[LOGO OMITTED] PROXY STATEMENT
APRIL 18, 2005
[LOGO OMITTED] P.O. Box 9005
Quakertown, PA 18951-9005
TEL (215)538-5600
FAX (215)538-5765
April 18, 2005
Dear Shareholder:
The 2005 Annual Meeting of Shareholders of QNB Corp. will be held at the
offices of The Quakertown National Bank, 320 West Broad Street, Quakertown,
Pennsylvania 18951 on Tuesday, May 17, 2005, at 11:00 a.m., local time.
Notice of the annual meeting, QNB's proxy statement, proxy card and 2004
annual report are enclosed.
At this year's annual meeting, you are being asked to 1) elect four Class II
directors and 2) approve the amendment and restatement of the Corporation's
Articles of Incorporation and 3) approve the 2005 Stock Incentive Plan. The
proposals are fully described in the accompanying proxy statement, which you
are urged to read carefully.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY ENDORSED THE NOMINEES FOR ELECTION.
WE RECOMMEND THAT YOU VOTE "FOR" ALL FOUR NOMINEES, AND "FOR" THE ADOPTION
OF THE AMENDMENT OF THE CORPORATION'S ARTICLES OF INCORPORATION , AND "FOR"
THE ADOPTION OF THE STOCK INCENTIVE PLAN.
YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the meeting in
person, please mark, date and sign the enclosed proxy card and return it in
the envelope provided.
If you have any questions with regard to the annual meeting, please contact
Jean Scholl at (215) 538-5600, extension 5719.
Thank you for your cooperation and continuing support.
Sincerely,
/S/THOMAS J. BISKO
Thomas J. Bisko
President and
Chief Executive Officer
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
QNB CORP.
------------------------------
TO BE HELD ON MAY 17, 2005
Notice is hereby given that the 2005 Annual Meeting of Shareholders of
QNB Corp. will be held at the offices of The Quakertown National Bank, 320 West
Broad Street, Quakertown, Pennsylvania 18951, on Tuesday, May 17, 2005 at 11:00
a.m., local time, for the following purposes:
(1) To elect four Class II directors; and
(2) To approve the amendment and restatement of the Corporation's
Articles of Incorporation; and
(3) To approve the 2005 Stock Incentive Plan; and
(4) To transact any other business properly presented at the
annual meeting or any adjournment(s) or postponement(s) of
the meeting.
The Board of Directors fixed the close of business on April 1, 2005 as
the record date for the purpose of determining those shareholders entitled to
notice of, and to vote at, the annual meeting, either in person or by proxy.
All shareholders are cordially invited to attend the annual meeting.
Whether or not you plan to attend the annual meeting, you are requested to mark,
date, sign, and mail the enclosed proxy in the envelope supplied, as soon as
possible. At any time prior to the proxy being voted, it is revocable by written
notice to QNB in accordance with the instructions set forth in the enclosed
proxy statement, including by voting at the meeting in person. If you attend the
annual meeting, you may withdraw your proxy before it is voted and then vote
your shares in person.
By Order of the Board of Directors,
/S/CHARLES M. MEREDITH, III
Charles M. Meredith, III
Secretary
Quakertown, Pennsylvania
April 18, 2005
QNB CORP.
15 NORTH THIRD STREET
P.O. BOX 9005
QUAKERTOWN, PENNSYLVANIA 18951
(215) 538-5600
---------------------------
PROXY STATEMENT
2005 ANNUAL MEETING OF SHAREHOLDERS - MAY 17, 2005
This proxy statement is being furnished to holders of the common stock,
par value $0.625 per share, of QNB Corp. in connection with the solicitation of
proxies by the Board of Directors for use at the 2005 Annual Meeting of
Shareholders. The annual meeting will be held at the offices of The Quakertown
National Bank at 320 West Broad Street, Quakertown, Pennsylvania 18951, on May
17, 2005 at 11:00 a.m., local time.
As of the date of this proxy statement, the Board of Directors knows of
no business that will be presented for consideration at the annual meeting other
than that referred to in the accompanying Notice of Annual Meeting and described
in this proxy statement. As to other business, if any, properly presented at the
annual meeting, executed proxies will be voted in accordance with the judgment
of the person or persons voting the proxy or the recommendation of the Board of
Directors.
The cost of solicitation of proxies will be paid by QNB. QNB will
reimburse brokerage firms and other custodians, nominees, and fiduciaries for
reasonable expenses incurred by them in sending proxy materials to the
beneficial owners of QNB's common stock. In addition to solicitations by mail,
directors, officers, and employees of QNB and the Bank may solicit proxies
personally, by telephone or other electronic means without additional
compensation.
These proxy materials are first being mailed to shareholders on or about
April 18, 2005.
DATE, TIME AND PLACE OF MEETING
The annual meeting will be held on Tuesday, May 17, 2005 at 11:00 a.m.,
local time, at the Bank's offices at 320 West Broad Street, Quakertown,
Pennsylvania 18951.
OUTSTANDING SECURITIES; QUORUM; VOTING RIGHTS; AND RECORD DATE
The close of business on April 1, 2005 was fixed as the record date for
the purpose of determining those shareholders entitled to notice of, and to vote
at, the annual meeting and any adjournments or postponements of the meeting. As
of the close of business on the record date, QNB had issued and outstanding
3,100,302 shares of common stock.
Shareholders are entitled to one vote for each share of common stock held
of record on the record date with respect to each matter to be voted on at the
annual meeting.
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of the common stock on the record date is necessary to
constitute a quorum at the annual meeting.
QNB's Bylaws and Pennsylvania law govern the vote needed to approve the
proposals. Directors are elected by a plurality of the total votes cast. The
affirmative vote of a majority of the votes cast must approve the amendment and
restatement of the Corporation's Articles of Incorporation and the 2005 Stock
Incentive Plan.
1
Broker non-votes, votes withheld and abstentions will be counted for
purposes of determining whether a quorum has been reached. Because abstentions
will be included in tabulations of the votes entitled to vote for purposes of
determining whether a proposal has been approved, abstentions have the same
effect as negative votes. Broker non-votes, however, are not counted as shares
present and entitled to be voted with respect to the matters which the broker
has not expressly voted. A broker "non-vote" occurs when a nominee holding
shares for a beneficial owner does not vote on a particular proposal because the
nominee does not have the discretionary voting power with respect to that item
and has not received instructions from the beneficial owner. Broker non-votes
are not counted in determining whether the affirmative vote required for the
approval of Proposals 1, 2 and 3 has been cast.
SOLICITATION OF PROXIES
The Board of Directors is soliciting proxies for use at QNB's 2005 Annual
Meeting of Shareholders.
VOTING AND REVOCABILITY OF PROXIES
Shares of common stock represented by properly executed proxies will,
unless the proxies have previously been revoked, be voted in accordance with the
instructions indicated on the proxies. If no instructions are indicated on the
proxies, the shares will be voted FOR the election of QNB's nominees to the
Board of Directors, and FOR the adoption of the proposed amendment and
restatement of the Corporation's Articles of Incorporation, and FOR the adoption
of the proposed 2005 Stock Incentive Plan. The Board of Directors does not
anticipate that any matters will be presented at the annual meeting other than
as set forth in the accompanying Notice of Annual Meeting. In the event that any
other matters are properly presented at the annual meeting, proxies will be
voted at the discretion of the proxy holders as to such matters upon the
recommendation of the Board of Directors.
A shareholder who executes and returns a proxy has the power to revoke it
at any time before it is voted by delivering to Mr. Charles M. Meredith, III,
Secretary of QNB, at the offices of QNB, at the address indicated on the
previous page, either a written notice of the revocation or a duly executed
later-dated proxy, or by attending the annual meeting and voting in person after
giving notice of the revocation.
2
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of April 1, 2005, the number of shares
of common stock, par value $.0625 per share, beneficially owned by each current
director and nominee for director, by each executive officer, and by all
directors, nominees and executive officers of QNB and the Bank, as a group.
Unless otherwise indicated, shares are held individually. The address for each
person is 320 West Broad Street, P.O. Box 9005, Quakertown, Pennsylvania 18951.
Amount and Nature of Percentage of
Name of Beneficial Owner Beneficial Ownership (1) Class (2) (3)
- ------------------------ ------------------------ -------------
Norman L. Baringer, Director 14,100 (4) *
Thomas J. Bisko, Director 48,078 (5) 1.47%
President/Chief Executive Officer (Corp. and Bank)
Kenneth F. Brown, Jr., Director 140,120 (6) 4.29%
Heather J. Gossler, Senior Vice President/ 16,815 (7) *
Sales and Branch Administration (Bank)
Dennis Helf, Director /Chairman of the Board 15,422 (8) *
Bret H. Krevolin, Executive Vice President/ 31,055 (9) *
Chief Financial Officer (Bank)
Chief Financial Officer (Corp.)
Bryan S. Lebo, Senior Vice President/Senior 29,152 (10) *
Lending Officer (Bank)
G. Arden Link, Director 7,600 (11) *
Charles M. Meredith III, Director 81,644 (12) 2.50%
Scott G. Orzehoski, Senior Vice President/ 16,951 (13) *
Commercial Lending (Bank)
Anna Mae Papso, Director 1,000 *
Gary S. Parzych, Director 8,709 (14) *
Henry L. Rosenberger, Director 33,872 (15) 1.04%
Mary Ann Smith, Senior Vice President/ 34,879 (16) 1.07%
Chief Information Officer (Bank)
Edgar L. Stauffer, Director 100,462 (17) 3.08%
Robert C. Werner, Executive Vice President/ 33,382 (18) 1.02%
Chief Operating Officer (Bank)
Vice President (Corp.)
Current Directors, Nominee
& Executive Officers
as a Group (16 persons) 613,241 18.78%
- -----------------------
* Less than 1.00%
3
(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 that the individual has, or shares, voting or
investment power or has the right to acquire beneficial ownership
within 60 days after April 1, 2005. Beneficial ownership may be
disclaimed as to certain of the securities.
(2) Numbers are rounded-off to the nearest one-hundredth percent.
(3) Includes 95,212 immediately exercisable options in the aggregate and
70,300 options in the aggregate that become exercisable over time or
that could be exercisable immediately upon a change of control of QNB
by the named executive officers; thus, the percentages calculation is
based upon an aggregate of 3,265,814 shares outstanding.
(4) Includes 6,028 shares owned jointly by Mr. Baringer with his wife,
Nancy, and 3,320 shares held in her individual capacity.
(5) Includes 15,290 shares owned jointly by Mr. Bisko with his wife,
Barbara, and 16,416 exercisable options and 11,800 options that become
exercisable over time awarded under the Stock Incentive Plan.
(6) Includes 138,356 shares owned jointly by Mr. Brown with his wife,
Pamela.
(7) Includes 1,273 shares owned jointly by Ms. Gossler with her husband,
Barry; and 7,566 exercisable options and 7,900 options that become
exercisable over time awarded under the Stock Incentive Plan.
(8) Includes 13,658 shares owned jointly by Mr. Helf with his wife, Mary.
(9) Includes 4,389 shares owned jointly by Mr. Krevolin with his wife,
Susan, and 15,916 exercisable options and 10,750 options that become
exercisable over time awarded under the Stock Incentive Plan.
(10) Includes 1,914 shares owned jointly by Mr. Lebo with his wife, Elaine,
and 15,916 exercisable options and 10,600 options that become
exercisable over time awarded under the Stock Incentive Plan.
(11) Includes 800 shares owned jointly by Mr. Link with his wife, Dorothy.
(12) Includes 11,112 shares owned jointly by Mr. Meredith with his wife,
Elizabeth; 5,030 shares held in her individual capacity; and 3,738
shares held of record by Franklin & Meredith, Inc.
(13) Includes 7,566 exercisable options and 7,900 options that become
exercisable over time awarded under the Stock Incentive Plan.
(14) Includes 2,438 shares owned by Mr. Parzych's wife, Karen, and 2,559
shares held of record by Eugene T. Parzych, Inc.
(15) Includes 6,296 shares owned by Mr. Rosenberger's wife, Charlotte.
(16) Includes 1,788 shares owned jointly by Ms. Smith with her husband,
Randall, and 15,916 exercisable options and 10,600 options that become
exercisable over time awarded under the Stock Incentive Plan.
(17) Includes 65,034 shares owned jointly by Mr. Stauffer with his wife,
Mary Blake, and 10,664 shares held in her individual capacity.
(18) Includes 6,716 shares owned jointly by Mr. Werner with his wife,
Judith, and 15,916 exercisable options and 10,750 options that become
exercisable over time awarded under the Stock Incentive Plan.
4
BENEFICIAL OWNERSHIP OF SECURITIES
On April 1, 2005, 3,100,302 shares of common stock, par value $0.625 per
share were issued, outstanding and entitled to vote. The following table sets
forth the names of persons who, directly or indirectly, are known to QNB's
management to be the beneficial owners (as determined in accordance with Rule
13d-3 under the Securities Exchange Act of 1934), of at least 5% of QNB's
outstanding common stock as of April 1, 2005.
Name and Address of Number of Shares Percentage of
Beneficial Owner Owned (1) Class (2)
- ------------------- ---------------- -------------
James C. Ebbert 259,368 8.37%
303 Edgemont Avenue
Quakertown, PA 18951
(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 April 1, 2005. Beneficial ownership may be disclaimed as to
certain of the securities.
(2) Numbers are rounded off to the nearest one-hundredth percent.
5
PROPOSAL 1
ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS
QNB's Articles of Incorporation and Bylaws provide that the Board of
Directors consists of ten members divided into three classes, Class I, Class II,
and Class III, as nearly equal in number as possible. The four directors
currently constituting Class II have been nominated for re-election at the
annual meeting. Directors in Class III and Class I will hold office until the
2006 and 2007 annual meetings, respectively.
THE NOMINEES
At the annual meeting, four directors will be elected. Each director so
elected will hold office until the 2008 Annual Meeting of Shareholders and until
his or her successor in office is duly qualified and elected.
To the extent given discretion, the persons named in the accompanying
proxy intend to vote FOR each of the nominees listed below. Each nominee has
consented to being nominated as a director and, as far as the Board of Directors
and management of QNB are aware, will serve as a director if elected. In the
event that any nominee should decline to serve or be unable to serve, the
persons named as proxies may vote for the election of such person or persons as
the Board of Directors recommends.
Set forth on the following page, with respect to each director and
director nominee, is his or her name, age, the time period served as a director
and his other principal occupation(s) or employment and business affiliation(s)
at present and during the last five years.
VOTING REQUIREMENTS
The four director candidates are required to be elected by the
affirmative vote of a majority of the outstanding shares on the record date.
Votes may be cast in favor or withheld for any or all of the nominees.
Abstentions and broker non-votes will neither be counted for nor against
a nominee, but the shares represented by any abstention or broker non-vote will
be considered present at the annual meeting for quorum purposes.
RECOMMENDATION
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT EACH OF THESE NOMINEES
BE ELECTED AS A CLASS II DIRECTOR.
6
CURRENT CLASS II DIRECTORS AND NOMINEES FOR THREE YEAR TERM EXPIRING IN 2008
KENNETH F. BROWN, JR.
Age 49; President, McAdoo & Allen, Inc. (manufacturer of pigment
dispersions and high performance coatings), Quakertown, PA from September
1989 to present; a Director of QNB and the Bank since 1993.
ANNA MAE PAPSO
Age 61; Retired, West Pharmaceutical Services, Inc. (manufacturer of
specialized pharmaceutical packaging & medical device components),
Lionville, PA-Corporate Vice President/Chief Financial Officer from 2000
to 2001 and prior thereto Vice President & Corporate Controller from 1989
to 2000; a Director of QNB and the Bank since October 2004.
HENRY L. ROSENBERGER
Age 59; President of Rosenberger Companies, Ltd. from 1998 to present;
owns and operates Tussocks Edge Farms, President, Dock Woods Community,
Inc. (retirement community) from January 1978 to December 2002; a
Director of QNB and the Bank since 1984.
EDGAR L. STAUFFER
Age 67; Retired, Stauffer Manufacturing Corporation (manufacturer and
importer of industrial work gloves and safety equipment), Red Hill, PA; a
Director of the Bank since 1983; a Director of QNB since 1984.
CONTINUING DIRECTORS SERVING UNTIL 2006 (Class III Directors)
DENNIS HELF
Age 58; Registered Investment Advisor from 1995 to present; a Director of
the Bank since January 1996; a Director of QNB since 1997.
G. ARDEN LINK
Age 65; Owner, Link Beverages, Inc.; a Director of the Bank since
March 1997; a Director of QNB since December 2001.
THOMAS J. BISKO
Age 57; Chief Executive Officer of the Bank and QNB from March 1988 to
present; President of the Bank from September 1985 to present; Treasurer
of QNB from February 1986 to present; President of QNB from May 1986 to
present; a Director of the Bank since 1985; a Director of QNB since 1986.
CONTINUING DIRECTORS SERVING UNTIL 2007 (Class I Directors)
GARY S. PARZYCH
Age 49; President, Eugene T. Parzych, Inc. (construction company),
Trumbauersville, PA from 1980 to present; President, Finland Leasing
Company, Inc. (real estate holding company), Trumbauersville, PA from
June 1986 to present; Director of Quakertown Community School Board from
January 1987 to present; a Director of QNB and the Bank since 1995.
NORMAN L. BARINGER
Age 74; Retired, Baringer Assoc. Inc. (insurance, real estate brokerage),
Quakertown, PA; a Director of QNB and the Bank since 1992.
CHARLES M. MEREDITH, III
Age 69; Newspaper Columnist; Co-owner, Franklin & Meredith Inc.
(commercial publisher), Quakertown, PA; Secretary of QNB and the Bank
from April 1994 to present; a Director of the Bank since 1968; a Director
of QNB since 1984.
7
PROPOSAL 2
TO APPROVE AND ADOPT
AMENDMENT OF THE CORPORATION'S ARTICLES OF INCORPORATION
The Board recently determined that it would be beneficial to the
Corporation to undertake a general, comprehensive review of the Corporation's
Articles and Bylaws in order to make sure that these charter documents implement
corporate governance practices that are endorsed by the Board, are not
inconsistent with one another and comport, on an overall basis, with the current
corporate governance climate resulting from the enactment of the Sarbanes-Oxley
Act of 2002. As a result of this comprehensive review, the Board believes that
it is appropriate to amend and restate the Corporation's Articles of
Incorporation to delete from the Articles of Incorporation topics that are more
appropriately addressed in, and administered through, the Corporation's Bylaws
and to also delete provisions that are extraneous. The amended and restated
Articles of Incorporation are appended as Exhibit "A" to this proxy statement.
Articles VII and XIII of the Corporation's Articles of Incorporation,
relating to the board of directors (including number and classes, election and
terms, and nominations) and indemnification, respectively, are proposed to be
deleted. The Board of Directors has determined that these topics are best
reserved to, and administered through, the Bylaws and, therefore, the
Corporation proposes to delete Articles VII and XIII of the Articles of
Incorporation. Deletion of these provisions from the Articles of Incorporation
and inclusion of these topics in the Corporation's Bylaws will have the effect
of permitting the Board of Directors to more easily amend and change these
provisions from time to time, although the shareholders are also entitled to
amend the Bylaws and can, therefore, by appropriate vote, undo any action taken
by the Board of Directors.
Article IX is proposed to be deleted because it references the
application of a statutory provision that, by terms of the statute, already
applies to the Corporation and is, therefore, unnecessary. In addition, Article
XI, which is a list of the original incorporators of the Corporation, is
similarly proposed to be deleted because, under Pennsylvania law, it is not
required to be included in a Corporation's amended and restated articles of
incorporation.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
APPROVE THE AMENDMENT AND RESTATEMENT OF THE CORPORATION'S ARTICLES OF
INCORPORATION.
8
PROPOSAL 3
TO APPROVE AND ADOPT
2005 STOCK INCENTIVE PLAN
On March 15, 2005, the Board of Directors adopted the Corporation's 2005
Stock Incentive Plan (the "Stock Incentive Plan") and reserved 200,000 shares of
Common Stock for issuance under the Stock Incentive Plan. In addition, the Board
of Directors recommended the Stock Incentive Plan be submitted to shareholders
for their approval and adoption at the 2005 Annual Meeting of Shareholders.
The purpose of the Stock Incentive Plan is to advance the development,
growth and financial condition of the Corporation by providing incentives
through participation in the appreciation of capital stock of the Corporation in
order to secure, retain and motivate personnel responsible for the operation and
management of the Corporation. The Stock Incentive Plan is designed to attract
and retain individuals of outstanding ability as employees of the Corporation,
to encourage employees to acquire a proprietary interest in the Corporation, to
continue their employment with the Corporation and to render superior
performance during such employment.
The principal features of the Stock Incentive Plan are summarized below.
This summary is qualified in its entirety by reference to the Stock Incentive
Plan, which is appended as Exhibit "B" to this Proxy Statement.
The Stock Incentive Plan will be deemed effective as of the date the
Stock Incentive Plan receives approval by the shareholders, and will continue in
effect until all awards under the Stock Incentive Plan either have lapsed, been
exercised, satisfied or cancelled according to the terms under the Stock
Incentive Plan, or until March 15, 2015 (10 years). The shares of stock that may
be issued under the Stock Incentive Plan shall not exceed in aggregate 200,000
shares of the Common Stock, as may be adjusted from time to time due to stock
splits, payments of stock dividends or other changes in the structure of the
Corporation's capital.
The Stock Incentive Plan will be administered by a committee consisting
of two or more non-employee directors (the "Committee") and, except as otherwise
permitted by certain securities laws, who have not, during the year prior to
commencing service on the Committee have been, nor will, while a member of the
Committee, be granted any awards under the Stock Incentive Plan, or any other
Stock Incentive Plan of the Corporation that provides for discretionary grants
or awards. There are approximately 10 persons eligible to receive awards under
the Stock Incentive Plan. These persons are senior officers and other management
employees of the Corporation as determined by the Committee.
A new plan benefits table, as described in the federal proxy rules, is
not provided because all awards made under the Stock Incentive Plan are
discretionary. However, please refer to the tables "Summary Compensation Table"
and "Option/SAR Grants in Last Fiscal Year" on pages 17 and 18 of this proxy
statement, which set forth the grants made to the Corporation's chief executive
officer and the other four most highly compensated executive officers in the
last fiscal year.
AWARDS
Awards made under the Stock Incentive Plan may be in the form of: (i)
options to purchase stock intended to qualify as incentive stock options under
Sections 421 and 422 of the Code (referred to herein as "Incentive Options"); or
(ii) options which do not so qualify (referred to herein as "Non-Qualified
Options"). Under the Stock Incentive Plan, awards are exercisable during a
participant's lifetime only by the recipient and are not saleable, transferable
or assignable by the participant except by will or pursuant to applicable laws
of descent and distribution. Generally, awards may be exercised in whole or in
part. Funds received by the Corporation from the exercise of any award shall be
used for its general corporate purposes. The Committee may permit an
acceleration of previously established exercise terms of any award as, when,
under such facts and circumstances, and subject to such other or further
requirements and conditions as the Committee may deem necessary or appropriate,
including, but not limited to, upon a change in control of the Corporation (as
defined in the Stock Incentive Plan).
9
QUALIFIED OPTIONS
Qualified Options may not be awarded under the Stock Incentive Plan more
than ten (10) years after the earlier of the date the Stock Incentive Plan is
adopted by the Board of Directors or the date on which the Stock Incentive Plan
is approved by the shareholders. Qualified Options are only exercisable, at a
minimum, beginning six months after the date of the award and may not be
exercised after the expiration of five (5) years from the date of the award. The
purchase price of the stock subject to any Qualified Option, as determined by
the Committee, may not be less than the stock's fair market value (as defined in
the Stock Incentive Plan) at the time the option is awarded or less than its par
value. If the recipient of a Qualified Option ceases to be employed by the
Corporation, or subsidiary thereof, the Committee may permit the recipient to
exercise such option during its remaining term for a period of not more than
three (3) months. This period may be extended to a 12 month period if such
employment cessation was due to recipient's disability, as defined in the Stock
Incentive Plan. If a recipient ceases to be employed by the Corporation, or a
subsidiary thereof, due to his or her death, the Committee may permit the
recipient's qualified personal representatives or any persons who acquire the
options pursuant to his or her will or the laws of the descent and distribution,
to exercise such option during its remaining term for a period not to exceed 12
months after the recipient's death to the extent that the option was then and
remains exercisable.
NON-QUALIFIED OPTIONS
Similar to Qualified Options, Non-Qualified Options are only exercisable,
at a minimum, beginning of six (6) months after the date of the award and may
not be exercised after the expiration of five (5) years from the date of the
award. If a recipient of a Non-Qualified Option ceases to be eligible under the
Stock Incentive Plan before the option lapses or before it is fully exercised,
the Committee may permit the recipient to exercise the option during its
remaining term to the extent that the option was then and remains exercisable,
for such time period and under such terms and conditions as may be prescribed by
the Committee. The purchase price of a share of stock pursuant to a
Non-Qualified Option, as determined by the Committee, shall not be less than the
stock's fair market value (as defined in the Stock Incentive Plan) at the time
such option is awarded.
FEDERAL TAX CONSEQUENCES
An employee who receives the Qualified Options will not recognize taxable
income on the grant or the exercise of the option. If the stock acquired by the
exercise of a Qualified Option is held until the later of: (i) two (2) years
from the date of the grant, and (ii) one (1) year from the date of exercise, any
gain (or loss) recognized on the sale or exchange of the stock will be treated
as long-term capital gain (or loss), and the Corporation will not be entitled to
any income tax deduction. If stock acquired on exercise of a Qualified Option is
sold or exchanged before the expiration of the required holding period, the
employee will recognize ordinary income in the year of disposition in an amount
equal to the difference between the option price and the lesser of the fair
market value of the stock on the date of exercise, or the selling price. In the
event of a disqualifying disposition, the Corporation will be entitled to an
income tax deduction in the year of such disposition in an amount equal to the
amount of ordinary income recognized by the employee.
An employee who receives a Non-Qualified Option will not recognize
taxable income on the grant of the option, however, upon the exercise, he or she
will recognize ordinary income in an amount equal to the excess of the fair
market value of the stock on the date that the option is exercised over the
purchase price paid for the stock. The Corporation will be entitled to an income
tax deduction in the year of exercise in an amount equal to the amount of
ordinary income recognized by the employee. Gain or loss on a subsequent sale or
10
other disposition of the shares acquired upon the exercise of a vested
Non-Qualified Option will be measured by the difference between the amount
realized on the disposition and the tax basis of such shares, and will generally
be long-term capital gain or loss depending on the holding period involved. The
tax basis of the shares acquired upon the exercise of any Non-Qualified Option
will be equal to the sum of the exercise price of such Non-Qualified Option and
the amount included in income with respect to such option. Notwithstanding the
foregoing, in the event that exercise of the option is permitted other than by
cash payment of the exercise price, various special tax rules may apply.
The foregoing tax discussion is intended as a summary only and the
federal income tax consequences to any person who participated in the Stock
Incentive Plan and to the Corporation may vary from those described above,
depending upon individual actions and circumstances.
The Board of Directors may amend the Stock Incentive Plan at any time
without shareholder approval; provided, however, that the Board of Directors may
not alter or impair any rights or obligations under any award previously granted
and subject to the requirements under applicable law.
The Stock Incentive Plan will terminate upon the earlier of the Board's
adoption of a resolution terminating the Stock Incentive Plan or 10 years from
the date the Stock Incentive Plan is approved and adopted by the shareholders of
the Corporation.
The Board of Directors recommends a vote FOR the following resolution
which will be presented at the Annual Meeting:
RESOLVED, that the 2005 Stock Incentive Plan, the text of
which is set forth in full and in its entirety in the Proxy Statement for
the 2005 Annual Meeting of Shareholders, as Exhibit "B", is hereby
approved, adopted, ratified and confirmed by the shareholders of the
Corporation.
Proxies solicited by the Board of Directors will be voted for the
foregoing resolution unless shareholders specify to the contrary on their
proxies.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
APPROVE THE 2005 STOCK INCENTIVE PLAN.
11
GOVERNANCE OF THE COMPANY
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
Nasdaq Stock Market, and SEC regulations, as well as best practices suggested by
recognized governance authorities.
Currently, our Board of Directors has 10 members. Under the rules adopted
by the Securities and Exchange Commission for independence, Norman L. Baringer,
Dennis Helf, G. Arden Link, Charles M. Meredith, III, Anna Mae Papso, Gary S.
Parzych, Henry L. Rosenberger and Edgar L. Stauffer, meet the standards for
independence. This constitutes more than a majority of our Board of Directors.
CODE OF ETHICS
We have adopted a Code of Ethics for directors, officers and employees
of QNB. It is intended to promote honest and ethical conduct, full and accurate
reporting and compliance with laws as well as other matters. A copy of the Code
of Ethics is posted on our website at www.qnb.com.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS OF QNB AND THE BANK
Set forth below is a list of each of our current board members and our
current Board committee members. The respective chairman of each of the Board
committees is also noted below. Each current director of QNB is also a current
member of the Bank's Board of Directors.
- ------------------------------- --------- --------- ------------------ ------------- ---------- ------------------- -----------
BOARD MEMBER BOARD AUDIT COMPENSATION EXECUTIVE LOAN NOMINATING TRUST
- ------------------------------- --------- --------- ------------------ ------------- ---------- ------------------- -----------
Norman L. Baringer X X X
- ------------------------------- --------- --------- ------------------ ------------- ---------- ------------------- -----------
Thomas J. Bisko X C
- ------------------------------- --------- --------- ------------------ ------------- ---------- ------------------- -----------
Kenneth F. Brown, Jr. X X X C
- ------------------------------- --------- --------- ------------------ ------------- ---------- ------------------- -----------
Dennis Helf C X X C C
- ------------------------------- --------- --------- ------------------ ------------- ---------- ------------------- -----------
G. Arden Link X X(1) X
- ------------------------------- --------- --------- ------------------ ------------- ---------- ------------------- -----------
Charles M. Meredith, III X X X X
- ------------------------------- --------- --------- ------------------ ------------- ---------- ------------------- -----------
Anna Mae Papso X X(2)
- ------------------------------- --------- --------- ------------------ ------------- ---------- ------------------- -----------
Gary S. Parzych X X X
- ------------------------------- --------- --------- ------------------ ------------- ---------- ------------------- -----------
Henry L. Rosenberger X C X X
- ------------------------------- --------- --------- ------------------ ------------- ---------- ------------------- -----------
Edgar L Stauffer X X(3) C X X X
- ------------------------------- --------- --------- ------------------ ------------- ---------- ------------------- -----------
Meetings Held in 2004 13 5 1 1 17 1 5
- ------------------------------- --------- --------- ------------------ ------------- ---------- ------------------- -----------
C - Chairman
(1) Member of the Audit Committee until May, 2004.
(2) Member of the Audit Committee beginning October, 2004.
(3) Member of the Audit Committee beginning May, 2004.
Both QNB's and the Bank's Board of Directors met 13 times in 2004. All
current directors attended at least 75% of the aggregate of (1) the total number
of meetings of the Board of Directors (held for the period for which he or she
has been a director) and (2) the total number of meetings held by all committees
of the Board of Directors on which he or she served (during the periods that he
or she served).
QNB has no specific policy requiring directors to attend the Annual
Meeting of Shareholders, however, director attendance is strongly encouraged.
All members of the Board of Directors were present at the 2004 Annual Meeting of
12
Shareholders. It is anticipated that all members of the Board of Directors will
be attending the 2005 Annual Meeting of Shareholders.
QNB's Board of Directors established and maintains the following
committees, among others:
AUDIT COMMITTEE. The Audit Committee recommends the engagement and
dismissal of the independent certified public accountants, reviews their annual
audit plan and the results of their auditing activities, and considers the range
of audit and non-audit fees. It also reviews the general audit plan, scope and
results of QNB's procedures for internal auditing. The reports of examination of
QNB and its subsidiary by state and federal bank regulatory examiners are also
reviewed by the Audit Committee. The Audit Committee also reviews all SEC
filings and earnings press releases. The Audit Committee, consistent with the
Sarbanes-Oxley Act of 2002 and the rules adopted thereunder, meets with
management and the auditors prior to the filing of officers' certifications with
the SEC to receive information concerning, among other things, significant
deficiencies in the design or operation of internal controls.
The Board of Directors has determined that Anna Mae Papso meets the
requirements adopted by the Securities and Exchange Commission and Nasdaq Stock
Market for qualification as an Audit Committee financial expert. Ms. Papso has
past employment experience as a Corporate Vice President/Chief Financial Officer
providing her with diverse and progressive financial management experience, as
well as expertise in internal controls and U.S. accounting rules and SEC
reporting. An Audit Committee financial expert is defined as a person who has
the following attributes: (i) an understanding of generally accepted accounting
principles and financial statements; (ii) the ability to assess the general
application of such principles in connection with the accounting for estimates,
accruals and reserves; (iii) experience preparing, auditing, analyzing or
evaluating financial statements that present a breadth and level of complexity
or accounting issues that are generally comparable to the breadth and complexity
of issues that can reasonably be expected to be raised by the registrant's
financial statements, or experience actively supervising one or more persons
engaged in such activities; (iv) an understanding of internal controls and
procedures for financial reporting; and (v) an understanding of Audit Committee
functions.
The identification of a person as an Audit Committee financial expert
does not impose on such person any duties, obligations or liability that are
greater than those that are imposed on such person as a member of the Audit
Committee and the Board of Directors in the absence of such identification.
Moreover, the identification of a person as an Audit Committee financial expert
for purposes of the regulations of the Securities and Exchange Commission does
not affect the duties, obligations or liability of any other member of the Audit
Committee or the Board of Directors. Additionally, a person who is determined to
be an Audit Committee financial expert will not be deemed an "expert" for
purposes of Section 11 of the Securities Act of 1933.
The Bank also has a standing Audit Committee which performs the same
functions as QNB's Audit Committee. All members of both committees are
non-executives and independent pursuant to the rules adopted by the Securities
and Exchange Commission and the corporate governance standards promulgated by
the NASDAQ Stock Market. In determining whether a director is independent for
purposes of each of the above stated guidelines, the Board of Directors must
affirmatively determine that the directors on the Audit Committee do not, among
other things, accept any consulting, advisory, or other compensatory fee from
QNB. Applying these standards, the Board of Directors has determined that all of
the directors on the Audit Committee are independent. The members of QNB's and
the Bank's Audit Committee are Directors Baringer, Meredith, Papso, Rosenberger
and Stauffer. The Audit Committee of QNB and the Bank met five times in 2004.
The Audit Committee operates under a formal charter that governs its
duties and conduct. The Audit Committee Charter is available on our website at
WWW.QNB.COM.
13
The Audit Committee has also adopted a Whistleblower Policy to enable
confidential and anonymous reporting to the Audit Committee. The policy is also
available on our website at www.qnb.com.
COMPENSATION COMMITTEE. The Compensation Committee's primary function is
to review and determine the compensation of present and proposed senior members
of QNB's management. In addition, the committee reviews the general guidelines
on compensation for all employees. The Board of Directors has determined that
all of the directors serving on the Compensation Committee are independent for
the purposes of the rules adopted by the Securities and Exchange Commission. The
members of the Compensation Committee are Directors Baringer, Helf, Meredith,
Rosenberger, and Stauffer. The Compensation Committee met one time in 2004.
EXECUTIVE COMMITTEE. The Executive Committee is authorized to exercise
all of the authority of the Board of Directors in the management of QNB between
Board meetings, unless otherwise provided in QNB's Bylaws. The members of the
Executive Committee are Directors Bisko, Brown, Helf, Meredith and Stauffer. The
Executive Committee met one time in 2004.
BOARD LOAN COMMITTEE. The Board Loan Committee's primary function is to
review and approve loan relationships where the total exposure exceeds certain
designated thresholds. The members of the Board Loan Committee are Directors
Brown, Helf and Parzych. In the event they are unable to attend, alternate
directors are requested to attend. The Board Loan Committee met 17 times in
2004.
NOMINATING COMMITTEE. The Board of Directors has determined that all of
the directors serving on the Nominating Committee, except Director Brown, are
independent for the purposes of the rules adopted by the Securities and Exchange
Commission and the corporate governance standards promulgated by the NASDAQ
Stock Market. The principal duties of the Nominating Committee include
developing and recommending to the Board criteria for selecting qualified
director candidates, identifying individuals qualified to become Board members,
evaluating and selecting, or recommending to the Board, director nominees for
each election of directors, considering committee member qualifications,
appointment and removal, recommending codes of conduct and codes of ethics
applicable to the Company and providing oversight in the evaluation of the Board
and each committee. The Nominating Committee has no formal process for
considering director candidates recommended by shareholders, but its policy is
to give due consideration to any and all such candidates. If a shareholder
wishes to recommend a director candidate, the shareholder should mail the name,
background and contact information for the candidate to the Nominating Committee
at the Company's offices at P.O. Box 9005, Quakertown, PA 18951. The Nominating
Committee intends to develop a process for identifying and evaluating all
nominees for director, including any recommended by shareholders, and minimum
requirements for nomination. In addition, the Nominating Committee does not have
a formal charter. Members of the Nominating Committee include Directors Brown,
Link, Rosenberger and Stauffer. The Nominating Committee met one time in 2004.
TRUST COMMITTEE. The Trust Committee's responsibilities include the
review of the operations, investment selection and investment performance of The
Trust Company of Lehigh Valley, as well as oversee the activities of the
Investment Center. The members of the Trust Committee are Directors Helf,
Parzych and Stauffer. The Trust Committee met five times in 2004.
COMPENSATION OF THE BOARD OF DIRECTORS
Each director of QNB is also a member of the Bank's Board of Directors.
During 2004, directors, with the exception of those who are full-time employees
of QNB or the Bank, received an annual fee of $5,500. The Chairman of the Board
received additional compensation of $10,000 and the Corporate Secretary received
an additional $2,000. In addition, each director received a fee of $450 for each
Bank Board meeting attended. Directors are not reimbursed for QNB Board
meetings. Members of the committees of the Board of Directors also received $175
for each committee meeting attended, provided the committee meeting was not held
as part of a scheduled Board meeting.
14
AUDIT COMMITTEE REPORT
Pursuant to rules adopted by the SEC designed to improve disclosures
related to the functioning of corporate audit committees and to enhance the
reliability and credibility of financial statements of public companies, QNB's
Audit Committee submits the following report:
AUDIT COMMITTEE REPORT TO BOARD OF DIRECTORS
The Audit Committee oversees QNB's financial reporting process on
behalf of the Board of Directors. In that connection, the committee, along with
the Board of Directors, has formally adopted an Audit Committee Charter setting
forth its responsibilities. In addition, appropriate policies have been
established to further strengthen disclosure procedures required under the
Sarbanes-Oxley Act of 2002.
Management has the primary responsibility for the financial statements
and the reporting process, including the systems of internal control. In
fulfilling its oversight responsibilities, the committee reviewed the audited
financial statements in the annual report with management, including a
discussion of the quality, not just the acceptability, of the accounting
principles, the reasonableness of significant judgments and the clarity of
disclosures in the financial statements.
In the discharge of its responsibilities, the Audit Committee has
reviewed and discussed the Corporation's audited financial statements for fiscal
2004 with management and the independent registered public accounting firm. In
addition, the Audit Committee has discussed with the independent registered
public accounting firm matters such as the quality (in addition to
acceptability), clarity, consistency, and completeness of the Corporation's
financial reporting, as required by U.S. Auditing Standards Section AU380,
Communication with Audit Committees.
The Audit Committee has considered the compatibility of the provision
of non-audit services with the independent registered public accounting firm's
maintenance of independence and has received from the independent registered
public accounting firm written disclosures and a letter concerning the
independent registered public accounting firm's independence from the
Corporation, as required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees. These disclosures have been
reviewed by the Audit Committee and discussed with the independent registered
public accounting firm.
The committee discussed with QNB's internal and independent registered
public accounting firm the overall scope and plans for their respective audits.
The committee meets with the internal auditors and independent registered public
accounting firm, with and without management present, to discuss the results of
their examinations, their evaluations of QNB's internal controls and the overall
quality of QNB's financial reporting.
In reliance on the reviews and discussion referred to above, the
committee recommended to the Board of Directors (and the Board has approved)
that the audited financial statements be included in the Annual Report on Form
10-K for the year ended December 31, 2004, for filing with the Securities and
Exchange Commission. The committee and the Board of Directors have also approved
the selection of S. R. Snodgrass, A.C. as QNB's independent registered public
accounting firm for 2005.
Respectfully submitted,
THE AUDIT COMMITTEE
Henry L. Rosenberger, Chairman
Norman L. Baringer
Charles M. Meredith, III
Anna Mae Papso
Edgar L. Stauffer
15
AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF THE
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has a policy for the pre-approval of services
provided by the independent registered public accounting firm. The policy
requires the Audit Committee to pre-approve all audit and permissible non-audit
services provided by the independent registered public accounting firm. These
services may include audit services, audit related services, tax services, and
other services. Under the policy, pre-approval is generally provided for up to
one year and any pre-approval 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 pre-approve particular services on a case by case basis. For
each proposed service, the independent registered public accounting firm is
required to provide detailed back-up documentation at the time of approval. The
Audit Committee has delegated to the Chairman of the Audit Committee the
authority to pre-approve services not prohibited by law to be performed by our
independent registered public accounting firm and associated fees up to a
maximum for any one service of $5,000. None of the services related to the Audit
Related Fees, Tax Fees, or All Other Fees described below was approved by the
Audit Committee pursuant to the waiver of pre-approval provisions set forth in
applicable rules of the SEC.
APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2004
On August 16, 2004, QNB Corp. (QNB) retained S.R. Snodgrass, A.C.
(Snodgrass) as its new independent accountants to audit QNB's financial
statements for the fiscal year ended December 31, 2004. KPMG LLP (KPMG) was
dismissed on August 16, 2004. The decision to change independent accountants was
recommended and approved by the Audit Committee of QNB.
During each of the fiscal years ended December 31, 2002 and 2003, none
of KPMG's reports on the financial statements of QNB contained an adverse
opinion or a disclaimer of opinion or was qualified or modified as to
uncertainty, audit scope or accounting principle and there were no disagreements
between QNB and KPMG on any matter of accounting principles and practices,
financial statement disclosure, or audit scope or procedure, which disagreement,
if not resolved to the satisfaction of KPMG would have caused it to make
reference to the subject matter of the disagreement in connection with its
reports. There were no "reportable events" as that term is defined in Item 304
(a) (1) (v) of Regulation S-K occurring within QNB in the two most recent fiscal
years.
During QNB's two most recent fiscal years, QNB has not consulted with
Snodgrass regarding any of the matters or events set forth in Item 304 (a) (2)
of Regulation S-K.
AUDIT FEES, AUDIT RELATED FEES, TAX FEES, AND ALL OTHER FEES
Aggregate fees billed to QNB by KPMG LLP and S.R. Snodgrass, A.C. for
services rendered are presented below. Fees for 2003 were all billed to QNB by
KPMG. The total amount of fees billed by S.R. Snodgrass, A.C. for 2004 was
$86,025. The total amount of fees billed by KPMG LLP for 2004 was $62,050.
2004 2003
-------------------------------
Audit fees $112,575 $88,800
Audit related fees 19,200 8,500
Audit and audit related fees 131,775 97,300
Tax fees 16,300 12,665
All other fees - -
------------------------------
Total fees $148,075 $109,965
16
AUDIT FEES include fees billed for professional services rendered for
the audit of annual financial statement and fees billed for the review of
financial statements included in QNB Forms 10-Q or services that are normally
provided in connection with statutory and regulatory filings or engagements. For
2004, billings from S.R. Snodgrass, A.C. were $79,525 and billings from KPMG LLP
were $33,050.
AUDIT RELATED FEES include fees billed for assurance and related
services that are reasonably related to the performance of the audit or review
of the registrants financial statements and are not reported under the Audit
Fees section of the table above. These services include audits of financial
statements of certain employee benefit plans. For 2004, billings from S.R.
Snodgrass, A.C. were $6,500 and billings from KPMG LLP were $12,700.
TAX FEES include fees billed for professional services rendered by KPMG
LLP for tax consultation and tax compliance services.
ALL OTHER FEES include fees billed for products and services other
than the services reported under the Audit Fees, Audit Related Fees, or Tax Fees
sections of the table above.
The Audit Committee has considered whether, and determined that, the
provision of the non-audit services is compatible with maintaining the
independence of KPMG LLP's and S.R. Snodgrass, A.C.'s independence.
A representative of Snodgrass is expected to be present at the Annual
Meeting. The representative will have an opportunity to make a statement and be
available to respond to appropriate questions.
EXECUTIVE COMPENSATION
Since the formation of QNB in 1984, none of its executive officers have
received any separate compensation from QNB. All compensation is paid by the
Bank. Thomas J. Bisko, Robert C. Werner, and Bret H. Krevolin are the only
executive officers of QNB that are also executive officers of the Bank. The
following information is furnished concerning the chief executive officer and
each of the most highly compensated named executive officers of QNB or the Bank
whose aggregate remuneration from the Bank exceeded $100,000 during the fiscal
years ended December 31, 2004, 2003 and 2002.
17
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
AWARDS PAY-OUTS
------ --------
OTHER RESTRICTED ALL OTHER
ANNUAL STOCK OPTIONS/ COMPEN-
SALARY BONUS COMPEN- AWARDS SARS PAY-OUTS SATION
NAME AND POSITION YEAR ($) (1) ($) SATION ($) (#) ($) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas J. Bisko 2004 $222,075 $22,208 $0 $0 2,800 $0 $16,844 (2)
President and 2003 $218,082 $21,808 $0 $0 6,000 $0 $16,904 (2)
Chief Executive Officer 2002 $198,588 $19,859 $0 $0 6,000 $0 $15,430 (2)
Robert C. Werner 2004 $154,350 $15,435 $0 $0 2,500 $0 $12,348 (3)
Executive Vice President 2003 $152,654 $15,265 $0 $0 5,500 $0 $12,212 (3)
Chief Operating Officer 2002 $138,176 $13,818 $0 $0 5,500 $0 $11,054 (3)
Bret H. Krevolin 2004 $141,750 $14,175 $0 $0 2,500 $0 $11,945 (4)
Executive Vice President 2003 $140,192 $14,019 $0 $0 5,500 $0 $11,810 (4)
Chief Financial Officer 2002 $127,215 $12,722 $0 $0 5,500 $0 $10,782 (4)
Bryan S. Lebo 2004 $122,304 $12,230 $0 $0 2,500 $0 $10,389 (5)
Senior Vice President 2003 $121,538 $12,154 $0 $0 5,500 $0 $10,328 (5)
Senior Lending Officer 2002 $112,266 $11,227 $0 $0 5,500 $0 $9,586 (5)
Mary Ann Smith 2004 $118,398 $11,840 $0 $0 2,500 $0 $10,077 (6)
Senior Vice President 2003 $118,223 $11,822 $0 $0 5,500 $0 $10,063 (6)
Chief Information Officer 2002 $109,203 $10,920 $0 $0 5,500 $0 $9,341 (6)
<FN>
(1) Salary for 2003 includes 27 pay periods while salary for 2004 and 2002 includes 26 pay periods.
(2) Includes the Bank's contributions on behalf of Mr. Bisko to the Retirement Savings Plan of $16,844, $16,904, and
$15,430 for 2004, 2003 and 2002, respectively.
(3) Includes the Bank's contributions on behalf of Mr. Werner to the Retirement Savings Plan of $12,348, $12,212, and
$11,054 for 2004, 2003 and 2002, respectively.
(4) Includes the Bank's contributions on behalf of Mr. Krevolin to the Retirement Savings Plan of $11,385, $11,260,
and $10,222 for 2004, 2003 and 2002, respectively and payments of $560 for each of the three years for
declining coverage under the bank's health benefits plan.
(5) Includes the Bank's contributions on behalf of Mr. Lebo to the Retirement Savings Plan of $9,829, $9,768, and
$9,026 for 2004, 2003 and 2002, respectively and payments of $560 for each of the three years for
declining coverage under the bank's health benefits plan.
(6) Includes the Bank's contributions on behalf of Ms. Smith to the Retirement Savings Plan of $9,517, $9,503, and
$8,781 for 2004, 2003, and 2002, respectively and payments of $560 for each of the three years for
declining coverage under the bank's health benefits plan..
</FN>
STOCK OPTION GRANTS FOR 2004
The following table reflects grants of stock options to Mr. Bisko,
Mr. Werner, Mr. Krevolin, Mr. Lebo and Ms. Smith in fiscal year 2004.
18
OPTION/SAR GRANTS IN LAST FISCAL YEAR (1)
POTENTIAL
% OF TOTAL REALIZABLE VALUE
OPTIONS AT ASSUMED
GRANTED TO EXERCISE ANNUAL RATES OF
OPTIONS EMPLOYEES OR BASE STOCK APPRECIATION
GRANTED IN FISCAL YEAR PRICE EXPIRATION FOR OPTION TERM (2)
NAME (#) ($/SHARE) DATE 5% 10%
($) ($)
- --------------------------------------------------------------------------------------------------------------------------
Thomas J. Bisko 2,800 14.0% $33.25 04/27/2014 $58,540 $148,346
Robert C. Werner 2,500 12.5% $33.25 04/27/2014 $52,268 $132,452
Bret H. Krevolin 2,500 12.5% $33.25 04/27/2014 $52,268 $132,452
Bryan S. Lebo 2,500 12.5% $33.25 04/27/2014 $52,268 $132,452
Mary Ann Smith 2,500 12.5% $33.25 04/27/2014 $52,268 $132,452
<FN>
(1) Options granted were incentive stock options pursuant to the 1998 Stock Option Plan. The options granted
vest and become exercisable after the third anniversary of their grant date.
(2) In order to realize the potential value of the stock options, QNB's common stock would be approximately
$54.16 and $86.24 at a 5% and 10% appreciation rate, respectively. The dollar amounts under these columns
are the result of calculations at the 5% and the 10% annualized rates set by the Securities and Exchange
Commission and therefore are not intended to forecast possible future appreciation, if any, of QNB's
common stock price.
</FN>
AGGREGATE OPTION EXERCISES AND OPTION VALUES
The following table provides information as to stock options exercised by
Mr. Bisko, Mr. Werner, Mr. Krevolin, Mr. Lebo and Ms. Smith in 2004 and the
value of stock options held by each officer at year-end 2004 measured in terms
of the $32.50 closing bid price of QNB's common stock on December 31, 2004. Some
stock options are immediately exercisable while others become exercisable over
time.
AGGREGATED STOCK OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END STOCK OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED ON VALUE OPTIONS AT 12/31/04 OPTIONS AT 12/31/04
EXERCISE REALIZED (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)
NAME (#) ($) (#) ($)
- ---------------------------------------------------------------------------------------------------------------------------------
Thomas J. Bisko 0 $0 10,416/14,800 $188,760/$173,250
Robert C. Werner 0 $0 10,416/13,500 $188,760/$158,813
Bret H. Krevolin 0 $0 10,416/13,500 $188,760/$158,813
Bryan S. Lebo 0 $0 10,416/13,500 $188,760/$158,813
Mary Ann Smith 0 $0 10,416/13,500 $188,760/$158,813
19
EQUITY COMPENSATION PLAN INFORMATION
The following table summarizes our equity compensation plan information
as of December 31, 2004. Information is included for both equity compensation
plans approved by QNB shareholders and equity compensation plans not approved by
QNB shareholders.
- -------------------------------------------------- ----------------------- --------------------- -------------------------
NUMBER OF SHARES
AVAILABLE FOR FUTURE
NUMBER OF SHARES TO WEIGHTED-AVERAGE ISSUANCE UNDER EQUITY
BE ISSUED UPON EXERCISE PRICE OF COMPENSATION PLANS
EXERCISE OF OUTSTANDING (EXCLUDING SECURITIES
OUTSTANDING OPTIONS, OPTIONS, WARRANTS REFLECTED IN COLUMN
PLAN CATEGORY WARRANTS AND RIGHTS AND RIGHTS (A))
- -------------------------------------------------- ----------------------- --------------------- -------------------------
(A) (B) (C)
- -------------------------------------------------- ----------------------- --------------------- -------------------------
Equity compensation plans approved by
QNB Corp. shareholders
1998 Stock Option Plan 182,392 $18.03 28,836
2001 Employee Stock Purchase Plan - - 30,888
- -------------------------------------------------- ----------------------- --------------------- -------------------------
Equity compensation plans not approved by QNB
Corp. shareholders
None - - -
- -------------------------------------------------- ----------------------- --------------------- -------------------------
TOTALS 182,392 $18.03 59,724
- -------------------------------------------------- ----------------------- --------------------- -------------------------
EMPLOYMENT AGREEMENTS
On September 2, 1986, as amended on April 3, 2002, QNB and Mr. Bisko
entered into an employment agreement for a term of 27 years, commencing
immediately and terminating on December 31, 2013 provided however, that the
employment agreement may be terminated by either party upon three years' prior
written notice. Under the terms of the employment agreement, Mr. Bisko is to be
employed as the President of the Bank and to render services as may be
reasonably required of him from time to time by the Board of Directors. Mr.
Bisko may be discharged at any time for just and proper cause, except that,
following a change of control of QNB (which is defined as any one person or
group obtaining voting control of 25% or more of QNB's outstanding common
stock), Mr. Bisko's employment may only be terminated if he materially breaches
his obligations under the employment agreement, fails or refuses to comply with
the proper and reasonable written policies of the Board of Directors, or is
convicted of a felony. If Mr. Bisko's employment is terminated for reasons other
than, among others, discharge for cause, a change in control of QNB, or death or
disability, Mr. Bisko is entitled to receive a lump sum severance payment equal
to 2.99 times his then current base salary. If Mr. Bisko were terminated at the
minimum base salary of $234,845 as of January 1, 2005, he would be entitled to
receive a maximum lump sum payment equal to $702,187. Such a provision may be
deemed to be "anti-takeover" in nature inasmuch as it may discourage a potential
acquiror who may desire to replace Mr. Bisko with a new president. In the event
of Mr. Bisko's death or disability, QNB shall pay either to Mr. Bisko, his
estate, or his designated beneficiary, an amount equal to his then current base
salary in twelve equal monthly installments, which amounts may be reduced based
upon the receipt of any life or disability insurance proceeds from policies
maintained by and at the expense of QNB.
20
CHANGE OF CONTROL AGREEMENTS
On July 18, 2000, QNB and the Bank entered into change of control
agreements with Bret H. Krevolin, Executive Vice President and Chief Financial
Officer of the Bank, and Robert C. Werner, Executive Vice President and Chief
Operating Officer of the Bank. These agreements provide certain benefits to
Mr. Krevolin and Mr. Werner in the event of a change of control of QNB or the
Bank. The agreements become operative only if Mr. Krevolin and Mr. Werner are
employees of QNB and the Bank upon a change in control of QNB or the Bank, as
defined in the agreement. The agreements specify payments to Mr. Krevolin and
Mr. Werner upon their termination on or before the three year anniversary of
the date of the change of control in an amount equal to the product of the
average aggregate annual compensation paid by QNB and the Bank to the
respective executive which is includable in the executive's gross income for
Federal income tax purposes during the five calendar years preceding the
taxable year in which the date of the termination occurs, multiplied by two.
COMPENSATION COMMITTEE REPORTS ON EXECUTIVE COMPENSATION
QNB's Board of Directors is responsible for the governance of QNB and its
subsidiary. In fulfilling its fiduciary duties, the Board of Directors acts in
the best interests of QNB's shareholders, customers and the communities served
by QNB and its subsidiary. To accomplish QNB's strategic goals and objectives,
the Board of Directors engages competent persons who undertake to accomplish
these objectives with integrity and in a cost-effective manner. The compensation
of these individuals is part of the Board of Directors' fulfillment of its
duties to accomplish QNB's strategic mission.
The fundamental philosophy of QNB's and the Bank's compensation program
is to offer competitive compensation opportunities for all employees based on
the individual's contribution and personal performance. The compensation program
is administered by a compensation committee comprised of five outside directors
who are listed below. The objective of the committee is to establish a fair
compensation policy to govern all salaries in order to attract and motivate
competent, dedicated and ambitious employees whose efforts will enhance the
products and services of QNB, the results of which may include improved
profitability, increased dividends to our shareholders and subsequent
appreciation in the market value of QNB shares. While general guidelines are
provided for all employees, the compensation committee makes specific
recommendations for Mr. Bisko.
Mr. Bisko's compensation is reviewed and approved annually by the Board
of Directors. As a guideline for determining Mr. Bisko's salary, the committee
reviews information provided by a human resource consultant, engaged by the
compensation committee, who compares salaries of Pennsylvania financial
institutions operating within QNB's general market area. The compensation
committee focuses on the survey data for peer financial institutions operating
in Southeastern Pennsylvania. Pennsylvania peer group banks have been used
because of common industry issues and competition for the same executive talent
group.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Bisko's base salary is $234,845 for 2005, subject to an annual review
and adjustment. Mr. Bisko's base pay is determined annually by the compensation
committee. In addition, Mr. Bisko is eligible to receive a cash bonus, in each
of the next two years, equivalent to 5% to 10% of his salary based on QNB
increasing its earnings per share at an average rate of 7.5% to 10%. The bonus
percentage increases by 1% for each .5% increase in earnings per share up to a
maximum of 10%. For 2004, Mr. Bisko received a bonus of $22,208 for the
successful achievement of the plan.
The Bank provides Mr. Bisko, for the benefit of his named beneficiary,
with a salary continuation agreement. In the event of Mr. Bisko's death, the
agreement provides his beneficiary with monthly income for 180 consecutive
months. The agreement is enforceable only while Mr. Bisko remains employed by
21
the Bank. If Mr. Bisko's employment is terminated for any reason other than
death, all rights under the agreement will be terminated. The benefits are
funded through an insurance policy with the cost limited to the annual premium
on the policy. Mr. Bisko is also reimbursed for all reasonable and necessary
expenses related to his duties.
The Bank provides Mr. Bisko with a membership to a country club. Mr.
Bisko is also reimbursed for the cost of all business related meals at the club.
Mr. Bisko is not reimbursed for any personal meals at the country club.
Respectfully submitted,
THE COMPENSATION COMMITTEE
Edgar L. Stauffer, Chairman
Norman L. Baringer
Henry L. Rosenberger
Charles M. Meredith, III
Dennis Helf
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee makes recommendation to the Board of
Directors concerning general guidelines on compensation of employees and
specific recommendations for Mr. Bisko. The Compensation Committee is composed
entirely of the following five independent outside directors: Messrs. Stauffer,
Baringer, Rosenberger, Meredith and Helf. No member of the Compensation
Committee during fiscal year 2004 was an officer or employee of the Corporation
or any of its subsidiaries or was formerly an officer of the Corporation or any
of its subsidiaries. No member of the Compensation Committee had any
relationship requiring disclosure by the Corporation under the proxy rules
promulgated under the Securities and Exchange Act of 1934.
STOCK INCENTIVE PLAN
QNB maintains a stock option plan, the 1998 Plan, administered by QNB's
Compensation Committee. The committee determines, among other things, the
employees to whom awards are granted, the type of awards, and the amount, size,
timing and terms of such awards.
The 1998 Plan provides for the granting of either non-qualified stock
options or incentive stock options. The exercise price of an option is the fair
market value of QNB's common stock at the date of grant as defined in the plan.
Participation in the 1998 Plan is limited to those full-time officers and other
key executive employees of QNB or the Bank who are in positions in which their
decisions, actions, and counsel have a significant impact upon QNB's
profitability and success. QNB directors who are not otherwise full-time
officers or employees of QNB or the Bank are not eligible to participate in the
1998 Plan.
The 1998 Plan authorizes the issuance of 220,500 shares, as adjusted. The
time periods by which any option is exercisable under the plan is determined by
the committee but may not commence before the expiration of six months or
continue beyond the expiration of ten years after the date the option is
awarded. As of April 1, 2005, 216,558 options were granted, 200,168 options were
outstanding and 6,176 shares have been issued under the 1998 Plan.
22
EMPLOYEE STOCK PURCHASE PLAN
QNB's 2001 Employee Stock Purchase Plan offers eligible employees an
opportunity to purchase from QNB shares of its common stock at a 10% discount
from the lesser of fair market value on the first or last day of each offering
period. The offering periods are June 1st through November 30th and December 1st
through May 31st. The plan authorizes the issuance of 42,000 shares, as
adjusted. As of April 1, 2005, 11,112 shares were issued under the plan. This
plan expires by its terms on June 1, 2006.
STOCK PERFORMANCE GRAPH
Set forth on the following page is a performance graph comparing the yearly
cumulative total shareholder return on QNB's common stock with:
o the yearly cumulative total shareholder return on stocks included in the
NASDAQ Market Index, a broad market index,
o the yearly cumulative total shareholder return on the SNL $250M to $500M
Bank Index, a group encompassing 76 publicly traded banking companies
trading on the NYSE, AMEX, or NASDAQ with assets between $250 million
and $500 million,
o the yearly cumulative total shareholder return on the SNL $500M to $1B
Bank Index, a group encompassing 113 publicly traded banking companies
trading on the NYSE, AMEX, or NASDAQ with assets between $500 million
and $1 billion,
o the yearly cumulative total shareholder return on the SNL Mid-Atlantic
Bank Index, a group encompassing 104 publicly traded banking companies
trading on the NYSE, AMEX, or NASDAQ headquartered in Delaware, District
of Columbia, Maryland, New Jersey, New York, Pennsylvania, and Puerto
Rico.
All of these cumulative total returns are computed assuming the
reinvestment of dividends at the frequency with which dividends were paid
during the applicable years.
The SNL $500M to $1B Bank Index was added as a result of the increase in
QNB's asset size. The SNL Mid-Atlantic Bank Index was added to give a
geographical peer group.
23
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN
QNB CORP., SNL $250M - $1B BANK INDEX & NASDAQ MARKET INDEX
[GRAPHIC OMITTED]
- ------------------------------------------------------------------------------------------------------------------
PERIOD ENDING
- ------------------------------------------------------------------------------------------------------------------
INDEX 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03 12/31/04
- ------------------------------------------------------------------------------------------------------------------
QNB Corp. 100.00 106.76 131.77 186.83 289.55 287.60
- ------------------------------------------------------------------------------------------------------------------
NASDAQ - Composite 100.00 60.82 48.16 33.11 49.93 54.49
- ------------------------------------------------------------------------------------------------------------------
SNL $250M-$500M Bank Index 100.00 96.28 136.80 176.39 254.86 289.27
- ------------------------------------------------------------------------------------------------------------------
SNL $500M-$1B Bank Index 100.00 95.72 124.18 158.54 228.61 259.07
- ------------------------------------------------------------------------------------------------------------------
SNL Mid-Atlantic Bank Index 100.00 122.55 115.49 88.82 126.29 133.75
- ------------------------------------------------------------------------------------------------------------------
Source: SNL Financial LC, Charlottesville, VA
24
EXECUTIVE OFFICERS OF QNB AND/OR THE BANK
The following list sets forth the names of the executive officers of QNB,
and other significant employees of the Bank, their respective ages, positions
held, recent business experience with QNB and the Bank, and the period they have
served in their respective capacities.
THOMAS J. BISKO
Age 57; Chief Executive Officer of QNB and the Bank from March 1988 to present;
President of QNB from May 1986 to present; Treasurer of QNB from February 1986
to present; President of the Bank from September 1985 to present.
ROBERT C. WERNER
Age 47; Vice President of QNB from October 1988 to present; Executive Vice
President/Chief Operating Officer of the Bank from January 1994 to present;
Senior Vice President/Chief Financial Officer of the Bank from January 1989 to
December 1993.
BRET H. KREVOLIN
Age 42; Chief Financial Officer of QNB from May 2003 to present; Chief
Accounting Officer of QNB from January 1992 to present; Executive Vice
President/Chief Financial Officer of the Bank from January 2000 to present;
Senior Vice President/Chief Financial Officer of the Bank from January 1995 to
December 1999; Vice President/Controller of the Bank from August 1989 to
December 1994.
BRYAN S. LEBO
Age 48; Senior Vice President/Senior Lending Officer of the Bank from January
1995 to present.
MARY ANN SMITH
Age 51; Senior Vice President/Chief Information Officer of the Bank from January
1999 to present; Senior Vice President/Operations of the Bank from January 1995
to December 1998; Vice President/Operations of the Bank from January 1988 to
December 1994.
HEATHER J. GOSSLER
Age 41; Senior Vice President/Sales and Branch Administration of the Bank from
January 2002 to present; Vice President/Branch Administration of the Bank from
May 1995 to December 2001.
SCOTT G. ORZEHOSKI
Age 39; Senior Vice President/Commercial Lending Officer of the Bank from
January 2002 to present; Vice President/Commercial Lending Officer of the Bank
from August 1997 to December 2001; Assistant Vice President/Commercial Lending
Officer of the Bank from February 1996 to July 1997.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
QNB and the Bank have not entered into any material transactions,
proposed or consummated, with any director or executive officer, or any 5%
security holder, of QNB or the Bank, or any associate of the foregoing persons,
with the exception of that disclosed below. QNB and the Bank have engaged in and
intend to continue to engage in banking and financial transactions in the
ordinary course of business with directors and officers of QNB and the Bank and
their associates on comparable terms with similar interest rates as those
prevailing from time to time for other bank customers.
Total loans outstanding from the Bank at December 31, 2004, to QNB's and
the Bank's officers and directors as a group, members of their immediate
families and companies in which they had an ownership interest of 10% or more
amounted to $1,435,000, or approximately 3.4% of the bank's total equity
25
capital. The Bank made these loans in the ordinary course of business, on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons, and did
not involve more than the normal risk of collection or present other unfavorable
features. The aggregate amount of indebtedness outstanding as of the latest
practicable date, February 28, 2005, to the above described group was
$1,470,000.
On July 21, 2004, QNB Corp.'s wholly owned subsidiary, The Quakertown
National Bank (the "Bank"), entered into an agreement with a director of QNB
Corp. for the purchase by the Bank of a two story building for a purchase price
of $600,000. The price was supported by an independent third party appraisal.
Management of QNB Corp. and the Bank believe that the transaction reflects
arm's-length, negotiated terms. The Bank intends to use the acquired property
for additional office space.
SHAREHOLDER COMMUNICATIONS
The Board of Directors does not have a formal process for shareholders to
send communications to the Board. Due to the infrequency of shareholder
communications to the Board of Directors, the Board does not believe that a
formal process is necessary. Written communications received by QNB from
shareholders are shared with the full Board no later than the next regularly
scheduled Board meeting.
NOMINATIONS AND SHAREHOLDER PROPOSALS
Nominations for election to the Board of Directors may be made by any
shareholder if made in writing and delivered or mailed to the President of QNB,
not less than 14 days or more than 50 days prior to any shareholder meeting
called for the election of directors, provided however, that if less than 21
days notice of the meeting is given to shareholders, the nomination shall be
mailed or delivered to the President of QNB not later than the close of business
on the 7th day following the day on which the notice of the meeting was mailed.
The notification must contain the following information to the extent known to
the notifying shareholder:
(a) the name and address of each proposed nominee;
(b) the principal occupation of each proposed nominee;
(c) the total number of shares of QNB common stock that will be voted for each
proposed nominee;
(d) the name and residential address of the notifying shareholder;
(e) the number of shares of QNB common stock owned by the notifying shareholder.
Nominations not made in accordance with these provisions may be disregarded by
the Chairman at the annual meeting.
If you wish to include a proposal in the Proxy Statement for the 2006
Annual Meeting of Stockholders, your written proposal must be received by the
Corporation no later than December 19, 2005. The proposal should be mailed by
certified mail, return receipt requested, and must comply in all respects with
applicable rules and regulations of the Securities and Exchange Commission, the
laws of the State of Pennsylvania, and the Corporation's Bylaws. Stockholder
proposals may be mailed to the Secretary, QNB Corp., P.O. Box 9005, Quakertown,
PA 18951-9005.
Securities and Exchange Commission rules establish a different deadline
for submission of stockholder proposals that are not intended to be included in
the Corporation's proxy statement with respect to discretionary voting. The
deadline for these proposals for the year 2006 annual meeting is March 4, 2006.
If a stockholder gives notice of such a proposal after this deadline, the
Corporation's proxy holders will be allowed to use their discretionary authority
to vote against the stockholder proposal when and if the proposal is raised at
our 2006 Annual Meeting.
26
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires QNB's
officers and directors and persons who own more than 10% of QNB's common stock
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Officers, directors and greater than 10% owners are
required by Securities and Exchange Commission regulations to furnish QNB with
copies of all Section 16(a) forms they file.
To the Board of Directors' knowledge, based solely on review of the
copies of such reports furnished to QNB during fiscal year ended December 31,
2004, all Section 16(a) filing requirements applicable to its executive officers
and directors were complied with except for Norman L. Baringer and G. Arden
Link, who each inadvertently filed one form late reporting one transaction.
OTHER MATTERS
Management is not aware of any business to come before the annual meeting
other than those matters described in the proxy statement and the accompanying
notice of annual meeting. However, if any other matters should properly come
before the annual meeting, it is intended that the proxies hereby solicited will
be voted with respect to those other matters in accordance with the judgment of
the persons voting the proxies.
If there are not sufficient votes for approval of any of the matters to
be acted upon at the annual meeting, the annual meeting may be adjourned to
permit the further solicitation of proxies.
MISCELLANEOUS
Some banks, brokers and other nominee record holders may be participating
in the practice of "householding" proxy statements and annual reports. This
means that only one copy of the Corporation's Proxy Statement may have been sent
to multiple stockholders in your household. The Corporation will promptly
deliver a separate copy of the document to you if you request one by writing or
calling as follows: Jean Scholl at QNB Corp., P.O. Box 9005, Quakertown, PA
18951-9005, telephone (215) 538-5600. If you want to receive separate copies of
the proxy statement in the future, or if you are receiving multiple copies and
would like to receive only one copy for your household, you should contact your
bank, broker or other nominee record holder, or you may contact us at the above
address and phone number.
UPON REQUEST OF ANY STOCKHOLDER, A COPY OF THE CORPORATION'S ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004, INCLUDING A
LIST OF THE EXHIBITS THERETO, REQUIRED TO BE FILED WITH THE SEC PURSUANT TO RULE
13a-1 UNDER THE EXCHANGE ACT MAY BE OBTAINED, WITHOUT CHARGE, BY WRITING TO THE
CORPORATION'S ASSISTANT SECRETARY AT QNB CORP., P.O. BOX 9005, QUAKERTOWN, PA
18951-9005.
27
EXHIBIT A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF QNB CORP.
Article I. Name
1.1 The name of the Corporation is QNB Corp.
Article II. Location
2.1 The location and post office of the initial
registered office of the Corporation in the
Commonwealth of Pennsylvania is Third and West Broad
Streets, Quakertown, Pennsylvania 18951.
Article III. Purpose
3.1 The corporation is incorporated under the Business
Corporation Law of the Commonwealth of Pennsylvania
for the purposes of conducting any lawful act
concerning any or all lawful business for which a
corporation may be incorporated under the provisions
of the Business Corporation Law.
Article IV. Term
4.1 The term for which the Corporation is to exist is
Perpetual.
Article V. Shares
5.1 The aggregate number of shares which the corporation
shall have authority to issue is 10,000,000 shares of
Common Stock par value of $0.625 per share. Shares of
authorized capital stock may be issued from time to
time as and when the Board of Directors shall
determine and for such consideration as may be fixed
from time to time by the Board of Directors, except
that no stock may be issued for less than the par
value thereof in the case of stock with par value.
Article VI. No Preemptive - No Cumulative Voting
A. No holder of shares of any class of stock of the
Corporation shall have any preemptive or preferential
right to subscribe for, purchase or otherwise acquire
or receive any shares of any class of stock hereafter
issued by the Corporation, whether now or hereafter
authorized, or any shares of any class of stock of
the Corporation now or hereafter acquired and held by
the Corporation as treasury stock and subsequently
reissued and sold or otherwise disposed of, or any
bonds, certificates of indebtedness, notes or any
other securities convertible into or exchangeable
for, or any warrants or rights to purchase or
otherwise acquire, any shares of any class of stock
of the Corporation, whether now or hereafter
authorized.
1
B. At each election of directors every shareholder
entitled to vote at such election shall have the
right to vote the number of shares owned by him for
as many persons there are directors to be elected and
for whose election he has a right to vote. Cumulative
Voting shall not be allowed.
Article VII. Business Combinations
A. The affirmative vote of the holders of not less
than seventy-five percent (75%) of the outstanding
shares of stock of the Corporation then entitled to
vote shall be required for the approval or
authorization of any "Business Combination" (as
hereinafter defined). Such seventy-five percent (75%)
voting requirement shall not be applicable if:
1. the Board of Directors of the Corporation has by
a majority vote of the members of the Board then
in office (a) given prior approval to the
acquisition by the "Related Person" (as
hereinafter defined) involved in the Business
Combination of 20% or more of the outstanding
shares of Common Stock of the Corporation, the
acquisition of which resulted in such person,
corporation or other entity becoming a Related
Person or (b) approved the Business Combination
prior to the time that the person, corporation or
other entity involved in the Business Combination
shall have become a Related Person; or
2. the Business Combination involves solely the
Corporation and a Subsidiary, none of whose stock
is beneficially owned by a Related Person (other
than Beneficial Ownership arising solely because
of the control of the Corporation), provided that
if the Corporation is not the surviving company,
each stockholder of the Corporation receives the
same type of consideration in such transaction in
proportion to his stockholdings, the provisions
of Article V, and Articles VII, and VIII of the
Corporation's Articles of Incorporation are
continued in effect or adopted by such surviving
company as part of its articles of incorporation
or certificate of incorporation, as the case may
be, and such articles or certificate have no
provisions inconsistent with such provisions, and
the provisions of the Corporation's Bylaws are
continued in effect or adopted by said surviving
company.
B. The Board of Directors of the Corporation, when
evaluating any offer of another party to (a) make a
tender or exchange offer for any equity security of
the Corporation, (b) merge or consolidate the
Corporation with another corporation, or (c) purchase
or otherwise acquire all or substantially all of the
properties and assets of the Corporation may
consider, in connection with the exercise of its
judgment in determining what is the best interest of
the Corporation and its stockholders, including
without limitation, (i) the social and economic
effects on the employees, customers, and other
constituents of the Corporation and its subsidiaries
and on the communities in which the Corporation and
its subsidiaries operate or are located; (ii) the
desirability of the Corporation continuing as an
independent entity; and (iii) such other factors as
the Board of Directors shall deem relevant.
2
C. For purposes of this Article VII the following
defined terms shall have the following meanings:
1. The term "Business Combination" shall mean (a) any
merger or consolidation of the Corporation or a
Subsidiary with or into a Related Person, (b) any
sale, lease, exchange, transfer or other
disposition, including without limitation, a
mortgage or any other security device of all or
any substantial part of the assets of the
Corporation (including without limitation any
securities of a Subsidiary) or of a Subsidiary, to
a Related Person, (c) any merger or consolidation
of a Related Person with or into this Corporation
or a Subsidiary, (d) any sale, lease, exchange,
transfer or other disposition of all or any
substantial part of the assets of the Related
Person to this Corporation or a Subsidiary, (e)
the issuance of any securities of this Corporation
or a Subsidiary of a Related Person, (f) the
acquisition by the Corporation or a Subsidiary of
any securities of Related Person, (g) any
reclassification of Voting Stock of the
Corporation, or any recapitalization involving
Voting Stock of the Corporation, consummated
within five years after a Related Person becomes a
Related Person, (h) any loan or other extension of
credit by the Corporation or a Subsidiary to the
Related Person or any guarantees by the
Corporation or a Subsidiary of any loan or other
extension of credit by any person to a Related
Person, and (i) any agreement, contract or other
arrangement provided for any of the transactions
described in this definition of Business
Combination.
2. The term "Related Person" shall mean and include
any individual, corporation, partnership or other
person or entity which, together with its
"affiliates" and "associates", (as those terms are
hereinafter defined) is the beneficial owner,
directly or indirectly, of 20% or more in the
aggregate of the outstanding shares of the
Corporation's stock entitled to vote at the
election of directors of the Corporation.
3. For purposes of this Article VII any corporation,
person or other entity shall be deemed to be the
beneficial owner of any shares of stock of the
Corporation, (i) which it owns directly, whether
or not of record, or (ii) which it has the right
to acquire pursuant to any agreement or
understanding or upon exercise of conversion
rights, warrants or options or otherwise, whether
or not presently exercisable, or (iii) which are
beneficially owned, directly or indirectly
(including shares deemed to be owned through
application of clause (ii) above), by an
"affiliate" or "associate" as those terms are
defined herein, or (iv) which are beneficially
owned, directly or indirectly by any other
corporation, person or entity (including any
shares which such other corporation, person or
entity has the right to acquire pursuant to any
agreement or understanding or upon exercise of
conversion rights, warrants or options or
otherwise, whether or not presently exercisable)
with which it or its "affiliate" or "associate"
has any agreement or arrangement or understanding
for the purpose of acquiring, holding, voting or
disposing of stock of this Corporation.
3
4. For the purposes of this Article VII, the term
"affiliate" shall mean any person that directly,
or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common
control with, such corporation, person or other
entity. The term "control" (including the terms
"controlling", "controlled by" and "under common
control with") means the possession, directly or
indirectly, of the power to direct or cause the
direction of the management and policies of a
corporation, person or other entity, whether
through the ownership of voting securities, by
contract, or otherwise.
5. For purposes of this Article VII, the term
"associate" shall mean (i) any corporation or
organization (other than the Corporation or a
majority-owned subsidiary of this Corporation) of
which such corporation, person or entity is an
officer or partner or is, directly or indirectly,
the beneficial owner of ten percent (10%) or more
of any class of equity securities, (ii) any trust
or other estate in which such corporation, person
or other entity has a substantial beneficial
interest or as to which such corporation, person
or other entity serves as a trustee or in a
similar fiduciary capacity, and (iii) any relative
or spouse of such person, or any relative of such
spouse, who has the same house as such person or
who is a director or officer of this corporation
or any of its subsidiaries.
6. The Board of Directors shall have the power and
duty to determine for the purposes of this Article
VII on the basis of information known to the Board
of Directors of the Corporation, whether (i) such
other corporation, person or other entity
beneficially owns more than 20% in number of
shares of the outstanding shares of the
Corporation entitled to vote in elections of
directors, and (ii) a corporation, person or other
entity is an "affiliate" or "associate" (as
defined above) of another. Any such determination
shall be conclusive and binding for all purposes
of this Article VII.
7. The term "Substantial Part" shall mean more than
ten percent (10%) of the total assets of the
person or entity in question, as of the end of its
most recent fiscal year ending prior to the time
the determination is being made.
8. The term "Subsidiary" shall mean any corporation
or other entity more than 50% of the stock of
which is Beneficially owned by the Corporation.
Article VIII. Amendments of Articles of Incorporation
8.1 These Articles of Incorporation may be amended,
subject to the provisions of the laws of the
Commonwealth of Pennsylvania, at any regular or
special meeting of the shareholders for which
adequate notice has been given, by the affirmative
vote of the holders of the majority of the
4
outstanding shares of stock of the Corporation then
entitled to vote, provided however that Article V,
Article VII and this Article VIII of the Articles of
Incorporation may be amended only by the affirmative
vote of the holders of seventy-five percent (75%) of
the outstanding shares of stock of the Corporation
then entitled to vote at a special meeting called for
that purpose.
Article IX. Director Liability
A. Director's Personal Liability. A director of the
corporation shall not be personally liable for
monetary damages for any action taken, or any failure
to take any action, provided however, that this
provision shall not eliminate or limit the liability
of a director to the extent that such elimination of
limitation of liability is expressly prohibited by
the Pennsylvania Director's Liability Act as in
effect at the time of the alleged action or failure
to take action by such director.
B. Preservation of Right. Any repeal or modification of
this Article by the shareholders of the corporation
shall not adversely affect any right or protection
existing at the time of such repeal or modification
to which any director or former director may be
entitled under this Article. The rights conferred by
this Article shall continue as to any person who has
ceased to be director of the corporation and shall
inure to the benefit of the heir, executors and
administrators of such person.
5
EXHIBIT B
QNB CORP.
2005 STOCK INCENTIVE PLAN
1. Purpose. The purpose of this Stock Incentive Plan (the "Plan") is to
advance the development, growth and financial condition of QNB Corp.
(the "Corporation") and each subsidiary thereof, as defined in Section
424 of the Internal Revenue Code of 1986, as amended (the "Code"), by
providing incentives through participation in the appreciation of the
common stock of the Corporation to secure, retain and motivate
personnel who may be responsible for the operation and for management
of the affairs of the Corporation and any subsidiary now or hereafter
existing ("Subsidiary").
2. Term. The Plan shall become effective as of the date it is adopted by
the Corporation's Board of Directors (the "Board"), and shall be
presented for approval at the next meeting of the Corporation's
shareholders. Any and all options and rights awarded under the Plan
(the "Awards") before it is approved by the Corporation's shareholders
shall be conditioned upon, and may not be exercised before, receipt of
shareholder approval, and shall lapse upon failure to receive such
approval. Unless previously terminated by the Board, the Plan shall
terminate on, and no options shall be granted after the tenth
anniversary of the effective date of the Plan.
3. Stock. Shares of the Corporation's common stock, par value $.625 per
share (the "Stock"), that may be issued under the Plan shall not
exceed, in the aggregate, 200,000 shares, as may be adjusted pursuant
to Section 16 hereof. Shares may be either authorized and unissued
shares, or authorized shares, issued by and subsequently reacquired by
the Corporation as treasury stock. Under no circumstances shall any
fractional shares be awarded under the Plan. Except as may be
otherwise provided in the Plan, any Stock subject to an Award that,
for any reason, lapses or terminates prior to exercise, shall again
become available for grant under the Plan. While the Plan is in
effect, the Corporation shall reserve and keep available the number of
shares of Stock needed to satisfy the requirements of the Plan. The
Corporation shall apply for any requisite governmental authority to
issue shares under the Plan. The Corporation's failure to obtain any
such governmental authority, deemed necessary by the Corporation's
legal counsel for the lawful issuance and sale of Stock under the
Plan, shall relieve the Corporation of any duty, or liability for the
failure to issue or sell the Stock.
4. Administration. The ability to control and manage the operation and
administration of the Plan shall be vested in the Board or in a
committee of two or more members of the Board, selected by the Board
(the "Committee"). The Committee shall have the authority and
discretion to interpret the Plan, to establish, amend and rescind any
rules and regulations relating to the Plan, to determine the terms and
provisions of any agreements made pursuant to the Plan, and to make any
and all determinations that may be necessary or advisable for the
administration of the Plan. Any interpretation of the Plan by the
Committee and any decision made by the Committee under the Plan is
final and binding.
The Committee shall be responsible and shall have full, absolute and
final power of authority to determine what, to whom, when and under what facts
and circumstances Awards shall be made, and the form, number, terms, conditions
and duration thereof, including but not limited to when exercisable, the number
of shares of Stock subject thereto, and the stock option exercise prices. The
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Committee shall make all other determinations and decisions, take all actions
and do all things necessary or appropriate in and for the administration of the
Plan. No member of the Committee or of the Board shall be liable for any
decision, determination or action made or taken in good faith by such person
under or with respect to the Plan or its administration.
5. Awards. Awards may be made under the Plan in the form of: (a)
"Qualified Options" to purchase Stock, which are intended to qualify
for certain tax treatment as incentive stock options under Sections
421 and 422 of the Code, or (b) "Non-Qualified Options" to purchase
Stock, which are not intended to qualify under Sections 421 through
424 of the Code. More than one Award may be granted to an eligible
person, and the grant of any Award shall not prohibit the grant of
another Award, either to the same person or otherwise, or impose any
obligation to exercise on the participant. All Awards and the terms
and conditions thereof shall be set forth in written agreements, in
such form and content as approved by the Committee from time to time,
and shall be subject to the provisions of the Plan whether or not
contained in such agreements. Multiple Awards for a particular person
may be set forth in a single written agreement or in multiple
agreements, as determined by the Committee, but in all cases each
agreement for one or more Awards shall identify each of the Awards
thereby represented as a Qualified Option or Non-Qualified Option, as
the case may be.
6. Eligibility. Persons eligible to receive Awards shall be those key
officers and other employees of the Corporation and each Subsidiary,
as determined by the Committee. A person's eligibility to receive an
Award shall not confer upon him or her any right to receive an Award.
Except as otherwise provided, a person's eligibility to receive, or
actual receipt of an Award under the Plan shall not limit or affect
his or her benefits under or eligibility to participate in any other
incentive or benefit plan or program of the Corporation or of its
affiliates.
7. Qualified Options. In addition to other applicable provisions of the
Plan, all Qualified Options and Awards thereof shall be under and
subject to the following terms and conditions:
(a) No Qualified Option shall be awarded more than ten (10) years
after the date the Plan is adopted by the Board or the date the
Plan is approved by the Corporation's shareholders, whichever is
earlier;
(b) The time period during which any Qualified Option is exercisable,
as determined by the Committee, shall not commence before the
expiration of six (6) months or continue beyond the expiration of
five (5) years after the date the Qualified Option is awarded;
(c) If a participant, who was awarded a Qualified Option, ceases to
be employed by the Corporation or any Subsidiary for any reason
other than his or her death, the Committee may permit the
participant thereafter to exercise the option during its
remaining term for a period of not more than three (3) months
after cessation of employment to the extent that the Qualified
Option was then and remains exercisable, unless such employment
cessation was due to the participant's disability, as defined in
Section 22(e)(3) of the Code, in which case the three (3) month
period shall be twelve (12) months; if the participant dies while
employed by the Corporation or a Subsidiary, the Committee may
permit the participant's qualified personal representatives, or
any persons who acquire the Qualified Option pursuant to his or
her Will or laws of descent and distribution, to exercise the
Qualified Option during its remaining term for a period of not
more than twelve (12) months after the participant's death to the
extent that the Qualified Option was then and remains
exercisable; the Committee may impose terms and conditions upon
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and for the exercise of a Qualified Option after the cessation of
the participant's employment or his or her death;
(d) The purchase price of Stock subject to any Qualified Option shall
not be less than the Stock's fair market value at the time the
Qualified Option is awarded or less than the Stock's par value;
and
(e) Qualified Options may not be sold, transferred or assigned by the
participant except by will or the laws of descent and
distribution.
8. Non-Qualified Options. In addition to other applicable provisions of
the Plan, all Non-Qualified Options and Awards thereof shall be under
and subject to the following terms and conditions:
(a) The time period during which any Non-Qualified Option is
exercisable shall not commence before the expiration of six (6)
months or continue beyond the expiration of five (5) years after
the date the Non-Qualified Option is awarded;
(b) If a participant, who was awarded a Non-Qualified Option, ceases
to be eligible under the Plan, before lapse or full exercise of
the option, the Committee may permit the participant to exercise
the option during its remaining term, to the extent that the
option was then and remains exercisable, or for such time period
and under such terms and conditions as may be prescribed by the
Committee;
(c) The purchase price of a share of Stock subject to any
Non-Qualified Option shall not be less than the Stock's par
value; and
(d) Except as otherwise provided by the Committee, Non-Qualified
Stock Options granted under the Plan are not transferable except
as designated by the participant by will and the laws of descent
and distribution.
9. Exercise. Except as otherwise provided in the Plan, Awards may be
exercised in whole or in part by giving written notice thereof to the
Secretary of the Corporation, or his or her designee, identifying the
Award to be exercised, the number of shares of Stock with respect
thereto, and other information pertinent to exercise of the Award. The
purchase price of the shares of Stock with respect to which an Award
is exercised shall be paid with the written notice of exercise, either
in cash, by tendering other shares of Company common stock held by
optionee for at least six months having a fair market value as of the
date of exercise equal to the total purchase price, by any method
established by the Committee including a so-called "cashless
exercise", by giving instructions to withhold from the stock to be
received upon exercise of the option the number of shares having a
fair market value equal to the exercise price, or by any combination
of these methods of payment, at its then current fair market value, or
in any combination thereof, as the Committee shall determine. Funds
received by the Corporation from the exercise of any Award shall be
used for its general corporate purposes.
The Committee may permit an acceleration of previously established
exercise terms of any Awards as, when, under such facts and
circumstances, and subject to such other or further requirements and
conditions as the Committee may deem necessary or appropriate. In
addition:
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(a) if the Corporation or its shareholders execute an agreement to
dispose of all or substantially all of the Corporation's assets
or stock by means of sale, merger, consolidation, reorganization,
liquidation or otherwise, as a result of which the Corporation's
shareholders, immediately before the transaction, will not own at
least fifty percent (50%) of the total combined voting power of
all classes of voting stock of the surviving entity (be it the
Corporation or otherwise) immediately after the consummation of
the transaction, then any and all outstanding Awards shall
immediately become and remain exercisable or, if the transaction
is not consummated, until the agreement relating to the
transaction expires or is terminate, in which case, all Awards
shall be treated as if the agreement was never executed;
(b) if there is an actual, attempted, or threatened change in the
ownership of at least twenty-five percent (25%) of all classes of
voting stock of the Corporation through the acquisition of, or an
offer to acquire such percentage of the Corporation's voting
stock by any person or entity, or persons or entities acting in
concert or as a group, and the acquisition or offer has not been
duly approved by the Board; or
(c) if during any period of two (2) consecutive years, the
individuals who at the beginning of such period constituted the
Board cease, for any reason, to constitute at least a majority of
the Board, (unless the election of each director of the Board,
who was not a director of the Board at the beginning of such
period, was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the
beginning of such period) thereupon any and all Awards
immediately shall become and remain exercisable.
10. Withholding. When a participant exercises a stock option awarded under
the Plan, the Corporation, in its discretion and as required by law,
may require the participant to remit to the Corporation an amount
sufficient to satisfy fully any federal, state and other jurisdictions'
income and other tax withholding requirements prior to the delivery of
any certificates for shares of Stock, at the Committee's discretion
remittance may be made in cash, shares already held by the participant
or by the withholding by the Corporation of sufficient shares issuable
pursuant to the option to satisfy the participant's withholding
obligation.
11. Value. Where used in the Plan, the "fair market value" of Stock or any
options or rights with respect thereto, including Awards, shall mean
and be determined by (a) the bid price on the principal established
domestic securities exchange on which listed, and if not listed, then
(b) the dealer "bid" price thereof on the New York over-the-counter
market, as reported by the National Association of Securities Dealers,
Inc., in either case as of the specified or otherwise required or
relevant time, or if not traded as of such specified, required or
relevant time, then based upon such reported sales or "bid" price
before and/or after such time in accordance with pertinent provisions
of and principles under the Code and the regulations promulgated
thereunder.
12. Amendment. To the extent permitted by applicable law, the Board may
amend, suspend, or terminate the plan at any time. The amendment or
termination of this Plan shall not, without the consent of the
participants, alter or impair any rights or obligations under any Award
previously granted hereunder.
From time to time, the Committee may rescind, revise and add
to any of the terms, conditions and provisions of the Plan or of an
Award as necessary or appropriate to have the Plan and any Awards
9
thereunder be or remain qualified and in compliance with all applicable
laws, rules and regulations, and the committee may delete, omit or
waive any of the terms and conditions or provisions that are no longer
required by reason of changes of applicable laws, rules or regulations,
but not limited to, the provisions of Sections 421 and 422 of the Code,
Section 16 of the Securities Exchange Act of 1934, as amended, (the
"1934 Act") and the rules and regulations promulgated by the Securities
and Exchange Commission. Without limiting the generality of the
preceding sentence, each Qualified Option shall be subject to such
other and additional terms, conditions and provisions as the Committee
may deem necessary or appropriate in order to qualify as a Qualified
Option under Section 422 of the Code, including, but not limited to,
the following provisions:
(a) At the time a Qualified Option is awarded, the aggregate fair
market value of the Stock subject thereto and of any Stock of
other capital stock with respect to which incentive stock options
qualifying under Sections 421 and 422 of the Code are exercisable
for the first time by the participant during any calendar year
under the Plan and any other plans of the Corporation or its
affiliates, shall not exceed $100,000.00; and
(b) No Qualified Option shall be awarded to any person if, at the
time of the Award, the person owns shares of the stock of the
Corporation possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation
or its affiliates, unless, at the time the Qualified Option is
awarded, the exercise price of the Qualified Option is at least
one hundred and ten percent (110%) of the fair market value of
the Stock on the date of grant and the option, by its terms, is
not exercisable after the expiration of five (5) years from the
date it is awarded.
13. Continued Employment. Nothing in the Plan or any Award shall confer
upon any participant or other persons any right to continue in the
employ of, or maintain any particular relationship with, the
Corporation or its affiliates, or limit or affect any rights, powers
or privileges that the Corporation or its affiliates may have to
supervise, discipline and terminate the participant. However, the
Committee may require, as a condition of making and/or exercising any
Award, that a participant agree to, and in fact provide services,
either as an employee or in another capacity, to or for the
Corporation or any Subsidiary for such time period as the Committee
may prescribe. The immediately preceding sentence shall not apply to
any Qualified Option, to the extent such application would result in
disqualification of the option under Sections 421 and 422 of the Code.
14. General Restrictions. If the Committee or Board determines that it is
necessary or desirable to: (a) list, register or qualify the stock
subject to the Award, or the Award itself, upon any securities
exchange or under any federal or state securities or other laws, (b)
obtain the approval of any governmental authority, or (c) enter into
an agreement with the participant with respect to disposition of any
Stock (including, without limitation, an agreement that, at the time
of the participant's exercise of the Award, any Stock thereby acquired
is and will be acquired solely for investment purposes and without any
intention to sell or distribute the Stock), then such Award shall not
be consummated in whole or in part unless the listing, registration,
qualification, approval or agreement, as the case may be, shall have
been appropriately effected or obtained to the satisfaction of the
Committee and legal counsel for the Corporation.
15. Rights. Except as otherwise provided in the Plan, participants shall
have no rights as a holder of the Stock unless and until one or more
certificates for the shares of Stock are issued and delivered to the
participant.
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16. Adjustments. In the event that the shares of common stock of the
Corporation, as presently constituted, shall be changed into or
exchanged for a different number or kind of shares of common stock or
other securities of the Corporation or of other securities of the
Corporation or of another corporation (whether by reason of merger,
consolidation, recapitalization, reclassification, split-up,
combination of shares or otherwise) or if the number of such shares of
common stock shall be increased through the payment of a stock
dividend, stock split or similar transaction, then, there shall be
substituted for or added to each share of common stock of the
Corporation that was theretofore appropriated, or which thereafter may
become subject to an option under the Plan, the number and kind of
shares of common stock or other securities into which each outstanding
share of the common stock of the Corporation shall be so changed or
for which each such share shall be exchanged or to which each such
shares shall be entitled, as the case may be. Each outstanding Award
shall be appropriately amended as to price and other terms, as may be
necessary to reflect foregoing events.
If there shall be any other change in the number or kind of the
outstanding shares of the common stock of the Corporation, or of any
common stock or other securities in which such common stock shall have
been changed, or for which it shall have been exchanged, and if a
majority of the disinterested members of the Committee shall, in its sole
discretion, determine that such change equitably requires an adjustment
in any Award that was theretofore granted or that may thereafter be
granted under the Plan, then such adjustment shall be made in accordance
with such determination.
The grant of an Award under the Plan shall not affect in any
way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or
business structure, to merge, to consolidate, to dissolve, to liquidate
or to sell or transfer all or any part of its business or assets.
Fractional shares resulting from any adjustment in Awards
pursuant to this Section 16 may be settled as a majority of the
disinterested members of the Board of Directors or of the Committee, as
the case may be, shall determine.
To the extent that the foregoing adjustments relate to common
stock or securities of the Corporation, such adjustments shall be made
by a majority of the members of the Board, whose determination in that
respect shall be final, binding and conclusive. Notice of any
adjustment shall be given by the Corporation to each holder of an Award
that is so adjusted.
17. Forfeiture. Notwithstanding anything to the contrary in this Plan, if
the Committee finds, after full consideration of the facts presented
on behalf of the Corporation and the involved participant, that he or
she has been engaged in fraud, embezzlement, theft, commission of a
felony, or dishonesty in the course of his or her employment by the
Corporation or by any Subsidiary and such action has damaged the
Corporation or the Subsidiary, as the case may be, or that the
participant has disclosed trade secrets of the Corporation or its
affiliates, the participant shall forfeit all rights under and to all
unexercised Awards, and under and to all exercised Awards under which
the Corporation has not yet delivered payment or certificates for
shares of Stock (as the case may be), all of which Awards and rights
shall be automatically canceled. The decision of the Committee as to
the cause of the participant's discharge from employment with the
Corporation or any Subsidiary and the damage thereby suffered shall be
final for purposes of the Plan, but shall not affect the finality of
the participant's discharge by the Corporation or Subsidiary for any
other purposes. The preceding provisions of this paragraph shall not
apply to any Qualified Option to the extent such application would
result in disqualification of the option as an incentive stock option
under Sections 421 and 422 of the Code.
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18. Indemnification. In and with respect to the administration of the
Plan, the Corporation shall indemnify each member of the Committee
and/or of the Board, each of whom shall be entitled, without further
action on his or her part, to indemnification from the Corporation for
all damages, losses, judgments, settlement amounts, punitive damages,
excise taxes, fines, penalties, costs and expenses (including without
limitation attorneys' fees and disbursements) incurred by the member
in connection with any threatened, pending or completed action, suit
or other proceedings of any nature, whether civil, administrative,
investigative or criminal, whether formal or informal, and whether by
or in the right or name of the Corporation, any class of its security
holders, or otherwise, by reason of his or her being or having been a
member of the Committee and/or of the Board, whether or not he or she
continues to be a member of the Committee or of the Board. The
provisions, protection and benefits of this Section shall apply and
exist to the fullest extent permitted by applicable law to and for the
benefit of all present and future members of the Committee and/or of
the Board and their respective heirs, personal and legal
representatives, successors and assigns, in addition to all other
rights that they may have as a matter of law, by contract, or
otherwise, except (a) to the extent there is entitlement to insurance
proceeds under insurance coverage provided by the Corporation on
account of the same matter or proceeding for which indemnification
hereunder is claimed, or (b) to the extent there is entitlement to
indemnification from the Corporation, other than under this Section,
on account of the same matter or proceeding for which indemnification
hereunder is claimed.
19. Miscellaneous. (a) Any reference contained in this Plan to particular
section or provision of law, rule or regulation, including but not
limited to the Code and the 1934 Act, shall include any subsequently
enacted or promulgated section or provision of law, rule or
regulation, as the case may be. With respect to persons subject to
Section 16 of the 1934 Act, transactions under this Plan are intended
to comply with all applicable conditions of Section 16 and the rules
and regulations promulgated thereunder, or any successor rules and
regulations that may be promulgated by the Securities and Exchange
Commission, and to the extent any provision of this Plan or action by
the Committee fails to so comply, it shall be deemed null and void, to
the extent permitted by applicable law and deemed advisable by the
Committee.
(b) Where used in this Plan: the plural shall include the singular,
and unless the context otherwise clearly requires, the singular
shall include the plural; and the term "affiliates" shall mean
each and every Subsidiary and any parent of the Corporation.
(c) The captions of the numbered Sections contained in this Plan are
for convenience only, and shall not limit or affect the meaning,
interpretation or construction of any of the provisions of the
Plan
IN WITNESS WHEREOF, the Corporation has caused the Plan to be duly
executed by its officers as of the 15th day of March, 2005.
(SEAL)
Jean M. Scholl
Assistant Secretary
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