporate goals;
. the achievement by Harleysville Group of an acceptable return on equity;
. the performance of Harleysville Group contrasted with the performance of
certain of its competitors; and
. the need of Harleysville Group to attract, retain and motivate superior
management.
The consideration of these different factors permits the encouragement of
corporate goals including but not limited to sustained and consistent
management; enhancement of stockholder value; and the completion of strategic
initiatives. Reflecting these different factors, the compensation program for
executive officers contains several components:
1. Base Salary--Base salary is based upon a general competitive review and
a review of industry-specific data in which the peer group is determined
primarily by size of company. This group is unrelated to the performance
graph peer group although each peer group may contain some of the same
companies. Harleysville Group believes size of company is more useful in
determining salary than using the performance graph peer group which
includes companies of various sizes and substantially different
characteristics, e.g., distribution system and geographical locale. Base
salary reflects corporate performance as measured against the industry
and always reflects an evaluation of the executive officer's performance
of his or her duties. The corporate performance measures include return
on equity, combined ratio and premium growth. Combined ratio as used in
this report is a standard measurement in the property/casualty insurance
industry and means the ratio produced by adding the ratio of losses,
loss adjustment expenses and policyholders' dividends to net earned
premiums, and the ratio of underwriting expenses to net written premium.
Working with the advice of its outside compensation consultants,
Harleysville Group generally sets its competitive salary midpoint for an
15
<PAGE>
executive officer position at the median level compared to those
companies which it surveys. A salary range based on this midpoint is
then developed.
2. Senior Management Incentive Bonus Plan--This plan is designed to direct
executive officer attention to the attainment of certain annual
corporate goals. For 1996, the goals included: combined ratio; service
and processing timeliness; and peer group standing on the basis of
combined ratio. The weightings for each factor are: combined ratio--60%;
service and processing goals--15%; and peer group ranking--25%. If a
bonus is paid for combined ratio, such bonus amount can be increased by
the percentage of growth achieved up to 30% of the bonus for combined
ratio. The peer group in 1996 was a group of thirteen property/casualty
insurance companies consisting of companies chosen according to various
factors of comparability including size, method of operations, and type
of distribution system and is unrelated to the performance graph peer
group, although both peer groups may contain some of the same companies.
The peer group commencing in 1997 is the U.S. property/ casualty
industry as a whole as reported in the A.M. Best Company, Inc.
statistical study in the Best Week Property/Casualty Supplement. The
plan is designed to pay bonuses at a level of 15% to 30% of annual
salary when the target goals are achieved. Payouts may range up to 175%
of the target award based upon performance falling within a stated range
of the target. The size of the award range is determined for the Chief
Executive Officer specifically and executive officers generally based on
an analysis of the appropriate competitive total compensation package
that is typically available for executive officers of a
property/casualty insurance company with similar characteristics. There
is no payout unless the combined after-tax net income as reported on the
Combined Annual Statement plus after-tax net income resulting to
Harleysville Group from management agreements is at least 2% of the
combined net earned premium as shown on such statement. The Combined
Annual Statement is a financial statement required to be filed with
state insurance regulatory authorities and includes financial
information on a combined basis for all property/casualty insurance
companies owned by Harleysville Group and Harleysville Mutual Insurance
Company. Additionally, for years prior to 1996 payouts were subject to
reduction on account of the failure of the executive officer to achieve
personal, discretionary goals. As of 1996, all payouts are based solely
on objective criteria. The payouts since 1994 reflect that the target
goals were not fully attained in all instances. There was no payout
earned for 1994 because combined after-tax net income did not equal or
exceed the aforementioned threshold requirement of 2% of combined net
earned premium.
3. Long-Term Incentive Plan--This plan has been designed to reward certain
executive officers of Harleysville Group primarily for the attainment of
long-term return on equity goals. Under the plan covering the four-year
period beginning in 1996, the target return on equity goal is 12%, and,
if return on equity is 8% or greater, an additional incentive is payable
so long as written premium growth is at least 8%. Again, the size of the
award opportunity is determined for the Chief Executive Officer
specifically and executive officers generally based on the same factors
referenced under the Senior Management Incentive Bonus Plan above. In
the event that return on equity falls below a stated level, a negative
percentage of the target award will be assessed. Potential target awards
for each year are designed to range from 25% to 45% of a participant's
salary. The actual payout under the Plan for the four-year period ending
in 1996, is 128% of target for Mr. Bateman and the other Named Executive
Officers who participate. These results are due to the return on equity
being higher than the target return for two of the four years, i.e.,
1993 and 1995.
4. Equity Incentive Plan--This plan is designed to encourage stock
ownership in Harleysville Group by officers and certain key employees
and to provide additional incentives to work to maximize stockholder
value. Harleysville Group typically grants stock options annually to
officers and key employees of Harleysville Group, its parent and its
designated subsidiaries. For awards in 1996, the Compensation Committee
continued to rely upon the advice of Harleysville Group's outside
compensation consultants to increase awards above those existing in 1994
for Named Executive Officers. The determination was made by the
Compensation Committee in order to maintain executive officer total
compensation, i.e., the total amount of cash compensation available to
an executive officer in any one year, closer to the market average. The
companies surveyed in determining the market
16
<PAGE>
average are those used for determining base salary. In order to receive
stock options at a level necessary to keep the total cash compensation
available at the market average, executive officers above a certain
level, including Mr. Bateman and all Named Executive Officers, must own
a minimum number of shares of Harleysville Group Common Stock. In 1996,
all such officers owned at least the required minimum number of shares.
Mr. Bateman's compensation was determined by the Compensation Committee
following the factors set forth above. His total compensation, composed of
base salary, Senior Management Incentive Bonus Plan award, Long-Term Incentive
Plan award, and stock option grants was compared with compensation packages of
similar officers within the insurance industry. His awards under the Senior
Management Incentive Bonus Plan, Long-Term Incentive Plan and Equity Incentive
Plan were made pursuant to those plans and pursuant to the normal
considerations by the Compensation Committee. In determining Mr. Bateman's
base salary in 1996, the Committee evaluated his personal and company
performance on both a qualitative and quantitative level.
Harleysville Group's results in 1996 were mixed. Although results on the
whole declined from 1995's performance levels on account of weather
catastrophes in 1996, underlying, i.e. non-weather related, results actually
improved. As a result of the "blizzard of the century" and related January
storms, and Hurricanes Bertha & Fran in the third quarter, return on equity
fell to 8.5% from 13.6% in 1995. However, if the impact of these weather
catastrophes is removed the return on equity would have been 13.6%. Likewise,
the 1996 combined ratio of 107.3%, while higher than 1995's 103.4%, would have
been 102.7% without the aforementioned weather catastrophes. During 1996, net
written premium (i.e., all premiums written net of reinsurance premiums paid)
increased 30.7% to $660.7 million. After excluding the effect of the pooling
change occurring in 1996, the growth was 10.1%, which is more than double that
of the expected industry growth of 3.6%. Operating earnings per share were
$1.91 per share in 1996, a decrease from $2.95 per share in 1995, but, again,
if the reduction in operating earnings resulting from the weather related
catastrophes is added back in, the operating earnings would have been $3.23
per share, a 9.5% increase over 1995's $2.95 per share. Net income was $2.06
per share compared to $3.06 in 1995, but would have been $3.38 per share
compared to $3.06 per share in 1995 if not for the weather related
catastrophes. Stockholders equity increased from $345.0 million to $370.2
million, with book value per share increasing from $25.15 to $26.18. The
Committee further took into account Mr. Bateman's efforts in working to reduce
exposure to weather catastrophes such as continued geographical expansion into
the midwest and mid-south areas, the development of an internal property
catastrophe reinsurance arrangement between Harleysville Group and
Harleysville Mutual, coastal exposure management, and the pooling of Lake
States effective January 1, 1997. Based on the foregoing factors, with all
being considered equally, the Committee determined the appropriate base salary
compensation level for Mr. Bateman.
The limits on full deductibility of compensation for Harleysville Group
posed by Internal Revenue Code Section 162(m) are not currently a problem for
Harleysville Group inasmuch as compensation levels for Mr. Bateman and the
Named Executive Officers (not including any compensation derived through
exercise of options granted pursuant to the Equity Incentive Plan) do not
currently approach the $1,000,000 threshold figure. Any compensation derived
from exercise of existing stock options is fully deductible under current
requirements for exemption from inclusion in income. Income realized from
exercises of future stock options will be deductible if the proposed Amended
and Restated Equity Incentive Plan is approved by stockholders at the Annual
Meeting. Harleysville Group will, of course, continue to monitor this issue
and will take appropriate action to respond to developments and growth in
compensation.
COMPENSATION & PERSONNEL DEVELOPMENT COMMITTEE
H. Bryce Jordan, Chairperson
Robert D. Buzzell
William E. Strasburg
17
<PAGE>
STOCK PERFORMANCE GRAPHS
The following graphs(/1/) show changes over the past ten-year period and
five-year period (all full calendar year periods since the Company's initial
public offering in May 1986) in the value of $100 invested in (1) Harleysville
Group Common Stock; (2) the NASDAQ Stock Market index(/2/); and (3) the Peer
Group index(/3/). The stock price performance shown on the graphs below is not
necessarily indicative of future price performance. All values are as of the
last trading day of each year.
COMPARISON OF TEN-YEAR CUMULATIVE TOTAL STOCKHOLDER RETURN
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Harleysville NASDAQ Stock
Group Inc. Market Peer Group
<S> <C> <C> <C>
1986 100.00 100.00 100.00
1987 95.00 95.50 96.50
1988 133.90 113.30 103.00
1989 209.50 137.30 145.10
1990 188.20 116.60 138.70
1991 268.70 187.20 196.90
1992 365.90 217.90 264.80
1993 400.30 250.10 273.70
1994 330.40 244.50 263.80
1995 452.90 345.70 369.50
1996 439.50 425.30 404.70
</TABLE>
/(A)/ The lines represent annual 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)/ The index level for all series was set to 100.00 on 12/31/86.
18
<PAGE>
COMPARISON OF FIVE-YEAR CUMULATIVE STOCKHOLDER RETURN
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Harleysville NASDAQ Stock
Group Inc. Market Peer Group
<S> <C> <C> <C>
1991 100.00 100.00 100.00
1992 136.20 116.40 134.50
1993 149.00 133.60 139.00
1994 123.00 130.60 134.00
1995 168.60 184.70 187.70
1996 163.60 227.20 205.60
</TABLE>
/(A)/ The lines represent annual 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)/ The index level for all series was set to 100.00 on 12/29/91.
The year-end values of each investment shown in the preceding graphs are
based on share price appreciation plus dividends, with the dividends
reinvested as of the day such dividends were ex-dividend. The calculations
exclude trading commissions and taxes. Total stockholder returns from each
investment, whether measured in dollars or percentages, can be calculated from
the year-end investment values shown beneath each graph.
- - --------
(1) Prepared by the Center for Research in Security Prices ("CRSP").
(2) Based on CRSP Index for NASDAQ Stock Market (U.S. Companies).
(3) The Peer Group Index includes all the NASDAQ Company stocks in SIC Major
Group 633 (SIC 6330-6339: U.S. and Foreign fire, marine and casualty
insurance). A complete list of these companies may be obtained from CRSP,
at the University of Chicago Graduate School of Business, 1101 East 58th
Street, Chicago, Illinois, 60637; (312) 702-7467.
19
<PAGE>
APPROVAL OF AMENDED AND RESTATED
HARLEYSVILLE GROUP INC. EQUITY INCENTIVE PLAN
The Harleysville Group Inc. Equity Incentive Plan (the "Plan") enables
Harleysville Group (the "Company") to grant stock options, stock appreciation
rights, and restricted stock awards to officers and key employees of the
Company, Harleysville Mutual and subsidiaries. The stockholders of the Company
initially approved the Plan in 1986 and in 1990 approved an additional number
of shares to be authorized thereunder. Non-employee directors of the Company
are not eligible to participate in the Plan.
The Board believes that the Plan has proved to be of substantial value to
the Company over the years because it enables the Company to offer officers
and key employees long-term performance-based compensation that creates a
proprietary interest in the Company and motivates officers and key employees
to contribute to the continuing financial success of the Company.
From the Plan's inception in 1986 through December 31, 1996, options
covering 1,336,998 shares of Common Stock (including options that subsequently
terminated or lapsed and were regranted under the terms of the Plan) have been
granted to officers and key employees. From 1986 through December 31, 1996,
options for 680,952 shares have been exercised. The total of 1,276,440 shares
which have been subject to grants as of such date leaves only 130,473 shares
available for future options or awards.
The number of shares of Common Stock remaining available for grants under
the Plan are insufficient to adequately provide for participation of the
number of officers and key employees who are eligible to receive such grants.
Accordingly, the Board, subject to shareholder approval, has amended and
restated the Plan to increase the aggregate number of shares of Common Stock
available for issuance under the Plan by an additional 2,000,000 shares and to
make further changes to insure that compensation paid thereunder, is to the
extent permitted, deductible under Section 162(m) of the Internal Revenue Code
("Code") for the Named Executive Officers and to otherwise conform the Plan to
revised Rule 16b-3 under the Securities Exchange Act of 1934. In the event the
stockholders approve the current proposal to adopt the Amended and Restated
Plan, a total of approximately 2,130,473 shares will be available for future
options or awards under the Plan. The market value, as of March 12, 1997, of a
share of the Common Stock is $31.00.
The proposed amended and restated Plan is described below.
OPERATION OF THE PLAN
Within certain limits, the Board has the right to alter, amend, or revoke
the Plan. However, the Board may not, without the approval of the
stockholders, alter or amend the plan to increase the maximum number of shares
of Common Stock that may be issued under the Plan or the number of such shares
that may be issued to any one participant, change the class of persons
eligible to receive awards under the Plan, reduce the option price below that
now provided for under the Plan, or change certain other conditions of the
exercise of options.
In the event of certain changes in the number or kind of outstanding shares
of Common Stock, an appropriate adjustment may be made with respect to
existing and future options. The proceeds received by the Company from the
exercise of stock options under the Plan are added to the general funds of the
Company.
The Plan is administered by the Compensation and Personnel Development
Committee of the Board. The current members of the Compensation Committee are
Mr. Jordan, Mr. Buzzell and Mr. Strasburg.
Stock Options
Under the Plan, the Company may grant stock options designed to qualify for
special tax treatment under Section 422 of the Code ("Incentive Stock
Options") or stock options which are not intended to so qualify for special
tax treatment under Section 422 of the Code ("Non-Qualified Stock Options").
The exercise price under a Stock Option may not be less than the fair market
value of the stock on the date the option is granted. Pursuant
20
<PAGE>
to the Plan, the exercise price may be payable in cash or in Common Stock of
the Company or a combination thereof. In addition, the Amended and Restated
Plan will permit the Compensation Committee to specify at the time of the
option grant that any withholding taxes required to be paid by the officer and
key employee at the time of exercise may be paid through delivery of or
forbearance to receive Common Stock of the Company. Generally, no option may
be exercised during the first year of its term and only 50% of the option may
be exercised during its second year. The Plan provides that stock options are
immediately exercisable upon a change in control of the Company (except for
Incentive Stock Options within six months of grant). A change in control would
include a consolidation or merger of the Company into another company, a sale
of all the assets of the Company, liquidation or dissolution, one entity
acquiring 20% of the voting securities of the Company, or a majority of Board
members of Harleysville Mutual or the Company changing within two years, or
other change in the power to direct the affairs of the Company.
All unexercised options will terminate, unless the Committee otherwise
provides, after ten years or earlier upon the optionees' termination of
employment, retirement, death or disability provided that no Incentive Stock
Option shall be exercisable after ten years from the date of grant. The Plan
provides that unless the Committee provides otherwise, all options terminate
as of the date of termination of employment except in the case of retirement,
death or disability. Unless the Committee otherwise provides, employees who
retire after attaining age 55 and prior to attaining age 62 have one year to
exercise their options, and employees retiring after age 62 have two years
after retirement to exercise their options, all of which vest upon retirement
except for Incentive Stock Options which will vest only if held six months, if
not otherwise expired. The Plan will permit the Committee to allow Non-
Qualified Stock Options to be transferred to immediate family members. No
officer or key employee may receive more than 100,000 options in any calendar
year under the Amended and Restated Plan.
Incentive Stock Options will be subject to the requirements of Code Section
422 that the aggregate fair market value of stock subject to an Incentive
Stock Option exercisable for the first time by a participant during a calendar
year shall not exceed $100,000 and no Incentive Stock Option shall be granted
to any employee if such employee at the time the option is granted possesses
more than 10% of the total combined voting power of all classes of stock of
the Company unless the option price at date of grant is 110% of the fair
market value of the stock subject to the option and is not exercisable after
the expiration of five years from date of grant.
Stock Appreciation Rights
The Plan also permits the Compensation Committee to grant Stock Appreciation
Rights in conjunction with the granting of stock options under the Plan. These
rights entitle the recipient to receive at the time of the exercise of the
related stock option, cash equal to the difference between the fair market
value of the share at the time of exercise and the fair market value of a
share of stock at the time of the grant of Stock Appreciation Rights, which
cash may be applied to the purchase price of the related stock option.
Restricted Stock Awards
The Plan further authorizes the Compensation Committee to grant restricted
stock upon such terms and conditions as the Committee finds appropriate.
The Company has at no time since the inception of the Plan issued any
Restricted Stock Awards to any officers or key employees under the Plan.
FEDERAL TAX CONSEQUENCES
The following discussion addresses certain federal tax consequences in
connection with awards under the Plan. State and local tax treatment is
subject to individual state and local laws and is not reviewed in this
discussion.
21
<PAGE>
Incentive Stock Options
An Incentive Stock Option results in no taxable income to the optionee or a
deduction to the Company at the time it is granted or exercised. If the
optionee retains the stock received as a result of an exercise of an Incentive
Stock Option for at least two years from the date of grant and one year from
the date of exercise, then the gain is treated as long term capital gain. If
the shares are disposed of during this period, the option will be treated
similar to a Non-Qualified Stock Option. The Company receives a tax deduction
only if the shares are disposed of during such period. The deduction is equal
to the amount of taxable income to the optionee.
Non-Qualified Stock Options
A Non-Qualified Stock Option results in no taxable income to the optionee or
deduction to the Company at the time it is granted. An optionee exercising
such an option will, at that time, realize taxable compensation in the amount
of the difference between the option price and the then fair market value of
the shares. Subject to the applicable provisions of the Code, the deduction
for federal income tax purposes will be allowed for the Company in the year of
the exercise in an amount equal to the taxable compensation realized by the
optionee. Under Section 162(m) of the Code, the Company may be precluded from
claiming a federal income tax deduction for total remuneration in excess of
$1,000,000 paid to a Named Executive Officer in any one year. Total
remuneration would include amounts received upon the exercise of Non-Qualified
Stock Options. An exception does exist, however, for "performance-based
compensation," including amounts received upon the exercise of stock options
(the exercise price for which is at or above the fair market value of the
underlying shares at the date of grant), if such options are granted pursuant
to a plan approved by stockholders that meets certain requirements. The Plan
is intended to make grants of Non-Qualified Stock Options thereunder meet the
requirements of "performance-based compensation."
Stock Appreciation Rights
No income will be recognized by the recipient of a Stock Appreciation Right
until the underlying stock option is exercised and cash is either paid or
credited to the purchase price of the underlying stock option. The amount of
such income will be equal to the fair market value of such shares on the
exercise date less the fair market value on date of grant and will be ordinary
income. The Company will be entitled to a deduction under the same rules
described in connection with Non-Qualified Stock Options.
Restricted Stock Awards
No income will be recognized by the recipient of a Restricted Stock Award if
such Award is subject to a substantial risk of forfeiture. Generally, when the
substantial risk of forfeiture terminates with respect to a Restricted Stock
Award, then the fair market value of the stock will constitute ordinary income
to the employee. Concurrently, generally for federal income tax purposes a
deduction will be allowed to the Company in an amount equal to the
compensation realized by the employee. Under Section 162(m) of the Code, the
Company may be precluded from claiming a federal income tax deduction for
total remuneration in excess of $1,000,000 paid to a Named Executive Officer
in any one year. Total remuneration would include amounts received as
Restricted Stock Awards. Although an exception exists for "performance-based
compensation," Restricted Stock Awards granted under the Plan generally will
not qualify as performance-based compensation unless the grants are made
subject to certain performance goals that have been approved by the
stockholders.
VOTE REQUIRED
The affirmative vote of a majority of the shares of Common Stock present,
represented and entitled to vote at the Annual Meeting is required for the
adoption of this Amended and Restated Plan.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE THE
AMENDED AND RESTATED EQUITY INCENTIVE PLAN.
22
<PAGE>
APPROVAL OF AMENDMENT TO THE
HARLEYSVILLE GROUP INC. 1995 EMPLOYEE STOCK PURCHASE PLAN
The Harleysville Group Inc. 1995 Employee Stock Purchase Plan ("1995 Plan")
enables employees of the Company to purchase Common Stock of the Company at a
discount on a tax favored basis. Stockholders of the Company initially
approved the Plan in 1986 and in 1995 approved an amended and restated Plan
which included the authorization of an additional 500,000 shares thereunder.
Non-employee directors of the Company are not eligible to participate in the
1995 Plan.
The Board believes that the 1995 Plan has proven to be of significant value
to the Company over the years because it enables Company employees to acquire
or increase their proprietary interest in the Company which in turn motivates
them to contribute to the continuing financial success of the Company.
Since the 1995 Plan was approved by the stockholders in 1995, 65,646 shares
of Common Stock have been purchased by employees, while 365,146 shares have
been purchased since 1986.
In order to further the ability of Company employees to increase their
proprietary interests in the Company, the Board, subject to stockholder
approval, has amended the 1995 Plan to provide that the maximum contribution
to the 1995 Plan be increased from 10% of an employee's base pay to 15% of an
employee's base pay. The Board believes that a substantial number of employees
will take advantage of the additional opportunity to purchase Common Stock
under the 1995 Plan.
OPERATION OF THE 1995 PLAN
The other features of the Plan, which are described below, will remain
unchanged. The 1995 Plan is designed to qualify for favorable tax treatment
under Section 423 of the Code. It is available to all regular full and part-
time employees of the Company, Harleysville Mutual, and subsidiaries who work
twenty (20) hours or more per week. The 1995 Plan contains twenty (20) six-
month subscription periods commencing July 15, 1995 with the last one
scheduled to commence January 15, 2005. Employees may enroll during a two-week
enrollment period immediately preceding each subscription period and no
employee may assign his or her rights to participate in the 1995 Plan to
anyone else.
The purchase price of a share is the lesser of 85% of the fair market value
of a share of Common Stock on the last trading day before the first day of the
subscription period or 85% of the fair market value of such share on the last
trading day of such subscription period. The fair market value of the stock is
determined by the closing price of a share on the NASDAQ National Market
System.
Contributions by employees are made only through payroll deductions and
employees may contribute bi-weekly between the lesser of 1% of base pay or
$3.00 up to currently 10% of base pay on an after-tax basis, subject to the
limitation that no employee can purchase more than $25,000 in fair market
value of Company stock under this program during any one calendar year and no
employee may purchase shares if such purchase will cause that employee to own
5% or more of the voting power of the Company. No interest to employees
accrues on payroll deductions. An employee may discontinue participation in
the 1995 Plan at any time. If at any time the number of shares subscribed
exceeds the number of shares available, the shares available will be allocated
to employees in proportion to 1995 Plan account balances.
Shares are issued in book entry form and at the end of each subscription
period, an employee will be credited with the number of shares, including
fractional shares to four decimal places, produced by dividing the amount
contributed during the subscription period by the purchase price.
The shares issued under the 1995 Plan may be either authorized but unissued
shares or shares reacquired by the Company.
23
<PAGE>
The 1995 Plan provides for adjustments in the shares reserved and available
for the 1995 Plan, by reason of a stock split, stock dividend, merger,
consolidation, combination of shares or similar occurrence.
Administration
The 1995 Plan is administered by a Committee of three members appointed by
the Board of Directors of the Company. The Committee has the general authority
to interpret the provisions of the 1995 Plan and adopt such rules as it deems
necessary or desirable for its administration; provided, however, that the
Committee will have no discretion with respect to the eligibility of employees
to participate, the number of shares of stock subject to the 1995 Plan, or the
purchase price thereunder.
Termination and Amendments
The 1995 Plan may be suspended or terminated by the Board at any time. The
Board may amend the 1995 Plan for any reason, except that it may not, without
stockholder approval, change the selection or eligibility of employees to
participate in the 1995 Plan, the number of shares of stock subject to
purchase or the purchase price thereunder, or materially increase the benefits
accruing to employees under the 1995 Plan.
Participation in the Plan
Participation in the 1995 Plan is voluntary and is dependent upon each
eligible employee's election to participate and his or her determination of
the level of payroll deduction. Accordingly, future purchases under the Plan
are not determinable. Nevertheless, the following table sets forth certain
information regarding shares purchased under the 1995 Plan during fiscal 1996
by the Company's Chief Executive Officer and Named Executive Officers as shown
in the Summary Compensation Table, all current executive officers as a group,
and all other employees who participated in the 1995 Plan as a group.
<TABLE>
<CAPTION>
NUMBER OF DOLLAR VALUE
NAME AND POSITION SHARES PURCHASED(1) AT PURCHASE DATES(2)
----------------- ------------------- --------------------
<S> <C> <C>
Walter R. Bateman, II................ 954.2 $ 8,212.21
President &
Chief Executive Officer
Thomas E. Roden...................... 367.5 $ 2,492.94
Executive Vice President
Mark R. Cummins...................... - 0 - - 0 -
Senior Vice President,
Chief Investment Officer
and Treasurer
Spencer M. Roman..................... 479.7 $ 3,199.50
Senior Vice President
Bruce J. Magee....................... 139.8 $ 940.88
Senior Vice President and
Chief Financial Officer
All Current Executive Officers as a 2,789.8 $ 20,570.49
Group...............................
All Other Employees as a Group....... 47,104.5 $317,538.15
</TABLE>
- - --------
(1) Purchase dates in 1996 were January 14, 1996 and July 14, 1996.
(2) Value equals fair market value of the shares on date of purchase minus the
purchase price under the 1995 Plan.
FEDERAL INCOME TAX CONSEQUENCES
No income will be realized for federal income tax purposes by an employee
upon the purchase of shares under the 1995 Plan. For employees who do not
dispose of their shares within two years after the date on which
24
<PAGE>
the right to purchase was granted (the beginning of the subscription period)
or within one year after their shares were purchased, the gain on sale of the
shares (or their increase in value in the event of death prior to sale) will,
under the present provisions of the Code, be taxed as ordinary income to the
extent of the lesser of (i) an amount equal to the difference between the fair
market value of the shares on the date of grant and 85% of such value on such
date or (ii) an amount equal to the difference between the fair market value
of the shares at the time of disposition and the amount paid for such shares
under the 1995 Plan. Any additional gain will be treated as long-term capital
gain assuming the shares are capital assets in the employee's hands. If an
employee is entitled to long-term capital gain treatment upon a sale of the
stock, the Company will not be entitled to any deduction for federal income
tax purposes with respect thereto. For employees who dispose of their shares
within two years after the beginning of the subscription period or within one
year after their shares were purchased, the gain on the sale of the shares
will, under the present provisions of the Code, be taxed as ordinary income to
the extent of the lesser of (i) the difference between the purchase price of
the shares and the fair market value of the shares on the purchase date or
(ii) the difference between the fair market value at the time of disposition
and the purchase price. Such difference will be deductible by the Company for
federal income tax purposes. Any additional gain will be treated as long-term
or short-term capital gain, depending on whether the shares have been held for
more or less than one year from the date they were purchased. Depending upon
the circumstances, the deductible portion of an employee's long-term capital
gains, as described above, may be subject to the alternative minimum tax.
The foregoing is only a summary of federal income tax consequences, and does
not purport to be complete.
VOTE REQUIRED
The affirmative vote of a majority of the shares of Common Stock present,
represented and entitled to vote at the Annual Meeting is required for the
adoption of this proposed amendment.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE THE
AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN TO RAISE THE MAXIMUM
CONTRIBUTION.
CERTAIN TRANSACTIONS
Harleysville Group was formed by Harleysville Mutual in 1979 and was a
wholly-owned subsidiary of Harleysville Mutual until June 1986, when shares of
Harleysville Group's Common Stock were sold in a public offering, thereby
reducing Harleysville Mutual's ownership of Harleysville Group's outstanding
Common Stock from 100% to approximately 70% at that time. In April 1992,
Harleysville Mutual sold additional shares of its Harleysville Group Common
Stock holdings, further reducing Harleysville Mutual's ownership to
approximately 55%. Harleysville Group's operations are interrelated with the
operations of Harleysville Mutual. Harleysville Group believes that its
various transactions with Harleysville Mutual, some of which are summarized
herein, have been on terms no less favorable to Harleysville Group than the
terms that could have been negotiated with an independent third party.
Under the terms of a lease effective January 1, 1995, Harleysville Mutual
rents the home office property from a partnership owned by Harleysville Group
for a five-year term at a base rent of $2,753,000. Harleysville Mutual may
also pay additional rent, based on a formula, for any additions, improvements
or renovations. There was no additional rental payment for 1996. Harleysville
Mutual is also responsible for all operating expenses including maintenance
and repairs. The base rent and formula for additional charges are based upon
an appraisal obtained from an independent real estate appraiser. Harleysville
Mutual and Harleysville Group and their respective affiliates share these
facilities, and the expenses thereof are allocated according to an
intercompany allocation agreement.
Harleysville Group provides certain management to Harleysville Mutual and
certain other affiliates. Under related agreements, Harleysville Group serves
as the paymaster for the Harleysville companies, with each
25
<PAGE>
company being charged for its proportionate share of salary and employee
benefits expense based upon time allocation. Harleysville Group received a fee
of $6,627,810 in 1996 for its services under these management agreements.
Harleysville Group borrowed approximately $18.5 million from Harleysville
Mutual in connection with the acquisition of Mid-America Insurance Company and
New York Casualty Insurance Company in 1991. The loan bears interest at LIBOR
plus 1%, with no penalty for prepayment. It is a demand loan with a stated
maturity in 1998.
Harleysville Group's property and casualty insurance subsidiaries
participate in an underwriting pool with Harleysville Mutual whereby such
subsidiaries cede to Harleysville Mutual all of their insurance business and
assume from Harleysville Mutual an amount equal to their participation in the
pooling agreement. All losses and loss settlement expenses and other
underwriting expenses are prorated among the parties on the basis of
participation in the pooling agreement. The agreement pertains to all
insurance business written or earned on or after January 1, 1986, and
Harleysville Group's pool participants are not liable for losses occurring
prior to January 1, 1986. Harleysville Group's participation in 1996 was 65%.
On January 1, 1997, Harleysville Group's pool participation was increased to
70%. The pooling agreement may be amended or terminated by agreement of the
parties. Information describing the pooling arrangement is contained in
Harleysville Group's 1996 Annual Report to Stockholders, a copy of which is
enclosed with this Proxy Statement and to which reference is hereby made.
Mr. Mitchell will receive in 1997 a payout of $280,800 for the four-year
period 1993-1996 under the Long-Term Incentive Plan for his services as Chief
Executive Officer during 1993.
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of KPMG Peat Marwick, LLP, the independent public
accountants who audited Harleysville Group's 1996 financial statements, will
attend the Annual Meeting, will have the opportunity to make a statement, if
they desire to do so, and will be available to respond to any appropriate
questions presented by stockholders at the Annual Meeting.
ANNUAL REPORT
A copy of Harleysville Group's Annual Report for its fiscal year ended
December 31, 1996 is being mailed to Harleysville Group's stockholders with
this Proxy Statement.
STOCKHOLDER PROPOSALS
Any stockholder who, in accordance with and subject to the provisions of the
proxy rules of the SEC, wishes to submit a proposal for inclusion in
Harleysville Group's proxy statement for its 1998 Annual Meeting of
Stockholders must deliver such proposal in writing to Harleysville Group's
Secretary at Harleysville Group's principal executive offices at 355 Maple
Avenue, Harleysville, Pennsylvania 19438, not later than November 21, 1997.
OTHER PROPOSALS
The Board of Directors does not know of any matters to be presented for
consideration other than the matters described in the Notice of Annual
Meeting, but if any matters are properly presented, it is the intention of the
persons named in the accompanying proxy to vote on such matters in accordance
with their judgment.
Date: March 21, 1997
26
<PAGE>
XPU-056 (Ed. 3-97)
<PAGE>
APPENDIX 1
HARLEYSVILLE GROUP INC.
EQUITY INCENTIVE PLAN
AMENDED AND RESTATED FEBRUARY 26, 1997
T A B L E O F C O N T E N T S
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
I. INTRODUCTION................................................... 1
A. Purpose of the Plan...................................... 1
B. Definitions.............................................. 1
II. PLAN ADMINISTRATION............................................ 4
A. Administration........................................... 4
B. Eligibility.............................................. 5
C. Maximum Number of Shares Available....................... 5
D. Maximum Shares Awarded................................... 6
E. Adjustments.............................................. 6
F. Registration Conditions.................................. 6
G. Rights Upon a Change in Control.......................... 7
III. STOCK OPTIONS.................................................. 7
A. Type of Option........................................... 7
B. Price.................................................... 7
C. Exercise Term and Vesting................................ 7
D. Exercise Procedures...................................... 8
E. Payment.................................................. 8
F. Rights Upon Termination of Employment.................... 8
G. Restrictions Upon Transfer............................... 9
H. Incentive Stock Options.................................. 9
IV. STOCK APPRECIATION RIGHTS...................................... 11
A. Grant of Rights.......................................... 11
B. Term..................................................... 11
C. Limits on Stock Appreciation Rights...................... 11
D. Payment.................................................. 12
E. Other Terms.............................................. 12
V. RESTRICTED STOCK AWARDS........................................ 12
A. Price.................................................... 12
B. Restriction Period....................................... 12
C. Restriction Upon Transfer................................ 12
D. Certificates............................................. 13
E. Lapse of Restrictions.................................... 13
F. Termination Prior to Lapse of Restrictions............... 13
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
VI. MISCELLANEOUS PROVISIONS....................................... 14
A. Amendment, Suspension and Termination
of the Plan.............................................. 14
B. Government and Other Regulations......................... 14
C. Other Compensation Plans and Programs.................... 14
D. Withholding Taxes........................................ 14
E. Single or Multiple Documents............................. 14
F. Non-Uniform Determinations............................... 14
G. Construction of Plan..................................... 14
H. Pronouns, Singular and Plural............................ 15
I. Limitation of Rights..................................... 15
J. Duration of the Plan..................................... 15
K. Stockholder Approval..................................... 15
</TABLE>
<PAGE>
HARLEYSVILLE GROUP INC.
EQUITY INCENTIVE PLAN
AMENDED AND RESTATED FEBRUARY 26, 1997
I. INTRODUCTION
------------
A. PURPOSE OF THE PLAN: Harleysville Group Inc. (the "Company') has
-------------------
established the Plan to further the growth, development and success of
the Company by providing additional incentives to those officers and
key employees who are responsible for the management of the Company's
business affairs which enable them to participate directly in the
growth of the capital stock of the Company. The Company intends that
the Plan will facilitate securing, retaining, and motivating management
employees of high caliber and potential. It is intended that the
amended and restated Plan shall satisfy the requirements for
transactions pursuant hereto to be exempt from Section 16(b) of the
Securities Exchange Act of 1934 ("Exchange Act") and for compensation
paid hereunder to be fully deductible to the Company to the extent
permitted under Section 162(m) of the Internal Revenue Code of 1986.
B. DEFINITIONS: When used in the Plan, the following terms shall have the
-----------
meanings set forth below:
1. "Award(s)" shall mean Incentive Stock Options, Non-Qualified Stock
Options, stock appreciation rights and restricted stock made under
the Plan.
2. "Change in Control" shall mean if any of the following have
occurred: (i) there shall be consummated (a) any consolidation or
merger of the Company or the Parent in which they are not the
continuing or survivor corporation or pursuant to which shares of
the Company's stock would be converted in whole or in part into
cash, securities or other property, other than a merger of the
Company in which the holders of the Company's stock immediately
prior to the merger have substantially the same proportionate
ownership of Common Stock of the surviving corporation immediately
after the merger or (b) any sale, lease, exchange or transfer (in
one transaction or a series of related transactions) of all or
substantially all the assets of the Company or the Parent or (ii)
the stockholders of the Company or policyholders of the Parent
shall approve any plan or proposal for the liquidation or
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<PAGE>
dissolution of the Company or the Parent or (iii) any "person" (as
such term is used in Sections 13(d) and 14(d) (2) of the Exchange
Act, other than the Company, the Parent, or a subsidiary thereof or
any employee benefit plan sponsored by the Company, the Parent, or
a subsidiary thereof, shall become the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of securities of the
Company representing 20% or more of the combined voting power of
the Company's then outstanding securities ordinarily (and apart
from special circumstances) having the right to vote in the
election of Directors, as a result of a tender or exchange offer,
open market purchases, privately negotiated purchases or otherwise,
or (iv) at any time during a period of two consecutive years,
individuals who at the beginning of such period constituted the
Board of the Company or the Parent shall cease for any reason to
constitute at least a majority thereof, unless the election or the
nomination for election of each new Director during such two-year
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 two-year period or (v) any other event shall occur that
would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Exchange Act
or (vi) any other change in the power to direct or cause the
direction of management and policies of the Company or the Parent,
by contract or otherwise.
3. "Company" shall mean Harleysville Group Inc., a Delaware
corporation, and any successor in a reorganization or similar
transaction.
4. "Board" shall mean the Board of Directors of the Company.
5. "Code" shall mean the Internal Revenue Code of 1986, as amended.
6. "Committee" shall mean the Compensation & Personnel Development
Committee of the Board of Directors of Harleysville Group Inc.
The Committee shall consist of two or more directors selected by
the Board of Directors who:
(i) are not current employees of the Company, the Parent or a
subsidiary of the Company;
(ii) are not former employees of the Company who receive
compensation for prior services
-2-
<PAGE>
(other than benefits under a tax-qualified retirement plan)
during the taxable year;
(iii) have not been officers of the Company and is not currently
an officer of the Company, the Parent or subsidiary of the
Company;
(iv) do not receive remuneration from the Company, the Parent or
a subsidiary of the Company either directly or indirectly
for services rendered in any capacity other than as a
director, except for an amount that is de minimis
remuneration within the meaning of Treasury Regulation
(S)1.162.27(e)(iii) and does not exceed the dollar amount
for which disclosure would be required pursuant to Item 404
(a) of Regulation S-K;
(v) do not possess an interest in any other transaction for
which disclosure would be required pursuant to Item 404(a)
of Regulation S-K; and
(vi) are not engaged in a business relationship for which
disclosure would be required pursuant to Item 404(b) of
Regulation S-K.
7. "Common Stock" shall mean the common stock of the Company, par
value of $1.00 per share, and may be either stock previously
authorized but unissued, or stock reacquired by the Company.
8. "Director" shall mean a member of the Board of Directors of the
Company.
9. "Disability" shall mean the inability of a Participant to perform
the services normally rendered due to any physical or mental
impairment that can be expected to be of either permanent or
indefinite duration, as determined by the Committee on the basis of
appropriate medical evidence, and that results in the Participant's
cessation of active employment with the Company.
10. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
11. "Fair Market Value" shall mean the closing price of Common Stock,
as reported by such responsible reporting service as the Committee
may select, or if there were no transactions in the Common Stock on
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<PAGE>
such day, then the last preceding day on which a transaction took
place. The foregoing notwithstanding, the Committee may determine
the Fair Market Value in such other manner as it may deem more
appropriate for Plan purposes or as is required by applicable laws
or regulations.
12. "Incentive Stock Option" or "ISO" shall mean a right to purchase
the Company's Common Stock which is intended to comply with the
terms and conditions for an incentive stock option, set forth in
Section 422 of the Code, or such other sections of the Code as may
be in effect from time to time.
13. "Non-Qualified Stock Option" or "NQSO" shall mean a right to
purchase the Company's Common Stock which is not intended to comply
with the terms and conditions for an incentive stock option, as set
forth in Section 422 of the Code, or such other sections of the
Code as may be in effect from time to time.
14. "Parent" shall mean Harleysville Mutual Insurance Company.
15. "Participant" shall mean those eligible officers and other key
employees of the Company who receive Awards under the Plan.
16. "Plan" shall mean the Company's Equity Incentive Plan amended
February 26, 1997.
17. "1990 Plan" shall mean the Equity Incentive Plan as amended and
restated in 1990.
18. "Stock Option" shall mean Non-Qualified Stock Option and Incentive
Stock Option.
19. "Termination of Employment" shall mean a cessation of the
Participant's employment with the Company for any reason other than
retirement, death or disability.
II. PLAN ADMINISTRATION
-------------------
A. ADMINISTRATION: The Plan shall be administered by the Committee.
--------------
Subject to the express provisions of the Plan, the Committee shall have
full and exclusive authority:
(i) to interpret the Plan;
(ii) to determine the employees to whom awards should be made under
the Plan;
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<PAGE>
(iii) to determine the type of awards to be made and the amount, size
and terms of each such award;
(iv) to determine the time when the awards are granted and the
duration of any applicable exercise or restriction period,
including the criteria for exercisability and the acceleration
thereof;
(v) to prescribe, amend and rescind rules and regulations relating
to the Plan; and
(vi) to make all other determinations deemed necessary or advisable in
the implementation and administration of the Plan as permitted by
federal and state laws and regulations, including those laws and
regulations regarding deductibility from income under the Code
and exemption from (S)16 of the Exchange Act, or by rules and
regulations of a national securities exchange or the NASDAQ NMS.
The determination of the Committee in the administration of the Plan,
as described herein, shall be final and conclusive and binding upon all
persons including, without limitation, the Company, its stockholders,
Participants, and any persons having any interest under the Plan. The
Secretary of the Company shall be authorized to implement the Plan in
accordance with its terms and to take such action of a ministerial
nature, including the preparation of award documents provided to
participants, as shall be necessary to effectuate the intent and
purposes hereof.
Notwithstanding the foregoing, no Incentive Stock Options may be
granted after the expiration of ten years from the Plan's adoption by
the Board of Directors.
B. ELIGIBILITY: Persons eligible to receive Awards under the Plan shall
-----------
be to those officers and other key employees of the Company, its Parent
and its subsidiaries (as defined in Section 424 of the Code, or any
amendment or substitute thereto) who are in positions in which their
decisions, actions and counsel significantly impact upon the
profitability and success of the Company. Directors of the Company who
are not otherwise officers or employees of the Company, its Parent or
its subsidiaries shall not be eligible to participate in the Plan.
C. MAXIMUM NUMBER OF SHARES AVAILABLE: Subject to adjustment as specified
----------------------------------
in Section II.E. below, the aggregate number of shares of common stock
that may be issued or transferred under the Plan is 2,130,073 shares,
which
-5-
<PAGE>
shall be newly registered subsequent to the adoption and approval of
this Plan, plus such previously registered shares under the 1990 Plan
that have not previously been granted or, if granted, have again become
available for reissuance. If any previously registered shares again
become available for issuance and are re-issued, they shall be fully
subject to the terms and conditions of this Amended and Restated Plan.
Such shares may be authorized and unissued shares or treasury shares.
Except as provided herein, any shares subject to an option or right
which for any reason expires or is forfeited or terminated in
accordance with the Plan shall again be available under the Plan.
D. MAXIMUM SHARES AWARDED: No one Participant shall receive stock options
----------------------
or stock appreciation rights for more than 100,000 shares of Common
Stock during any one calendar year under the Plan.
E. ADJUSTMENTS: In the event of stock dividends, stock splits, re-
-----------
capitalizations, mergers, consolidations, combinations, exchanges of
shares, spin-offs, liquidations, reclassifications or other similar
changes in the capitalization of the Company, the number of shares of
Common Stock available for grant under this Plan in the aggregate or to
any one individual shall be adjusted proportionately or otherwise by
the Board, and where deemed appropriate, the number of shares, and the
option price of outstanding Stock Options shall be similarly adjusted.
Also, in instances where another business entity is acquired by the
Company or its Parent, and the Company or its Parent has assumed
outstanding employee option grants under a prior existing plan of the
acquired entity, similar adjustments are permitted at the discretion of
the Board of the Company. In the event of any other change affecting
the Common Stock reserved under the Plan, such adjustment, if any, as
may be deemed equitable by the Committee, shall be made to give proper
effect to such event.
F. REGISTRATION CONDITIONS:
-----------------------
1. Unless issued pursuant to a registration statement under the
Securities Act of 1933, as amended, no shares shall be issued to a
Participant under the Plan unless the Participant represents and
agrees with the Company that such shares are being acquired for
investment and not with a view to the resale or distribution
thereof, or such other documentation as may be required by the
Company, unless in the opinion of counsel to the Company such
representation,
-6-
<PAGE>
agreement or documentation is not necessary to comply with such
Act.
2. Any restriction on the resale of shares shall be evidenced by an
appropriate legend on the stock certificate.
3. The Company shall not be obligated to deliver any Common Stock
until it has been listed on each securities exchange on which the
Common Stock may then be listed and until there has been
qualification under or compliance with such federal or state laws,
rules or regulations as the Company may deem applicable. The
Company shall use reasonable efforts to obtain such listing,
qualification and compliance.
G. RIGHTS UPON A CHANGE IN CONTROL: In the event of a Change in Control,
-------------------------------
notwithstanding any other restrictive provisions herein, all previously
granted Stock Options and stock appreciation rights shall become
exercisable immediately and all previously issued shares of restricted
stock shall be issued free of restrictive legend, except that no
Incentive Stock Option may be exercised prior to six months following
the date of grant thereof.
III. STOCK OPTIONS
-------------
All Stock Options granted to Participants under the Plan shall be subject to
the following terms and conditions which shall be set forth in an
appropriate written document ("Option Document") and which may provide such
other terms, conditions and provisions, not inconsistent with this Plan, as
the Committee may direct:
A. TYPE OF OPTION: Each Option Document shall identify the options
--------------
presented thereby as Incentive Stock Options or Non-Qualified Stock
Options, as the case may be.
B. PRICE: The option price per share shall not be less than one hundred
-----
percent (100%) of the Fair Market Value of a share of Common Stock on
the date of grant, and in no event less than the par value of the
stock.
C. EXERCISE TERM AND VESTING: Except as provided in Paragraph F below,
-------------------------
50% of a Stock Option award shall be exercisable after the first
anniversary of the award and the remaining 50% of the award shall be
exercisable after the second anniversary of the award. Each Stock
Option document shall state the period or periods of time within which
the Stock Option may be exercised, in whole or in part. The Committee
shall have the power to permit an acceleration of previously
established exercise terms,
-7-
<PAGE>
subject to the requirements set forth herein, upon such circumstances
and subject to such terms and conditions as the Committee deems
appropriate. All options shall expire as of 5:00 p.m. on the tenth
anniversary of the grant unless the Committee provides otherwise.
D. EXERCISE PROCEDURES: A Stock Option, or portion thereof, shall be
-------------------
exercised by delivery of a written notice of exercise to the Secretary
of the Company, and payment of the full price of the shares being
purchased, as well as payment of all withholding taxes due thereon, if
any.
E. PAYMENT: The price of an exercised Stock Option, or portion thereof,
-------
may be paid:
1. by check, bank draft, money order, or electronic funds transfer
payable to the order of the Company, or
2. through the delivery of shares of the Company's Common Stock owned
by the Participant, having an aggregate Fair Market Value as
determined as of the date prior to exercise equal to the option
price, or
3. by such other method as the Committee may approve, including
payment through a broker in accordance with procedures permitted by
Regulation T of the Federal Reserve Board, or
4. by a combination of 1, 2 and 3 above.
In the event a Participant delivers already-owned shares of the
Company's Common Stock, at the Participant's option, the Participant
may provide an executed attestation of ownership in lieu of actual
delivery of shares.
Subject to the approval of the Committee as set forth in the Option
Document or otherwise in accordance with Rule 16b-3 of the Exchange
Act, a Participant may surrender already-owned shares of the Company's
Common Stock or forego delivery of shares due as a result of the
exercise in order to pay any withholding tax required to be collected
upon exercise of a Non-Qualified Stock Option. Such shares shall be
valued at their Fair Market Value pursuant to subparagraph 2 above.
If payment is made under Section III.E.3. of the Plan, the written
exercise notice may instruct the Company to deliver shares due upon the
exercise of the Stock Option to a registered broker or dealer
designated by the Company, if any, ("Designated Broker") in lieu of
delivery
-8-
<PAGE>
to the optionee. Such instructions must designate the account into
which the shares are to be deposited.
F. RIGHTS UPON TERMINATION OF EMPLOYMENT: In the event that an optionee
-------------------------------------
ceases to be an employee of the Company, its Parent or its
subsidiaries, for any reason other than retirement, death or
disability, all Stock Options awarded to such optionee shall
immediately expire unless the Committee in the Option Document or
otherwise grants an additional period in which to exercise the Stock
Options. In the event that an optionee retires, dies or becomes
disabled prior to the expiration of his Stock Option and without having
fully exercised his Stock Options, all Non-Qualified Stock Options and
Incentive Stock Options that have been held for six months shall
immediately become exercisable and the optionee or his successor shall
have the right to exercise the Stock Option during its term within a
period of one year after termination of employment due to retirement,
death or disability to the extent that the Stock Option had not expired
at the time of termination, or within such other period, and subject to
such terms and conditions, as may be specified by the Committee;
provided, however, an optionee who retires after attaining age 62 may
exercise Non-Qualified Stock Options, if otherwise exercisable, during
their term within two years after retirement; and provided further that
ISO tax treatment shall be available only as permitted under the
Internal Revenue Code.
For purposes herein, retirement shall mean retirement at normal
retirement date, pursuant to and in accordance with a pension plan or
other regular retirement practice of the Company, or in accordance with
the early retirement provision(s) thereof.
G. RESTRICTIONS UPON TRANSFER: Unless otherwise directed by the
--------------------------
Committee, each Option Document for Non-Qualified Stock Options shall
further provide that no option nor any interest or right therein or
part thereof shall be liable for the debts, contracts or engagements of
the optionee or his successors in interest or shall be subject to
disposition by transfer, alienation, anticipation, pledge, encumbrance,
assignment or any other means whether such disposition be voluntary or
involuntary or by operation of law by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings (including
bankruptcy) and any attempted disposition thereof shall be null and
void and of no effect; provided, however, that this Paragraph III.G.
shall not prevent transfers to the Participant's spouse, children,
grandchildren, parents or a trust established for any of them or the
Participant, or by will or the laws of descent and distribution. If
such
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<PAGE>
a transfer is made, the employee may not receive any consideration
therefor, and the Option will continue to be subject to the same terms
and conditions as were applicable to the Option immediately before
transfer.
H. INCENTIVE STOCK OPTIONS: An Incentive Stock Option shall be subject to
-----------------------
the following terms and conditions, which shall be set forth in the
Option Document and which may provide such other terms, conditions and
provisions as the Committee determines necessary or desirable in order
to qualify such option as an incentive stock option (within the meaning
of Section 422 of the Code, or any amendment or substitute thereto or
regulation thereunder):
(1) The period or periods of time within which the option may be
exercised, in whole or in part, which shall be such period or
periods of time as may be determined by the Committee, provided
that no option shall be exercisable prior to six months nor after
ten years from the date of grant thereof. The Committee shall have
the power to permit an acceleration of previously established
exercise terms, subject to the requirements set forth herein, upon
such circumstances and subject to such terms and conditions as the
Committee deems appropriate;
(2) The aggregate Fair Market Value (determined as of the date the
option is granted) of the stock with respect to which Incentive
Stock Options are exercisable for the first time by such individual
during a calendar year (under all plans of the Company) shall not
exceed $100,000;
(3) No Incentive Stock Option shall be granted to any employee if at
the time the option is granted the individual owns stock possessing
more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or its Parent or its
subsidiaries unless at the time such option is granted the option
price is at least 110 percent (110%) of the fair market value of
the stock subject to the option and such option by its terms is not
exercisable after the expiration of five years from the date of
grant; and
(4) No Incentive Stock Option nor any interest or right therein or part
thereof shall be liable for the debts, contracts or engagements of
the optionee or his successors in interest or shall be subject to
disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition
be voluntary or involuntary
-10-
<PAGE>
or by operation of law by judgment, levy, attachment, garnishment
or any other legal or equitable proceedings (including bankruptcy)
and any attempted disposition thereof shall be null and void and of
no effect; provided, however, that this Subparagraph III. H(4)
shall not prevent transfers by will or by the laws of descent and
distribution. During the lifetime of the optionee, the option is
exercisable only by the optionee.
IV. STOCK APPRECIATION RIGHTS
-------------------------
Stock appreciation rights may be granted in connection with a
contemporaneously granted stock option and shall be subject to the following
terms and conditions which shall be set forth in the Option Document which may
provide such other terms, conditions and provisions not inconsistent with this
Plan as the Committee may direct.
A. GRANT OF RIGHTS: Stock appreciation rights shall entitle the grantee,
---------------
subject to such terms and conditions determined by the Committee, to
receive upon exercise thereof all or a portion of the excess of (i) the
Fair Market Value of a specified number of shares of the Common Stock
at the time of exercise, as determined by the Committee, over (ii) a
specified price which shall not be less than 100 percent (100%) of the
Fair Market Value of the stock on the day the right is granted.
B. TERM: The period or periods of time within which the stock
----
appreciation rights may be exercised, in whole or in part, is co-
extensive with the contemporaneously granted Stock Option. Fifty
percent of an award of stock appreciation rights shall be exercisable
after the first anniversary of the award and the remaining 50% of the
award shall be exercisable after the second anniversary of the award.
The Committee shall have the power to permit an acceleration of
previously established exercise terms, subject to the requirements set
forth herein, upon such circumstances and subject to such terms and
conditions as the Committee deems appropriate.
C. LIMITS ON STOCK APPRECIATION RIGHTS:
-----------------------------------
(1) Stock appreciation rights shall be paid only upon exercise of the
Stock Option and then only in respect to the number of shares then
being purchased.
(2) Stock appreciation rights shall be payable only to the extent the
Stock Option may become exercisable and shall expire or terminate
with the Stock Option.
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<PAGE>
(3) No stock appreciation rights nor any interest or right therein or
part thereof shall be liable for the debts, contracts or
engagements of the Participant or his successors in interest or
shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by
operation of law by judgment, levy, attachment, garnishment or any
other legal or equitable proceedings (including bankruptcy) and any
attempted disposition thereof shall be null and void and of no
effect; provided, however, that this Subparagraph IV.C.(3) shall
not prevent transfers to the Participant's spouse, children,
grandchildren, parents or trust established for any of them or the
Participant, or by will or the laws of descent and distribution;
provided, however, that stock appreciation rights granted in
connection with an Incentive Stock Option shall be subject to the
same transferability restrictions as Incentive Stock Options as
provided in Subparagraph III.H(4).
D. PAYMENT: Payments upon exercise of stock appreciation rights shall be
-------
paid in cash, less any withholding tax required to be withheld, and may
be applied to the contemporaneous Stock Option exercise.
E. OTHER TERMS: Stock appreciation rights shall be granted in such manner
-----------
and such form, and subject to such additional terms and conditions as
the Committee in its sole discretion deems necessary or desirable,
including without limitation: (i) if in connection with an Incentive
Stock Option, in order to satisfy any requirements set forth under
Section 422 of the Code, or any amendment or substitute thereto, or
regulation thereunder; or, (ii) in order to avoid any insider-trading
liability in connection with stock appreciation rights under Section
16(b) of the Exchange Act.
V. RESTRICTED STOCK AWARDS
-----------------------
Restricted stock awards shall be subject to the following terms and
conditions, which shall be set forth in an appropriate written agreement between
the Company and the Participant accompanying the award and which may provide
such other terms, conditions and provisions not inconsistent with this Plan, as
the Committee may direct.
A. PRICE: Restricted stock may be made available to a Participant free of
-----
any purchase price or for such purchase price as established by the
Committee.
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<PAGE>
B. RESTRICTION PERIOD: Shares awarded pursuant to this Plan shall be
------------------
subject to such terms, conditions and restrictions, including without
limitation, prohibitions against transfer, substantial risks of
forfeiture and attainment of performance objectives for such period or
periods as shall be determined by the Committee and set forth in the
agreement. The Committee shall have the power to permit, in its
discretion, an acceleration of the expiration of the applicable
restriction period with respect to any part or all of the shares
awarded to the participant.
C. RESTRICTION UPON TRANSFER: During the restriction period determined by
-------------------------
the Committee that is applicable to any shares of restricted stock
under the Plan, no right or interest of any Participant in such
restricted stock nor any interest or right therein (including the right
to vote such shares and receive dividends thereon) or part thereof
shall be liable for the debts, contracts or engagements of the
Participant or his successors in interest or shall be subject to
disposition by transfer, alienation, anticipation, pledge, encumbrance,
assignment or any other means whether such disposition be voluntary or
involuntary or by operation of law by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings (including
bankruptcy) and any attempted disposition thereof shall be null and
void and of no effect. Notwithstanding the foregoing and except as
otherwise provided in the Plan, the Participant shall have all the
other rights of a stockholder including, but not limited to, the right
to receive dividends and the right to vote such shares.
D. CERTIFICATES: Each certificate issued in respect of shares awarded to
------------
a Participant shall be deposited with the Company or its designee and
shall bear the following legend:
This certificate and the shares of stock represented hereby are
subject to the terms and conditions (including forfeiture
provisions and restrictions against transfer) contained in the
Harleysville Group Inc. Amended and Restated Equity Incentive Plan
and an agreement entered into between the Participant and the
Company. Release from such terms and conditions shall be obtained
only in accordance with the provisions of the Plan and agreement, a
copy of each of which is on file in the office of the Secretary of
Harleysville Group Inc.
E. LAPSE OF RESTRICTIONS: The document shall specify the terms and
---------------------
conditions upon which any restrictions upon shares awarded under the
Plan shall lapse, as determined
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<PAGE>
by the Committee. Upon the lapse of such restrictions, shares of
Common Stock free of the restrictive legend shall be issued to the
Participant or his or her other legal representative.
F. TERMINATION PRIOR TO LAPSE OF RESTRICTIONS: In the event of a
------------------------------------------
Participant's Termination of Employment prior to the lapse of
restrictions as determined pursuant to the provisions of preceding
subparagraph (E), all shares as to which there still remains unlapsed
restrictions shall be forfeited by such Participant to the Company
without payment of any consideration by the Company, and neither the
Participant recipient nor any successors, heirs, assigns, or personal
representatives of such recipient shall thereafter have any further
rights or interest in such shares or certificates. In all other cases
of cessation of employment, shares of Common Stock free of the
restrictive legend shall be issued to the Participant or his or her
legal representative.
VI. MISCELLANEOUS PROVISIONS
------------------------
A. AMENDMENT, SUSPENSION AND TERMINATION OF PLAN: The Board of Directors
---------------------------------------------
may suspend or terminate the Plan or revise or amend it in any respect
whatsoever except where shareholder approval is required by federal or
state laws or regulations or by rules and regulations of a national
securities exchange or the Nasdaq National Market of The Nasdaq Stock
Market.
B. GOVERNMENT AND OTHER REGULATIONS: The obligation of the Company to
--------------------------------
issue Awards under the Plan shall be subject to all applicable laws,
rules and regulations, and to such approvals by any government agencies
as may be required.
C. OTHER COMPENSATION PLANS AND PROGRAMS: The Plan shall not be deemed to
-------------------------------------
preclude the implementation by the Company, Parent or its subsidiaries
of other compensation plans or programs which may be in effect from
time to time. Participation in this Plan shall not affect an
employee's eligibility to participate in any other benefit or incentive
plan of the Company, its Parent or its subsidiaries. Any awards made
pursuant to this Plan shall not be used in determining the benefits
provided under any other plan of the Company, Parent or its
subsidiaries unless specifically provided.
D. WITHHOLDING TAXES: The Company shall have the right to require a
-----------------
payment from a Participant to cover applicable withholding for any
federal, state or local taxes. The Company reserves the right to
offset such tax payment from any other funds which may be due the
Participant by the Company.
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<PAGE>
E. SINGLE OR MULTIPLE DOCUMENTS: Multiple forms of awards or combinations
----------------------------
thereof may be evidenced by a single document or multiple documents, as
determined by the Committee.
F. NON-UNIFORM DETERMINATIONS: The Committee's determinations under the
--------------------------
Plan (including without limitation determinations of the persons to
receive awards, the form, amount and timing of such awards, the terms
and provisions of such awards, and the documents evidencing same) need
not be uniform and may be made selectively among persons who receive,
or are eligible to receive, awards under the Plan whether or not such
persons are similarly situated.
G. CONSTRUCTION OF PLAN: The interpretation of the Plan and the
--------------------
application of any rules implemented hereunder shall be determined in
accordance with the laws of the Commonwealth of Pennsylvania.
H. PRONOUNS, SINGULAR AND PLURAL: The masculine may be read as feminine,
-----------------------------
the singular as plural, and the plural as singular as necessary to give
effect to the Plan.
I. LIMITATION OF RIGHTS:
--------------------
1. No Right to Continue as an Employee: Neither the Plan, nor the
-----------------------------------
granting of an option nor any other action taken pursuant to the
Plan, shall constitute or be evidence of any agreement or
understanding, express or implied, that the Participant has a right
to continue as an employee of the Company for any period of time,
or at any particular rate of compensation.
2. No Shareholder's Rights for Options: An optionee shall have no
-----------------------------------
rights as a shareholder with respect to the shares covered by
options granted hereunder until the date of the issuance of a stock
certificate therefor, and no adjustment will be made for dividends
or other rights for which the record date is prior to the date such
certificate is issued.
J. DURATION OF THE PLAN: The Plan shall remain in effect until all Awards
--------------------
under the Plan have been satisfied by the issuance of shares or the
payment of cash, or expire by their terms, but no Incentive Stock
Option Award shall be granted more than ten years after the Plan is
adopted by the Company' Board of Directors.
K. STOCKHOLDER APPROVAL: The Plan shall be subject to stockholder
--------------------
approval.
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<PAGE>
APPENDIX 2
HARLEYSVILLE GROUP INC.
1995 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
As Adopted February 22, 1995
and Amended April 23, 1997
Section I - Purpose
-------------------
The Harleysville Group Inc. Employee Stock Purchase Plan (the "Plan") is
established by the Harleysville Group Inc. (the "Company") for the benefit of
the Eligible Employees of the Company, its parent and its subsidiaries. The
purpose of the Plan is to provide each Eligible Employee with an opportunity to
acquire or increase a proprietary interest in the Company. The Plan is intended
to meet the requirements of Section 423 of the Internal Revenue Code of 1986, as
amended (the "Code"). As used herein, the terms "parent" and "subsidiary" shall
have the same meaning as in Section 425 of the Code.
Section II - Eligible Employees
-------------------------------
(a) All regular full-time employees and regular part-time employees who work at
least twenty (20) hours or more a week for the Company, its parent, or its
subsidiaries which have been designated by the Board of Directors as
participating in the Plan (including subsidiaries which are so designated
after the shareholders have approved the Plan) are eligible to participate
in the Plan ("Eligible Employees").
(b) A person who is otherwise an Eligible Employee shall not be granted any
right to purchase stock under the Plan to the extent (i) it would, if
exercised, cause the person to own shares of stock (including shares which
would be owned if all outstanding options to purchase stock owned by such
person were exercised) which possess five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company, its
parent or any subsidiary, or (ii) it causes such person to have purchase
rights under the Plan and all other stock purchase plans of the Company,
its parent or any subsidiary, which meet the requirements of Section 423 of
the Code which accrue at a rate which exceeds $25,000 of fair market value
of stock of the Company, its parent or any subsidiary (determined at the
time the right to purchase stock under this Plan is granted) for each
calendar year in which such right is outstanding. For this purpose a right
to purchase stock accrues when it first becomes exercisable
-1-
<PAGE>
during the calendar year (but the rate of accrual for any calendar year can
in no event exceed $25,000 of the fair market value of the stock subject to
the right) and the number of shares of stock under one right may not be
carried over to any other right.
(c) If an Employee obtains a hardship withdrawal under the Extra Compensation
Plan of the Company or any similar plan maintained by the Company, its
parent, or a subsidiary, then said Employee may not, for the 12 month
period following the hardship withdrawal, make any contributions for
purchase of stock under the Plan. In such case, such Employee will be
deemed to have withdrawn his or her contribution for the current
Subscription Period and will have such contributions returned to him or
her. The Employee is further not entitled to resubscribe to the Plan until
the beginning of the first Subscription Period following the completion of
the 12 month period.
Section III - Enrollment and Enrollment Periods
-----------------------------------------------
Enrollment will take place in the "Enrollment Periods" which shall be from
the 1st through 14th day of January and July of each year commencing with July
of 1995. Any person who is an Eligible Employee and desires to subscribe for
the purchase of stock for the following Subscription Period must file a
subscription agreement during the Enrollment Period. Once enrolled, an Eligible
Employee will continue to participate in the Plan for each succeeding
Subscription Period until he or she terminates his or her participation or
ceases to be an Eligible Employee. If a participant desires to change his or
her rate of contribution he or she may do so effective for the next Subscription
Period by filing a new subscription agreement during the applicable Enrollment
Period.
Section IV - Duration of Offer and Subscription Periods
-------------------------------------------------------
This plan shall be in effect from July 1, 1995 through and including July
31, 2005. During the duration of the Plan there will be twenty (20)
"Subscription Periods". Each Subscription Period runs from January 15 through
July 14 or from July 15 through January 14.
Section V - Number of Shares to be Offered
------------------------------------------
The total number of shares to be made available under the Plan is 500,000
shares of common stock of the Company ("Stock"). The shares issued hereunder
may either be authorized but unissued shares or treasury shares reacquired by
the Company. In the event this amount of Stock is subscribed prior to the
expiration of the Plan, the Plan may be terminated in accordance with Section
XIV of the Plan.
-2-
<PAGE>
Section VI - Subscription Price
-------------------------------
The "Subscription Price" for each share of Stock shall be the lesser
of eighty-five percent (85%) of the fair market value of such share on the last
trading day before the first day of the Subscription Period or eighty-five
percent (85%) of the fair market value of such share on the last trading day of
the Subscription Period, but in no event less than $1.00 per share, the par
value of share of Company Common Stock. The fair market value of a share shall
be the Closing Price as reported on the NASDAQ National Market System for the
applicable date.
Section VII - Amount of Contribution and Method of Payment
----------------------------------------------------------
Except as otherwise provided herein, the Subscription Price will be
payable by the Eligible Employee by means of payroll deduction. Effective as of
the second Subscription Period commencing in 1997, the minimum deduction shall
be no less than the lesser of one percent (1%) of the Eligible Employee's Base
Pay or $3.00 bi-weekly and the maximum deduction shall be no more than fifteen
percent (15%) of such Base Pay. "Base Pay" means the regular compensation paid
to an Eligible Employee with respect to the Enrollment Period. Base Pay shall
not include overtime, bonuses, or other items which are not considered to be
regular earnings by the committee administering the Plan pursuant to Section XV.
Payroll deductions will commence with the first pay issued during the
Subscription Period and will continue with each pay throughout the entire
Subscription Period except for pay periods for which the Eligible Employee
receives no compensation (i.e., uncompensated personal leave, leave of absence,
etc.).
Section VIII - Purchase of Shares
---------------------------------
The Company will maintain on its books a "Plan Account" in the name of
each participant. At the close of each pay period, the amount deducted from the
participant's Base Pay will be credited to the participant's Plan Account. As of
the last day of each Subscription Period, the amount then in the participant's
Plan Account will be divided by the Subscription Price for such Subscription
Period and the participant's Plan Account will be credited with the number of
whole and fractional shares which results. Shares will be issued in a book
entry form with the Company's stock transfer agent. A participant will receive
a statement of account in a timely fashion from the transfer agent following the
end of each Subscription Period. In the event the number of shares subscribed
for any Subscription Period exceeds the number of shares available for sale
under the Plan for such period, the available shares shall be allocated among
the participants in proportion to their Plan Account balances.
-3-
<PAGE>
In the event that the number of shares which would be credited to any
participant's Plan Account in any Subscription Period exceeds the limit
specified in Section II(b), the participant's account will be credited with the
maximum number of shares permissible, and the remaining amounts will be refunded
in cash without interest.
Section IX - Withdrawal from the Plan
-------------------------------------
A participant may withdraw from the Plan at any time. At the time of
withdrawal the amount credited to the participant's Plan Account will be
refunded in cash without interest.
Section X - Special Rules for Section 16 Officers
-------------------------------------------------
The following provisions are applicable to officers of the Company,
the parent and their subsidiaries who are subject to Section 16 of the
Securities Exchange Act of 1934 with respect to the Company's securities:
(a) Such Section 16 officer participants who cease participation in the Plan in
any form may not participate again until the next Subscription Period which
follows a six-month waiting period after cessation of their participation;
and
(b) Such Section 16 officers shall hold all Stock acquired under the Plan for a
period of at least six months from the date of acquisition.
Notwithstanding the foregoing, if Rule 16b-3, adopted pursuant to Section 16 of
the Securities Exchange Act of 1934, is amended to eliminate these restrictions,
then to such extent these foregoing provisions shall have no force and effect.
Section XI - Separation from Employment
---------------------------------------
Separation from employment for any reason including death, disability or
retirement shall be treated as an automatic withdrawal as set forth in Section
IX. A transfer among the Company, its parent or its designated subsidiaries
shall not be treated as a separation from employment.
Section XII - Assignment
------------------------
No participant may assign his or her subscription or rights to subscribe to
any other person and any attempted assignment shall be void.
Section XIII - Adjustment of and Changes in the Stock
-----------------------------------------------------
In the event that the shares of Stock shall be changed into or exchanged
for a different number or kind of shares of Stock or
-4-
<PAGE>
other securities of the Company or of another corporation (whether by reason of
merger, consolidation, recapitalization, split-up, combination of shares, or
otherwise), or if the number of shares of Stock shall be increased through a
Stock split or the payment of a Stock dividend, then there shall be substituted
for or added to each share of Stock theretofore reserved for sale under the
Plan, the number and kind of shares of Stock or other securities into which each
outstanding share of Stock shall be so changed, or for which each such share
shall be exchanged, or to which each such share shall be entitled, as the case
may be.
Section XIV - Amendment or Discontinuance of the Plan
-----------------------------------------------------
The Board of Directors of Company shall have the right to amend, modify or
terminate the Plan at any time without notice provided that no participant's
existing rights are adversely affected thereby and provided further that without
the approval of the holders of a majority of the issued and outstanding shares
of Stock no such amendment shall increase the total number of shares subject to
the Plan, change the formula by which the price at which the shares shall be
sold is determined, change the class of employees eligible to participate in the
Plan, or materially increase the benefits accruing to participants under the
Plan. In addition, the provisions of the Plan insofar as they relate to persons
subject to Section 16 of the Securities Exchange Act of 1934 may not be amended
more than once every six months other than to conform to changes in the Code or
Rules thereunder.
Section XV - Administration
---------------------------
The Plan shall be administered by a committee to be appointed by the Board
of Directors consisting of three employees of the Company. The committee may
from time to time adopt rules and regulations for carrying out the Plan.
Interpretation or construction of any provision of the Plan by the committee
shall be final and conclusive on all persons absent contrary action by the Board
of Directors.
Section XVI - Employee's Rights
-------------------------------
Nothing in the Plan shall prevent the Company, its parent or any subsidiary
from terminating any employee's employment. No employee shall have any rights
as a shareholder until full payment has been made for the shares for which he
has subscribed.
Section XVII - Titles
---------------------
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Agreement.
-5-
<PAGE>
Section XVIII - Applicable Law
------------------------------
The Plan shall be construed, administered and governed in all respects
under the laws of the Commonwealth of Pennsylvania.
-6-
<PAGE>
APPENDIX 3
HARLEYSVILLE LOGO
PROXY
HARLEYSVILLE GROUP INC.
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 23, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Robert Simpson, Jr., Bruce
J. Magee, and Roger A. Brown, and each or any of them, proxies of the
undersigned, with full power of substitution, to vote all the shares of
Harleysville Group Inc. (the "Company") which the undersigned may be entitled to
vote at the Annual Meeting of Stockholders of the Company, to be held at 355
Maple Avenue, Harleysville, Pennsylvania, on April 23, 1997, at 10:00 A.M.,
local time, and at any adjournment thereof, as follows:
(Continued, and to be marked,
dated and signed on reverse side)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Fold and detach here.
ANNUAL MEETING
OF
HARLEYSVILLE GROUP INC. STOCKHOLDERS
Wednesday, April 23, 1997
10:00 A.M.
355 Maple Avenue
Harleysville, PA 19438
<PAGE>
1. ELECTION OF CLASS B DIRECTORS
FOR WITHHOLD (INSTRUCTION: To withhold authority to
all the AUTHORITY vote for any individual nominee, strike a
nominees to vote for line through the nominee's name below.)
listed. the nominees
listed. Michael L. Browne Frank E. Reed
[ ] [ ]
A vote FOR is recommended by the Board of Directors.
2. Approval of adoption of the Amended
and Restated Equity Incentive Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
A vote FOR is recommended by the Board of Directors.
3. Approval of adoption of an amendment
to the Employee Stock Purchase Plan
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
A vote FOR is recommended by the Board of Directors.
4. In their discretion, the proxies are
authorized to vote upon such other
business as may properly come before the
meeting and any adjournment thereof.
[ ] This proxy will be voted as specified. If a
choice is not specified, the proxy will be
voted FOR each proposal stated above.
[Name & Address] This proxy should be dated, signed by the
stockholder exactly as his or her name
appears herein and returned promptly in the
enclosed envelope. Persons signing in a
fiduciary capacity should so indicate.
_____________________________________ (SEAL)
Signature of Stockholder(s)
[ ] _____________________________________ (SEAL)
Signature of Stockholder(s)
Date: ________________________________, 1997
Please sign, date and return the proxy card using the enclosed envelope.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Fold and detach here.
ANNUAL MEETING
OF
HARLEYSVILLE GROUP INC. STOCKHOLDERS
Wednesday, April 23, 1997
10:00 A.M.
355 Maple Avenue
Harleysville, PA 19438
