SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to ss 240.14a-12
Norwood Financial Corp.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (Set forth the amount on which
the filing fee is calculated and state how it was determined.)
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ } Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[NORWOOD FINANCIAL CORP. LETTERHEAD]
March 22, 2007
Dear Stockholder:
On behalf of the Board of Directors and management of Norwood Financial
Corp., I invite you to attend our 2007 Annual Meeting of Stockholders. The
Annual Meeting will be held at the administrative office of Wayne Bank, 717 Main
Street, Honesdale, Pennsylvania on Tuesday, April 24, 2007, at 11:00 a.m., local
time. The attached Notice of Annual Meeting and Proxy Statement describe the
formal business we expect to act upon at the Annual Meeting. I will also report
on our operations. Our directors and officers, as well as representatives of
Beard Miller Company LLP, our independent auditors, will be present to respond
to stockholder questions.
You will be asked to elect two directors and to ratify the appointment of
Beard Miller Company LLP as our independent auditors for the fiscal year ending
December 31, 2007. The Board of Directors has unanimously approved each of these
proposals and recommends that you vote FOR them.
Your vote is important, regardless of the number of shares you own. We
encourage you to vote by proxy so that your shares will be represented and voted
at the meeting even if you cannot attend. All stockholders can vote by written
Proxy Card. Also, you may vote in person at the meeting if you so choose. If you
do decide to attend the Annual Meeting and feel for whatever reason that you
want to change your vote at that time, you will be able to do so.
Sincerely,
/s/ William W. Davis, Jr.
William W. Davis, Jr.
President and Chief Executive Officer
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NORWOOD FINANCIAL CORP.
717 MAIN STREET
HONESDALE, PENNSYLVANIA 18431
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 24, 2007
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The Annual Meeting of Stockholders of Norwood Financial Corp., will be held at
the administrative office of Wayne Bank, 717 Main Street, Honesdale,
Pennsylvania on Tuesday, April 24, 2007, at 11:00 a.m., local time, for the
following purposes:
1. To elect two directors;
2. To ratify the appointment of Beard Miller Company LLP as our
independent auditors for the fiscal year ending December 31, 2007;
all as set forth in the Proxy Statement accompanying this notice, and to
transact any other business that may properly come before the Annual Meeting.
The Board of Directors is not aware of any other business to come before the
Annual Meeting. Stockholders of record at the close of business on March 16,
2007, are the stockholders entitled to notice of and to vote at the Annual
Meeting and any adjournments thereof.
A copy of our Annual Report for the year ended December 31, 2006 is
enclosed.
YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WE
ENCOURAGE YOU TO VOTE BY PROXY SO THAT YOUR SHARES WILL BE REPRESENTED AND VOTED
AT THE ANNUAL MEETING EVEN IF YOU CANNOT ATTEND. ALL STOCKHOLDERS CAN VOTE BY
WRITTEN PROXY CARD. ALSO, YOU MAY VOTE IN PERSON AT THE ANNUAL MEETING IF YOU SO
CHOOSE. HOWEVER, IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE NOT REGISTERED IN
YOUR OWN NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER TO
VOTE PERSONALLY AT THE ANNUAL MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ John E. Marshall
JOHN E. MARSHALL
SECRETARY
Honesdale, Pennsylvania
March 22, 2007
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IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE US THE EXPENSE OF FURTHER
REQUESTS FOR PROXIES IN ORDER TO INSURE A QUORUM AT THE ANNUAL MEETING. IF YOU
ARE VOTING BY WRITTEN PROXY CARD, A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR
CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
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PROXY STATEMENT
OF
NORWOOD FINANCIAL CORP.
717 MAIN STREET
HONESDALE, PENNSYLVANIA 18431
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ANNUAL MEETING OF STOCKHOLDERS
APRIL 24, 2007
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GENERAL
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This proxy statement and the accompanying proxy card are being mailed to
stockholders of Norwood Financial Corp. commencing on or about March 22, 2007 in
connection with the solicitation by our Board of Directors of proxies for use at
our 2007 Annual Meeting of Stockholders which will be held at the administrative
office of Wayne Bank, 717 Main Street, Honesdale, Pennsylvania on Tuesday, April
24, 2007, at 11:00 a.m., local time.
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VOTING AND PROXY PROCEDURES
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WHO CAN VOTE AT THE ANNUAL MEETING
You are only entitled to vote at the Annual Meeting if our records show
that you held shares of our common stock, $.10 par value (the "Common Stock"),
as of the close of business on March 16, 2007 (the "Record Date"). If your
shares are held by a broker or other intermediary, you can only vote your shares
at the Annual Meeting if you have a properly executed proxy from the record
holder of your shares (or their designee). As of the Record Date, a total of
2,792,151 shares of Common Stock were outstanding. Each share of Common Stock
has one vote in each matter presented.
VOTING BY PROXY
The Board of Directors is sending you this Proxy Statement for the purpose
of requesting that you allow your shares of Common Stock to be represented at
the Annual Meeting by the persons named in the enclosed Proxy Card. All shares
of Common Stock represented at the Annual Meeting by properly executed and dated
proxies will be voted according to the instructions indicated on the Proxy Card.
If you sign, date and return the Proxy Card without giving voting instructions,
your shares will be voted as recommended by the Company's Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF ITS NOMINEES FOR DIRECTOR
AND A VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT OF BEARD MILLER COMPANY LLP
AS OUR INDEPENDENT AUDITORS.
If any matters not described in this Proxy Statement are properly presented
at the Annual Meeting, the persons named in the Proxy Card will vote your shares
as determined by a majority of the Board of Directors. If the Annual Meeting is
postponed or adjourned, your Common Stock may be voted by the persons named in
the Proxy Card on the new Annual Meeting dates as well, unless you have revoked
your proxy. The Company does not know of any other matters to be presented at
the Annual Meeting.
You may revoke your proxy at any time before the vote is taken at the
Annual Meeting. To revoke your proxy you must either advise the Company's
Secretary in writing before your Common Stock has been
1
voted at the Annual Meeting, deliver a later-dated proxy, or attend the Annual
Meeting and vote your shares in person. Attendance at the Annual Meeting will
not in itself revoke your proxy.
If you hold your Common Stock in "street name," you will receive
instructions from your broker, bank or other nominee that you must follow in
order to have your shares voted. Your broker, bank or other nominee may allow
you to deliver your voting instructions via the telephone or the Internet.
Please see the instruction form provided by your broker, bank or other nominee
that accompanies this Proxy Statement.
PARTICIPANTS IN THE WAYNE BANK EMPLOYEE STOCK OWNERSHIP PLAN
If you are a participant in the Wayne Bank Employee Stock Ownership Plan
(the "ESOP"), you will receive a voting instruction form that reflects all
shares you may vote under the ESOP. Under the terms of the ESOP, all shares held
by the ESOP are voted by the ESOP trustees, but each participant in the ESOP may
direct the trustees on how to vote the shares of Common Stock allocated to his
or her account. Unallocated shares and allocated shares for which no timely
voting instructions are received will be voted by the ESOP trustees in the same
proportion as the shares for which the trustees have received timely voting
instructions, provided that in the absence of any voting directions as to
allocated stock, the Board of Directors of the Bank will direct the ESOP
trustees as to the voting of all shares of stock in the ESOP. The deadline for
returning your voting instruction form to the ESOP trustees is April 19, 2007.
VOTE REQUIRED
The Annual Meeting can only transact business if a majority of the
outstanding shares of Common Stock entitled to vote is represented at the Annual
Meeting. If you return valid proxy instructions or attend the Annual Meeting in
person, your shares will be counted for purposes of determining whether there is
a quorum even if you abstain withhold your vote or do not vote your shares at
the Annual Meeting. Broker non-votes will be counted for purposes of determining
the existence of a quorum. A broker non-vote occurs when a broker, bank or other
nominee holding shares for a beneficial owner does not have discretionary voting
power with respect to the agenda item and has not received voting instructions
from the beneficial owner.
In voting on the election of directors, you may vote in favor of all
nominees, withhold votes as to all nominees, or vote in favor of all nominees
except nominees from whom you specifically withhold your vote. There is no
cumulative voting in the election of directors. Directors must be elected by a
plurality of the votes cast at the Annual Meeting. This means that the nominees
receiving the greatest number of votes will be elected. Votes that are withheld
and broker non-votes will have no effect on the outcome of the election.
In voting to ratify the appointment of Beard Miller Company LLP as our
independent auditors, you may vote in favor of the proposal, against the
proposal or abstain from voting. To be approved, this proposal requires the
affirmative vote of a majority of the votes cast at the Annual Meeting. Broker
non-votes and abstentions will not be counted as votes cast and will have no
effect on the voting on this proposal.
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PRINCIPAL HOLDERS OF OUR COMMON STOCK
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Persons and groups beneficially owning more than 5% of the Common Stock are
required to report on their ownership to Securities and Exchange Commission. A
person is the beneficial owner of shares of Common Stock over which he or she
has or shares voting or investment power or which he or she has the right to
acquire at any time within 60 days from the Record Date. The following table
sets forth information as of the Record Date with respect to the persons or
groups known to the Company to beneficially own more than 5% of the Common
Stock.
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NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP COMMON STOCK OUTSTANDING
------------------- -------------------- ------------------------
Wayne Bank Trust Department 190,466 (1) 6.8%
717 Main Street
Honesdale, Pennsylvania 18431
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(1) The Wayne Bank Trust Department has sole voting and dispositive power
over 190,466 shares. Excludes 236,356 shares held in seven trusts for
which the Bank acts as trustee but as to which it does not have voting
power. The shares for which the Wayne Bank Trust Department has sole
voting power are expected to be voted for the election of the nominees
listed under Proposal 1 and for the ratification of auditors (Proposal
2).
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PROPOSAL 1 - ELECTION OF DIRECTORS
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The Board of Directors currently consists of nine members, each of whom
also serves as a director of our principal subsidiary, Wayne Bank. Our Articles
of Incorporation provide that the Board of Directors must be divided into three
classes as nearly equal in number as possible. At each annual meeting of
stockholders, each of the successors of the directors whose terms expire at the
meeting will be elected to serve for a term of three years expiring at the third
annual meeting of stockholders following the annual meeting of stockholders at
which the successor director was elected.
Richard L. Snyder and Ralph A. Matergia (collectively, the "Nominees") have
been nominated by the Board of Directors for terms of three years each. The
Nominees currently serve as directors of the Company. Russell L. Ridd, whose
term as director will also expire at the Annual Meeting is retiring from the
Board of Director and will not stand for re-election. The size of the Board will
be reduced to eight at that time.
The persons named as proxies in the enclosed proxy card intend to vote for
the election of the nominees listed below, unless the proxy card is marked to
indicate that such authorization is expressly withheld. Should any of the
nominees withdraw or be unable to serve (which the Board of Directors does not
expect) or should any other vacancy occur in the Board of Directors, it is the
intention of the persons named in the enclosed proxy card to vote for the
election of such person as may be recommended to the Board of Directors by the
Nominating Committee of the Board. If there is no substitute nominee, the size
of the Board of Directors may be reduced.
The following table sets forth the names, ages, positions with the Company,
terms of, and length of board service, number and percentage ownership of the
Common Stock for:
o each of the persons nominated for election as directors of the Company
at the Annual Meeting;
o each other director of the Company who will continue to serve as
director after the Annual Meeting; and
o each executive officer.
Beneficial ownership of the executive officers and directors of the Company
as a group, is also set forth below.
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COMMON STOCK
YEAR FIRST CURRENT BENEFICIALLY
ELECTED OR TERM OWNED AS OF PERCENT
NAME AND POSITION AGE(1) APPOINTED(2) EXPIRES RECORD DATE(3) OF CLASS
----------------- ------ ------------ ------- -------------- --------
BOARD NOMINEES FOR TERMS TO EXPIRE IN 2010
Richard L. Snyder 66 2000 2007 6,450 *
Director
Ralph A. Matergia 57 2004 2007 2,053 (4) *
Director
DIRECTORS CONTINUING IN OFFICE
Daniel J. O'Neill 69 1985 2008 10,630 *
Director
Dr. Kenneth A. Phillips 56 1988 2008 5,694 *
Director
Gary P. Rickard 65 1978 2008 30,711 1.1%
Director
William W. Davis, Jr. 62 1996 2009 76,937 2.6%
Director, President and Chief
Executive Officer
John E. Marshall 69 1983 2009 26,820 (4) *
Director and Secretary
to the Board
Susan Gumble-Cottell 49 2006 2009 101 *
Director
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Lewis J. Critelli 47 na na 49,301 1.7%
Executive Vice President
and Chief Financial Officer
Edward C. Kasper 59 na na 37,831 1.3%
Senior Vice President
Joseph A. Kneller 60 na na 11,525 *
Senior Vice President
John H. Sanders 49 na na 21,134 *
Senior Vice President
All directors, nominees and
executive officers as a group
(13 persons) 374,750 (5) 12.8%
* Less than 1% of the Common Stock outstanding.
(1) As of December 31, 2006.
(2) Refers to the year the individual first became a director of the Company or the Bank.
(footnotes continued on following page)
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(3) Unless otherwise noted, the directors, executive officers and group
named in the table have sole or shared voting power or investment power
with respect to the shares listed in the table. The share amounts
include shares of Common Stock that the following persons may acquire
through the exercise of stock options within 60 days of the Record
Date: William W. Davis, Jr. - 34,958, John E. Marshall - 525, Gary P.
Rickard - 525, Richard L. Snyder - 3,300, Daniel J. O'Neill - 4,088,
Dr. Kenneth A. Phillips - 3,300, Ralph A. Matergia - 525, Lewis J.
Critelli - 33,075, Edward C. Kasper - 25,465, Joseph A. Kneller - 4,725
and John H. Sanders - 14,176.
(4) Excludes 162,690 shares of Common Stock held under the Wayne Bank
Employee Stock Ownership Plan ("ESOP") for which such individuals serve
as the ESOP trustees. Such shares are voted by the ESOP trustees in a
manner proportionate to the voting directions of the allocated shares
received by the ESOP participants, subject to the fiduciary duty of the
trustees. Beneficial ownership is disclaimed with respect to such ESOP
shares held in a fiduciary capacity.
(5) Includes 95,563 shares of Common Stock (including 525 shares he had the
right to acquire through the exercise of options) beneficially owned by
Director Russell L. Ridd who will not serve past the Annual Meeting and
125,187 shares which all continuing directors, nominees and executive
officers as a group may acquire through the exercise of options within
60 days of the Record Date.
BIOGRAPHICAL INFORMATION
The principal occupation during the past five years of each director,
nominee for director, and executive officer of the Company is set forth below.
Unless otherwise stated, all directors, nominees, and executive officers have
held their present positions for five years.
NOMINEES FOR DIRECTOR:
RICHARD L. SNYDER is a retired executive and certified public accountant.
He served in a number of executive positions with Pricewaterhouse Coopers LLP,
Bell Equipment/Alcom Combustion Company, and most recently with Phillip Morris
Companies, Inc.
RALPH A. MATERGIA is a founding partner of the law firm of Matergia and
Dunn in Stroudsburg, Pennsylvania with which he has practiced for over 25 years.
He has served as the Solicitor for the Borough of Stroudsburg since 1979 and as
Solicitor for the Monroe County Treasurer for over 25 years.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE "FOR" THE ELECTION OF THE ABOVE NOMINEES
CONTINUING DIRECTORS:
DANIEL J. O'NEILL is an Adjunct Professor at Wilkes University, the retired
Superintendent of the Wayne Highlands School District, Honesdale, Pennsylvania,
and Commander 28th Infantry Division (Retired).
DR. KENNETH A. PHILLIPS is an optometrist in Waymart, Pennsylvania.
GARY P. RICKARD is a partner of Clearfield Farms, Honesdale, Pennsylvania,
a dairy farm.
WILLIAM W. DAVIS, JR. is President and Chief Executive Officer of the
Company and the Bank.
JOHN E. MARSHALL is president of Marshall Machinery Inc., Honesdale,
Pennsylvania, a farm equipment and sales company.
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SUSAN GUMBLE-COTTELL is the President and Chief Executive Officer of Gumble
Brothers, Inc., a building materials supplier located in Paupack, Pennsylvania.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS:
LEWIS J. CRITELLI is Executive Vice President and Chief Financial Officer
of the Company and the Bank. Prior to December 1998, Mr. Critelli has served in
a variety of capacities with the Company and the Bank.
EDWARD C. KASPER is Senior Vice President of the Company and Senior Vice
President and head of Corporate Banking for the Bank.
JOSEPH A. KNELLER is Senior Vice President of the Company and Senior Vice
President - Information Systems of the Bank. Prior to December 1998, Mr. Kneller
served as Vice President of the Bank.
JOHN H. SANDERS is Senior Vice President of the Company and Senior Vice
President and head of Retail Banking for the Bank.
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CORPORATE GOVERNANCE
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DIRECTOR INDEPENDENCE
The Board of Directors has determined that Directors Snyder, Phillips,
Matergia, Ridd, Marshall, Rickard, O'Neill and Gumble-Cottell are independent
under the independence standards of The Nasdaq Global Market on which the Common
Stock is currently listed. In determining the independence of directors, the
Board of Directors considered the deposit and loan relationships which various
directors have with Wayne Bank and certain business relationships between Wayne
Bank and organizations in which certain directors have an interest. In
determining whether Mr. Matergia is independent, the Board of Directors
considered work occasionally done by his law firm for the Bank but determined
that due to the small volume of work done, his independence was not affected.
There are no members of the Audit Committee who do not meet the independence
standards of the The Nasdaq Global Market for Audit Committee members and no
members of the Audit Committee are serving under any exceptions to these
standards.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors conducts its business through meetings of the Board
and through activities of its committees. All committees act for both the
Company and the Bank. During the fiscal year ended December 31, 2006, the Board
of Directors of Norwood Financial Corp. held five regular meetings and the Board
of Directors of the Wayne Bank held twelve regular meetings. No director
attended fewer than 75% of the total meetings of the Boards of Directors of the
Company and committees on which such director served during the fiscal year
ended December 31, 2006.
AUDIT COMMITTEE. The Audit Committee is comprised of Directors Snyder,
Phillips, Matergia, Marshall and Gumble-Cottell. The Board of Directors has
determined that each of the members of the Audit Committee is independent in
accordance with the listing requirements for The Nasdaq Global Market. The Board
of Directors has adopted a written audit charter which is included as Appendix A
to this proxy statement. A current copy of the Audit Committee charter is not
available on our website. The Audit Committee is a standing committee and, among
other matters, is responsible for developing and maintaining the Company's audit
program. The Audit Committee also meets with the Company's independent auditors
to discuss the results of the annual audit and any related matters.
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In addition to regularly scheduled meetings, the Audit Committee is
available either as a group or individually to discuss any matters that might
affect the financial statements, internal controls or other financial aspects of
the operations of the Company. The Audit Committee met four times during the
fiscal year ended December 31, 2006.
COMPENSATION COMMITTEE. The Compensation Committee consists of Directors
Ridd, Marshall and Matergia. This standing committee met once during the fiscal
year ended December 31, 2006 to review the compensation of the chief executive
officer and other executive officers. The members of the Compensation Committee
are independent in accordance with the listing requirements of The Nasdaq Global
Market. For a discussion of the committee's processes and procedures for
determining director and executive officer compensation, see the "Compensation
Discussion and Analysis" below. The Compensation Committee has not adopted a
written charter.
AUDIT COMMITTEE FINANCIAL EXPERT
The Board of Directors has determined that Richard L. Snyder, a member of
the Company's Audit Committee, is an "Audit Committee Financial Expert" as that
term is defined in the Securities Exchange Act of 1934. The Board of Directors
has also determined that Mr. Snyder is independent as that term is used in the
Securities Exchange Act of 1934.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consisted of Directors Ridd, Marshall and
Matergia at December 31, 2006. Director Ridd is Chairman of the Board of the
Company and the Bank, serves as Chairman of the Compensation Committee, and was
President and Chief Executive Officer of the Bank until May 1993. Members of the
Compensation Committee are non-employee directors of the Company and the Bank.
No member of the Committee or any other director is, or was during 2006, an
executive officer of another company whose board of directors has a comparable
committee on which one of the Company's executive officers serves. None of the
executive officers of the Company is, or was during 2006, a member of the board
of directors or a comparable compensation committee of a company of which any of
the directors of the Company is an executive officer.
DIRECTOR NOMINATION PROCESS
The Nominating Committee consists of Directors Ridd, Marshall and Matergia,
each of whom is independent within the meaning of the rules of The Nasdaq Global
Market. The Nominating Committee met once during the year ended December 31,
2006. The Board of Directors has adopted a charter for the nominating committee
which is included as an appendix to this proxy statement. The Nominating
Committee Charter is not available on our website.
The Company does not currently pay fees to any third party to identify or
evaluate or assist in identifying or evaluating potential nominees. The
Committee's process for identifying and evaluating potential nominees includes
soliciting recommendations from directors and officers of the Company and its
wholly-owned subsidiary, Wayne Bank. Additionally, the Committee will consider
persons recommended by stockholders of the Company in selecting the Committee's
nominees for election. There is no difference in the manner in which the
Committee evaluates persons recommended by directors or officers and persons
recommended by stockholders in selecting Board nominees.
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To be considered in the Committee's selection of Board nominees,
recommendations from stockholders must be received by the Company in writing by
at least 120 days prior to the date the proxy statement for the previous year's
annual meeting was first distributed to stockholders. Recommendations should
identify the submitting stockholder, the person recommended for consideration
and the reasons the submitting stockholder believes such person should be
considered. The Committee believes potential directors should be stockholders,
should have the highest personal and professional integrity and should be
knowledgeable about the business activities and market areas in which the
Company and its subsidiaries engage.
STOCKHOLDER COMMUNICATIONS
The Board of Directors does not have a formal process for stockholders to
send communications to the Board. In view of the infrequency of stockholder
communications to the Board of Directors, the Board does not believe that a
formal process is necessary. Written communications received by the Company from
stockholders are shared with the full Board no later than the next regularly
scheduled Board meeting. In addition, Directors are accessible to stockholders
on an informal basis throughout the year and formally at the Annual Meeting. The
Board encourages, but does not require, directors to attend the Annual Meeting
of stockholders. Seven directors attended the 2006 Annual Meeting of
Stockholders.
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COMPENSATION DISCUSSION AND ANALYSIS
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PHILOSOPHY AND OBJECTIVES
The Company's compensation programs are designed to effectively attract,
retain, motivate and reward Named Executive Officers (NEOs) and all employees
for their performance. The Company believes in maintaining a competitive
compensation package to insure continuity of the management team with the goal
of increasing shareholder value over the long-term.
The objectives of the compensation package include the following:
o Create an overall compensation package that is competitive with those
offered by other financial institutions in our market area while
providing appropriate incentives for the achievement of short and long
term performance goals.
o Encourage achievement of short-term performance goals through cash
incentive programs
o Use stock incentive plans to reward long-term performance and align
interests of management with stockholders
o Encourage long-term management continuity and loyalty through the
accrual of post-employment benefits
Financial services is a competitive industry and the Company operates in a
market area which is headquarters to many other community banks as well as much
larger institutions. The NEOs officer compensation package is therefore
structured to keep the current team in place. The Company feels this is
important due to the following attributes of the NEOs:
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o In depth knowledge of the local markets
o Familiarity with Norwood's operations
o Strong customer relationships
o Management succession planning
o Proven success
o Ten consecutive years of earnings growth and dividend increases
The Company has a balanced package of short-term cash based compensation
and longer-term stock based plans and retirement plans. The Company's Executive
Compensation package includes the following key elements:
o Base Salary
o Cash Incentive Bonus Plan
o Long Term Equity-Based Incentive Compensation
o Employment and Change-In-Control Agreements
o Post-Employment and Retirement Programs
o Insurance and Other Benefits
o Perquisites and other Personal Benefits
ADMINISTRATION OF COMPENSATION PROGRAM
The Compensation Committee of the Company is responsible for the
administration of the compensation program of the President and Chief Executive
Officer, Executive Vice President and Chief Financial Officer and the other
Named Executive Officers.
The Compensation Committee meets in November of each year to determine
annual salary adjustments, cash bonus and stock option awards for NEOs. The
Company does not have a formal policy addressing each specific type of
compensation.
The Committee does consider a variety of factors as it evaluates
compensation for each NEO, including:
o Overall company performance as compared to budget and prior year's
performance;
o Bank regulatory examination results;
o Bank performance metrics compared to peers, including return on
assets, return on equity, charge-offs, level of non-performing loans
and efficiency ratio; and
o The individual achievements of each NEO in their respective areas of
responsibility.
In establishing base salaries and increases, the committee has access to
various compensation surveys to ensure a competitive salary level. These
include:
o The Conference Board Salary increase survey
o The Nash and Company PA Bank and Thrift Compensation Report
o SNL Executive Compensation Review
The Company does not specifically benchmark compensation to any specific
group of companies.
9
Annual salary increases are generally made in amounts deemed necessary to
maintain the competitiveness of the salary structure. Absent a material increase
in duties or a significant change in the economic or competitive landscape,
salaries are not increased materially from year to year.
At each meeting, Mr. Davis discusses with the Committee the performance
evaluations of each of the NEOs excluding himself, and presents his
recommendations. Mr. Davis is not present for any discussion involving his
compensation.
Depending on the Company's performance for the year, the Compensation
Committee establishes a cash incentive bonus pool based on a percentage of
pre-tax earnings. Specific bonus amounts are awarded to each NEO based on
performance. The Company realizes that all employees contribute to its success,
and therefore, cash bonuses are also distributed to employees at all levels
based on merit. The Company has never been required to materially adjust or
restate the pre-tax earnings on which the bonus pool has been calculated and
does not have a policy regarding the adjustment or recovery of bonuses in such
an event.
The Committee also grants stock option awards under the Norwood Financial
Corp. 2006 Stock Option Plan. The Stock Option Plan was designed to provide
long-term incentives to NEOs, directors and other key employees that contribute
to the success of the Company. The ten-year life of the options is structured to
retain the NEOs and promote the long-term success of the Company.
The Board of Directors believes that equity-based compensation is important
in aligning the interests of management with those of shareholders and has
established the Wayne Bank Employee Stock Ownership Plan and 2006 Stock Option
Plan to help it achieve this objective. Although each of the NEOs has a
substantial personal investment in the Common Stock, the Board of Directors does
not have formal equity ownership requirements or guidelines for executive
officers.
COMPONENTS OF COMPENSATION PROGRAM
The components of compensation for 2006 are as follows:
Salary
------
As a result of the Company's ongoing success and the continuity of the
management team, current base salary levels are above the median. The
Compensation Committee approved a 3.5% increase in salaries at the November
meeting. This level was based on information from the Conference Board which
indicated commercial banks would increase officer salaries by 3.5%. NEOs salary
increases ranged from 2.5% to 3.5%. Messrs. Davis and Critelli currently have
base salary amounts under their employment agreements of $226,000 and $146,500,
respectively, with minimum annual increases of $6,000 and $3,000 respectively.
Bonus
-----
For 2006, the Board approved a bonus pool equal to 4% of pre-tax earnings
to be distributed to all NEOs, other officers and employees. Historically, this
bonus pool percentage has varied from 3.8% to 4.5% of pre-tax earnings. In
establishing this bonus pool, the Committee considered the 9.6% increase in
pre-tax earnings and improvement in ROA, ROE, the efficiency ratio and loan
quality as compared to the prior year.
Stock Based Awards
------------------
The Compensation Committee approved stock option awards under the Norwood
Financial Corp 2006 Stock Option Plan. The purpose of the plan is to provide
incentives and rewards to officers, employees
10
and directors that contribute to the success and growth of the Company. In 2006,
a total of 47,700 options were granted to 19 key employees including the NEOs.
Of the total options granted in 2006, 25,200, which represents 0.90% of total
shares outstanding, related to the Company's 2005 performance and 22,500
options, which represents 0.81% of total shares outstanding related to the
Company's 2006 performance. The NEOs were awarded 45.3% of the total options
granted. The percentage awarded to NEOs has declined over time as more key
employees have been included in the plan.
Timing of Grants
----------------
Stock awards are typically granted annually as part of the individual
performance review process. This takes place at the Compensation Committee
Meeting in November. The full board ratifies the actions of the Committee in
December and establishes the grant date. The exercise price is based upon the
last sale price of the Company's stock at the closing on the effective date of
grant or if there is no trading on such date then the last trading day prior to
such date of grant As described above, grants for 22,500 shares were awarded
effective December 29, 2006. In addition, 25,200 awards were recommended by the
Compensation Committee in November 2005 and were granted effective April 25,
2006 which coincided with the Shareholder Meeting and the approval of 2006
Norwood Financial Corp. Stock Option Plan.
Retirement and Severance Arrangements
-------------------------------------
The Company has salary continuation plan agreements (SCP) with each NEO.
The agreements provide that upon termination of employment on or after reaching
age 62, or following a change-in-control, if earlier, the NEOs will be eligible
to receive annual retirement benefits as detailed in the Pension Benefits Table
below. The SCP was initially established in 1999. Benefit amounts were
calculated based on the amount of supplemental retirement income needed to allow
the NEO to retire on approximately 40-75% of projected final salary when such
supplemental benefit is added to the Company's qualified retirement plans and
social security. The range of 40% to 75% of final salary is based on total years
of service with the Company from inception date of the plan. The target
supplemental salary levels payable at normal retirement age as follows: up to 15
years of service - 40%, 15-25 years - 65% and 25 or more - 75%.
The NEOs participate in the Bank's defined contribution profit-sharing and
401(k) Plan which is open to all employees over the age of 21 after one year of
employment. The 401(k) Plan permits employees to make pre-tax contributions of
between 2% and 10% of their compensation to their accounts in the 401(k) Plan
and the Bank will match the first 2% of the contribution. In addition, in
November 2006, the Compensation Committee approved an additional corporate
contribution equal to 4% of each eligible employee's compensation. The Committee
considers the financial performance of the company when it sets the Company's
annual contribution under the plan. For each NEO, the Company contributed 6% of
the NEO's base salary to the Plan.
Each of the NEOs participate in the Employee Stock Ownership Plan (ESOP)
which is open to all employees who have met the eligibility requirements. The
Company makes discretionary annual contributions to the ESOP in an amount
necessary to service the loan outstanding to the ESOP. As the loan has been paid
down, shares have been released from pledge and allocated to the accounts of
participants based upon their base salary in relation to the total salary of all
participants under the Plan subject to certain "top hat" rules which limit the
amount that can be allocated to highly compensated employees. (See Note 8 of
Notes to the Consolidated Financial Statements in the 2006 Annual Report to
Stockholders.)
As part of the long-term compensation package, the Company and the Bank
have entered into three-year employment agreements with Messrs. Davis and
Critelli. The agreements have a two step change-in-control trigger under which,
in case of a voluntary termination within 30 days of a change-in-control or an
11
involuntary termination or voluntary termination for good reason during the six
months before or within one year after a change-in-control, the NEO would be
paid a lump sum amount equal to three times the five-year average of his annual
compensation less $1.00. We believe that the change-in-control provision is
desirable in order to ensure that Messrs. Davis and Critelli remain focused on
the interests of the Company and its shareholders in the event of a pending
change-in-control. In the event of a change in control, the Company will
indemnify the NEOs for any 20% tax penalties that may be incurred by them for
amounts payable that exceed the limitations under Sections 280G and 4999 of the
Code. If the Company terminated Messrs. Davis or Critelli, without just cause,
they would be entitled to a payment of salary for amounts due under the
agreement with a minimum severance payment of one year's salary.
The Bank has entered into change-in-control severance agreements with
Messrs. Kasper, Sanders and Kneller which provide for severance payments upon
their termination of employment in connection with a change-in-control in the
same circumstances as in the Employment Agreements of Messrs. Davis and
Critelli. The NEOs have severance protection upon termination of employment
following a change-in-control of two times their current annual compensation.
See "Potential Payments upon Termination or Change-in-Control."
The Compensation Committee balances short-term and long-term compensation
for the NEOs. Long term compensation includes stock option grants, salary
continuation plan and other benefits available to all employees which include
contributions to 401(k) Plan, ESOP and life insurance. For 2006, the target
range for short-term compensation as a percentage of total compensation was 66%
to 73% with long-term compensation at 27% to 34% of total compensation. We
believe this formula is competitive within our market place and peer group.
--------------------------------------------------------------------------------
COMPENSATION COMMITTEE REPORT
--------------------------------------------------------------------------------
The Compensation Committee has reviewed and discussed the foregoing
Compensation Discussion and Analysis with Management. Based on foregoing review
and discussions, the Compensation Committee recommended to the Board of
Directors that the foregoing Compensation Discussion and Analysis be included in
this proxy statement.
COMPENSATION COMMITTEE
Russell L. Ridd
John E. Marshall
Ralph A. Matergia
12
--------------------------------------------------------------------------------
EXECUTIVE COMPENSATION
--------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE. The following table sets forth the cash and
non-cash compensation awarded to or earned during the last fiscal year by our
principal executive officer, principal financial officer and each other
executive officer whose total compensation (excluding compensation attributable
to changes in pension value and non-qualified deferred compensation earnings)
during the fiscal year ended December 31, 2006 exceeded $100,000 for services
rendered in all capacities to Norwood Financial Corp. and Wayne Bank. We do not
have any plans providing for stock awards or non-equity incentive compensation
to the Named Executive Officers.
CHANGE IN PENSION
VALUE AND
NONQUALIFIED
DEFERRED
OPTION COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS (1) EARNINGS (2) COMPENSATION (3) TOTAL
--------------------------- ---- ------ ----- ---------- ------------ ---------------- -----
William W. Davis, Jr. 2006 $226,000 $70,000 $22,722 $ 58,045 $ 56,797 $433,564
President and Chief
Executive Officer
Lewis J. Critelli 2006 146,500 43,000 17,041 16,250 42,094 264,885
Executive Vice President and
Chief Financial Officer
Edward C. Kasper 2006 114,000 30,000 11,361 29,040 33,640 218,041
Senior Vice President
John H. Sanders 2006 100,000 15,000 8,521 7,722 26,705 157,948
Senior Vice President
Joseph A. Kneller 2006 98,500 12,000 8,521 16,241 27,298 162,360
Senior Vice President
-------------------
(1) Based on a value of $8.12 per option with eight months of expense
recognized in 2006 or $5.41 per option. For assumptions used in determining
the value of the options, see Note 12 of Notes to the Consolidated
Financial Statements in the 2006 Annual Report to Stockholders.
(2) Consists of increase in actuarial present value of benefits under Salary
Continuation Plan.
(3) All other compensation consists of the following:
LIFE INS. ESOP ALLOCATIONS
NAMED 401K MATCHING PREMIUMS -------------------------------------
EXECUTIVE OFFICER CONTRIBUTIONS PAID NO. OF SHARES VALUE AT $31.50/SHARE TOTAL
----------------- ------------- --------- ------------- --------------------- -----
William W. Davis $12,479 $4,974 1,249 $39,344 $56,797
Lewis J. Critelli 8,789 702 1,035 32,603 42,094
Edawrd C. Kasper 6,839 1,506 803 25,295 33,640
John H. Sanders 6,000 450 643 20,255 26,705
Joseph A. Kneller 5,910 1,941 611 19,247 27,298
13
GRANTS OF PLAN-BASED AWARDS. The following tables set forth certain
information with respect to plan-based awards granted to the Named Executive
Officers. All grants were made under the Norwood Financial Corp. 2006 Stock
Option Plan.
ALL OTHER
OPTION AWARDS:
NUMBER OF EXERCISE OF GRANT DATE
SECURITIES BASE PRICE OF FAIR VALUE
GRANT BOARD UNDERLYING OPTION AWARDS OF STOCK
NAME DATE ACTION DATE * OPTIONS (#) ($/SH) OPTION AWARDS
---- ---- ------------- ----------- ------ -------------
William W. Davis, Jr. 04/25/2006 12/13/2005 4,200 $30.38 $34,104
12/29/2006 12/12/2006 3,000 31.50 24,270
Lewis J. Critelli 04/25/2006 12/13/2005 3,150 30.38 25,578
12/29/2006 12/12/2006 2,500 31.50 20,225
Edward C. Kasper 04/25/2006 12/13/2005 2,100 30.38 17,052
12/29/2006 12/12/2006 1,500 31.50 12,135
John H. Sanders 04/25/2006 12/13/2005 1,575 30.38 12,789
12/29/2006 12/12/2006 1,000 31.50 8,090
Joseph A. Kneller 04/25/2006 12/13/2005 1,575 30.38 12,789
12/29/2006 12/12/2006 1,000 31.50 8,090
----------
* The April option awards under 2006 Stock Option Plan were approved by Board
of Directors on December 13, 2005 subject to stockholder approval which was
obtained on April 25, 2006. The December option awards were approved by the
Board of Directors on December 12, 2006 to be effective on the last
business day of the year. The exercise price was equal to the fair market
value of the Common Stock on the Grant Date in each case.
William W. Davis and Lewis J. Critelli have each entered into three-year
employment agreements with Wayne Bank. The employment agreements provide for
annual one-year renewals on each anniversary date of the agreements unless
either party provides prior written notice to the contrary. The agreements each
provide that the Board of Directors will review their salaries not less often
than annually and shall increase their base salary by no less than $6,000 per
year in the case of Mr. Davis and no less than $3,000 per year in the case of
Mr. Critelli. The employment agreements provide that Messrs. Davis and Critelli
will participate equitably in discretionary bonuses that the Board of Directors
may award to senior management from time to time. Messrs. Davis and Critelli are
also entitled to participate in specified benefit plans and in any fringe
benefits made available to senior management. Messrs. Kasper, Sanders and
Kneller have each entered into three-year Change-in-Control Severance Agreements
which provide payments in the event of their termination in certain
circumstances but which do not create employment obligations. For additional
information, see "Potential Payments Upon Termination or Change-in-Control."
For fiscal year 2006, the Board of Directors increased the base salaries of
the Named Executive Officers by approximately 2.5% to 3.5% each based on
projected average salary increases in the banking industry and individual
performance. The Board of Directors established a bonus pool for all employees
equal to 4% of pre-tax earnings. Cash bonuses were awarded to the Named
Executive Officers based on a percentage of the total pool relating to the
Compensation Committee's judgment as to their relative contribution to the
success of the Company.
14
Consistent with its objective of using equity-based compensation as
incentives for long-term performance and to align the interests of management
with those of stockholders, the Board of Directors awarded options to the Named
Executive Officers in December 2005 and December 2006. Because the December 2005
awards could not become effective until stockholders approved the 2006 Stock
Option Plan at the 2006 Annual Meeting in April, the 2005 grants were not
effective until that date. The 2006 grants were made effective as of the last
trading day on the year. In each case, the options do not vest and become
exercisable until one year from the date of grant. Award amounts were based on
the Compensation Committee's assessment of the relative contribution to the
Company's success. Approximately 45% of options awarded in 2006 were awarded to
the Named Executive Officers with the remaining options granted to other
officers of the Bank. Using the Black-Scholes Option Pricing Model and the
assumptions described on Note 12 of Notes to the Consolidated Financial
Statements, we determined that the fair value of each option granted in April
2006 was $8.12 and the fair value of each option granted in December 2006 was
$8.09.
In accordance with SEC regulations, the Summary Compensation Table treats
the increase in the present value of the Named Executive Officer's retirement
benefit under the Salary Continuation Plan as an item of compensation. The
Salary Continuation Plan provides that the Named Executive Officers will receive
a fixed annual payment beginning at retirement at age 62 for a period of 15
years. The increase in present value is a function of the annual accrual to
fully vest the Named Executive Officer at retirement age.
The Summary Compensation Table includes various miscellaneous income items
under "All Other Compensation." Under the Company's 401(k) Plan, eligible
employees may annually contribute between 2% and 10% of their compensation to
their accounts in the 401(k) Plan. The Company generally matches employee
contributions up to 2% of salary. In 2006, the Company made an additional
contribution of 4% of salary. Since the Named Executive Officers each
contributed at least 2% of salary, a contribution of 6% was made to each of
their accounts. The Company pays premiums on life insurance coverage for all
eligible employees including the Named Executive Officers with insurance
coverage of three times base salary. Each Named Executive Officer also
participates in the Wayne Bank Employee Stock Ownership Plan. Each plan year,
the Bank makes a contribution to the ESOP which is used to purchase Common Stock
that is allocated to the accounts of participants in approximate proportion to
their wages subject to certain IRS rules which limit the maximum amount that can
be allocated to a participant's account.
15
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END. The following table sets
forth information concerning outstanding equity awards of the Named Executive
Officers at fiscal year end.
OPTION AWARDS
---------------------------------------------------------------
NUMBER OF
SECURITIES NUMBER OF
UNDERLYING SECURITIES
UNEXERCISED UNDERLYING OPTION OPTION
OPTIONS UNEXERCISED OPTIONS EXERCISE EXPIRATION
NAME EXERCISABLE UNEXERCISABLE PRICE DATE
---- ----------- ------------- ----- ----
William W. Davis, Jr. 3,000 (1) $31.50 12/29/2016
4,200 (2) 31.38 4/25/2016
4,200 30.00 12/14/2014
4,200 23.95 12/09/2013
3,938 19.05 12/10/2012
4,725 16.98 12/11/2011
4,725 14.12 12/14/2009
6,300 15.24 12/08/2008
2,670 10.88 12/09/2007
Lewis J. Critelli 2,500 (1) $31.50 12/29/2016
3,150 (2) 31.38 4/25/2016
3,150 30.00 12/14/2014
3,150 23.95 12/09/2013
3,150 19.05 12/10/2012
3,150 16.98 12/11/2011
2,150 10.36 12/12/2010
3,150 14.12 12/14/2009
4,725 15.24 12/08/2008
6,300 10.88 12/09/2007
Edward C. Kasper 1,500 (1) $31.50 12/29/2016
2,100 (2) 31.38 4/25/2016
2,625 30.00 12/14/2014
2,625 23.95 12/09/2013
2,363 19.05 12/10/2012
2,363 16.98 12/11/2011
2,363 10.36 12/12/2010
2,363 14.12 12/14/2009
3,938 15.24 12/08/2008
4,725 10.88 12/09/2007
John H. Sanders 1,000 (1) $31.50 12/29/2016
1,575 (2) 31.38 4/25/2016
1,575 30.00 12/14/2014
1,575 23.95 12/09/2013
1,575 19.05 12/10/2012
1,575 16.98 12/11/2011
2,363 14.12 12/14/2009
3,938 15.24 12/08/2008
Joseph A. Kneller 1,000 (1) $31.50 12/29/2016
1,575 (2) 31.38 4/25/2016
1,575 30.00 12/14/2015
1,575 23.95 12/09/2013
------
(1) Award vests on December 29, 2007.
(2) Award vests on April 25, 2007.
16
OPTION EXERCISES AND STOCK VESTED. The following table provides information
regarding exercises of options and vesting of stock awards during the last
fiscal year for each Named Executive Officer. The Company does not have a stock
awards plan.
OPTION AWARDS
--------------------------------------
NUMBER OF
SHARES ACQUIRED ON VALUE REALIZED
NAME EXERCISE ON EXERCISE (1)
---- -------- ---------------
William W. Davis, Jr. -- --
Lewis J. Critelli 2,363 $47,543
Edward C. Kasper -- --
John H. Sanders -- --
Joseph A. Kneller -- --
---------
(1) Equals the difference between the exercise price and fair market value of
the underlying common stock on the date of exercise times the number of
options exercised.
PENSION BENEFITS. The following table provides information with respect to
each defined benefit pension plan in which a Named Executive Officer may receive
payments or other benefits at, following, or in connection with retirement.
PRESENT
NUMBER OF VALUE OF PAYMENTS
YEARS CREDITED ACCUMULATED DURING LAST
NAME PLAN NAME SERVICE (1) BENEFIT (2) FISCAL YEAR
---- --------- ----------- ----------- -----------
William W. Davis, Jr. Salary Continuation Plan 7 years $337,164 $0
Lewis J. Critelli Salary Continuation Plan 7 years 94,387 0
Edward C. Kasper Salary Continuation Plan 7 years 168,678 0
John H. Sanders Salary Continuation Plan 7 years 94,338 0
Joseph A. Kneller Salary Continuation Plan 7 years 44,856 0
-------
(1) The credited years of service are based on the plan date of 1999.
(2) Amount shown is present value of total payments over payout term using a
7.50% discount rate.
The Bank has entered into salary continuation agreements with the Named
Executive Officers. The purpose of the salary continuation plan is to provide
the Named Executive Officers with an additional retirement benefit in excess of
the maximum benefit payable under the tax-qualified 401(k) plan. The agreements
provide that upon termination of employment on or after reaching the age of 62,
Messrs. Davis, Critelli, Kasper, Sanders and Kneller will be entitled to an
annual retirement benefit equal to $46,000, $61,000, $29,000, $14,000 and
$24,000, respectively, payable over 15 years. The retirement benefit is fixed
and not dependent on pre-retirement compensation. In the event of death during
active service, the Named Executive Officer's beneficiary will be entitled to
the normal retirement benefit commencing on the date of death. In the event of
disability or early termination for a reason other than death, disability, cause
or following a change-in-control, the Named Executive Officers are entitled to a
reduced benefit payable beginning with 90 days of disability in the case of
disability or at normal retirement age in the case of early termination. The
amounts payable under early termination and disability are based upon the plan
years in which the event occurred. If the Named Executive Officers work past age
62, they are eligible for an increased benefit of 4% per year, pro rated at
0.3274% per month compounded up to age 65. The Named Executive Officers are not
entitled to benefits in the event they are terminated for cause. On a change of
control of the Company, the Company will pay the normal retirement benefit to
the Named Executive
17
Officers in 12 equal monthly installments payable on the first day of each month
commencing with the month following attaining age 62 and continuing for 179
additional months. The Named Executive Officers will not be entitled to any
benefit if they violate certain non-compete provisions including becoming
employed by or participating in the management of another bank or thrift
following a termination of employment. These non-compete provisions, however, do
not apply following a change-in-control.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL. The Named
Executive Officers are parties to various agreements that provide for payments
in connection with any termination of their employment. The following table
shows the payments that would be made to the Named Executive Officers at,
following or in connection with any termination of their employment in the
specified circumstances as of the last business day of the last fiscal year.
INVOLUNTARY CHANGE-IN-
VOLUNTARY EARLY NORMAL NOT FOR CAUSE FOR CAUSE CONTROL
NAME AND PLAN TERMINATION TERMINATION RETIREMENT TERMINATION TERMINATION TERMINATION DISABILITY DEATH
------------- ----------- ----------- ---------- ----------- ----------- ----------- ---------- -----
William W. Davis, Jr.
Employment
Agreement(1) $ 0 $ 0 $ 0 $489,666 $ 0 $ 631,200 $ 0 $ 0
Salary Continuation
Plan(2) 413,515 413,515 413,515 413,515 0 413,515 413,515 413,515
Stock Option Plan(3) 0 0 0 0 0 35,652 35,652 35,652
Lewis J. Critelli
Employment
Agreement(1) 0 0 0 317,417 0 412,500 0 0
Salary Continuation
Plan(2) 275,787 275,787 548,357 275,787 0 548,357 89,851 548,357
Stock Option Plan(3) 0 0 0 0 0 28,761 28,761 28,761
Edward Kasper
Change-in-Control
Severance Agreement(1) 0 0 0 0 0 228,000 0 0
Salary Continuation
Plan(2) 200,983 200,983 260,694 200,983 0 260,694 160,571 260,694
Stock Option Plan(3) 0 0 0 0 0 17,826 17,826 17,826
John Sanders
Change-in-Control
Severance Agreement(1) 0 0 0 0 0 200,000 0 0
Salary Continuation
Plan(2) 112,851 112,851 215,747 112,851 0 215,747 42,698 215,747
Stock Option Plan(3) 0 0 0 0 0 16,403 16,403 16,403
Joseph Kneller
Change-in-Control
Severance Agreement(1) 0 0 0 0 0 197,000 0 0
Salary Continuation
Plan(2) 104,360 104,360 125,852 104,380 0 125,852 89,743 125,852
Stock Option Plan(3) 0 0 0 0 0 16,403 16,403 16,403
---------
(1) Amount shown is lump sum payment to which named executive officer would be
entitled in the event of a change-in-control or the remainder payments
under the contract in the event of an involuntary not for cause
termination.
(2) Amount shown is present value of payments over payout term using a 7.50%
discount rate.
(3) Amount shown is equal to fair value of unvested portion of options at
December 31, 2006 calculated using the Black-Scholes Option Pricing Model
and the assumptions contained in Note 12 of Notes to Consolidated Financial
Statements.
EMPLOYMENT AGREEMENTS. Under their Employment Agreements, the Company
or the Bank may terminate Mr. Davis's and Mr. Critelli's employment at any time
for "just cause" as defined in the Agreement without further liability. If the
Company or the Bank terminated Messrs. Davis and Critelli without just cause,
they would be entitled to a continuation of their salaries for the remaining
term of the Agreement with a minimum of one year from the date of termination as
well as the continuation of other benefits. In the event of an involuntary
termination or voluntary termination with good reason during the period
beginning six months prior and ending one year after a change in control,
Messrs. Davis and Critelli will be paid in a lump sum an amount equal to three
times the five-year average of his annual compensation minus $1.00. Under
18
the Agreements, Messrs. Davis and Critelli are prohibited from competing with
the Bank for one year if their employment is terminated for just cause or they
resign for a reason other than good reason.
SEVERANCE AGREEMENTS. The Bank has entered into change-in-control severance
agreements with Messrs. Kasper, Kneller and Sanders which provide for severance
payments in connection with a change-in-control in the same circumstances as the
Employment Agreements of Messrs. Davis and Critelli. The severance agreements
have terms of three years, renewable annually, and severance protection upon a
termination of employment in connection with a change in control of the Bank,
with such payment equaling two times the current annual compensation of Messrs.
Kasper, Kneller and Sanders.
SALARY CONTINUATION PLAN. For a description of the Salary Continuation
Plan, see " - Pension Benefits" above.
STOCK OPTION PLAN. The stock option plan provides that each outstanding
stock option will become immediately vested in the event of the death or
disability of the optionee or upon a change-in-control of the Company.
--------------------------------------------------------------------------------
DIRECTOR COMPENSATION
--------------------------------------------------------------------------------
Set forth below is a table providing information concerning the
compensation of the directors of Norwood Financial Corp. who are not Named
Executive Officers for the last completed fiscal year (2006).
CHANGE IN
PENSION VALUE AND
NONQUALIFIED
FEES EARNED NON-EQUITY DEFERRED
OR PAID STOCK OPTION INCENTIVE PLAN COMPENSATION ALL OTHER
NAME IN CASH AWARDS AWARDS(1) COMPENSATION EARNINGS COMPENSATION(2) TOTAL
---- ------- ------ --------- ------------ -------- --------------- -----
Russell L. Ridd $ 25,200 -- $ 2,707 -- -- $ -- $ 27,907
John E. Marshall 25,200 -- 2,707 -- -- 311 28,218
Kenneth A. Phillips 24,300 -- 2,707 -- -- 183 27,190
Ralph A. Matergia 24,300 -- 2,707 -- -- 183 27,190
Richard L. Snyder 21,600 -- 2,707 -- -- -- 24,307
Gary P. Rickard 24,300 -- 2,707 -- -- 314 27,321
Daniel J. O'Neill 24,000 -- 2,707 -- -- 303 27,010
Susan Gumble-Cottell 12,625 -- 2,707 -- -- 40 15,372
----------
(1) Based on a grant date fair value of $8.12 per option with eight months of
expense recognized in 2006 or $5.41 per option for options granted in April
2006. For assumptions used, see Note 12 of Notes to Consolidated Financial
Statements in the 2006 Annual Report to Stockholders. The aggregate
grant-date fair value of the options awarded to Directors in April was
$4,263 each and the aggregate grant-date fair value of options awarded to
Directors in December was $4,045 each. At December 31, 2006, Directors had
the following number of stock option awards outstanding:
NAME NUMBER OF OPTIONS
---- -----------------
Russell L. Ridd 1,025
John E. Marshall 1,025
Kenneth A. Phillips 3,800
Ralph A. Matergia 1,025
Richard L. Snyder 3,800
Gary P. Rickard 1,025
Daniel J. O'Neill 4,588
Susan Gumble-Cottell 500
(2) Consists of the value of life insurance premiums paid by the Company for
the benefit of the director.
19
The Company does not presently compensate its directors. Each director of
the Company is also a director of the Bank and receives fees accordingly. Mr.
William W. Davis, Jr., President and Chief Executive Officer of the Company and
the Bank, does not receive board or committee fees for his participation
thereon. Each non-employee member of the Bank's Board of Directors receives a
retainer of $1,675 per month. In addition, fees are paid for various committee
meetings as follows: Trust Committee ($300); Audit Committee ($300);
Compensation Committee ($300); and Loan Committee ($300). For the fiscal year
ended December 31, 2006, fees paid to all directors totaled approximately
$181,525, all of which were paid by the Bank. The Company pays for life
insurance coverage of $50,000 for each director.
Under the 2006 Stock Option Plan, stock options for 525 shares each were
awarded to non-employee directors effective upon stockholder approval of the
plan for 2005 and options for 500 shares were awarded on December 29, 2006. The
exercise price of these options was in each case equal to the fair market value
of the underlying Common Stock on the effective date of grant. In each case, the
options vest and become exercisable one year from the date of grant. Additional
options may be granted to non-employee directors on an annual basis on a date
established by the Compensation Committee.
--------------------------------------------------------------------------------
RELATED PARTY TRANSACTIONS
--------------------------------------------------------------------------------
Certain directors and executive officers of the Bank, their families and
their affiliates are customers of the Bank. Any transactions with such parties
including loans and commitments are made on substantially the same terms and
conditions, including interest rate and collateral, as those of comparable
transactions prevailing at the time with other persons, and do not include more
than the normal risk of collectibility or present other unfavorable features.
All loans to directors and executive officers are approved by the entire Board
of Directors in advance with the director or executive officer abstaining from
participating directly or indirectly in the voting.
--------------------------------------------------------------------------------
PROPOSAL 2 - RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
--------------------------------------------------------------------------------
Beard Miller Company LLP was the Company's independent auditors for the
2006 fiscal year. The Board of Directors has appointed Beard Miller Company LLP
to be its independent auditors for the fiscal year ending December 31, 2007,
subject to ratification by the Company's stockholders. The engagement of Beard
Miller Company LLP was approved in advance by the Audit Committee. A
representative of Beard Miller Company LLP is expected to be available at the
Annual Meeting to respond to stockholders' questions and will have the
opportunity to make a statement if the representative so desires.
AUDIT FEES. The aggregate fees billed by Beard Miller Company LLP for
professional services rendered for the audit of the Company's annual
consolidated financial statements and for the review of the consolidated
financial statements included in the Company's Quarterly Reports on Form 10-Q
for the fiscal years ended December 31, 2006 and 2005 were $80,918 and $76,980,
respectively.
AUDIT RELATED FEES. The aggregate fees billed by Beard Miller Company LLP
for assurance and related services related to the performance of the employee
benefit plan audit and services in connection with the Company's Sarbanes-Oxley
compliance for the years ended December 31, 2006 and 2005 were $10,238 and
$18,386, respectively.
TAX FEES. The aggregate fees billed by Beard Miller Company LLP for
professional services rendered for preparation of state and federal tax returns
and other tax matters for the years ended December 31, 2006 and 2005 were
$11,356 and $9,957, respectively.
20
ALL OTHER FEES. The aggregate fees billed by Beard Miller Company LLP for
professional services rendered for services or products other than those listed
under the captions "Audit Fees," "Audit-Related Fees," and "Tax Fees" for the
years ended December 31, 2006 and 2005 were $0 and $0, respectively.
The Audit Committee has not adopted any pre-approval policies and
procedures for audit and non-audit services to be performed by the independent
auditors. Such services are approved in advance by the Audit Committee itself.
No services were approved pursuant to the de minimus exception of the
Sarbanes-Oxley Act of 2002.
Ratification of the appointment of the independent accountants requires the
affirmative vote of a majority of the votes cast at the Annual Meeting. THE
BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE RATIFICATION OF
THE APPOINTMENT OF BEARD MILLER COMPANY LLP AS THE COMPANY'S INDEPENDENT
AUDITORS FOR THE 2007 FISCAL YEAR.
--------------------------------------------------------------------------------
REPORT OF THE AUDIT COMITTEE
--------------------------------------------------------------------------------
For the fiscal year ended December 31, 2006, the Audit Committee: (i)
reviewed and discussed the Company's audited financial statements with
management; (ii) discussed with the Company's independent auditor, Beard Miller
Company LLP, all matters required to be discussed under Statement on Auditing
Standards No. 61; and (iii) received Beard Miller Company LLP's disclosures
regarding Beard Miller Company LLP's independence as required by Independence
Standards Board Standard No. 1 and discussed with Beard Miller Company LLP its
independence. Based on the foregoing review and discussions, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2006.
Audit Committee:
Richard L. Snyder - Chairman
Dr. Kenneth A. Phillips
John E. Marshall
Ralph A. Matergia
Susan Gumble-Cottell
--------------------------------------------------------------------------------
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
--------------------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers and the beneficial owners of more than 10% of the Common
Stock to file reports of ownership and changes in ownership of their equity
securities of the Company with the Securities and Exchange Commission and to
furnish us with copies of such reports. To the best of our knowledge, all of the
filings by our directors and executive officers were made on a timely basis
during the 2006 fiscal year. We are not aware of any beneficial owners of more
than 10% of the Common Stock.
21
--------------------------------------------------------------------------------
STOCKHOLDER PROPOSALS
--------------------------------------------------------------------------------
In order to be considered for inclusion in the Company's proxy statement
for the annual meeting of stockholders to be held in 2008, stockholder proposals
must be submitted to the Secretary at the Company's office, 717 Main Street,
Honesdale, Pennsylvania 18431, on or before November 24, 2007. Under the
Articles of Incorporation, in order to be considered for possible action by
stockholders at the 2008 annual meeting of stockholders, stockholder nominations
for director and stockholder proposals not included in the Company's proxy
statement must be submitted to the Secretary of the Company, at the address set
forth above, no later than February 24, 2008.
--------------------------------------------------------------------------------
OTHER MATTERS
--------------------------------------------------------------------------------
The Board of Directors does not know of any other matters that are likely
to be brought before the Annual Meeting. If any other matters, not now known,
properly come before the Annual Meeting or any adjournments, the persons named
in the enclosed proxy card, or their substitutes, will vote the proxy in
accordance with their judgment on such matters.
--------------------------------------------------------------------------------
MISCELLANEOUS
--------------------------------------------------------------------------------
The Company will bear the cost of soliciting proxies. The Company will
reimburse brokerage firms and other custodians, nominees and fiduciaries for
reasonable expenses that they incur in forwarding proxy materials to the
beneficial owners of Common Stock. In addition to soliciting proxies by mail,
directors, officers, and regular employees of the Company may solicit proxies
personally or by telephone without additional compensation.
The Company's 2006 Annual Report to Stockholders accompanies this proxy
statement. Except to the extent specifically incorporated by reference, the
Annual Report is not to be treated as part of the proxy solicitation material
nor as having been incorporated by reference herein. A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006 WILL BE
FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE RECORD DATE UPON WRITTEN
REQUEST TO THE SECRETARY, NORWOOD FINANCIAL CORP., 717 MAIN STREET, HONESDALE,
PENNSYLVANIA 18431.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ John E. Marshall
JOHN E. MARSHALL
SECRETARY
Honesdale, Pennsylvania
March 22, 2007
22
APPENDIX A
NORWOOD FINANCIAL CORP.
AUDIT COMMITTEE CHARTER
MISSION STATEMENT
The Audit Committee is appointed by the Board of Directors to assist the Board
in fulfilling its oversight responsibilities. The Audit Committee's primary
duties and responsibilities are to:
o Monitor the integrity of the Company's financial reporting process and
systems of internal controls regarding finance, accounting, risk management
and regulatory compliance.
o Monitor the independence and performance of the Company's independent
auditors.
o Provide an avenue of communication among the independent auditors,
management, and the Board of Directors.
The Audit Committee shall:
o pre-approve all audit services and permissible non-audit services to be
rendered by the independent auditors in accordance with Section 10A(i) of
the Securities Exchange Act of 1934 (the "Act");
o have sole authority to appoint and determine the funding for the
independent auditors in accordance with Section 10A(m)(2) of the Act;
o have the responsibility to establish procedures for complaints as set forth
in Section 10A(m)(4) of the Act; and
o have the authority to engage and determine funding for independent counsel
and other advisors as set forth in Section 10A(m)(5) of the Act.
The Audit Committee may establish written policies and procedures for the
pre-approval of audit and non-audit services to be performed by the independent
auditors provided that these policies and procedures are detailed as to the
particular service and do not result in the delegation of the Audit Committee's
responsibilities to management. The Audit Committee may, in its discretion,
delegate to one or more of its members the authority to pre-approve audit or
non-audit services to be performed by the independent auditors provided that any
such approvals are presented to the full Committee at its next scheduled
meeting.
COMMITTEE COMPOSITION
The membership of the Audit Committee shall be composed of at least three
directors, each of whom (i) is independent as defined under NASD Rule 4200
(a)(15); (ii) meets the criteria for independence set forth in Rule 10A-3(b)(1)
under the Act; (iii) has not participated in the preparation of the financial
statements of the Company or any current subsidiary of the Company during the
past three years; and (iv) is able to read and understand fundamental financial
statements. In addition, at least one member of the Committee shall have
accounting or related financial management expertise.
At least one member of the Audit Committee shall possess the qualifications to
serve as an "audit committee financial expert" as defined under SEC rules
pursuant to the Exchange Act. The designation of a person as an "audit committee
financial expert" does not impose any duties, obligations or liability on the
person that are greater than those imposed on such a person as a member of the
audit committee in the absence of such designation.
A-1
MEETINGS
The committee will meet at least four times a year, with authority to convene
additional meetings, as circumstances require. The committee will invite members
of management, independent auditors or others to attend meetings and provide
pertinent information, as necessary. It will meet separately, periodically, with
management, and with independent auditors. It will also meet periodically in
executive session. Meeting agendas will be prepared and provided in advance to
members, along with appropriate briefing materials. Minutes will be prepared.
ROLES AND RESPONSIBILITIES
The committee will carry out the following responsibilities:
Financial Statements
--------------------
1. Review significant accounting and reporting issues, with Management and the
independent auditors, and understand their impact on the financial
statements. These issues include:
o Complex or unusual transactions and highly judgmental areas
o Major issues regarding accounting principles and financial statement
presentations, including any significant changes in the Company's
selection or application of accounting principles
o The effect of regulatory and accounting initiatives, as well as
off-balance sheet structures, on the financial statements of the
Company
2. Review with management and the independent auditors the results of the
year-end audit, including any difficulties encountered. This review will
include any restrictions on the scope of the independent auditor's
activities or on access to requested information, and any significant
disagreements with management.
3. Discuss the annual audited financial statements and quarterly financial
statements with management and the independent auditors, including the
Company's disclosures under "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
4. Review disclosures made by CEO and CFO during the Forms 10-K and 10-Q
certification process about significant deficiencies and material
weaknesses in the design or operation of internal control over financial
reporting or any fraud, whether or not material, that involves management
or other employees who have a significant role in the Company's internal
controls.
Internal Control
----------------
1. Consider the effectiveness of the Company's risk management program and
internal control system, including information technology security and
control.
2. Understand the scope of the independent auditors' review of internal
control over financial reporting, and obtain reports on significant
findings and recommendations, together with management's responses.
A-2
Internal Audit
--------------
1. Review with management and internal audit, the committee charter, audit
schedule and approach, recommendation, follow-up matrix, staffing and
organizational structure of the internal audit function.
2. Ensure there are no unjustified restrictions or limitations, and review and
concur in the appointment, replacement or dismissal of the chief audit
executive.
3. Review the effectiveness of the internal audit function, including the
audit risk assessment and compliance with internal audit policy and
procedures manual.
4. On a periodic basis, meet separately with internal audit to discuss any
matters that the committee of internal audit believes should be discussed
privately.
External Audit
--------------
1. Review the external auditors' audit scope and approach, including
coordination of audit effort with internal audit.
2. Review the performance of the external auditors, and exercise final
approval on the appointment or discharge of the auditors. In performing
this review, the committee will:
o At least annually, obtain and review a report by the external auditor
describing the firm's internal quality-control procedures; any
material issues raised by the most recent internal quality-control
review, or peer review, of the firm, or by any inquiry or
investigation by governmental or professional authorities, within the
preceding five years, respecting one or more independent audits
carried out by the firm, and any steps taken to deal with any such
issues; and (to assess the auditor's independence) all relationships
between the independent auditor and the Company.
o Take into account the opinions of management and internal audit.
o Review and evaluate the lead partner of the external auditor.
3. Present its conclusions with respect to the external auditor to the full
Board.
4. On a regular basis, meet separately with the external auditors to discuss
any matters that the committee or auditors believe should be discussed
privately.
5. Prior to the filing of audited financial statements with the Securities and
Exchange Commission, obtain a report from the independent accountants of:
(1) all critical accounting policies and practices to be used; (2) all
alternative treatments of financial information within GAAP that have been
discussed with management, ramifications or the use of such alternative
disclosures and treatments, and the treatment preferred by the independent
accountant, and; (3) other material written communications between the
independent accountant and management, such as any management letter or
schedule of unadjusted differences.
Compliance
----------
1. Review the effectiveness of the system for monitoring compliance with laws
and regulations and the results of management's investigation and follow-up
(including disciplinary action) of any instances of noncompliance.
A-3
2. Establish procedures for: (1) The receipt, retention, and treatment of
complaints received by the listed issuer regarding accounting, internal
accounting controls or auditing matters; and (2) the confidential,
anonymous submission by employees of the Company of concerns regarding
questionable accounting or auditing matters.
3. Review with management and the independent auditor the basis for the
reports issued pursuant to Part 363 of the FDIC regulations.
4. Review the findings of any examinations by regulatory agencies.
5. Obtain regular updates from management and Company legal counsel regarding
compliance matters.
Reporting Responsibilities
--------------------------
1. Report as needed to the Board of Directors about issues that arise with
respect to the quality or integrity of the Company's financial statements,
the Company's compliance with legal or regulatory requirements, and the
performance and independence of the Company's independent auditors.
2. Provide an open avenue of communication between the independent auditors,
and the Board of Directors.
3. Report annually to the shareholders in the proxy statement, describing the
committee's composition, responsibilities and how they were discharged, and
any other information required by rule, including approval of non-audit
services.
Other Responsibilities
----------------------
1. Discuss with management the Company's major policies with respect to risk
assessment and risk management.
2. Perform other activities related to this charter as requested by the Board
of Directors or as required by law.
3. Institute and oversee special investigations as needed.
4. Review and assess the adequacy of the committee charter annually,
requesting Board approval for proposed changes, and ensure appropriate
disclosure as may be required by law or regulation.
5. Confirm annually that all responsibilities outlined in this charter have
been carried out.
Revised and Approved by Audit Committee: December 9, 2003
Reviewed and Approved by Audit Committee: December 13, 2005
Approved by Board of Directors February 13, 2007
A-4
APPENDIX B
NORWOOD FINANCIAL CORP.
-----------------------
WAYNE BANK
----------
NOMINATING COMMITTEE CHARTER
----------------------------
Statement of Purpose
--------------------
The Board of Directors of Norwood Financial Corp. (the "Company") is
primarily responsible be the oversight and business plans of the Company. The
election to the Board of Directors is determined by a vote of the stockholders
of the Company. The primary function of the Nominating Committee is to evaluate
candidates and recommend to the Board of Directors for its approval nominees for
election as directors of the Company and its wholly-owned subsidiary, Wayne Bank
(the "Bank").
The Nominating Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities. The Committee has the authority
to retain, at the Company's and/or the Bank's expense, any search firm to be
used to identify director candidates. The Committee shall also have the
authority to retain outside legal counsel and any other advisors as the
Committee may deem appropriate in its discretion.
Structure
---------
Nominating Committee members shall meet the independence requirements of
The Nasdaq Stock Market ("Nasdaq") as applicable and as may be amended from time
to time. The members of the Committee shall be elected annually by the Board of
Directors. If a Nominating Committee Chair is not designated, the members of the
Committee may designate a Chair by majority vote. The Nominating committee shall
establish its own rules of procedure, which shall be consistent with the
Articles of Incorporation and Bylaws of the Company and the Bank and this
Charter.
The Nominating Committee shall meet as frequently as needed and not less
than annually. A meeting may be called by the Chairperson of the Nominating
Committee or by majority of the members of the Committee. Notice of any meeting
shall be given by the person or persons calling the meeting given to each other
member of the Nominating Committee at least two (2) days prior to the meeting.
Notice may be given in the same fashion as permitted for notice of Bard meetings
pursuant to the Company's Bylaws and applicable law. A meeting shall be deemed
properly called if each member of the Nominating Committee shall have received
notice given as aforesaid or, prior to the conclusion of the meeting, shall have
signed a written waiver of notice.
A majority of the members of the Nominating Committee present in person or
proxy or by means of a conference telephone or other communications equipment by
means of which persons participating in the meeting can hear each other shall
constitute a quorum. A majority vote of the Nominating Committee members present
at a meeting, if a quorum is present, shall constitute an act of the Nominating
Committee. Any action required or permitted to be taken at any meeting of the
Nominating Committee may be taken without a meeting if all members of the
Nominating Committee consent thereto in writing, and the writing or writings are
filed with the minutes of the proceedings of the Nominating Committee. Following
each of its meetings, the Nominating Committee shall report its action and
recommendations to the Board.
B-1
Responsibilities
----------------
The authority and responsibilities of the Committee shall include, but not
be limited to, the following:
1. The Committee shall recommend Board of Director nominations in
accordance with the listing standards of the Nasdaq, as may be supplemented or
amended from time to time.
2. The Committee shall develop criteria for the selection of new directors
and, when appropriate, conduct the search for individuals qualified to become
members of the Board. Such criteria is expected to include experience,
education, attendance, business contacts within the community and industry, past
performance and other criteria deemed relevant by the Committee.
3. The Committee may develop criteria for the evaluation of incumbent Board
members.
4. The Committee shall evaluate the performance of current Board members
eligible for re-election, and recommend to the Board whether such members should
stand for re-election. The entire Board of Directors may also self-evaluate the
performance of the Board as a whole.
5. The Committee, in accordance with the Company's Articles of
Incorporation and the Bank's Charter, shall review and evaluate nominees for
election as directors submitted by the shareholders of the Company. The
Committee shall have the authority to accept or reject any shareholder nominees
for election as director in determining its recommended slate for submission to
the Board.
6. The Committee shall evaluate any nominees for election as director made
in opposition to the slate of candidates nominated by the Board.
7. The Committee shall have the authority to retain or terminate, in its
discretion, any search or consulting firm to be used to identify and/or research
the background and qualifications of director candidates and to approve the
firm's fees and other retention terms. The Committee shall also have authority
to retain outside legal counsel and any other advisors as the Committee may deem
appropriate in its discretion.
8. The Committee shall annually recommend to the Board of the Company and
the Bank the slate of directors for such Boards.
9. The Committee shall annually conduct and present to the Board a
performance evaluation of the Committee.
10. The Committee shall review and assess the adequacy of this Charter at
least annually and, as appropriate, adopt and recommend changes to the Board for
its approval.
11. The Committee shall have the authority to take any actions necessary to
carry out the above provisions of this Charter.
B-2
NORWOOD
FINANCIAL CORP. [LOGO]
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Please complete, date, sign and mail the
detached proxy card in the enclosed postage-prepaid envelope.
-------------------------------------------------
PROXY VOTING
COMPLETE BOTH SIDES OF THIS PROXY AND
RETURN IN THE ENCLOSED ENVELOPE TO:
Illinois Stock Transfer Co.
209 West Jackson Boulevard, Suite 903
Chicago, Illinois 60606
-------------------------------------------------
DETACH PROXY CARD HERE
--------------------------------------------------------------------------------
Should the undersigned be present and elect to vote at the Meeting, or at
any adjournment thereof and after notification to the Secretary of the Company
at the Meeting of the stockholder's decision to terminate this proxy, then the
power of said attorneys and proxies shall be deemed terminated and of no further
force and effect. The undersigned may also revoke this proxy by filing a
subsequently dated proxy or by written notification to the Secretary of the
Company of his or her decision to terminate this proxy.
The undersigned acknowledges receipt from the Company, prior to the
execution of this proxy, of Notice of the Meeting, a proxy statement dated March
21, 2007 and a 2006 Annual Report to Stockholders.
V A
O B
T O
E V
R E
C N
O A ----------------------------------------
N M NORWOOD
T E -------
R COMMON Financial Corp.
O H
L E Signature: ______________________ If you plan to personally attend the
R Annual Meeting of Stockholders, please
N E check the box below and list names of
U Signature: ______________________ attendees on reverse side.
M
B Return this stub in the enclosed
E envelope with your completed proxy
R card.
Date: ______________________, 2007 I/We do plan to attend [_]
the Annual Meeting.
COMMON
----------------------------------------
Please sign exactly as your name appears above. When signing as attorney,
executor, administrator, trustee, or guardian, please give your full title. If
shares are held jointly, each holder should sign.
--------------------------------------------------------------------------------
NORWOOD FINANCIAL CORP.
Annual Meeting of Stockholders, April 24, 2007 COMMON
--------------------------------------------------------------------------------
The undersigned hereby appoints the official proxy committee of the Board of
Directors of the Norwood Financial Corp. (the "Company") with full powers of
substitution to act as attorneys and proxies for the undersigned, to vote all
shares of common stock of the Company that the undersigned is entitled to vote
at the Annual Meeting of Stockholders (the "Meeting"), to be held at the
administrative office of Wayne Bank, 717 Main Street, Honesdale, Pennsylvania
18431, on Tuesday, April 24, 2007, at 11:00 a.m. local time and at any and all
adjournments thereof, as follows:
FOR WITHHELD FOR EXCEPT
1. The election as director of all nominees listed below:
01 Richard L. Snyder [ ] [ ] [ ]
02 Ralph A. Matergia
INSTRUCTIONS: To withhold your vote for any individual nominees, mark FOR EXCEPT and
insert that nominee's name on the line provided below.
_____________________________________________________________________
FOR AGAINST ABSTAIN
2. To ratify the appointment of Beard Miller Company LLP as [ ] [ ] [ ]
independent accountants for the Company for the fiscal year
ending December 31, 2007.
In their discretion, such attorneys and proxies are authorized to vote upon such other
business as may properly come before the Meeting or any adjournments thereof.
The Board of Directors recommends a vote "FOR" each of the above propositions.
THE SIGNED PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE
SPECIFIED, THIS SIGNED PROXY WILL BE VOTED FOR THE PROPOSITION STATED. IF ANY
OTHER BUSINESS IS PRESENTED AT THE MEETING, THIS SIGNED PROXY WILL BE VOTED BY
THOSE NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD
OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
NORWOOD
FINANCIAL CORP.
---------------
ESOP VOTING INSTRUCTION FORM
Please complete both sides, date, sign and mail the
detached proxy card in the enclosed postage-prepaid envelope.
DETACH PROXY CARD HERE
--------------------------------------------------------------------------------
V A
O B
T O NORWOOD
E V --------------
R E FINANICAL CORP.
C N If you plan to personally attend the
O A Annual Meeting of Stockholders, please
N M check the box below and list names of
T E attendees on reverse side.
R
O H Return this stub in the enclosed
L E envelope with your completed proxy
R card.
N E
U
M I/We do plan to attend [_]
B ESOP the Annual Meeting
E Signature ________________
R Signature ________________
Date _______________, 2007 ESOP
Please sign exactly as your name appears above, When signing as attorney,
executor, administrator, trustee or guardian, please give your full title. If
shares are held jointly, each holder should sign.
--------------------------------------------------------------------------------
NORWOOD FINANCIAL CORP.
Annual Meeting of Stockholders, April 24, 2007 ESOP
--------------------------------------------------------------------------------
The undersigned hereby instructs the Trustees of the Wayne Bank Employee
Stock Ownership Plan and Trust ("ESOP") to vote, all shares of common stock
allocated to the account of the undesigned in the ESOP at the Annual Meeting of
Stockholders to be held at the administrative office of Wayne Bank, 717 Main
Street, Honesdale, Pennsylvania 18431, on Tuesday, April 24, 2007, at 11:00 a.m.
local time, and at any an all adjournments thereof, as follows:.
FOR WITHHELD FOR EXCEPT
1. The election as director of all nominees listed below:
01 Richard L. Snyder [ ] [ ] [ ]
02 Ralph A. Matergia
INSTRUCTIONS: To withhold your vote for any
individual nominees, mark FOR EXCEPT and
insert that nominee's name on the line provided below.
_____________________________________________________________________
FOR AGAINST ABSTAIN
2. To ratify the appointment of Beard Miller Company LLP as [ ] [ ] [ ]
independent accountants for the Company for the fiscal year
ending December 31, 2007.
The Board of Directors recommends a vote "FOR" each of the above propositions.
Dated: _________________, 2007 ________________________________________
Signature
If you return this card properly signed, but you do not otherwise specify,
shares will be voted "FOR" the above listed nominees and proposals. If you do
not return this card, your shares will be voted by the Trustee in a manner
proportionate to the voting directions of the allocated shares received by the
ESOP participants, subject to the fiduciary duty of the trustees.