-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JPaItaAFsKGu6yylrHqkfh8A/b4lkcZ9GwiFacKE38ZKbvJ/fyqQfext4t0+FBO7 L/EDgIlr4XP6S1quejdRBw== 0000893220-00-000263.txt : 20000314 0000893220-00-000263.hdr.sgml : 20000314 ACCESSION NUMBER: 0000893220-00-000263 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000411 FILED AS OF DATE: 20000313 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARLEYSVILLE NATIONAL CORP CENTRAL INDEX KEY: 0000702902 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 232210237 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 000-15237 FILM NUMBER: 567142 BUSINESS ADDRESS: STREET 1: 483 MAIN ST STREET 2: P O BOX 195 CITY: HARLEYSVILLE STATE: PA ZIP: 19438 BUSINESS PHONE: 2152568851 MAIL ADDRESS: STREET 1: 483 MAIN STREET CITY: HARLEYSVILLE STATE: PA ZIP: 19438 DEF 14A 1 HARLEYSVILLE NATIONAL CORP. NOTICE OF ANNUAL MTG. 1 SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant / / Filed by a Party other than the Registrant / / Check the Appropriate Box: / / Preliminary Proxy Statement / / Confidential, for Use of the Commission only (as permitted by Rule 14a-6(e)(2) /x/ Definitive Proxy Statement / / Definitive Additional Materials / / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12 HARLEYSVILLE NATIONAL CORPORATION (Name of Registrant as Specified in Its Charter) Bowne of Philadelphia (Name of Person(s) Filing Proxy Statement) 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) 1) Title of each class of securities to which transaction applies: 2) Aggregate number of securities to which transaction applies: 3) Per unit price or other underlying value of transactions computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): 4) Proposed maximum aggregate value of transaction: 5) Total fee paid: / / Fee paid previously with preliminary materials / / Check box if any part of the fee is offset as provided by Exchange Act Rule O-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: 2) Form Schedule or Registration Statement No.: 3) Filing Party: 4) Date Filed: 2 HARLEYSVILLE NATIONAL CORPORATION NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 11, 2000 TO THE SHAREHOLDERS OF HARLEYSVILLE NATIONAL CORPORATION: NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Harleysville National Corporation will be held at 9:30 a.m., prevailing time, on Tuesday, April 11, 2000, at Indian Valley Country Club, 650 Bergey Road, Telford, PA 18969, for the following purposes: 1. Election of two Class B Directors: LeeAnn Bergey and Palmer E. Retzlaff, each for a term of 4 years; and 2. Transaction of any other business properly brought before the Annual Meeting and at any adjournment or postponement of the meeting. In accordance with the by-laws of the corporation and action of the Board of Directors, only those shareholders of record at the close of business on February 25, 2000, will be entitled to notice of and to vote at the Annual Meeting and any adjournment or postponement thereof. A copy of the corporation's Annual Report for the fiscal year ended December 31, 1999, accompanies this Notice. Copies of the corporation's Annual Report for the 1998 fiscal year may be obtained at no cost by contacting the Secretary of the corporation, Harleysville National Corporation, 483 Main Street, P.O. Box 195, Harleysville, Pennsylvania 19438-0195, telephone 215-256-8851. The corporation urges you to mark, sign, date, and promptly return your proxy in the enclosed envelope so that your shares may be voted in accordance with your wishes and to assure the presence of a quorum. The prompt return of your signed proxy, regardless of the number of shares you hold, will aid the corporation in reducing the expense of additional proxy solicitations. Giving your proxy does not affect your right to vote in person if you attend the meeting and give written notice to the Secretary of the corporation. BY ORDER OF THE BOARD OF DIRECTORS, /s/ Walter E. Daller, Jr. ------------------------- Walter E. Daller, Jr. Chairman, President and Chief Executive Officer March 13, 2000 Harleysville, Pennsylvania 3 PROXY STATEMENT Dated and to be mailed March 13, 2000 HARLEYSVILLE NATIONAL CORPORATION 483 MAIN STREET HARLEYSVILLE, PENNSYLVANIA 19438-0195 (215) 256-8851 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 11, 2000 TABLE OF CONTENTS QUESTIONS AND ANSWERS.................................................... 3 VOTING METHODS........................................................... 4 PROPOSAL NO. 1 - Election of Class B Directors........................... 5 PRINCIPAL OWNERS......................................................... 6 BENEFICIAL OWNERSHIP BY OFFICERS, DIRECTORS AND NOMINEES................. 6 INFORMATION CONCERNING DIRECTORS......................................... 7 MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS........................ 8 COMPENSATION OF DIRECTORS................................................ 9 EXECUTIVE COMPENSATION................................................... 10 REPORT OF THE COMPENSATION COMMITTEE..................................... 16 SHAREHOLDER RETURN PERFORMANCE GRAPH..................................... 19 SECTION 16(a) REPORTING COMPLIANCE....................................... 20 INDEPENDENT AUDITORS..................................................... 20 ADDITIONAL INFORMATION................................................... 21 OTHER MATTERS............................................................ 21 2 4 QUESTIONS AND ANSWERS Q: WHAT AM I VOTING ON? A: Election of 2 Class B Directors: - LeeAnn Bergey - Palmer E. Retzlaff Q: WHO IS ENTITLED TO VOTE? A: Shareholders on the record date, the close of business on February 25, 2000. Q: HOW MANY VOTES DO I HAVE? A: Each share of common stock is entitled to one vote. Q: HOW DO I VOTE? A: You may cast your vote by completing and mailing your proxy card or by attending the meeting in person. Q: HOW DOES DISCRETIONARY AUTHORITY APPLY? A: If you sign your proxy card, and do not make any selections, you give authority to James W. Hamilton and Vernon L. Hunsberger to vote on the proposal and any other matter that may arise at the meeting. Q: IS MY VOTE CONFIDENTIAL? A: Yes. Only the inspector, American Stock Transfer and Trust Company/Shareholder Services, and certain employees have access to your card. All comments remain confidential, unless you ask that your name be disclosed. Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD? A: Your shares are probably registered differently or are in more than one account. Sign and return all proxy cards to ensure that all your shares are voted. Please have all of your accounts registered in the same name and address. You may do this by contacting our transfer agent, American Stock Transfer and Trust Company/ Shareholder Services, 800-937-5449. Q: WHAT CONSTITUTES A QUORUM? A: The corporation is currently authorized to issue 30,000,000 shares of common stock, par value $1.00 per share, and 3,000,000 shares of series preferred stock, par value $1.00 per share. As of February 25, 2000, 7,915,552 shares of Harleysville National Corporation's common stock were issued and outstanding. No shares of preferred stock are outstanding. A majority of the outstanding shares, present or represented by proxy, constitutes a quorum. If you vote by proxy card, you will be considered part of the quorum. If you are present or represented by a proxy at the Annual Meeting and you abstain, your abstention will have the same effect as a vote against the proposals. Q: WHEN ARE THE SHAREHOLDER PROPOSALS DUE FOR YEAR 2001 ANNUAL MEETING? A: Shareholder proposals must be submitted in writing by Wednesday, November 15, 2000, to the Secretary of Harleysville National Corporation at 483 Main Street, P.O. Box 195, Harleysville, PA 19438-0195. Q: HOW DOES A SHAREHOLDER NOMINATE A DIRECTOR OF HARLEYSVILLE NATIONAL CORPORATION? A: Submit a written recommendation to the Chairman of the Nominating Committee, c/o Secretary of the corporation, Harleysville National Corporation, 483 Main Street, P.O. Box 195, Harleysville, PA 19438-0195. The recommendation must include a notarized statement from the nominee indicating willingness to serve, if elected, and principal occupations or employment over the past five years. 3 5 QUESTIONS AND ANSWERS Q: WHO IS RESPONSIBLE FOR THE SOLICITATION EXPENSES? A: American Stock Transfer and Trust Company, the corporation's transfer agent and registrar, will assist in the distribution of proxy materials and solicitation of votes according to the terms of the corporation's present contract with the transfer agent. The corporation is responsible for expenses related to distribution of proxy materials and solicitation of votes and will reimburse American Stock Transfer and Trust Company, stockbrokers and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy and solicitation material to the owners of the corporation's common stock. VOTING METHODS YOU HAVE THE RIGHT TO VOTE AND, IF DESIRED, TO REVOKE YOUR PROXY AT ANY TIME BEFORE THE ANNUAL MEETING: - BY GIVING WRITTEN NOTICE OF REVOCATION TO THE SECRETARY OF HARLEYSVILLE NATIONAL CORPORATION AT 483 MAIN STREET, P.O. BOX 195, HARLEYSVILLE, PA 19438-0195; - BY EXECUTING A LATER-DATED PROXY AND GIVING WRITTEN NOTICE THEREOF TO THE SECRETARY OF THE CORPORATION; OR - BY VOTING IN PERSON AFTER GIVING WRITTEN NOTICE TO THE SECRETARY OF THE CORPORATION. SHOULD YOU HAVE ANY QUESTIONS, PLEASE CALL AMERICAN STOCK TRANSFER AND TRUST COMPANY 800-937-5449. [MAILBOX GRAPHIC] - Mark your selections - Date and sign your name exactly as it appears on your card - Mail to American Stock Transfer and Trust Company Shareholder Services in the return envelope 4 6 PROPOSAL NO. 1 ELECTION OF CLASS B DIRECTORS Nominees for election this year are: - LeeAnn Bergey - director since 1999 - Palmer E. Retzlaff - director since 1996 Each nominee has consented to serve a 4 year term and until their successors are elected and qualified. The by-laws of Harleysville National Corporation provide that the Board of Directors will not have less than 5 members or more than 25 members. The Board of Directors is divided into 4 classes. Each class is elected for a 4 year term. The Board of Directors has authority to fix the number of directors in each class, and the authority to change that number at any time. No person may be elected to serve as a director if they are not of legal age. No person over 72 may serve as a director. The Board of Directors has fixed the number of Board members at 10 with 2 directors in each of Classes B and C, and 3 directors in each of Classes A and D. Section 11.1 of the by-laws requires that a majority of the remaining members of the Board of Directors select and appoint directors to fill vacancies, even if the number of remaining members are less than a quorum. Each person who is appointed in this manner serves as a director until the expiration of the term of office of the class of directors to which he or she was appointed. The Board of Directors recommends a vote FOR the election of these Class B Directors. 5 7 PRINCIPAL OWNERS The following table indicates the name and address of each person or business group who owns more than 5% of Harleysville National Corporation's total outstanding shares of common stock as of February 25, 2000. The corporation also lists the number of shares and the percentage of total outstanding shares beneficially owned by each person or business group.
SHARES PERCENT OF OUTSTANDING BENEFICIALLY COMMON STOCK NAME AND ADDRESS OWNED (1) BENEFICIALLY OWNED - ---------------- --------- ------------------ The Harleysville National Bank and Trust Company 448,765 (2) 5.61% Trust Department 483 Main Street P.O. Box 195 Harleysville, Pennsylvania 19438-0195
- ---------------- (1) The securities "beneficially owned" by an individual are determined according to the definitions of "beneficial ownership" found in the General Rules and Regulations of the Securities and Exchange Commission and may include securities owned by or for the individual's spouse and minor children and any other relative who resides in the same home, as well as securities that the individual has or shares the right to vote or the authority to make investment decisions or any shares the individual has the right to acquire beneficial ownership of within 60 days after February 25, 2000. Beneficial ownership may be disclaimed under certain circumstances. (2) Shares held by The Harleysville National Bank and Trust Company's Trust Department are held in its fiduciary capacity. Harleysville National Bank and Trust Company's Trust Department has sole power to vote or to direct the vote of 448,765 shares and sole power to make investment decisions for 448,765 shares. Harleysville National Bank and Trust Company's Trust Department intends to vote all shares under its control FOR the election of the nominees for Class B Directors proposed in this proxy statement. BENEFICIAL OWNERSHIP BY OFFICERS, DIRECTORS AND NOMINEES The following table indicates the amount and percentage of Harleysville National Corporation's total outstanding shares of common stock beneficially owned by each named officer, director and nominee for director and by all officers of Harleysville National Corporation and its banking subsidiaries as a group, as of February 25, 2000.
SHARES PERCENT OF OUTSTANDING BENEFICIALLY COMMON STOCK NAME AND POSITION OWNED BENEFICIALLY OWNED - ----------------- ----- ------------------ Walter E. Daller, Jr., Director and Officer (4) 166,028 (5) 2.07% LeeAnn Bergey, Director (2) 4,045 (6) * Martin E. Fossler, Director (4) 16,195 (7) * Harold A. Herr, Director (1) 16,365 (8) * Thomas S. McCready, Director (4) 133,046 (9) 1.66% Henry M. Pollak, Director (1) 22,760 (10) * Palmer E. Retzlaff, Director (2) 6,748 (11) * Walter F. Vilsmeier, Director (1) 10,123 (12) * William M. Yocum, Director (3) 38,821 (13) * All Officers and Directors as a Group (24 persons) 474,201 (14) 5.92%(15)
- ----------- *Less than one percent (1%) unless otherwise indicated. (1) Class A Director whose term expires in 2003. (2) Class B Director whose term expires in 2000 and a nominee for Class B Director whose term will expire in 2004. 6 8 (3) Class C Director whose term expires in 2001. (4) Class D Director whose term expires in 2002. (5) Includes: 25,308 shares solely owned by W. Daller; 125,272 shares owned jointly with spouse; 12,955 shares owned solely by spouse; and 2,493 exercisable stock options. (6) Includes: 107 shares owned jointly with spouse; and 3,938 exercisable stock options. (7) Includes: 11,687 shares solely owned by M. Fossler; 570 shares owned by spouse; and 3,938 exercisable stock options. (8) Includes: 12,427 shares solely owned by H. Herr; and 3,938 exercisable stock options. (9) Includes: 67,825 shares owned as Trustee of his personal trust; and 61,283 shares owned by his spouse as Trustee of her personal trust; and 3,938 exercisable stock options. (10) Includes: 18,822 shares owned jointly with spouse; and 3,938 exercisable stock options. (11) Includes: 2,810 shares solely owned by P. Retzlaff; and 3,938 exercisable stock options. (12) Includes: 6,185 shares solely owned by W. Vilsmeier; and 3,938 exercisable stock options. (13) Includes: 34,883 shares solely owned by W. Yocum; and 3,938 exercisable stock options. (14) Does not include 448,765 shares held by the Trust Department of The Harleysville National Bank and Trust Company in its fiduciary capacity. (15) The percent of class assumes the exercise of all outstanding options issued to directors, employee directors, and officers and, therefore, on a pro forma basis, 8,005,366 shares of common stock outstanding. INFORMATION CONCERNING DIRECTORS Two Directors will be elected at the Annual Meeting to serve as Class B Directors for a four-year term expiring in the year 2004.
PRINCIPAL OCCUPATION DIRECTOR OF FOR PAST FIVE YEARS AND CORPORATION NAME AGE POSITION HELD WITH THE CORPORATION SINCE - ---- --- ---------------------------------- ----- CLASS A DIRECTORS TO SERVE UNTIL 2003 Walter F. Vilsmeier 70 Chief Executive Officer - Vilsmeier Auction Co., 1987 Inc., auction and appraisal services Harold A. Herr 52 Partner - Albert S. Herr & Sons, 1987 Agri-Business Henry M. Pollak 68 President - American Machine and Tool, 1996 manufacturer of pumps and woodworking tools; Director of Security National Bank CURRENT CLASS B DIRECTORS AND NOMINEES FOR CLASS B DIRECTOR TO SERVE UNTIL 2004 Palmer E. Retzlaff 68 President - Southwest Grain Company, a grain 1996 import and export business; Director, Teleflex, Inc.; and Paris Business Corp. LeeAnn Bergey 46 President - Bergey's Leasing Associates, a 1999 full-service truck leasing and rental company
7 9
PRINCIPAL OCCUPATION DIRECTOR OF FOR PAST FIVE YEARS AND CORPORATION NAME AGE POSITION HELD WITH THE CORPORATION SINCE - ---- --- ---------------------------------- ----- CLASS C DIRECTORS TO SERVE UNTIL 2001 William M. Yocum 65 President - W. M. Yocum Machine Company 1984 CLASS D DIRECTORS TO SERVE UNTIL 2002 Walter E. Daller, Jr. 60 Chairman of the Board, President and Chief 1977 Executive Officer of the corporation; Chairman and Chief Executive Officer of Harleysville; Director of Citizens National Bank since 1991; and Director of Security National Bank since 1994 Martin E. Fossler 71 Retired - formerly President MEFCO, a 1984 manufacturer of industrial packaging Thomas S. McCready 69 Attorney-at-law; Chairman of the Board and 1996 Director of Citizens National Bank
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
INVESTMENT PENSION RISK BOARD MEMBER CORPORATE AUDIT COMPENSATION COMPLIANCE EXECUTIVE AND FUNDS NOMINATING & 401(K) MANAGEMENT TRUST BOARD MANAGEMENT PLAN W. E. Daller, Jr. X X L. Bergey X X M. E. Fossler X X X X X H. A. Herr X X X T. S. McCready X X X H. M. Pollak X X X P. E. Retzlaff X X X X X W. F. Vilsmeier X X X X X W. M. Yocum X X X MEETINGS HELD 9 5 2 2 2 4 1 6 3 4 IN 1999
- - AUDIT: Reviews auditing, accounting, financial reporting and internal control functions. Recommends our independent accountant and reviews their services. All members are non-employee directors. - - COMPENSATION: Administers executive compensation programs, policies, and practices. Acts in an advisory role on employee compensation. All members are non-employee directors. - - COMPLIANCE: Assures the Board of Directors that Harleysville National Corporation's banking subsidiaries are in compliance with all applicable laws and regulations. - - EXECUTIVE: Acts, with limited powers, on behalf of the Board whenever the Board is not in session. Meets only as needed. - - INVESTMENT AND FUNDS MANAGEMENT: Oversees the Investment Policy, reviews liquidity, and approves the type and maturity of investments. 8 10 - - NOMINATING: Considers and recommends nominees for election as directors and officers. Reviews and evaluates the Board and its members. All members are non-employee directors. - - PENSION & 401(k) PLAN: Ensures the retirement plans are meeting the needs of the employees at a reasonable cost to the corporation. Evaluates the investment performance, recommends plan revisions and reviews the performance of the plan administrators and investment managers. - - RISK MANAGEMENT: Oversees the corporation's documentation, measurement and monitoring of the major risk components of a banking company. - - TRUST: Administers policies and procedures for the Investment Management and Trust Division. Reviews all exceptions to Trust accounts. Reviews financial reporting for division. The members of the Board of Directors of the corporation also serve as the members of the Board of Directors of The Harleysville National Bank and Trust Company, with the exception of Mr. McCready and Mr. Pollak. During 1999, the corporation held 9 regular monthly board meetings, the Annual Meeting and the annual reorganization meeting. All of the directors attended at least 75% of the meetings of the Boards of Directors of the corporation and the bank and of the committees of which they were members. COMPENSATION OF DIRECTORS Directors of Harleysville National Corporation do not receive a fee for meetings attended, with the exception of Mr. McCready and Mr. Pollak who receive one-half of the annual retainer fee and one-half of the meeting fee paid to Directors of The Harleysville National Bank and Trust Company for each meeting of the corporation attended. These reduced fees are paid to Messrs. McCready and Pollak in recognition of the time and travel necessary to attend the meetings of the corporation. Historically, the corporation holds fewer meetings than each of its banking subsidiaries. Directors of The Harleysville National Bank and Trust Company received a fee of $445 for each board meeting attended, an annual retainer fee of $7,300, and also received a fee of $325 for each committee meeting they attended. Directors were not compensated for committee meetings less than 15 minutes in duration or for committee meetings held prior to a Board meeting. Each Director of The Harleysville National Bank and Trust Company received a bonus of $2,625. In the aggregate, the Board of Directors of Harleysville received $126,368. Harleysville National Corporation maintains deferred compensation plans for its directors. In the past, certain directors elected to defer, with interest, all or part of their compensation for future distribution. Under the terms of the plan, benefits can be paid out to the respective directors over a ten-year period. Should the director die before age 70 or before receiving all of the benefits, those benefits would be paid to his or her beneficiary until age 70 or for ten years, whichever shall be greater. This plan is considered an unfunded plan, which is subject to substantial risk of forfeiture, and the director is not considered to be vested according to the plan. 1998 INDEPENDENT DIRECTORS STOCK OPTION PLAN Harleysville National Corporation maintains a stock option plan to advance the development, growth and financial condition of the corporation and its subsidiaries; and, to secure, retain and motivate non-employee directors. During 1999, there were 35,442 shares granted under the plan. As of December 31, 1999, a total of 43,308 shares remain available for grant under the plan. All totals reflect adjustment for a 5% stock dividend paid September 30, 1999. There were no options exercised under the plan during 1999. 9 11 EXECUTIVE COMPENSATION Shown below is information concerning annual and long-term compensation for services in all capacities to Harleysville National Corporation and its banking subsidiaries for the fiscal years ending December 31, 1999, 1998, and 1997 for those individuals who served as Harleysville National Corporation's Chief Executive Officer, and were executive officers (other than the Chief Executive Officer) whose total annual salary and bonus exceeded $100,000 at December 31, 1999. SUMMARY COMPENSATION TABLE
Restricted Options LTIP All Other Name and Position Year Salary Bonus Other Stock (Shares)(1) Payouts Compensation(2) ----------------- ---- ------ ----- ----- ----- --------- ------- --------------- ($) ($) ($) ($) (#) ($) ($) Walter E. Daller, Jr. 1999 357,000 212,500 -- -- -- -- 144,244 Chairman, President and CEO; 1998 358,183 193,100 -- -- 9,975 -- 144,244 Chairman and CEO 1997 336,680 171,400 -- -- -- -- 144,194 Harleysville National Bank Demetra M. Takes 1999 190,000 76,000 -- -- -- -- 62,011 Vice President; 1998 168,173 67,000 -- -- 5,250 -- 62,011 President and COO 1997 158,000 60,000 -- -- -- -- 61,951 Harleysville National Bank Vernon L. Hunsberger 1999 109,725 25,000 -- -- -- -- 16,801 Treasurer; Sr. Vice President, 1998 106,510 27,500 -- -- 2,625 -- 16,704 CFO and Cashier, 1997 100,000 25,000 -- -- -- -- 16,440 Harleysville National Bank Clay T. Henry 1999 124,800 27,500 -- -- -- -- 3,744 Sr. Vice President, 1998 94,615 14,100 -- -- 3,150 -- 1,454 Harleysville National Bank 1997 -- -- -- -- -- -- -- Fred C. Reim, Jr. 1999 128,726 30,000 -- -- -- -- 3,862 President and CEO, 1998 120,464 25,000 -- -- 5,250 -- 3,614 Security National Bank 1997 107,585 26,900 -- -- -- -- 3,228
(1) Options (shares) granted in 1998 have been adjusted to reflect a 5% stock dividend paid September 30, 1999. (2)MAJOR COMPONENTS OF ALL OTHER COMPENSATION INCLUDE:
Directors Supplemental Harleysville's Deferred Executive Retirement Profit Compensation Plan Plan Sharing Plan ----------------- ---- ------------ Walter E. Daller, Jr. 1999 6,990 132,454 4,800 1998 6,990 132,454 4,800 1997 6,990 132,454 4,750 Demetra M. Takes 1999 -- 57,211 4,800 1998 -- 57,211 4,800 1997 -- 57,211 4,740 Vernon L. Hunsberger 1999 -- 13,509 3,292 1998 -- 13,509 3,195 1997 -- 13,509 2,931 Clay T. Henry 1999 -- -- 3,744 1998 -- -- 1,454 1997 -- -- -- Fred C. Reim, Jr. 1999 -- -- 3,862 1998 -- -- 3,614 1997 -- -- 3,228
10 12 EXECUTIVE COMPENSATION In 1998, Harleysville National Corporation and/or The Harleysville National Bank and Trust Company, and/or Security National Bank and/or Citizens National Bank entered into employment agreements with certain key executives. Harleysville National Corporation and The Harleysville National Bank and Trust Company entered into an employment agreement with Mr. Walter E. Daller, Jr., Chairman, President and Chief Executive Officer of the corporation and Chairman and Chief Executive Officer of the bank. The agreement is for a term of 5 years. The term renews automatically at the end of the five-year period for an additional three-year term. The employment agreement renews automatically at the end of the three-year extension for additional one-year terms. The corporation and the bank must provide written notice to Mr. Daller of non-renewal prior to the automatic extension dates if they do not want the agreement to automatically renew. The agreement specifies Mr. Daller's position and duties, compensation and benefits, and indemnification and termination provisions. The agreement also contains a non-competition provision and a confidentiality provision. Under the terms of his employment agreement, Mr. Daller serves as the Chairman, President and Chief Executive Officer of the Harleysville National Corporation and Chairman and Chief Executive Officer of The Harleysville National Bank and Trust Company. Mr. Daller is entitled to an annual direct salary of $340,000 for 1998 and $357,000 in 1999. This salary may be increased in subsequent years as the Board of Directors deems appropriate. In addition, the Boards of Directors of the corporation and the bank may pay a periodic bonus to Mr. Daller. Effective January 1, 1999, Mr. Daller is not entitled to receive director's fees or other compensation for serving on the corporation's and the bank's Boards of Directors or committees. Mr. Daller is also entitled to receive employee benefits made available by The Harleysville National Bank and Trust Company to its employees and to the use of an automobile. If the corporation terminates Mr. Daller's employment for cause, then his rights under the agreement terminate as of the effective date of his termination. If Mr. Daller terminates his employment for good reason, then he is entitled to an amount equal to the balance of his "Agreed Compensation" for the then remaining employment period or 2.99 times his "Agreed Compensation," whichever is greater. Mr. Daller's rights under the agreement terminate automatically upon his disability, except, however, that Mr. Daller will receive an amount equal to and no greater than 70% of his "Agreed Compensation" until the earliest to occur of his return to work, his attainment of age 65 or his death. Mr. Daller's rights under the agreement terminate upon his death and Harleysville National Corporation and The Harleysville National Bank and Trust Company will pay 2.99 times his annual base salary to his designated beneficiary. If Mr. Daller retires prior to the expiration of the agreement, the corporation and the bank will pay Mr. Daller a lump sum of 1.5 times his "Agreed Compensation." If Mr. Daller's employment is terminated as a result of a change in control, then he is entitled to receive a lump sum payment equal to no greater than 2.99 times his "Agreed Compensation." In addition, Mr. Daller has certain rights to continuation of his life, disability, medical insurance, and other normal health and welfare benefits. In 1998, Harleysville National Corporation and its banking subsidiaries also entered into employment agreements with: - Demetra M. Takes, President and Chief Operating Officer, The Harleysville National Bank and Trust Company - Vernon L. Hunsberger, Chief Financial Officer and Cashier, The Harleysville National Bank and Trust Company - Fred C. Reim, Jr., President and Chief Executive Officer, Security National Bank - Thomas D. Oleksa, President and Chief Executive Officer, Citizens National Bank These employment agreements are similar to Walter E. Daller, Jr.'s agreement, except that the term is for 3 years and renews automatically at the end of the three-year period for additional one-year terms. 11 13 OPTION GRANTS There were no stock options granted to executive officers during the fiscal year ended December 31, 1999. AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END VALUES The table below shows information about all exercises of stock options by the named officers during the last fiscal year as well as the fiscal year-end option values for each named executive officer under the 1993 Stock Incentive Plan and held by them at December 31, 1999. The options and information shown in the table have been adjusted to reflect a 5% stock dividend paid September 30, 1999. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
Number of Securities Value of Unexercised Shares Underlying Unexercised In-the-money Acquired Options/at Options/at Name and on Value FY-End FY-End (1) Principal Position Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable - ------------------ -------- -------- ------------------------- ------------------------- (#) ($) (#)(2) ($) Walter E. Daller, Jr. -- -- 2,493/7,482 --/-- Chairman, President and CEO; Chairman and CEO Harleysville National Bank Demetra M. Takes -- -- 2,625/2,625 --/-- Vice President; President and COO Harleysville National Bank Vernon L. Hunsberger -- -- 1,312/1,313 --/-- Treasurer; Sr. Vice President, CFO and Cashier, Harleysville National Bank Clay T. Henry -- -- 630/2,520 --/-- Sr. Vice President, Harleysville National Bank Fred C. Reim, Jr. -- -- 4,084/2,990 13,813/3,456 President and CEO, Security National Bank
(1) Market value of underlying securities based on the closing price of the corporation's common shares on the NASDAQ Stock Exchange on December 31, 1999, minus the exercise price. (2) Shares granted under the 1993 Stock Incentive Plan. 12 14 PENSION PLAN Harleysville National Corporation maintains a non-contributory funded pension plan for all full-time employees of its banking subsidiaries over age 21 who have completed 1 year of service. Annual benefits to eligible retired employees at age 65 or, if later, the 5th anniversary of the first day of the plan year in which they began to participate in the plan, are provided according to the following formula: The product of (A) and (B), where (A) is the sum of: (i) .65% of average compensation, plus (ii) .60%, (.56% or .52% for participants whose social security retirement age is 66 or 67, respectively) of average compensation above the covered compensation level of an individual attaining the social security retirement age in the current plan year; and (B) is the participant's years of service as of his normal retirement date, but not in excess of 25 years. Average compensation is the average of the highest 5 consecutive salaries, excluding bonuses, during the last 10 years of employment. Compensation for pension purposes is limited to $160,000 for calendar years 1999, 1998, and 1997 (for 1996 and earlier the compensation limit was $150,000) as required under federal pension law. The bank made no contributions to the pension plan for the years ending December 31, 1999, December 31, 1998, and December 31, 1997. The following table shows the estimated annual retirement benefit payable according to the pension plan to an officer currently age 65 for his lifetime. The table does not reflect any limitations on benefits to participants that may apply under the Internal Revenue Code. Benefits listed in the table below are integrated with Social Security.
Average Annual 10 Years 15 Years 20 Years 25 Years 30 Years Earnings of Service of Service of Service of Service of Service -------- ---------- ---------- ---------- ---------- ---------- $ 75,000 $ 7,391 $11,087 $14,782 $18,478 $18,478 100,000 10,516 15,774 21,032 26,291 26,291 125,000 13,641 20,464 27,282 34,103 34,103 150,000 16,766 25,149 33,532 41,916 41,916 160,000 18,016 27,024 36,032 45,041 45,041
Walter E. Daller, Jr., Chairman, President and Chief Executive Officer of Harleysville National Corporation has 25 years of credited service under the pension plan. Average salary upon which benefits would be calculated at December 31, 1999, is $156,000. Demetra M. Takes, President of The Harleysville National Bank and Trust Company, has 25 years of credited service under the pension plan. Average salary upon which benefits would be calculated at December 31, 1999, is $153,555. Vernon L. Hunsberger, Senior Vice President of The Harleysville National Bank and Trust Company, has 25 years of credited service under the pension plan. Average salary upon which benefits would be calculated at December 31, 1999, is $100,577. Clay T. Henry, Senior Vice President of The Harleysville National Bank and Trust Company, has 2 years of credited service under the pension plan. Average salary upon which benefits would be calculated at December 31, 1999, is $109,708. Fred C. Reim, Jr., President and Chief Executive Officer of Security National Bank, has 6 years of credited service under the pension plan. Average salary upon which benefits would be calculated at December 31, 1999, is $111,453. 13 15 401(k) PLAN Harleysville National Corporation maintains a 401(k) plan. It is a tax-exempt profit-sharing plan, qualified under 401(k) of the Internal Revenue Code. All employees are eligible to participate on the first day of the calendar quarter following six months of service, if they are 21 years of age, and they may contribute a maximum of 15% salary on a pre-tax basis with a 50% employer match up to a maximum of 3% of salary. The funds in the 401(k) plan are managed by an independent investment manager. Distributions are made upon normal retirement at age 65, early retirement at age 55 with a minimum of 15 years of service, or upon disability, death, termination or hardship. A participant may elect distributions in a lump sum, in installments, or as an annuity for life. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN The Harleysville National Bank and Trust Company maintains a Supplemental Executive Retirement Plan for certain officers and key employees of the banking subsidiaries. The plan provides for payment to the covered employee of an annual supplemental retirement benefit equal to 50% of their annual base salary upon retirement, thereafter offset by the employer's share of social security, defined benefit pension and available employer's 401(k) matching contribution. There is a lifetime payout in retirement benefits with a minimum payout of 10 years. There is a pre-retirement death benefit, payable for 10 years, of 100% of the annual base salary for the first year, and 50% of the annual base salary for the next 9 years. The following table shows the estimated annual retirement benefit payable according to the Supplemental Executive Retirement Plan to an employee covered under the Plan:
Base Salary Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 ----------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------- $100,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 125,000 62,500 62,500 62,500 62,500 62,500 62,500 62,500 62,500 62,500 62,500 150,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 175,000 87,500 87,500 87,500 87,500 87,500 87,500 87,500 87,500 87,500 87,500 200,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 225,000 112,500 112,500 112,500 112,500 112,500 112,500 112,500 112,500 112,500 112,500 250,000 125,000 125,000 125,000 125,000 125,000 125,000 125,000 125,000 125,000 125,000 275,000 137,500 137,500 137,500 137,500 137,500 137,500 137,500 137,500 137,500 137,500 300,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 325,000 162,500 162,500 162,500 162,500 162,500 162,500 162,500 162,500 162,500 162,500 350,000 175,000 175,000 175,000 175,000 175,000 175,000 175,000 175,000 175,000 175,000 375,000 187,500 187,500 187,500 187,500 187,500 187,500 187,500 187,500 187,500 187,500 400,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000
Salary upon which benefits would be calculated at December 31, 1999, under the Supplemental Executive Retirement Plan is $357,000 for Walter E. Daller, Jr., Chairman, President and Chief Executive Officer of Harleysville National Corporation and Chairman and Chief Executive Officer of The Harleysville National Bank and Trust Company; credited coverage under the plan is 14 years. Salary upon which benefits would be calculated at December 31, 1999, under the Supplemental Executive Retirement Plan is $190,000 for Demetra M. Takes, Vice President of Harleysville National Corporation and President of The Harleysville National Bank and Trust Company; credited coverage under the plan is 9 years. Salary upon which benefits would be calculated at December 31, 1999, under the Supplemental Executive Retirement Plan is $109,725 for Vernon L. Hunsberger, Treasurer of Harleysville National Corporation and Senior Vice President, Chief Financial Officer, and Cashier of The Harleysville National Bank and Trust Company; credited coverage under the plan is 4 years. 14 16 Clay T. Henry, Senior Vice President of The Harleysville National Bank and Trust Company, may become eligible to participate in the plan following 5 years of service. Fred C. Reim, Jr., President and Chief Executive Officer of Security National Bank may become eligible to participate in the plan following 5 years of service. 1998 STOCK INCENTIVE PLAN Harleysville National Corporation maintains the 1998 Stock Incentive Plan. The plan's purpose is to advance the development, growth and financial condition of the corporation. The plan provides that shares of our common stock be issued to certain employees of the corporation and banking subsidiaries. A disinterested committee of the corporation's Board of Directors administers the plan. Awards can be made in the form of incentive stock options, non-qualified stock options, stock appreciation rights or restricted stock as the disinterested committee deems appropriate. There are 603,750 stock options available for grant under the 1998 Stock Incentive Plan. The options available have been adjusted to reflect a 5% stock dividend paid by the corporation on September 30, 1999. During 1999, there were no stock options granted under this plan. 1993 STOCK INCENTIVE PLAN Harleysville National Corporation maintains the 1993 Stock Incentive Plan. The plan's purpose is to advance the development, growth and financial condition of the corporation. The plan provides that shares of our common stock be issued to certain employees of the corporation and banking subsidiaries. A disinterested committee of the corporation's Board of Directors administers the plan. Awards can be made in the form of incentive stock options, non-qualified stock options, stock appreciation rights or restricted stock as the disinterested committee deems appropriate. During 1999, the corporation granted 2,100 incentive stock options to employees. The shares granted under this plan have been adjusted to reflect a 5% stock dividend paid by the corporation on September 30, 1999. During 1999, there were no options exercised under this plan. HARLEYSVILLE NATIONAL CORPORATION STOCK BONUS PLAN Harleysville National Corporation maintains the Harleysville National Corporation Stock Bonus Plan to recognize employees who have - - a strong interest in the successful operation of the business, - loyalty to the corporation and banking subsidiaries, and - visible evidence of increased efficiency. The Stock Bonus Plan is administered by the compensation committee of Harleysville National Corporation. The committee determines, annually, in its sole discretion, the amount of shares the corporation awards. Harleysville National Corporation awarded 216 shares at the annual employee awards meeting on January 12, 1999, to certain employees for exemplary service throughout 1998. 15 17 REPORT OF THE COMPENSATION COMMITTEE The Board of Directors of Harleysville National Corporation is responsible for governance of the corporation and its banking subsidiaries. In fulfilling its fiduciary duties, the Board of Directors acts in the best interests of our shareholders, customers and the communities served by the corporation and its banking subsidiaries. To accomplish the strategic goals and objectives of Harleysville National Corporation, the Board of Directors employs competent persons who undertake to accomplish these objectives with integrity and in a cost-effective manner. The compensation of these individuals is part of the Board of Directors' fulfillment of its duties to accomplish the corporation's strategic mission. The wholly-owned banking subsidiaries of the corporation provide compensation to the respective employees of the corporation and its banking subsidiaries. The basic philosophy of Harleysville National Corporation and its banking subsidiaries' compensation program is to offer competitive compensation opportunities for all employees based on the individual's contribution and personal performance. The compensation committee, comprised of 4 outside directors whose names appear at the end of this report, administers the compensation program. The objectives of the committee are to establish: - a fair compensation policy to govern executive officers' base salaries, and - incentive plans to attract and motivate competent, dedicated and ambitious managers whose efforts will enhance the products and services of Harleysville National Corporation and its banking subsidiaries. Management believes that this will result in: - improved profitability; - increased dividends to our shareholders; and - subsequent appreciation in the market value of shares of the corporation's common stock. Annually, the Board of Directors reviews and approves the compensation of the corporation's and its banking subsidiaries' top executives. The top executives, whose compensation is determined by the committee, include the chief executive officer, the president and all senior vice presidents. As a guideline for review in determining appropriate compensation, the committee considers: - various resource materials, and - the corporation's earnings and overall performance relative to various peer groups both in the short term and long term historically. This peer group of banks with assets over $1 Billion is different than the peer group used for the Shareholder Return Performance Graph. The principal resources used for peer group comparisons are: - 1999 edition of the annual SNL Executive Compensation Review of Commercial Banks; and - 1999 edition of the L. R. Webber Associates Salary/Benefits Survey of the Pennsylvania Financial Services Industry. The peer group on the "Shareholder Return Performance Graph" includes bank holding companies and banks listed on NASDAQ that may not be located in Pennsylvania. The compensation committee does not deem Section 162 (m) of the Internal Revenue Code to be applicable to the corporation at this time. The compensation committee intends to monitor the future application of Section 162 (m) of the Internal Revenue Code to the compensation paid to its executives, officers and, in the event that this section becomes applicable, the compensation committee intends to amend the corporation's compensation plans to preserve the deductibility of compensation payable under the plans. 16 18 CHIEF EXECUTIVE OFFICER COMPENSATION The Board of Directors has determined that the compensation of the chief executive officer, as increased by 5% over 1999 compensation of $357,000, is appropriate in light of the following 1999 performance accomplishments as of September 30, 1999: for The Harleysville National Bank and Trust Company: - a 16.0% increase in net income - a 24.4% return on equity - a 23.3% increase in assets - a 1.51% return on assets for Harleysville National Corporation: - an 8.2% increase in shareholder dividends There is, however, no direct correlation between the chief executive officer's compensation, the chief executive officer's increase in compensation and any of the above criteria, nor is there any specific weight given by the committee to any of the above individual criteria. The increase in the chief executive officer's compensation is based on the committee's subjective determination after review of all information, including the above, that it deems relevant. EXECUTIVE OFFICERS The Board of Directors has established that the compensation of the executive officers of Harleysville National Corporation and its banking subsidiaries will increase by 9.0% over 1999 compensation of $1,757,628 in the aggregate. Compensation increases were determined by the committee based on its subjective analysis of the individual's contribution to the corporation's strategic goals and objectives. In determining whether strategic goals have been achieved, the Board of Directors considers among numerous factors the corporation's performance as measured by: - earnings - revenues - return on assets - return on equity - market share - total assets - non-performing loans Although the performance and increases in compensation were measured in light of these factors, there is no direct correlation between any specific criterion and the employee's compensation, nor is there any specific weight provided to any such criteria in the committee's analysis. The determination by the committee is subjective after review of all information, including the above, as it deems relevant. In addition to base salary, executive officers of Harleysville National Corporation and its banking subsidiaries may participate currently in the following annual and long-term incentive plans: - Pension Plan - 401(k) Plan - Non-qualified Supplement Retirement Benefit Plan - 1993 Stock Incentive Plan - 1998 Stock Incentive Plan 17 19 Total compensation opportunities available to the employees of the corporation and its banking subsidiaries are influenced by: - general labor market conditions - the individual's specific responsibilities - the individual's contributions to our success Individuals are reviewed annually on a calendar year basis. Harleysville National Corporation and its banking subsidiaries strive to offer compensation that is competitive with that offered by employers of comparable size in our industry. Through these compensation policies, Harleysville National Corporation strives to meet its strategic goals and objectives to its constituencies and to provide compensation that is fair and meaningful to its employees. COMPENSATION COMMITTEE MARTIN E. FOSSLER, CHAIRMAN THOMAS S. McCREADY PALMER E. RETZLAFF WALTER F. VILSMEIER COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During 1999, no current or former officer or employee of Harleysville National Corporation or of any of its banking subsidiaries served on the compensation committee. In addition, none of the members of the committee had any relationship with Harleysville National Corporation or of any of its subsidiaries that would require disclosure under Item 404 of the Securities and Exchange Commission's Regulation S-K, relating to insider transactions and indebtedness of management. 18 20 SHAREHOLDER RETURN PERFORMANCE GRAPH A line graph comparing the yearly change in the cumulative total shareholder return on the corporation's common stock against the cumulative total return of the NASDAQ Stock Market (U.S. Companies) Index and the NASDAQ Bank Stocks Index for the period of 5 fiscal years commencing January 1, 1995 and ending December 31, 1999, follows. The shareholder return shown on the graph below is not necessarily indicative of future performance. COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS PERFORMANCE GRAPH FOR HARLEYSVILLE NATIONAL CORPORATION [LINE GRAPH] Comparison of Five-Year Cumulative Total Returns Performance Report for Harleysville National Corporation Prepared by the Center for Research in Security Prices Produced on 02/03/2000 including data to 12/31/1999 Company Index: CUSIP Ticker Class Sic Exchange 41285010 HNBC 6020 NASDAQ Fiscal Year-end is 12/31/1999 Market Index: Nasdaq Stock Market (US Companies) Peer Index: Nasdaq Bank Stocks SIC 6020-6029, 6710-6719 US & Foreign
Date Company Index Market Index Peer Index 12/30/1994 100.000 100.000 100.000 01/31/1995 95.089 100.527 103.358 02/28/1995 100.000 105.809 108.414 03/31/1995 95.286 108.951 109.484 04/28/1995 97.084 112.381 112.519 05/31/1995 89.892 115.288 115.967 06/30/1995 97.278 124.623 120.898 07/31/1995 93.206 133.775 126.593 08/31/1995 96.091 136.491 133.407 09/29/1995 99.785 139.634 136.487 10/31/1995 95.685 138.829 138.715 11/30/1995 102.064 142.086 145.849 12/29/1995 104.801 141.335 149.002 01/31/1996 104.801 142.042 149.349 02/29/1996 95.608 147.456 151.400 03/29/1996 99.551 147.952 154.871 04/30/1996 98.162 160.208 154.083 05/31/1996 97.236 167.558 156.669 06/28/1996 103.833 160.006 157.446 07/31/1996 98.446 145.762 155.486 08/30/1996 94.038 153.937 166.256 09/30/1996 93.832 165.705 174.226 10/31/1996 98.277 163.870 181.938 11/29/1996 97.783 174.037 195.534 12/31/1996 96.761 173.892 196.734 01/31/1997 98.756 186.232 207.676 02/28/1997 101.749 175.932 219.401 03/31/1997 111.585 164.463 211.497 04/30/1997 110.580 169.582 216.244 05/30/1997 121.638 188.791 229.746 06/30/1997 136.116 194.590 246.095 07/31/1997 144.623 215.098 264.981 08/29/1997 144.623 214.787 262.824 09/30/1997 165.911 227.521 290.231 10/31/1997 162.700 215.665 291.412 11/28/1997 157.883 216.809 302.765 12/31/1997 181.010 213.073 329.387 01/30/1998 170.235 219.816 314.921 02/27/1998 185.320 240.487 332.307 03/31/1998 186.366 249.365 348.173 04/30/1998 182.574 253.566 352.514 05/29/1998 176.614 239.488 340.400 06/30/1998 185.255 256.215 341.060 07/31/1998 176.537 253.220 330.858 08/31/1998 154.742 203.167 269.515 09/30/1998 164.587 231.371 287.914 10/30/1998 153.615 241.360 308.821 11/30/1998 161.296 265.775 318.567 12/31/1998 172.305 300.248 327.115 01/29/1999 155.737 343.910 319.021 02/26/1999 156.842 313.083 316.369 03/31/1999 159.111 335.857 313.989 04/30/1999 155.773 345.300 337.120 05/28/1999 155.495 337.344 331.542 06/30/1999 160.293 367.468 336.987 07/30/1999 160.293 362.118 327.189 08/31/1999 157.211 376.461 314.973 09/30/1999 163.676 375.848 306.687 10/29/1999 158.339 403.163 331.190 11/30/1999 154.187 446.173 326.603 12/31/1999 155.710 542.430 314.424
The index level for all series was set to 100.0 on 12/30/1994 19 21 CERTAIN TRANSACTIONS There have been no material transactions between any director or executive officer of Harleysville National Corporation or its banking subsidiaries or any of their associates, and Harleysville National Corporation or its banking subsidiaries, nor are any such material transactions proposed. The corporation and its banking subsidiaries have had and intend to continue to have banking and financial transactions in the ordinary course of business with directors and executive officers of the corporation and its banking subsidiaries and their associates on comparable terms and with similar interest rates as those prevailing from time to time for other customers of its banking subsidiaries. Total loans outstanding from Harleysville National Corporation and its banking subsidiaries at December 31, 1999, to the corporation and its banking subsidiaries' executive officers and directors as a group and members of their immediate families and companies in which they had an ownership interest of 10% or more was $8,941,214 or approximately 6.9% of the total equity capital of Harleysville National Corporation. Loans to such persons were made in the ordinary course of business and were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more than the normal risk of collectibility or present other unfavorable features. Total interest paid by the banks during 1999 on deposits held by such persons was $259,565. COMPLIANCE WITH SECTION 16(a) REPORTING The rules of the Securities and Exchange Commission require that the corporation disclose late filings of reports of stock ownership (and changes in stock ownership) by its directors and executive officers. To the best of the corporation's knowledge, there were no late filings during 1999. INDEPENDENT AUDITORS Grant Thornton LLP, Certified Public Accountants, of Philadelphia, Pennsylvania, served as Harleysville National Corporation's independent auditors for the 1999 fiscal year. Grant Thornton LLP assisted the corporation and its subsidiaries with: - preparation of federal and state tax returns; and - assistance in connection with regulatory matters, charging the banking subsidiaries for such services at its customary hourly billing rates. These non-audit services were approved by the corporation's Board of Directors after due consideration of the effect of the performance thereof on the independence of the auditors. Grant Thornton LLP has advised the corporation that none of its members has any financial interest in Harleysville National Corporation. The Board of Directors of Harleysville National Corporation has appointed Grant Thornton LLP, Certified Public Accountants, as the corporation's auditors for the fiscal year ending December 31, 2000. LEGAL PROCEEDINGS In the opinion of the management of Harleysville National Corporation and its banking subsidiaries, there are no proceedings pending to which the corporation and its banking subsidiaries are a party or to which their property is subject, which, if determined adversely to the corporation and its banking subsidiaries, would be material in relation to the corporation's and its banking subsidiaries' undivided profits or financial condition. There are no proceedings pending other than routine litigation incident to the business of the corporation and its banking subsidiaries. In addition, no material proceedings are pending or are known to be threatened or contemplated against Harleysville National Corporation and its banking subsidiaries by government authorities. 20 22 ANNUAL REPORT We enclose a copy of Harleysville National Corporation's annual report for the fiscal year ended December 31, 1999, with this proxy statement. We furnish the annual report to shareholders for their information. We have not incorporated the annual report, or any part of the annual report in this proxy statement. A representative of Grant Thornton LLP will attend the annual meeting, and will have the opportunity to make a statement, if he desires to do so, and will be available to respond to any appropriate questions presented by shareholders. SHAREHOLDER PROPOSALS Any shareholder who, in accordance with and subject to the provisions of the proxy rules of the Securities and Exchange Commission, wishes to submit a proposal for inclusion in Harleysville National Corporation's proxy statement for the year 2001 Annual Meeting of Shareholders, must deliver the proposal in writing to the Secretary of the corporation at the principal executive offices of Harleysville National Corporation at 483 Main Street, P.O. Box 195, Harleysville, Pennsylvania 19438-0195, on or before Wednesday, November 15, 2000. ADDITIONAL INFORMATION Any shareholder may obtain a copy of Harleysville National Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, including the financial statements and the Schedules thereto, required to be filed with the Securities and Exchange Commission, without charge, by submitting a written request to the Secretary of the corporation, Harleysville National Corporation, 483 Main Street, P.O. Box 195, Harleysville, Pennsylvania 19438-0195, telephone 215-256-8851. OTHER MATTERS The Board of Directors does not know of any matters to be presented for consideration other than the matters described in the accompanying Notice of Annual Meeting of Shareholders, but, if any matters are properly presented, persons named in the accompanying proxy intend to vote on such matters in accordance with their best judgment. By Order of the Board of Directors, /s/ Walter E. Daller, Jr. ------------------------- Walter E. Daller, Jr. Chairman, President and Chief Executive Officer Date: March 13, 2000 21 23 HARLEYSVILLE NATIONAL CORPORATION PROXY ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 11, 2000 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby constitutes and appoints James W. Hamilton and Vernon L. Hunsberger, and each or any of them, proxies of the undersigned, with full power of substitution, to vote all of the shares of Harleysville National Corporation (the "Corporation") which the undersigned may be entitled to vote at the Annual Meeting of Shareholders of the Corporation to be held at Indian Valley Country Club, 650 Bergey Road, Telford, Pennsylvania 18969, on Tuesday, April 11, 2000, at 9:30 a.m., prevailing time, and at any adjournment or postponement thereof, as follows: 1. ELECTION OF CLASS B DIRECTORS TO SERVE FOR A FOUR-YEAR TERM / / FOR all nominees listed below (except as marked to the contrary) / / WITHHOLD AUTHORITY to vote for all nominees listed below (To withhold authority to vote for any individual nominee, strike a line through the nominee's name in the list below.) LeeAnn Bergey Palmer E. Retzlaff THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE CLASS B DIRECTORS LISTED ABOVE. 2. In their discretion the proxies are authorized to vote upon such other business as may properly come before the Annual Meeting and any adjournment or postponement thereof. THIS PROXY WHEN PROPERLY SIGNED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL NOMINEES LISTED AT LEFT. PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED ENVELOPE. Signature (SEAL) ---------------------------------- Signature (SEAL) ---------------------------------- Dated: , 2000 ------------- NOTE: WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE. IF MORE THAN ONE TRUSTEE, ALL SHOULD SIGN. IF STOCK IS HELD JOINTLY, EACH OWNER SHOULD SIGN. 24 HARLEYSVILLE NATIONAL CORPORATION ANNUAL MEETING -- 9:30 A.M. BREAKFAST -- 8:30 A.M. APRIL 11, 2000 FOR YOUR CONVENIENCE - RETAIN FOR YOUR REFERENCE Harleysville National Corporation will conduct its Annual Meeting of Shareholders on Tuesday, April 11, 2000 at 9:30 a.m. at Indian Valley Country Club, 650 Bergey Road, Telford, Pennsylvania 18969. Breakfast will be served prior to the Annual Meeting, beginning at 8:30 a.m. The meeting will convene promptly at 9:30 a.m. PLEASE RETURN YOUR PROXY VOTE IF YOU HAVE NOT ALREADY DONE SO. IF YOU FIND THAT YOUR PLANS HAVE CHANGED AND YOU WILL BE UNABLE TO JOIN US FOR THE ANNUAL MEETING AND BREAKFAST, KINDLY CALL HARLEYSVILLE NATIONAL CORPORATION'S SHAREHOLDER SERVICES DEPARTMENT AT 215-256-8851 EXT. 1312, AND HELP US ELIMINATE UNNECESSARY CHARGES. THANK YOU. 25 Breakfast Invitation Response Harleysville National Corporation will conduct its Annual Meeting of Shareholders on Tuesday, April 11, 2000 at 9:30 a.m. at Indian Valley Country Club, 650 Bergey Road, Telford, Pennsylvania 18969. You are cordially invited to join us for breakfast prior to the Annual Meeting, beginning at 8:30 a.m. The meeting will convene promptly at 9:30 a.m. Would you be kind enough to help us make appropriate arrangements by filling out and returning this self-addressed, stamped response card? For your convenience, enclosed are directions to Indian Valley Country Club. Please print name(s) --------------------------------------------------------- --------------------------------------------------------- ( ) Yes, I will join you for breakfast and the Annual Meeting at Indian Valley Country Club, Tuesday, April 11, 2000. 26 BUSINESS REPLY MAIL First Class Permit No. 12 Harleysville, PA 19438 POSTAGE WILL BE PAID BY ADDRESSEE ATTN: CORPORATE SECRETARY HARLEYSVILLE NATIONAL CORP P.O. BOX 195 HARLEYSVILLE PA 19438-0195 27 DIRECTIONS TO INDIAN VALLEY COUNTRY CLUB 650 BERGEY ROAD - TELFORD, PA 18969 - 215-723-9886 FROM PHILADELPHIA - Take Route 309 North to Souderton-Route 113 Exit. Turn Left onto Route 113 South, follow 2.4 miles to Bergey Road (just before Getty Station). Turn Right and follow .9 mile to Indian Valley Country Club. FROM ALLENTOWN - Take Route 309 South to Souderton-Route 113 Exit. Turn Right onto Route 113 South, continue 2.4 miles to Bergey Road (just before Getty Station). Turn Right and follow .9 mile to Indian Valley Country Club. TURNPIKE ROUTE FROM PHILADELPHIA & ALLENTOWN - Take NE Extension of PA Turnpike (Route 476) to Lansdale Exit (Exit 31). At end of ramp, turn Right onto Route 63 West, follow 3.7 miles to Route 113. Take Route 113 North 3.2 miles to Telford Pike (just before Getty Station). Bear Left on Telford Pike for 100 feet & turn Left onto Bergey Road. Follow Bergey Road for .9 mile to Indian Valley Country Club. 28 * * * IMPORTANT NOTICE * * * LOCATION CHANGE THE ANNUAL MEETING OF SHAREHOLDERS OF HARLEYSVILLE NATIONAL CORPORATION TO BE HELD TUESDAY, APRIL 11, 2000 AT INDIAN VALLEY COUNTRY CLUB 650 BERGEY ROAD TELFORD, PA 18969 (215) 723-9886 PLEASE JOIN US FOR BREAKFAST PRIOR TO THE ANNUAL MEETING, BEGINNING AT 8:30 A.M. THE MEETING WILL CONVENE PROMPTLY AT 9:30 A.M. -----END PRIVACY-ENHANCED MESSAGE-----