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 ss.240.14a-11(c) or ss.240.14a-12
UNION NATIONAL FINANCIAL CORPORATION
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No filing fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(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):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
<PAGE>
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 26, 2000
--------------------------------
To the Shareholders of Union National Financial Corporation:
NOTICE IS HEREBY GIVEN that Union National Financial Corporation will hold
its Annual Meeting of Shareholders at 10:00 a.m., Eastern Time, on Wednesday,
April 26, 2000, at The Gathering Place, 6 Pine Street, Mount Joy, Pennsylvania
17552, to consider and vote upon the following proposals:
1. The election of three Class A Directors to serve for a three-year term and
until their successors are properly elected and qualified; and
2. The transaction of any other business that may properly come before the
Annual Meeting and any adjournment of the meeting.
In accordance with the bylaws of the corporation and action by the Board of
Directors, only those shareholders of record at the close of business on March
21, 2000, may vote at the Annual Meeting and any adjournment of the meeting.
Management welcomes your attendance at the Annual Meeting. Whether or not
you expect to attend the Annual Meeting in person, you are requested to
complete, sign, date and promptly return the enclosed form of proxy in the
accompanying postage-paid envelope. By so doing, you will assure your proper
representation at the meeting. The prompt return of your proxy will also save
the corporation expenses involved in further communications. Even if you return
a proxy, you may vote in person if you give written notice to the Secretary of
the corporation and attend the Annual Meeting.
<PAGE>
If you are a participant in the corporation's Dividend Reinvestment and
Stock Purchase Plan, you will receive separate voting instructions with respect
to your shares held in the Dividend Reinvestment and Stock Purchase Plan.
Union National Financial Corporation's Board of Directors is distributing
this proxy statement, form of proxy and the corporation's 1999 Annual Report on
or about March 28, 2000.
By Order of the Board of Directors,
/s/ Mark D. Gainer
-----------------------
Mark D. Gainer, President
Mount Joy, Pennsylvania
March 28, 2000
YOUR VOTE IS IMPORTANT.
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY AND
MAIL IT PROMPTLY IN THE ENCLOSED, POSTAGE-PAID RETURN ENVELOPE.
<PAGE>
UNION NATIONAL FINANCIAL CORPORATION
P.O. Box 567
101 East Main Street
Mount Joy, Pennsylvania 17552
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PROXY STATEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON APRIL 26, 2000
-----------------------------------------
The corporation is mailing this proxy statement to shareholders
on or about March 28, 2000.
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Table of Contents
<TABLE>
<CAPTION>
Page
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<S> <C>
GENERAL INFORMATION........................................................................................... 1
Date, Time and Place of Annual Meeting............................................................... 1
Description of the Corporation....................................................................... 1
VOTING PROCEDURES............................................................................................. 1
Solicitation and Voting of Proxies................................................................... 1
Voting Procedure for Stock Held in DRIP.............................................................. 2
Revocability of Proxy................................................................................ 2
Voting Securities and Record Date.................................................................... 2
Quorum............................................................................................... 3
Votes Required for Approval.......................................................................... 3
BENEFICIAL OWNERSHIP OF THE CORPORATION'S STOCK BY PRINCIPAL SHAREHOLDERS AND MANAGEMENT...................... 3
Principal Shareholders............................................................................... 3
Share Ownership by the Directors, Executive Officers and Nominees.................................... 3
MANAGEMENT.................................................................................................... 6
Governance........................................................................................... 6
Directors............................................................................................ 6
Committees of the Board of Directors................................................................. 9
Cash Compensation of Directors....................................................................... 12
1999 Independent Directors Stock Option Plan......................................................... 13
Procedure for Nominating Directors................................................................... 13
Executive Officers of the Corporation................................................................ 14
Executive Officers of the Bank....................................................................... 15
EXECUTIVE COMPENSATION........................................................................................ 16
Option Grants in Fiscal Year 1999.................................................................... 17
Option Exercises in 1999 and Year-End Option Values.................................................. 18
401(k) Profit Sharing Plan........................................................................... 18
Employment Contracts................................................................................. 19
Compensation Committee Report on Executive Compensation.............................................. 20
Chief Executive Officer Compensation........................................................ 21
Executive Officers.......................................................................... 21
1997 Stock Incentive Plan................................................................... 21
Compensation Committee Interlocks and Insider Participation.......................................... 22
SHAREHOLDER RETURN PERFORMANCE GRAPH.......................................................................... 23
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................................ 24
</TABLE>
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<TABLE>
<CAPTION>
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE....................................................... 25
LEGAL PROCEEDINGS............................................................................................. 25
PROPOSAL NO. 1: ELECTION OF DIRECTORS........................................................................ 26
INDEPENDENT AUDITORS.......................................................................................... 27
SHAREHOLDER PROPOSALS AT THE 2001 ANNUAL MEETING.............................................................. 27
OTHER MATTERS................................................................................................. 27
ADDITIONAL INFORMATION........................................................................................ 27
</TABLE>
<PAGE>
GENERAL INFORMATION
Date, Time and Place of Annual Meeting
Union National Financial Corporation, a Pennsylvania business corporation
and registered bank holding company, is furnishing this proxy statement in
connection with the solicitation by its Board of Directors of proxies to be
voted at the Annual Meeting of Shareholders of the corporation. The Annual
Meeting will be held on Wednesday, April 26, 2000, at 10:00 a.m., Eastern Time,
at The Gathering Place, 6 Pine Street, Mount Joy, Pennsylvania 17552.
We are first sending this proxy statement and the enclosed form of proxy to
shareholders of the corporation on or about March 28, 2000.
Description of the Corporation
Union National Financial Corporation was established in 1986 as the bank
holding company for The Union National Mount Joy Bank, which changed its name in
1998 to Union National Community Bank. Union National Community Bank is the
corporation's wholly-owned sole subsidiary.
The principal executive office of the corporation is located at Union
National Community Bank, 101 East Main Street, Mount Joy, Pennsylvania 17552.
The telephone number for the corporation is (717) 653-1441. Shareholders should
direct all inquiries to Mark D. Gainer, President of the corporation.
VOTING PROCEDURES
Solicitation and Voting of Proxies
The Board of Directors of the corporation is soliciting this proxy for use
at the 2000 Annual Meeting of Shareholders of Union National Financial
Corporation. The corporation will pay for preparing, assembling, printing,
mailing and soliciting proxies and any additional material that it sends to
shareholders. The directors, officers and other employees of the corporation may
solicit proxies in person or by mail, telephone, telecopy, telex or other
electronic means. The corporation will not pay any additional compensation for
this solicitation. The corporation will make arrangements with brokerage houses
and other custodians, nominees, and fiduciaries to forward proxy solicitation
materials to the owners of stock held by these persons and will reimburse these
persons for their reasonable forwarding expenses.
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<PAGE>
By properly completing the form of proxy, a shareholder appoints the
persons designated on the proxy as proxy holders to vote his or her shares as
the shareholder specifies on the proxy. Unless the shareholder specifies a
choice on the proxy as to how his or her shares will be voted on a particular
matter, the proxy holders will vote the shares represented by any proxy FOR the
election of the three nominees for Class A Director named below.
Voting Procedure for Stock Held in DRIP
If a shareholder is a participant in the corporation's Dividend
Reinvestment and Stock Purchase Plan (the DRIP), the enclosed proxy will not
serve as a voting instruction card for the shares held in the DRIP. Instead, the
Trust Department of the bank, as the administrator of the DRIP, will send these
participants separate voting instruction cards covering the shares held within
the DRIP. A shareholder must sign and return these separate voting instruction
cards, or the shares held in the DRIP will not be voted.
Revocability of Proxy
A shareholder who executes and returns a proxy, or a voting instruction
card for shares held in the DRIP, may revoke the proxy at any time before it is
voted by:
o Giving written notice of the revocation to Carl R. Hallgren,
Secretary, Union National Financial Corporation, at P.O. Box 567, 101
East Main Street, Mount Joy, Pennsylvania 17552;
o Executing a later-dated proxy and delivering the later proxy to the
above-named Secretary of the corporation; or
o By attending the Annual Meeting and voting in person after giving
written notice to the above-named Secretary of the corporation.
Voting Securities and Record Date
Only holders of common stock on the corporation's records as of the close
of business on March 21, 2000, may vote at the Annual Meeting. At the close of
business on March 21, 2000, the corporation had issued and outstanding
2,454,168.91 shares of common stock, par value $.25 per share, the only
authorized class of stock. As of March 21, 2000, the corporation had 178,120.79
shares of common stock held in treasury as issued but not outstanding shares.
On all matters to come before the Annual Meeting, each share of common
stock will entitle its holder to one vote. Cumulative voting rights do not exist
in the election of directors.
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Quorum
To transact business at the Annual Meeting, a "quorum" of shareholders must
be present. Under Pennsylvania law and the corporation's bylaws, the presence,
in person or by proxy, of the holders of a majority of the shares entitled to
vote is necessary to constitute a quorum. The corporation will count votes
withheld and abstentions when determining the presence of a quorum for the
particular matter. The corporation will not count broker non-votes when
determining the presence of a quorum for the particular matter as to which the
broker does not have discretionary voting power. Those shareholders present, in
person or by proxy, may adjourn the meeting to another time and place if a
quorum is lacking.
Votes Required for Approval
Assuming the presence of a quorum, the three nominees for director
receiving the highest number of votes cast by shareholders entitled to vote
shall be elected. Votes withheld from a nominee and broker non-votes will not be
cast for the nominee.
Assuming the presence of a quorum, the affirmative vote of a majority of
the votes cast by all shareholders, in person or by proxy, who are entitled to
vote will be sufficient to approve and adopt any other proposals that may
properly come before the Annual Meeting. Abstentions and broker non-votes do not
count as votes cast in calculating the required majority. Also, abstentions and
broker non-votes have the effect of reducing the number of affirmative votes
required to approve a proposal because they reduce the number of votes cast,
from which the required majority is calculated.
BENEFICIAL OWNERSHIP OF THE CORPORATIONS STOCK
BY PRINCIPAL SHAREHOLDERS AND MANAGEMENT
Principal Shareholders
As of March 21, 2000, we know of no shareholder who owns more than 5% of
the corporation's outstanding common stock, either on the corporation's records
or indirectly as a "beneficial" owner. For the definition of "beneficial
ownership," please refer to footnote no. 1 to the below table.
Share Ownership by the Directors, Executive Officers and Nominees
The following table sets forth, as of March 21, 2000, the amount and
percentage of the common stock of the corporation beneficially owned by:
o Each director,
o Each executive officer named in the Summary Compensation Table on page
16,
o Each nominee for Class A Director, and
o All executive officers and directors as a group.
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<PAGE>
The reporting individuals and the corporation have provided this
information. The calculation of percentages of outstanding common stock is based
on the approximately 2,454,169 shares outstanding as of March 21, 2000, plus
shares of common stock subject to options held by the respective persons on
March 21, 2000, and exercisable by June 9, 2000. On that date, certain stock
option awards made on December 9, 1999, under the corporation's 1997 Stock
Incentive Plan will become exercisable.
<TABLE>
<CAPTION>
Percent of
Name of Individual or Amount and Nature of Outstanding Common Stock
Identity of Group Beneficial Ownership (1)(2) Beneficially Owned (3)
----------------- -------------------- ------------------
Current Class A Directors
(to serve until 2000) and
Nominees for Class A Director
(to serve until 2003):
- ---------------------
<S> <C> <C> <C>
Franklin R. Eichler 31,208 (4) 1.25%
Mark D. Gainer 18,538 (5) *
Darwin A. Nissley 3,685 (6) *
Class B Directors
(to serve until 2001):
- ---------------------
Daniel C. Gohn 16,442 (7) *
Carl R. Hallgren 17,799 (8) *
David G. Heisey 28,676 (9) 1.15%
Daniel H. Raffensperger 10,620 (10) *
Class C Directors
(to serve until 2002):
- ---------------------
William E. Eby 17,146 (11) *
William D. Linkous 3,255 (12) *
Benjamin W. Piersol, Jr. 2,538 (13)
Donald H. Wolgemuth 48,435 (14) 1.94%
Named Executive Officers
Who are Not Directors:
Michael A. Frey 7,835 (15) *
All Executive Officers and Directors
as a Group (15 persons) 220,955 8.84%
</TABLE>
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* Less than 1% beneficially owned. (Footnotes follow on next page.)
- 4 -
<PAGE>
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definitions of "beneficial ownership" set forth in the
General Rules and Regulations of the Securities and Exchange Commission and
may include securities owned by or for the individual's spouse and minor
children and any other relative who has the same home, as well as
securities to which the individual has, or shares, voting or investment
power or has the right to acquire beneficial ownership within 60 days after
March 21, 2000. However, options granted on December 9, 1999, under the
1997 Stock Incentive Plan, which become exercisable on June 9, 2000, are
also included. Beneficial ownership may be disclaimed as to certain of the
securities.
(2) Rounded to the nearest whole share.
(3) Percentages are based on approximately 2,500,508 outstanding shares.
This amount includes 2,454,169 outstanding shares as of March 21, 2000,
and, pro forma, 46,339 shares subject to stock options granted
directors and executive officers and which are exercisable by June 9,
2000.
(4) Includes 30,158 shares held individually by Mr. Eichler and options to
purchase 1,050 shares.
(5) Includes approximately 1,855 shares held individually by Mr. Gainer, 441
shares held individually by his spouse and options to purchase 16,242
shares.
(6) Includes 3,475 shares held individually by Mr. Nissley and 210 shares held
by his sons.
(7) Includes approximately 12,996 shares held individually by Mr. Gohn,
approximately 2,396 shares held individually by his spouse and options to
purchase 1,050 shares.
(8) Includes 13,640 shares held individually by Mr. Hallgren, 3,109 shares held
by his daughter and options to purchase 1,050 shares.
(9) Includes 1,409 shares held individually by Mr. Heisey, 9,807 shares held
in a self-directed IRA for Mr. Heisey, 12,419 shares held individually by
his spouse, 3,991 shares held in an IRA by his spouse and options to
purchase 1,050 shares.
(10) Includes approximately 6,039 shares held individually by Mr.
Raffensperger, approximately 3,531 shares held in a 401(k) plan and
options to purchase 1,050 shares.
(11) Includes 1,606 shares held individually by Mr. Eby, 14,490 shares held
jointly with his spouse and options to purchase 1,050 shares.
(12) Includes 2,205 shares held individually by Mr. Linkous and options to
purchase 1,050 shares.
(13) Includes approximately 1,488 shares held individually by Mr. Piersol and
options to purchase 1,050 shares.
(14) Includes 45,621 shares held individually by Mr. Wolgemuth, 1,764 shares
held individually by his spouse and options to purchase 1,050 shares.
(15) Includes 210 shares held individually by Mr. Frey and options to purchase
7,625 shares.
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<PAGE>
MANAGEMENT
Governance
The Board of Directors of the corporation oversees all business, property
and affairs of the corporation. The Chairman and officers keep the members of
the Board informed of the corporation's business through discussions at Board
meetings and by providing materials to them. During 1999, the Board of Directors
held 16 meetings. The directors of the corporation also serve as the directors
of the corporation's bank subsidiary, Union National Community Bank. The Board
of Directors of the bank held 27 meetings in 1999. Each of the directors
attended at least 75% of the combined total number of meetings of the
corporation's and the bank's Boards of Directors and of the committees to which
he belonged during 1999.
Directors
The following table provides selected information about the directors
of the corporation. The terms of office for the various classes of directors
expire as follows:
o The term for Class A Directors expires in 2000.
o The term for Class B Directors expires in 2001.
o The term for Class C Directors expires in 2002.
<TABLE>
<CAPTION>
Director Class of Age as of
Name and Position with the Company Since Director March 21, 2000
- ---------------------------------- ----- -------- --------------
<S> <C> <C> <C>
Donald H. Wolgemuth
Director, Chairman of the Board 1986 C 64
Franklin R. Eichler
Director, Vice Chairman of the Board 1986 A 67
William E. Eby
Director 1986 C 63
Mark D. Gainer
Director, President/Chief Executive Officer 1996 A 45
Daniel C. Gohn
Director 1992 B 68
Carl R. Hallgren
Director, Secretary 1986 B 62
David G. Heisey
Director 1986 B 66
William D. Linkous
Director 1995 C 68
</TABLE>
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<TABLE>
<CAPTION>
Director Class of Age as of
Name and Position with the Company Since Director March 21, 2000
- ----------------------------------- ------------ ------------ ------------------
<S> <C> <C> <C>
Darwin A. Nissley
Director 1999 A 42
Benjamin W. Piersol, Jr.
Director 1996 C 47
Daniel H. Raffensperger
Director 1992 B 65
</TABLE>
Biographical Information as to Directors and Nominees
Set forth below is biographical information regarding the directors and
nominees. Occupational information is provided for at least the past five years.
Current Class A Directors (to serve until 2000)
and
Nominees for Class A Directors (to serve until 2003)
Franklin R. Eichler
Mr. Eichler is the Chairman of the Board of the Sico Company, a distributor
of petroleum products, located in Mount Joy, Pennsylvania. He also serves as
Chairman of the First Mount Joy Corporation (the holding company for Sico
Company), as President and director of the First Florin Corporation, and as
director and Treasurer of the Sico Foundation. He has served as a director and
the Vice Chairman of the corporation's Board of Directors since 1986. He has
served as a director of the bank since 1983 and as Vice Chairman of the bank
since 1997.
Mark D. Gainer
Mr. Gainer has served as President and Chief Executive Officer of the
corporation and its banking subsidiary since January 1999, when he succeeded the
prior President and Chief Executive Officer, Mr.William E. Eby. He served as
Vice President of the corporation from 1986 through 1998, as Senior Vice
President of the bank from 1982 through 1998, and as Chief Operating Officer of
the bank from 1996 through 1998. He has served as a director of the corporation
and the bank since 1996.
Darwin A. Nissley
Mr. Nissley was appointed to the corporation's and bank's Boards of
Directors effective June 1, 1999, as a replacement for Mr. E. Ralph Garber, who
retired from the corporation's Board of Directors on March 12, 2000. Mr. Nissley
is a farmer and partner in Nissley Brothers.
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<PAGE>
Board of Directors - Continuing as Directors
Class B Directors (to serve until 2001)
Carl R. Hallgren
Mr. Hallgren is an attorney. He is an owner of and the Treasurer for the
law firm of Morgan, Hallgren, Crosswell & Kane, P.C., in Lancaster,
Pennsylvania. Mr. Hallgren is also director, Vice President and Secretary of
Conestoga Financial Corporation; director, Vice President and Secretary of
Conestoga Title Insurance Company; and director and Treasurer of Seven Hundred
North Duke Abstract, Inc. He has served as a director and as Secretary of the
corporation since 1986 and as a director of the bank since 1971. He has also
provided legal services to the bank since 1979.
David G. Heisey
Mr. Heisey is the President and owner of David G. Heisey, Inc., a building
contractor in Elizabethtown, Pennsylvania. He is also President of Timber Villa,
Inc., a retirement community and development. Mr. Heisey has served as a
director of the corporation since 1986 and as a director of the bank since 1977.
Daniel C. Gohn
Mr. Gohn is an owner and former President of D. C. Gohn Associates, Inc.,
an engineering firm in Mount Joy, Pennsylvania, where he continues to serve as
Chairman of the Board. He has been a director of the corporation and the bank
since 1992.
Daniel H. Raffensperger
Mr. Raffensperger is the President and Chairman of the Board of Continental
Press, Inc., a publisher and printer located in Elizabethtown, Pennsylvania. Mr.
Raffensperger has been a director of the corporation and the bank since 1992.
Class C Directors (to serve until 2002)
Donald H. Wolgemuth
Mr. Wolgemuth has been a partner of Donegal Producers, a company engaged in
renting and developing land in Lancaster County, since 1996. Prior to 1997, he
was President of Orchard View Farms, Inc., an agribusiness corporation. He also
serves as Treasurer of Hill-n-Dale Farm, another agribusiness. Mr. Wolgemuth has
served as a director and as Chairman of the Board of the corporation since 1986,
as Chairman of the Board of the bank since 1979, and as a director of the bank
since 1967. He is authorized to attend the meetings of all committees of the
Boards of Directors of the corporation and the bank.
-8-
<PAGE>
William E. Eby
Mr. Eby, now retired, served as the President and Chief Executive
Officer of the corporation from 1986 through 1998 and of the bank from 1984
through 1998. He has been a member of the corporation's Board of Directors since
1986 and of the bank's Board of Directors since 1985.
William D. Linkous
Mr. Linkous is the President and Chairman of C. A. Herr, Inc., a company
engaged in retail hardware sales, located in Columbia, Pennsylvania. Mr. Linkous
has served as a director of the corporation and the bank since 1995.
Benjamin W. Piersol, Jr.
Mr. Piersol, a pharmacist, is the Vice President and co-owner of Sloans
Pharmacy, Inc., a retail pharmacy with four locations in Lancaster County,
Pennsylvania. Mr. Piersol became a director of the corporation and the bank in
1996.
Committees of the Board of Directors
During 1999, the corporation's and the bank's Boards of Directors
maintained twelve standing committees. The function of each of these committees
is described below.
The bank's ASSET & LIABILITY MANAGEMENT INVESTMENT COMMITTEE makes
recommendations to the Board of Directors concerning the investment of bank
funds, monitors asset/liability management policies, manages earnings, liquidity
and interest rate risk, and advises the Board of Directors on trends and related
risks.
The bank's AUDIT COMMITTEE makes recommendations to the Board of Directors
concerning the audit of the entire bank's operations.
The bank's COMPLIANCE COMMITTEE monitors procedures and documents for compliance
with government regulations, evaluates regulatory changes, and monitors
compliance functions in anticipation of regulatory examinations.
The bank's EDP (ELECTRONIC DATA PROCESSING) COMMITTEE monitors the electronic
data processing systems in the bank's operations and procedures and makes
recommendations for system enhancements to the Board of Directors.
The bank's HUMAN RESOURCES COMMITTEE makes recommendations to the Board of
Directors concerning the salaries and benefits of directors, officers and
employees of the bank. In addition, since the Stock Incentive Plan Committee was
rolled into the Human Resources Committee starting in 1998, the Human Resources
Committee has administered the corporation's stock incentive plans.
-9-
<PAGE>
The bank's LOAN COMMITTEE advises and makes recommendations to the officers and
directors of the bank concerning the loan functions of the bank.
The bank's NOMINATING COMMITTEE nominates all committee members and officers of
the bank.
The bank's PROPERTY & BUILDING COMMITTEE reviews bank facilities for needed
maintenance and to advise the Board of Directors on construction projects for
the bank.
The corporation's STRATEGIC PLANNING COMMITTEE reviews, analyzes and presents
recommendations to the Board of Directors regarding the corporation's and bank's
strategic plan.
The bank's TRUST COMMITTEE provides general supervision over all trust accounts
held in the bank's Trust Department and reviews all new and closed trust
accounts.
The bank's TRUST INVESTMENT COMMITTEE advises and makes recommendations to
the Board of Directors concerning the investment and disposition of all funds
held in a fiduciary capacity by the bank's Trust Department.
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<PAGE>
Committees of the Boards of Directors
<TABLE>
<CAPTION>
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Meetings
MEMBERS ON COMMITTEE (1) Held in 1999
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<S> <C> <C>
ASSET & LIABILITY Clement M. Hoober, Chairperson 4
MANAGEMENT Michael A. Frey
INVESTMENT Mark D. Gainer
E. Ralph Garber/ replaced by Darwin A. Nissley
Daniel C. Gohn
Carl R. Hallgren
William D. Linkous
- -------------------------------------------------------------------------------------------------------------------
AUDIT Benjamin W. Piersol, Jr., Chairperson 6
Evelyn I. Dehmey, Ex Officio Secretary
Franklin R. Eichler
David G. Heisey
William D. Linkous
- -------------------------------------------------------------------------------------------------------------------
COMPLIANCE Evelyn I. Dehmey, Chairperson 4
Geraldine L. Ebersole
Dennis F. Fackler
Brenda K. Glessner
Lisa M. Halbleib
Carl R. Hallgren
Mark P. Poliski
Patsy A. Weatherbie
- -------------------------------------------------------------------------------------------------------------------
EDP (ELECTRONIC Clement M. Hoober, Chairperson 3
DATA PROCESSING) Franklin R. Eichler
Mark D. Gainer
Amos F. Lichty
William D. Linkous
Daniel H. Raffensperger
- -------------------------------------------------------------------------------------------------------------------
HUMAN RESOURCES Franklin R. Eichler, Chairperson 9
David G. Heisey
Benjamin W. Piersol, Jr.
Daniel H. Raffensperger
Mark D. Gainer, Ex Officio
Deana G. Hollister, Ex Officio
- -------------------------------------------------------------------------------------------------------------------
LOAN Michael A. Frey, Chairperson 51
Dennis F. Fackler, Vice Chairman
Mark D. Gainer
Michael L. Maurer
Donald H. Wolgemuth
David A. Bernot
Laura Broich, Ex Officio
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
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Meetings
MEMBERS ON COMMITTEE (1) Held in 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NOMINATING Mark D. Gainer, Chairperson 1
Franklin R. Eichler
E. Ralph Garber/ replaced by Darwin A. Nissley
Daniel C. Gohn
- -------------------------------------------------------------------------------------------------------------------
PROPERTY & BUILDING David G. Heisey, Chairperson 1
William E. Eby
Richard K. Frey
Mark D. Gainer
E. Ralph Garber
Daniel C. Gohn
Thomas C. Mayer
- -------------------------------------------------------------------------------------------------------------------
STRATEGIC PLANNING Mark D. Gainer, Chairperson 1
Nancy H. Draude
William E. Eby
Franklin R. Eichler
Michael A. Frey
Clement M. Hoober
Benjamin W. Piersol, Jr.
Donald H. Wolgemuth
- -------------------------------------------------------------------------------------------------------------------
TRUST Donald H. Wolgemuth, Chairperson 13
Mark D. Gainer, Vice Chairperson
William E. Eby
E. Ralph Garber/ replaced by Darwin A. Nissley
Daniel C. Gohn
Carl R. Hallgren
Daniel H. Raffensperger
- -------------------------------------------------------------------------------------------------------------------
TRUST INVESTMENT Charles R. Starr, Chairperson 4
William E. Eby
Carl R. Hallgren
Daniel H. Raffensperger
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) As Chairman of the Board, Donald H. Wolgemuth is authorized to attend all
committee meetings.
Cash Compensation of Directors
Directors receive no remuneration for attendance at meetings of the Board
of Directors of the corporation. Each outside director of the bank received, in
1999, $314 for each Board Meeting, $144 for each committee meeting attended or
special assignment, and a $4,160 annual retainer. In addition to the foregoing
fees, Donald H. Wolgemuth, Chairman of the Board, and Franklin R. Eichler, Vice
Chairman of the Board, received fees of $7,925 and $3,963, respectively, or a
total of $11,888, for their services in 1999 as Chairman and Vice Chairman. In
the aggregate, directors received approximately $154,603 for all Board of
Directors' meetings and committees meetings attended in 1999, including all
retainers and the fees paid to the Chairman and Vice Chairman.
-12-
<PAGE>
1999 Independent Directors Stock Option Plan
In 1999, shareholders approved the corporation's 1999 Independent Directors
Stock Option Plan, and the Board of Directors reserved 63,000 shares of common
stock, as adjusted for stock dividends, for issuance under the plan. The
purposes of the plan are as follows:
o To advance the development, growth and financial condition of the
corporation and the bank by providing additional incentives to
non-employee members of the Board of Directors of the corporation by
encouraging them to acquire stock ownership in the corporation;
o To secure, retain and motivate non-employee directors of the
corporation; and
o To align the interests of non-employee directors with the interests of
shareholders, including the interest in the appreciation of the
corporation's stock.
Persons eligible to receive awards under the plan are those directors who
are not employees of either the corporation or its subsidiaries. Under the plan,
each non-employee director is granted options to purchase 1,050 shares of common
stock, as adjusted for stock dividends, at each annual organization meeting of
the Board following the corporation's Annual Meeting of Shareholders. The number
of shares issuable under the plan may be adjusted for stock splits, stock
dividends and other capital changes.
The first award under the plan was made at the 1999 organization meeting.
The corporation granted each of ten independent directors options to purchase
1,050 shares of common stock, as adjusted for stock dividends. The purchase
price of common stock subject to each stock option granted was the fair market
value at the time of grant. The recipient may exercise these stock options for
10 years from the date of grant.
Procedure for Nominating Directors
The corporation does not have a nominating committee. The entire Board of
Directors selects nominees for the position of director. A shareholder who
desires to nominate an individual for director should submit a proposal in
writing to the Secretary of the Corporation, in accordance with Section 10.1 of
the corporation's bylaws, not less than 60 days prior to the date of any meeting
of shareholders called for the election of directors. The nominating shareholder
must include in the proposal certain information listed in Section 10.1 of the
bylaws, as follows:
o The name and address of each proposed nominee;
o The age of each proposed nominee;
o The principal occupation of each proposed nominee;
o The number of shares of the corporation owned by each proposed
nominee;
o The total number of shares that to the knowledge of the notifying
shareholder will be voted for each proposed nominee;
o The name and residence address of the notifying shareholder; and
o The number of shares of the corporation owned by the notifying
shareholder.
-13-
<PAGE>
Executive Officers of the Corporation
The following table sets forth selected information about the executive
officers of the corporation, each of whom is elected by the Board of Directors
and each of whom holds office at the discretion of the Board of Directors,
except that certain officers have employment agreements with the corporation.
See "Executive Compensation - Employment Contracts" below.
<TABLE>
<CAPTION>
Bank Number of Age as of
Held Employee Shares Beneficially March 21,
Name and Position Since Since Owned (1) 2000
- ----------------- ----- ----- ------------------ ----
<S> <C> <C> <C> <C>
Mark D. Gainer, 1999 1976 18,538 (2) 45
President/Chief Executive
Officer
Clement M. Hoober, 1998/
Treasurer/ 1991 (3) 1988 8,776 (4) 44
Chief Financial Officer
Charles R. Starr, 1991 1970 4,001 (5) 53
Insider Trading Compliance
Officer
Michael A. Frey, 1999 1998 7,835 (2) 35
Vice President
</TABLE>
- ----------
(1) Rounded to the nearest whole share. The securities "beneficially owned" by
an individual are determined in accordance with the definitions of
"beneficial ownership" set forth in the General Rules and Regulations of
the Securities and Exchange Commission and may include securities owned by
or for the individual's spouse and minor children and any other relative
who has the same home, as well as securities to which the individual has,
or shares, voting or investment power or has the right to acquire
beneficial ownership within 60 days after March 21, 2000. However, options
granted on December 9, 1999, under the 1997 Stock Incentive Plan, which
become exercisable on June 9, 2000, are also included. Beneficial ownership
may be disclaimed as to certain of the securities.
(2) For information on nature of ownership, please refer to "Principal
Ownership of the Corporation's Stock by Principal Shareholders and
Management - Share Ownership by the Directors, Executive Officers and
Nominees" above.
(3) Mr. Hoober has served as Chief Financial Officer since 1991 and, in
addition, as Treasurer since 1998.
(4) Includes 270 shares held individually by Mr. Hoober, 110 shares held
jointly with his spouse and options to purchase 8,396 shares.
(5) Includes 2,425 shares held jointly with his spouse and options to purchase
1,576 shares.
-14-
<PAGE>
Executive Officers of the Bank
The following table presents selected information about the executive
officers of the bank, each of whom is elected annually by the Board of Directors
and each of whom holds office at the discretion of the Board of Directors,
except that certain officers have employment agreements with the bank. See
"Executive Compensation - Employment Contracts" below.
<TABLE>
<CAPTION>
Bank Number of Age as of
Office and Position Held Employee Shares Bene- March 21,
Name with the Bank Since Since ficially Owned (1) 2000
---- ------------- ----- ----- -------------- ----
<S> <C> <C> <C> <C> <C>
Mark D. Gainer President/Chief 1999 1976 18,538 (2) 45
Executive Officer
Michael A. Frey Senior Vice President/ 1998/
Chief Operating Officer 1999 (3) 1998 7,835 (2) 35
Clement M. Hoober Senior Vice President/ 1998 1988 8,776 (4) 44
Chief Financial
Officer
Nancy H. Draude Senior Vice President, 1998 1998 2,000 (5) 42
Sales/
Marketing Manager
</TABLE>
- -------------------------
(1) Rounded to the nearest whole share. For definition of "beneficial
ownership," see footnote no. 1 to above table under "Executive Officers of
the Corporation."
(2) For information on nature of ownership, please refer to "Principal
Ownership of the Corporation's Stock by Principal Shareholders and
Management - Share Ownership by the Directors, Executive Officers and
Nominees" above.
(3) Mr. Frey has served as Senior Vice President since 1998 and, in addition,
as Chief Operating Officer since 1999.
(4) For information on nature of ownership, please refer to above table under
"Executive Officers of the Corporation."
(5) Consists of options to purchase 2,000 shares.
As noted in the above tables, all of the executive officers of the
corporation and the bank have been principally employed by the bank for at least
the past five years, except for Michael A. Frey and Nancy H. Draude. Prior to
joining the corporation's management team, Mr. Frey's principal business
experience was as Regional Vice President at CoreStates Bank, N.A. Ms. Draude
worked as the Vice President of Marketing at the Bank of Lancaster County, N.A.,
prior to joining Union National Community Bank.
-15-
<PAGE>
EXECUTIVE COMPENSATION
Shown below is information concerning the annual compensation paid to the
following individuals for all services to the corporation and the bank for the
1999, 1998 and 1997 fiscal years:
o The Chief Executive Officer, and
o The other four most highly compensated executive officers of the
corporation and the bank, to the extent each person's total annual
salary and bonus exceeded $100,000 for the 1999 fiscal year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Securities
Other Restricted Underlying
Annual Stock Options/ LTIP All other
Name and Principal Salary Bonus Compensation Award(s) SARs Payouts Compensation
Position Year ($) ($) ($) ($) (#) ($) ($)
-------- ---- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mark D. Gainer, 1999 132,823.36 5,766.66 (2) -- -- 10,000 (4) -- 11,982.37
President/Chief 1998 105,617.20 914.37 (3) -- -- 5,250 (4) -- 5,669.28
Executive Officer of 1997 95,770.91 -- -- -- 992 (4) -- 15,202.38
the corporation and (6)
the bank
Michael A. Frey, 1999 113,048.32 3,071.45 (2) -- -- 5,000 (5) -- 3,937.93
Senior Vice President 1998 47,166.48 -- -- -- 2,625 (5) -- 20.30
and the corporation 1997 (1) -- -- -- -- -- -- --
and the bank, Chief (7)
Operating Officer of
the bank
</TABLE>
- -------------------------
(1) Mr. Frey was not employed by the bank during 1997. Mr. Frey was first
employed in August 1998.
(2) Discretionary Board bonus under bankwide incentive compensation program.
(3) Discretionary Board bonus.
(4) The 1997 and 1998 awards are adjusted for stock dividends after the date of
grant. The corporation originally granted Mr. Gainer 900 options on
February 1, 1997, and 5,000 options on December 11, 1998. The exercise
prices of these options, as adjusted for stock dividends, are $22.16 and
$18.81 per share, respectively. These options are currently exercisable. On
December 9, 1999, the corporation granted Mr. Gainer options to purchase
10,000 shares at the exercise price of $20.39. These become exercisable on
June 9, 2000. The term of all options is ten years.
(5) The 1998 award is adjusted for stock dividends after the date of grant. The
corporation originally granted Mr. Frey 2,500 options on December 11, 1998.
The exercise price of these options, as adjusted for stock dividends, is
$18.81 per share. These options are currently exercisable. On December 9,
1999, the corporation granted Mr. Frey options to purchase 5,000 shares at
the exercise price of $20.39. These will become exercisable on June 9,
2000. The term of all options is ten years.
(6) Includes life insurance premiums amounting to $396.00 for 1999 (premium
cost of $150,000 term life insurance) and $121.80 for each of 1998 and 1997
(premium cost of $50,000 term life insurance). Also includes premiums for
long-term disability insurance
-16-
<PAGE>
amounting to $336.00 in 1999, $266.40 in 1998, and $266.68 in 1997. Also
includes employer's contributions to the 401(k) Profit Sharing Plan or the
Employee Profit Sharing Retirement Trust Fund of $11,250.37, $5,281.08, and
$14,813.90 for 1999, 1998, and 1997, respectively.
(7) Includes life insurance premiums amounting to $396.00 for 1999 (premium
cost of $150,000 term life insurance) and $20.30 for 1998 (premium cost of
$50,000 term life insurance). Also includes premiums for long-term
disability insurance amounting to $210.00 in 1999. Also includes employer's
contributions to the 401(k) Profit Sharing Plan of $3,331.93 for 1999.
Option Grants in Fiscal Year 1999
We present below information about any stock options which the corporation
granted the executives named in the "Summary Compensation Table" during 1999.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN FISCAL YEAR 1999
-------------------------------------
INDIVIDUAL GRANTS
Individual Grants Potential Realizable Value
------------------------------------------------------ at Assumed Annual Rates
of Stock Price
% of Total Options/ Appreciation for
Number of Securities SARs Granted to Exercise or Option Term
Underlying Options/ Employees in Fiscal Base Price Expiration --------------------------
Name SARs Granted (#) Year (1) ($/Sh) Date 5%($) 10%($)
---- ---------------- -------- ------ ---- ----- ------
(a) (b) (c) (d) (e) (f) (g)
<S> <C> <C> <C> <C> <C> <C>
Mark D. Gainer,
President/Chief
Executive Officer
of the corporation
and the bank 10,000 (1) 21.23% 20.39 12/08/09 128,232 324,964
Michael A. Frey,
Vice President of
the corporation,
Senior Vice
President and
Chief Operating
Officer of the
bank 5,000 (1) 10.62% 20.39 12/08/09 64,116 162,482
</TABLE>
- ----------
(1) Options were granted on December 9, 1999, and will become exercisable on
June 9, 2000.
-17-
<PAGE>
Option Exercises in 1999 and Year-End Option Values
Neither Mark D. Gainer nor Michael A. Frey exercised any options during
1999. At December 31, 1999, Mr. Gainer held options to purchase 16,242 shares of
common stock, as adjusted for stock dividends, 6,242 of which were exercisable.
At December 31, 1999, Mr. Frey held options to purchase 7,625 shares of common
stock, as adjusted for stock dividends, 2,625 of which were exercisable. None of
these options were "in-the-money," or of value, based on the fair market value
of the corporation's common stock as of the end of 1999.
401(k) Profit Sharing Plan
The corporation does not have a retirement or pension plan. The bank,
however, has a 401(k) Profit Sharing Plan. As of January 1, 1999, this plan
replaced the prior non-contributory Employee Profit Sharing Retirement Trust
Fund. The 401(k) plan is intended to comply with the requirements of Section
401(k) of the Internal Revenue Code and is subject to the Employee Retirement
Income Security Act of 1974 (ERISA). An employee is generally eligible to
participate in the plan after one year of employment in which he or she has
completed at least 1,000 "hours of service." A separate account is maintained
within the plan for each participant. Any eligible employee may elect to
contribute certain portions of salary, wages, bonuses or other direct
compensation to the plan. Each year, the bank contributes to the plan an amount
of matching contributions, at its discretion. The bank also makes annual
nonelective contributions to the plan at its discretion and subject to
profitability. As in the prior plan, a participant's interest in the plan vests
in 20% increments over a five-year period, except for amounts deferred by the
employee, which are immediately 100% vested. Also, when a participant attains
the retirement age of 59 1/2, all amounts are 100% vested. A participant's
retirement benefit is essentially his or her accumulated vested account balance.
The bank contributed $178,524.28 to the plan in 1999. In 1998 and 1997, the
bank contributed $121,885.37 and $374,282.73 to the prior Employee Profit
Sharing Retirement Trust Fund, respectively. The expenses for administration of
the prior plan were approximately $750 in 1999, $800 in 1998 and $725 in 1997.
1999 was the last year in which the bank paid expenses for the prior plan. In
1999 the bank also paid $5,545 in administrative expenses for the 401(k) plan.
The accumulated 401(k) plan benefits and plan net assets as of December 31,
1999, the date of the latest actuarial report, are presented below. Mr. Gainer
has 23 years of credited service under the plan, and Mr. Frey has 1 year of
credited service.
-18-
<PAGE>
Actuarial present value of accumulated plan benefits:
December 31, 1999
-----------------
Vested $6,827,161.04
Non-Vested 24,113.17
-------------
Net Assets Available for Benefits $6,851,274.21
Employment Contracts
On January 1, 1999, the corporation, the bank and Mr. Mark D. Gainer
entered into an employment agreement. The agreement provides that Mr. Gainer
serve as President and Chief Executive Officer of the corporation and the bank
starting January 1, 1999, and defines Mr. Gainer's position, duties,
compensation and benefits. The employment agreement has a term of five years,
which term renews automatically for two additional successive five-year terms
unless the corporation gives written notice of nonrenewal. The agreement also
contains non-competition and confidentiality provisions.
Mr. Gainer's current annual base salary under the agreement is $132,823.36.
The corporation or the bank may increase the base salary from time to time. In
addition, the corporation or the bank may periodically pay a bonus to Mr.
Gainer. Mr. Gainer is also entitled to receive customary employee benefits made
available to employees of the bank.
Mr. Gainer will be entitled to 2.99 times the sum of his highest annual
base salary under the agreement and the average of his annual bonuses for the
last three calendar years, payable in 36 equal monthly installments, if:
o Mr. Gainer terminates his employment for "good reason," as defined in
the agreement;
o The corporation or bank terminates Mr. Gainer's employment "without
cause," as defined in the agreement, and absent a change in control of
the corporation; or
o Mr. Gainer's employment is terminated as the result of a change in
control of the corporation.
In addition, for a period of three years, or until Mr. Gainer secures similar
benefits through other employment, he will continue to receive his prior regular
benefits, including life and health insurance. Also, with certain conditions, he
will receive additional retirement benefits the same as had his employment
continued through the remaining employment term.
If Mr. Gainer's employment is terminated due to disability, he will be
entitled to a benefit consisting of 70% of the following amount: his highest
annual base salary under the agreement together with the average of his annual
bonuses for the last three calendar years. Amounts payable under any disability
plan of the corporation or the bank will be subtracted from the
-19-
<PAGE>
amount due. He will also continue to receive his regular employee benefits.
These disability benefits will cease upon Mr. Gainer's return to employment, his
death or his turning 65.
If the corporation or bank terminates Mr. Gainer's employment "for cause,"
as defined in the agreement, all of his rights under the agreement will cease.
Michael A. Frey entered into a Change of Control Agreement with the bank on
June 17, 1999. The agreement was effective as of August 3, 1998, Mr. Frey's date
of employment with the bank, and will continue until either party gives the
other written notice of termination of employment. If a change of control in the
bank occurs and Mr. Frey's employment is terminated, other than "for cause,"
within six months after the date of the change in control, Mr. Frey will be
entitled to receive a payment of 21 months of his current annual salary, paid
biweekly. The agreement also contains a non-competition provision.
Compensation Committee Report on Executive Compensation
The Board of Directors of the corporation is responsible for the governance
of the corporation and its subsidiary, the bank. In fulfilling its fiduciary
duties, the Board of Directors acts in the best interests of the corporation's
shareholders, customers and the communities served by the corporation and the
bank. To accomplish the strategic goals and objectives of the corporation, the
Board of Directors engages competent persons who undertake to reach these
objectives with integrity and in a cost-effective manner. The compensation of
these individuals is part of the Board of Directors' fulfillment of its duties
to accomplish the corporation's strategic mission. The bank provides
compensation to the employees of the corporation and the bank.
The fundamental philosophy of the corporation's and the bank's compensation
program is to offer competitive compensation opportunities for all employees
based on the individual's contribution and personal performance. The Human
Resources Committee, comprised of the four outside directors, listed below,
fulfills the function of a Compensation Committee and administers the
compensation program. The objectives of the committee are to establish a fair
compensation policy to govern executive officers' base salaries and incentive
plans to attract and motivate competent, dedicated, and ambitious managers whose
efforts will enhance the products and services of the corporation. Management
believes that this policy will improve profitability, increase dividends to the
corporation's shareholders and increase the appreciation in the market value of
shares.
Subject to the Board's approval, the Human Resources Committee determines
general guidelines for the compensation of all officers of the corporation and
the bank. Actual compensation for each officer is based on a performance review
conducted by their supervisor. The Human Resources Committee, subject to the
Board's approval, determines the chief executive officer's and the senior vice
presidents' compensation. During 1999, the Board approved all recommendations of
the Human Resources Committee on compensation of these executives. As a
guideline for review in determining base salaries, the committee uses
information composed of outside, independent compensation surveys. Various peer
groups are
-20-
<PAGE>
provided for a comparison basis. The peer groups include banks ranging from $200
million to $300 million in assets, and a regional peer group that includes south
central Pennsylvania banks. These peer groups are different than the peer group
used for the "Shareholder Return Performance Graph" which appears below. The
peer group on the performance chart includes bank holding companies and banks
listed on NASDAQ which may not be located in Pennsylvania. The committee refers
to Pennsylvania peer group banks because of common industry issues and
competition for the same executive talent group.
Chief Executive Officer Compensation
The Board of Directors determined that the Chief Executive Officer's 1999
base salary of $132,823.36 was appropriate based on the committee's subjective
determination, after review of all information deemed relevant, including the
corporation's and bank's financial performance. The Board also gave Mr. Gainer a
discretionary bonus of $340.00 and a discretionary bankwide incentive
compensation bonus of $5,426.66. The Board determined that the bonuses were
appropriate in light of the bank's performance. There was, however, no direct
correlation between the bonus and these criteria, nor was any specific weight
given to an individual criterium.
Executive Officers
In 1999, the Board of Directors increased the total compensation of the
corporation's and the bank's executive officers by approximately 13.5% over 1998
compensation, which percentage excludes officers who were not regular full-time
employees. Compensation increases were determined by the Human Resources
Committee based on its subjective analysis of the individual's contribution to
the corporation's strategic goals and objectives and, in some cases, on changes
in the individual's position and duties. In determining whether strategic goals
have been achieved, the Board of Directors considers, among numerous factors,
the corporation's performance as measured by earnings, revenues, return on
assets, return on equity, market share, total assets and non-performing loans.
Although the performance and increases in compensation were measured in light of
these factors, there is no direct correlation between any specific criterion and
the employees' compensation, nor is there any specific weight provided to any
such criteria in the committee's analysis. The determination by the committee is
subjective after review of all information, including the above, it deems
relevant.
1997 Stock Incentive Plan
In addition to base salary, the corporation may grant executive officers of
the corporation and the bank stock options under the corporation's 1997 Stock
Incentive Plan. The plan's purpose is to advance the development, growth and
financial condition of the corporation by providing incentives through
participation in the appreciation of the capital stock of the
-21-
<PAGE>
corporation. The corporation reserved 126,000 shares, as adjusted for stock
dividends, for issuance under the plan. The Human Resources Committee of the
Board of Directors governs awards of options or similar incentives made under
such plans. The Human Resources Committee approved the grant of 26,100 options
under the 1997 plan on December 9, 1999.
In addition, executive officers may participate in the bank's 401(k) Profit
Sharing Plan, which is generally available to all employees. The Board of
Directors also awards annual bonuses at the end of the year, based on the
committee's recommendations. Although the bank's financial performance is a
consideration in determining bonuses, all bonuses are at the Board's discretion.
The Board of Directors may also award bankwide bonuses as incentive compensation
to its employees, at its discretion.
Total compensation opportunities available to the employees of the bank are
influenced by general labor market conditions, the specific responsibilities of
the individual, and the individual's contributions to the bank's success.
Individuals are reviewed annually on a calendar year basis. The bank strives to
offer compensation that is competitive with that offered by employers of
comparable size in the banking industry. Through these compensation policies,
the corporation strives to meet its strategic goals and to provide compensation
that is fair and meaningful to its employees.
Human Resources Committee
-------------------------
Franklin R. Eichler, Chairperson David G. Heisey
Benjamin W. Piersol, Jr. Daniel H. Raffensperger
Compensation Committee Interlocks and Insider Participation
The Human Resources Committee, which functions as the Compensation
Committee, makes recommendations to the Board of Directors concerning the
compensation of employees. The membership of this committee includes only
outside directors. Mark D. Gainer, President and Chief Executive Officer, is an
ex officio member of the Human Resources Committee, but does not participate in
his own review or vote on his own salary increases.
-22-
<PAGE>
SHAREHOLDER RETURN PERFORMANCE GRAPH
The line graph below provides an indicator of cumulative total shareholder
return on the Corporation's common stock as compared with the S&P 500 Stock
Index and the Peer Group Index for the period of five fiscal years commencing
January 1, 1995, and ending December 31, 1999. The shareholder return shown on
the graph below is not necessarily indicative of future performance.
Comparison of Five Year Cumulative Total Return (1)
---------------------------------------------------
[GRAPHIC]
[The following is a description of the Performance Graph in a tabular format.]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Peer Group 1,200.00 1,421.92 1,589.64 2,283.29 2,586.08 2,271.69
Total
Peer Group 100.00 118.49 132.47 190.27 215.51 189.31
Total Index
Union National
Financial
Corporation 100.00 147.29 179.13 181.31 150.66 143.49
S&P 500 Total
Return 100.00 137.45 168.92 225.21 289.43 350.26
S&P 500 Total
Return Index 100.00 137.45 168.92 225.21 289.43 350.26
</TABLE>
(1) The Peer Group Index includes the following companies: ACNB Corporation,
Bryn Mawr Bank Corporation, CNB Financial Corporation, Codorus Valley
Bancorp, Inc., Drovers Bancshares Corporation, First West Chester
Corporation, Franklin Financial Services Corporation, Hanover Bancorp,
Inc., Juniata Valley Financial Corp., Penseco Financial Services Corp.,
PennRock Financial Services Corp. and Pioneer American Holding Company.
These companies were selected based on three criteria: total assets between
$150 million and $700 million; market capitalization greater than $30
million; headquarters located in Pennsylvania.
-23-
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as set forth in the paragraphs immediately below, the corporation
and the bank have not been involved in any material transactions since January
1, 1999, in which any director or executive officer of the corporation or the
bank, any beneficial owner of more than 5% of the common stock of the
corporation or any associate of such persons had a material interest. The
corporation and the bank have engaged in, and intend to continue to engage in,
banking and financial transactions in the ordinary course of business with
directors and officers of the corporation and the bank and their associates on
comparable terms and with similar interest rates as those prevailing from time
to time for other customers of the corporation and the bank.
Total loans outstanding from the corporation and the bank at December 31,
1999, to the corporation's and the bank's officers and directors as a group and
to members of their immediate families and companies in which they had an
ownership interest of 10% or more was $5,754,565 or approximately 26.13% of the
total equity capital of the bank. These loans were made in the ordinary course
of business, on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons, and do not involve more than the normal risk of collectibility or
present other unfavorable features. The aggregate amount of indebtedness
outstanding as of the latest practicable date, February 29, 2000, to the above
described group was $5,696,447.
The following table sets forth the name and relationship of each director
who was indebted to the bank in 1999 in an aggregate amount considered by the
management of the corporation and the bank to be material, the nature or purpose
of such indebtedness and the weighted average interest rate on such
indebtedness:
<TABLE>
<CAPTION>
Largest Amount
Name of Person or Entity and of Indebtedness Nature of Weighted Average
Relationship in 1999 Indebtedness Interest Charged
------------ ------- ------------ ----------------
<S> <C> <C> <C>
David G. Heisey - Director $634,684.00 Commercial Real 8.50%
(Balance as of 2/28/00: Estate Loan and
$595,335.63) Personal Line of Credit
Secured by Real Estate
David G. Heisey - Director $1,367,807.00 Land Development and 9.65%
Timber Villa, Inc. (Balance as of 2/28/00: Construction Loan
$1,159,719.39) Secured by Real Estate
David G. Heisey - Director $94,300.00 Construction Loan and 10.00%
David G. Heisey, Inc. (Balance as of 2/28/00: Commercial Line of
$94,300.00) Credit Secured by Real
Estate
</TABLE>
All of the loans to Mr. Heisey are current as to payments of principal and
interest, and were made in the ordinary course of business on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons.
-24-
<PAGE>
In addition, the law firm Morgan, Hallgren, Crosswell & Kane, P.C., of
which Carl R. Hallgren is a greater than 10% shareholder and at which Mr.
Hallgren is employed as an attorney, provides routine legal services to the
corporation and bank at its customary fee schedule. The corporation and the bank
intend to continue to hire this firm for legal services in the future.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
corporation's directors, executive officers and shareholders owning in excess of
10% of the corporation's outstanding equity stock to file initial reports of
ownership and reports of changes in ownership of common stock and other equity
securities of the corporation with the Securities and Exchange Commission (the
SEC). SEC regulations require that these reporting persons furnish the
corporation with copies of all Section 16(a) forms which they file. Based on a
review of copies of such reports received by it, and on written statements of
the reporting persons, the corporation believes that the reporting persons
complied with all such Section 16(a) filing requirements in a timely fashion,
except as described below. Director Heisey filed two late reports during 1999
for six transactions by his spouse affecting his beneficial ownership of the
corporation's common stock. In addition, each non-employee director who received
a stock option award on April 28, 1999, under the 1999 Independent Directors
Stock Option Plan, filed his report of the award three days late. The directors
who filed late were Directors Eby, Eichler, Garber, Gohn, Piersol, Hallgren,
Heisey, Linkous, Raffensperger and Wolgemuth. These failures to file timely
reports were inadvertent.
LEGAL PROCEEDINGS
In the opinion of the management of the corporation and the bank, there are
no proceedings pending that involve the corporation or the bank, which, if
determined adversely to them, would have a material effect on their undivided
profits or financial condition. There are no proceedings pending other than
ordinary routine litigation incident to the business of the corporation and the
bank. In addition, to management's knowledge, no government authorities have
initiated, threatened to initiate, or contemplated any material legal actions
against the corporation or the bank.
-25-
<PAGE>
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
The bylaws of the corporation provide that the corporation's business be
managed by its Board of Directors. Section 10.2 of the bylaws provides that the
whole Board of Directors will have not less than seven nor more than twenty-five
members. The bylaws further provide that the Board of Directors be classified
into three classes. Each class is elected for a term of three years. The terms
of the separate classes expire in successive years. Within these limits, the
Board of Directors has authority to fix the number of directors and their
classifications. The Board of Directors has fixed the number of Board members at
eleven, with three directors in Class A, four directors in Class B, and four
directors in Class C.
Section 11.1 of the bylaws provides that a majority of the remaining
members of the Board of Directors, will select and appoint directors to fill
vacancies, even if the number of remaining members is less than a quorum. Each
person who is so appointed will serve as director until the expiration of the
term of office of the class of directors to which he or she is appointed. No
person over 70 may serve as a director. The bylaws also require that a director
own shares of common stock of the corporation having a total fair market value
of at least $30,000 at the time the director is elected or appointed to the
Board.
At the 2000 Annual Meeting of Shareholders, three Class A Directors shall
be elected to serve for a three-year term and until their successors are elected
and qualified. The Board of Directors of the corporation has nominated the
current Class A Directors to serve as Class A Directors for the next three-year
term of office. The nominees for re-election this year are as follows:
o Franklin R. Eichler,
o Mark D. Gainer, and
o Darwin A. Nissley.
Each nominee has consented to serve a three-year term of office and until
his successor is elected and qualified. The Board of Directors has no reason to
believe that the nominees named will be unable to serve if elected. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the election of the three nominees named above. If any nominee should become
unavailable for any reason, the proxy holders will vote the proxies in favor of
a substitute nominee selected by the Board of Directors.
The Articles of Incorporation for the corporation prohibit cumulative
voting in the election of directors. Each share of common stock held on the
record date entitles its owner to cast one vote for each nominee. For example,
if a shareholder owns 10 shares of common stock, he or she may cast up to 10
votes for each nominee.
The Board of Directors recommends that shareholders votes FOR the election
of the above nominees for Class A Director.
-26-
<PAGE>
INDEPENDENT AUDITORS
The Board of Directors has not yet appointed the corporation's independent
auditors for its 2000 fiscal year. Trout, Ebersole & Groff, Certified Public
Accountants, of Lancaster, Pennsylvania, served as the corporation's independent
auditors for its 1999 fiscal year and will continue to serve as the
corporation's accountants until the Board has made a selection. Trout, Ebersole
& Groff has notified the corporation that it will no longer be able to serve as
the corporation's independent auditors because it is ceasing to perform the type
of services required by the corporation. Trout, Ebersole & Groff has also
advised the corporation that none of its members has any financial interest in
the corporation. A representative from Trout, Ebersole & Groff will not be
present at the Annual Meeting of Shareholders.
SHAREHOLDER PROPOSALS AT THE 2001 ANNUAL MEETING
Any shareholder who, in accordance with the proxy rules of the Securities
and Exchange Commission, wishes to submit a proposal for inclusion in the
corporation's proxy statement for its 2001 Annual Meeting of Shareholders, must
deliver such proposal in writing to the President of Union National Financial
Corporation at its principal executive offices, 101 East Main Street, Mount Joy,
Pennsylvania 17552, no later than November 28, 2000. Also, if the corporation
does not receive notice of a shareholder proposal that is not to be included in
the corporation's proxy statement by February 11, 2001, the proxy holders at the
2001 Annual Meeting may vote against the proposal at their discretion.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented for
consideration other than the matters described in the accompanying Notice of
Annual Meeting of Shareholders, but if any matters are properly presented, the
persons named in the accompanying proxy intend to vote on such matters in
accordance with their best judgment.
ADDITIONAL INFORMATION
Any shareholder may obtain without charge a copy of the corporation's
report on Form 10-K for its fiscal year ended December 31, 1999, including the
financial statements and schedules, required to be filed with the Securities and
Exchange Commission, by submitting a written request to Clement M. Hoober, Chief
Financial Officer, Union National Financial Corporation, P.O. Box 567, 101 East
Main Street, Mount Joy, Pennsylvania 17552.
-27-
<PAGE>
UNION NATIONAL FINANCIAL CORPORATION
PROXY
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 26, 2000
This proxy is solicited on behalf of the Board of Directors.
The undersigned hereby constitutes and appoints Marilyn Geib and Erma
Witmer, and each or any of them, proxies of the undersigned, with full power of
substitution, to vote all of the shares of Union National Financial Corporation
(the "Corporation") that the undersigned may be entitled to vote at the Annual
Meeting of Shareholders of the Corporation to be held at The Gathering Place, 6
Pine Street, Mount Joy, Pennsylvania 17552, on Wednesday, April 26, 2000, at
10:00 a.m., Eastern Time, and at any adjournment or postponement of the meeting,
as follows:
1. ELECTION OF THREE CLASS A DIRECTORS TO SERVE FOR A THREE-YEAR
TERM:
o Franklin R. Eichler
o Mark D. Gainer
o Darwin A. Nissley
[ ] FOR all nominees [ ] WITHHOLD AUTHORITY
listed above (except to vote for all
as provided to the nominees listed
contrary below)* above
The Board of Directors recommends a vote FOR all nominees listed above.
*INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, WRITE THAT NOMINEE'S NAME ON THE SPACE PROVIDED
BELOW:
------------------------------------------------------------------------
<PAGE>
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting and any adjournment or
postponement of the meeting.
This proxy, when properly signed, will be voted in the manner directed by
the undersigned shareholder. If no direction is made, this proxy will be voted
for all nominees listed above.
Dated: , 2000
-----------------
------------------------------
------------------------------
Signature(s) of Shareholder(s)
Number of Shares Held
of Record on March 21, 2000:
-------------
o This proxy must be dated, signed by the shareholder and returned
promptly to the Corporation in the enclosed envelope.
o When signing as attorney, executor, administrator, trustee or guardian,
please give full title.
o If more than one trustee, all should sign.
o If stock is held jointly, each owner should sign.
<PAGE>
[Union National Community Bank Stationery]
March 28, 2000
Dear Dividend Reinvestment and Stock Purchase Plan Participant:
As a participant in the Union National Financial Corporation Dividend
Reinvestment and Stock Purchase Plan, you are entitled to instruct the Plan
Administrator, the Union National Community Bank Trust Department, to vote the
shares that are held on your behalf in the plan at the 2000 Annual Meeting of
Shareholders of the corporation. To instruct the Plan Administrator as to how
you would like these shares voted at the Annual Meeting, please complete the
enclosed Voting Instruction Card/Proxy. At the Annual Meeting, in accordance
with the plan, the Plan Administrator will vote the shares held in the plan for
which participants have executed and returned a Voting Instruction Card/Proxy.
Enclosed is a copy of the corporation's Notice of Annual Meeting and proxy
statement in connection with the 2000 Annual Meeting of Shareholders and a copy
of the corporation's 1999 Annual Report. Also enclosed is a Voting Instruction
Card/Proxy which should be completed and returned to the Plan Administrator in
the enclosed envelope.
If you have any questions, please contact the undersigned.
Sincerely,
/s/ Charles R. Starr
------------------------------
Charles R. Starr
Vice President
<PAGE>
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
VOTING INSTRUCTION CARD/PROXY
UNION NATIONAL FINANCIAL CORPORATION
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 26, 2000
---------------------------------
This proxy is solicited on behalf of the Board of Directors.
The undersigned hereby constitutes and appoints Charles R. Starr, Union
National Community Bank, Plan Administrator for the Union National Financial
Corporation Dividend Reinvestment and Stock Purchase Plan (the "Plan"), proxy of
the undersigned, with full power of substitution, to vote all of the shares of
Union National Financial Corporation (the "Corporation") that the Plan holds on
behalf of the undersigned and may be entitled to vote at the Annual Meeting of
Shareholders of the Corporation to be held at The Gathering Place, 6 Pine
Street, Mount Joy, Pennsylvania 17552, on Wednesday, April 26, 2000, at 10:00
a.m., Eastern Time, and at any adjournment or postponement of the meeting, as
follows:
1. ELECTION OF THREE CLASS A DIRECTORS TO SERVE FOR A THREE-YEAR
TERM:
o Franklin R. Eichler
o Mark D. Gainer
o Darwin A. Nissley
[ ] FOR all nominees [ ] WITHHOLD AUTHORITY
listed above (except to vote for all
as provided to the nominees listed
contrary below)* above
The Board of Directors recommends a vote FOR all nominees listed above.
*INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, WRITE THAT NOMINEE'S NAME ON THE SPACE PROVIDED
BELOW:
------------------------------------------------------------------------
<PAGE>
2. In his discretion, the proxy is authorized to vote upon such other business
as may properly come before the meeting and any adjournment or postponement
of the meeting.
This proxy, when properly signed, will be voted in the manner directed by
the undersigned Dividend Reinvestment and Stock Purchase Plan participant. If no
direction is made, this proxy will be voted for all nominees listed above.
Dated: , 2000
--------------------------
----------------------------
----------------------------
Signature(s) of Shareholder(s)
Dividend Reinvestment and Stock Purchase
Plan Participant
Number of Shares Held of
Record on March 21, 2000:
-----------
The voting instructions request pertains to shares of common stock held in
your Dividend Reinvestment and Stock Purchase Plan account but not registered in
your name. Such shares of common stock can be voted only by the Plan
Administrator as the holder of record of the shares.
Please date, sign and return your voting instruction card/proxy to us
promptly in the return envelope provided.
