SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. [ ])
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the Appropriate Box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
ACNB CORPORATION
(Name of Registrant as Specified in Its Charter)
---------------------------------------------
(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:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed
[ACNB LOGO]
April 4, 2005
Dear Fellow Shareholders of ACNB Corporation:
On behalf of the Board of Directors, I am pleased to invite you to
attend our Annual Meeting of Shareholders to be held on Tuesday, May 17, 2005,
at 1:00 p.m., prevailing time, at Adams County National Bank, 675 Old Harrisburg
Road, Gettysburg, Pennsylvania 17325. At the annual meeting, you will have the
opportunity to ask questions and to make comments. Enclosed with the proxy
statement is the notice of meeting, proxy card, ACNB Corporation's 2004 Annual
Review, and ACNB Corporation's 2004 Annual Report on Form 10-K.
The principal business of the meeting is : To fix the number of
directors of the corporation at twelve (12); To fix the number of Class 1
Directors at four (4); To fix the number of Class 2 Directors at four (4); To
fix the number of Class 3 Directors at four (4); To elect one (1) Class 2
Director to serve for a term of 1 year and until his successor is elected and
qualified; To elect four (4) Class 3 Directors for a term of 3 years and until
their successors are elected and qualified; To amend Article 9th of the Articles
of Incorporation to provide for a two-tiered supermajority clause regarding
fundamental transactions; To ratify the selection of Beard Miller Company LLP as
ACNB Corporation's independent auditors; and to transact any other business that
is properly presented at the annual meeting. The notice of meeting and proxy
statement accompanying this letter describe the specific business to be acted
upon in more detail.
I am delighted that you have invested in ACNB Corporation, and I hope
that, whether or not you plan to attend the annual meeting, you will vote as
soon as possible by completing, signing and returning the enclosed proxy card in
the envelope provided. The prompt return of your proxy card will save the
corporation expenses involved in further communications. Your vote is important.
Voting by written proxy will ensure your representation at the annual meeting if
you do not attend in person.
I look forward to seeing you on May 17, 2005, at the corporation's
annual meeting.
Sincerely,
/s/ Thomas A. Ritter
- --------------------
Thomas A. Ritter
President & Chief Executive Officer
ACNB CORPORATION
OTC BB TRADING SYMBOL: ACNB
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
AND
PROXY STATEMENT
2005
www.acnb.com
TABLE OF CONTENTS
PAGE
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
PROXY STATEMENT................................................................1
GENERAL INFORMATION............................................................1
VOTING PROCEDURES..............................................................1
GOVERNANCE OF THE CORPORATION..................................................3
ELECTION OF DIRECTORS..........................................................6
SHARE OWNERSHIP ...............................................................9
COMPENSATION AND PLAN INFORMATION.............................................11
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION.................16
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION...................18
REPORT OF THE AUDIT COMMITTEE.................................................18
SHAREHOLDER RETURN PERFORMANCE GRAPH..........................................20
INDEPENDENT AUDITORS..........................................................21
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE ......................22
PROPOSALS.....................................................................22
ADDITIONAL INFORMATION........................................................25
OTHER MATTERS.................................................................25
AUDIT COMMITTEE CHARTER...............................................Appendix A
Proxy Statement
Dated and to be mailed to shareholders on or about April 4, 2005.
ACNB CORPORATION
16 LINCOLN SQUARE
GETTYSBURG, PENNSYLVANIA 17325
(717) 334-3161
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 17, 2005
TO THE SHAREHOLDERS OF ACNB CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of
ACNB Corporation will be held at Adams County National Bank, 675 Old Harrisburg
Road, Gettysburg, Pennsylvania 17325 on Tuesday, May 17, 2005, at 1:00 p.m.,
prevailing time, for the purpose of considering and voting upon the following
matters:
1. To fix the number of directors of the corporation at twelve (12);
2. To fix the number of Class 1 Directors at four (4);
3. To fix the number of Class 2 Directors at four (4);
4. To fix the number of Class 3 Directors at four (4);
5. To elect one (1) Class 2 Director for a term of 1 year and until his
successor is elected and qualified;
6. To elect four (4) Class 3 Directors for a term of 3 years and until
their successors are elected and qualified;
7. To amend Article 9th of the Articles of Incorporation to provide for a
two-tiered supermajority clause regarding fundamental transactions;
8. To ratify the selection of Beard Miller Company LLP as ACNB
Corporation's independent auditors; and
9. To transact such other business as may properly come before the meeting
and any adjournment or postponement thereof.
Only those shareholders of record, at the close of business on March
21, 2005, are entitled to notice of and to vote at the meeting.
Please promptly sign the enclosed proxy card and return it in the
enclosed postage-paid envelope. We cordially invite you to attend the meeting.
Your proxy is revocable and you may withdraw it at any time prior to it being
voted. You may deliver notice of revocation or deliver a later dated proxy to
the Secretary of the corporation before the vote at the meeting.
The corporation's Board of Directors is distributing the proxy
statement, proxy card, ACNB Corporation's 2004 Annual Review, and ACNB
Corporation's 2004 Annual Report on Form 10-K on or about April 4, 2005.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Thomas A. Ritter
-----------------------------------
Thomas A. Ritter
President & Chief Executive Officer
Gettysburg, Pennsylvania
April 4, 2005
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY CARD.
PROXY STATEMENT
GENERAL INFORMATION
Date, Time and Place of the Annual Meeting
ACNB Corporation, a Pennsylvania business corporation and registered
financial holding company, furnishes this proxy statement in connection with the
solicitation by the Board of Directors of proxies to be voted at the
corporation's Annual Meeting of Shareholders. The Annual Meeting of Shareholders
will be held on May 17, 2005, at 1:00 p.m. at Adams County National Bank, 675
Old Harrisburg Road, Gettysburg, Pennsylvania 17325. Included with this proxy
statement is a copy of ACNB Corporation's 2004 Annual Review and ACNB
Corporation's 2004 Annual Report on Form 10-K for the fiscal year ended December
31, 2004.
The corporation's principal executive office is located at 16 Lincoln
Square, Gettysburg, Pennsylvania 17325. The corporation's telephone number is
(717) 334-3161. All inquiries regarding the annual meeting should be directed to
John W. Krichten, Secretary/Treasurer of ACNB Corporation, at (717) 338-2258.
Description of ACNB Corporation
ACNB Corporation was established in 1983 as a bank holding company
under the laws of Pennsylvania and the Bank Holding Company Act of 1956. ACNB
Corporation's wholly-owned subsidiary is Adams County National Bank. Farmers
National Bank of Newville is a division of Adams County National Bank. The
corporation's primary activity consists of owning and supervising its banking
subsidiary.
On January 5, 2005, the corporation completed its acquisition of
Russell Insurance Group, Inc. The corporation also now owns and supervises
Russell Insurance Group, Inc. as its insurance subsidiary.
We have not authorized anyone to provide you with information about the
corporation; therefore, you should rely only on the information contained in
this document or on documents to which we refer you. Although we believe we have
provided you with all the information helpful to you in your decision to vote,
events may occur at ACNB Corporation subsequent to printing this proxy statement
that might affect your decision or the value of your stock.
VOTING PROCEDURES
Solicitation and Voting of Proxies
The Board of Directors solicits this proxy for use at the corporation's
2005 Annual Meeting of Shareholders. The corporation's directors and officers
and bank employees may solicit proxies in person or by telephone, facsimile,
email or other similar electronic means without additional compensation. The
corporation will pay the cost of preparing, assembling, printing, mailing and
soliciting proxies and any additional material that the corporation sends to its
shareholders. The corporation will make arrangements with brokerage firms and
other custodians, nominees, and fiduciaries to forward proxy solicitation
materials to the beneficial owners of stock held by these entities. The
corporation will reimburse these third parties for their reasonable forwarding
expenses. This proxy statement and the related proxy card are being distributed
on or about April 4, 2005.
Shareholders of record at the close of business on Monday, March 21,
2005 (the voting record date), are entitled to vote at the meeting. The
corporation's records show that, as of the voting record date, 5,436,101 shares
of the corporation's common stock, par value $2.50 per share, were outstanding.
On all matters to come before the annual meeting, shareholders may cast one vote
for each share held. Cumulative voting rights do not exist with respect to the
election of directors.
You can vote your shares by completing and returning a written proxy
card. You can also vote in person at the meeting. Submitting your voting
instructions by returning a proxy card will not affect your right to attend the
meeting and vote. The method by which you vote will in no way limit your right
to vote at the annual meeting, if you later decide to attend in person.
If your shares are registered directly in your name with ACNB
Corporation's transfer agent, Registrar and Transfer Company, you are
considered, with respect to those shares, the shareholder of record, and these
proxy materials are being sent directly to you by the corporation. As the
shareholder of record, you have the right to grant your voting proxy directly to
the proxy holders or to vote in person at the meeting. The corporation has
enclosed a proxy card for your use.
If your shares are held in a stock brokerage account or by a bank or
other nominee, you are considered the beneficial owner of shares held in street
name, and these proxy materials are being forwarded to you by your broker or
nominee which is considered, with respect to those shares, the shareholder of
record. As the beneficial owner, you have the right to direct your broker how to
vote and you are also invited to attend the meeting. However, because you are
not the shareholder of record, you may not vote your street name shares in
person at the meeting, unless you obtain a proxy executed in your favor, from
the holder of record. Your broker or nominee has enclosed a voting instruction
card for you to use in directing the broker or nominee how to vote your shares.
By properly completing a proxy, you appoint D. Richard Guise and Edgar
S. Heberlig as proxyholders to vote your shares, indicated on the proxy card.
Any signed proxy card not specifying to the contrary will be voted FOR:
o Fixing the number of directors of the corporation at twelve (12);
o Fixing the number of Class 1 Directors at four (4);
o Fixing the number of Class 2 Directors at four (4);
o Fixing the number of Class 3 Directors at four (4);
o Electing one (1) Class 2 Director to serve for a 1 year term and until
his successor is elected and qualified;
o Electing four (4) Class 3 Directors to serve for a 3 year term and until
their successors are elected and qualified;
o Amending Article 9th of the Articles of Incorporation to provide for a
two-tiered supermajority clause regarding fundamental transactions;
o Ratifying the selection of Beard Miller Company LLP as ACNB Corporation's
independent auditors; and
o Transacting such other business as may properly come before the meeting
and any adjournment or postponement thereof.
You may revoke your written proxy by delivering written notice of
revocation to John W. Krichten, Secretary/Treasurer of the corporation, or by
executing a later dated proxy and giving written notice of the revocation to Mr.
Krichten at any time before the proxy is voted at the meeting. Proxyholders will
vote shares represented by proxies on the accompanying proxy, if properly signed
and returned, in accordance with instructions of shareholders.
Although the Board of Directors knows of no other business to be
presented, in the event that any other matters are properly brought before the
meeting, any proxy given pursuant to this solicitation will be voted in
accordance with the recommendations of the Board of Directors.
This proxy statement is being mailed to the corporation's shareholders
on or about April 4, 2005.
Quorum and Vote Required for Approval
As of the close of business on March 21, 2005, the corporation had
5,436,101 shares of common stock, par value $2.50 per share, issued and
outstanding.
A majority of the outstanding shares of common stock, represented in
person or by proxy, constitutes a quorum for the conduct of business. Under
Pennsylvania law and ACNB Corporation's Bylaws, the presence of a quorum is
required for each matter to be acted upon at the meeting. Votes withheld and
abstentions are counted in determining the presence of a quorum for a particular
matter. Broker non-votes are not counted in determining the presence of a quorum
for a particular matter as to which the broker withheld authority. Each share is
entitled to one vote on all matters submitted to a vote of the shareholders. All
matters to be voted upon by the shareholders require the affirmative vote of a
majority of shares voted, in person or by proxy, at the annual meeting, except
in cases where the vote of a greater number of shares is required by law or
under ACNB Corporation's Articles of Incorporation or Bylaws. In the case of the
election of directors, the candidates receiving the highest number of votes are
elected. Shareholders are not entitled to cumulate votes for the election of
directors.
If a quorum is present, approval to fix the number of directors of the
Board of Directors and to fix the number of directors in each class requires the
affirmative "FOR" vote of a majority of all shares present, in person or by
proxy. Abstentions and broker non-votes are not deemed to constitute "votes
cast" and, therefore, do not count either for or against the proposals.
Abstentions and broker non-votes, however, have the practical effect of reducing
the number of affirmative votes required to achieve a majority for the matter by
reducing the total number of shares voted from which the required majority is
calculated.
The affirmative vote of the holders of at least seventy-five percent
(75%) of the outstanding shares of common stock is required to approve and adopt
the amendment to Article 9th of the Articles of Incorporation, as amended.
If a quorum is present, the shareholders will elect the nominees for
director receiving the highest number of "FOR" votes cast by those shareholders
entitled to vote for the election of directors. The proxyholders will not cast
votes for or against any director nominees where the broker withheld authority.
GOVERNANCE OF THE CORPORATION
Our Board of Directors believes that the purpose of corporate
governance is to ensure that we maximize shareholder value in a manner
consistent with legal requirements and the highest standards of integrity. The
Board has adopted and adheres to corporate governance practices which the Board
and senior management believe promote this purpose, are sound, and represent
best practices. We continually review these governance practices, Pennsylvania
law (the state in which we are incorporated), the rules and listing standards of
the OTC Bulletin Board, SEC regulations, as well as best practices suggested by
recognized governance authorities. Currently, our Board of Directors has twelve
(12) members. Under the SEC and Nasdaq standards for independence, all
non-employee directors meet the standards for independence. This constitutes
more than a majority of our Board of Directors. Only independent directors serve
on our Audit Committee.
Directors of ACNB Corporation
The following table sets forth, as of March 21, 2005 (in alphabetical
order), selected information about the corporation's directors and director
nominees
Class of Director Age as of
Name Director Since March 21, 2005
- ----- -------- ----- --------------
Philip P. Asper 3 1988 56
Frank Elsner, III 3 2002 44
D. Richard Guise, Vice Chairman 1 1988 71
Ronald L. Hankey, Chairman 1 1982 65
Edgar S. Heberlig 1 1999 70
Wayne E. Lau 2 1987 70
Daniel W. Potts 3 2004 52
Thomas A. Ritter 3 2001 53
Marian B. Schultz 1 1992 55
Alan J. Stock 2 n/a 47
Jennifer L. Weaver 2 1992 58
Harry L. Wheeler 2 1999 64
Executive Officers of ACNB Corporation
The following table sets forth, as of March 21, 2005, selected
information about the corporation's executive officers, each of whom is
appointed by the Board of Directors and each of whom holds office at the Board's
discretion.
Position Age as of
Name and Position Held March 21, 2005
Ronald L. Hankey
Chairman of the Board 1982 65
Chief Executive Officer 1982-2003
President 1982-2000
Thomas A. Ritter
Chief Executive Officer 2003 53
President 2001
Executive Vice President 2000-2001
Lynda L. Glass
Executive Vice President 2003 44
Assistant Secretary 1993-2003
John W. Krichten 1982 58
Secretary 1982
Treasurer
Meetings and Committees of the Board of Directors
The Board of Directors of ACNB Corporation met 12 times during 2004.
The corporation maintains an Audit Committee and an Executive Committee which
performs the functions of a nominating committee as well as the functions of a
compensation committee. A total of 28 Board and committee meetings of the
corporation's Board of Directors were held in 2004. During 2004, each of the
directors attended at least 75% of the combined total number of meetings of the
corporation's Board of Directors meetings and the committees of which he or she
was a member. Eight directors attended the 2004 Annual Meeting of Shareholders,
and we expect that they will all attend the 2005 annual meeting.
Audit Committee. Members of the Audit Committee during 2004 were
Directors Asper, Lau, Potts and Wheeler. Each of these directors is
"independent" as defined in the SEC and Nasdaq standards for independence. The
principal duties of the Audit Committee, as set forth in its charter which is
attached to this proxy statement as Appendix A, include reviewing significant
audit and accounting principles, policies and practices; reviewing performance
of internal auditing procedures; reviewing reports of examination received from
regulatory authorities; and, recommending annually to the Board of Directors the
engagement of an independent auditor. The committee met 4 times during 2004.
Executive Committee. Members of the Executive Committee during 2004
were Directors Asper, Guise, Lau, Schultz and Weaver. In addition, Ronald L.
Hankey, Thomas A. Ritter and Lynda L. Glass serve as ex-officio members of this
committee. The Executive Committee serves as both the Nominating and
Compensation Committees for the corporation. The principal duties of the
Executive Committee are to act on behalf of the Board between meetings; to
evaluate potential Board candidates; to establish policies concerning
compensation plans; and, to evaluate governance issues and strategic plans. The
committee met 12 times in 2004.
Shareholder Communications
The Board of Directors has a formal shareholder communications process
for the submission of shareholder proposals and nomination of directors, as
described below. In addition, shareholders may contact any member of the Board
personally, by telephone or by written correspondence, including email. Written
communications received by the corporation from shareholders are shared with the
full Board as deemed appropriate.
Submission of Shareholder Proposals
In order for a shareholder proposal (other than director nominations)
to be considered for inclusion in ACNB Corporation's proxy statement for next
year's annual meeting, the written proposal must be received by the corporation
no later than November 30, 2005. All proposals must comply with Securities and
Exchange Commission regulations regarding the inclusion of shareholder proposals
in company-sponsored proxy materials. If a shareholder proposal is submitted to
the corporation after November 30, 2005, it is considered untimely; and,
although the proposal may be considered at the annual meeting, the corporation
is not obligated to include it in the 2006 proxy statement.
Nomination of Directors
Currently, the corporation's Executive Committee serves as the
Nominating Committee. Recommendations to the Board of Directors as to the
nominees for election as directors at the annual meeting of the shareholders are
provided by the Executive Committee. A shareholder who desires to propose an
individual for consideration by the Board of Directors as a nominee for director
should submit a recommendation in writing to the Secretary of the corporation in
compliance with the requirements of Article II, Sections 202 and 203, of the
corporation's Bylaws. Any shareholder who intends to nominate a candidate for
election to the Board of Directors must notify the Secretary of the corporation
in writing not less than 14 days prior to the date of any shareholder meeting
called for the election of directors.
Employee Code of Ethics
Since May 1994, Adams County National Bank has had a Conflict of
Interest/Code of Ethics. In 2003, as required by law and regulation, the
corporation's Board of Directors adopted a Code of Ethics which is applicable to
our directors, officers and employees.
The Code of Ethics encourages individuals to report any conduct that
they believe in good faith to be an actual or apparent violation of the Code of
Ethics. We have filed a copy of the Code of Ethics with the SEC as an exhibit to
our 2003 Annual Report on Form 10-K.
ELECTION OF DIRECTORS
Qualification and Nomination of Directors
The corporation's Articles of Incorporation and Bylaws authorize the
number of directors to be not less than five (5) and not more than twenty-five
(25). They also provide for three classes of directors with staggered three-year
terms of office that expire at successive annual meetings. Pursuant to Article
II, Section 205, of the corporation's Bylaws, directors who reach the age of 72,
prior to the date of the annual meeting when such director's term expires, may
not stand for re-election to the Board of Directors. Currently, the number of
directors is set at twelve: Class 1 consists of four directors, Class 2 consists
of three directors, and Class 3 consists of five directors. However, pursuant to
Article 11 of the corporation's Articles of Incorporation and Article I, Section
105, of the corporation's Bylaws, at each shareholder meeting for the election
of directors, the shareholders determine how many directors will be elected to
serve in each class. The Board of Directors believes that it is in the
corporation's best interest to fix the number of directors to be elected at the
2005 annual meeting at twelve. The proposed twelve member Board of Directors
will consist of four Class 1 Directors, four Class 2 Directors, and four Class 3
Directors. Shareholders will elect one Class 2 Director to serve for a one-year
term that expires at the corporation's 2006 annual meeting and four Class 3
Directors to serve for a three-year term that expires at the corporation's 2008
annual meeting.
The Executive Committee, acting in its capacity as the Nominating
Committee, believes that a director nominee must have the following
attributes/qualifications before being recommended as a nominee: stock ownership
in the corporation, commitment of time, commitment to independence, commitment
to community, financial competence, good reputation, integrity, good
communication skills and willingness and ability to speak up for the interests
of the corporation. The process for identifying and evaluating nominees for
directors is the same for those nominees recommended by shareholders.
The Board of Directors nominated Alan J. Stock to serve as Class 2
Director until the 2006 Annual Meeting of Shareholders or until his earlier
death, resignation, or removal from office. Mr. Stock is not currently a member
of the Board of Directors, but has consented to serve as a director if elected.
The Board of Directors also nominated Philip P. Asper, Frank Elsner, III, Daniel
W. Potts and Thomas A. Ritter to serve as Class 3 Directors until the 2008
Annual Meeting of Shareholders or until their earlier death, resignation, or
removal from office. The nominees for Class 3 Director are presently members of
the Board of Directors, and all have consented to serve another term as a
director if re-elected. If any of the nominees should be unavailable to serve
for any reason, a majority of the Board of Directors then in office may fill the
vacancy until the expiration of the term of the class of directors to which he
or she was appointed.
The proxyholders intend to vote all proxies for the election of each of
the nominees named below, unless you indicate that your vote should be withheld
from any or all of them.
The Board of Directors proposes the following nominee for election as
Class 2 Director at the annual meeting:
Alan J. Stock
The Board of Directors recommends that shareholders vote FOR the
proposal to elect the nominee listed above as Class 2 Director.
The Board of Directors proposes the following nominees for election as
Class 3 Directors at the annual meeting:
Philip P. Asper
Frank Elsner, III
Daniel W. Potts
Thomas A. Ritter
The Board of Directors recommends that shareholders vote FOR the proposal to
elect the nominees listed above as Class 3 Directors.
Information as to Nominees and Directors
Set forth below, as of March 21, 2005, are the principal occupation and certain
other information regarding the nominees and other directors whose terms of
office will continue after the annual meeting. You will find information about
their share ownership on page 10.
Class 1 Directors (to serve until 2007)
D. Richard Guise Mr. Guise, age 71, has been a member of both the
corporation's and Adams County National Bank's Boards of
Directors since 1988. Mr. Guise has served as the Vice
Chairman of the corporation and Adams County National Bank
since 1998. He was the President of Adams County Motors
Corp., an automobile dealership located in Gettysburg,
Pennsylvania, until September 2001. He is now retired.
Ronald L. Hankey Mr. Hankey, age 65, is the Chairman of the corporation and
Adams County National Bank. He served as the corporation's
Chief Executive Officer from 1982 until December 31, 2003.
He also served as the corporation's President from 1982
until December 31, 2000. He served as Adams County National
Bank's President from 1975 until December 31, 2000. He has
been a member of the corporation's Board of Directors and
has served as the Chairman of the Board since 1982. Mr.
Hankey has been a member of Adams County National Bank's
Board of Directors and has served as the Chairman of the
Board since 1975.
Edgar S. Heberlig Mr. Heberlig, age 70, has been a member of the corporation's
Board of Directors since March 1, 1999, and of Adams County
National Bank's Board of Directors since October 1, 2000. He
served as a director of Farmers National Bank of Newville
from 1970 to October 1, 2000. Mr. Heberlig is a retired farm
structure salesman and a retired Navy pilot. He is also the
owner of Ed Heberling Enterprise.
Marian B. Schultz Ms. Schultz, age 55, has been a member of both the
corporation's and Adams County National Bank's Boards of
Directors since 1992. She is Dean, Academic Programs and
Services, at Shippensburg University, located in
Shippensburg, Pennsylvania.
Class 2 Directors (to serve until 2006)
Wayne E. Lau Mr. Lau, age 70, has been a member of both the corporation's
and Adams County National Bank's Boards of Directors since
1987. Mr. Lau is a retired sales representative for
Destinations, a travel agency located in East Berlin,
Pennsylvania.
Jennifer L. Weaver Ms. Weaver, age 58, has been a member of both the
corporation's and Adams County National Bank's Boards of
Directors since 1992. She is the Dean of the Gettysburg
Campus of Harrisburg Area Community College.
Harry L. Wheeler Mr. Wheeler, age 64, has been a member of the corporation's
Board of Directors since March 1, 1999, and of Adams County
National Bank's Board of Directors since October 1, 2000. He
served as a director of Farmers National Bank of Newville
from 1987 until October 1, 2000. Mr. Wheeler is the
proprietor of Wheeler Drywall, located in Carlisle,
Pennsylvania.
Class 2 Director Nominee (to serve until 2006)
Alan J. Stock Mr. Stock, age 47, is the owner of Eicholtz Company located
in New Oxford, Pennsylvania.
Class 3 Directors (to serve until 2005) (nominees to serve until 2008)
Philip P. Asper Mr. Asper, age 56, has been a member of both the
corporation's and Adams County National Bank's Boards of
Directors since 1988. He is a building contractor in
Biglerville, Pennsylvania.
Frank Elsner, III Mr. Elsner, age 44, has been a member of both the
corporation's and Adams County National Bank's Boards of
Directors since May 2002. He is the President and Chief
Executive Officer of Elsner Engineering Works, Inc., an
engineering and manufacturing company located in Hanover,
Pennsylvania.
Thomas A. Ritter Mr. Ritter, age 53, served as Executive Vice President of
the corporation and of Adams County National Bank from
January 1, 2000, until December 31, 2000. Effective January
1, 2001, he became President of the corporation and
President and Chief Executive Officer of Adams County
National Bank. Effective December 31, 2003, Mr. Ritter
became the corporation's Chief Executive Officer. He has
been a member of both the corporation's Board of Directors
and Adams County National Bank's Board of Directors since
2001. Mr. Ritter had previously served as a member of both
the corporation's and Adams County National Bank's Boards of
Directors from 1997 until his retirement from each Board in
December 1999. From 1986 until December 1999, Mr. Ritter was
an insurance agent in Gettysburg, Pennsylvania.
Daniel W. Potts Mr. Potts, age 52, has been a member of both the
corporation's and Adams County National Bank's Boards of
Directors since May 2004 and serves as the audit committee
financial expert. Mr. Potts has 25 years of global business
experience, including 10 years with the Big 4 accounting
firms. Following his retirement from the financial services
industry, Mr. Potts has been involved in residential real
estate development.
SHARE OWNERSHIP
Principal Shareholders
As of March 21, 2005, the Board of Directors knows of no person who
owns of record or who is known to be the beneficial owner of more than 5% of the
corporation's outstanding common stock.
Beneficial Ownership of Executive Officers, Directors and Nominees
The following table sets forth, as of March 21, 2005, and from
information received from the respective individuals, the amount and percentage
of the common stock beneficially owned by each director, each nominee for
director, each executive officer and all executive officers, directors and
nominees of the corporation as a group. Unless otherwise noted, shares are held
individually and the percentage of class is less than 1% of the outstanding
common stock.
Beneficial ownership of shares of ACNB Corporation common stock is
determined in accordance with Securities and Exchange Commission Rule 13d-3,
which provides that a person should be credited with the ownership of any stock
held, directly or indirectly, through any contract, arrangement, understanding,
relationship, or otherwise has or shares:
o Voting power, which includes the power to vote or to direct the voting of
the stock; or,
o Investment power, which includes the power to dispose or direct the
disposition of the stock; or,
o The right to acquire beneficial ownership within 60 days after March 21,
2005.
Unless otherwise indicated in a footnote appearing below the table,
all shares reported in the table below are owned directly by the reporting
person. The number of shares owned by the directors, nominees, and executive
officers is rounded to the nearest whole share.
Name of Individual or Amount and Nature of Percentage of
Identity of Group Beneficial Ownership (1) Class
- ----------------- -------------------- -----
Class 1 Directors
- -----------------
D. Richard Guise 8,788 (2) --
Ronald L. Hankey 19,150 (3) --
Edgar S. Heberlig 31,082 (4) --
Marian B. Schultz 2,300 (5) --
Class 2 Directors
- -----------------
Wayne E. Lau 4,962 (6) --
Jennifer L. Weaver 600 --
Harry L. Wheeler 9,265 (7) --
Class 3 Directors
- -----------------
Philip P. Asper 5,234 (8) --
Frank Elsner, III 1,304 (9) --
Thomas A. Ritter 5,187(10) --
Daniel W. Potts 1,000 --
Nominee for Class 2 Director
Alan J. Stock 5,197(11) --
Officers
Lynda L. Glass, Executive
Vice President 114(12) --
John W. Krichten, Secretary
and Treasurer 6,631(13) --
All Officers, Directors and 100,814 1.85%
Nominees as a Group (12
Directors/Nominees,4 Officers,
14 persons in total)
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definitions of "beneficial ownership" set forth in
the General Rules and Regulations of the Securities and Exchange
Commission and may include securities owned by or for the individual's
spouse and minor children and any other relative who has the same home,
as well as securities to which the individual has or shares voting or
investment power, or has the right to acquire beneficial ownership
within 60 days after March 21, 2005. Beneficial ownership may be
disclaimed as to certain of the securities.
(2) These shares are held jointly with Mr. Guise's spouse.
(3) Figure includes 6,228 shares held solely by Mr. Hankey and 12,922
shares held jointly with Mr. Hankey's spouse.
(4) Figure includes 28,595 shares held solely by Mr. Heberlig; 2,266 shares
held jointly with Mr. Heberlig's spouse; and, 221 shares held solely by
Mr. Heberlig's spouse.
(5) Figure includes 700 shares held jointly with Mrs. Schultz's spouse and
1,600 shares held solely by Mrs. Schultz's spouse.
(6) These shares are held jointly with Mr. Lau's spouse.
(7) Figure includes 6,933 shares held solely by Mr.Wheeler; 1,654 shares
held jointly with Mr. Wheeler's spouse; and, 678 shares held solely by
Mr. Wheeler's spouse.
(8) These shares are held jointly with Mr. Asper's spouse.
(9) Figure includes 804 shares held solely by Mr. Elsner and 500 shares
held jointly with Mr. Elsner's spouse.
(10) Figure includes 3,029 shares held solely by Mr. Ritter and 2,158 shares
held solely by Mr. Ritter's spouse.
(11) Figure includes 1,227 shares held solely by Mr. Stock; 1,400 shares
held jointly with Mr. Stock's spouse; and, 2,570 shares held solely by
Mr. Stock's spouse.
(12) These shares are held jointly with Mrs. Glass's spouse. (13) These
shares are held solely by Mr. Krichten's spouse.
COMPENSATION AND PLAN INFORMATION
Compensation of the Board of Directors of ACNB Corporation and Adams County
National Bank
Directors of the corporation are not compensated for their services.
Further, Adams County National Bank does not compensate employee directors for
attendance at Board of Directors meetings or committee meetings. However, in
2004, Adams County National Bank's non-employee directors were compensated for
their services rendered to the corporation and to Adams County National Bank as
follows:
o $6,000 annual retainer;
o $265 per Board meeting;
o $125 per hour for committee meetings with a minimum payment of $125;
and
o $250 allowance for a half-day seminar plus expenses, if applicable,
and $400 allowance for a full-day seminar plus expenses, if
applicable.
Adams County National Bank Directors Emeriti received $150 per Board
meeting and $62.50 for committee meetings in 2004. The Honorary Directors of
Farmers National Bank of Newville, a division of Adams County National Bank,
were paid an annual retainer of $4,000 in 2004.
In the aggregate, the directors of the corporation and Adams County
National Bank received $135,709 for all services rendered in 2004. Directors
Emeriti of Adams County National Bank and Honorary Directors of Farmers National
Bank of Newville were paid an aggregate of $29,071 for all services rendered in
2004.
Executive Compensation
The following table summarizes the total compensation, for each of
the last three fiscal years for the Chief Executive Officer and the three other
most highly compensated persons who were serving as executive officers at the
end of 2004. These individuals are referred to as the "Named Executive
Officers".
Summary Compensation Table
Annual Compensation
Long-Term Compensation
Awards Payouts
Securities
Other Restricted Underlying
Annual Stock Options/ LTIP All Other
Name and Principal Salary Bonus Compen-sation Award(s) SARs Payouts Compensation
Position Year ($) ($) $ ($) (#) ($) ($)
-------- ---- --- --- - --- --- --- ---
Ronald L. Hankey 39,000 6,390 0 0 0 0 45,892(2)
Chairman of the 2004 39,000 390 0 0 0 0 45,558(2)
Board of the 2003 166,974(1) 1,366 0 0 0 0 7,624(2)
corporation and 2002
Adams County
National Bank
Thomas A. Ritter 2004 195,000 1,950 0 0 0 0 19,212(3)
President and Chief 2003 175,000 5,750 0 0 0 0 60,997(3)
Executive Officer 2002 175,000 3,500 0 0 0 0 46,024(3)
of the corporation
and Adams County
National Bank
Lynda L. Glass 2004 137,033 1,366 0 0 0 0 8,242(4)
Executive Vice 2003 120,107 15,320 0 0 0 0 9,996(4)
President of the 2002 102,505 2,020 0 0 0 0 7,135(4)
corporation and
Executive Vice
President and Chief
Operating Officer
of Adams County
National Bank
John W. Krichten 2004 119,025 1,190 0 0 0 0 5,087(5)
Secretary and 2003 114,459 13,150 0 0 0 0 22,699(5)
Treasurer of the 2002 110,645 1,976 0 0 0 0 18,243(5)
corporation and
Senior Vice
President, Cashier
and Chief Financial
Officer of Adams
County National Bank
(1) Figure includes salary and distributions made under Mr. Hankey's Salary
Continuation Plan during this transition year.
(2) Figure includes the following: Adams County National Bank 401(k) Plan
matching contributions of $1,815, $1,576 and $6,733 in 2004, 2003 and
2002, respectively; deferred compensation payments (under Mr. Hankey's
Salary Continuation Plan) of $42,996(all distribution), $42,996 (all
distribution) and $47,364 (part accrual/part distribution) in 2004,
2003 and 2002, respectively; and, supplemental life insurance payments
of $1,080, $986 and $891 in 2004, 2003 and 2002, respectively.
(3) Figure includes the following: Adams County National Bank 401(k) Plan
matching contributions of $7,878, $7,230 and $7,140 in 2004, 2003 and
2002, respectively; deferred compensation payments (under Mr. Ritter's
Salary Continuation Plan) of $11,028, $53,486 and $38,610 in 2004, 2003
and 2002, respectively; and, supplemental life insurance payments of
$306, $281, and $274 in 2004, 2003 and 2002, respectively.
(4) Figure includes the following: Adams County National Bank 401(k) Plan
matching contributions of $5,535, $5,417 and $4,292 in 2004, 2003 and
2002, respectively; deferred compensation payments (under Ms. Glass'
Salary Continuation Plan) of $2,617, $4,463 and $2,771 in 2004, 2003
and 2002, respectively; and, supplemental life insurance payments of
$89, $116 and $72 in 2004, 2003 and 2002, respectively.
(5) Figure includes the following: Adams County National Bank 401(k) Plan
matching contributions of $4,808, $5,104, and $4,405 in 2004, 2003, and
2002, respectively; deferred compensation payments (under Mr.
Kritchten's Salary Continuation Plan) of $0, $17,335, and $13,518 in
2004, 2003, and 2002, respectively; and, supplemental life insurance
payments of $278, $260, and $220 in 2004, 2003, and 2002, respectively.
Equity Compensation
The corporation does not maintain any equity compensation plans (i.e.,
stock option or restricted stock award plans) for employees or directors.
401(k) Retirement Plan
Adams County National Bank maintains a defined contribution
profit-sharing 401(k) plan. Adams County National Bank is the plan sponsor and
plan administrator. Thomas A. Ritter and John W. Krichten are the plan trustees.
The plan is subject to certain laws and regulations under the Internal Revenue
Code, and participants are entitled to certain rights and protection under the
Employee Retirement Income Security Act of 1974.
An employee is eligible to participate in the plan after working for
six months and attaining the age of 20 years and six months. An eligible
employee may elect to contribute a portion of all wages or other direct
remuneration to the plan. Generally, an eligible employee may not contribute
more than 15% of his or her compensation. Adams County National Bank matches a
percentage of the employee's contribution. In 2004, Adams County National Bank's
contribution equaled 100% of the employee's contribution up to a maximum of 4%
of earned compensation. Effective January 1, 2000, Adams County National Bank
adopted a "safe harbor" provision for its 401(k) plan, which vests eligible
contributions immediately upon entering the plan for both employer and employee
contributions.
Pension Plan
The employees of Adams County National Bank are covered under the
bank's Group Pension Plan for Employees. The plan is a defined benefit pension
plan under the Employee Retirement Income Security Act of 1974. The plan was
restated November 1, 1998, effective January 1, 1999, and subsequently amended
effective November 1, 2000. Adams County National Bank is the plan
administrator.
Amounts are set aside each year to fund the plan on the basis of
actuarial calculations. The amount of contribution to a defined pension plan on
behalf of a specific employee cannot be separately or individually calculated.
The total pension expense in 2004 for Adams County National Bank's plan was
$620,240.76. The contribution to the plan made by the bank on behalf of all
employees in 2004 was $1,250,000. This contribution was sufficient to meet the
legal minimum funding requirements.
Each employee of Adams County National Bank who attains the age of 20
years and six months and who completes six months of eligible service, whichever
is later, is eligible to participate in the plan on the following anniversary of
the plan. The plan generally provides for a prospective benefit at the age of 65
years for the employee's remaining lifetime with payments certain for five
years, calculated as follows: 1% of final average compensation below the
applicable Social Security Covered Compensation and 1.3% of such earnings above
the covered compensation, the total being multiplied by years of credited
service up to a maximum of 45 years of credited service. The minimum benefit is
the amount an employee accrued as of October 31, 1998. If an employee has
completed 30 or more years of vested service, he or she is eligible to retire at
age 62 with no reduction applied to his or her benefit.
The following table shows, for different final average compensation and
for different years of vested service, the annual benefits currently payable
upon retirement at age 65 to a participating employee.
Annual Retirement Income (1)
Years of Service
-----------------------------------------------------------------------------------
Final
Average
Compensation 15 25 35 45 or more
------------ -- -- -- ----------
$50,000 $8,796 $ 14,661 $ 20,525 $ 26,389
75,000 13,671 22,786 32,900 41,014
100,000 18,546 30,911 43,275 55,639
125,000 23,421 39,036 54,650 70,264
150,000 28,296 47,161 66,025 84,889
175,000 33,171 55,286 77,400 99,514
200,000 38,046 63,411 88,775 112,221
(1) Assumes normal retirement date (age 65) occurs in 2004. Actual benefits
may be slightly higher on account of benefits earned under the plan
since the 1998 restatement. Later retirement dates produce smaller
retirement benefits as Social Security Covered Compensation increases.
Management cannot determine the extent of the benefits that any
participating employee may be entitled to receive under the plan on the date of
termination of employment because the amount of the benefits is dependent upon,
among other things, the participant's future compensation and the number of
years of vested service on the employee's date of retirement. For 2004, the
covered compensation, as reported above in the Summary Compensation Table,
includes all earned compensation. At December 31, 2004, under the plan, Mr.
Hankey had 44 years of vested service; Mr. Krichten had 24 years of vested
service; Ms. Glass had 20 years of vested service; and Mr. Ritter had 5 years of
vested service.
Group Term Life Insurance Plan
Adams County National Bank maintains a group term life insurance plan.
All full-time bank employees are eligible to participate in the plan. The
insurance benefit for employees is calculated as 2 times salary, with a
maximum of $50,000.
Management Supplemental Life Insurance Plan
In January 2001, Adams County National Bank implemented a supplemental
life insurance plan for certain officers of the bank to provide death benefits
for each officer's designated beneficiaries. Beneficiaries designated by an
officer are entitled to a split dollar share of the death proceeds from the life
insurance policies on each officer which vary depending on the officer's age at
death, employment status with the bank at the time of death, and eligibility to
receive payments. The plan is unsecured and unfunded, and there are no plan
assets. The bank has purchased single premium bank-owned life insurance policies
("BOLI") on the lives of the officers and intends to use income from the BOLI
policies to offset the plan benefit expenses.
Executive Retirement Income Agreements
Adams County National Bank entered into retirement income agreements
with certain executive officers of Adams County National Bank to provide
supplemental retirement income benefits to these officers when they reach their
normal retirement date. The benefits are payable in 180 equal monthly
installments. Benefits are also payable upon change of control or death. Benefit
amounts will be determined by the individual's number of years of service and
compensation at retirement age. Benefits accrue annually, but may be reduced if
termination of service occurs before the normal retirement date. Estimated
liability under the agreements is accrued as earned by the employee. Adams
County National Bank is the owner and beneficiary of life insurance policies on
each officer that, at December 31, 2004, had an aggregate cash value of
approximately $19,205,000. Adams County National Bank purchased these policies
to fund the retirement income agreements entered into with these individuals.
Further information with respect to these agreements is set forth in the Notes
to Consolidated Financial Statements contained in ACNB Corporation's 2004 Annual
Report on Form 10-K, which is enclosed with this proxy statement.
Director Life Insurance Plan
Effective January 1, 2001, the bank established a director life
insurance plan. All non-employee directors are eligible for the life insurance
benefit, subject to medical underwriting acceptance. The plan currently insures
eight directors. The director life insurance benefit of $100,000 per
participating director will be provided through a single premium BOLI program
because BOLI is a more cost-efficient way of providing the benefits. The
eligible participating directors will not be required to pay any premiums on the
life insurance policy, but will have the imputed value of the insurance coverage
included in their taxable incomes. Benefits are payable upon death, disability,
early retirement, or change in control.
Director Fee Deferral Plan
In January 2001, the bank established a director fee deferral plan.
Directors Elsner, Guise, Schultz, Weaver and Wheeler are current participants.
Directors may defer up to 100% of the director's income. Benefits are payable
upon termination of service. The deferred fees earn interest, and the interest
and plan expenses are funded by BOLI. The aggregate deferred fees for 2004 were
$61,331 for the above-named directors.
Employment Agreement with Thomas A. Ritter
Effective January 1, 2000, Adams County National Bank, the corporation
and Thomas A. Ritter entered into an employment agreement for a period of three
years. The agreement renews automatically for additional one-year periods,
unless one party provides the other with written notice of termination. Pursuant
to the agreement, Mr. Ritter was initially employed by the corporation and Adams
County National Bank as Executive Vice President. The agreement specifies Mr.
Ritter's position and duties, compensation and benefits, and indemnification and
termination provisions. The agreement also contains a non-competition provision,
a confidentiality provision, and a change-in-control provision.
Pursuant to the terms of his employment agreement, Mr. Ritter initially
served as Executive Vice President of the corporation and the bank and had other
powers and duties that were from time to time prescribed by the Board of
Directors of the corporation and the bank. As compensation for services rendered
to the bank under the agreement, Mr. Ritter, in 2000, was entitled to receive
from the bank an annual salary of $140,000 per year and was subject to future
yearly increases as deemed appropriate by the Board of Directors. The Board of
Directors of the bank, in its discretion, was entitled to pay an incentive
yearly bonus to Mr. Ritter to reward him for his performance. According to the
terms of the agreement, Mr. Ritter was appointed to, and agreed to serve,
without additional compensation, as a director of the Board of Directors of the
bank and the corporation, subject to shareholder approval. Mr. Ritter further
agreed to serve without additional compensation in other positions of the bank
and/or the corporation. Mr. Ritter is also entitled to receive the employee
benefits made available by Adams County National Bank to its employees.
Mr. Ritter's employment agreement provides that, if his employment is
terminated due to his death, disability, or by the corporation or Adams County
National Bank for "cause", or the agreement is not renewed by the bank and the
corporation, he is entitled to his full annual salary through the date of
termination at the rate in effect at the time of termination. If Mr. Ritter
terminates his employment for "good reason" (which includes a change in control
of the corporation), he is entitled to his full annual salary from the date of
termination through the last day of the term of the agreement and he may
continue to participate in all employee benefit plans and programs in which he
was previously entitled to participate. In the event Mr. Ritter serves the full
term of his employment agreement, and the bank and the corporation do not renew
his agreement, Mr. Ritter is not entitled to any severance payment.
In accordance with the corporation's and Adams County National Bank's
succession plans, in December 2000, the respective Boards of Directors elected
Mr. Ritter as President of the corporation and President and Chief Executive
Officer of Adams County National Bank, effective January 1, 2001. Further,
effective December 31, 2003, Mr. Ritter was named by the corporation's Board of
Directors as the Chief Executive Officer of the corporation.
Transactions with Directors and Executive Officers
Some of ACNB Corporation's directors and executive officers and the
companies with which they are associated were customers of and had banking
transactions with ACNB Corporation's subsidiary bank during 2004. All loans and
loan commitments made to them and to their companies were made in the ordinary
course of bank business, on substantially the same terms, including interest
rates, collateral and repayment terms, as those prevailing at the time for
comparable transactions with other customers of the bank, and did not involve
more than a normal risk of collectibility or present other unfavorable features.
Total loans to these persons at December 31, 2004, amounted to approximately
$1,012,000. The aggregate amount of indebtedness outstanding as of the latest
practicable date, March 1, 2005, to the above group was approximately
$982,000. ACNB Corporation's subsidiary bank anticipates that they will
enter into similar transactions in the future.
Alan J. Stock is the owner of Eicholtz Company and a nominee for
election as a Class 2 director. In 2004, the bank purchased $94,543.94 worth of
office furniture, equipment and supplies from Eicholtz Company.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Executive Committee Compensation Report
ACNB Corporation's Board of Directors governs the corporation and its
subsidiary bank. In fulfilling its fiduciary duties, the Board of Directors acts
in the best interests of the corporation's shareholders, customers, and the
communities served by the corporation and the bank. To accomplish the
corporation's strategic goals and objectives, the Board of Directors engages
competent persons who undertake to accomplish these objectives with integrity
and cost-effectiveness. The Board of Directors fulfills part of its strategic
mission through the compensation of these individuals. Officers of the
corporation are not compensated. The bank provides compensation to its officers
and employees.
The corporation seeks to offer competitive compensation opportunities
for all employees based on the individual's contribution and personal
performance. The Executive Committee, comprised of five non-employee directors,
administers the compensation program. The committee seeks to establish a fair
compensation policy to govern executive officers' base salaries and bonus plans
to attract and motivate competent, dedicated and ambitious managers, whose
efforts will enhance the corporation's products and services, the results of
which will be improved profitability, increased dividends to the corporation's
shareholders, and subsequent appreciation in the market value of the
corporation's shares.
The committee annually reviews and recommends to the Board the
compensation of the bank's President and Chief Executive Officer as well as the
Chairman. As a guideline in determining base salaries, the committee uses a
regional financial industry salary survey which covers financial institutions in
the Pennsylvania, Maryland, Washington, D.C., and Virginia marketplace. The
referenced survey includes more institutions than are contained in the peer
group index in the performance graph. Additionally, in 2004, the a meeting of
the committee was conducted by a recognized human resource consultant
specializing in the financial services industry.
The Board of Directors does not deem Section 162(m) of the Internal
Revenue Code to be applicable to the corporation at this time. The Board of
Directors intends to monitor the future application of IRC Section 162(m) to the
compensation paid to its executive officers; and, in the event that this section
becomes applicable, the Board of Directors intends to amend the corporation's
and the bank's compensation plans to preserve the deductibility of the
compensation payable under the plans.
Chief Executive Officer Compensation
The Board of Directors determined that the President's and Chief
Executive Officer's 2004 base salary of $195,000, combined with a $1,950 bonus,
a 401(k) plan matching contribution payment of $7,878, and a salary continuation
plan accrual of $11,028, is appropriate for Thomas A. Ritter. Key performance
measures include profitability and growth; however, no direct correlation exists
between the Chief Executive Officer's compensation and ACNB Corporation's 2004
performance. The committee subjectively determines the President's and Chief
Executive Officer's compensation based on a review of all relevant information.
Executive Officers Compensation
The committee delegates to the President and Chief Executive Officer
the responsibility of conducting annual reviews for the other executive
officers. The compensation of the bank's executive officers increased by
approximately 3.5% in 2004. The President and Chief Executive Officer determined
the increases based on his subjective analysis of the individual's contribution
to the corporation's strategic goals and objectives. In determining whether
strategic goals have been achieved, the President and Chief Executive Officer
considers numerous factors, including the following: the corporation's
performance as measured by earnings, revenues, return on assets, return on
equity, market share, total assets, and nonperforming loans. Although the
President and Chief Executive Officer measured the performance and increases in
compensation in light of these factors, no direct correlation exists between any
specific criterion and the employees' compensation; nor does the President, in
his analysis, attribute specific weight to any such criteria. Furthermore, in
2004, the bank implemented a Wage and Salary Administration Program which
establishes ranges for these executive officers. The President and Chief
Executive Officer makes a subjective determination after review of all relevant
information, including the above.
In addition to base salary, executive officers of the bank may
participate in the bank's 401(k) plan, pension plan, and discretionary bonuses
as determined by the Board of Directors. (See pages 13-15 for more information.)
General labor market conditions, the individual's specific
responsibilities and the individual's contributions to the corporation's success
influence total compensation opportunities available to the bank's executive
officers. The President and Chief Executive Officer makes a subjective
determination after review of all relevant information, including the above.
reviews individuals on a calendar year basis and strives to offer compensation
that is competitive with that offered by employers of comparable size in our
industry. Through these compensation policies, the corporation strives to meet
its strategic goals and objectives to its constituencies and provide
compensation that is fair and meaningful to its executive officers.
This report is furnished by the Executive Committee which performs the
functions of a compensation committee.
D. Richard Guise, Chairman
Philip P. Asper
Wayne E. Lau
Marian B. Schultz
Jennifer L. Weaver
Ronald L. Hankey (ex-officio member)
Thomas A. Ritter (ex-officio member)
Lynda L. Glass (ex-officio member)
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Ronald L. Hankey, Thomas A. Ritter and Lynda L. Glass are ex-officio
members of the Executive Committee that also performs the functions of a
compensation committee. Messrs. Hankey and Ritter and Ms. Glass make
recommendations to the Executive Committee regarding merit raise increases for
all employees based on a merit appraisal in connection with recommendations
provided by an outside consultant. A merit review of Mr. Ritter is conducted by
the Executive Committee. The merit review is submitted to the entire Board of
Directors to be voted upon. Neither Mr. Ritter, Mr. Hankey nor Ms. Glass
participate in matters concerning their own compensation.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors is comprised of directors
who meet SEC and Nasdaq standards for independence. The Audit Committee operates
under a written charter adopted by the Board of Directors in April 2000, which
was reviewed and revised in March 2005, and which is attached to this proxy
statement as Appendix A.
The Audit Committee met with management periodically during the year to
consider the adequacy of the corporation's internal controls and the objectivity
of its financial reporting. The Audit Committee discussed these matters with the
corporation's independent auditors and with appropriate corporation financial
personnel and internal auditors. The Audit Committee also discussed with the
corporation's management and independent auditors the process used for
certifications by the corporation's Chief Executive Officer and Chief Financial
Officer, which are required for certain of the corporation's filings with the
Securities and Exchange Commission.
The Audit Committee also met privately at its regular meetings with
both the independent auditors and the internal auditors, each of whom has
unrestricted access to the Audit Committee.
The Audit Committee appointed Beard Miller Company LLP as the
independent auditors for the corporation after reviewing the firm's performance
and independence from management.
Management has primary responsibility for the corporation's financial
statements and the overall reporting process, including the corporation's system
of internal controls.
The independent auditors audited the annual financial statements
prepared by management, expressed an opinion as to whether those financial
statements fairly present the financial position, results of operations, and
cash flows of the corporation in conformity with generally accepted accounting
principles, and discussed with the Audit Committee any issues they believe
should be raised with the Audit Committee.
The Audit Committee reviewed with management and Beard Miller Company
LLP, the corporation's independent auditors, the corporation's audited financial
statements, as well as reviewed those financial statements and reports prior to
issuance. Management has represented, and Beard Miller Company LLP has
confirmed, to the Audit Committee that the financial statements were prepared in
accordance with generally accepted accounting principles.
The Audit Committee received from and discussed with Beard Miller
Company LLP the written disclosure and the letter required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees).
These items relate to that firm's independence from the corporation. The Audit
Committee also discussed with Beard Miller Company LLP matters required to be
discussed by the Statement on Auditing Standards No. 61 (Communication with
Audit Committees) of the Auditing Standards Board of the American Institute of
Independent Auditors to the extent applicable. The Audit Committee implemented a
procedure to monitor auditor independence, reviewed audit and non-audit services
performed by Beard Miller Company LLP, and discussed with the auditors their
independence.
Both the Audit Committee and the Board of Directors reviewed the
audited financial statements to be included in the Annual Report on Form 10-K
for the year ended December 31, 2004, which is then filed with the Securities
and Exchange Commission.
At present, the corporation has an "audit committee financial expert".
The Board of Directors has determined that Daniel W. Potts is qualified to serve
as the corporation's audit committee financial expert and is independent as
defined under applicable SEC and Nasdaq rules.
This report is furnished by the Audit Committee.
Philip P. Asper, Chairman
Wayne E. Lau
Daniel W. Potts
Harry L. Wheeler
SHAREHOLDER RETURN PERFORMANCE GRAPH
The following graph compares the yearly dollar change in the cumulative total
shareholder return on ACNB Corporation's common stock against the cumulative
total return of the S&P 500 Stock Index, the NASDAQ Composite Index, and the
Mid-Atlantic Custom Peer Group for the period of five fiscal years commencing
December 31, 1999, and ending December 31, 2004. The graph shows the cumulative
investment return to shareholders based on the assumption that a $100 investment
was made on December 31, 1999, in each of ACNB Corporation's common stock, the
S&P 500 Stock Index, the NASDAQ Composite Index and the Mid-Atlantic Custom Peer
Group. We computed returns assuming the reinvestment of all dividends. The
shareholder return shown on the following graph is not indicative of future
performance.
[GRAPH OMITTED]
- -------------------------------------------------------------------------------------------------------------------------------
Period Ending
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Index 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03 12/31/04
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
ACNB Corporation 100.00 94.48 111.72 135.16 176.04 176.77
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
S&P 500* 100.00 101.90 80.42 62.64 80.62 89.47
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
NASDAQ Composite 100.00 60.82 48.16 33.11 49.93 54.49
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Mid-Atlantic Custom Peer Group** 100.00 90.64 107.51 135.15 182.03 204.59
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
*Source: CRSP, Center for Research in Security Prices, Graduate School of
Business, The University of Chicago 2005.
Used with permission. All rights reserved. crsp.com.
**Mid-Atlantic Custom Peer Group consists of Mid-Atlantic commercial banks with
assets less than $1B.
INDEPENDENT AUDITORS
Aggregate fees billed to ACNB Corporation by Beard Miller Company LLP
for services rendered are presented below:
----------------------------------------- -------------------------------
Year Ended December 31,
----------------------------------------- -------------------------------
----------------------------------------- ---------------- --------------
2004 2003
---- ----
----------------------------------------- ---------------- --------------
----------------------------------------- ---------------- --------------
Audit Fees...................... $ 102,000 $ 153,405
----------------------------------------- ---------------- --------------
----------------------------------------- ---------------- --------------
Audit Related Fees............. 0 17,195
----------------------------------------- ---------------- --------------
----------------------------------------- ---------------- --------------
Tax Fees........................ 5,000 4,235
----------------------------------------- ---------------- --------------
----------------------------------------- ---------------- --------------
All Other Fees.................. 19,400 350
----------------------------------------- ---------------- --------------
Audit Fees include fees billed for professional services rendered for
the audit of annual financial statements and fees billed for the review of
financial statements included in the corporation's Forms 10-Q and 10-K or
services that are normally provided by Beard Miller Company LLP in connection
with statutory and regulatory filings or engagements.
Audit Related Fees include fees billed for assurance and related
services by Beard Miller Company LLP that are reasonably related to the
performance of the audit or review of the corporation's financial statements and
are not reported under the Audit Fees section of the table above. These services
include an annual audit of the employee benefits plans.
Tax Fees include fees billed for professional services rendered by
Beard Miller Company LLP for tax compliance, tax advice, and tax planning. These
services include assistance with the method change for prepaid expenses and
review of tax returns.
All Other Fees include fees billed for products and services provided
by Beard Miller Company LLP, other than the services reported under the Audit
Fees, Audit Related Fees, or Tax Fees sections of the table above. Other fees
include the evaluation of the purchase of Russell Insurance Group, Inc. and the
"build to own" versus "sale leaseback" analysis for the new Operations Center.
The Audit Committee has considered whether, and determined that, the
provision of the non-audit services is compatible with maintaining Beard Miller
Company LLP's independence.
The Audit Committee preapproves all audit and permissible non-audit
services provided by the independent auditors. These services may include audit
services, audit related services, tax services, and other services. Preapproval
will generally be provided for up to one year, and any preapproval is detailed
as to the particular service or category of services and is subject to a
specific budget. In addition, the Audit Committee may also preapprove particular
services on a case by case basis. For each proposed service, the independent
auditor is required to provide detailed back-up documentation at the time of
approval. None of the services related to the Audit Related Fees, Tax Fees, or
All Other Fees described above was approved by the Audit Committee pursuant to
the preapproval waiver provisions set forth in the applicable SEC rules.
The Audit Committee annually considers and recommends to the Board of
Directors the selection of the corporation's independent auditors.
SECTION 16(a) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires ACNB
Corporation's directors, executive officers, and shareholders who beneficially
own more than 10% of ACNB Corporation's outstanding equity stock to file initial
reports of ownership and reports of changes in ownership of common stock and
other equity securities of ACNB Corporation with the Securities and Exchange
Commission. Based on a review of copies of the reports we received, and on the
statements of the reporting persons, we believe that all Section 16(a) filing
requirements were complied with in a timely fashion during 2004.
PROPOSALS
1. TO FIX THE NUMBER OF DIRECTORS OF THE CORPORATION AT TWELVE (12).
The Board of Directors recommends a vote FOR this proposal.
2. TO FIX THE NUMBER OF CLASS 1 DIRECTORS AT FOUR (4).
The Board of Directors recommends a vote FOR this proposal.
3. TO FIX THE NUMBER OF CLASS 2 DIRECTORS AT FOUR (4).
The Board of Directors recommends a vote FOR this proposal.
4. TO FIX THE NUMBER OF CLASS 3 DIRECTORS AT FOUR (4).
The Board of Directors recommends a vote FOR this proposal.
5. TO ELECT ONE (1) CLASS 2 DIRECTOR FOR A TERM OF ONE YEAR.
Nominee for Class 2 Director is:
Alan J. Stock
The Board of Directors recommends a vote FOR the election of this nominee as
Class 2 Director.
6. TO ELECT FOUR (4) CLASS 3 DIRECTORS FOR A TERM OF THREE YEARS
Nominees for Class 3 Director are:
Philip P. Asper
Frank Elsner, III
Daniel W. Potts
Thomas A. Ritter
The Board of Directors recommends a vote FOR the election of these nominees as
Class 3 Directors.
Cumulative voting rights do not exist with respect to the election of
directors. The affirmative vote of the majority of shares present (in person or
by proxy and entitled to vote at the annual meeting) is needed to elect a
director.
In the election of directors, you may vote "FOR" all of the nominees or
your vote may be "WITHHELD" with respect to one or more of the nominees. For the
other proposals, you may vote "FOR", "AGAINST" or "ABSTAIN". If you "ABSTAIN",
it has the same effect as a vote "AGAINST". If you sign your proxy card or
broker voting instruction card with no further instructions, your shares will be
voted in accordance with the recommendations of the Board ("FOR" all of the
Board's nominees and "FOR" all other proposals described in this proxy
statement).
7. TO AMEND ARTICLE 9TH OF THE ARTICLES OF INCORPORATION TO PROVIDE FOR A
TWO-TIERED SUPERMAJORITY CLAUSE REGARDING FUNDAMENTAL TRANSACTIONS.
PROPOSAL TO AMEND ARTICLE 9th
OF THE ARTICLES OF INCORPORATON, AS AMENDED, OF ACNB CORPORATION
The Articles of Incorporation, as amended, of ACNB Corporation
currently provides that a vote of seventy-five percent of the shareholders is
required to approve a business combination. The addition of a two-tiered
supermajority clause would lower the required shareholder vote to fifty-one
percent, if the directors have approved the business combination by a
supermajority vote, or seventy-five percent, of the Board of Directors in
advance. This two-tiered structure prevents the Board from being unnecessarily
hampered in its ability to pursue the approval of a merger, consolidation,
liquidation or dissolution or such other action that it approves.
Accordingly, on March 22, 2005, the Board of Directors of the
corporation by a unanimous vote approved and adopted resolutions to amend
Article 9th of the Articles of Incorporation, as amended, of the corporation to
provide for a two-tiered supermajority clause. The proposal to approve and adopt
the amendment to Article 9th, including the revised text of Article 9th, reads
in full and in its entirety as follows:
WHEREAS, the Board of Directors believes that it is in the best
interest of the corporation, its subsidiaries and its shareholders to
amend the Articles of Incorporation, as amended, of the corporation to
increase the transaction flexibility available by providing for a
two-tiered supermajority clause regarding fundamental transactions.
NOW, THEREFORE, BE IT RESOLVED, that in accordance with Sections 1911,
1912, 1914, 1915 and 1916 of the Pennsylvania Business Corporation Law
of 1988, as amended, and the corporation's Articles of Incorporation,
as amended, the Board of Directors hereby approves and adopts the
following proposed amendment to the corporation's Articles of
Incorporation, as amended and hereby directs that the following
proposed amendment to the Articles of Incorporation, as amended, be
submitted to the shareholders for their approval and adoption at the
2005 Annual Meeting of Shareholders of the corporation to be held on
Tuesday, May 17, 2005, at 1:00 p.m., prevailing time, at Adams County
National Bank, 675 Old Harrisburg Road, Gettysburg, Pennsylvania 17325,
to wit:
Article 9th of the Articles of Incorporation, as amended, of
ACNB Corporation is amended and restated to read in full and its
entirety as follows:
9th No merger, consolidation, liquidation or dissolution of the
Corporation, nor any action that would result in the sale or
other disposition of all or substantially all of the assets
of the Corporation shall be valid unless first approved by
the affirmative vote of:
(a) the holders of at least seventy-five percent (75%) of
the outstanding shares of Common Stock of the
Corporation; or
(b) the holders of at least fifty-one percent (51%) of
the outstanding shares of Common Stock of the
Corporation, provided that such transaction has
received the prior approval of at least seventy-five
percent (75%) of the Board of Directors;
This Article 9th shall not be amended unless first approved by
the affirmative vote of the holders of at least seventy-five
percent (75%) of the outstanding shares of Common Stock of
this Corporation.
BE IT FURTHER RESOLVED, that the Board of Directors directs and orders
that the President of the corporation shall cause to be prepared proxy
solicitation materials for the 2005 Annual Meeting of Shareholders to
solicit proxies for the approval and adoption of the aforesaid
amendment by the shareholders of the corporation and further directs
and orders that proxy solicitation materials be mailed on April 4,
2005, or as soon as practicable thereafter to the shareholders of
record as of close of business, prevailing time, March 21, 2005; and
BE IT FURTHER RESOLVED, that after the approval and adoption of the
aforesaid amendment of the Articles of Incorporation by the
shareholders of the corporation at the 2005 Annual Meeting of
Shareholders, the President or Secretary of the corporation is
authorized, empowered and directed to file Articles of Amendment
containing said amendment with the Commonwealth of Pennsylvania,
Department of State, Corporations Bureau, and upon such filing said
amendment shall be effective.
For the reasons cited in the resolutions above, the Board of Directors of the
corporation unanimously recommends that the shareholders vote FOR the proposal
to approve and adopt the amendment to Article 9th of the Articles of
Incorporation, as amended, of the corporation to provide for a two-tiered
supermajority clause regarding fundamental transactions.
The affirmative vote of the holders of at least seventy-five percent
(75%) of the outstanding shares of common stock is required to approve and adopt
the amendment to Article 9th of the Articles of Incorporation, as amended.
8. TO RATIFY THE SELECTION OF BEARD MILLER COMPANY LLP AS ACNB CORPORATION'S
INDEPENDENT AUDITORS.
RATIFICATION OF SELECTION OF
INDEPENDENT AUDITORS
The Board of Directors has selected Beard Miller Company LLP as
independent auditors for the examination of its financial statements for the
fiscal year ending December 31, 2005. Beard Miller Company LLP served as the
company's independent auditors for the year ended December 31, 2004.
Beard Miller Company LLP has advised us that neither the firm nor any
of its associates has any relationship with the corporation or its subsidiaries
other than the usual relationship that exists between independent certified
public auditors and clients.
We expect a representative of Beard Miller Company LLP to be present at
the Annual Meeting of Shareholders to respond to appropriate questions and to
make a statement if the representative desires to do so.
The Board of Directors recommends that the shareholders vote FOR ratification of
the selection of Beard Miller Company LLP as independent auditors for the fiscal
year ending December 31, 2005.
9. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL
MEETING AND ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
ADDITIONAL INFORMATION
Any shareholder may obtain a copy of ACNB Corporation's Annual Report
on Form 10-K for the year ended December 31, 2004, including the financial
statements and related schedules and exhibits, required to be filed with the
Securities and Exchange Commission, without charge, by submitting a written
request to Shareholder Relations, ACNB Corporation, 16 Lincoln Square, P. O. Box
3129, Gettysburg, Pennsylvania 17325, or calling 717-338-2265. You may also view
these documents on our website at www.acnb.com, select ACNB Corporation, and
then click on "SEC Filings".
Pursuant to Securities and Exchange Commission rules, ACNB Corporation
intends to send a single proxy statement and annual report to multiple
shareholders who share the same address and who have the same last name, unless
we receive instructions to the contrary from one or more of the shareholders.
This method of delivery is known as "householding". Upon written or oral
request, a separate copy of the annual report and/or proxy statement, as
applicable, will be delivered promptly to a security holder at a shared address
to which a single copy of the documents was delivered or, if you wish to receive
a separate proxy statement or annual report in the future, please call
717-338-2265 or send a written request to Shareholder Relations, ACNB
Corporation, 16 Lincoln Square, P. O. Box 3129, Gettysburg, Pennsylvania 17325.
If you are receiving multiple copies of the proxy statement and annual report
and want to request one copy, please also notify Shareholder Relations.
OTHER MATTERS
The Board of Directors knows of no matters other than those discussed
in this proxy statement that will be presented at the annual meeting. However,
if any other matters are properly brought before the meeting, any proxy given
pursuant to this solicitation will be voted in accordance with the
recommendations of the Board of Directors.
APPENDIX A
ACNB CORPORATION
ADAMS COUNTY NATIONAL BANK
AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS CHARTER
ORGANIZATION
The Audit Committee is a committee of outside members of the Board of Directors.
Its function is to assist the Board in fulfilling its oversight responsibilities
by reviewing the financial information which will be provided to any
governmental body, the shareholders or the public, the systems of internal
controls which management and the Board of Directors have established, and the
audit process.
AUTHORIZATION
The Audit Committee of ACNB Corporation and Adams County National Bank is a
standing committee of the Board of Directors authorized by the Bylaws of both
ACNB Corporation and Adams County National Bank.
PURPOSE
The purpose of the Audit Committee is to assist the Board in fulfilling its
oversight responsibility relating to (i) the integrity of the Company's
financial statements and financial reporting process and the Company's systems
of internal accounting and financial controls; (ii) the performance of the
internal audit function; (iii) the annual independent audit of the Company's
financial statements, the engagement of the independent auditors, and the
evaluation of the independent auditors' qualifications, independence and
performance; (iv) the Company's compliance with legal and regulatory
requirements, including the Company's disclosure controls and procedures; (v)
the fulfillment of the other responsibilities set out herein; and (vi)
monitoring the Company's compliance with the Code of Ethics. The report of the
Audit Committee required by the rules of the Securities and Exchange Commission
("SEC") shall be included in the Company's annual proxy statement.
While the Audit Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Audit Committee to plan or conduct audits or
to determine that the Company's financial statements and disclosures are
complete and accurate and are in accordance with generally accepted accounting
principles and applicable rules and regulations. These are the responsibilities
of management and the independent auditors. In carrying out its oversight
responsibilities, as permitted under the Pennsylvania Business Corporation Law
of 1988, as amended, the Audit Committee members are entitled to rely in good
faith on the expertise, integrity and knowledge of management, the internal and
independent auditors, and corporate counsel.
MEMBERSHIP AND STRUCTURE
The Audit Committee shall be comprised of at least three members of the Board,
and the members shall meet the independence, experience and expertise
requirements set forth by the Board of Directors and applicable laws and
regulations (including the Sarbanes-Oxley Act of 2002).
All members of the Audit Committee will have a general understanding of finance
and accounting practices and each member shall be free of any relationship that,
in the opinion of the Board, would under applicable laws and regulations make
the director not independent. The Board will determine if any member is a
"financial expert" as defined by the SEC. A Chair is elected by the full Board.
AUTHORITY
The Audit Committee shall have the sole authority to select, evaluate, appoint
and replace the independent auditors (subject to shareholder ratification) and
shall approve in advance all audit engagement fees and terms and all non-audit
engagements with the independent auditors. The Audit Committee shall consult
with management, but shall not delegate these responsibilities.
The Audit Committee shall have the authority, to the extent it deems necessary
or appropriate, to retain special legal, accounting, or other consultants to
advise the Audit Committee. The Company shall provide funding, as determined by
the Audit Committee, for payment of compensation to the independent auditors and
to any advisors employed by the Audit Committee. Any communications between the
Audit Committee and legal counsel in the course of obtaining legal advice will
be considered privileged communications of the Company, and the Audit Committee
will take all necessary steps to preserve the privileged nature of those
communications.
The Audit Committee may form and delegate authority to subcommittees, comprised
of one or more members of the Committee, as necessary or appropriate. Each
subcommittee shall have the full power and authority of the Audit Committee.
The Audit Committee may conduct or authorize investigations into any matter,
within the Audit Committee's scope of responsibilities, brought to its
attention.
MEETINGS
The Committee shall meet at least four times annually, or more frequently as
circumstances dictate. The Audit Committee may hold special meetings upon the
call of the Chair of the Committee. At Committee meetings, a majority of the
total members will constitute a quorum. A member of the Audit Committee or a
person designated by the Audit Committee shall keep minutes. The Committee shall
regularly report to the Board on the Audit Committee's activities, and annually
review and evaluate its own performance. The Committee shall review and assess
the adequacy of this Charter annually and recommend any proposed changes to the
Board for approval.
As part of its job to foster open communication, the Committee should meet at
least annually with management, the manager of the internal audit function, and
the independent auditors to discuss any matters that the Committee or each of
these groups believe should be discussed privately.
In addition, the Committee or at least its Chair should meet with the
independent auditors and management annually to review the Company's financial
reports.
RESPONSIBILITIES AND DUTIES
In carrying out its responsibilities, the Audit Committee believes its policies
and procedures should remain flexible, in order to best react to changing
conditions and ensure to the directors and shareholders that the corporate
accounting and reporting practices of the Company are in accordance with all
requirements.
The Audit Committee's duties and responsibilities are designated by the
categories listed below:
1. Financial Statement and Disclosure Matters
o Review and update this Charter periodically, at least annually, or as
conditions dictate.
o Review the regular internal reports to management prepared by the internal
audit function and management's response. o Review and discuss with
management and the independent auditors the annual audited financial
statements, including disclosures made in "Management's Discussion and
Analysis of Financial Condition and Results of Operations", and recommend
to the Board whether the audited financial statements should be included in
the Company's Form 10-K.
o Prepare annually a report for inclusion in the Company's proxy
statement relating to its annual shareholders meeting. In that report, the
Audit Committee will state whether it has: (i) reviewed and discussed the
audited financial statements with management; (ii) discussed with the
independent auditors the matters required to be discussed by Statement on
Auditing Standards No. 61, as that statement may be modified or
supplemented from time to time; and (iii) received from the independent
auditors written disclosures and the letter required by Independence
Standards Board Standard No. 1, as that standard may be modified or
supplemented from time to time, and discussed with the independent auditors
the independence of the independent auditors.
o Review and discuss with management and the independent auditors the
Company's quarterly financial statements prior to the filing of its Form
10-Q, including the results of the independent auditors' reviews of the
quarterly financial statements.
o Discuss generally the Company's earnings press releases, including the
use of "pro forma" or "adjusted" non-GAAP information, as well as financial
information and earnings guidance provided to analysts and rating agencies
to the extent required by applicable law or listing standards. The
Committee need not discuss in advance each earnings release or each
instance in which the Company may provide earnings guidance.
o Receive a disclosure from the Chief Executive Officer and Chief
Financial Officer during their certification process for the 10-K and 10-Qs
about (i) any significant deficiencies in design or operation of internal
controls or material weaknesses therein and (ii) any fraud, whether or not
material, involving management or other employees who have a significant
role in the Company's internal controls.
o At least annually prior to the filing of the Audit Report with the SEC
(and more frequently if appropriate), review and discuss reports from the
independent auditors on, among other things, certain:
>> Critical accounting policies and practices to be used;
>> Alternative treatments of financial information within generally
accepted accounting principles;
>> Other material written communications between the independent
auditors and management, such as any management letter and the
Company's response to such letter or schedule of unadjusted
differences; and,
>> Difficulties encountered in the course of the audit work,
including any restrictions on the scope of activities or access to
requested information, any significant disagreements with
management, and communications between the audit team and the
audit firm's office with respect to difficult auditing or
accounting issues presented by the engagement.
o Discuss with the independent auditors the matters required to be discussed
by Statement on Auditing Standards No. 61 relating to the conduct of the
audit.
o Review and discuss with management and the independent auditors, at
least annually, significant accounting and financial reporting issues,
including complex or unusual transactions and judgments concerning
significant estimates or significant changes in the Company's selection or
application of accounting principles, and recent professional, accounting
and regulatory pronouncements and initiatives, and understand their impact
on the Company's financial statements.
o Review with management the Audit Committee's evaluation of the
Company's internal control structure and procedures for financial reporting
and review periodically, but in no event less frequently than quarterly,
management's conclusions about the efficacy of such internal controls and
procedures, including any significant deficiencies in or material
noncompliance with such controls and procedures.
o Discuss with management the Company's major financial risk exposures
and the steps management has taken to monitor and control such exposures,
including the Company's risk assessment and risk management policies.
2. Authorization of the Company's Whistleblower Policy
o Establish procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls, or auditing matters, and the confidential, anonymous
submission by Company employees of concerns regarding questionable
accounting or auditing matters.
o Treatment of Certain Complaints
>> The protection of corporate whistleblowers shall be the
responsibility of the Audit Committee.
>> The Audit Committee shall protect anyone who comes forth with any
information concerning any irregularities or fraudulent activity
being performed. The Sarbanes-Oxley Act of 2002 expands the
federal statue concerning retaliation against a witness to
prohibit interference with the lawful employment or livelihood of
a witness for providing information relating to the commission of
a federal offense.
>> The Audit Committee shall provide for employees of a public
company who provide evidence of fraud. The Company may not fire,
demote, suspend, threaten, harass, or otherwise discriminate
against an employee because of the employee's involvement in a
securities or fraud-related investigation involving the Company.
Any employee who is adversely treated because of his or her
whistleblowing activities may sue the Company within 90 days after
the date of the discriminatory act for compensatory damages and
attorney's fees. The employee must make a prima facie case showing
that his or her whistleblowing activities were a contributing
factor in the unfavorable personnel action alleged in the
complaint, while the employer must show by clear and convincing
evidence that it would have taken the same unfavorable personnel
action in the absence of the whistleblowing behavior.
3. Oversight of the Company's Relationship with Independent Auditors
o The independent auditors shall report directly to the Audit Committee. o
Review and discuss the scope and plan of the independent audit.
o Review and appraise the audit efforts of the Company's independent auditors
and internal auditing department. o Provide an open avenue of communication with
the independent auditors. o On an annual basis, review and discuss with the
auditors all significant relationships the auditors have with the Company to
determine the independence of the internal and independent auditors.
o Review the performance of the independent auditors and approve any
proposed discharge of the independent auditors when circumstances
warrant.
o Review with management and the independent auditors at the completion of the
annual examination:
>> The Company's annual financial statements and related footnotes;
>> The independent audit of the financial statements and report
thereon;
>> Any significant changes required in the independent audit plan;
and,
>> Any serious difficulties or disputes with management encountered
during the course of the audit.
o Review the internal audit function of the Company including the
independence and authority of its reporting obligations, the proposed audit
plans for the coming year, and the coordination of such plans with the
independent auditors.
o Provide sufficient opportunity for the internal and independent auditors to
meet with the members of the Audit Committee
without members of management present. Among the items to be discussed
in these meetings are the independent auditors' evaluation of the
Company's financial, accounting and internal controls.
o Receive and discuss a report from the independent auditors at least
annually regarding:
>> The independent auditors' internal quality control procedures;
>> Any material issues raised by the most recent quality control
review, or peer review (if applicable), of the independent
auditors, or by any inquiry or investigation by governmental
professional authorities within the preceding five years
respecting one or more independent audits carried out by the
independent auditors;
>> Any steps taken to deal with any such issues; and,
>> All relationships between the independent auditors and the
Company, in order to assess the independent auditors'
independence.
o Approve guidelines for the retention of the independent auditors for
any non-audit services and determine procedures for the approval of
audit and non-audit services in advance. In accordance with such
procedures, the Audit Committee shall approve in advance any audit or
non-audit services provided to the Company by the independent auditors,
all as required by applicable law or listing standards. Preapproval
authority may be delegated to one or more members of the Audit
Committee.
o Evaluate the qualifications, performance and independence of the
independent auditors, including whether the provision of non-audit
services is compatible with maintaining the auditors' independence, and
taking into account the opinions of management and the Company's legal
counsel. This shall include a review and discussion of the annual
communication as to independence delivered by the independent auditors
(Independence Standards Board Standard No. 1 - "Independence
Discussions with Audit Committees") The Audit Committee shall present
its conclusions to the Board and, if so determined by the Audit
Committee, recommend that the Board take additional action to satisfy
itself of the qualifications, performance and independence of the
auditors.
o Recommend to the Board policies for the Company's hiring of employees
or former employees of the independent auditors which guidelines shall
meet the requirements of applicable law and listing standards.
4. Financial Reporting Processes
o In consultation with the independent auditors and the internal
auditors, review the integrity of the organization's financial
reporting processes, both internal and external.
o Review any differences in the independent auditors judgments
relating to the interpretation of the Company's accounting
principles as applied in its financial reporting.
o Review and approve, if appropriate, major changes to the Company's
auditing and accounting principles and practices as suggested by
the independent auditors, management, or the internal audit
function.
o Review with the Chief Executive Officer, Chief Financial Officer,
independent auditors, and the manager of the internal audit
function the financial report before it is filed with the SEC or
other regulators.
o Receive prior to each meeting, a summary of findings from
completed internal audits and a progress report on the proposed
internal audit plan, with explanations for any deviations from the
original plan.
o Review the financial statements contained in the annual report to
shareholders with management and the independent auditors to
determine that the independent auditors are satisfied with the
disclosure and content of the financial statements to be presented
to the shareholders. Any changes in accounting principles should
be reviewed.
o Serve as an independent and objective party to monitor the
Corporation's financial reporting process and internal control
system.
5. Oversight of Audit and Risk Review ("ARR")
The Audit Committee may contract for internal audit services as
necessary to assess the adequacy and effectiveness of internal
accounting controls, financial systems or financial statements, and the
accuracy of management reporting and compliance with laws, regulations
and Company policy. As used in this section or subsequent sections, the
"lead or coordinating auditor" refers to the Company's internal auditor
or, if such services are outsourced, to the auditor of the public
accounting firm primarily responsible for the Company's internal audit
functions.
o Review and discuss the appointment and replacement of the lead or
coordinating auditor.
o Review and discuss the ARR findings that have been reported to
management, management's responses, and the progress of the
related corrective action plans.
o Review and evaluate the adequacy of the work performed by the lead
or coordinating auditor and ARR function, and ensure that the ARR
function is independent and has adequate resources to fulfill its
duties, including implementation of the annual audit plan.
o Review any significant disagreement among management and the
independent auditors or the internal audit function in connection with
the preparation of the financial statements.
o Review with the independent auditors, the internal audit function,
and management the extent to which changes or improvements in financial
or accounting practices, as approved by the Audit Committee, have been
implemented.
o Inquire of management, the manager of the internal audit function,
and the independent auditors about significant risks or exposures and
assess the steps management has taken to minimize such risk to the
Company.
o Consider, in consultation with the independent auditors and the
manager of the internal audit function, the audit scope and plan of the
internal auditors.
o Review with the manager of the internal audit function and the
independent auditors the coordination of audit efforts to assure
completeness of coverage, reduction of redundant efforts, and the
effective use of audit resources.
o Consider and review with the independent auditors and the manager of
the internal audit function:
>> The adequacy of the Company's internal controls including
computerized information, system controls, and security;
>> Any related significant findings and recommendations of the
independent auditors and internal auditors together with
management's responses thereto;
>> Any difficulties encountered in the course of their audits,
including any restrictions on the scope of their work or access
to required information;
>> Any changes required in the planned scope of their audit plans;
and,
>> The Internal Audit Department Charter.
6. Compliance Oversight Responsibilities
o Review periodically with management and the independent auditors
any correspondence with, or other action by, regulators or
governmental agencies, any material legal affairs of the Company,
and the Company's compliance with applicable law and listing
standards.
o Review and discuss the report of the lead or coordinating auditor
regarding the expenses of, the perquisites paid to, and the
conflicts of interest, if any, of members of the Company's senior
management.
o Review and discuss with management and the independent auditors
any correspondence with, or the findings of any examinations by,
regulatory agencies, published reports or auditor observations
that raise significant issues regarding the Company's financial
statements or accounting policies.
o Obtain regular updates from management and Company counsel
regarding compliance matters and legal matters that may have a
significant impact on the financial statements or the Company's
compliance policies.
o Advise the Board with respect to policies and procedures regarding
compliance with the Company's Code of Ethics including review of
the process for communicating the Code of Ethics to Company
personnel and for monitoring compliance.
o Review periodically the Code of Ethics and ensure that management
has established a system to enforce this Code.
o Review activities, organizational structure, and qualifications
of the internal audit function.
o Review, with the Company's counsel, any legal matter that could
have a significant impact on the Company's financial statements,
related Company compliance policies, and programs and reports
received from regulators.
o Report Committee actions to the Board of
o Possess the power to conduct or authorize investigations into
any matters within the Committee's scope of responsibilities. The
Committee shall be empowered to retain independent counsel,
accountants, or others to assist it in the conduct of any
investigation.
o Review and concur in the appointment, replacement, reassignment or
dismissal of the internal auditor. o Perform such other functions
as assigned by law, the Company's charter or bylaws, or the Board
of Directors.
o Ensure no improper influence by the Board of Directors or
management in the conduct of internal or external audits.