SCHEDULE 14A
United States
Securities and Exchange Commission
Washington, D.C. 20549
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
[X] Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Harleysville Savings 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 fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or Registration Statement No.:
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(3) Filing party:
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(4) Date filed:
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[Harleysville Savings Financial Corporation Letterhead]
December 16, 2005
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders of
Harleysville Savings Financial Corporation, the holding company for Harleysville
Savings Bank. The meeting will be held at the Indian Valley Country Club,
located at 650 Bergey Road, Telford, Pennsylvania 18969, on Wednesday, January
25, 2006 at 9:30 a.m., local time. The matters to be considered by stockholders
at the annual meeting are described in the accompanying materials.
It is very important that your shares be voted at the annual meeting
regardless of the number you own or whether you are able to attend the meeting
in person. We urge you to mark, sign, and date your proxy card today and return
it in the envelope provided, even if you plan to attend the annual meeting. This
will not prevent you from voting in person, but will ensure that your vote is
counted if you are unable to attend.
Your continued support of and interest in Harleysville Savings Financial
Corporation is sincerely appreciated.
Sincerely,
/s/ Edward J. Molnar
Edward J. Molnar
Chairman and Chief
Executive Officer
HARLEYSVILLE SAVINGS FINANCIAL CORPORATION
271 Main Street
Harleysville, Pennsylvania 19438
(215) 256-8828
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 25, 2006
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NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Harleysville Savings Financial Corporation (the "Company") will be held at the
Indian Valley Country Club, located at 650 Bergey Road, Telford, Pennsylvania
18969, on Wednesday, January 25, 2006 at 9:30 a. m., local time, for the
following purposes, all of which are more completely set forth in the
accompanying proxy statement:
(1) To elect three (3) directors for a three-year term and in each case
until their successors are elected and qualified;
(2) To consider and approve the Harleysville Savings Financial
Corporation 2005 Stock Option Plan;
(3) To ratify the appointment of Deloitte & Touche LLP as the Company's
independent registered public accounting firm for the year ending
September 30, 2006; and
(4) To transact such other business as may properly come before the
meeting or any adjournment thereof. Management is not aware of any
other such business.
The board of directors has fixed December 2, 2005 as the voting record
date for the determination of stockholders entitled to notice of and to vote at
the annual meeting and at any adjournment thereof. Only those stockholders of
record as of the close of business on that date will be entitled to vote at the
annual meeting or at any such adjournment.
By Order of the Board of Directors
/s/ Marian Bickerstaff
Marian Bickerstaff
Senior Vice President and Secretary
Harleysville, Pennsylvania
December 16, 2005
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YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. IT IS IMPORTANT THAT
YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN. EVEN IF YOU PLAN TO
BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING, YOU MAY VOTE
EITHER IN PERSON OR BY PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN WRITING
OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE THEREOF.
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1
HARLEYSVILLE SAVINGS FINANCIAL CORPORATION
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PROXY STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS
JANUARY 25, 2006
General
This Proxy Statement is furnished to holders of common stock, $.01 par
value per share, of Harleysville Savings Financial Corporation (the "Company"),
the bank holding company for Harleysville Savings Bank (the "Bank"). Proxies are
being solicited on behalf of the board of directors of the Company to be used at
the annual meeting of stockholders to be held at the Indian Valley Country Club,
located at 650 Bergey Road, Telford, Pennsylvania 18969, on Wednesday, January
25, 2006 at 9:30 a.m., local time, and at any adjournment thereof for the
purposes set forth in the Notice of Annual Meeting of Stockholders. This proxy
statement is first being mailed to stockholders on or about December 16, 2005.
Voting Rights
Only stockholders of record at the close of business on December 2, 2005
will be entitled to notice of and to vote at the annual meeting. At such date,
there were 3,897,881 shares of common stock issued and outstanding and the
Company had no other class of equity securities outstanding.
Each share of common stock is entitled to one vote at the annual meeting
on all matters properly presented at the meeting. The presence in person or by
proxy of at least a majority of the issued and outstanding shares of common
stock entitled to vote is necessary to constitute a quorum at the annual
meeting. Directors are elected by a plurality of the votes cast with a quorum
present. The affirmative vote of a majority of the total votes cast at the
annual meeting is required for approval of the proposals to approve the
Company's 2005 Stock Option Plan ("Option Plan") and to ratify the appointment
of the Company's independent registered public accounting firm.
Under rules applicable to broker-dealers, the election of directors and
the proposal to ratify the auditors are considered "discretionary" items upon
which brokerage firms may vote in their discretion on behalf of their client if
such clients have not furnished voting instructions. The proposal to approve the
Option Plan is a "non-discretionary" item for which brokerage firms may not vote
without instructions from clients and, thus, there may be broker "non-votes" at
the meeting. Abstentions and broker "non-votes" will be counted for purposes of
determining the presence of a quorum at the annual meeting. However, because of
the required votes, abstentions and broker "non-votes" will have no effect on
the voting for the election of directors or the proposals to approve the Option
Plan and to ratify the appointment of the Company's independent registered
public accounting firm.
Proxies
The proxy solicited hereby, if properly signed and returned to the Company
and not revoked prior to its use, will be voted in accordance with the
instructions contained therein. If no contrary instructions are given, each
proxy received will be voted (i) FOR the nominees for director described herein;
(ii) FOR approval of the Option Plan; (iii) FOR ratification of Deloitte &
Touche LLP as the Company's independent registered public accounting firm for
the year ending September 30, 2006; and (iv) upon the transaction of such other
business as may properly come before the meeting, in accordance with the best
judgment of the persons appointed as proxies. Any stockholder giving a proxy has
the power to revoke it at any time before it is exercised by (i) filing with the
secretary of the Company written notice thereof (Marian Bickerstaff, Senior Vice
President and Secretary, Harleysville Savings Financial Corporation, 271 Main
Street, Harleysville, Pennsylvania 19438); (ii) submitting a duly-executed proxy
bearing a later date; or (iii) appearing at the annual meeting and giving the
secretary notice of his or her intention to vote in person. Proxies solicited
hereby may be exercised only at the annual meeting and any adjournment thereof
and will not be used for any other meeting.
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INFORMATION WITH RESPECT TO NOMINEES FOR DIRECTOR, DIRECTORS
WHOSE TERMS CONTINUE AND EXECUTIVE OFFICERS
Election of Directors
The articles of incorporation of the Company provide that the board of
directors of the Company shall be divided into three classes which are as equal
in number as possible, and that the members of each class are to be elected for
a term of three years and until their successors are elected and qualified. One
class of directors is to be elected annually and stockholders are not permitted
to cumulate their votes for the election of directors. No nominee for director
is related to any other director or executive officer of the Company by blood,
marriage or adoption.
Unless otherwise directed, each proxy executed and returned by a
stockholder will be voted for the election of the nominees for director listed
below. If any person named as nominee should be unable or unwilling to stand for
election at the time of the annual meeting, the proxies will nominate and vote
for any replacement nominee or nominees recommended by the board of directors.
At this time, the board of directors knows of no reason why any of the nominees
listed below may not be able to serve as a director if elected.
The following tables present information concerning the nominees for
director and each director whose term continues, including his or her tenure as
a director of the Company.
Nominees for Director for a Three-Year Term Expiring in 2009
Principal Occupation During Director
Name Age the Past Five Years Since(1)
-------------------- ------- ------------------------------------------------ --------
David J. Friesen 62 Mr. Friesen is a certified public accountant 1987
and Director of Development at Penn View
Christian School located in Souderton,
Pennsylvania.
George W. Meschter 53 Mr. Meschter is the President of Meschter 1981
Insurance Group, an insurance
agency located in Collegeville,
Pennsylvania.
James L. Rittenhouse 44 Mr. Rittenhouse is a certified public 2005
accountant and a shareholder in the firm
Detweiler, Hershey & Associates, P.C., located
in Souderton, Pennsylvania
The Board of Directors Recommends a Vote FOR Election of
the Nominees for Director.
3
Members of the Board of Directors Continuing in Office
Directors With Terms Expiring in 2007
Principal Occupation During Director
Name Age the Past Five Years Since(1)
-------------------- ------- ------------------------------------------------ --------
Sanford L. Alderfer 53 Mr. Alderfer is President of Alderfer 2001
Auction Company, located in Hatfield,
Pennsylvania.
Mark R. Cummins 49 Mr. Cummins is Executive Vice President,
Chief Investment Officer and Treasurer of 1995
Harleysville Insurance Companies located in
Harleysville, Pennsylvania.
Ronald B. Geib 51 Mr. Geib has served as the President and 2001
Chief Operating Officer of the Company and
the Bank since November 2002. Mr. Geib
previously served as the Company's Executive
Vice President and Chief Operating Officer
from 1999 to November 2002 and as the Bank's
Executive Vice President and Chief Operating
Officer from September 1999 to November
2002. Mr. Geib served as the Bank's Senior
Vice President, Treasurer, and Chief
Financial Officer from 1980 to 1999. Mr.
Geib joined the Bank in 1976.
Directors With Terms Expiring in 2008
Principal Occupation During Director
Name Age the Past Five Years Since(1)
-------------------- ------- ------------------------------------------------ --------
Philip A. Clemens 56 Mr. Clemens is Chairman and Chief Executive 1987
Officer of the Clemens Family Corporation, a
meat processing company located in Hatfield,
Pennsylvania.
Edward J. Molnar 65 Mr. Molnar has served as the Company's 1968
Chairman and Chief Executive Officer since
February 2000 and President from February
2000 until November 2002. Mr. Molnar has
also served as the Bank's Chief Executive
Officer since 1967 and the Bank's President
from 1976 to November 2002. Mr. Molnar
joined the Bank in 1967.
Charlotte A. Hunsberger 37 Ms. Hunsberger is a partner in the law firm 2005
of Bricker, Landis & Hunsberger, LLP,
located in Souderton, Pennsylvania.
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(1) Includes service as a director of the Bank.
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Stockholder Nominations
Article III, Section 3.12 of the Company's bylaws governs nominations for
election to the board and requires all such nominations, other than those made
by the board, to be made at a meeting of stockholders called for the election of
directors, and only by a stockholder who has complied with the notice provisions
in that section. Stockholder nominations must be made pursuant to timely notice
in writing to the secretary of the Company. To be timely, a stockholder's notice
must be delivered to, or mailed and received at, the principal executive offices
of the Company not later than (i) with respect to an election to be held at an
annual meeting of stockholders, 90 days prior to the anniversary date of the
mailing of proxy materials by the Company for the immediately preceding annual
meeting, and (ii) with respect to an election to be held at a special meeting of
stockholders for the election of directors, the close of business on the tenth
day following the date on which notice of such meeting is first given to
stockholders.
Each written notice of a stockholder nomination shall set forth: (a) the
name and address of the stockholder who intends to make the nomination and of
the person or persons to be nominated; (b) a representation that the stockholder
is a holder of record of stock of the Company entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (c) a description of all arrangements
or understandings between the stockholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (d) such other information
regarding each nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission; and (e) the consent of each nominee to serve
as a director of the Company if so elected. The presiding officer of the meeting
may refuse to acknowledge the nomination of any person not made in compliance
with the foregoing procedures. The Company did not receive any nominations from
stockholders for the annual meeting.
The Board of Directors and Its Committees
Regular meetings of the board of directors of the Company and the Bank are
typically held on a monthly basis and special meetings of the board of directors
are held from time-to-time as needed. There were 13 meetings of the board of
directors of the Company held during fiscal 2005. No director attended fewer
than 75% of the aggregate of the total number of meetings of the board of
directors and the total number of meetings of committees of the board on which
the director served during the year.
The board of directors of the Company has established various committees,
including Audit, Human Resources and Corporate Governance and Nominating
Committees.
The Human Resources Committee, which met four times during fiscal 2005,
reviews the Company's compensation programs and recommends salary and benefits
for the Company's employees. The members of the committee are currently Messrs.
Alderfer, Clemens and Meschter.
The Corporate Governance and Nominating Committee, which met three times
during fiscal 2005 with respect to nominations for directors for the annual
meeting, advises the board of directors with respect to nominations of directors
and recommends candidates to the board of directors as nominees for election,
reviews existing corporate governance documents and establishes corporate
governance principles for the Company, reviews nominations for director
submitted by stockholders pursuant to the Company's bylaws and identifies and
recommends to the board the selection of qualified individuals to serve as
officers of the Company. The members of the Corporate Governance and Nominating
Committee are Messrs. Friesen, Meschter and Rittenhouse. Each of these persons
is independent within the meaning of the rules of the Nasdaq Stock Market. The
Corporate Governance and Nominating Committee operates pursuant to a written
charter.
The Nominating and Corporate Governance Committee considers candidates for
director suggested by its members and other directors, as well as management and
stockholders. The Corporate Governance and Nominating Committee also may solicit
prospective nominees identified by it. A stockholder who desires to recommend a
prospective nominee for the board should submit in writing the name and
qualifications, including place of principal residence and place of employment,
of such persons to the Corporate Governance and Nominating Committee no later
than July 31st of any year. Submissions shall be made sent to the Corporate
Governance and Nominating Committee, Harleysville Savings Financial Corporation,
Corporate Secretary, 271 Main Street, Harleysville, Pennsylvania 19438.
5
The Corporate Governance and Nominating Committee also considers whether to
nominate any person nominated pursuant to the provision of the Company's
articles of incorporation relating to stockholder nominations, which is
described above under "-Stockholder Nominations." The Corporate Governance and
Nominating Committee has the authority and ability to retain a search firm to
identify or evaluate potential nominees if it so desires.
The charter of the Corporate Governance and Nominating Committee sets
forth certain criteria the committee may consider when recommending individuals
for nomination as director including: (a) ensuring that the board of directors,
as a whole, is diverse and consists of individuals with various and relevant
career experience, relevant technical skills, industry knowledge and experience,
financial expertise (including expertise that could qualify a director as a
"financial expert," as that term is defined by the rules of the SEC), local or
community ties and (b) minimum individual qualifications, including strength of
character, mature judgment, familiarity with our business and industry,
independence of thought and an ability to work collegially. The committee also
may consider the extent to which the candidate would fill a present need on the
board of directors.
The charter of the Corporate Governance and Nominating Committee also provides
that a director should have:
o a solid understanding of general management best practices and their
application;
o a history of making good business decisions;
o the ability to read a balance sheet, income statement, cash flow
statement and understand the use of financial ratios and other
indicators for evaluating Company performance;
o the ability and the time to perform during periods of both
short-term and prolonged crises;
o an understanding of what it takes to attract, motivate and energize
a high-performance leadership team;
o an understanding of the importance of the strategic planning process
in creating a competitive advantage through strategy;
o a good reputation for high ethical standards and integrity in their
personal and professional dealings;
o mature confidence and value board and team performance over
individual performance; respects others, is open to the opinions of
others, has good listening skills, is confident enough to ask tough
questions, and can communicate persuasively;
o a history of high performance standards as reflected in the person's
history of achievements;
o high intelligence, exhibit wisdom and will be expected to exercise
prudence and care in carrying out the responsibilities of the
position; and
o no existing or potential conflict of interest situation.
In addition, a director must be:
o a citizen of the United States of America and shall have his or her
primary residence and place of employment within the Bank's market
area;
o a person who has a reputation for being trusted with confidential
information; and
o a person who will faithfully attend board meetings, committee
meetings and the annual meeting of the shareholders and takes the
time to prepare for meaningful discussion.
Once the Corporate Governance and Nominating Committee has identified a
prospective nominee, the committee makes an initial determination as to whether
to conduct a full evaluation of the candidate. This initial
6
determination is based on whatever information is provided to the committee with
the recommendation of the prospective candidate, as well as the committee's own
knowledge of the prospective candidate, which may be supplemented by inquiries
to the person making the recommendation or others.
The Audit Committee reviews the records and affairs of the Company to
determine its financial condition, reviews with management and the Company's
independent registered public accounting firm the systems of internal control,
monitors the Company's adherence in accounting and financial reporting to
generally accepted accounting principles, and performs such other duties deemed
appropriate by the board of directors. The Audit Committee met six times in
fiscal 2005. Messrs. Cummins and Friesen and Ms. Hunsberger served on the Audit
Committee in fiscal 2005. The members the Audit Committee are independent as
defined in the listing standards of the Nasdaq Stock Market.
The board of directors has determined that Messrs. Friesen and Cummins,
members of the Audit Committee, meet the requirements recently adopted by the
Securities and Exchange Commission for qualification as an audit committee
financial expert. An audit committee financial expert is defined as a person who
has the following attributes: (i) an understanding of generally accepted
accounting principles and financial statements; (ii) the ability to assess the
general application of such principles in connection with the accounting for
estimates, accruals and reserves; (iii) experience preparing, auditing,
analyzing or evaluating financial statements that present a breadth and level of
complexity or accounting issues that are generally comparable to the breadth and
complexity of issues that can reasonably be expected to be raised by the
registrant's financial statements, or experience actively supervising one or
more persons engaged in such activities; (iv) an understanding of internal
controls and procedures for financial reporting; and (v) an understanding of
audit committee functions.
The identification of a person as an audit committee financial expert does
not impose on such person any duties, obligations or liability that are greater
than those that are imposed on such person as a member of the Audit Committee
and the board of directors in the absence of such identification. Moreover, the
identification of a person as an audit committee financial expert for purposes
of the regulations of the Securities and Exchange Commission does not affect the
duties, obligations or liability of any other member of the Audit Committee or
the board of directors. Finally, a person who is determined to be an audit
committee financial expert will not be deemed an "expert" for purposes of
Section 11 of the Securities Act of 1933.
Relationship with Independent Registered Public Accounting Firm
The Audit Committee of the board of directors appointed Deloitte & Touche
LLP as the independent registered public accounting firm to audit the Company's
consolidated financial statements for the year ending September 30, 2006. The
Audit Committee considered the compatibility of the non-audit services provided
to the Company by Deloitte & Touche LLP in fiscal 2005 described below on the
independence of Deloitte & Touche LLP from the Company in evaluating whether to
appoint Deloitte & Touche LLP to perform the audit of the Company's consolidated
financial statements for the year ending September 30, 2006.
The following table sets forth the aggregate fees paid by us to Deloitte &
Touche LLP for professional services rendered by Deloitte & Touche LLP in
connection with the audit of the Company's consolidated financial statements for
fiscal 2005 and 2004, as well as the fees paid by us to Deloitte & Touche LLP
for audit-related services, tax services and all other services rendered by
Deloitte & Touche LLP to us during fiscal 2005 and 2004.
Fiscal Year Ended September 30,
-------------------------------
2005 2004
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Audit fees (1) ................................ $165,000 $125,000
Audit-related fees ............................ 2,400 --
Tax fees (2) .................................. -- 19,775
All other fees ................................ -- --
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Total ..................................... $167,400 $144,775
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(1) Audit fees consist of fees incurred in connection with the audit of our
annual financial statements, reporting on management's assertion regarding
the effectiveness of internal controls in accordance with FDICIA when
required, the review of the interim financial statements included in our
quarterly reports filed with the SEC and the issuance of consents and
assistance with, and review of, documents filed with the SEC.
(2) Tax fees consist of fees incurred in connection with tax planning, tax
compliance and tax consulting services.
7
The Audit Committee selects the Company's independent registered public
accounting firm and pre-approves all audit services to be provided by the
independent registered public accounting firm to the Company. The Audit
Committee also reviews and pre-approves all audit-related, tax and all other
services rendered by our independent registered public accounting firm in
accordance with the audit committee's charter and policy on pre-approval of
audit-related, tax and other services. In its review of these services and
related fees and terms, the audit committee considers, among other things, the
possible effect of the performance of such services on the independence of our
independent registered public accounting firm. Pursuant to its policy, the Audit
Committee pre-approves certain audit-related services and certain tax services
which are specifically described by the Audit Committee on an annual basis and
separately approves other individual engagements as necessary. The pre-approval
requirements do not apply to certain services if: (i) the aggregate amount of
such services provided to the Company constitutes not more than five percent of
the total amount of revenues paid by the Company to its independent registered
public accounting firm during the year in which the services are provided; (ii)
such services were not recognized by the Company at the time of the engagement
to be other services; and (iii) such services are promptly brought to the
attention of the committee and approved by the committee or by one or more
members of the committee to whom authority to grant such approvals has been
delegated by the committee prior to the completion of the audit. The committee
may delegate to one or more designated members of the committee the authority to
grant required pre-approvals. The decisions of any member to whom authority is
delegated to pre-approve an activity shall be presented to the full committee at
its next scheduled meeting.
During the year ended September 30, 2005, each new engagement of Deloitte
& Touche LLP was approved in advance by the Audit Committee, and none of those
engagements made use of the de minimis exception to pre-approval contained in
the SEC's rules for auditor independence.
Report of the Audit Committee
The Audit Committee has reviewed and discussed the audited financial
statements with management. The Audit Committee has discussed with the
independent registered public accounting firm the matters required to be
discussed by Statement on Auditing Standards No. 61 "Communication with Audit
Committees". The Audit Committee has received the written disclosures and the
letter from the independent registered public accounting firm required by
Independence Standards Board Standard No. 1, and has discussed with the
independent registered public accounting firm, the independent registered public
accounting firm's independence. Based on the review and discussions referred to
above in this report, the Audit Committee recommended to the board of directors
that the audited financial statements be included in the Company's Annual Report
on Form 10-K for the year ended September 30, 2005 for filing with the
Securities and Exchange Commission.
Mark R. Cummins
David J. Friesen
Charlotte A. Hunsberger
8
Executive Officers Who Are Not Directors
The following table sets forth certain information with respect to the
executive officers of the Company and the Bank who are not directors or
nominees.
Position(s) with the Company and Principal Occupation
Name Age During the Past Five Years
------------------ --------- ----------------------------------------------------------
Marian Bickerstaff 55 Mrs. Bickerstaff has served as the Company's Secretary
since January 2001, the Company's Senior Vice President
since February 2000, the Bank's Senior Vice President
since September 1999 and as the Bank's Chief Lending
Officer since 1985. Mrs. Bickerstaff was Vice President
of the Bank from 1985 to 1999. Mrs. Bickerstaff joined
the Bank in 1975.
Brendan J. McGill 37 Mr. McGill has served as the Company's Senior Vice
President, Treasurer and Chief Financial Officer since
February 2000 and joined the Bank in September 1999 as
Senior Vice President, Chief Financial Officer and
Treasurer. Prior thereto, Mr. McGill was an auditor with
the accounting firm of Deloitte & Touche, specializing in
financial institutions.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors, and persons who own more than
10% of the Common Stock to file reports of ownership and changes in ownership
with the Securities and Exchange Commission and the Nasdaq Stock Market.
Officers, directors and greater than 10% stockholders are required by regulation
to furnish the Company with copies of all Section 16(a) forms they file. The
Company knows of no person who owns 10% or more of the common stock. Based
solely on review of the copies of such forms furnished to the Company, the
Company believes that during the year ended September 30, 2005, all Section
16(a) filing requirements applicable to its executive officers and directors
were met.
9
BENEFICIAL OWNERSHIP OF COMMON STOCK
BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the common
stock as of the record date, and certain other information with respect to (i)
the only persons or entities, including any "group" as that term is used in
Section 13(d)(3) of the Exchange Act, who or which was known to the Company to
be the beneficial owner of more than 5% of the issued and outstanding common
stock on the record date, (ii) each director and nominee for director of the
Company, (iii) certain named executive officers of the Company, and (iv) all
directors, nominees for director and executive officers of the Company as a
group.
Amount and Nature
Name of Beneficial of Beneficial
Owner or Number of Ownership as of Percent of
Persons in Group December 2, 2005(1)(2) Common Stock
---------------- ---------------------- ------------
Harleysville Savings Financial 348,623 (3) 8.9%
Corporation Employee Stock
Ownership Pension Plan
271 Main Street
Harleysville, Pennsylvania 19438
First Manhattan Company 252,188 (4) 6.5
437 Madison Avenue
New York, New York 10022
Directors:
Sanford L. Alderfer 12,517 (5)(6) *
Philip A. Clemens 41,133 (6)(7) 1.1
Mark R. Cummins 129,164 (8) 3.3
David J. Friesen 60,609 (9) 1.6
Ronald B. Geib 111,887 (10) 2.9
Charlotte A. Hunsberger 1,404 *
George W. Meschter 54,438 (6)(11) 1.4
Edward J. Molnar 192,151 (12) 4.9
James L. Rittenhouse 1,410 (13) *
Named Executive Officers:
Marian Bickerstaff 129,579 (14) 3.3
Brendan J. McGill 32,282 (15) *
All directors and executive 766,584 (16) 19.3
officers as a group (11 persons)
----------------
*Less than 1% of the outstanding common stock.
(1) Based upon filings made pursuant to the Exchange Act and information
furnished by the respective individuals. Under regulations promulgated
pursuant to the Exchange Act, shares of common stock are deemed to be
beneficially owned by a person if he or she directly or indirectly has or
shares (i) voting power, which includes the power to vote or to direct the
voting of the shares, or (ii) investment power, which includes the power
to dispose or to direct the disposition of the shares. Unless otherwise
indicated, the named beneficial owner has sole voting and dispositive
power with respect to the shares.
(2) Under applicable regulations, a person is deemed to have beneficial
ownership of any shares of common stock which may be acquired within 60
days of the record date pursuant to the exercise of outstanding stock
options. Shares of common stock which are subject to stock options are
deemed to be outstanding for the purpose of
10
computing the percentage of outstanding common stock owned by such person
or group but not deemed outstanding for the purpose of computing the
percentage of common stock owned by any other person or group.
(3) Includes 343,619 shares held in the Company's Employee Stock Ownership
Pension Plan ("ESOP") for the account of employees who may direct the
voting of such shares, and 5,004 shares which are unallocated to
participants in the plan.
(4) Pursuant to filings under the Exchange Act, includes 245,521 shares which
First Manhattan Company has sole voting and dispositive power and 6,666
shares which it has shared dispositive and voting power.
(5) Includes 2,658 shares held jointly with Mr. Alderfer's wife, and 7,776
shares held in the Sanford Alderfer Auction Company, Inc. Profit Sharing
Plan, which Mr. Alderfer is a trustee. Also includes 2,083 shares which
may be acquired within 60 days of the record date pursuant to vested stock
options.
(6) Does not include the shares held in the ESOP as to which Messrs. Alderfer,
Clemens and Meschter serve as trustees and disclaim beneficial ownership.
(7) Includes 8,414 shares held by Mr. Clemens' wife and 8,394 shares held by
Mr. Clemens' daughters.
(8) Includes 3,333 shares held jointly with Mr. Cummins' wife and 123,748
shares owned by the Harleysville Insurance Companies of which Mr. Cummins
is the Executive Vice President, Chief Investment Officer and Treasurer,
and as such, Mr. Cummins has the power to direct the voting and
disposition of these shares. Mr. Cummins disclaims beneficial ownership of
these 123,748 shares. Also includes 2,083 shares which may be acquired
within 60 days of the record date pursuant to vested stock options.
(9) Includes 25,615 shares held jointly with Mr. Friesen's wife, 6,940 shares
held solely by Mr. Friesen's wife and 3,748 shares which may be acquired
within 60 days of the record date pursuant to vested stock options.
(10) Includes 67,407 shares held by Mr. Geib under the ESOP, 1,783 shares held
by Mr. Geib's children and 20,499 shares which may be acquired within 60
days of the record date pursuant to vested stock options.
(11) Includes 11,922 shares owned by Meschter Insurance Group of which Mr.
Meschter is President, 7,640 shares held in a trust which Mr. Meschter is
trustee, 1,382 shares held by Mr. Meschter's son and 2,915 shares which
may be acquired within 60 days of the record date pursuant to vested stock
options.
(12) Includes 105,143 shares held by Mr. Molnar under the ESOP, 79,675 held
jointly with Mr. Molnar's wife and 7,333 shares which may be acquired
within 60 days of the record date pursuant to vested stock options.
(13) Includes 391 shares held by Mr. Rittenhouse's children.
(14) Includes 56,700 shares held by Mrs. Bickerstaff under the ESOP, 23,585
shares held jointly with Mrs. Bickerstaff's husband, 6,117 shares held by
Mrs. Bickerstaff's husband and 15,833 shares which may be acquired within
60 days of the record date pursuant to vested stock options.
(15) Includes 1,032 shares held by Mr. McGill under the ESOP, 917 shares held
by Mr. McGill's wife and 27,083 shares which may be acquired within 60
days of the record date pursuant to vested stock options.
(16) Includes 81,577 shares subject to outstanding stock options which are
exercisable within 60 days of the record date and 230,282 shares held in
the ESOP for the account of all executive officers and directors as a
group.
11
MANAGEMENT COMPENSATION
Summary Compensation Table
The following table sets forth a summary of certain information concerning
the compensation awarded to or paid by the Company and the Bank for services
rendered in all capacities during the past three years to the Chief Executive
Officer and the only other executive officers of the Company and its
subsidiaries whose total compensation during the year ended September 30, 2005
exceeded $100,000.
Long Term
Annual Compensation Compensation
--------------------- ----------------
Name and Stock All Other
Principal Position Year Salary Bonus(1) Grants Options Compensation(2)
---------------------------- ---- -------- -------- ------ ------- ---------------
Edward J. Molnar 2005 $230,450 $44,482 $ -- 7,333 $31,029
Chairman and Chief 2004 224,500 46,440 -- 7,333 29,939
Executive Officer 2003 210,454 44,409 -- 7,333 28,803
Ronald B. Geib 2005 167,500 32,331 -- 5,333 26,975
President and Chief 2004 160,395 33,179 -- 5,333 24,520
Operating Officer 2003 145,837 30,773 -- 5,000 22,938
Marian Bickerstaff 2005 121,650 23,481 -- 4,000 10,704
Senior Vice President 2004 118,489 24,510 -- 4,000 9,907
and Corporate Secretary 2003 111,061 23,435 -- 4,000 9,757
Brendan J. McGill 2005 120,525 23,264 -- 4,000 10,401
Senior Vice President 2004 112,852 23,344 -- 4,000 9,052
and Chief Financial Officer 2003 101,542 21,427 -- 3,667 8,712
---------------
(1) Bonus is determined pursuant to the Company's Profit Sharing Incentive
Plan.
(2) In fiscal 2005, represents $12,300, $9,600, $7,056 and $6,786 contributed
by the Company pursuant to the ESOP to the accounts of Messrs. Molnar and
Geib, Mrs. Bickerstaff and Mr. McGill, respectively, $6,379, $5,025,
$3,648 and $3,615 contributed by the Company under the Harleysville
Savings' 401(k) Plan pursuant to the company match of contributions to the
accounts of Messrs. Molnar and Geib, Mrs. Bickerstaff and Mr. McGill,
respectively, and the payment of $12,350 and $12,350 in directors' fees to
Messrs. Molnar and Geib, respectively.
Director's Fees
Directors of the Bank received a fee of $325 per month, plus $650 for each
regular board meeting attended during fiscal 2005. Directors of the Bank, with
the exception of Chief Executive Officer Molnar and President Geib, received
$290 and the chairman of each committee received $580 for each committee meeting
attended during fiscal 2005. In addition, the chairman of the Audit Committee
received $870 and each member of the Audit Committee received $580 for each
meeting attended in fiscal 2005.
12
Stock Options
The following table sets forth certain information concerning individual
grants of stock options pursuant to the Company's stock option plans to the
named executive officers during the year ended September 30, 2005.
Individual Grants
--------------------------------------------------------------------------
Potential Realizable
Value at
Assumed Annual Rates
of Stock Price
% of Total Appreciation
Options for Option Term(4)
Options Granted to Exercise --------------------
Name Granted(1) Employees(2) Price(3) Expiration Date 5% 10%
------------------- ---------- ------------ -------- --------------- ------- --------
Edward J. Molnar 7,333 19.8% $17.79 January 1, 2015 $82,056 $207,890
Ronald B. Geib 5,333 14.4 17.79 January 1, 2015 59,676 151,190
Marian Bickerstaff 4,000 10.8 17.79 January 1, 2015 44,760 113,400
Brendan J. McGill 4,000 10.8 17.79 January 1, 2015 44,760 113,400
---------------------
(1) The options vest and become exercisable in one year from the date of
grant.
(2) Percentage of options to purchase common stock granted to all employees
during fiscal 2005
(3) The exercise price was based on the market price of the common stock on
the date of grant.
(4) Assumes compounded rates of return for the remaining life of the options
and future stock prices of $28.98 and $46.14 at compounded rates of return
of 5% and 10%, respectively.
The following table sets forth certain information concerning exercises of
stock options by the named executive officers during the year ended September
30, 2005 and stock options held at September 30, 2005.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR END OPTION VALUES
Value of
Number of Unexercised
Unexercised Options at
Shares Options at Year End Year End(1)
Acquired on Value ---------------------------- ----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
--------------------- ----------- -------- ----------- ------------- ----------- -------------
Edward J. Molnar 30,199 $281,516 0 7,333 $ 0 $0
Ronald B. Geib 8,853 117,733 15,166 5,333 56,212 0
Marian Bickerstaff 5,872 71,611 11,833 4,000 111,302 0
Brendan J. McGill -- -- 28,083 4,000 135,393 0
---------------------
(1) Based on an assumed market price of $17.15 per share of common stock at
September 30, 2005.
Equity Compensation Plan Information
The following table sets forth certain information for all equity
compensation plans and individual compensation arrangements (whether with
employees or non-employees, such as directors), in effect as of September 30,
2005.
Number of Shares to be
issued upon the Exercise Weighted-Average Number of Shares Remaining Available
of Outstanding Options, Exercise Price of for Future Issuance (Excluding Shares
Plan Category Warrants and Rights(1) Outstanding Options Reflected in the First Column)(2)
----------------------------- ---------------------- ------------------- -------------------------------------
Equity compensation plans
approved by security holders 169,033 $13.23 54,859
Equity compensation plans not
approved by security holders -- -- --
------- ------ ------
Total 169,033 $13.23 54,859
======= ====== ======
-----------
(1) Does not take into account purchase rights accruing under the Company's
1995 Employee Stock Purchase Plan, which was approved by stockholders and
provides for up to 87,281 shares to be issued. Under the Employee Stock
Purchase Plan, each eligible employee may purchase shares of common stock
at semi-annual intervals each year at a purchase price determined by the
committee of the board of directors which administers the plan, which
shall not be less than the lesser of (i) 85% of the fair market value of a
share of common stock on the first business day of the applicable
semi-annual offering period or (ii) 85% of the fair market value of a
share of common stock on the last business day of such offering period. In
no event may the amount of common stock purchased by a participant in the
Employee Stock Purchase Plan in a calendar year exceed $25,000, measured
as of the time an option under the plan is granted.
(2) Includes shares available for future issuance under the Employee Stock
Purchase Plan. As of September 30, 2005, an aggregate of 53,583 shares of
common stock were available for issuance under this plan.
13
Human Resource Committee
The Human Resource Committee of the board of directors determines
executive compensation. During fiscal 2005, the members of the committee were
Messrs. Clemens, Alderfer and Meschter. No member of the committee is a current
or former officer or employee of the Company or the Bank. The report of the
committee with respect to compensation for the Chief Executive Officer and all
other executive officers is set forth below.
Report of the Human Resource Committee
The Human Resource Committee reviews and approves the annual compensation
of the Company's executive officers and other key management personnel. In
addition, the Human Resource Committee establishes policies and guidelines for
other benefit plans including the award of stock options.
The members of the Human Resource Committee recognize that the Company
must attract, retain and motivate the best people to achieve its business
objectives. To do so, it must compensate its executives fairly and competitively
in the market in which it competes. The competitive market for executives is
primarily financial institutions of a similar asset size. The principal resource
used for peer group comparisons is the 2005 Compensation Survey compiled by
America's Community Bankers.
The Human Resource Committee has established three primary components for
determining overall executive compensation: base salary compensation, annual
incentive compensation, and long-term incentive compensation. Components are
measured by both individual performance evaluations and group performance.
Base Salary Compensation
The Human Resources Committee establishes base salaries for executives of
Harleysville Savings by determining that job levels are properly established for
comparable job responsibilities. The principal resource used for establishing
appropriate job levels within the Company's Salary Administration Program is the
2005 Compensation Survey compiled by America's Community Bankers, a national
banking trade organization, which represents almost two thousand financial
institutions throughout the United States. Subjective annual performance
evaluations are used to determine the appropriate base salary level for each
executive officer. An independent Human Resource Committee is responsible for
the performance evaluation of the Chief Executive Officer.
The base salary paid to the Chief Executive Officer in fiscal year 2005
was $230,450 compared to $224,500 in fiscal year 2004. Annual base salary for
the other three executive officers of the Company are shown under the Summary
Compensation Table. The increase in base salary is commensurate with the
Company's compensation objectives and the salary structure of executive
compensation is within the competitive range for the industry based upon
comparison with financial institutions of similar size.
Annual Incentive Compensation
The incentive portion of the executive compensation program is designed to
align itself with the interests of the stockholders. Prior to the beginning of
each fiscal year, the board of directors establishes formal objectives through a
Salary Incentive Bonus Plan. The plan is designed to provide cash incentive
payments to the Bank's officers and employees when the Bank exceeds certain
performance criteria including return on equity goals and meeting certain risk
management tests.
The average bonus earned under the plan in fiscal 2005 by the four
executive officers at year-end, including the Chief Executive Officer, was
19.30% of their base salaries. For the four executive officers, payments ranged
from $23,264 to $44,482.
14
Long-Term Incentives
The Company maintains an incentive plan under which executive officers and
other employees may receive grants of stock options to purchase common stock of
the Company. The Human Resources Committee believes that stock ownership is a
significant incentive toward building stockholder value and aligning the
interests of employees with shareholders. The exercise price of options granted
is the market value of the common stock on the date of grant. The value of this
component of compensation increases as the common stock of the Company
appreciates in value. The specific grants for certain named executive officers
are reflected in the stock options table under Management Compensation.
Philip A. Clemens
Sanford L. Alderfer
George W. Meschter
15
Performance Graph
The following graph compares the yearly cumulative total return on the
Company's common stock over the past five years with (i) the yearly cumulative
total return on the stocks included in the Nasdaq Stock Market Index and (ii)
the yearly cumulative total return on the stocks included in the Nasdaq Banks
Index (all banks listed on the Nasdaq Stock Market). The cumulative returns are
computed assuming the reinvestment of dividends at the frequency with which
dividends were paid during the applicable years.
Harleysville Savings Comparative Performance Graph
[GRAPH OMITTED]
Table of Cumulative Values
2001 2002 2003 2004 2005
---- ---- ---- ---- ----
Harleysville Savings $100.00 $145.28 $186.41 $205.22 $209.97
Nasdaq Market Index 100.00 105.18 176.31 187.30 213.75
Nasdaq Banks Index 100.00 240.39 299.48 353.54 388.62
Book Value Per Share 9.19 10.05 10.81 11.56 11.56
Market Value Per Share 10.14 12.07 15.83 17.25 17.15
16
Employment Agreements
The Bank has entered into five-year employment agreements with Messrs.
Edward J. Molnar and Ronald B. Geib and Mrs. Marian Bickerstaff. The agreements
are extended automatically each year to continue for a five-year term. The
agreements with Messrs. Molnar and Geib and Mrs. Bickerstaff provide for a
current salary of $239,450, $167,500 and $121,650, respectively.
The agreements are terminable by the Bank for "just cause" as defined, at
any time or in certain events specified by federal regulations. The agreements
also provide for severance payments and other benefits, respectively: (i) in the
event of involuntary termination of employment in connection with any "change in
control" of the Bank, as defined, or (ii) in connection with a voluntary
termination of employment where, subsequent to an acquisition of control,
officers are assigned duties inconsistent with their positions, duties,
responsibilities and status immediately prior to such change in control.
"Just cause" is defined as termination for personal dishonesty, willful
misconduct, breach of fiduciary duty involving personal profit, conviction of a
felony, willful violation of any law or regulation to be enforced by or the
FDIC, or the Department of Banking of the Commonwealth of Pennsylvania
("Department"), willful violation of a final cease-and/or-desist order, willful
or intentional breach or neglect by an employee of his duties, persistent
negligence or misconduct in the performance of his duties or material breach of
any provision of the Agreement, as determined by a court of competent
jurisdiction or a federal or state regulatory agency having jurisdiction over
the Bank. No act, or failure to act, on an employee's part shall be considered
"willful" unless done, or omitted to be done, by him not in good faith and
without reasonable belief that his action or omission was in the best interest
of the Bank; provided that any act or omission to act on an employee's behalf in
reliance upon an opinion of counsel to the Bank or counsel to the employee shall
not be deemed to be willful. A "change in control" of the Bank is defined as a
change in control of a nature that would be required to be reported under
federal securities laws; provided that, without limitation, such a change in
control shall be deemed to have occurred if (A) any "person," as defined, other
than the Bank or any "person" who on the date in question is a director or
officer of the Bank, is or becomes the "beneficial owner," as defined, directly
or indirectly, of securities of the Bank representing 25% or more of the
combined voting power of the Bank's then outstanding securities, or (B) during
any period of two consecutive years during the term of the agreement,
individuals who at the beginning of such period constitute the board of
directors of the Bank cease for any reason to constitute at least a majority
thereof, unless the election of each director who was not a director at the
beginning of such period has been approved in advance by directors representing
at least two-thirds of the directors then in office who were directors at the
beginning of the period.
In the event of a voluntary or involuntary termination pursuant to a
change of control of the Bank, such severance payments would amount to the
aggregate of the product of an employee's average base salary over the five-year
taxable period preceding the taxable year in which the date of termination
occurs (or such lesser amount of time if the employee has not been employed by
the Bank for five years at the time of termination) multiplied by 2.99. Such
severance payment would be made in a lump sum on or before the fifth day
following the date of termination, provided, however, that if the lump sum
severance payment either alone or together with the other payments which the
employee has the right to receive would constitute an "excess parachute payment"
as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), such lump sum severance payment is required to be reduced to the
largest amount as will result in no portion of the lump sum severance payment
being an "excess parachute payment." If the employment of Edward J. Molnar,
Ronald B. Geib and Marian Bickerstaff had been terminated on September 30, 2005
pursuant to a change in control of the Bank, as defined, Messrs. Molnar and Geib
and Mrs. Bickerstaff would have been entitled to receive severance payments
amounting to approximately $691,580, $438,314 and $333,433, respectively.
The agreements also provide that an employee may terminate his or her
employment following a change in control for good reason, as defined, which
includes a failure by the Bank to comply with any material provision of the
agreement or the assignment of the employee subsequent to a change in control of
the Bank to duties inconsistent with his or her duties prior to the change in
control. In such case, the Bank is required to pay as severance to the employee
an amount equal to the product of his or her current annual base salary
multiplied by the greater of the number of years remaining in the term of
employment or the number 2.99. The agreements do not contain any provision
restricting the right to compete against the Bank upon termination of
employment. The board of directors may, from time to time, extend employment
agreements to other senior executive officers.
17
Profit Sharing Incentive Plan
The Company maintains a Profit Sharing Incentive Plan ("Profit Sharing
Plan") which is designed to provide cash incentive payments to the Company's
officers and employees when the Company exceeds certain performance criteria.
All of the Company's employees participate in the Profit Sharing Plan. The
Profit Sharing Plan provides that the Company will make allocations to a bonus
pool provided three performance criteria are satisfied: (1) the Company's return
on total stockholders' equity shall exceed an annualized rate of 10.75 percent
(the "Target Return"), (2) the Company's one year gap position under the asset
liability management policy may not exceed the guidelines established by the
board of directors, and (3) the percentage of the Company's loans which are 60
days or more overdue may not exceed 1.5 percent of its total assets. If these
criteria are satisfied, a percentage of the Company's profit in excess of the
Target Return is allocated to a bonus pool. The percentage of the Company's
profit in excess of the Target Return which is allocated to the bonus pool
ranges from 90 percent of the first fifteen basis points by which the Company's
profit exceeds the Target Return to five percent of any profit greater than 1.35
percent in excess of the Target Return. Awards from the bonus pool are based on
each participant's base earnings as a percentage of the total base earnings of
all participants, and a weighing factor which recognizes that the Company's
senior management, middle management and other employees have varying levels of
responsibility for the Company's overall performance. Incentive payments to
Messrs. Molnar, Geib and McGill and Mrs. Bickerstaff, for the year ended
September 30, 2005 were $44,482, $32,331, $23,264 and $23,481, respectively, and
are reflected in the Summary Compensation Table above. The total amount of
incentive payments made to all employees of the Bank employees (100 people) who
received payments pursuant to the Profit Sharing Plan for the year ended
September 30, 2005, including payments to the Company's four executive officers,
was $269,136.
Employee Stock Ownership Pension Plan
The board of directors of the Company and its stockholders have adopted an
Employee Stock Ownership Pension Plan ("ESOP"). The trustees of the ESOP are
Messrs. Clemens, Meschter and Alderfer. The trustees also serve as the
administrators of the ESOP. The trustees hold, invest, reinvest, manage,
administer and distribute the assets of the ESOP for the exclusive benefit of
participants, retired participants and their beneficiaries in accordance with
the terms of the ESOP and the Employee Stock Ownership Trust ("Trust")
established pursuant to the ESOP. All of the assets of the ESOP are held in the
Trust, which is managed by the trustees. The ESOP is subject to the
participation, vesting, fiduciary responsibility, reporting, and disclosure and
claims procedure requirements of ERISA. All officers and employees of the
Company who work 1,000 hours or more in a plan year, who have attained the age
of 21 and have completed 12 months of service may participate in the ESOP.
In general, the ESOP requires the Company to contribute to the Trust in
cash each year an amount which is not less than the amount required to enable
the Trust to discharge its current obligations. The Company may make additional
contributions in cash, shares of the common stock or other property, which shall
be valued at its fair market value, as the Company's board of directors may
determine.
Contributions of the Company in cash and other cash received by the Trust
will be applied to pay any current obligations of the Trust incurred for the
purchase of common stock, or may be applied to purchase additional shares of
common stock from current stockholders or from the Company. The investment
policy of the ESOP is to invest primarily in common stock of the Company;
however, the ESOP permits the investment of contributions to the ESOP into other
assets, including certificates of deposit and securities issued by the U.S.
government or its agencies.
The ESOP requires the Company to pay all costs of administering the ESOP
and any similar expenses of the trustees, excluding normal brokerage charges
which are included in the costs of stock purchased. All shares of common stock
which are allocated to participants' stock accounts shall be voted by the
trustees in accordance with instructions from the participants. All unallocated
shares of common stock held by the Trust or in a suspense account shall be voted
by the trustees.
Participation in the ESOP terminates as of the anniversary date coinciding
with or next following a participant's death, disability or retirement. Upon
termination of a participant's employment for any reason other than death,
disability or retirement, or upon a break in service, the participant shall have
vested rights in a portion of his or her stock and investment accounts based
upon the participant's years of credited service at his or her date of
termination. A participant is fully vested in his stock and investment accounts
after three years of plan participation.
18
Vested benefits under the ESOP will normally be distributed in a single
distribution as soon as possible following a participant's separation from
service. Distribution of benefits under the ESOP may be made in cash or in a
combination of shares of common stock and cash.
The Company's contributions to the ESOP are deductible by the Company to
the extent provided by the Code and the ESOP will not be subject to federal
income tax on its income and gain. A participant will not be taxed on
contributions made by the Company or earnings on such contributions until he
receives a distribution under the ESOP.
During fiscal 2005, the Company contributed $174,812 to the Trust which
was allocated to participants' accounts according to the terms of the plan. The
amounts allocated to executive officers under the ESOP in fiscal 2005 are
included in the Summary Compensation Table above.
401(k) Plan
The Company maintains the Harleysville Savings 401(k) Plan, a deferred
salary savings plan. All officers and employees working 1,000 hours or more in a
plan year, who have attained the age of 21 and have completed 12 months of
service, may participate in the 401(k) Plan on an optional basis. Under the
plan, participants may defer a portion of their salary by payroll deduction. The
Company or its subsidiaries make a matching contribution of 50% of the first 6%
of the participant's contribution. All contributions are invested via a plan
trust. The Company's matching contributions are vested at 100% after three years
of service. All contributions are invested via a plan trust at the direction of
the participant among several options, including several different mutual funds.
Benefit payments normally are made in connection with a participant's
retirement. Under current Internal Revenue Service regulations, the amount
contributed to the plan and the earnings on those contributions are not subject
to Federal income tax until they are withdrawn from the plan. The amount of the
matching contributions by the Company under the 401(k) Plan to the executive
officers in fiscal 2005 are included in the Summary Compensation Table above.
Employee Stock Purchase Plan
The board of directors of the Company and its stockholders have adopted
the 1995 Employee Stock Purchase Plan (the "Purchase Plan"), which is intended
as an incentive to encourage all eligible employees of the Company to acquire
stock ownership in the Company through payroll deductions so that they may share
in its performance. The Company's stockholders approved adoption of the Purchase
Plan at the annual meeting held in January 1996. The Purchase Plan is
administered and interpreted by the Human Resources Committee of the board of
directors.
Pursuant to the Purchase Plan, shares of the Company's common stock are
offered to employees of the Company in up to two offering periods during which
payroll deductions will be accumulated under the Purchase Plan during any
calendar year. Any employee of the Company or any parent or subsidiary,
including officers whether or not directors of the Company, is eligible to
enroll in the Purchase Plan by completing a payroll deduction form provided by
the Company. Upon enrollment, an employee shall elect to make contributions to
the Purchase Plan by payroll deductions in an aggregate amount not less than 2%
nor more than 10% of such employee's total compensation.
On the first business day of each offering period, the Company grants to
each eligible employee who is then a participant in the Purchase Plan an option
to purchase on the last business day of such period shares of the common stock
at an option price determined by the committee, which shall not be less than
eighty-five percent (85%) of the lesser of (a) the fair market value of the
shares on the first business day in an offering period, or (b) the fair market
value of the shares on the last business day of such offering period.
The Company suspended participation in the Purchase Plan in March 2005 and
the plan is not currently active.
19
Indebtedness of Management
The Bank offers certain loans to its directors, executive officers and
employees. It is the belief of management that these loans do not involve more
than the normal risk of collectibility. These loans are made on substantially
the same terms as those prevailing at the time for comparable transactions with
nonaffiliated persons. Directors, executive officers and employees of the Bank
receive no discount from the market interest rate for loans made by the Bank. As
of September 30, 2005, three of the Company's directors and executive officers
had loans outstanding with a balance in excess of $60,000.
PROPOSAL TO ADOPT THE 2005 STOCK OPTION PLAN
General
The board of directors has adopted the 2005 Stock Option Plan which is
designed to attract and retain qualified personnel in key positions, provide
officers and key employees with a proprietary interest in the Company as an
incentive to contribute to the success of the Company and reward key employees
for outstanding performance. The Option Plan is also designed to attract and
retain qualified directors for the Company. The Option Plan provides for the
grant of incentive stock options intended to comply with the requirements of
Section 422 of the Code ("incentive stock options"), and non-incentive or
compensatory stock options (collectively "awards"). Awards will be available for
grant to officers, key employees and directors of the Company and any
subsidiaries, except that non-employee directors will be eligible to receive
only awards of non-incentive stock options under the plan.
Description of the Option Plan
The following description of the Option Plan is a summary of its terms and
is qualified in its entirety by reference to the Option Plan, a copy of which is
attached hereto as Appendix A.
Administration. The Option Plan will be administered and interpreted by a
committee of the board of directors that is comprised solely of two or more
non-employee directors. The members of the committee will initially consist of
Messrs. Clemens, Alderfer and Meschter.
Stock Options. Under the Option Plan, the board of directors or the
committee will determine which officers, key employees and non-employee
directors will be granted options, whether such options will be incentive or
compensatory options (in the case of options granted to employees), the number
of shares subject to each option, the exercise price of each option, whether
such options may be exercised by delivering other shares of common stock and
when such options become exercisable. The per share exercise price of a stock
option shall be at least equal to the fair market value of a share of common
stock on the date the option is granted.
All options granted to participants under the Option Plan shall become
vested and exercisable at the rate, and subject to such limitations, as
specified by the board of directors or the committee at the time of grant.
Notwithstanding the foregoing, no vesting shall occur on or after a
participant's employment or service with the Company is terminated for any
reason other than his death, disability or retirement. Unless the committee or
board of directors shall specifically state otherwise at the time an option is
granted, all options granted to participants shall become vested and exercisable
in full on the date an optionee terminates his employment or service with the
Company or a subsidiary company because of his death, disability or retirement.
In addition, all stock options will become vested and exercisable in full upon a
change in control of the Company, as defined in the Option Plan.
Each stock option or portion thereof shall be exercisable at any time on
or after it vests and is exercisable until the earlier of ten years after its
date of grant or three months after the date on which the employee's employment
or service as a non-employee director terminates, unless extended by the
committee or the board of directors at the time of grant to a period not to
exceed five years from such termination. Unless stated otherwise at the time an
option is granted (i) if an employee terminates his employment with the Company
as a result of disability or retirement without having fully exercised his
options, the optionee shall have one year following his termination due to
disability or retirement to exercise such options, and (ii) if an optionee
terminates his employment or service with the Company following a change in
control of the Company without having fully exercised his options, the optionee
shall have the right to exercise such options during the remainder of the
original ten year term of the option. However, failure to exercise incentive
stock
20
options within three months after the date on which the optionee's employment
terminates may result in adverse tax consequences to the optionee. If an
optionee dies while serving as an employee or a non-employee director or
terminates employment or service as a result of disability or retirement and
dies without having fully exercised his options, the optionee's executors,
administrators, legatees or distributees of his estate shall have the right to
exercise such options during the one year period following his death, provided
no option will be exercisable more than ten years from the date it was granted.
Stock options are non-transferable except by will or the laws of descent
and distribution. Notwithstanding the foregoing, an optionee who holds
non-qualified options may transfer such options to his or her spouse, lineal
ascendants, lineal descendants, or to a duly established trust for the benefit
or one or more of these individuals. Options so transferred may thereafter be
transferred only to the optionee who originally received the grant or to an
individual or trust to whom the optionee could have initially transferred the
option. Options which are so transferred shall be exercisable by the transferee
according to the same terms and conditions as applied to the optionee.
Payment for shares purchased upon the exercise of options may be made
either in cash, by certified or cashier's check or, if permitted by the
committee or the board, by delivering shares of common stock (including shares
acquired pursuant to the exercise of an option) with a fair market value equal
to the total option price, by withholding some of the shares of common stock
which are being purchased upon exercise of an option, or any combination of the
foregoing. To the extent an optionee already owns shares of common stock prior
to the exercise of his or her option, such shares could be used (if permitted by
committee or the board) as payment for the exercise price of the option. If the
fair market value of a share of common stock at the time of exercise is greater
than the exercise price per share, this feature would enable the optionee to
acquire a number of shares of common stock upon exercise of the option which is
greater than the number of shares delivered as payment for the exercise price.
In addition, an optionee can exercise his or her option in whole or in part and
then deliver the shares acquired upon such exercise (if permitted by the
committee or the board) as payment for the exercise price of all or part of his
options. Again, if the fair market value of a share of common stock at the time
of exercise is greater than the exercise price per share, this feature would
enable the optionee to either (1) reduce the amount of cash required to receive
a fixed number of shares upon exercise of the option or (2) receive a greater
number of shares upon exercise of the option for the same amount of cash that
would have otherwise been used. Because options may be exercised in part from
time to time, the ability to deliver common stock as payment of the exercise
price could enable the optionee to turn a relatively small number of shares into
a large number of shares.
Number of Shares Covered by the Option Plan. A total of 290,000 shares of
common stock, which is equal to approximately 7.4% of the issued and outstanding
common stock, has been reserved for future issuance pursuant to the Option Plan.
In the event of a stock split, reverse stock split, subdivision, stock dividend
or any other capital adjustment, the number of shares of common stock under the
Option Plan, the number of shares to which any award relates and the exercise
price per share under any option shall be adjusted to reflect such increase or
decrease in the total number of shares of common stock outstanding or such
capital adjustment.
Amendment and Termination of the Option Plan. The board of directors may
at any time terminate or amend the Option Plan with respect to any shares of
common stock as to which awards have not been granted, subject to any required
stockholder approval or any stockholder approval which the board may deem to be
advisable. The board of directors may not, without the consent of the holder of
an award, alter or impair any award previously granted or awarded under the
Option Plan except as specifically authorized by the plan.
Unless sooner terminated, the Option Plan shall continue in effect for a
period of ten years from September 21, 2005, the date that the Option Plan was
adopted by the board of directors. Termination of the Option Plan shall not
affect any previously granted awards.
Awards to be Granted. The Company has not made any determination as to the
timing or recipients of grants of awards under the Option Plan.
Awards Granted or Available Under Existing Plans. As of September 30,
2005, options to purchase 169,033 shares of common stock were issued and
outstanding under the Company's existing stock option plans and 54,859 shares
remained available for grant under such plans.
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Federal Income Tax Consequences. Set forth below is a summary of the
federal income tax consequences under the Internal Revenue Code relating to
awards which may be granted under the Option Plan.
No taxable income is recognized by the optionee upon the grant or exercise
of an incentive stock option that meets the requirements of Section 422 of the
Code. However, the exercise of an incentive stock option may result in
alternative minimum tax liability for the optionee. If no disposition of shares
issued to an optionee pursuant to the exercise of an incentive stock option is
made by the optionee within two years from the date of grant or within one year
after the date of exercise, then upon sale of such shares, any amount realized
in excess of the exercise price (the amount paid for the shares) will be taxed
to the optionee as a long-term capital gain and any loss sustained will be a
long-term capital loss, and no deduction will be allowed to the Company for
federal income tax purposes.
If shares of common stock acquired upon the exercise of an incentive stock
option are disposed of prior to the expiration of the two-year and one-year
holding periods described above (a "disqualifying disposition"), the optionee
generally will recognize ordinary income in the year of disposition in an amount
equal to the excess (if any) of the fair market value of the shares on the date
of exercise (or, if less, the amount realized on an arm's length sale of such
shares) over the exercise price of the underlying options, and the Company will
be entitled to deduct such amount. Any gain realized from the shares in excess
of the amount taxed as ordinary income will be taxed as capital gain and will
not be deductible by the Company.
An incentive stock option will not be eligible for the tax treatment
described above if it is exercised more than three months following termination
of employment, except in certain cases where the incentive stock option is
exercised after the death or permanent and total disability of the optionee. If
an incentive stock option is exercised at a time when it no longer qualifies for
the tax treatment described above, the option is treated as a nonqualified stock
option.
No taxable income is recognized by the optionee at the time a nonqualified
stock option is granted under the Option Plan. Generally, on the date of
exercise of a nonqualified stock option, ordinary income is recognized by the
optionee in an amount equal to the difference between the exercise price and the
fair market value of the shares on the date of exercise, and the Company
receives a tax deduction for the same amount. Upon disposition of the shares
acquired, an optionee generally recognizes the appreciation or depreciation on
the shares after the date of exercise as either short-term or long-term capital
gain or loss depending on how long the shares have been held. In general, common
stock issued upon exercise of an option granted under the Option Plan will be
transferable and not subject to a risk of forfeiture at the time issued.
Section 162(m) of the Internal Revenue Code generally limits the deduction
for certain compensation in excess of $1.0 million per year paid by a
publicly-held corporation to its chief executive officer or any of the four
other most highly-compensated executive officers. Compensation that qualifies as
"qualified performance-based" compensation is not subject to the $1.0 million
limit. The Option Plan has been structured to permit awards and payments that
will satisfy the requirements applicable to "qualified performance-based"
compensation.
The above description of tax consequences under federal income tax law is
necessarily general in nature and does not purport to be complete. Moreover,
statutory provisions are subject to change, as are their interpretations, and
their application may vary in individual circumstances. Finally, the
consequences under applicable state and local income tax laws may not be the
same as under the federal income tax laws.
Accounting Treatment. Historically, option grants made to employees under
the Company's stock compensation plans have not resulted in any charge to
earnings. However, the Company has disclosed in footnotes and pro-forma
statements to its consolidated financial statements the impact those options
would have upon the Company's reported earnings were the value of those options
at the time of grant treated as a compensation expense. However, beginning in
the fiscal year ending September 30, 2006, the Company will be required under
Statement of Financial Accounting Standards No. 123(R) "Share-Based Payment" to
record as a charge to earnings the fair value of options granted. The level of
expense is determined based on a valuation model that requires that we make
assumptions regarding, among other things, the life of the options, forfeitures
and the volatility of our stock. Therefore, the level of expense will depend on
assumptions at the time the options are granted to plan participants.
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Stockholder Approval. No awards will be granted under the Option Plan
unless the plan is approved by stockholders. Stockholder ratification of the
Option Plan will satisfy listing requirements of the Nasdaq Stock Market and
certain federal tax requirements applicable to incentive stock options under the
Code.
The Board of Directors recommends that stockholders vote FOR adoption
of the 2005 Stock Option Plan.
RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the board of directors of the Company has appointed
Deloitte & Touche LLP independent registered public accounting firm, to perform
the audit of the Company's financial statements for the year ending September
30, 2006, and further directed that the selection of independent registered
public accounting firm be submitted for ratification by the stockholders at the
annual meeting.
The Company has been advised by Deloitte & Touche LLP that neither that
firm nor any of its associates has any relationship with the Company or its
subsidiaries other than the usual relationship that exists between independent
registered public accounting firm and clients. Deloitte & Touche LLP will have
one or more representatives at the Annual meeting who will have an opportunity
to make a statement, if they so desire, and will be available to respond to
appropriate questions.
The board of directors recommends that you vote FOR the ratification of
the appointment of Deloitte & Touche LLP as independent registered public
accounting firm for fiscal 2006.
STOCKHOLDER PROPOSALS AND STOCKHOLDER
COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Any proposal which a stockholder wishes to have included in the proxy
materials of the Company relating to the next annual meeting of stockholders of
the Company, which is scheduled to be held in January 2007, must be received at
the principal executive offices of the Company, 271 Main Street, Harleysville,
Pennsylvania 19438, Attention: Marian Bickerstaff, Senior Vice President and
Secretary, no later than August 18, 2006. If such proposal is in compliance with
all of the requirements of Rule 14a-8 of the Exchange Act, it will be included
in the proxy statement and set forth on the form of proxy issued for such annual
meeting of stockholders. It is urged that any such proposals be sent certified
mail, return receipt requested.
Stockholder proposals which are not submitted for inclusion in the
Company's proxy materials pursuant to Rule 14a-8 of the Exchange Act may be
brought before an annual meeting pursuant to the Company's Bylaws, which
provides that business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the board of directors, or
(b) otherwise properly brought before the meeting by a stockholder. For business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Company. To be timely a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the Company not later than
ninety days prior to the anniversary date of the mailing of proxy materials by
the Company in connection with the immediately preceding annual meeting of
stockholders. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting, (b)
the name and address, as they appear on the Company's books, of the stockholder
proposing such business, (c) the class and number of shares of the Company which
are beneficially owned by the stockholder, and (d) any material interest of the
stockholder in such business. To be timely with respect to the next annual
meeting of stockholders of the Company, a stockholders notice must be received
by the Company no later than September 17, 2006.
The board of directors of the Company has adopted a process by which
stockholders may communicate directly with members of the board. Stockholders
who wish to communicate with the board may do so by sending written
communications addressed to the Board of Directors, c/o Marian Bickerstaff,
Senior Vice President and Secretary, Harleysville Savings Financial Corporation,
271 Main Street, Harleysville, Pennsylvania 19438.
23
ANNUAL REPORTS
A copy of the Company's annual report to Stockholders for the year ended
September 30, 2005 accompanies this proxy statement. Such annual report is not
part of the proxy solicitation materials.
Upon receipt of a written request, the Company will furnish to any
stockholder without charge a copy of the Company's Annual Report on Form 10-K
for the year ended September 30, 2005 required to be filed with the Securities
and Exchange Commission under the Exchange Act. Such written requests should be
directed to Marian Bickerstaff, Senior Vice President and Secretary,
Harleysville Savings Financial Corporation, 271 Main Street, Harleysville,
Pennsylvania 19438. The Form 10-K is not part of the proxy solicitation
materials.
OTHER MATTERS
Management is not aware of any business to come before the annual meeting
other than the matters described above in this proxy statement. However, if any
other matters should properly come before the meeting, it is intended that the
proxies solicited hereby will be voted with respect to those other matters in
accordance with the judgment of the persons voting the proxies.
The cost of the 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 the proxy
materials to the beneficial owners of the common stock. In addition to
solicitations by mail, directors, officers and employees of the Company may
solicit proxies personally or by telephone without additional compensation.
24
APPENDIX A
HARLEYSVILLE SAVINGS FINANCIAL CORPORATION
2005 STOCK OPTION PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
Harleysville Savings Financial Corporation (the "Corporation") hereby
establishes this 2005 Stock Option Plan (the "Plan") upon the terms and
conditions hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
The purpose of this Plan is to improve the growth and profitability of the
Corporation and its Subsidiary Companies by providing Employees and Non-Employee
Directors with a proprietary interest in the Corporation as an incentive to
contribute to the success of the Corporation and its Subsidiary Companies, and
rewarding Employees for outstanding performance and the attainment of targeted
goals. All Incentive Stock Options issued under this Plan are intended to comply
with the requirements of Section 422 of the Code, and the regulations
thereunder, and all provisions hereunder shall be read, interpreted and applied
with that purpose in mind.
ARTICLE III
DEFINITIONS
3.01 "Award" means an Option granted pursuant to the terms of this Plan.
3.02 "Bank" means Harleysville Savings Bank, the wholly owned subsidiary
of the Corporation.
3.03 "Board" means the Board of Directors of the Corporation.
3.04 "Change in Control of the Corporation" shall mean a change in the
ownership of the Corporation, a change in the effective control of the
Corporation or a change in the ownership of a substantial portion of the assets
of the Corporation as provided under Section 409A of the Code, as amended from
time to time, and any Internal Revenue Service guidance, including Notice
2005-1, and regulations issued in connection with Section 409A of the Code.
3.05 "Code" means the Internal Revenue Code of 1986, as amended.
3.06 "Committee" means a committee of two or more directors appointed by
the Board pursuant to Article IV hereof each of whom shall be a Non-Employee
Director as defined in Rule 16b-3(b)(3)(i) of the Exchange Act or any successor
thereto and within the meaning of Section 162(m) of the Code and the regulations
promulgated thereunder.
3.07 "Common Stock" means shares of the common stock, $.10 par value per
share, of the Corporation.
3.08 "Disability" shall mean that the holder of an Award (i) is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or can be expected to last for a continuous period of not less than 12
months, or (ii) is, by reason of any medically determinable physical or mental
impairment which can be expected to result in death or can be expected to last
for a continuous period of not less than 12 months, receiving income replacement
benefits for a period of not less than three months under an accident and health
plan covering employees of the Corporation.
3.09 "Effective Date" means the day upon which the Board approves this
Plan.
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3.10 "Employee" means any person who is employed by the Corporation or a
Subsidiary Company, or is an Officer of the Corporation or a Subsidiary Company,
but not including directors who are not also Officers of or otherwise employed
by the Corporation or a Subsidiary Company.
3.11 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
3.12 "Fair Market Value" shall be equal to the fair market value per
share of the Corporation's Common Stock on the date an Award is granted. For
purposes hereof, the Fair Market Value of a share of Common Stock shall be the
closing sale price of a share of Common Stock on the date in question (or, if
such day is not a trading day in the U.S. markets, on the nearest preceding
trading day), as reported with respect to the principal market (or the composite
of the markets, if more than one) or national quotation system in which such
shares are then traded, or if no such closing prices are reported, the mean
between the high bid and low asked prices that day on the principal market or
national quotation system then in use, or if no such quotations are available,
then the Fair Market Value shall be determined in accordance with the
regulations issued under Section 409A of the Code.
3.13 "Incentive Stock Option" means any Option granted under this Plan
which the Board intends (at the time it is granted) to be an incentive stock
option within the meaning of Section 422 of the Code or any successor thereto.
3.14 "Non-Employee Director" means a member of the Board of the
Corporation or Board of Directors of the Bank who is not an Officer or Employee
of the Corporation or any Subsidiary Company.
3.15 "Non-Qualified Option" means any Option granted under this Plan
which is not an Incentive Stock Option.
3.16 "Officer" means an Employee whose position in the Corporation or
Subsidiary Company is that of a corporate officer, as determined by the Board.
3.17 "Option" means a right granted under this Plan to purchase Common
Stock.
3.18 "Optionee" means an Employee or Non-Employee Director or former
Employee or Non-Employee Director to whom an Option is granted under the Plan.
3.19 "Retirement" means a termination of employment which constitutes a
"retirement" under any applicable qualified pension benefit plan maintained by
the Corporation or a Subsidiary Corporation, or, if no such plan is applicable,
which would constitute "retirement" under the Corporation's pension benefit
plan, if such individual were a participant in that plan.
3.20 "Subsidiary Companies" means those subsidiaries of the Corporation,
including the Bank, which meet the definition of "subsidiary corporations" set
forth in Section 425(f) of the Code, at the time of granting of the Option in
question.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 Duties of the Committee. The Plan shall be administered and
interpreted by the Committee, as appointed from time to time by the Board
pursuant to Section 4.02. The Committee shall have the authority to adopt, amend
and rescind such rules, regulations and procedures as, in its opinion, may be
advisable in the administration of the Plan, including, without limitation,
rules, regulations and procedures which (i) deal with satisfaction of an
Optionee's tax withholding obligation pursuant to Section 12.02 hereof, (ii)
include arrangements to facilitate the Optionee's ability to borrow funds for
payment of the exercise or purchase price of an Award, if applicable, from
securities brokers and dealers, and (iii) include arrangements which provide for
the payment of some or all of such exercise or purchase price by delivery of
previously-owned shares of Common Stock or other property and/or by withholding
some of the shares of Common Stock which are being acquired. The interpretation
and construction by the Committee of any provisions of the
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Plan, any rule, regulation or procedure adopted by it pursuant thereto or of any
Award shall be final and binding in the absence of action by the Board.
4.02 Appointment and Operation of the Committee. The members of the
Committee shall be appointed by, and will serve at the pleasure of, the Board.
The Board from time to time may remove members from, or add members to, the
Committee, provided the Committee shall continue to consist of two or more
members of the Board, each of whom shall be a Non-Employee Director, as defined
in Rule 16b-3(b)(3)(i) of the Exchange Act or any successor thereto. In
addition, each member of the Committee shall be an "outside director" within the
meaning of Section 162(m) of the Code and regulations thereunder at such times
as is required under such regulations. The Committee shall act by vote or
written consent of a majority of its members. Subject to the express provisions
and limitations of the Plan, the Committee may adopt such rules, regulations and
procedures as it deems appropriate for the conduct of its affairs. It may
appoint one of its members to be chairman and any person, whether or not a
member, to be its secretary or agent. The Committee shall report its actions and
decisions to the Board at appropriate times but in no event less than one time
per calendar year.
4.03 Revocation for Misconduct. The Board or the Committee may by
resolution immediately revoke, rescind and terminate any Option, or portion
thereof, to the extent not yet vested to the extent not yet exercised,
previously granted or awarded under this Plan to an Employee who is discharged
from the employ of the Corporation or a Subsidiary Company for cause, which, for
purposes hereof, shall mean termination because of the Employee's personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order. Options granted to a Non-Employee
Director who is removed for cause pursuant to the Corporation's Articles of
Incorporation and Bylaws or the Bank's Charter and Bylaws shall terminate as of
the effective date of such removal.
4.04 Limitation on Liability. Neither the members of the Board nor any
member of the Committee shall be liable for any action or determination made in
good faith with respect to the Plan, any rule, regulation or procedure adopted
by it pursuant thereto or any Awards granted under it. If a member of the Board
or the Committee is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of anything done or not
done by him in such capacity under or with respect to the Plan, the Corporation
shall, subject to the requirements of applicable laws and regulations, indemnify
such member against all liabilities and expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in the best interests of the
Corporation and its Subsidiary Companies and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful.
4.05 Compliance with Law and Regulations. All Awards granted hereunder
shall be subject to all applicable federal and state laws, rules and regulations
and to such approvals by any government or regulatory agency as may be required.
The Corporation shall not be required to issue or deliver any certificates for
shares of Common Stock prior to the completion of any registration or
qualification of or obtaining of consents or approvals with respect to such
shares under any federal or state law or any rule or regulation of any
government body, which the Corporation shall, in its sole discretion, determine
to be necessary or advisable. Moreover, no Option may be exercised if such
exercise would be contrary to applicable laws and regulations.
4.06 Restrictions on Transfer. The Corporation may place a legend upon
any certificate representing shares acquired pursuant to an Award granted
hereunder noting that the transfer of such shares may be restricted by
applicable laws and regulations.
ARTICLE V
ELIGIBILITY
Awards may be granted to such Employees and Non-Employee Directors of the
Corporation and its Subsidiary Companies as may be designated from time to time
by the Board or the Committee. Awards may not be granted to
A-3
individuals who are not Employees or Non-Employee Directors of either the
Corporation or its Subsidiary Companies. Non-Employee Directors shall be
eligible to receive only Non-Qualified Options.
ARTICLE VI
COMMON STOCK COVERED BY THE PLAN
6.01 Option Shares. The aggregate number of shares of Common Stock which
may be issued pursuant to this Plan, subject to adjustment as provided in
Article IX, shall be 290,000. None of such shares shall be the subject of more
than one Award at any time, but if an Option as to any shares is surrendered
before exercise, or expires or terminates for any reason without having been
exercised in full, or for any other reason ceases to be exercisable, the number
of shares covered thereby shall again become available for grant under the Plan
as if no Awards had been previously granted with respect to such shares.
6.02 Source of Shares. The shares of Common Stock issued under the Plan
may be authorized but unissued shares, treasury shares or shares purchased by
the Corporation on the open market or from private sources for use under the
Plan.
ARTICLE VII
DETERMINATION OF
AWARDS, NUMBER OF SHARES, ETC.
7.01 Determination of Awards. The Board or the Committee shall, in its
discretion, determine from time to time which Employees and Non-Employee
Directors will be granted Awards under the Plan, the number of shares of Common
Stock subject to each Award, whether each Option will be an Incentive Stock
Option or a Non-Qualified Stock Option, and the exercise price of an Option. In
making all such determinations there shall be taken into account the duties,
responsibilities and performance of each Optionee, his present and potential
contributions to the growth and success of the Corporation, his salary and such
other factors deemed relevant to accomplishing the purposes of the Plan.
7.02 Maximum Awards to any Person. Notwithstanding anything contained in
this Plan to the contrary, the maximum number of shares of Common Stock to which
Awards may be granted to any individual in any calendar year shall be 50,000.
ARTICLE VIII
OPTIONS
Each Option granted hereunder shall be on the following terms and
conditions:
8.01 Stock Option Agreement. The proper Officers on behalf of the
Corporation and each Optionee shall execute a Stock Option Agreement which shall
set forth the total number of shares of Common Stock to which it pertains, the
exercise price, whether it is a Non-Qualified Option or an Incentive Stock
Option, and such other terms, conditions, restrictions and privileges as the
Board or the Committee in each instance shall deem appropriate, provided they
are not inconsistent with the terms, conditions and provisions of this Plan.
Each Optionee shall receive a copy of his executed Stock Option Agreement.
8.02 Option Exercise Price.
(a) Incentive Stock Options. The per share price at which the
subject Common Stock may be purchased upon exercise of an Incentive Stock Option
shall be no less than one hundred percent (100%) of the Fair Market Value of a
share of Common Stock at the time such Incentive Stock Option is granted, except
as provided in Section 8.09(b).
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(b) Non-Qualified Options. The per share price at which the subject
Common Stock may be purchased upon exercise of a Non-Qualified Option shall be
established by the Committee at the time of grant, but in no event shall be less
than one hundred percent (100%) of the Fair Market Value of a share of Common
Stock at the time such Non-Qualified Option is granted.
8.03 Vesting and Exercise of Options.
(a) General Rules. Incentive Stock Options and Non-Qualified Options
shall become vested and exercisable at the rate, to the extent and subject to
such limitations as may be specified by the Board or the Committee.
Notwithstanding the foregoing, no vesting shall occur on or after an Employee's
employment or service as a Non-Employee Director with the Corporation and all
Subsidiary Companies is terminated for any reason other than his death,
Disability, Retirement or a Change in Control of the Corporation. In determining
the number of shares of Common Stock with respect to which Options are vested
and/or exercisable, fractional shares will be rounded up to the nearest whole
number if the fraction is 0.5 or higher, and down if it is less.
(b) Accelerated Vesting. Unless the Committee or Board shall
specifically state otherwise at the time an Option is granted, all Options
granted under this Plan shall become vested and exercisable in full on the date
an Optionee terminates his employment with the Corporation or a Subsidiary
Company or service as a Non-Employee Director because of his death, Disability
or Retirement. In addition, all outstanding Options shall become immediately
vested and exercisable in full as of the effective date of a Change in Control
of the Corporation.
8.04 Duration of Options.
(a) General Rule. Except as provided in Sections 8.04(b) and 8.09,
each Option or portion thereof shall be exercisable at any time on or after it
vests and remain exercisable until the earlier of (i) ten (10) years after its
date of grant or (ii) three (3) months after the date on which the Employee or
Non-Employee Director ceases to be employed by or serve the Corporation and all
Subsidiary Companies, or any successor thereto, unless the Board or the
Committee in its discretion decides at the time of grant to extend such period
of exercise upon termination of employment or service to a period not exceeding
five (5) years.
(b) Exceptions. Unless the Board or the Committee shall specifically
state otherwise at the time an Option is granted, if an Employee terminates his
employment with the Corporation or a Subsidiary Company as a result of
Disability or Retirement without having fully exercised his Options, the
Employee shall have the right, during the one (1) year period following his
termination due to Disability or Retirement, to exercise such Options.
Unless the Board or the Committee shall specifically state otherwise at
the time an Option is granted, if an Employee or Non-Employee Director
terminates his employment or service with the Corporation or a Subsidiary
Company following a Change in Control of the Corporation without having fully
exercised his Options, the Optionee shall have the right to exercise such
Options during the remainder of the original ten (10) year term of the Option
from the date of grant.
If an Optionee dies while in the employ or service of the Corporation or a
Subsidiary Company or terminates employment or service with the Corporation or a
Subsidiary Company as a result of Disability or Retirement and dies without
having fully exercised his Options, the executors, administrators, legatees or
distributees of his estate shall have the right, during the one (1) year period
following his death, to exercise such Options.
In no event, however, shall any Option be exercisable more than ten (10)
years from the date it was granted.
8.05 Nonassignability. Options shall not be transferable by an Optionee
except by will or the laws of descent or distribution, and during an Optionee's
lifetime shall be exercisable only by such Optionee or the Optionee's guardian
or legal representative. Notwithstanding the foregoing, or any other provision
of this Plan, an Optionee who holds Non-Qualified Options may transfer such
Options to his or her spouse, lineal ascendants, lineal descendants, or to a
duly established trust for the benefit of one or more of these individuals.
Options so transferred may thereafter be transferred only to the Optionee who
originally received the grant or to an individual or trust to whom the Optionee
could
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have initially transferred the Option pursuant to this Section 8.05. Options
which are transferred pursuant to this Section 8.05 shall be exercisable by the
transferee according to the same terms and conditions as applied to the
Optionee.
8.06 Manner of Exercise. Options may be exercised in part or in whole and
at one time or from time to time. The procedures for exercise shall be set forth
in the written Stock Option Agreement provided for in Section 8.01 above.
8.07 Payment for Shares. Payment in full of the purchase price for shares
of Common Stock purchased pursuant to the exercise of any Option shall be made
to the Corporation upon exercise of the Option. All shares sold under the Plan
shall be fully paid and nonassessable. Payment for shares may be made by the
Optionee in cash or, at the discretion of the Board or the Committee, by
delivering shares of Common Stock (including shares acquired pursuant to the
exercise of an Option) or other property equal in Fair Market Value to the
purchase price of the shares to be acquired pursuant to the Option, by
withholding some of the shares of Common Stock which are being purchased upon
exercise of an Option, or any combination of the foregoing.
8.08 Voting and Dividend Rights. No Optionee shall have any voting or
dividend rights or other rights of a stockholder in respect of any shares of
Common Stock covered by an Option prior to the time that his name is recorded on
the Corporation's stockholder ledger as the holder of record of such shares
acquired pursuant to an exercise of an Option.
8.09 Additional Terms Applicable to Incentive Stock Options. All Options
issued under the Plan as Incentive Stock Options will be subject, in addition to
the terms detailed in Sections 8.01 to 8.08 above, to those contained in this
Section 8.09.
(a) Notwithstanding any contrary provisions contained elsewhere in
this Plan and as long as required by Section 422 of the Code, the aggregate Fair
Market Value, determined as of the time an Incentive Stock Option is granted, of
the Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by the Optionee during any calendar year under this Plan, and
stock options that satisfy the requirements of Section 422 of the Code under any
other stock option plan or plans maintained by the Corporation (or any parent or
Subsidiary Company), shall not exceed $100,000.
(b) Limitation on Ten Percent Stockholders. The price at which
shares of Common Stock may be purchased upon exercise of an Incentive Stock
Option granted to an individual who, at the time such Incentive Stock Option is
granted, owns, directly or indirectly, more than ten percent (10%) of the total
combined voting power of all classes of stock issued to stockholders of the
Corporation or any Subsidiary Company, shall be no less than one hundred and ten
percent (110%) of the Fair Market Value of a share of the Common Stock of the
Corporation at the time of grant, and such Incentive Stock Option shall by its
terms not be exercisable after the earlier of the date determined under Section
8.04 or the expiration of five (5) years from the date such Incentive Stock
Option is granted.
(c) Notice of Disposition; Withholding; Escrow. An Optionee shall
immediately notify the Corporation in writing of any sale, transfer, assignment
or other disposition (or action constituting a disqualifying disposition within
the meaning of Section 421 of the Code) of any shares of Common Stock acquired
through exercise of an Incentive Stock Option, within two (2) years after the
grant of such Incentive Stock Option or within one (1) year after the
acquisition of such shares, setting forth the date and manner of disposition,
the number of shares disposed of and the price at which such shares were
disposed of. The Corporation shall be entitled to withhold from any compensation
or other payments then or thereafter due to the Optionee such amounts as may be
necessary to satisfy any withholding requirements of federal or state law or
regulation and, further, to collect from the Optionee any additional amounts
which may be required for such purpose. The Committee may, in its discretion,
require shares of Common Stock acquired by an Optionee upon exercise of an
Incentive Stock Option to be held in an escrow arrangement for the purpose of
enabling compliance with the provisions of this Section 8.09(c).
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ARTICLE IX
ADJUSTMENTS FOR CAPITAL CHANGES
The aggregate number of shares of Common Stock available for issuance
under this Plan, the number of shares to which any outstanding Award relates,
the maximum number of shares that can be covered by Awards granted to a person
in any calendar year, and the exercise price per share of Common Stock under any
outstanding Option shall be proportionately adjusted for any increase or
decrease in the total number of outstanding shares of Common Stock issued
subsequent to the effective date of this Plan resulting from a split,
subdivision or consolidation of shares or any other capital adjustment, the
payment of a stock dividend, or other increase or decrease in such shares
effected without receipt or payment of consideration by the Corporation. If,
upon a merger, consolidation, reorganization, liquidation, recapitalization or
the like of the Corporation, the shares of the Corporation's Common Stock shall
be exchanged for other securities of the Corporation or of another corporation,
each recipient of an Award shall be entitled, subject to the conditions herein
stated, to purchase or acquire such number of shares of Common Stock or amount
of other securities of the Corporation or such other corporation as were
exchangeable for the number of shares of Common Stock of the Corporation which
such optionees would have been entitled to purchase or acquire except for such
action, and appropriate adjustments shall be made to the per share exercise
price of outstanding Options.
ARTICLE X
AMENDMENT AND TERMINATION OF THE PLAN
The Board may, by resolution, at any time terminate or amend the Plan with
respect to any shares of Common Stock as to which Awards have not been granted,
subject to any required stockholder approval or any stockholder approval which
the Board may deem to be advisable for any reason, such as for the purpose of
obtaining or retaining any statutory or regulatory benefits under tax,
securities or other laws or satisfying any applicable stock exchange listing
requirements. The Board may not, without the consent of the holder of an Award,
alter or impair any Award previously granted or awarded under this Plan except
as specifically authorized herein. Notwithstanding any other provision of the
Plan to the contrary, in the event that the Board determines, after a review of
Section 409A of the Code and all applicable Internal Revenue Service guidance,
that the Plan or any provision thereof or any Award is subject to Section 409A
of the Code, the Board may amend the Plan or the Award to make any changes
required for it to comply with Section 409A of the Code.
ARTICLE XI
EMPLOYMENT AND SERVICE RIGHTS
Neither the Plan nor the grant of any Awards hereunder nor any action
taken by the Committee or the Board in connection with the Plan shall create any
right on the part of any Employee or Non-Employee Director to continue in such
capacity.
ARTICLE XII
WITHHOLDING
12.01 Tax Withholding. The Corporation may withhold from any cash payment
made under this Plan sufficient amounts to cover any applicable withholding and
employment taxes, and if the amount of such cash payment is insufficient, the
Corporation may require the Optionee to pay to the Corporation the amount
required to be withheld as a condition to delivering the shares acquired
pursuant to an Award. The Corporation also may withhold or collect amounts with
respect to a disqualifying disposition of shares of Common Stock acquired
pursuant to exercise of an Incentive Stock Option, as provided in Section
8.09(c).
12.02 Methods of Tax Withholding. The Board or the Committee is authorized
to adopt rules, regulations or procedures which provide for the satisfaction of
an Optionee's tax withholding obligation by the retention of shares of Common
Stock to which the Employee would otherwise be entitled pursuant to an Award
and/or by the Optionee's delivery of previously-owned shares of Common Stock or
other property.
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ARTICLE XIII
EFFECTIVE DATE OF THE PLAN; TERM
13.01 Effective Date of the Plan. This Plan shall become effective on the
Effective Date, and Awards may be granted hereunder no earlier than the date
that this Plan is approved by stockholders of the Corporation and no later than
the date of termination of the Plan, provided that this Plan is approved by
stockholders of the Corporation pursuant to Article XIV hereof.
13.02 Term of the Plan. Unless sooner terminated, this Plan shall remain
in effect for a period of ten (10) years ending on the tenth anniversary of the
Effective Date. Termination of the Plan shall not affect any Awards previously
granted and such Awards shall remain valid and in effect until they have been
fully exercised or earned, are surrendered or by their terms expire or are
forfeited.
ARTICLE XIV
STOCKHOLDER APPROVAL
The Corporation shall submit this Plan to stockholders for approval at a
meeting of stockholders of the Corporation held within twelve (12) months
following the Effective Date in order to meet the requirements of (i) Section
422 of the Code and regulations thereunder, (ii) Section 162(m) of the Code and
regulations thereunder, and (iii) the National Association of Securities
Dealers, Inc. for quotation of the Common Stock on the Nasdaq Stock Market's
National Market.
ARTICLE XV
MISCELLANEOUS
15.01 Governing Law. To the extent not governed by federal law, this Plan
shall be construed under the laws of the Commonwealth of Pennsylvania.
15.02 Pronouns. Wherever appropriate, the masculine pronoun shall include
the feminine pronoun, and the singular shall include the plural.
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HARLEYSVILLE SAVINGS FINANCIAL CORPORATION REVOCABLE PROXY
HARLEYSVILLE, PENNSYLVANIA
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
HARLEYSVILLE SAVINGS FINANCIAL CORPORATION FOR USE ONLY AT THE ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON JANUARY 25, 2006 AND AT ANY ADJOURNMENT THEREOF.
The undersigned, being a stockholder of Harleysville Savings Financial
Corporation (the "Company"), hereby appoints the Board of Directors, or any
successors in their respective positions, as proxy, with full powers of
substitution, and hereby authorizes the Board to represent and vote, as
designated below, all the shares of common stock of the Company held of record
by the undersigned on December 2, 2005 at the Annual Meeting of Stockholders to
be held at the Indian Valley Country Club, located at 650 Bergey Road, Telford,
Pennsylvania 18969, on January 25, 2006 at 9:30 a.m., local time, or any
adjournment thereof.
1. ELECTION OF DIRECTORS:
Nominees for a three year term: David J. Friesen, George W. Meschter and
James L. Rittenhouse
FOR all nominees listed above WITHHOLD AUTHORITY (to
(except as marked to the vote for all nominees
contrary below) [_] listed above) [_]
INSTRUCTIONS: To withhold authority to vote for any one or more individual
nominee, write the name of such nominee(s) in the space provided below:
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2. Proposal to approve the Company's 2005 Stock Option Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
3. Proposal to ratify the appointment of Deloitte & Touche as the Company's
independent registered public accounting firm for the year ending
September 30, 2006.
[_] FOR [_] AGAINST [_] ABSTAIN
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting as described in
the accompanying Proxy Statement.
If not otherwise specified, this proxy will be voted FOR the election of
the Board of Directors' nominees to the Board of Directors named in proposal 1,
FOR approval of the Company's 2005 Stock Option Plan in proposal 2, FOR
ratification of the independent registered public accounting firm in proposal 3
and otherwise at the discretion of the proxies. In their discretion, the proxies
are authorized to vote with respect to approval of the minutes of the last
meeting of stockholders, the election of any person as director if a nominee is
unable to serve or for good cause will not serve, matters incident to the
conduct of the meeting and upon such other business as may properly come before
this meeting. This proxy may be revoked at any time prior to the time it is
voted at the Annual Meeting.
The undersigned hereby acknowledges
receipt of a Notice of Annual Meeting of
Stockholders of Harleysville Savings
Financial Corporation, to be held on
January 25, 2006, or any adjournment
thereof, and a Proxy Statement for the
Annual Meeting, prior to the signing of
this proxy.
Date:
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Signature:
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Signature:
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Please sign exactly as your name(s)
appear(s) on this Proxy. When signing in
a representative capacity, please give
title. When shares are held jointly,
both should sign.
PLEASE MARK, SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.