[ON HORIZON FINANCIAL SERVICES CORPORATION LETTERHEAD]
September 25, 1998
Dear Fellow Stockholder:
On behalf of the Board of Directors and management of Horizon Financial Services
Corporation (the "Company"), we cordially invite you to attend the Annual
Meeting of Stockholders of the Company (the "Meeting"). The meeting will be held
at 3:00 p.m. local time, on October 22, 1998 at the main office of the Company
located at 301 First Avenue East, Oskaloosa, Iowa.
The attached Notice of Annual Meeting of Stockholders and Proxy Statement
discuss the business to be conducted at the Meeting. We have also enclosed a
copy of Horizon Financial Services Corporation's fiscal 1998 Annual Report to
Stockholders. At the Meeting we will report on the Company's operation and
outlook for the year ahead.
We encourage you to attend the Meeting in person. Whether or not you plan to
attend, however, please read the enclosed Proxy Statement and then complete,
sign and date the enclosed proxy and return it in the accompanying postpaid
return envelope as promptly as possible. This will save the Company additional
expense in soliciting proxies and will ensure that your shares are represented
at the Meeting.
Your Board of Directors and management are committed to the continued success of
Horizon Financial Services Corporation and the enhancement of your investment.
As Chairman of the Board, President and Chief Executive Officer, I want to
express my appreciation for your confidence and support.
Very truly yours,
/s/Robert W. DeCook
- -------------------
Robert W. DeCook
Chairman of the Board,
President and Chief Executive Officer
<PAGE>
HORIZON FINANCIAL SERVICES CORPORATION
301 First Avenue East
Oskaloosa, Iowa 52577
(515) 673-8328
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held on October 22, 1998
Notice is hereby given that the Annual Meeting of Stockholders (the
"Meeting") of Horizon Financial Services Corporation (the "Company") will be
held at the main office of the Company located at 301 First Avenue East,
Oskaloosa, Iowa, at 3:00 p.m. local time, on October 22, 1998.
A Proxy Card and a Proxy Statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. The election of two directors of the Company;
2. The ratification of the appointment of KPMG Peat Marwick LLP as
auditors for the Company for the fiscal year ending June 30, 1999;
and such other matters as may properly come before the Meeting, or any
adjournments thereof. The Board of Directors is not aware of any other business
to come before the Meeting.
Any action may be taken on the foregoing proposals at the Meeting on
the date specified above, or on any date or dates to which the Meeting may be
adjourned. Stockholders of record at the close of business on September 11, 1998
are the stockholders entitled to vote at the Meeting and any adjournments
thereof.
You are requested to complete and sign the enclosed form of proxy which
is solicited on behalf of the Board of Directors and to mail it promptly in the
enclosed envelope. The Proxy will not be used if you attend and vote at the
Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ROBERT W. DECOOK
-------------------
Robert W. DeCook
Chairman of the Board, President and
Chief Executive Officer
Oskaloosa, Iowa
September 25, 1998
- --------------------------------------------------------------------------------
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM AT THE MEETING. A PRE-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED
WITHIN THE UNITED STATES.
- --------------------------------------------------------------------------------
<PAGE>
PROXY STATEMENT
HORIZON FINANCIAL SERVICES CORPORATION
301 First Avenue East
Oskaloosa, Iowa 52577
(515) 673-8328
ANNUAL MEETING OF STOCKHOLDERS
October 22, 1998
This Proxy Statement is being furnished to you in connection with the
solicitation on behalf of the Board of Directors of Horizon Financial Services
Corporation (the "Company") of proxies to be used at the Annual Meeting of
Stockholders of the Company (the "Meeting") which will be held at the main
office of the Company located at 301 First Avenue East, Oskaloosa, Iowa, on
October 22, 1998, at 3:00 p.m. local time, and all adjournments of the Meeting.
The accompanying Notice of Meeting and this Proxy Statement are first being
mailed to stockholders on or about September 25, 1998. Certain of the
information provided herein relates to Horizon Federal Savings Bank ("Horizon
Federal" or the "Bank"), a wholly owned subsidiary of the Company.
At the Meeting, stockholders of the Company are being asked to consider
and vote upon the election of two directors of the Company and a proposal to
ratify the appointment of KPMG Peat Marwick LLP as the Company's auditors for
the fiscal year ending June 30, 1999.
Proxies and Proxy Solicitation
If a shareholder properly executes the enclosed proxy distributed by
the Company, the proxies named will vote the shares represented by that proxy at
the Meeting. Where a shareholder specifies a choice, the proxy will be voted in
accordance with the shareholder's instructions. If no specific direction is
given, the proxies will vote the shares "FOR" the election of management's
nominees for directors of the Company and "FOR" the appointment of KPMG Peat
Marwick LLP as auditors for the fiscal year ending June 30, 1999. If other
matters are presented at the Meeting, the shares for which proxies have been
received will be voted in accordance with the discretion of the proxies.
The Company maintains an Employee Stock Ownership Plan ("ESOP") which
owns approximately 9.0% of the Company's common stock and in which employees of
the Company and the Bank participate. Pursuant to the terms of the ESOP, each
ESOP participant has the right to direct the trustee of the ESOP how to vote the
shares of Common Stock allocated to his or her account under the ESOP. If an
ESOP participant properly executes the proxy distributed by the trustee of the
ESOP, the ESOP trustee will vote the shares represented by that proxy at the
Meeting. Where an ESOP participant specifies a choice, the proxy will be voted
in accordance with the ESOP participant's instructions. If no specific direction
is given, the ESOP trustee will vote the shares "FOR" the election of
management's nominees for directors of the Company and "FOR" the appointment of
KPMG Peat Marwick LLP as auditors for the fiscal year ending June 30, 1999. If
other matters are presented at the Meeting, the shares for which proxies have
been received will be voted in accordance with the discretion of the proxies.
The trustee of the ESOP will vote the unallocated ESOP shares in the same
proportion as voted allocated shares.
<PAGE>
Any proxy given pursuant to this solicitation or otherwise may be
revoked by the shareholder giving it at any time before it is voted by
delivering to the Secretary of the Company at the above address, on or before
the taking of the vote at the Meeting, a written notice of revocation bearing a
later date than the proxy or a later dated proxy relating to the same shares of
common stock, par value $.01 per share, of the Company (the "Common Stock"), or
by attending the Meeting and voting in person. Attendance at the Meeting will
not in itself constitute the revocation of a proxy.
<PAGE>
The cost of solicitation of proxies will be borne by the Company. The
Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of Common Stock. In addition to solicitation by mail,
directors, officers and employees of the Company and the Bank may solicit
proxies personally or by facsimile, telegraph or telephone, without additional
compensation.
Voting Rights; Vote Required
Shareholders of record as of the close of business on September 11,
1998 (the "Voting Record Date"), will be entitled to one vote on each matter
presented for a vote at the Meeting for each share of Common Stock then held.
Such vote may be exercised in person or by a properly executed proxy as
discussed above. Directors shall be elected by a plurality of the shares present
in person or represented by proxy at the Meeting and entitled to vote on the
election of directors. Approval of the appointment of KPMG Peat Marwick LLP as
auditors for the year ending June 30, 1999 requires the affirmative vote of the
majority of shares present in person or represented by proxy at the Meeting and
entitled to vote on the matter.
With regard to the election of directors, votes may be cast in favor of
or withheld from each nominee; votes that are withheld will be excluded entirely
from the vote and will have no effect. Abstentions may be specified on all
proposals except the election of directors and will be counted as present for
purposes of the item on which the abstention is noted. Abstentions on the
proposal to ratify KPMG Peat Marwick as the Company's auditors will have the
effect of a negative vote since that proposal requires the affirmative vote of a
majority of the shares present in person or by proxy and entitled to vote at the
Meeting. A broker non-vote (i.e., proxies from brokers or nominees indicating
that such persons have not received instructions from the beneficial owners or
other persons as to certain proposals on which such beneficial owners or persons
are entitled to vote their shares but with respect to which the brokers or
nominees have no discretionary power to vote without such instructions) will
have no effect on the outcome of the election of directors or ratification of
auditors. Brokers who do not receive instructions are entitled to vote on the
election of directors and the ratification of the Company's auditors.
Voting Securities and Principal Holders Thereof
As of the Voting Record Date, the Company had 879,942 shares of Common
Stock issued and outstanding. The following table sets forth information
regarding share ownership of: (i) those persons or entities known by management
to beneficially own more than five percent of the Company's Common Stock and
(ii) all directors and officers as a group. See "Proposal I - Election of
Directors" for information regarding share ownership of the Corporation's
directors.
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Beneficial Owner Owned(1) Class
---------------- -------- -----
<S> <C> <C>
Horizon Financial Services Corporation Employee 79,448 9.03%
Stock Ownership Plan (2)
301 First Avenue East
Oskaloosa, Iowa 52577
William A. Krause Revocable Trust (3) 86,500 9.83%
4201 Westown Parkway, Suite 320
West Des Moines, Iowa 50266
Athena Capital Management, Inc. (4) 66,570 7.57%
621 E. Germantown Pike, Suite 105
Plymouth Valley, Pennsylvania 19401
</TABLE>
(Continued on next page.)
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Robert W. DeCook (5) 87,421 9.82%
301 First Avenue East
Oskaloosa, Iowa 52577
Gary L. Rozenboom (6) 47,247 5.34%
301 First Avenue East
Oskaloosa, Iowa 52577
Thomas L. Gillespie (7) 52,774 5.90%
301 First Avenue East
Oskaloosa, Iowa 52577
Directors and executive officers of the Company and the Bank as a group 247,960 26.69%
(7 persons) (8)
</TABLE>
- -----------------------
(1) All amounts in this column have been adjusted to reflect the two-for-one
stock split paid in the form of a 100% stock dividend by the Company on
November 10, 1997.
(2) The amount reported represents shares held by the Company's Employee Stock
Ownership Plan ("ESOP"), 56,076 shares of which were allocated to accounts
of participants. Pursuant to the terms of the ESOP, each ESOP participant
has the right to direct the voting of shares of Common Stock allocated to
his or her account. First Bankers Trust Company, N.A., the trustee of the
ESOP, may be deemed to beneficially own the shares of Common Stock held by
the ESOP which have not been allocated to the accounts of participants
("unallocated shares"). Unallocated shares will be voted in the same
proportion as the voted allocated shares.
(3) Based on information included in a Schedule 13D filed by William A. Krause,
trustee for the William A. Krause Revocable Trust (the "WAK Trust"), with
the Securities and Exchange Commission (the "SEC") on June 15, 1998. The
WAK Trust reported sole voting and investment power with respect to all
shares of Common Stock reported in its Schedule 13D.
(4) Based on information included in a Schedule 13G filed by Athena Capital
Management, Inc. ("AMC") with the SEC on January 26, 1998. The shares of
Common Stock to which such Schedule 13G relates are held by AMC, as
investment advisor, for its clients, none of whom own individually in
excess of five percent. AMC reported shared voting and investment power
with respect to all shares of Common Stock reported in its Schedule 13G.
(5) Mr. DeCook has reported sole voting and investment power with respect to
the shares of Common Stock beneficially owned by him. Included in the
Common Stock beneficially owned by Mr. DeCook are options to purchase
10,360 shares of Common Stock.
(6) Mr. Rozenboom has reported sole voting and investment power with respect to
32,774 shares of Common Stock and shared power with respect to 14,500
shares of Common Stock beneficially owned by him. Included in the Common
Stock beneficially owned by Mr. Rozenboom are options to purchase 5,060
shares of Common Stock.
<PAGE>
(7) Mr. Gillespie has reported sole voting and investment power with respect to
27,330 shares of Common Stock and shared power with respect to 25,444
shares of Common Stock beneficially owned by him. Included in the shares of
Common Stock beneficially owned by Mr. Gillespie are options to purchase
15,180 shares of Common Stock.
(8) Includes shares held directly, as well as, jointly with family members, and
shares held in retirement accounts in a fiduciary capacity or by certain
family members, with respect to which shares the listed individuals or
group members may be deemed to have sole or shared voting and investment
power. Included in the Shares of Common Stock beneficially owned by all
directors and executive officers of the Company as a group are options to
purchase 42,660 shares of Common Stock.
I. ELECTION OF DIRECTORS
General
The Company's Board of Directors is currently composed of five members,
each of whom is also a director of the Bank. Directors are generally elected to
serve for three-year terms or until their respective successors are elected and
qualified. The directors are divided into three classes, with approximately
one-third of the directors elected annually.
The table below sets forth certain information, as of the Voting Record
Date, regarding the composition of the Company's Board of Directors, including
each director's term of office. The Board of
3
<PAGE>
Directors acting as the nominating committee has recommended and approved the
nominees identified in the following table. It is intended that the proxies
solicited on behalf of the Board of Directors (other than proxies in which the
vote is withheld as to a nominee) will be voted at the Meeting "For" the
election of the nominees identified below. If a nominee is unable to serve, the
shares represented by all valid proxies will be voted for the election of such
substitute nominee as the Board of Directors may recommend. At this time, the
Board of Directors knows of no reason why any nominee may be unable to serve, if
elected. Except as disclosed herein, there are no arrangements or understandings
between the nominees and any other person pursuant to which the nominees were
selected.
<TABLE>
<CAPTION>
Shares of
Common Stock Percent
Position(s) Held in Director Term to Beneficially of
Name Age(1) the Company Since (2) Expire Owned(3) Class
---- ------ ----------- --------- ------ -------- -----
<S> <C> <C> <C> <C> <C>
NOMINEES
Dwight L. Groves 59 Director 1995 2001 3,110 .35%
Gary L. Rozenboom 58 Director 1982 2001 47,274(4) 5.34%
DIRECTORS CONTINUING IN OFFICE
Thomas L. Gillespie 48 Director and Vice 1992 2000 52,774(5) 5.90%
President
Norman P. Zimmerman 65 Director 1976 2000 26,274 2.97%
Robert W. DeCook 56 Chairman of the Board, 1973 1999 87,421 9.82%
President and Chief
Executive Officer
</TABLE>
- ------------------
(1) At June 30, 1998.
(2) Includes service as a director of the Bank.
(3) The nature of beneficial ownership for shares reported in this column is
sole voting and investment power, except as otherwise noted in these
footnotes. All shares reported in this table have been adjusted to reflect
the two-for-one stock split paid in the form of a 100% stock dividend by the
Company on November 10, 1997. Included in the shares beneficially owned by
the named individuals are options to purchase shares of Common Stock as
follows: Mr. Groves - 1,376 shares; Mr. Rozenboom - 5,060 shares; Mr.
Gillespie -15,180 shares; Mr. Zimmerman - 5,060 shares; and Mr. DeCook -
10,360 shares.
(4) Includes 3,700 shares as to which Mr. Rozenboom has reported shared
ownership.
(5) Includes 12,244 shares as to which Mr. Gillespie has reported shared
ownership.
<PAGE>
The principal occupation of each director of the Company is set forth
below. All directors have held their present position for at least five years
unless otherwise indicated.
Dwight L. Groves - Mr. Groves is currently engaged in the business of
property management primarily in the Oskaloosa, Iowa area. Prior to his
involvement in property management, Mr. Groves spent twenty years in the
restaurant business as an owner/operator.
Gary L. Rozenboom - Mr. Rozenboom has owned and operated a hardwood
floor finishing business in Oskaloosa, Iowa since 1972. He has worked at the
business since 1951. Mr. Rozenboom has been active in community affairs
including serving a term on the Oskaloosa City Counsel.
Thomas L. Gillespie - Mr. Gillespie joined the Bank as a loan officer
in 1976 and was appointed Vice President - Residential Lending and Collections
in 1978. Mr. Gillespie graduated from the Savings and Loan
4
<PAGE>
Academy of Iowa in 1980 and in 1972 received his B.A. degree in Physical
Education with a minor in Science from Simpson College.
Norman P. Zimmerman - Dr. Zimmerman practiced Dentistry in Oskaloosa
for 32 years prior to his retirement in the summer of 1992. Dr. Zimmerman has
been very active in church and community affairs in Oskaloosa. He is currently
serving as the mayor of the City of Oskaloosa, Iowa.
Robert W. DeCook - Mr. DeCook is the President and Chief Executive
Officer of the Company, the Bank and the Bank's subsidiary, Horizon Investment
Services, Inc. Mr. DeCook is a member of the Bar in the State of Iowa and
practiced law for three years in Oskaloosa, Iowa before joining Horizon Federal
as a loan officer in 1972 and thereafter being appointed President and Chief
Executive Officer in 1976. Mr. DeCook is currently serving as Chairman of the
Board of Iowa Title Guarantee, the State title insurance agency. Mr. DeCook has
been the Chairman and a member of the Board of Directors of Iowa's Community
Bankers and Chairman of the Legislative Committee of Iowa's Community Bankers.
Mr. DeCook received his B.A. degree in Philosophy from Grinnell College in 1964
and his Juris Doctorate from the University of Iowa in 1967.
Meetings and Committees of the Board of Directors
Meetings and Committees of the Company. Meetings of the Company's Board
of Directors are generally held on a monthly basis. The Board of Directors met
12 times during fiscal 1998. During fiscal 1998, no incumbent director of the
Company attended fewer than 75% of the aggregate of the total number of Board
meetings and the total number of meetings held by the committees of the Board of
Directors on which he served.
The Board of Directors of the Company has standing Audit, Compensation
and Nominating Committees. The Company does not have a standing executive
committee.
The Audit Committee recommends independent auditors to the Board,
reviews the results of the auditors' services, reviews with management and the
internal auditors the systems of internal control and internal audit reports and
assures that the books and records of the Company are kept in accordance with
applicable accounting principles and standards. The members of the Audit
Committee are Directors Zimmerman, Rozenboom, Groves, Gillespie and DeCook. This
Committee met once during fiscal 1998.
The Compensation Committee is currently composed of Directors
Zimmerman, Rozenboom and Groves. This Committee is responsible for administering
the Company's 1993 Stock Option and Incentive Plan and Recognition and Retention
Plan. This Committee met twice during the fiscal 1998.
The entire Board of Directors acts as a nominating committee for
selecting nominees for election as directors. While the Board of Directors of
the Company will consider nominees recommended by stockholders, the Board has
not actively solicited such nominations. Pursuant to the Company's Bylaws,
nominations by stockholders must be delivered in writing to (and be in
compliance with the requirement's of the Company's Bylaws) and received at the
principal executive offices of the Company not less than 30 days prior to the
date of the meeting; provided, however, that in the event that less than 40
days' notice or prior disclosure of the date of the meeting is given or made to
stockholders, to be timely, notice by the stockholder must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made.
<PAGE>
Meetings and Committees of the Bank. The Bank's Board of Directors
meets monthly and may have additional special meetings upon the written request
of the Chairman of the Board or at least three directors. The Board of Directors
met 12 times during fiscal 1998. During fiscal 1998, no director of the Bank
attended
5
<PAGE>
fewer than 75% of the aggregate of the total number of Board meetings and the
total number of meetings held by the committees of the Board of Directors on
which he served.
The Bank has standing salary, audit and nominating committees. The Bank
also has other committees, including loan, investment, asset/liability
management, and technology committees, which meet as need to review various
other functions of the Bank.
The Salary Committee establishes compensation for the officers and
employees of the Bank. The current members of this committee are Directors
Zimmerman, Rozenboom, and Groves and President DeCook. The Salary Committee met
twice during fiscal 1998.
The Bank's Audit Committee selects the Bank's independent accountants
and meets with these accountants to discuss the scope and results of the annual
audit. This committee, which is composed of the outside directors of the Bank,
met once during fiscal 1998.
The Bank's Nominating Committee, which consists of the full Board of
Directors of the Bank, reviews the terms of the directors and makes nominations
for directors to be voted on by the Company, as the sole shareholder of the
Bank. This committee met one time during fiscal 1998.
Director Compensation
The Company's directors do not receive a fee for serving on the
Company's Board of Directors or any of its committees. All present members of
the Company's Board of Directors are also members of the Bank's Board of
Directors. All of the Bank's non-employee directors are paid a fee of $600 for
each regular and special meeting attended and receive no additional compensation
for service on any committees. Board members who are employees of the Bank
receive no fee for their service on the Board or any committees.
Executive Compensation
The Company has not paid any compensation to its executive officers
since its formation. The Company does not presently anticipate paying any
compensation to such persons until it becomes actively involved in the operation
or acquisition of businesses other than the Bank.
The following table sets forth information regarding compensation paid
by the Bank to its Chief Executive Officer for services rendered during fiscal
1998. No executive officer made in excess of $100,000 (salary plus bonus) during
fiscal 1998.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Annual Compensation (1) Compensation Awards
----------------------- -----------------------
Restricted All Other
Fiscal Salary Bonus Stock Options Compensation
Name and Principal Position Year ($) ($) Award($) (#) ($)
--------------------------- ---- --- --- -------- --- ---
<S> <C> <C> <C> <C> <C> <C>
Robert W. DeCook, President 1998 $76,700 $6,118 --- --- $31,185(2)
and Chief Executive Officer 1997 75,500 2,228 --- --- 15,878
1996 72,500 2,175 --- --- 12,397
</TABLE>
- ---------
<PAGE>
(1) Mr. DeCook did not receive any additional benefits or perquisites which, in
the aggregate, exceeded the lesser of 10% of his salary and bonus, or
$50,000.
(2) Represents the Bank's ESOP contribution of $30,838 and life insurance
premiums of $347 paid by the Company on behalf of Mr. DeCook.
6
<PAGE>
The following table provides information as to the value of the options
held by the Company's Chief Executive Officer on June 30, 1998, none of which
have been exercised. No stock options or stock appreciation rights were granted
by the Company during fiscal 1998.
<TABLE>
<CAPTION>
Aggregate Option Exercises in Last Fiscal Year and FY-End Option Values
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
Shares FY-End (#)(1) FY-End ($)(2)
Acquired on Value --------------------------- ----------------------------
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Name (#) ($) (#) (#) ($) ($)
---- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Robert W. DeCook 20,000 $145,000 4,288 6,072 $23,584 $33,396
</TABLE>
(1) Represents an option to purchase shares of Common Stock. The unexercisable
options will vest on October 27, 1998. Option amounts have been adjusted to
reflect the two-for-one stock split paid in the form of a 100% stock
dividend by the Company on November 10, 1997.
(2) Represents the aggregate market value (market price of the Common Stock
less the exercise price) of the option granted based upon the average of
the closing bid and the asked price of $15.75 per share of the Common Stock
as reported on the Nasdaq SmallCap Market on June 30, 1998.
Employment Agreement
The Bank has an employment agreement with Robert W. DeCook for a three
year term. The employment agreement provides for an annual base salary as
determined by the Board of Directors, but in no event less than Mr. DeCook's
current salary, which for fiscal 1999 is $76,700. Salary increases are reviewed
not less often than annually thereafter, and are subject to the sole discretion
of the Board of Directors. The employment contract provides for an extension for
one additional year upon review and authorization by the Board of Directors of
the Bank at the end of each year. For the year ended June 30, 1998, the Bank's
Board of Directors reviewed and authorized the extension of Mr. DeCook's
employment agreement for an additional year.
The agreement provides for termination upon the employee's death, for
cause or upon certain events specified by OTS regulations. The employment
agreement is terminable by Mr. DeCook upon 90 days' notice to the Bank. The
employment agreement further provides for payment to the employee of the greater
of his salary for the remainder of the term of the agreement, or 299% of the
employee's base compensation, in the event there is a "change in control" of the
Bank where employment terminates involuntarily in connection with such change in
control or within 12 months thereafter. This termination payment, however, is
subject to reduction by the amount of all other compensation to the employee
deemed for purposes of the Internal Revenue Code of 1986, as amended (the
<PAGE>
"Code") to be contingent on a "change in control," and may not exceed three
times the employee's average annual compensation over the most recent five year
period or be non-deductible by the Bank for federal income tax purposes. For the
purposes of the employment agreement, a "change in control" is defined as any
event which would require the filing of an application for acquisition of
control or notice of change in control pursuant to 12 C.F.R. ss. 574.3 or 4.
Such events are generally triggered prior to the acquisition of control of 10%
of the Corporation's common stock. The agreement guarantees participation in an
equitable manner in employee benefits applicable to executive personnel.
Based on his current salary, if Mr. DeCook was terminated as of July 1,
1998, under circumstances entitling him to severance pay as described above, he
would have been entitled to receive a lump sum cash
7
<PAGE>
payment of approximately $220,000. The contract provides, among other things,
for participation in an equitable manner in employee benefits applicable to
executive personnel.
Certain Transactions
The Bank, like many financial institutions, has followed a policy of
granting to officers, directors and employees loans secured by the borrower's
residence and consumer loans. All loans to the Bank's officers and directors are
made in the ordinary course of business and on the same terms, including
interest rate and collateral, and conditions as those of comparable transactions
prevailing at the time, and do not involve more than the normal risk of
collectibility or present other unfavorable features. All loans by the Bank to
its directors and executive officers are subject to OTS regulations restricting
loans and other transactions with affiliated persons of the Bank. All loans from
the Bank to its directors, executive officers or their affiliates are approved
or ratified by a majority of the independent and disinterested members of the
Bank's Board of Directors.
II -- RATIFICATION OF THE APPOINTMENT OF AUDITORS
The Board of Directors has renewed the Company's arrangement for KPMG
Peat Marwick LLP to be its auditors for the 1999 fiscal year, subject to the
ratification of the appointment by the Company's stockholders. A representative
of KPMG Peat Marwick LLP is expected to attend the Annual Meeting to respond to
appropriate questions and will have an opportunity to make a statement if he or
she so desires.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE COMPANY'S
AUDITORS FOR THE FISCAL YEAR ENDING JUNE 30, 1999.
STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's proxy materials
for its 1999 Annual Meeting of Stockholders, any stockholder proposal to take
action at such meeting must be received at the Company's main office located at
301 First Avenue East, Oskaloosa, Iowa 52577, no later than May 28, 1999. Any
such proposal shall be subject to the requirements of the proxy rules adopted
under the Securities Exchange Act of 1934, as amended, and as with any
stockholder proposal (regardless of whether included in the Company's proxy
materials), the Company's Certificate of Incorporation and Bylaws and Delaware
law. Otherwise, any stockholder proposal to take action at such meeting must be
received at the Company's main office on or before September 28, 1999 (30 days
prior to next years anticipated annual meeting date). In the event that the date
of next year's annual meeting changes, a stockholder proposal must be received
not later than 30 days prior to the new date of such annual meeting; provided,
however, that in the event that less than 40 days notice or prior disclosure of
the new date of annual meeting is given or made to stockholders, notice of a
proposal by a stockholder to be timely must be received not latter than the
close of business on the tenth day following the day on which notice of the new
date of the annual meeting was mailed or public announcement of the new date of
such meeting was first made. All stockholder proposals must also comply with the
Company's bylaws and Delaware law.
<PAGE>
OTHER MATTERS
The Board of Directors is not aware of any business to come before the
Meeting other than those matters described above in this Proxy Statement.
However, if any other matter should properly come before the Meeting, it is
intended that holders of the proxies will act in accordance with their best
judgment.
8
<PAGE>
REVOCABLE PROXY
HORIZON FINANCIAL SERVICES CORPORATION
ANNUAL MEETING OF STOCKHOLDERS o October 22, 1998
The undersigned hereby appoints the Board of Directors of Horizon Financial
Services Corporation (the "Company"), and its survivor, with full power of
substitution, to act as attorneys and proxies for the undersigned to vote all
shares of common stock of the Company which the undersigned is entitled to vote
at the Annual Meeting of Stockholders (the "Meeting"), to be held on October 22,
1998 at the main office of the Company located at 301 First Avenue East,
Oskaloosa, Iowa, at 3:00 P.M. local time, and at any and all adjournments
thereof, as follows:
I. The election of Dwight L. Groves and Gary L. Rozenboom as directors for a
term to expire in 2001.
o FOR o WITHHELD
Instructions:To vote for all nominees mark the box "FOR" with an "X". To
withhold your vote for an individual nominee mark the box "FOR" with an "X" and
write the name of the individual on the line provided below for which you wish
your vote withheld. To withhold your vote as to all nominees mark the box
"Withheld" with an "X".
- --------------------------------------------------------------------------------
II. The ratification of the appointment of KPMGPeat Marwick LLP as auditors for
the Company for the fiscal year ending June 30, 1999.
o FOR o AGAINST o ABSTAIN
In their discretion, the proxies are authorized to vote on any other business
that may properly come before the Meeting or any adjournment thereof.
The Board of Directors recommends a vote "FOR" the listed proposals.
(Continued and to be signed on the reverse side)
<PAGE>
(Continued from other side)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
THIS PROXY WILL BE VOTED A S DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED FOR THE PROPOSALS STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY
IN THEIR BEST JUDGEMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
The stockholder may revoke this proxy by: (i) filing with the Secretary of the
Company at or before the Meeting a written notice of revocation bearing a later
date than the proxy; (ii) duly executing a subsequent proxy relating to the same
shares and delivering it to the Secretary of the Company at or before the
Meeting; (iii) attending the Meeting and voting in person (although attendance
at the Meeting will not in and of itself constitute revocation of a proxy).
The undersigned acknowledges receipt from the Company, prior to the execution
of this Proxy, of Notice of the Meeting, a Proxy Statement dated on or about
September 25, 1998 and the Company's Annual Report to Stockholders for the
fiscal year ended June 30, 1998.
DATED: ___________________________ , 1998
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SIGNATURE OF STOCKHOLDER
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SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on this card. When signing as attorney,
executor, administrator, trustee or guardian or corporate officer please give
your full title. If shares are held jointly, each holder should sign.
PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE
