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 toss.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 [LOGO]
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FINANCIAL CORP. 717 MAIN STREET o HONESDALE, PENNSYLVANIA 18431 o 570-253-1455
March 23, 2005
Dear Stockholder:
On behalf of the Board of Directors and management of Norwood Financial
Corp. (the "Company"), I invite you to attend the 2005 Annual Meeting of
Stockholders of the Company to be held at the administrative office of Wayne
Bank, 717 Main Street, Honesdale, Pennsylvania on Tuesday, April 26, 2005, at
11:00 a.m., local time. The attached Notice of Annual Meeting and Proxy
Statement describe the formal business to be transacted at the Annual Meeting.
During the Annual Meeting, we will also report on the operations of the Company.
Directors and officers of the Company, as well as representatives of Beard
Miller Company LLP, our independent accountants, will be present to respond to
stockholder questions.
You will be asked to elect three directors and to ratify the
appointment of Beard Miller Company LLP as the Company's independent accountants
for the fiscal year ending December 31, 2005. 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 26, 2005
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NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Annual Meeting") of Norwood Financial Corp. (the "Company"), will be held at
the administrative office of Wayne Bank, 717 Main Street, Honesdale,
Pennsylvania on Tuesday, April 26, 2005, at 11:00 a.m., local time, for the
following purposes:
1. To elect three directors of the Company; and
2. To ratify the appointment of Beard Miller Company LLP as
independent accountants of the Company for the fiscal year
ending December 31, 2005;
all as set forth in the Proxy Statement accompanying this notice, and to
transact such other business as may properly come before the Annual Meeting and
any adjournments. 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 18, 2005, are the stockholders entitled to notice of and to vote at the
Annual Meeting and any adjournments thereof.
A copy of the Company's Annual Report for the year ended December 31,
2004 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 23, 2005
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IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY 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 26, 2005
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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. (the "Company") commencing on or
about March 23, 2005 in connection with the solicitation by the Company's Board
of Directors of proxies to be used at the Company's 2005 annual meeting of
stockholders (the "Annual Meeting") to be held at the administrative office of
Wayne Bank, 717 Main Street, Honesdale, Pennsylvania on Tuesday, April 26, 2005,
at 11:00 a.m., local time, or at any adjournments or postponements thereof.
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VOTING AND REVOCABILITY OF PROXIES
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All properly executed written proxies that are delivered pursuant to
this proxy statement will be voted on all matters that properly come before the
Annual Meeting for a vote. If your proxy specifies instructions with respect to
matters being voted upon, your shares will be voted in accordance with your
instructions. If no instructions are specified, your shares will be voted: (a)
FOR the election as directors of the nominees named in Proposal 1; (b) FOR
Proposal 2 (ratification of independent public accountants); and (c) in the
discretion of the proxy holders, as to any other matters that may properly come
before the Annual Meeting. Your proxy may be revoked at any time prior to being
voted by: (i) filing with the Secretary of the Company (John E. Marshall, at 717
Main Street, Honesdale, Pennsylvania 18431) written notice of such revocation;
(ii) submitting a duly executed proxy bearing a later date; or (iii) attending
the Annual Meeting and giving the Secretary notice of your intention to vote in
person.
WHETHER OR NOT YOU ATTEND THE ANNUAL MEETING, YOUR VOTE IS IMPORTANT.
ACCORDINGLY, REGARDLESS OF THE NUMBER OF SHARES YOU OWN, YOU ARE ASKED TO VOTE
PROMPTLY BY SIGNING AND RETURNING THE ACCOMPANYING PROXY CARD.
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VOTING SECURITIES AND VOTE REQUIRED
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The Board of Directors has fixed the close of business on March 18,
2005 as the record date (the "Record Date") for the determination of
stockholders who are entitled to notice of, and to vote at, the Annual Meeting.
On the Record Date, there were 2,697,651 shares of the Company's common stock,
$.10 per value (the "Common Stock"), outstanding. Each stockholder of record on
the Record Date is entitled to one vote for each share held.
The presence in person or by proxy of at least a majority of the
outstanding shares of Common Stock entitled to vote is necessary for a quorum at
the Annual Meeting. With respect to any matter, any shares for which a broker
indicates on the proxy that it does not have discretionary authority as to such
shares to vote
on such matter ("Broker Non-Votes") will not be considered present for purposes
of determining whether a quorum is present. In the event there are not
sufficient votes for a quorum or to ratify any proposals at the time of the
Annual Meeting, the Annual Meeting may be adjourned in order to permit the
further solicitation of proxies.
As to the election of directors, as set forth in Proposal 1, the form
of proxy being provided by the Board of Directors enables a stockholder to vote
for the election of the nominees proposed by the Board of Directors, or to
withhold authority to vote for any or all of the nominees being proposed.
Directors are elected by a plurality of votes cast, in person or represented by
proxy, at a meeting and entitled to vote in the election of directors.
As to the ratification of the independent accountants, which is
submitted as Proposal 2, a stockholder may either: (i) vote "FOR" the Proposal
2; (ii) vote "AGAINST" Proposal 2; or (iii) "ABSTAIN" with respect to Proposal
2. Unless otherwise required by law, Proposal 2 and all other matters shall be
determined by a majority of votes cast affirmatively or negatively without
regard to (a) Broker Non-Votes, or (b) proxies marked "ABSTAIN" as to that
matter.
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PRINCIPAL HOLDERS
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Persons and groups beneficially owning in excess of 5% of the Common
Stock are required to file certain reports regarding such ownership pursuant to
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). A person
is deemed the beneficial owner of shares of Common Stock if he or she has or
shares voting or investment power with respect to such shares or has the right
to acquire beneficial ownership of the shares 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.
Name and Address Amount and Nature of Percent of
of Beneficial Owner Beneficial Ownership Common Stock Outstanding
------------------- -------------------- ------------------------
Wayne Bank Trust Department 196,485(1) 7.3%
717 Main Street
Honesdale, Pennsylvania 18431
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(1) The information is derived from Amendment No. 5 to a Schedule 13G filed
January 18, 2005, which states that the Wayne Bank Trust Department had
sole voting and dispositive power with respect to 196,485 shares.
Excludes 212,484 shares held in two trusts for which the Bank acts as
trustee but as to which it does not have voting power.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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Under Section 16(a) of the Exchange Act, the Company's directors and
executive officers and persons beneficially owning more than 10% of the Common
Stock are required to file reports of beneficial ownership and changes in
beneficial ownership of their equity securities of the Company with the
Securities and Exchange Commission and to furnish the Company with copies of
such reports. To the best of the Company's knowledge, all of the filings by the
Company's directors and executive officers were made on a timely basis during
the 2004 fiscal year. The Company is not aware of any beneficial owners of more
than ten percent of its Common Stock.
2
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PROPOSAL 1 - ELECTION OF DIRECTORS
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Election of Directors
The Board of Directors currently consists of nine members, each of whom
also serves as a director of the Company's principal subsidiary, Wayne Bank (the
"Bank"). The Company's 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.
Daniel J. O'Neill, Dr. Kenneth A. Phillips and Gary P. Rickard have
been nominated by the Board of Directors for terms of three years each. Messrs.
O'Neill, Phillips and Rickard currently serve as directors of the Company.
The persons named as proxies in the enclosed proxy card intend to vote
for the election of the persons 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 for each of the persons nominated
for election as directors of the Company at the Annual Meeting, each other
director of the Company who will continue to serve as director after the Annual
Meeting and each executive officer. The Board of Directors has determined that
each director other than William W. Davis, Jr. is independent within the meaning
of the rules of The Nasdaq Stock Market. Beneficial ownership of the executive
officers and directors of the Company as a group, is also set forth below.
3
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 2008
Daniel J. O'Neill 67 1985 2005 9,332 *
Director
Dr. Kenneth A. Phillips 54 1988 2005 4,817 *
Director
Gary P. Rickard 63 1978 2005 26,404 *
Director
DIRECTORS CONTINUING IN OFFICE
Charles E. Case 70 1970 2006 76,232 2.8%
Director
William W. Davis, Jr. 60 1996 2006 64,246 2.4
Director, President and
Chief Executive Officer
John E. Marshall 67 1983 2006 26,553 (4) 1.0
Director and Secretary
to the Board
Russell L. Ridd 75 1980 2007 88,535 (4) 3.3
Director and
Chairman of the Board
Richard L. Snyder 64 2000 2007 3,750 *
Director
Ralph A. Matergia 55 2004 2007 813 *
Director
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Lewis J. Critelli 45 na na 42,133 1.5
Executive Vice President
and Chief Financial Officer
Edward C. Kasper 57 na na 32,265 1.2
Senior Vice President
Joseph A. Kneller 58 na na 6,956 *
Senior Vice President
John H. Sanders 47 na na 16,398 *
Senior Vice President
All executive officers and
directors as a group
(13 persons) 1.398,434 14.2
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* Less than 1% of the Common Stock outstanding.
(1) As of December 31, 2004.
(2) Refers to the year the individual first became a director of the Company or
the Bank.
(footnotes continued on following page)
4
(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: Charles E. Case -
1,143, William W. Davis, Jr. - 26,493, John E. Marshall - 393, Gary R.
Rickard - 1,893, Russell L. Ridd -1,893, Richard L. Snyder - 2,250, Daniel
J. O'Neill - 3,393, Dr. Kenneth A. Phillips - 2,643, Ralph A. Matergia - 0,
Lewis J. Critelli - 30,360, Edward C. Kasper - 19,750, Joseph A. Kneller -
1,500 and John A. Sanders - 10,500.
(4) Excludes 31,818 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 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.
Beneficial ownership is disclaimed with respect to such ESOP shares held in
a fiduciary capacity.
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:
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.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE "FOR" THE ELECTION OF THE ABOVE NOMINEES
Continuing Directors:
Charles E. Case is a retired former owner of CR Case and Sons, Inc.,
Honesdale, Pennsylvania, an automotive/tire services store.
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.
Russell L. Ridd is Chairman of the Board. Mr. Ridd retired as the
President and Chief Executive Officer of the Bank in May 1993.
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.
5
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.
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.
Meetings and Committees of the Board of Directors
The Board of Directors of the Company 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,
2004, the Board of Directors of the Company held six regular meetings and the
Board of Directors of the Bank held 12 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, 2004.
The Compensation Committee consists of Directors Ridd, Marshall and
Case. This standing committee met once during the fiscal year ended December 31,
2004 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 Stock Market.
The Audit Committee is comprised of Directors Snyder, Phillips, Case
and Marshall. 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 Stock Market. The Board of Directors has adopted a written audit
charter. 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.
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 six times during the
fiscal year ended December 31, 2004.
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 item 7(d)(3)(iv)(A) of Schedule 14A under the Exchange Act.
6
Report of the Audit Committee. For the fiscal year ended December 31,
2004, 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 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, 2004.
Audit Committee:
Richard L. Snyder - Chairman
Dr. Kenneth A. Phillips
Charles E. Case
John E. Marshall
Director Nomination Process
The Nominating Committee consists of Directors Ridd, Marshall and Case,
each of whom is independent within the meaning of the rules of The Nasdaq Stock
Market. The Nominating Committee met twice during the year ended December 31,
2004. The Board of Directors has adopted a charter for the nominating committee
which was included as an appendix to the proxy statement for the 2004 annual
meeting of stockholders.
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.
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. All of the Board's members, other than Mr. Matergia who joined
the Board in November 2004, attended the 2004 annual meeting of stockholders.
7
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DIRECTOR AND EXECUTIVE OFFICER COMPENSATION
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Director Compensation
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 $1,500 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, 2004, fees paid to all directors totaled approximately
$162,900, all of which were paid by the Bank.
Under the terms of the 1999 Directors Stock Compensation Plan, stock
options were awarded to non- employee directors in December of each year in
amounts determined by a committee of non-employee directors. The exercise price
of such options was in each case equal to the fair market value of the
underlying Common Stock on the date of grant. A total of 26,400 shares of Common
Stock were reserved under the plan, all of which have now been awarded
Executive Compensation
Summary Compensation Table. The following table sets forth the cash and
non-cash compensation awarded to or earned during each of the last three fiscal
years, by each person who served as the Company's chief executive officer during
the last fiscal year and by each of the four most highly compensated executive
officers whose salary and bonus exceeded $100,000 during the past fiscal year.
Long-Term
Annual Compensation
Compensation Awards
------------------------ --------------
Securities
Name and Principal Underlying All Other
Position Year Salary Bonus Options(1) Compensation
-------- ---- ------ ----- ---------- ------------
William W. Davis, Jr. 2004 $209,000 $50,000 4,000 $73,213 (2)
President and Chief 2003 202,000 45,000 4,000 72,944
Executive Officer 2002 197,500 40,000 3,750 69,204
Lewis J. Critelli 2004 136,500 36,000 3,000 30,487 (3)
Executive Vice President 2003 133,000 32,500 3,000 29,598
and Chief Financial Officer 2002 130,000 30,000 3,000 25,605
Edward C. Kasper 2004 107,500 27,500 2,500 34,202 (4)
Senior Vice President 2003 104,500 25,000 2,500 34,208
2002 102,000 25,000 2,250 30,896
Joseph A. Kneller 2004 95,000 11,000 1,500 23,237 (5)
Senior Vice President 2003 93,500 10,000 1,500 22,914
2002 91,500 12,000 1,500 19,423
John H. Sanders 2004 94,500 10,000 1,500 17,892 (6)
Senior Vice President 2003 92,000 8,000 1,500 17,366
2002 90,000 5,000 1,500 16,513
(footnotes on following page)
8
-------------------
(1) See "-- Stock Awards."
(2) Includes $46,681 related to an accrual under the salary continuation plan;
1,344 shares of Common Stock allocated under the ESOP at an average cost of
$10.93 per share (such shares had an aggregate market value at December 31,
2004 of $47,510); and $11,842 in Bank matching funds for his account in the
401(k) retirement plan.
(3) Includes $10,184 related to an accrual under the salary continuation plan;
1,108 shares of Common Stock allocated under the ESOP at an average cost of
$10.93 per share (such shares had an aggregate market value at December 31,
2004 of $39,168) and $8,193 in Company matching funds for his account in
the 401(k) retirement plan.
(4) Includes $18,199 related to an accrual under the salary continuation plan;
874 shares allocated under the ESOP at an average cost of $10.93 per share
(such shares had an aggregate market value at December 31, 2004 of
$30,896); and $6,450 in Company matching funds for his account in the
401(k) retirement plan.
(5) Includes $10,178 related to an accrual under the salary continuation plan;
approximately 680 shares of Common Stock scheduled to be allocated under
the ESOP at an average cost basis of $10.93 per share (such shares had an
aggregate market value at December 31, 2004 of $24,038); and $5,627 in
Company matching funds for his account in the 401(k) retirement plan.
(6) Includes $4,840 related to an accrual under the salary continuation plan;
approximately 682 shares of Common Stock scheduled to be allocated under
the ESOP at an average cost basis of $10.93 per share (such shares had an
aggregate market value at December 31, 2004 of $24,109); and $5,597 in
Company matching funds for his account in the 401(k) retirement plan.
Other Benefits
Employment Agreements. The Company and the Bank have entered into
three-year employment agreements with Messrs. Davis and Critelli. Under the
Agreements, Mr. Davis's and Mr. Critelli's employment may be terminated by the
Company or the Bank for "just cause" as defined in the Agreement. If the Company
or the Bank terminated Messrs. Davis and Critelli without just cause, Messrs.
Davis and Critelli 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 there is
an involuntary termination of employment in connection with any change in
control of the Company or the Bank during the term of the Agreement, 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. In the event of a
change in control of the Company or Bank at December 31, 2004, Messrs. Davis and
Critelli would have been entitled to an aggregate lump-sum payment of
approximately $588,000 and $387,000, respectively.
Salary Continuation Plan. The Bank has entered into salary continuation
agreements with Messrs. Davis, Critelli, Kasper, Kneller and Sanders (the
"Executives"). The agreements provide that upon termination of employment on or
after reaching the age of 62, the Executives will be entitled to maximum annual
retirement benefits equal to $46,000, $61,000, $29,000, $14,000 and $24,000,
respectively, payable for 15 years. These amounts are adjusted for early
retirement. The Executives are not entitled to such benefits in the event they
are terminated for cause. On a change of control of the Company, the Executives
are entitled to full payment 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. As of December 31, 2004, Messrs. Davis,
Critelli, Kasper, Kneller and Sanders had accrued salary continuation plan
benefits of approximately $290,000, $63,000, $113,000, $63,000 and $30,000,
respectively, and such benefits were vested for such Executives.
Severance Agreements. The Bank has entered into change-in-control
severance agreements with Messrs. Kasper, Kneller and Sanders. The severance
agreements have terms of three years, renewable annually, and severance
protection upon a termination of employment following a change in control of the
Bank, with such payment equaling two times the current annual compensation of
Messrs. Kasper, Kneller and Sanders. In the event of a change of control at
December 31, 2004, Messrs. Kasper, Kneller and Sanders
9
would have been entitled to lump sum payments of approximately $216,000,
$190,000 and $189,000, respectively.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consisted of Directors Ridd, Marshall and
Case at December 31, 2004. 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 2004, 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 2004, 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.
2004 Report of the Compensation Committee
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 all other
Executive Officers. The Committee has access to various surveys of executive
compensation packages of banks of similar size and complexity. The compensation
package for executive officers consists of base salary, annual cash bonus and
incentive stock options and is structured so as to provide a competitive package
that allows the Company to retain key executives.
The Committee determines executive base salaries by level of
responsibility, individual contribution to the Company and the Company
performance including overall profitability, core growth in loans and deposits
and loan quality issues. The Chief Executive Officer makes recommendations to
the Committee concerning base salary of other executive officers after reviewing
the individual's performance as well as the Company's performance. Using a
similar process, the Committee makes recommendations to the Board of Directors
regarding the President and Chief Executive Officer base salary.
During the year ended December 31, 2004, William W. Davis, Jr.,
President and Chief Executive Officer received an increase in his base salary
from $209,000 to $217,500 due to his continued leadership in the management of
the Company and the Bank. Additionally, Mr. Davis was awarded stock options
under the Stock Option Plan. In making its compensation determinations, the
Committee considers the annual compensation paid to presidents and chief
executive officers of publicly owned financial institutions nationally, in the
Commonwealth of Pennsylvania and surrounding Northeastern states with assets of
between $250 million and $500 million and the job performance of such individual
as determined by the Committee or the Board of Directors.
Compensation Committee:
Russell L. Ridd - Chairman
John E. Marshall
Charles E. Case
Stock Awards. The following tables set forth information with respect
to options to purchase the Common Stock granted to or exercised by the named
executive officers during fiscal 2004 and the net realizable value of options
held by them as of the end of the fiscal year. No stock appreciation rights have
been granted to the named executive officers.
10
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants (1)
---------------------------------------------------------------------------------------------
Potential Realizable
Value at Assumed
Number of Percent of Annual Rate of Stock
Securities Total Options Price Appreciation
Underlying Granted to for Option Term(2)
Options Employees in Exercise Expiration ---------------------
Name Granted Fiscal Year Price Date 5% 10%
------------------------------------------------------------------------------------------------------------------------------
William W. Davis, Jr. 4,000 20.5% $31.50 12/14/2014 $104,326 $240,755
Lewis J. Critelli 3,000 15.4% 31.50 12/14/2014 78,244 180,566
Edward C. Kasper 2,500 12.8% 31.50 12/14/2014 65,204 150,472
Joseph A. Kneller 1,500 7.7% 31.50 12/14/2014 39,122 90,283
John H. Sanders 1,500 7.7% 31.50 12/14/2014 39,122 90,283
-------------------
(1) All options were granted with an exercise price equal to the fair market
value of the Common Stock on the date of grant. Each option has a term of
ten years and vests one year from date of the grant.
(2) The amounts represent certain assumed rates of appreciation only over a
ten-year period. Actual gains, if any, on stock option exercises and Common
Stock holdings are dependent on the future performance of the Common Stock
and overall stock market conditions. There can be no assurance that the
amounts reflected in the table will be achieved.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at Fiscal Year-End at Fiscal Year-End
Acquired on Value -------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
----------------------------------------------------------------------------------------------------------------------------------
William W. Davis, Jr. -- $ -- 26,493 4,000 $475,212 (1) $15,400
Lewis J. Critelli 2,250 38,033 30,360 3,000 613,057 (2) 11,550
Edward C. Kasper -- -- 17,750 2,500 380,933 (3) 9,625
Joseph A. Kneller 3,750 46,512 1,500 1,500 15,200 (4) 5,775
John H. Sanders -- -- 10,500 1,500 183,338 (5) 5,775
--------------------
(1) Based upon an exercise price per share of: $11.42 for 3,743 options; $16.00
for 6,000 options; $14.83 for 4,500 options; $17.83 for 4,500 options;
$20.00 for 3,750 options; and $25.15 for 4,000 options. The closing stock
price on December 31, 2004 was $35.35.
(2) Based upon an exercise price per share of: $11.08 for 2,610 options; $10.96
for 2,250 options; $11.42 for 6,000 options; $16.00 for 4,500 options;
14.83 for 3,000 options; $10.88 for 3,000 options; $17.83 for 3,000
options; and $25.15 for 3,000 options. The closing stock price on December
31, 2004 was $35.35.
(3) Based upon an exercise price per share of: $11.42 for 4,500 options, $16.00
for 3,750 options, $14.83 for 2,250 options; $10.88 for 2,250 options;
$20.00 for 2,250 options; and $25.15 for 2,500 options. The closing stock
price on December 31, 2004 was $35.35.
(4) Based upon an exercise price of $25.15 for 1,500 options. The closing stock
price on December 31, 2004 was $35.35.
(5) Based upon an exercise price of: $16.00 for 3,750 options, $14.83 for 2,250
options; $17.83 for 1,500 options; $20.00 for 1,500 options; and $25.15 for
1,500 options. The closing stock price on December 31, 2004 was $35.35.
11
--------------------------------------------------------------------------------
STOCK PERFORMANCE GRAPH
--------------------------------------------------------------------------------
Set forth below is a stock performance graph comparing the cumulative
total shareholder return on the Common Stock with (a) the cumulative total
stockholder return on stocks included in The Nasdaq Stock Market index and (b)
the cumulative total stockholder return on stocks included in the Nasdaq Bank
index, as prepared for Nasdaq by the Center for Research in Securities Prices
("CRSP") at the University of Chicago. All three investment comparisons assume
the investment of $1,000 at the market close on December 31, 1999 and the
reinvestment of dividends paid. The graph provides comparison at December 31,
1999 and each fiscal year through December 31, 2004.
COMPARISON OF CUMULATIVE TOTAL RETURN
[Line graph appears here showing 5-year cumulative total return on $1,000
invested in the Common Stock compared to cumulative total returns on $1,000
invested in the Nasdaq Bank Index and Nasdaq Index, respectively. Line graph
starts at December 31, 1999 and shows the cumulative total returns at December
31, 2000, 2001, 2002, 2003 and 2004. Plot points are shown below]
--------------------------------------------------------------------------------------------------------------------------
12/31/99($) 12/31/00($) 12/31/01($) 12/31/02($) 12/31/03($) 12/31/04($)
--------------------------------------------------------------------------------------------------------------------------
Norwood Financial Corp. 1,000 891 1,399 1,628 2,228 3,081
--------------------------------------------------------------------------------------------------------------------------
CRSP Nasdaq U.S. Index 1,000 603 478 331 494 538
--------------------------------------------------------------------------------------------------------------------------
CRSP Nasdaq Bank Index 1,000 1,142 1,237 1,266 1,629 1,864
--------------------------------------------------------------------------------------------------------------------------
There can be no assurance that the Company's future stock performance
will be the same or similar to the historical performance shown in the above
graph. The Company neither makes nor endorses any predictions as to stock
performance.
--------------------------------------------------------------------------------
CERTAIN RELATIONSHIPS AND RELATED 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
12
prevailing at the time with other persons, and do not include more than the
normal risk of collectibility or present other unfavorable features.
--------------------------------------------------------------------------------
PROPOSAL 2 - RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
Beard Miller Company LLP was the Company's independent public
accountants for the 2004 fiscal year. The Board of Directors has appointed Beard
Miller Company LLP to be its accountants for the fiscal year ending December 31,
2005, 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, 2004 and 2003 were $72,545 and $68,903,
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 audits for the years ended December 31, 2004 and 2003 were
$7,287 and $6,825, 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, 2004 and 2003 were $9,997
and $7,850, respectively.
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, 2004 and 2003 were $458 and $745, 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
accountants for the 2005 fiscal year.
--------------------------------------------------------------------------------
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 2006, all
stockholder proposals must be submitted to the Secretary at the Company's
office, 717 Main Street, Honesdale, Pennsylvania 18431, on or before November
23, 2005. Under the Articles of Incorporation, in order to be considered for
possible action by stockholders at the 2006 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 25, 2006.
13
--------------------------------------------------------------------------------
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 cost of soliciting proxies will be borne by the Company. The
Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of Common Stock. In addition to solicitations by mail,
directors, officers, and regular employees of the Company may solicit proxies
personally or by telegraph or telephone without additional compensation.
The Company's 2004 Annual Report to Stockholders accompanies this proxy
statement. Such 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, 2004 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 23, 2005
14
NORWOOD FINANCIAL CORP.
ANNUAL MEETING OF STOCKHOLDERS, APRIL 26, 2005
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 26, 2005, at 11:00 a.m., local time and at any and all
adjournments thereof, as follows:
FOR WITHHELD
--- --------
1. The election as director of all nominees
listed below: |_| |_|
01 Daniel J. O'Neill
02 Dr. Kenneth A. Phillips
03 Gary P. Rickard
INSTRUCTIONS: To withhold your vote for any individual nominee, insert the
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, 2005. |_| |_| [_]
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" the propositions.
--------------------------------------------------------------------------------
THIS 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 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. [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
-------------------------------------------------
Should the undersigned be present and elects 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,
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
25, 2005 and an Annual Report to Stockholders.
----------------------------------------
NORWOOD
-------
COMMON Financial Corp.
Signature: ______________________ If you plan to personally attend the
Annual Meeting of Stockholders, please
check the box below and list names of
Signature: ______________________ attendees on reverse side.
Return this stub in the enclosed
envelope with your completed proxy
card.
Date: ______________________, 2005 I/We do plan to attend [_]
the Annual Meeting.
----------------------------------------
Please sign exactly as your name appears on the enclosed card. When signing as
attorney, executor, administrator, trustee, or guardian, please give your full
title. If shares are held jointly, each holder should sign.