UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
CITIZENS & NORTHERN CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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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[ ] 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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(4) Date Filed:
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[CITIZENS & NORTHERN CORPORATION LOGO]
90-92 Main Street
Wellsboro, Pennsylvania 16901
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD TUESDAY, APRIL 19, 2005
TO OUR STOCKHOLDERS:
Notice is hereby given that the Annual Meeting of the stockholders of
Citizens & Northern Corporation (the "Corporation") will be held at the Arcadia
Theatre, located at 50 Main Street, Wellsboro, Pennsylvania, on Tuesday, April
19, 2005, at 2:00 P.M., local time, for the following purposes:
1. To elect five Class III directors to serve for a term of 3 years; and
2. To transact such other business as may properly be brought before the
meeting or any adjournment or adjournments thereof.
Only stockholders of record at the close of business on March 1, 2005 are
entitled to notice of, and to vote at, the meeting. Such stockholders may vote
in person or by proxy.
ALL STOCKHOLDERS ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED
PROXY IN THE ACCOMPANYING ENVELOPE, WHETHER OR NOT YOU EXPECT TO ATTEND THE
MEETING. If you do attend the meeting, you may, if you wish, withdraw your proxy
and vote your shares in person.
By Order of the Board of Directors,
Kathleen M. Osgood
Corporate Secretary
March 22, 2005
CITIZENS & NORTHERN CORPORATION
90-92 MAIN STREET
WELLSBORO, PENNSYLVANIA 16901
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS -- APRIL 19, 2005
This proxy statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Citizens & Northern Corporation to be
used at the Annual Meeting of Stockholders of the Corporation to be held on
Tuesday, April 19, 2005, at 2:00 P.M. at the Arcadia Theatre, located at 50 Main
Street, Wellsboro, Pennsylvania, and at any adjournment thereof. The approximate
date upon which this Proxy Statement and proxy will first be mailed to
stockholders is March 22, 2005.
Shares represented by properly completed proxies will be voted in
accordance with the instructions indicated thereon unless such proxies have
previously been revoked. If no direction is indicated, such shares will be voted
in favor of the election of directors of the nominees named below, and in the
discretion of the proxy holder as to any other matters that may properly come
before the Annual Meeting or any adjournment thereof. A proxy may be revoked at
any time before it is voted by written notice to the Secretary of the
Corporation or by attending the Annual Meeting and voting in person.
The Corporation will bear the entire cost of soliciting proxies for the
Annual Meeting. In addition to the use of the mails, proxies may be solicited by
personal interview, telephone, telegram or other electronic means by the
Corporation's directors, officers and employees. American Stock Transfer & Trust
Company, the transfer agent and registrar for the Corporation, will assist in
the distribution of proxy materials and the solicitation and tabulation of
votes. Arrangements also may be made with custodians, nominees and fiduciaries
for forwarding proxy materials to beneficial owners of stock held of record by
such persons, and the Corporation may reimburse such custodians, nominees and
fiduciaries for reasonable out-of-pocket expenses incurred by them in connection
therewith.
The Board of Directors has fixed the close of business on March 1, 2005
as the record date for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting and at any adjournment thereof. On the record
date, there were outstanding and entitled to vote 8,190,990 shares of common
stock. Common stockholders will be entitled to one vote per share on all matters
to be submitted at the meeting. The presence, in person or by proxy, of
stockholders entitled to cast at least 50% of the votes that all stockholders
are entitled to cast shall constitute a quorum at the Annual Meeting. An
abstention will be considered present at the meeting for purposes of determining
a quorum, but will not be counted as voting for or against the issue to which it
relates. Neither abstentions nor broker non-votes will be counted as votes cast
and neither will have any effect on the result of the vote, although both will
count toward the determination of the presence of a quorum. The Articles of
Incorporation of the Corporation do not permit cumulative voting.
No person is known by the Corporation to have beneficially owned 5% or
more of the outstanding common stock of the Corporation as of March 1, 2005.
PROPOSAL 1 -- ELECTION OF DIRECTORS
The Articles of Incorporation of the Corporation provide that the Board
of Directors shall consist of not less than five nor more than twenty-five
directors and that within these limits the numbers of directors shall be as
established by the Board of Directors. The Board of Directors has set the number
of directors at thirteen. The Articles further provide that the Board shall be
classified into three classes, as nearly equal in number as possible. One class
of directors is to be elected annually. Five directors in Class III are to be
elected at the Annual Meeting to serve for a three-year term. It is the
intention of the persons named as proxyholders on the enclosed form of proxy,
unless other directions are given, to vote all shares which they represent for
the election of management's nominees named in the tabulation below. The
affirmative vote of a majority of the shares of common stock present, in person
or by proxy, and entitled to vote at the Annual Meeting is necessary for the
election of directors. Any stockholder who wishes to withhold authority from the
proxyholders to vote for the election of directors, or to withhold authority to
vote for any individual nominee, may do so by marking the proxy to that effect.
Each director elected will continue in office until a successor has been
elected. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
NOMINEES LISTED BELOW, EACH OF WHOM HAS CONSENTED TO BE NAMED AS A NOMINEE AND
TO SERVE IF
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ELECTED. If for any reason any nominee named is not a candidate (which is not
expected) when the election occurs, proxies will be voted for a substitute
nominee determined by the Board of Directors.
The following table sets forth certain information about the director
nominees, all of whom are presently members of the Board, and about the other
directors whose terms of office will continue after the Annual Meeting.
NAME, AGE AND CERTAIN BIOGRAPHICAL INFORMATION PERIOD OF SERVICE AS A DIRECTOR
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CLASS III - MANAGEMENT'S NOMINEES FOR A 3 YEAR TERM ENDING IN 2008:
Dennis F. Beardslee, 54 Director since 1999
Owner of Terrace Lanes Bowling Center
Jan E. Fisher, 50 Director since 2002
Executive Director for Healthcare Services of Laurel Health System
Karl W. Kroeck, 65 Director since 1996
Farmer
Craig G. Litchfield, 57 Director since 1996
President & Chief Executive Officer of Citizens & Northern Corporation and
Citizens & Northern Bank
Ann M. Tyler, 60 Director since 2002
Certified Public Accountant in firm of Ann M. Tyler CPA, PC
CLASS I - CONTINUING DIRECTORS WITH TERMS EXPIRING IN 2006:
R. Robert DeCamp, 64 Director since 1988
President of Patterson Lumber Co., Inc.
Edward H. Owlett, III, 50 Director since 1994
President & CEO of Putnam Company, formerly
Attorney in law firm of Owlett & Lewis, P.C.
James E. Towner, 58 Director since 2000
Publisher of The Daily/Sunday Review
CLASS II - CONTINUING DIRECTORS WITH TERMS EXPIRING IN 2007:
R. Bruce Haner, 57 Director since 1998
Auto Buyer for New Car Dealers
Susan E. Hartley, 47 Director since 1998
Attorney at Law
Leo F. Lambert, 50 Director since 2001
President and General Manager of Fitzpatrick & Lambert, Inc.
Edward L. Learn, 57 Director since 1989
Owner of Learn Hardware & Building Supply
Leonard Simpson, 56 Director since 1989
Attorney at Law
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SECURITY OWNERSHIP OF MANAGEMENT
The following table shows beneficial ownership of the Corporation's
common stock as of February 23, 2005 by (i) each director of the Corporation,
(ii) each executive officer named in the Summary Compensation Table on page 10
and (iii) all directors and executive officers as a group.
Amount and Nature of Percent of Class
Name Beneficial Ownership (1)(2)(3) (if 1% or Greater)
---- ------------------------------ ------------------
Dennis F. Beardslee 6,901 --
R. Robert DeCamp 5,084 --
Jan E. Fisher 3,167 --
R. Bruce Haner 13,891 --
Susan E. Hartley 6,297 --
Karl W. Kroeck 3,500 --
Leo F. Lambert 6,835 (4) --
Edward L. Learn 5,986 --
Craig G. Litchfield 72,209 --
Edward H. Owlett, III 5,520 --
Leonard Simpson 31,506 (5) --
James E. Towner 7,257 --
Ann M. Tyler 3,655 --
Mark A. Hughes 12,586 --
Matthew P. Prosseda 23,870 --
Thomas L. Rudy, Jr. 6,725 --
Deborah E. Scott 16,412 --
Directors and Executive
Officers as a Group (18 Persons) 242,961 2.97%
(1) Pursuant to the regulations of the Securities and Exchange Commission, an
individual is considered to "beneficially own" shares of common stock if he
or she directly or indirectly has or shares (a) the power to vote or direct
the voting of the shares; or (b) investment power with respect to the
shares, which includes the power to dispose of or direct the disposition of
the shares. Unless otherwise indicated in a footnote below, each individual
holds sole voting and investment authority with respect to the shares
listed.
(2) In addition, an individual is deemed to be the beneficial owner if he or
she has the right to acquire shares within 60 days through the exercise of
any option. Therefore, the following stock options that are exercisable
within 60 days after February 23, 2005 are included in the shares above:
Mr. Beardslee, 2,048 shares; Mr. DeCamp, 2,876 shares; Mrs. Fisher, 1,211
shares; Mr. Haner, 2,039 shares; Ms. Hartley, 2,876 shares; Mr. Kroeck,
2,339 shares; Mr. Lambert, 1,598 shares; Mr. Learn, 1,811 shares; Mr.
Litchfield, 46,128 shares; Mr. Owlett, 3,176 shares; Mr. Simpson, 2,448
shares; Mr. Towner, 1,928 shares; Ms. Tyler, 1,211 shares; Mr. Hughes,
8,373 shares; Mr. Prosseda, 18,326 shares; Mr. Rudy, 5,137 shares; and Mrs.
Scott, 13,363 shares.
(3) Includes the following restricted stock awards granted under the Stock
Incentive Plan of the Corporation: Mr. Beardslee, 93 shares; Mr. DeCamp, 93
shares; Mrs. Fisher, 93 shares; Mr. Haner, 93 shares; Ms. Hartley, 93
shares; Mr. Kroeck, 93 shares; Mr. Lambert, 93 shares; Mr. Learn, 93
shares; Mr. Litchfield, 1,339 shares; Mr. Owlett, 93 shares; Mr. Simpson,
93 shares; Mr. Towner, 93 shares; Ms. Tyler, 93 shares; Mr. Hughes, 496
shares; Mr. Prosseda, 496 shares; Mr. Rudy, 393 shares; and Mrs. Scott, 496
shares. Restricted stock awards granted under the Stock Incentive Plan vest
ratably over a three-year period; however, the recipients have the right to
vote all awarded shares.
(4) Includes 137 shares held in a SEP-IRA Plan for the benefit of
Mr. Lambert's retirement plan.
(5) Includes 4,070 shares held in a SEP-IRA Plan for the benefit of
Mr. Simpson's retirement plan.
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BOARD OF DIRECTOR COMMITTEES,
ATTENDANCE AT MEETINGS AND COMPENSATION OF DIRECTORS
Both the Corporation's and the Bank's by-laws provide that the Board
may create any number of committees of the Board as it deems necessary or
appropriate from time to time.
EXECUTIVE COMMITTEE OF THE CORPORATION. The Corporation has an
Executive Committee whose purpose is to monitor and oversee the Corporation's
management succession plan and leadership development processes, review and
provide advice and counsel to the CEO regarding the Corporation's strategic
plan, mission, goals and objectives and action plans as well as other various
matters and to act on behalf of and with full authority of the Board of
Directors in matters that may arise between the regular monthly meetings of the
Board, which require immediate Board level action. This committee consists of
the following seven members of the Board of Directors: R. Robert DeCamp, R.
Bruce Haner, Leo F. Lambert, Craig G. Litchfield, Edward H. Owlett, III, Leonard
Simpson and James E. Towner. During 2004, the Executive Committee held twelve
meetings.
NOMINATING COMMITTEE. The Nominating Committee for each of the
Corporation and the Bank consists of the following six independent members of
the Board of Directors: R. Robert DeCamp, Jan E. Fisher, R. Bruce Haner, Edward
H. Owlett, III, Leonard Simpson and James E. Towner. The purpose of the
Nominating Committee is to establish criteria for Board member selection and
retention, identify individuals qualified to become Board members, and recommend
to the Board the individuals to be nominated and re-nominated for election as
directors. The Nominating Committee held two meetings during 2004.
All members of the Nominating Committee are independent directors
within the meaning of Rule 4200 of the NASD. The Board of Directors of the
Corporation has adopted a written charter for the Nominating Committee, a copy
of which was attached to the Proxy Statement for the 2004 Annual Meeting. A
current copy is also available on our website at www.cnbankpa.com by clicking on
"Shareholder News & Info.", then "Corporate Governance", then "Nominating
Committee Charter of C&N Corp".
Qualifications considered by the Nominating Committee in assessing
director candidates include but are not limited to the following:
o An understanding of business and financial affairs. A career in
business is not essential, but the candidate should have a proven
record of competence and accomplishments and should be willing to
commit the time and energy necessary to be an effective director;
o A genuine interest in representing all of Citizens & Northern's
stakeholders, including the long-term interest of the stockholders;
o A willingness to support the Values, Mission and Vision of Citizens &
Northern;
o An open-mindedness and resolve to independently analyze issues
presented for consideration. Additionally, a candidate should be
inquisitive and feel a duty to ask questions of management and
challenge the status quo;
o A reputation for honesty and integrity;
o A high level of financial literacy;
o A mature confidence and ability to approach others with self-assurance,
responsibly and supportively;
o The ability, capacity and willingness to serve as a conduit of business
referrals to the organization;
o Diversity (in terms of gender, race or other factors) that would
reflect representation of different perspectives;
o Residency in the geographically defined market area of the Bank, with
emphasis placed on maintaining representation throughout the market
area; and
o Knowledge, judgment, skill diversity, business experience, as well as
the interplay or "fit" of the candidate's experience and skill with the
experience and skills of other Board members.
Other than the foregoing, there are no stated minimum criteria for
director nominees, although the Nominating Committee may also consider such
other factors as it may deem are in the best interests of the Corporation and
its stockholders and such factors may change from time to time. The Nominating
Committee does, however, believe it appropriate that at least one director meet
the criteria for "audit committee financial expert" as defined by the SEC rules,
even though no one currently meets this criteria, and that a majority of the
Board members meet the definition of "independent director" under NASD rules.
The Committee identifies nominees by first evaluating the current
directors who are willing to continue in service. If any member of the Board
does not wish to continue its service or the Board determines not to re-nominate
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a current director for re-election, the Nominating Committee identifies the
desired skills and experience of a new nominee in light of the criteria above.
The evaluation procedure for candidates recommended by the stockholders would be
the same as is done for those recommended by the Board of Directors and
management. The Committee recommends a director nominee to the Board, and the
Board makes the final determination as to the nominees who will stand for
election.
Current members of the Board of Directors are polled for suggestions as
to prospective candidates meeting criteria for the Nominating Committee. The
Committee has the prerogative to employ and pay third party search firms, but to
date has not done so.
CORPORATE GOVERNANCE COMMITTEE. The Corporate Governance Committee of
the Corporation, which met three times in 2004, consists of the following five
independent members of the Board of Directors: Dennis F. Beardslee, R. Bruce
Haner, Susan E. Hartley, Karl W. Kroeck and Ann M. Tyler. This committee is
responsible for reviewing and reporting to the Board periodically on matters of
corporate governance.
EXECUTIVE COMMITTEE. The Bank has an Executive Committee consisting of
seven members of the Board of Directors who are as follows: R. Robert DeCamp, R.
Bruce Haner, Leo F. Lambert, Craig G. Litchfield, Edward H. Owlett, III, Leonard
Simpson and James E. Towner. The function of this committee is to monitor and
oversee the Bank's management succession plan and leadership development
processes, review and provide advice and counsel to the CEO regarding the Bank's
strategic plan, mission, goals and objectives and action plans and other various
matters, as well as recommend policies and procedures. During 2004, the
Executive Committee held twelve meetings.
COMPENSATION COMMITTEE. The Compensation Committee of the Bank, which
held two meetings in 2004, consists of the following six independent members of
the Board of Directors: R. Robert DeCamp, R. Bruce Haner, Leo F. Lambert, Edward
H. Owlett, III, Leonard Simpson and James E. Towner. The purpose of the
committee is to discharge the responsibilities of the Board of Directors
relating to compensation of the executive officers and to provide oversight of
the Bank's compensation, benefit, perquisite and employee equity programs.
TRUST INVESTMENT COMMITTEE. The Trust Investment Committee of the Bank,
which met twelve times in 2004, consists of four members of the Board of
Directors; namely, Dennis F. Beardslee, Susan E. Hartley, Edward L. Learn and
Leonard Simpson. Deborah E. Scott, Executive Vice President and Senior Trust
Officer of the Bank, is also a member of this committee, which determines the
policy and investments of the Trust Department, the acceptance of all fiduciary
relationships and relinquishments of all fiduciary relationships.
ASSET LIABILITY COMMITTEE. The Bank also has an Asset Liability
Committee, which consists of Board members R. Robert DeCamp, Jan E. Fisher,
Craig G. Litchfield, Edward H. Owlett, III and Ann M. Tyler, as well as Mark A.
Hughes, Executive Vice President and Chief Financial Officer of the Bank. The
Asset Liability Committee met twelve times during 2004. The purpose of the
committee is to stabilize and improve profitability by balancing the
relationship between risk and return over an extended period of time and to
function as an investment committee.
FINANCE AND LOAN COMMITTEE. The Bank has a Finance and Loan Committee
consisting of nine members of the Board of Directors who are as follows: Dennis
F. Beardslee, Susan E. Hartley, Karl W. Kroeck, Leo F. Lambert, Edward L. Learn,
Craig G. Litchfield, Edward H. Owlett, III, Leonard Simpson and Ann M. Tyler.
The primary purpose of this committee is to evaluate and act on loan requests
that exceed management's lending authority. During 2004, the Finance and Loan
Committee held eleven meetings.
AUDIT COMMITTEE. The Audit Committee of the Corporation, which held ten
meetings in 2004, consists of six independent members of the Board of Directors.
The members of the Committee are R. Bruce Haner, Karl W. Kroeck, Leo F. Lambert,
Edward H. Owlett, III, James E. Towner and Ann M. Tyler. In addition to the ten
meetings of the Audit Committee, the chairman and a rotating member of the
Committee met with representatives of Parente Randolph, LLC, the Bank's internal
audit department and management in May, August and November, 2004 to discuss the
Corporation's quarterly 10-Q filings. The primary function of the Audit
Committee is to review the internal audit program as performed by the internal
auditors, recommend to the Board of Directors the independent auditors for the
year, and review the examinations and reports from those persons. None of the
members of the Audit Committee meet the definition of "Audit Committee financial
expert" as defined in the rules adopted by the Securities and Exchange
Commission. The Board of Directors has determined that each of the present
members of the Audit Committee have sufficient knowledge and experience in
financial matters to effectively perform their duties.
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The Board of Directors of the Corporation has adopted a written charter
for the Audit Committee, which was attached to the 2004 Proxy Statement. The
current Audit Committee Charter is also available on our website at
www.cnbankpa.com. Click on "Shareholder News & Info", then "Corporate
Governance", then "Audit Committee Charter of C&N Corp". The policies and
procedures for pre-approval of engagements for non-audit services are included
in Charter.
The following table sets forth information concerning fees paid to
Parente Randolph, LLC for the years ended December 31, 2004 and 2003. All
services provided by Parente Randolph, LLC in 2004 and 2003 were pre-approved by
the Audit Committee.
Fiscal Years Ended
December 31,
2004 2003
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Audit Fees
Audit of Annual financial statements $ 56,500 $ 49,400
Review of Quarterly financial statements 16,200 15,300
Audit of management's assertions regarding internal
control over financial reporting 51,000 13,500
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Total Audit Fees 123,700 78,200
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Audit-Related Fees
Audits of employee benefit plans 9,300 9,100
Consultation concerning financial accounting and
reporting standards for potential acquisition 3,750 -0-
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Total Audit-Related Fees 13,050 9,100
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Tax Fees
Preparation of Corporate tax returns 6,460 6,900
Preparation of retired employee tax returns 3,725 3,495
------------ ------------
Aggregate of all fees billed to the Corporation
by Parente Randolph, LLC $ 146,935 $ 94,200
AUDIT COMMITTEE REPORT
On March 10, 2005, the Audit Committee of the Board of Directors
reviewed and discussed the audited financial statements dated December 31, 2004
with management. They also have discussed with Parente Randolph, LLC, the
independent auditors of the Corporation, the matters for discussion as specified
by the AICPA Statement of Auditing Standards No. 61. The Audit Committee has
received from Parente Randolph, LLC the written communications required by
Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees" and has discussed with Parente Randolph, LLC, its
independence. Based on its review and discussions referred to above, the
Committee has recommended to the Board of Directors that the audited financial
statements be included in the Corporation's annual report on Form 10-K for the
fiscal year ended December 31, 2004 for filing with the Securities and Exchange
Commission.
Members of the Audit Committee,
Edward H. Owlett, III, Chairman Leo F. Lambert
R. Bruce Haner James E. Towner
Karl W. Kroeck Ann M. Tyler
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DIRECTORS' ATTENDANCE AND COMPENSATION. The Board of Directors of the
Corporation met thirteen times and the Board of Directors of the Bank met
thirteen times in 2004. The Board of Directors also held six quarterly Executive
Sessions and Independent Directors Meetings in 2004. The Executive Sessions
include only members of the Board of Directors and the Independent Directors
Meetings include only non-employee members. All of the directors attended at
least 75% or more of the meetings of the Corporation and its committees of which
they were members.
Although the Company does not have a formal policy with respect to
Board member attendance at the annual meeting of stockholders, each member is
encouraged to attend the annual meeting. All Directors attended the Annual
Meeting of Stockholders held in April 2004.
All directors of the Corporation are directors of the Bank. Each
director who is not an officer of the Corporation or Bank received an annual
retainer of $13,500 and an attendance fee of $400 for each meeting of the Board
attended. In addition, each such director received a fee of $200 for attendance
at each committee meeting. The chairpersons of the Audit and Executive
Committees also received an annual retainer of $1,875 and the chairpersons of
the Trust, Compensation, Nominating and Corporate Governance Committees received
an annual retainer of $1,125. The aggregate amount of directors' retainers and
fees paid during 2004 was $306,450.
Under the Independent Directors' Stock Incentive Plan, for 2003 each
director who is not an officer of the Corporation or the Bank was awarded, as of
January 2004, 327 stock options and 37 shares of restricted stock. For 2004,
each director who is not an officer of the Corporation or Bank was awarded, as
of January 3, 2005, 473 stock options and 54 shares of restricted stock. The
awards of options and restricted shares are based on the company's three-year
cumulative earnings per share growth as compared to the Plan's growth target.
The present value of the stock options and restricted shares awarded to each
director for each year, 2003 and 2004, was approximately $9,000. The present
value calculations use as the discount rate the 5-year U.S. Treasury rate and
are based on assumptions including a five-year projected future market value and
an assumed growth in dividends.
Each member of the Corporation's Board of Directors and Advisory Board
who receives retainers and fees may elect to receive such retainers and fees in
the form of either cash or Corporation common stock, or a combination of cash
and Corporation common stock. To the extent such members elect to receive
payment of retainers and fees in the form of Corporation common stock, such
stock is purchased through the Corporation's dividend reinvestment plan.
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CORPORATION'S AND BANK'S EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
current executive officers of the Corporation and the Bank.
NAME AND POSITION FOR LAST FIVE YEARS AGE
Craig G. Litchfield 57
President and Chief Executive Officer of the Corporation and the Bank since January 1997
Dawn A. Besse 53
Executive Vice President and Director of Sales, Service and Employee Development of the
Bank since August 2000; formerly Business Banking Territory Sales Manager for PNC Bank
Mark A. Hughes 43
Treasurer of the Corporation since November 2000; Executive Vice President and
Chief Financial Officer of the Bank since August 2000; formerly Principal and
Manager of Parente Randolph, LLC
Matthew P. Prosseda 43
Executive Vice President and Director of Lending of the Bank since April 1997
(Mr. Prosseda resigned from his position effective February 25, 2005)
Thomas L. Rudy, Jr. 40
Executive Vice President and Director of Branch Delivery of the Bank since
February 2004; formerly President of C&N Financial Services Corporation since
January 2000; formerly Sales Manager for Unum Provident Insurance
Deborah E. Scott 45
Executive Vice President and Senior Trust Officer of the Bank since
September 1999; formerly Vice President and Trust Officer of the Bank since
January 1998
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee ("Committee") of the Board of Directors
establishes compensation policies, plans and programs which are intended to
accomplish three objectives: to attract and retain highly capable and well
qualified executives; to focus executives' efforts on increasing long-term
stockholder value; and to reward executives at levels which are reasonable and
competitive within the marketplace for similar positions and commensurate with
the performance of each executive and of Citizens & Northern. Each member of the
Committee is an independent non-employee director. The Committee establishes the
salaries of the other executive officers with input from the Chief Executive
Officer and the Board of Directors reviews all decisions relating to the
compensation of the executive officers.
The key elements in Citizens & Northern's executive compensation
program, all determined by individual and corporate performance, are base salary
compensation, annual cash bonus incentive compensation, long-term incentive
compensation, and equitable retirement benefits.
Annual compensation for the Chief Executive Officer is determined in
essentially the same way as for other executives, recognizing that the CEO has
overall responsibility for the performance of Citizens & Northern. The Committee
believes that the CEO compensation should be heavily influenced by the
performance of the Corporation. Base salaries and compensation programs are set
at levels competitive with peer banking institutions and are adjusted for
individual performance. To develop peer groups for Citizens & Northern, Ben S
Cole Financial Incorporated (Cole Financial) collected market pay data from
surveys covering the banking industry. Cole Financial then analyzed the
compensation of Citizens & Northern's executive officers as compared with
compensation packages offered by U.S. financial institutions of similar asset or
revenue size, as applicable.
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In establishing Mr. Litchfield's base salary, the Committee reached the
following conclusions regarding company performance: Survey comparison of
Citizens & Northern established a survey Peer Group of 41 independent banks
whose 2003 average asset size approximately equaled C&N's, and further narrowed
their Peer Group to a Core Group of 24 banks. According to the survey, the
Corporation's return on average assets (ROA) for 2003 was 1.57%, while the Core
Group's ROA was 1.44% and the Peer Group's ROA was 1.26%. Mr. Litchfield's 2003
base salary of $286,650 is 1% below Core Group CEO's who receive a similar
compensation package. His total compensation with bonus and incentives for 2003
was 103% of par compared to Core Group CEOs. In December 2003, the Committee
established the Chief Executive Officer's 2004 base salary at $303,849,
representing a 6.0% increase over 2003.
The compensation of the Chief Executive Officer and executive officers
is reviewed annually by the Committee, except for decisions about awards under
the Incentive Award Plan. The incentive opportunities in the Incentive Award
Plan apply to meeting the Threshold, Target and Maximum levels of the
Corporation's Return on Average Assets as compared to peers and growth in
noninterest revenue compared to selected benchmarks. The CEO Performance
Criteria Weighting for 2003 applied 80% to Corporate performance and 20% for
Individual performance. C&N's Incentive Award Plan target and maximum award for
2003 was 40% and 60%, respectively, of base compensation for the CEO. For 2002
performance, the CEO Incentive Award was 49% of base compensation, 121% of par
of the cash bonuses awarded to the Peer Group CEOs in 2002. In December 2003,
for 2003 performance, the Committee established the Chief Executive Officer's
Incentive Award of 32% of base compensation.
The Corporation approved a non-qualified Supplemental Executive
Retirement Plan effective January 1, 1989. It was designed for the purpose of
retaining talented executives and to promote in these executives a strong
interest in the long-term, successful operation of the Corporation. Since the
Bank's Pension Plan provides a substantially reduced benefit as a percentage of
final compensation for the executive officers as compared to non-executives, the
Supplemental Executive Retirement Plan is intended to supplement the total
retirement benefit package of the covered executives. The Supplemental Executive
Retirement Plan is an unfunded plan and is subject to the general creditors of
the Corporation.
The Corporation approved a Stock Incentive Plan effective January 1,
1995. The Stock Incentive Plan is designed to advance the development, growth
and financial condition of the Corporation while attracting, retaining and
rewarding executives.
The Committee believes that the programs discussed above further the
stockholders' interests since a significant part of executive compensation is
based on obtaining results for the stockholders. The Committee bases its review
on experience of its own members, on information requested from management and
information compiled by various independent compensation consultants. The
Committee believes that the program encourages responsible management of the
Corporation.
Members of the Compensation Committee,
R. Robert DeCamp, Chairman Edward H. Owlett, III
R. Bruce Haner Leonard Simpson
Leo F. Lambert James E. Towner
-9-
EXECUTIVE COMPENSATION
The following table contains information with respect to annual
compensation for services in all capacities to the Corporation and Bank for the
fiscal years ended December 31, 2004, 2003 and 2002 of those persons who were,
at December 31, 2004, (i) the Chief Executive Officer and (ii) the four (4)
other most highly compensated executives to the extent such persons' total
salary and bonus exceeded $100,000:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
Awards
Restricted All Other
Stock Options Compen-
Name and Salary Bonus (1) Awards (2)(3) Awards (2) sation (4)
Principal Position Year ($) ($) ($) (#) ($)
------------------------------------------------------------------------------------------------------------------------------------
CRAIG G. LITCHFIELD 2004 303,849 94,204 17,151 5,715 43,315
Chairman, President and 2003 286,650 91,372 11,049 7,204 38,401
CEO 2002 273,000 141,032 17,595 9,405 34,860
MARK A. HUGHES 2004 145,444 34,510 6,382 2,145 18,406
Executive Vice President 2003 137,852 28,604 4,146 2,700 18,602
And Chief Financial Officer 2002 131,248 47,085 6,579 3,528 17,151
MATTHEW P. PROSSEDA 2004 127,270 24,933 6,382 2,145 14,965
Executive Vice President 2003 122,413 25,147 4,146 2,700 15,671
and Director of Lending 2002 116,890 41,825 6,579 2,700 14,533
DEBORAH E. SCOTT 2004 124,643 23,881 6,382 2,145 15,487
Executive Vice President 2003 119,080 24,709 4,146 2,700 15,686
And Senior Trust Officer 2002 115,589 40,687 6,579 3,528 14,440
THOMAS L. RUDY, JR. 2004 117,325 19,659 4,387 1,435 12,203
Executive Vice President 2003 101,746 7,086 2,094 1,350 8,785
and Director of Branch 2002 68,640 8,062 3,290 2,352 7,198
Delivery
(1) The bonus is paid pursuant to the Incentive Award Plan, which is
described on page 16.
(2) Determined by multiplying the market value of the Corporation's common
stock on the date of grant by the number of shares awarded. Recipients
receive dividends on, and have rights to vote, shares of restricted
stock. The awards of restricted shares of Corporation common stock and
stock options granted on January 2, 2004, at the closing price of
$26.59 per share, were based on performance for the year ended December
31, 2003. The following awards were granted on January 3, 2005 at the
closing price of $27.00 per share, based on performance for the year
ended December 31, 2004: Mr. Litchfield, 625 restricted shares and
5,515 stock options; Mr. Hughes, 230 restricted shares and 2,065 stock
options; Mr. Prosseda, 230 restricted shares and 2,065 stock options;
Mrs. Scott, 230 restricted shares and 2,065 stock options; and Mr.
Rudy, 230 restricted shares and 2,065 stock options. The restricted
shares vest in three equal annual increments on the anniversaries of
the awards.
(3) The total number of restricted shares and the aggregate market value
thereof at December 31, 2004 are as follows: Mr. Litchfield held 1,540
restricted shares having an aggregate market value of $41,580; Mr.
Hughes held 575 restricted shares having an aggregate market value of
$15,525; Mr. Prosseda held 575 restricted shares having an aggregate
market value of $15,525; Mrs. Scott held 575 restricted shares having
an aggregate market value of $15,525; and Mr. Rudy held 332 restricted
shares having an aggregate market value of $8,964. Dividends accrue and
are paid on the restricted shares. The aggregate market value is based
on the fair market value at December 31, 2004 of $27.00 per share.
-10-
(4) Includes 2004 (a) contributions to the following accounts under the
Bank's Savings & Retirement Plan (401k): Mr. Litchfield, $16,400; Mr.
Hughes $13,924; Mr. Prosseda, $12,193; Mrs. Scott, $11,948; and Mr.
Rudy, $9,953,and (b) allocations to the following Non-Qualified
Supplemental Executive Retirement Plan accounts: Mr. Litchfield,
$26,915; Mr. Hughes $4,482; Mr. Prosseda $2,772; Mrs. Scott, $3,539;
and Mr. Rudy, $2,250.
STOCK INCENTIVE PLAN
In 1995, the Corporation's Board of Directors adopted and the
stockholders approved the Citizens & Northern Corporation Stock Incentive Plan.
The purpose of the Plan is to advance the development, growth and financial
condition of the Corporation by providing incentives through participation in
the appreciation of the capital stock in order to secure, retain and motivate
personnel responsible for the operation and management of the Corporation and
its subsidiaries. Participants in the Stock Incentive Plan include the officers
named in the Summary Compensation Table, as set forth herein, as well as other
officers and key employees.
The Board of Directors granted 31,500 qualified stock options under the
Stock Incentive Plan in January 2005 for key officers of the Bank, based on
performance for the year ended December 31, 2004. 29,325 shares were granted
under options in January 2004, based on performance for 2003, and 41,068 shares
were granted in January, 2003, based on performance for 2002. (The number of
options granted in 2003 have been adjusted for the 3-for-2 stock split issued in
April 2003.) The period of the options is ten (10) years, commencing from the
date of the grant, and become exercisable six (6) months from the grant date.
Once the options are exercisable, all or a portion of the available exercisable
options may be exercised at any time within the ten (10) year period from the
grant date. If employment with the Bank terminates, except in the event of death
or disability, the optionee has three (3) months from the date of termination to
exercise any exercisable options outstanding as of the date of cessation of
employment. In the event of an optionee's death or disability, the optionee or
their legal representative may exercise any options to which the optionee was
entitled as of the date of cessation of employment.
The Board of Directors also granted 3,480 shares of restricted stock
under the Stock Incentive Plan in January 2005 based on 2004 performance. 3,270
shares were granted in January 2004 for 2003 performance and 4,576 shares were
granted in January 2003 for 2002 performance. (The number of awards granted in
2003 have been adjusted for the 3-for-2 stock split issued in April 2003.)
Restricted stock awards require no payment from the selected officers and vest
ratably over three (3) years.
After the awards granted for 2004 performance in January 2005, there
are 122,889 shares reserved for future grants under the Stock Incentive Plan.
-11-
OPTION GRANTS
The following table sets forth information concerning stock options
granted in 2004 under the Stock Incentive Plan to the Chief Executive Officer
and the four most highly compensated executives of the Corporation named in the
Summary Compensation Table:
% of Total Potential Realizable
Number of Options Value at Assumed
Securities Granted Exercise Annual Rates of Stock
Underlying to Employees or Base Price Appreciation for
Options in Fiscal Price Expiration Option Term (1)
Name Granted Year ($/Share) Date 5% 10%
---------------------------------------------------------------------------------------------------------------
Craig G. Litchfield 5,715 19.49% $26.59 1/02/2014 $ 95,568 $242,188
Mark A. Hughes 2,145 7.31% $26.59 1/02/2014 $ 35,869 $ 90,900
Matthew P. Prosseda 2,145 7.31% $26.59 1/02/2014 $ 35,869 $ 90,900
Deborah E. Scott 2,145 7.31% $26.59 1/02/2014 $ 35,869 $ 90,900
Thomas L. Rudy, Jr. 1,435 4.89% $26.59 1/02/2014 $ 23,997 $ 60,812
(1) Represents the difference between the market value of the common stock
for which the option may be exercised, assuming that the market value
of the common stock on the date of grant appreciates in value to the
end of the ten-year option term at annualized rates of 5% and 10%,
respectively, and the exercise price of the option. The rates of
appreciation used in this table are prescribed by regulations of the
Securities and Exchange Commission and are not intended to forecast
future appreciation of the market value of the common stock.
AGGREGATED STOCK OPTIONS EXERCISED DURING 2004
AND YEAR-END OPTION VALUES
The following table sets forth information concerning the exercise
during 2004 of options granted under the Stock Incentive Plan by the Chief
Executive Officer and the four most highly compensated executives of the
Corporation named in the Summary Compensation Table:
Number
of Value Number of Securities Value of Unexercised
Shares Realized Underlying Unexercised In-the-Money
Acquired on Shares Options at Options on
Name On Exercise Acquired (1) December 31, 2004 December 31, 2004 (2)
-----------------------------------------------------------------------------------------------------------
Craig G. Litchfield 1,250 9,375 46,128 $ 91,803
Mark A. Hughes 0 0 9,238 $ 28,939
Matthew P. Prosseda 1,336 16,812 18,326 $ 34,321
Deborah E. Scott 0 0 13,363 $ 34,002
Thomas L. Rudy, Jr. 0 0 5,137 $ 12,581
(1) Represents the difference between the market value on the date of exercise
of the shares acquired and the option price of those shares.
(2) Represents the difference between the aggregate market value at December
31, 2004 of the shares subject to the options and the aggregate option
price of those shares.
-12-
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information concerning the Stock
Incentive Plan and Independent Directors Stock Incentive Plan, both of which
have been approved by the security holders. The figures are as of December 31,
2004. The stockholders have approved all of the Corporation's equity
compensation plans.
Number of Securities
Number of Securities Weighted-Average Remaining Available for
To be Issued Upon Exercise Price of Future Issuance Under
Exercise of Outstanding Equity Compensation
Outstanding Options Options Plans
-------------------------------------------------------------------------------------------------------------------
Equity Compensation Plans
Approved by Security Holders 212,463 $ 20.03 195,823
Equity Compensation Plans
Not Approved by Security Holders 0 N/A 0
Effective on January 3, 2005, the Corporation granted options to
purchase a total of 37,176 shares of common stock through the Stock Incentive
Plan and Independent Directors Stock Incentive Plan. The exercise price for
these options is $27.00 per share, which was the market price at the date of
grant. Also, effective January 3, 2005, the Corporation awarded a total of 4,128
shares of restricted stock under the two Plans. These awards are not included in
the above table.
-13-
PERFORMANCE GRAPH
Set forth below is a chart comparing the Corporation's cumulative
return to stockholders against the cumulative return of the Russell 2000 and a
Peer Group Index of similar banking organizations selected by the Corporation
for the five year period commencing December 31, 1999 and ended December 31,
2004. The index values are market-weighted dividend-reinvestment numbers which
measure the total return for investing $100.00 five years ago. This meets
Securities & Exchange Commission requirements for showing dividend reinvestment
share performance over a five year period and measures the return to an investor
for placing $100.00 into a group of bank stocks and reinvesting any and all
dividends into the purchase of more of the same stock for which dividends were
paid.
COMPARISON OF 5 YEAR CUMULATIVE RETURN
(PERFORMANCE GRAPH)
PERIOD ENDED
AS OF
12/31/99 12/31/00 12/31/01 12/31/02 12/31/03 12/31/04
C&N $ 100.00 $ 78.15 $ 107.06 $ 134.60 $ 183.83 $ 192.21
Russell 2000 $ 100.00 $ 96.98 $ 99.39 $ 79.03 $ 116.38 $ 137.71
C&N Peer Group $ 100.00 $ 90.05 $ 113.57 $ 140.40 $ 184.04 $ 205.67
The C&N peer group consists of banks headquartered in Pennsylvania with total
assets of $500 million to $1.5 billion. This peer group consists of ACNB
Corporation, Gettysburg; AmeriServ Financial, Inc., Johnstown; Bryn Mawr Bank
Corporation, Bryn Mawr; Chester Valley Bancorp Inc., Downington; CNB Financial
Corporation, Clearfield; Comm Bankcorp, Inc., Clarks Summit; Ephrata National
Bank, Ephrata; Fidelity D & D Bancorp, Dunmore; First Chester County Corp., West
Chester; First National Community Bankcorp, Inc., Dunmore; Franklin Financial
Services Corporation, Chambersburg; IBT Bancorp, Inc., Irwin; Leesport Financial
Corp., Wyomissing; NSD Bancorp, Inc., Pittsburgh; Omega Financial Corporation,
State College; Penn Rock Financial Services Corp., Blue Ball; Penns Woods
Bancorp, Inc., Williamsport; Pennsylvania Commerce Bancorp, Inc., Camp Hill;
Penseco Financial Services Corporation, Scranton; QNB Corp., Quakertown;
Republic First Bancorp, Inc. , Philadelphia; Royal Bancshares of Pennsylvania,
Inc., Narbeth; PSB Bancorp, Inc., Philadelphia; Orrstown Financial Services,
Inc., Shippensburg; and American Bank Incorporated, Allentown.
The data for this graph was obtained from SNL Financial L.C.
-14-
PENSION PLAN
The Citizens & Northern Bank Pension Plan (the "Plan") is a qualified
defined benefit plan under Section 401(a) of the Internal Revenue Code. The Plan
is intended to provide a defined retirement benefit to participants without
regard to the profits of the Bank. Employees are neither required nor permitted
to contribute to the Plan. Annual contributions by the Bank are determined
actuarially. To participate in the Plan, an employee must be 18 years of age and
have completed one year of service. A participant's retirement benefit, which
becomes fully vested after 5 years of service, is based on compensation and
credited service with the Bank. For purposes of determining a retirement
benefit, the term "compensation" is defined to include an employee's total
remuneration received from the Bank, including base salary, bonus and overtime.
Benefits are a percentage of the average compensation for the five consecutive
years of highest compensation preceding retirement, multiplied by the number of
years of completed service, up to 25 years. The Bank's Trust and Financial
Services Department serves as Trustee under the Plan.
The following table indicates, for purposes of illustration, the
approximate amounts of annual retirement income which would be payable under the
terms of the Plan, in the form of a straight life annuity, to a participant who
retired as of December 31, 2004, at age 65, under various assumptions as to
compensation and years of credited service. For 2004, the Pension Plan benefits
are determined on only the first $205,000, as indexed, in compensation as
determined by the Commissioner of the Internal Revenue Service and as prescribed
by law.
PENSION PLAN TABLE
Years of Credited Service
Average Annual Compensation 15 20 25 (or more)
--------------------------- --------------------------------------------
$100,000 $18,737 $24,983 $31,229
$125,000 $24,550 $32,733 $40,916
$150,000 $30,362 $40,483 $50,604
$175,000 $36,175 $48,233 $60,291
$200,000 $41,987 $55,983 $69,979
$205,000 and over $43,150 $57,533 $71,916
The credited years of service under the Plan as of December 31, 2004
was 32 years for Mr. Litchfield, 4 years for Mr. Hughes, 11 years for Mr.
Prosseda, 7 years for Mrs. Scott, and 5 years for Mr. Rudy.
In December 1989, the Bank established a non-qualified supplemental
executive retirement plan for certain key executive employees ("Executive
Plan"). The Executive Plan provides a retirement benefit for executives who
retire after attaining age 55 and 5 years of plan service in an amount
determined annually by the Directors. The Board of Directors may terminate the
Executive Plan at any time. In 2004, the amounts accrued pursuant to the
Executive Plan for the accounts of the officers named in the Summary
Compensation Table set forth herein, is included in "All Other Compensation".
SAVINGS PLAN
The Citizens & Northern Savings and Retirement Plan ("Savings Plan") is
qualified under Section 401(k) of the Internal Revenue Code. It allows a
participant to authorize the deposit into the Plan of before tax earnings of
from 1% to 15% of his compensation. Under the Tax Reform Act, the maximum amount
of elective contributions that could be made by a participant during 2004 was
Thirteen Thousand Dollars ($13,000.00) plus a Three Thousand Dollar ($3,000.00)
catch-up contribution if over age 50, also subject to a $205,000 compensation
limit. All officers and employees of the Bank, including the officers named in
the Summary Compensation Table set forth herein, are eligible to participate in
the 401(k) Plan. A participant also may make voluntary contributions to the
Savings Plan from after tax savings of up to 10% of the participant's
compensation. The Bank is required to contribute a basic employer contribution
equal to 2% of each eligible participant's compensation; in addition, the Bank
may make a discretionary basic contribution. The total actual basic employer
contribution for 2004 was equal to 4%. In addition, the Bank makes matching
contributions equal to 100% of a participant's before tax contributions up to 3%
of compensation and equal to 50% of such contributions between 3% and 5% of
compensation. The Bank's basic employer contributions are invested in the common
stock of the Corporation. All participants' contributions and the Bank's
matching contributions for 2004, at the participants' election, were invested in
a choice of investment funds
-15-
maintained by the Bank as Trustee. In 2004, the Bank's contribution to the
Savings Plan for the accounts of the officers named in the Summary Compensation
Table set forth herein is included as "All Other Compensation".
INCENTIVE AWARD PLAN
The Board of Directors has adopted an Incentive Award Plan for certain
members of the management group of the Bank in order to promote a superior level
of performance regarding the Bank's financial goals and to attract and retain
competent management. Under the Incentive Award Plan, if predetermined
performance goals are realized by the Bank in a given fiscal year, the
participants will receive awards based upon the target or maximum levels of
payout as determined by the Plan.
Pursuant to the terms of the Incentive Award Plan, immediately before
the beginning of each year the Compensation Committee of the Board of Directors
of the Bank will designate the participants in the Incentive Award Plan and set
a minimum and maximum level of awards for each class of participants and the
individual performance and financial goals of the Bank or appropriate unit to be
achieved. The Compensation Committee, at its discretion, may adjust award
payments under the Incentive Award Plan based on extraordinary circumstances,
conflicts with long-term financial and development objectives, or below standard
individual participant performance. All awards under the Incentive Award Plan
are paid in cash as soon as practical after the end of a plan year.
CHANGE IN CONTROL AGREEMENTS
The Corporation and the Bank (the "Employer") have entered into Change
in Control Agreements (the "Agreements") with Messrs. Litchfield, Hughes,
Prosseda, Mrs. Scott, Mr. Rudy and certain other officers (each an "Employee"),
effective December 31, 2003. The purpose of the Agreements is to retain and
secure key employees and encourage their continued attention and dedication to
their assigned duties without the distraction of potential disturbing
circumstances arising from the possibility of a change in control of the
Corporation and Bank.
The Change in Control Agreements are not employment agreements. The
Agreements provide for a lump sum severance benefit in the event certain events
take place after there is a "change in control", as defined in the Agreement, of
the Corporation, or for a period of twenty-four (24) months thereafter. If the
Employee remains employed for more than twenty-four (24) months after a change
in control, nothing is payable.
Under the Agreements, the term "termination" means the termination of
the employment of the officer either by the Employer for any reason other than
death, disability, or "cause", or by resignation of the Employee upon the
occurrence of one or more of the following events: a significant change in the
Employee's authorities or duties, a reduction in annual salary, or a material
reduction in benefits; the relocation of the Employee's office to a location
more than 35 miles from the location of the Employee's office immediately prior
to the employment period; the Employee is unable to exercise the authorities,
powers, functions or duties associated with the Employee's position; or the
failure of the Corporation to obtain a satisfactory agreement from any successor
to assume and agree to perform the Agreement in the same manner and extent as if
no succession had taken place.
In the event of a termination, the Agreements provide severance
benefits of (i) Employer-paid group medical insurance continuation premiums for
a period of eighteen (18) months after the date of termination, and (ii) a lump
sum payment in cash no later than thirty (30) business days after the date of
termination equal to the sum of the Employee's unpaid salary, accrued vacation
pay and unreimbursed business expenses through and including the date of
termination; and an amount equal to one (1) times the Employee's base salary in
effect immediately prior to the date of termination.
The original Agreements terminated on December 31, 2004, but are
automatically extended for additional one-year periods unless written notice is
provided by the Employer or Employee that such party does not wish to extend the
term. If a change in control occurs during the original or extended term of the
Agreements, the term shall continue for a period of twenty-four (24) months and
end upon the expiration of such twenty-four (24) month period.
The amount of severance salary benefits that each of the above-named
executive officers would be entitled to, pursuant to the Agreements, if an event
which triggered the payment occurred on the date of the Proxy Statement, is as
follows: Messrs. Litchfield $320,000, Hughes $160,000, Prosseda $132,405, Mrs.
Scott $132,405 and Mr.
-16-
Rudy $105,000. The total of such severance salary benefit payments for all
covered Employees would be $1,316,414.
INDEMNIFICATION AGREEMENTS
On April 20, 2004, the Stockholders of the Corporation authorized the
Corporation to enter into Indemnification Agreements with the Directors of the
Corporation and the Bank and certain officers of the Bank, as designated by the
Board of Directors. The primary purpose of the Agreements is to ensure the
ability of the Corporation and the Bank to continue to attract and retain
responsible, competent and otherwise qualified directors and officers. The
Indemnification Agreements were entered into with all Directors of the Bank and
Corporation, as well as the Corporation's and Bank's Executive Officers as named
on page 7, beginning in late May 2004.
The indemnification agreements provide to covered directors and
officers the most advantageous of any combination of benefits under (i) the
benefits provided by the Bylaws of the Corporation in effect as of the date the
agreements were are entered into; (ii) the benefits provided by the Bylaws, the
Articles of Incorporation or their equivalent of the Corporation in effect at
the time indemnification expenses are incurred by an indemnitee; (iii) the
benefits allowable under Pennsylvania law in effect on the date of the
agreements; (iv) the benefits allowable under the law of the jurisdiction under
which the Corporation exists at the time indemnifiable expenses are incurred by
an indemnitee; (v) the benefits available under a liability insurance policy
obtained by the Corporation and its subsidiaries in effect on the date of the
agreements; (vi) the benefits available under a liability insurance policy
obtained by the Corporation and its subsidiaries, in effect at the time the
indemnifiable expenses are incurred by an indemnitee; and (vii) such other
benefits as are or may otherwise be available to the indemnitee.
The Corporation is not obligated to, nor has it agreed to provide
funding for its obligations under the agreements. The Corporation is obligated,
however, to pay its obligations under the agreements from general assets or
insurance. The agreements do require the Corporation to continue to purchase D&O
Coverage for so long as it is available on a commercially reasonable basis.
The indemnification available pursuant to the agreements is subject to
a number of exclusions. No indemnification is required under the agreements with
respect to any claim as to which it is finally proven by clear and convincing
evidence in a court of competent jurisdiction that the covered person acted or
failed to act with deliberate intent to cause injury to the Corporation or a
subsidiary thereof or with reckless disregard for the Corporation's best
interest. The Corporation is also not required to make any payment finally
determined by a court to be unlawful or any payment required under Section 16(b)
of the Securities and Exchange Act of 1934, as amended. In addition, any claim
(or part thereof) against an indemnitee which falls within the prohibitions of
12 C.F.R. Section 7.5217 (i.e. a prohibition on indemnification or insurance
coverage for expenses, penalties or other payments incurred in connection with
an action by a banking regulatory agency which results in a final order
assessing monetary penalties or requiring affirmative action in the form of
payment to said bank) is excluded from indemnification under the agreements.
CERTAIN TRANSACTIONS
Certain directors and officers of the Corporation and the Bank and
their associates (including corporations of which such persons are officers or
10% beneficial owners) were customers of, and had transactions with the Bank in
the ordinary course of business during the year ended December 31, 2004. Similar
transactions may be expected to take place in the future. Such transactions
included the purchase of certificates of deposit and extensions of credit in the
ordinary course of business on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons and did not involve more than the normal risks
of collectibility or present other unfavorable features. The Bank expects that
any other transactions with directors and officers and their associates in the
future will be conducted on the same basis.
-17-
INDEPENDENT ACCOUNTANTS
Parente Randolph, LLC, formerly Parente, Randolph, Orlando, Carey &
Associates, has been the independent public accounting firm appointed by the
Bank since 1981, and was selected by the Board as the independent public
accounting firm for the Corporation and the Bank for the fiscal year ended
December 31, 2004. The Corporation expects to engage Parente Randolph, LLC as
its independent accountants for the year 2005, subject to the review and
approval by the Audit Committee. No member of the firm or any of its associates
has a financial interest in the Corporation. A representative of Parente
Randolph, LLC is expected to be present at the Annual Meeting to answer
appropriate questions from stockholders and will be afforded an opportunity to
make any statement that the firm desires.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Securities Exchange Act of 1934 requires the
Corporation's officers and directors, and persons who own more than ten percent
of the Corporation's common stock, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, directors and
greater than ten percent stockholders are required by Securities and Exchange
Commission regulations to furnish the Corporation with copies of all Section
16(a) forms they file.
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Corporation during 2004 and Forms 5 and amendments thereto
furnished to the Corporation with respect to 2004, the Corporation believes that
no director, officer or ten percent stockholder or any other person subject to
Section 16 of the Exchange Act, failed to make on a timely basis during 2004 any
reports required to be filed by Section 16(a) of the Exchange Act, with the
exception of four delinquent Form 4 filings by Mr. Owlett. These filings were
due to purchases made with the cash dividends for his children's accounts that
are managed by a brokerage firm.
STOCKHOLDER PROPOSALS
The Corporation's Articles of Incorporation contain provisions that
address the process by which a stockholder may nominate an individual to stand
for election to the Board of Directors. Stockholder recommendations for members
of the Board should be submitted in writing to the President of the Corporation,
and must include the stockholder's name, address, and the number of shares
owned. The recommendation must also include the name, address and principal
occupation of the proposed nominee as well and number of shares owned by the
notifying stockholder and the total number of shares that will be voted for the
proposed nominee. Stockholder recommendations must also include the information
that would be required to be disclosed in the solicitation of proxies for the
election of directors under federal securities laws, including the candidate's
consent to be elected and to serve. The Articles of Incorporation specify that
nominations from stockholders must be delivered or mailed not less than fourteen
(14) days nor more than fifty (50) days prior to the stockholder meeting at
which directors will be elected, except in the case where less than twenty-one
(21) days notice is given of a stockholder meeting, in which case a notifying
stockholder can mail or deliver a nomination not later than the close of
business on the seventh day after the day the meeting notice was mailed.
The Corporation's 2006 Annual Meeting of stockholders is scheduled to
be held in April 2006. Any stockholder who intends to present a proposal at the
2006 Annual Meeting and who wishes to have the proposal included in the
Corporation's proxy statement and form of proxy for that meeting must deliver
the proposal to the Corporation's executive offices, 90-92 Main Street, P.O. Box
58, Wellsboro, Pennsylvania 16901, by November 21, 2005. Citizens & Northern
must receive notice of all other stockholder proposals for the 2005 annual
meeting delivered or mailed no less than 14 days nor more than 50 days prior to
the Annual Meeting; provided, however, that if less than twenty-one days notice
of the annual meeting is given to stockholders then the Corporation must receive
notice not less than seven days following the date on which notice of the annual
meeting was mailed. If notice is not received by the Corporation within this
time frame, the Corporation will consider such notice untimely. The Corporation
reserves the right to vote in its discretion all of the shares of common stock
for which it has received proxies for the 2006 annual meeting with respect to
any untimely shareholder proposals.
-18-
OTHER MATTERS
The management of the Corporation does not intend to bring any other
matters before the Annual Meeting and is not presently informed of any other
business which others may bring before such meeting. However, if any other
matters should properly come before such meeting or any adjournment thereof, it
is the intention of the persons named in the accompanying proxy to vote on such
matters as they, in their discretion, determine.
ADDITIONAL INFORMATION
If you wish to communicate with the Board, you may send correspondence
to Kathleen M. Osgood, Corporate Secretary, Citizens & Northern Corporation,
90-92 Main Street, Wellsboro, PA 16901. The Corporate Secretary will submit your
correspondence to the Board or the appropriate committee, as applicable. You may
also communicate directly with the presiding non-management director of the
Board by sending correspondence to Lead Director, Board of Directors, Citizens &
Northern Corporation, 90-92 Main Street, Wellsboro, PA 16901.
The Corporation's Annual Report on Form 10-K for the year 2004,
including financial statements as certified by Parente Randolph, LLC, was mailed
with this Proxy Statement on or about March 22, 2005, to the stockholders of
record as of the close of business on March 1, 2005.
AN ADDITIONAL COPY OF THE CORPORATION'S 2004 ANNUAL REPORT ON FORM 10-K
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE FINANCIAL
STATEMENTS AND SCHEDULES THERETO, WILL BE FURNISHED FREE OF CHARGE TO
STOCKHOLDERS. WRITTEN REQUEST SHOULD BE DIRECTED TO THE TREASURER, CITIZENS &
NORTHERN CORPORATION, 90-92 MAIN STREET, WELLSBORO, PA, 16901, OR BY PHONE AT
570-724-3411.
By Order of the Board of Directors,
Kathleen M. Osgood
Corporate Secretary
Dated: March 22, 2005
-19-
CITIZENS & NORTHERN CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 19, 2005
The undersigned hereby appoints R. Robert DeCamp and Edward L. Learn, and each
or either of them, as the attorneys and proxies of the undersigned, with full
power of substitution in each, to vote all shares of the common stock of
Citizens & Northern Corporation which the undersigned would be entitled to vote
if personally present at the Annual Meeting of Stockholders to be held on
Tuesday, April 19, 2005, at 2:00 P.M. (local time), at the Arcadia Theatre, 50
Main Street, Wellsboro, Pennsylvania 16901, and at any adjournments thereof, and
to vote as follows:
1. ELECTION OF CLASS III DIRECTORS.
Nominees: Dennis F. Beardslee, Jan E. Fisher, Karl W. Kroeck, Craig G.
Litchfield and Ann M. Tyler.
[ ] VOTE FOR all nominees listed above (except as marked [ ] VOTE WITHHELD from all nominees listed above.
to the contrary below)
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(INSTRUCTIONS: To withhold authority to vote for any individual
nominee, write that nominee's name on the space provided above.)
2. OTHER MATTERS. In their discretion, to vote with respect to any other
matters that may properly come before the Meeting or any adjournments
thereof.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DIRECTED HEREIN BY THE
STOCKHOLDER. UNLESS OTHERWISE INDICATED, THIS PROXY WILL BE VOTED FOR THE
ELECTION AS DIRECTORS OF THE NOMINEES LISTED IN PROPOSAL 1.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. When shares are held as joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Dated: , 2005
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Signature
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Signature
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED POSTAGE-PAID ENVELOPE.