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 22, 2006
Dear Stockholder:
On behalf of the Board of Directors and management of Norwood Financial
Corp. (the "Company"), I invite you to attend the 2006 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 25, 2006, 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 two directors, to approve the Norwood Financial
Corp. 2006 Stock Option Plan, and to ratify the appointment of Beard Miller
Company LLP as the Company's independent accountants for the fiscal year ending
December 31, 2006. 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 25, 2006
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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 25, 2006, at 11:00 a.m., local time, for the following purposes:
1. To elect two directors of the Company;
2. To approve the Norwood Financial Corp. 2006 Stock Option Plan;
and
3. To ratify the appointment of Beard Miller Company LLP as
independent accountants of the Company for the fiscal year
ending December 31, 2006;
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 17, 2006, 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, 2005
is enclosed.
YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WE
ENCOURAGE YOU TO VOTE BY PROXY SO THAT YOUR SHARES WILL BE REPRESENTED AND VOTED
AT THE ANNUAL MEETING EVEN IF YOU CANNOT ATTEND. ALL STOCKHOLDERS CAN VOTE BY
WRITTEN PROXY CARD. ALSO, YOU MAY VOTE IN PERSON AT THE ANNUAL MEETING IF YOU SO
CHOOSE. HOWEVER, IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE NOT REGISTERED IN
YOUR OWN NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER TO
VOTE PERSONALLY AT THE ANNUAL MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ John E. Marshall
JOHN E. MARSHALL
SECRETARY
Honesdale, Pennsylvania
March 22, 2006
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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 25, 2006
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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 22, 2006 in connection with the solicitation by the Company's Board of
Directors of proxies to be used at the Company's 2006 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 25, 2006,
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 (approval of 2006 Stock Option Plan); (c) FOR Proposal 3
(ratification of independent public accountants); and (d) 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 PLAN TO 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 17, 2006 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 2,677,426 shares of the Company's common stock, $.10 par 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 approval of the 2006 Stock Option Plan (Proposal 2), a
stockholder may, by checking the appropriate box: (i) vote "FOR" the item; (ii)
vote "AGAINST" the item; or (iii) vote to "ABSTAIN" on the item. Proposal 2
shall be determined by a majority of the votes cast (in person or by proxy) at
the Annual Meeting. Broker Non-Votes and proxies marked "ABSTAIN" will have no
impact on the outcome of the voting on Proposal 2.
As to the ratification of the independent accountants, which is submitted
as Proposal 3, a stockholder may either: (i) vote "FOR" the Proposal 3; (ii)
vote "AGAINST" Proposal 3; or (iii) "ABSTAIN" with respect to Proposal 3. Unless
otherwise required by law, Proposal 3 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 182,799(1) 6.8%
717 Main Street
Honesdale, Pennsylvania 18431
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(1) The Wayne Bank Trust Department has sole voting and dispositive power
with respect to 182,799 shares. Excludes 224,835 shares held in six
trusts for which the Bank acts as trustee but as to which it does not
have voting power. The shares for which the Wayne Bank Trust Department
has sole voting power are expected to be voted for the election of the
nominees listed under Proposal 1, for the approval of the 2006 Stock
Option Plan (Proposal 2) and for the ratification of accountants
(Proposal 3).
2
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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 2005 fiscal year. The Company is not aware of any beneficial owners of more
than ten percent of its Common Stock.
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PROPOSAL 1 - ELECTION OF DIRECTORS
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ELECTION OF DIRECTORS
The Board of Directors currently consists of eight 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.
William W. Davis, Jr. and John E. Marshall have been nominated by the Board
of Directors for terms of three years each. Messrs. Davis and Marshall 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 2009
William W. Davis, Jr. 61 1996 2006 68,367 2.5%
Director, President and
Chief Executive Officer
John E. Marshall 68 1983 2006 24,853 (4) *
Director and Secretary
to the Board
DIRECTORS CONTINUING IN OFFICE
Russell L. Ridd 76 1980 2007 88,751 (4) 3.2
Director and
Chairman of the Board
Richard L. Snyder 65 2000 2007 6,143 *
Director
Ralph A. Matergia 56 2004 2007 1,441 *
Director
Daniel J. O'Neill 68 1985 2008 9,464 *
Director
Dr. Kenneth A. Phillips 55 1988 2008 4,865 *
Director
Gary P. Rickard 64 1978 2008 27,544 1.0
Director
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Lewis J. Critelli 46 na na 44,250 1.6
Executive Vice President
and Chief Financial Officer
Edward C. Kasper 58 na na 33,180 1.2
Senior Vice President
Joseph A. Kneller 59 na na 9,121 *
Senior Vice President
John H. Sanders 48 na na 18,587 *
Senior Vice President
All executive officers and
directors as a group
(12 persons) 336,566 12.1%
___________
* Less than 1% of the Common Stock outstanding.
(1) As of December 31, 2005.
(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: William W. Davis, Jr. -
29,293, John E. Marshall - 393, Gary P. Rickard - 0, Russell L. Ridd - 0,
Richard L. Snyder - 2,643, Daniel J. O'Neill - 3,393, Dr. Kenneth A.
Phillips - 2,643, Ralph A. Matergia - 0, Lewis J. Critelli - 30,750, Edward
C. Kasper - 22,250, Joseph A. Kneller - 3,000 and John H. Sanders - 12,000.
(4) Excludes 13,636 shares of Common Stock held under the Wayne Bank Employee
Stock Ownership Plan ("ESOP") for which such individuals serve as the ESOP
trustees. Such shares are voted by the ESOP trustees in a manner
proportionate to the voting directions of the allocated shares received by
the ESOP participants, subject to the fiduciary duty of the trustees.
Beneficial ownership is disclaimed with respect to such ESOP shares held in
a fiduciary capacity.
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:
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.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE "FOR" THE ELECTION OF THE ABOVE NOMINEES
CONTINUING DIRECTORS:
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.
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.
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.
5
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,
2005, 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, 2005.
The Compensation Committee consists of Directors Ridd and Marshall. This
standing committee met once during the fiscal year ended December 31, 2005 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, Matergia
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 four times during the
fiscal year ended December 31, 2005.
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.
REPORT OF THE AUDIT COMMITTEE. For the fiscal year ended December 31, 2005,
the Audit Committee: (i) reviewed and discussed the Company's audited financial
statements with management; (ii) discussed with the Company's independent
auditor, Beard Miller Company LLP, all matters required to be discussed under
Statement on Auditing Standards No. 61; and (iii) received Beard Miller Company
LLP's disclosures regarding Beard Miller Company LLP's independence as required
by Independence Standards Board Standard No. 1 and discussed with Beard Miller
Company LLP its independence. Based
6
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,
2005.
Audit Committee:
Richard L. Snyder - Chairman
Dr. Kenneth A. Phillips
John E. Marshall
Ralph A. Matergia
DIRECTOR NOMINATION PROCESS
The Nominating Committee consists of Directors Ridd and Marshall, each of
whom is independent within the meaning of the rules of The Nasdaq Stock Market.
The Nominating Committee met one time during the year ended December 31, 2005.
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 attended the 2005 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 $1,675 per month. In addition, fees are paid for various committee
meetings as follows: Trust Committee ($300); Audit Committee ($300);
Compensation Committee ($300); and Loan Committee ($300). For the fiscal year
ended December 31, 2005, fees paid to all directors totaled approximately
$180,000, 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.
8
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 UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(1) COMPENSATION
------------------ ---- ------ ----- ----------- ------------
William W. Davis, Jr. 2005 $217,500 $60,000 - $72,940 (2)
President and Chief 2004 209,000 50,000 4,000 73,213
Executive Officer 2003 202,000 45,000 4,000 72,944
Lewis J. Critelli 2005 141,500 40,000 - 30,457 (3)
Executive Vice President 2004 136,500 36,000 3,000 30,487
and Chief Financial Officer 2003 133,000 32,500 3,000 29,598
Edward C. Kasper 2005 110,500 30,000 - 34,054 (4)
Senior Vice President 2004 107,500 27,500 2,500 34,202
2003 104,500 25,000 2,500 34,208
Joseph A. Kneller 2005 96,500 12,000 - 23,040 (5)
Senior Vice President 2004 95,000 11,000 1,500 23,237
2003 93,500 10,000 1,500 22,914
John H. Sanders 2005 97,000 11,000 - 17,830 (6)
Senior Vice President 2004 94,500 10,000 1,500 17,892
2003 92,000 8,000 1,500 17,366
_______________
(1) See "-- Stock Awards."
(2) Includes $46,681 related to an accrual under the salary continuation
plan; 1,285 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, 2005 of $41,441); and $12,214 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; 1,078 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, 2005 of $34,766) and $8,490 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; 844 shares allocated under the ESOP at an average cost of $10.93
per share (such shares had an aggregate market value at December 31,
2005 of $27,219); and $6,630 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 647 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, 2005 of
$20,866); and $5,790 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 656 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, 2005 of
$21,156); and $5,820 in Company matching funds for his account in the
401(k) retirement plan.
9
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, 2005, Messrs. Davis and
Critelli would have been entitled to an aggregate lump-sum payment of
approximately $610,000 and $400,000, 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 Company
will pay the annual benefit to the Executives 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,
2005, Messrs. Davis, Critelli, Kasper, Kneller and Sanders had accrued salary
continuation plan benefits of approximately $359,000, $78,000, $140,000, $78,000
and $37,000, 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, 2005,
Messrs. Kasper, Kneller and Sanders would have been entitled to lump sum
payments of approximately $221,000, $193,000 and $194,000, respectively.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consisted of Directors Ridd and Marshall at
December 31, 2005. 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 2005, 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 2005, 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.
10
2005 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, 2005, William W. Davis, Jr., President
and Chief Executive Officer received an increase in his base salary from
$217,500 to $226,000 due to his continued leadership in the management of the
Company and the Bank. Additionally, Mr. Davis was awarded stock options pending
stockholder approval of the Norwood Financial Corp. 2006 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
11
STOCK AWARDS. The following tables set forth information with respect to
options to purchase the Common Stock exercised by the named executive officers
during fiscal 2005 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. No stock options were granted to the named
executive officers during fiscal 2005.
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. 1,200 $24,166 29,293 -- $371,088 (1) $ --
Lewis J. Critelli 2,610 57,211 30,750 -- 465,938 (2) --
Edward C. Kasper -- -- 22,250 -- 321,583 (3) --
Joseph A. Kneller -- -- 3,000 -- 11,775 (4) --
John H. Sanders -- -- 12,000 -- 151,913 (5) --
_____________
(1) Based upon an exercise price per share of: $11.42 for 2,543 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; $25.15 for 4,000 options; and $31.50 for 4,000
options. The closing stock price on December 31, 2005 was $32.25.
(2) Based upon an exercise price per share of: $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; $20.00 for 3,000
options; $25.15 for 3,000 options; and $31.50 for 3,000 options. The
closing stock price on December 31, 2005 was $32.25.
(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;
$17.83 for 2,250 options; $20.00 for 2,250 options; $25.15 for 2,500
options; and $31.50 for 2,500 options. The closing stock price on December
31, 2005 was $32.25.
(4) Based upon an exercise price of $25.15 for 1,500 options and $31.50 for
1,500 options. The closing stock price on December 31, 2005 was $32.25.
(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; $25.15 for
1,500 options; and $31.50 for 1,500 options. The closing stock price on
December 31, 2005 was $32.25.
12
--------------------------------------------------------------------------------
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, 2000 and the
reinvestment of dividends paid. The graph provides comparison at December 31,
2000 and each fiscal year through December 31, 2005.
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 $1,000
invested in the Nasdaq Bank Index and Nasdaq Index, respectively. Line graph
starts at December 31, 2000 and shows the cumulative total returns at December
31, 2001, 2002, 2003, 2004 and 2005. Plot points are shown below]
12/31/00($) 12/31/01($) 12/31/02($) 12/31/03($) 12/31/04($) 12/31/05($)
----------------------------------------------------------------------------------------------------------------------------
Norwood Financial Corp. 1,000 1,570 1,848 2,429 3,458 3,226
----------------------------------------------------------------------------------------------------------------------------
CRSP Nasdaq U.S. Index 1,000 793 548 820 892 911
----------------------------------------------------------------------------------------------------------------------------
CRSP Nasdaq Bank Index 1,000 1,083 1,108 1,426 1,632 1,594
----------------------------------------------------------------------------------------------------------------------------
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.
13
--------------------------------------------------------------------------------
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 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 -- APPROVAL OF
NORWOOD FINANCIAL CORP. 2006 STOCK OPTION PLAN
--------------------------------------------------------------------------------
GENERAL. The Board of Directors has adopted the Norwood Financial Corp.
2006 Stock Option Plan (the "Plan"), subject to approval by the Company's
stockholders. The purpose of the Plan is to provide incentives and rewards to
officers, employees and directors that contribute to the success and growth of
the Company and its Affiliates, and to assist all these entities in attracting
and retaining directors, executives and other key employees with experience and
ability. The following summary of the material features of the Plan is qualified
in its entirety by reference to the complete provisions of the Plan which is
attached hereto as Appendix A.
ADMINISTRATION. The Board of Directors of the Company or an administrative
committee comprised of not less than two non-employee directors will administer
the Plan. Members of the Committee shall be "Non-Employee Directors" within the
meaning of Rule 16b-3 under to the Exchange Act. A majority of the members of
the Committee shall constitute a quorum and the action of a majority of the
members present at any meeting at which a quorum is present shall be deemed the
action of the Committee.
The Committee has broad authority under the Plan with respect to Awards
granted thereunder, including, without limitation, the authority to:
o select the individuals to receive Awards under the Plan;
o determine the type, number, vesting requirements and other features
and conditions of individual Awards;
o interpret the Plan and Award Agreements issued with respect to
individual Awards; and
o make all other decisions related to the operation of the Plan.
Each Award granted under the Plan will be evidenced by a written award
agreement that sets forth the terms and conditions of each Award and may include
additional provisions and restrictions as determined by the Committee.
ELIGIBILITY. Subject to the terms of the Plan, officers, employees and
outside directors of the Company, as the Committee shall determine from time to
time, shall be eligible to receive Awards in accordance with the Plan.
SHARES OF COMMON STOCK SUBJECT TO THE PLAN; SHARE LIMITS. The maximum
number of shares of Common Stock that may be delivered pursuant to Awards under
the Plan is 250,000 shares. No individual will receive Awards totaling more than
20% of the total shares authorized under the Plan, and awards to
14
outside directors of the Company shall not exceed 40,000 shares in the
aggregate. To the extent that an Award is settled in cash or a form other than
shares of Common Stock, the shares that would have been delivered had there been
no such cash or other settlement shall be counted against the shares available
for issuance under the Plan. Shares that are subject to or underlie Awards which
expire or for any reason are canceled or terminated, are forfeited, fail to
vest, or for any other reason are not paid or delivered under the Plan shall
again be available for subsequent Awards under the Plan.
AWARDS. The Plan authorizes grants of Stock Options to acquire shares of
Common Stock.
STOCK OPTION AWARDS. A Stock Option gives the recipient the right to
purchase shares of Common Stock at a future date at a specified price per share
(the "exercise price"). The per share exercise price of a Stock Option may not
be less than the Fair Market Value of a share of Common Stock on the date of
grant. For the purposes of the Plan, "Fair Market Value" means the closing sales
price reported on The Nasdaq Stock Market (as published by The Wall Street
Journal, if published) on such date or, if the Common Stock was not traded on
such date, on the immediately preceding day on which the Common Stock was traded
thereon. The Committee may impose additional conditions upon the right of an
optionee to exercise any Stock Option granted hereunder which are not
inconsistent with the terms of the Plan. If such Stock Option is intended to
qualify as an Incentive Stock Option, within the meaning of Section 422 of the
Internal Revenue Code, then such Awards will also comply with additional
restrictions under Section 422 of the Internal Revenue Code as set forth in the
Plan. (See "Federal Income Tax Treatment of Awards under the Plan" below).
No shares of Common Stock may be issued upon the exercise of a Stock Option
until the Company has received full payment of the exercise price, and no
optionee shall have any of the rights of a stockholder of the Company until
shares of Common Stock are issued to such optionee. Upon the exercise of a Stock
Option by an optionee (or the optionee's personal representative), the
Committee, in its sole and absolute discretion, may make a cash payment to the
optionee, in whole or in part, in lieu of the delivery of shares of Common
Stock. Such cash payment to be paid in lieu of delivery of Common Stock shall be
equal to the difference between the Fair Market Value of the Common Stock on the
date of the Option exercise and the exercise price per share of the Stock
Option. Such cash payment shall be in exchange for the cancellation of such
Option. Such cash payment shall not be made in the event that such transaction
would result in liability to the optionee and the Company under Section 16(b) of
the Exchange Act or any related regulations promulgated thereunder.
Pursuant to the terms of the Plan, Non-Statutory Stock Options (options not
intended to comply with the requirements if Section 422 of the Internal Revenue
Code) to purchase shares of Common Stock as detailed below will be granted to
each outside director of the Company, as of the Effective Date, at an exercise
price equal to the Fair Market Value of the Common Stock on such date of grant.
Stock Options may be granted to newly appointed or elected outside directors
within the sole discretion of the Committee, and the exercise price shall be
equal to the Fair Market Value of such Common Stock on the date of grant. Stock
Options granted to outside directors on the Effective Date will be first
exercisable on the one year anniversary of the date of the grant. Stock Options
granted to outside directors will remain exercisable for up to ten years from
the date of grant. Upon the death or disability of a director or director
emeritus, such Stock Options shall be deemed immediately 100% exercisable for
their remaining term. All outstanding Stock Options become immediately
exercisable in the event of a Change in Control of the Company or the Bank.
VESTING OF AWARDS. Generally, Awards under the Plan will vest and be
exercisable as of the one year anniversary of such date of grant. The Company
may, however, modify such vesting schedule with respect to specific Awards or
provide for the acceleration of such vesting schedule.
15
AWARD PAYOUTS. The Company may make payouts related to Awards in the form
of cash, Common Stock or combinations of cash and stock, as determined by the
Committee.
EFFECT OF TERMINATION OF SERVICE ON AWARDS. Generally, the Committee will
determine the impact of a termination of service upon an Award at the time of
the granting of such Award. Generally, except as may otherwise be determined by
the Committee at the time of the Award, an Incentive Stock Option may only be
exercised while the optionee serves as an employee of the Company or within
three months after termination of employment for a reason other than death or
disability (but in no event after the expiration date of the Stock Option).
EFFECT OF DEATH OR DISABILITY ON AWARDS. Generally, the Committee will
determine the impact of death or disability upon an Award at the time of the
granting of such Award. In the event of the death or disability of an optionee
during employment, an exercisable Incentive Stock Option will continue to be
exercisable for one year and two years, respectively, to the extent exercisable
by the optionee immediately prior to the optionee's death or disability but only
if, and to the extent that, the optionee was entitled to exercise such Incentive
Stock Options on the date of termination of employment.
SPECIFIC BENEFITS UNDER THE PLAN
The table below presents information related to Stock Option Awards
expected to be granted upon stockholder approval of the Plan. No Stock Options
are expected to be awarded to any associates of directors, nominees or executive
officers. No person is expected to receive awards of 5% or more of the Stock
Options authorized under the Plan at this time.
16
NUMBER OF AWARDS
NAME AND POSITION TO BE GRANTED (1)
----------------- -----------------
William W. Davis, Jr., President and Chief Executive Officer + 4,000
Lewis J. Critelli, Executive Vice President and Chief Financial Officer 3,000
Edward C. Kasper, Senior Vice President 2,000
Joseph A. Kneller, Senior Vice President 1,500
John H. Sanders, Senior Vice President 1,500
John E. Marshall, Director + 500
Russell L. Ridd, Director 500
Richard L. Snyder, Director 500
Ralph A. Matergia, Director 500
Daniel J. O'Neill, Director 500
Dr. Kenneth A. Phillips, Director 500
Gary P. Rickard, Director 500
All executive officers as a group (5 persons) 12,000
All current directors who are not executive officers as a group (7 persons) 3,500
All employees, including current officers, who are not executive
officers as a group (8 persons) 8,500
______________
+ Nominee for election as a director.
(1) All Awards presented herein shall be 100% vested on the one year
anniversary of the date of the Award. All Awards shall become
immediately 100% vested upon Death or Ddisability of the Optionee or
Change in Control of the Company or the Bank (as defined in the Plan).
Awards shall continue to vest during periods of service as an employee,
director, or director emeritus.
ACCELERATION OF AWARDS. Unless otherwise determined by the Committee, upon
a Change in Control of the Company or the Bank, each Stock Option then
outstanding shall become fully vested and remain exercisable for its remaining
term.
For the purposes of the Plan, "Change in Control" shall mean: (i) the sale
of all, or a material portion, of the assets of the Company or its Affiliates;
(ii) the merger or recapitalization of the Company whereby the Company is not
the surviving entity; (iii) a change in control of the Company, as otherwise
defined or determined by the Pennsylvania Department of Banking or regulations
promulgated by it; or (iv) the acquisition, directly or indirectly, of the
beneficial ownership (within the meaning of that term as it is used in Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder)
of more than 19.9% of the outstanding voting securities of the Company by any
person, trust, entity or group. The term "person" refers to an individual or a
corporation, partnership, trust, association, joint venture, pool, syndicate,
sole proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
The power of the Committee to accelerate the exercise of Stock Options and
the immediate exercisability of Stock Options in the case of a Change in Control
of the Company could have an anti-takeover effect by making it more costly for a
potential acquiror to obtain control of the Company due to the higher number of
shares outstanding following such exercise of Stock Options. The power of the
Committee to make adjustments in connection with the Plan, including adjusting
the number of shares subject to Stock Options and canceling Stock Options, prior
to or after the occurrence of an extraordinary corporate action,
17
allows the Committee to adapt the Plan to operate in changed circumstances, to
adjust the Plan to fit a smaller or larger institution, and to permit the
issuance of Stock Options to new management following such extraordinary
corporate action. However, this power of the Committee also has an anti-takeover
effect, by allowing the Committee to adjust the Plan in a manner to allow the
present management of the Company to exercise more Stock Options and hold more
shares of the Company's Common Stock, and to possibly decrease the number of
Stock Options available to new management of the Company.
Although the Plan may have an anti-takeover effect, the Company's Board of
Directors did not adopt the Plan specifically for anti-takeover purposes. The
Plan could render it more difficult to obtain support for stockholder proposals
opposed by the Company's Board and management in that recipients of Stock
Options could choose to exercise such Stock Options and thereby increase the
number of shares for which they hold voting power. Also, the exercise of such
Stock Options could make it easier for the Board and management to block the
approval of certain transactions. In addition, the exercise of such Stock
Options could increase the cost of an acquisition by a potential acquiror.
ADJUSTMENTS. As is customary in equity incentive plans of this nature, each
share limit and the number and kind of shares available under the Plan and any
outstanding Awards as well as the exercise or purchase prices of Awards, are
subject to proportional adjustment in the event of certain reorganizations,
mergers, combinations, recapitalizations, stock splits, stock dividends or
similar events that change the number or kind of shares outstanding, as well as
in the case of extraordinary dividends or distributions of property to the
stockholders. In the event of such an adjustment as described above, the
Committee may, if it deems it appropriate and equitable under the circumstances,
make provision for a cash payment or for the assumption, substitution or
exchange of any or all outstanding Awards, based upon the distribution or
consideration payable to holders of the Common Stock.
TRANSFER RESTRICTIONS. Unless otherwise determined by the Committee, an
individual may not transfer, assign, hypothecate, or dispose of a Stock Option
in any manner, other than by will or the laws of intestate succession. The
Committee may provide for the transfer or assignment of a non-statutory stock
option if it determines that the transfer or assignment is for valid estate
planning purposes.
AMENDMENT OR TERMINATION OF THE PLAN. The Committee may amend, modify or
terminate the Plan, except that no such amendment may have the effect of
repricing the exercise price of Stock Options and any material amendments to the
Plan shall be subject to a ratification vote by the Company's stockholders.
The Company does not have any present intention to engage in any
transaction that would result in the accelerated vesting of Awards as permitted
by the Plan, however, the Board has determined that the implementation of such
Plan provisions is in the best interests of the shareholders of the Company, as
well as the officers, directors and employees of the Company.
18
FEDERAL INCOME TAX TREATMENT OF AWARDS UNDER THE PLAN
The following discussion of the general tax principles applicable to the
Plan summarizes the federal income tax consequences of the Plan under current
federal law, which is subject to change at any time. This summary is not
intended to be exhaustive and, among other considerations, does not describe
state or local tax consequences.
NONSTATUTORY STOCK OPTIONS. The optionee generally recognizes taxable
income in an amount equal to the difference between the Stock Option exercise
price and the Fair Market Value of the shares at the time of exercise. The
Company will receive a tax deduction equal to the ordinary income recognized by
the optionee. Employees exercising non-statutory stock options are also subject
to federal, state, and local (if any) tax withholding on the option income.
Outside directors are not subject to tax withholding.
INCENTIVE STOCK OPTIONS. The optionee generally does not recognize taxable
income upon exercise of an Incentive Stock Option. If the optionee does not
dispose of the Common Stock acquired upon exercise for the required holding
periods of two years from the date of grant and one year from the date of
exercise, income from a subsequent sale of the shares is treated as a capital
gain for tax purposes. However, the difference between the Option exercise price
and the Fair Market Value of the Common Stock on the date of Stock Option
exercise is an item of tax preference which may, in certain situations, trigger
the alternative minimum tax for an optionee. However, if the optionee disposes
of the shares prior to the expiration of the required holding periods, the
optionee has made a disqualifying disposition of the stock. Upon a disqualifying
disposition, the optionee will recognize taxable income equal to the difference
between the exercise price and the Fair Market Value of the Company Common Stock
on the date of exercise, and the Company will receive a tax deduction equal to
the ordinary income recognized by the optionee. Currently, the Internal Revenue
Service does not require tax withholding on disqualifying dispositions.
In accordance with Section 162(m) of the Internal Revenue Code, the
Company's tax deductions for compensation paid to the most highly paid
executives named in the Company's Proxy Statement may be limited to no more than
$1 million per year, excluding certain "performance-based" compensation. The
Company intends for the award of Stock Options under the Plan to comply with the
requirement for an exception to Section 162(m) of the Internal Revenue Code
applicable to stock option plans so that the amount of the Company's deduction
for compensation related to the exercise of Stock Options would not be limited
by Section 162(m) of the Internal Revenue Code.
ACCOUNTING TREATMENT. Common Stock issuable pursuant to outstanding Stock
Options under the Plan will be considered outstanding for purposes of
calculating earnings per share on a diluted basis. The Company will be required
to recognize compensation expense related to stock options outstanding based
upon the fair value of such awards at the date of grant over the period that
such awards are earned. As such, upon stockholder approval of the Plan, the
Company will recognize a financial reporting expense related to Awards granted
for the fiscal reporting period including the date of such stockholder approval
and for subsequent periods as such Awards are vested.
POSSIBLE DILUTIVE EFFECTS OF THE PLAN. The Common Stock to be issued upon
the exercise of Stock Options awarded under the Plan may either be authorized
but unissued shares of Common Stock or shares purchased in the open market.
Because the stockholders of the Company do not have preemptive rights, to the
extent that the Company funds the Plan, in whole or in part, with authorized but
unissued shares, the interests of current stockholders may be diluted. If upon
the exercise of all of the Stock Options, the Company delivers newly issued
shares of Common Stock (i.e., 250,000 shares of Common Stock), then the dilutive
effect to current stockholders would be approximately 8.6%. The Company can
avoid dilution resulting from awards under the Plan by delivering shares
repurchased in the open market upon the exercise of Stock Options.
19
STOCKHOLDER APPROVAL
Stockholder approval of the Plan is being sought in accordance with the
listing standards of The Nasdaq Stock Market. Additional purposes of requesting
stockholder approval of the Plan are to permit the Stock Options to qualify as
Incentive Stock Options in accordance with the Internal Revenue Code and to meet
the requirements for the tax-deductibility of certain compensation items under
Section 162(m) of the Internal Revenue Code. Additionally, shareholder approval
of the Plan will enable recipients of Stock Options to qualify for certain
exemptive treatment from the short-swing profit recapture provisions of Section
16(b) of the Exchange Act.
In voting on the approval of the Plan, you may vote in favor of the
proposal, against the proposal or abstain from voting. To be approved, this
matter requires the affirmative vote of the majority of the votes cast on the
matter.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL
OF THE NORWOOD FINANCIAL CORP. 2006 STOCK OPTION PLAN.
20
--------------------------------------------------------------------------------
NEW PLAN BENEFITS
--------------------------------------------------------------------------------
The following table sets forth certain information regarding the
benefits expected to be received under the 2006 Option Plan.
2006 OPTION PLAN
---------------------------
DOLLAR NUMBER
NAME AND POSITION VALUE (1) OF UNITS
----------------- --------- --------
William W. Davis, Jr. $ -- 4,000
President and Chief
Executive Officer
Lewis J. Critelli -- 3,000
Executive Vice President
and Chief Financial Officer
Edward C. Kasper -- 2,000
Senior Vice President
Joseph A. Kneller -- 1,500
Senior Vice President
John H. Sanders -- 1,500
Senior Vice President
Executive Group -- 12,000
Non-Executive Director Group -- 3,500
Non-Executive Officer Employee Group -- 8,500
-------------
(1) The exercise price of such Stock Options will equal the Fair Market
Value of the underlying Common Stock on the date of award. Thus, on the
date of stockholder approval, the Options have no value for the
recipient. The value of the Stock Options will equal the difference
between the exercise price of such Stock Options and the market price
of the Common Stock on the date of exercise of a Stock Option.
Accordingly, the value to the recipient is not determinable until the
Stock Option is exercised.
--------------------------------------------------------------------------------
EQUITY COMPENSATION PLAN INFORMATION
--------------------------------------------------------------------------------
(a) (b) (c)
NUMBER OF SECURITIES
NUMBER OF WEIGHTED- REMAINING AVAILABLE FOR
SECURITIES TO BE AVERAGE EXERCISE FUTURE ISSUANCE UNDER
ISSUED UPON PRICE OF OUTSTANDING EQUITY COMPENSATION
EXERCISE OF OPTIONS, WARRANTS PLANS (EXCLUDING
OUTSTANDING OPTIONS, AND RIGHTS SECURITIES REFLECTED
WARRANTS AND RIGHTS ------------------ IN COLUMN (a))
------------------- --------------
Equity compensation plans
approved by security holders:
Stock Option Plan . . . . . . . . . 124,543 $19.47 --
Equity compensation plans
not approved by security holders:
1999 Director Stock
Compensation Plan . . . . . . . . . 9,072 17.99 --
------- ----- --
TOTAL 133,615 $19.37 --
======= ====== ==
21
--------------------------------------------------------------------------------
PROPOSAL 3 - RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
Beard Miller Company LLP was the Company's independent public accountants
for the 2005 fiscal year. The Board of Directors has appointed Beard Miller
Company LLP to be its accountants for the fiscal year ending December 31, 2006,
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, 2005 and 2004 were $76,980 and $72,545,
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 and services in connection with the Company's Sarbanes-Oxley
compliance for the years ended December 31, 2005 and 2004 were $18,386 and
$7,287, 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, 2005 and 2004 were $9,957
and $9,997, 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, 2005 and 2004 were $0 and $458, 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 2006 FISCAL YEAR.
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STOCKHOLDER PROPOSALS
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In order to be considered for inclusion in the Company's proxy statement
for the annual meeting of stockholders to be held in 2007, 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, 2006. Under the
Articles of Incorporation, in order to be considered for possible action by
stockholders at the 2007 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, 2007.
22
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OTHER MATTERS
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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.
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MISCELLANEOUS
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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 2005 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, 2005 WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE
RECORD DATE UPON WRITTEN REQUEST TO THE SECRETARY, NORWOOD FINANCIAL CORP., 717
MAIN STREET, HONESDALE, PENNSYLVANIA 18431.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ John E. Marshall
JOHN E. MARSHALL
SECRETARY
Honesdale, Pennsylvania
March 22, 2006
23
APPENDIX A
NORWOOD FINANCIAL CORP.
2006 STOCK OPTION PLAN
1. PURPOSE OF PLAN.
The purpose of this 2006 Stock Option Plan is to provide incentives and rewards
to officers, employees and directors that contribute to the success and growth
of Norwood Financial Corp., and its Affiliates, and to assist all these entities
in attracting and retaining directors, executives and other key employees with
experience and ability.
2. DEFINITIONS.
"AFFILIATE" means any "PARENT CORPORATION" or "SUBSIDIARY CORPORATION" of the
Company, as such terms are defined in Sections 424(e) and 424(f) of the Code,
including the Bank.
"AWARD" means Stock Options, as set forth in Section 6 of the Plan.
"BANK" means Wayne Bank, and any successors thereto.
"BENEFICIARY" means the person or persons designated by the Participant to
receive any benefits payable under the Plan in the event of such Participant's
death. Such person or persons shall be designated in writing by the Participant
and addressed to the Company or the Committee on forms provided for this purpose
by the Committee, and delivered to the Company or the Committee. Such
Beneficiary designation may be changed from time to time by similar written
notice to the Committee. A Participant's last will and testament or any codicil
thereto shall not constitute written designation of a Beneficiary. In the
absence of such written designation, the Beneficiary shall be the Participant's
surviving spouse, if any, or if none, the Participant's estate.
"BOARD OF DIRECTORS" means the board of directors of the Company.
"CAUSE" means the personal dishonesty, incompetence, willful misconduct, breach
of fiduciary duty involving personal profits, intentional failure to perform
stated duties, willful violation of a material provision of any law, rule or
regulation (other than traffic violations and similar offense), or a material
violation of a final cease-and-desist order or any other action which results in
a substantial financial loss to the Company or its Affiliates.
"CHANGE IN CONTROL" shall mean: (i) the sale of all, or a material portion, of
the assets of the Company or its Affiliates; (ii) the merger or recapitalization
of the Company whereby the Company is not the surviving entity; (iii) a change
in control of the Company, as otherwise defined or determined by the
Pennsylvania Department of Banking, the Federal Reserve Board or other
applicable banking regulatory agency ("Regulators") or regulations promulgated
by such Regulators; or (iv) the acquisition, directly or indirectly, of the
beneficial ownership (within the meaning of that term as it is used in Section
13(d) of the Securities Exchange Act of 1934 and the rules and regulations
promulgated thereunder) of more than 19.9% of the outstanding voting securities
of the Company by any person, trust, entity or group. This limitation shall not
apply to the purchase of shares by underwriters in connection with a public
offering of Company stock. The term "person" refers to an individual or a
corporation, partnership, trust, association, joint venture, pool, syndicate,
sole proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
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"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Board of Directors of the Company or the administrative
committee designated, pursuant to Section 3 of the Plan, to administer the Plan.
"COMMON STOCK" means the common stock of the Company.
"COMPANY" means Norwood Financial Corp., and any successor entity or any future
parent corporation of the Bank.
"DIRECTOR" means a person serving as a member of the Board of Directors of the
Company from time to time.
"DIRECTOR EMERITUS" means a person serving as a director emeritus, advisory
director, consulting director or other similar position as may be appointed by
the Board of Directors of the Company or the Bank from time to time.
"DISABILITY" means (a) with respect to Incentive Stock Options, the "permanent
and total disability" of the Employee as such term is defined at Section
22(e)(3) of the Code; and (b) with respect to other Awards, any physical or
mental impairment which renders the Participant incapable of continuing in the
employment or service of the Company or its Affiliates in his or her then
current capacity as determined by the Committee.
"EFFECTIVE DATE" shall mean the date of stockholder approval of the Plan by the
stockholders of the Company.
"ELIGIBLE PARTICIPANT" means an Employee or Outside Director who may receive an
Award under the Plan.
"EMPLOYEE" means any person employed by the Company or an Affiliate. Directors
who are also employed by the Company or an Affiliate shall be considered
Employees under the Plan.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXERCISE PRICE" means the price at which an individual may purchase a share of
Common Stock pursuant to an Option.
"FAIR MARKET VALUE" means the closing sales price reported on the Nasdaq
National Market (as published by The Wall Street Journal, if published) on such
date or, if the Common Stock was not traded on such date, on the immediately
preceding day on which the Common Stock was traded thereon or the last previous
date on which a sale is reported.
"INCENTIVE STOCK OPTION" means a Stock Option granted under the Plan, that is
intended to meet the requirements of Section 422 of the Code.
"NON-STATUTORY STOCK OPTION" means a Stock Option granted to an individual under
the Plan that is not intended to be and is not identified as an Incentive Stock
Option, or an Option granted under the Plan that is intended to be and is
identified as an Incentive Stock Option, but that does not meet the requirements
of Section 422 of the Code.
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"OPTION" or "STOCK OPTION" means an Incentive Stock Option or a Non-Statutory
Stock Option, as applicable.
"OUTSIDE DIRECTOR" means a member of the Board of Directors of the Company who
is not also an Employee.
"PARENT" means any present or future corporation which would be a "parent
corporation" of the Bank or the Company as defined in Sections 424(e) and (g) of
the Code.
"PARTICIPANT" means an individual who is granted an Award pursuant to the terms
of the Plan.
"PLAN" means this Norwood Financial Corp. 2006 Stock Option Plan.
3. ADMINISTRATION.
(a) The Committee shall administer the Plan. The Committee shall consist
of two or more disinterested directors of the Company, who shall be
appointed by the Board of Directors. A member of the Board of
Directors shall be deemed to be disinterested only if he or she
satisfies: (i) such requirements as the Securities and Exchange
Commission may establish for non-employee directors administering
plans intended to qualify for exemption under Rule 16b-3 (or its
successor) of the Exchange Act and (ii) and to the extent deemed
appropriate by the Board of Directors, such requirements as the
Internal Revenue Service may establish for outside directors acting
under plans intended to qualify for exemption under Section
162(m)(4)(C) of the Code; provided, however, a failure to comply with
the requirements of this subparagraph (ii) shall not disqualify any
actions taken by the Committee. A majority of the entire Committee
shall constitute a quorum and the action of a majority of the members
present at any meeting at which a quorum is present shall be deemed
the action of the Committee. In no event may the Committee revoke
outstanding Awards without the consent of the Participant. All
decisions, determinations and interpretations of the Committee shall
be final and conclusive on all persons affected thereby.
(b) Subject to paragraph (a) of this Section 3, the Committee shall:
(i) select the individuals who are to receive grants of Awards under
the Plan;
(ii) determine the type, number, vesting requirements and other
features and conditions of Awards made under the Plan;
(iii) interpret the Plan and Award Agreements (as defined below); and
(iv) make all other decisions related to the operation of the Plan.
(c) Each Award granted under the Plan shall be evidenced by a written
agreement (i.e., an "Award Agreement"). Each Award Agreement shall
constitute a binding contract between the Company or an Affiliate and
the Participant, and every Participant, upon acceptance of an Award
Agreement, shall be bound by the terms and restrictions of the Plan
and the Award Agreement. The terms of each Award Agreement shall be
set in accordance with the Plan, but each Award Agreement may also
include any additional provisions and restrictions determined by the
Committee. In particular, and at a minimum, the Committee shall set
forth in each Award Agreement:
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(i) the type of Award granted;
(ii) the Exercise Price for any Option;
(iii) the number of shares or rights subject to the Award;
(iv) the expiration date of the Award;
(v) the manner, time and rate (cumulative or otherwise) of exercise
or vesting of the Award; and
(vi) the restrictions, if any, placed on the Award, or upon shares
which may be issued upon the exercise or vesting of the Award.
The Chairman of the Committee and/or the President of the Company are
hereby authorized to execute Award Agreements on behalf of the Company or
an Affiliate and to cause them to be delivered to the Participants granted
Awards under the Plan.
(d) Six Month Holding Period. Subject to vesting requirements, if
applicable, except in the event of death or Disability of the
Participant or a Change in Control of the Company, a minimum of six
months must elapse between the date of the grant of an Option and the
date of the sale of the Common Stock received through the exercise of
such Option.
4. ELIGIBILITY.
Subject to the terms of the Plan, Employees and Outside Directors, as the
Committee shall determine from time to time, shall be eligible to receive Awards
in accordance with the Plan.
5. SHARES OF COMMON STOCK SUBJECT TO THE PLAN; SHARE LIMITS.
5.1 Shares Available. Subject to the provisions of Section 7, the Common Stock
that may be delivered under this Plan shall be shares of the Company's
authorized but unissued Common Stock, shares of Common Stock purchased in the
open-market by the Company and any shares of Common Stock held as treasury
shares.
5.2 Share Limits. The maximum number of shares of Common Stock that may be
delivered pursuant to Awards granted under this Plan (the "Share Limit") equals
250,000 shares. The following limits also apply with respect to Awards granted
under this Plan:
(a) The maximum number of shares of Common Stock that may be delivered
pursuant to the exercise of Stock Options granted under this Plan to
Outside Directors in the aggregate shall be 40,000 shares of Common
Stock.
(b) The maximum number of shares of Common Stock that may be delivered
pursuant to the exercise of Stock Options granted under this Plan to
any one individual shall not exceed 50,000 shares of Common Stock.
5.3 Awards Settled in Cash, Reissue of Awards and Shares. To the extent that an
Award is settled in cash or a form other than shares of Common Stock, the shares
that would have been delivered had there been no such cash or other settlement
shall be counted against the shares available for issuance under this Plan.
Shares that are subject to or underlie Awards which expire or for any reason are
cancelled or terminated, are forfeited, fail to vest, or for any other reason
are not paid or delivered under this Plan shall again be available for
subsequent Awards under this Plan.
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5.4 Reservation of Shares; No Fractional Shares; Minimum Issue. The Company
shall at all times reserve a number of shares of Common Stock sufficient to
cover the Company's obligations and contingent obligations to deliver shares
with respect to Awards then outstanding under this Plan. No fractional shares
shall be delivered under this Plan. The Committee may pay cash in lieu of any
fractional shares in settlements of Awards under this Plan. No fewer than 100
shares may be purchased on exercise of any Stock Option unless the total number
purchased or exercised is the total number at the time available for purchase or
exercise by the Participant.
6. AWARDS.
6.1 Stock Options. Except as otherwise detailed herein, the Committee shall
determine the type or types of Award(s) to be made to each Eligible Participant
or Outside Director. Awards may be granted singularly, in combination or in
tandem. Awards also may be made in combination or in tandem with, in replacement
of, as alternatives to, or as the payment form for grants or rights under any
other employee or compensation plan of the Company. The types of Awards that may
be granted under this Plan are Stock Options, either Incentive Stock Options
and/or Non-Statutory Stock Options.
(a) The Committee may, subject to the limitations of this Plan and the
availability of shares of Common Stock reserved but not previously
awarded under the Plan, grant Stock Options to Employees and Outside
Directors, subject to terms and conditions as it may determine, to the
extent that such terms and conditions are consistent with the
following provisions:
(i) EXERCISE PRICE. The Exercise Price of Stock Options shall not be
less than one hundred percent (100%) of the Fair Market Value of
the Common Stock on the date of grant.
(ii) TERMS OF OPTIONS. In no event may an individual exercise an
Option, in whole or in part, more than ten (10) years from the
date of grant.
(iii) NON-TRANSFERABILITY. Unless otherwise determined by the
Committee, an individual may not transfer, assign, hypothecate,
or dispose of an Option in any manner, other than by will or the
laws of intestate succession. The Committee may, however, in its
sole discretion, permit the transfer or assignment of a
Non-Statutory Stock Option, if it determines that the transfer or
assignment is for valid estate planning purposes and is permitted
under the Code and Rule 16b-3 of the Exchange Act. For purposes
of this Section 6.1(a)(iii), a transfer for valid estate planning
purposes includes, but is not limited to, transfers:
(1) to a revocable INTER VIVOS trust, as to which an individual
is both settlor and trustee;
(2) for no consideration to: (a) any member of the individual's
Immediate Family; (b) a trust solely for the benefit of
members of the individual's Immediate Family; (c) any
partnership whose only partners are members of the
individual's Immediate Family; or (d) any limited liability
corporation or other corporate entity whose only members or
equity owners are members of the individual's Immediate
Family.
For purposes of this Section 6.1, "Immediate Family"
includes, but is not necessarily limited to, a Participant's
parents, grandparents,
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spouse, children, grandchildren, siblings (including half
brothers and sisters), and individuals who are family
members by adoption. Nothing contained in this Section 6.1
shall be construed to require the Committee to give its
approval to any transfer or assignment of any Non-Statutory
Stock Option or portion thereof, and approval to transfer or
assign any Non-Statutory Stock Option or portion thereof
does not mean that such approval will be given with respect
to any other Non-Statutory Stock Option or portion thereof.
The transferee or assignee of any Non-Statutory Stock Option
shall be subject to all of the terms and conditions
applicable to such Non-Statutory Stock Option immediately
prior to the transfer or assignment and shall be subject to
any other conditions prescribed by the Committee with
respect to such Non-Statutory Stock Option.
(iv) SPECIAL RULES FOR INCENTIVE STOCK OPTIONS. Notwithstanding the
foregoing provisions, the following rules shall further apply to
grants of Incentive Stock Options:
(1) If an Employee owns or is treated as owning, for purposes of
Section 422 of the Code, Common Stock representing more than
ten percent (10%) of the total combined voting securities of
the Company at the time the Committee grants the Incentive
Stock Option (a "10% Owner"), the Exercise Price shall not
be less than one hundred and ten percent (110%) of the Fair
Market Value of the Common Stock on the date of grant.
(2) An Incentive Stock Option granted to a 10% Owner shall not
be exercisable more than five (5) years from the date of
grant.
(3) To the extent the aggregate Fair Market Value of shares of
Common Stock with respect to which Incentive Stock Options
are exercisable for the first time by an Employee during any
calendar year, under the Plan or any other stock option plan
of the Company, exceeds $100,000, or such higher value as
may be permitted under Section 422 of the Code, Incentive
Stock Options in excess of the $100,000 limit shall be
treated as Non-Statutory Stock Options. Fair Market Value
shall be determined as of the date of grant for each
Incentive Stock Option.
(4) Each Award Agreement for an Incentive Stock Option shall
require the individual to notify the Committee within ten
(10) days of any disposition of shares of Common Stock under
the circumstances described in Section 421(b) of the Code
(relating to certain disqualifying dispositions).
(5) Incentive Stock Options may only be awarded to an Employee
of the Company or its Affiliates.
(v) OPTION AWARDS TO OUTSIDE DIRECTORS. Subject to the limitations of
Section 5.2(a), Non-Statutory Stock Options to purchase Five
Hundred (500) shares of Common Stock will be granted to each
Outside Director of the Company as of the Effective Date, at an
Exercise
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Price equal to the Fair Market Value of the Common Stock on such
date of grant. Additionally, Non-Statutory Stock Options may be
granted on an annual basis, at a date established by the
Committee, to each Outside Director of the Company for each of
the next nine years, at an Exercise Price equal to the Fair
Market Value of the Common Stock on such date of grant. Such
Options will be first exercisable as of the one year anniversary
of the respective date of grant. Such Options shall continue to
be exercisable for a period of ten years following the date of
grant without regard to the continued services of such Director
as a Director or Director Emeritus. In the event of the
Director's death, such Options may be exercised by the
Beneficiary or the personal representative of his estate or
person or persons to whom his rights under such Option shall have
passed by will or by the laws of descent and distribution.
Options may be granted to newly appointed or elected Outside
Directors within the sole discretion of the Committee. The
Exercise Price per share of such Options granted shall be equal
to the Fair Market Value of the Common Stock at the time such
Options are granted. All outstanding Awards shall become
immediately exercisable in the event of a Change in Control of
the Bank or the Company. Unless otherwise inapplicable, or
inconsistent with the provisions of this paragraph, the Options
to be granted to Outside Directors hereunder shall be subject to
all other provisions of this Plan.
6.2 Award Payouts. Awards may be paid out in the form of cash, Common Stock, or
combinations thereof as the Committee shall determine, and with such
restrictions as it may impose.
6.3 Consideration for Stock Options. The Exercise Price for any Stock Option
granted under this Plan may be paid by means of any lawful consideration as
determined by the Committee, including, without limitation, one or a combination
of the following methods:
(a) cash, check payable to the order of the Company, or electronic funds
transfer;
(b) the delivery of previously owned shares of Common Stock; or
(c) subject to such procedures as the Committee may adopt, pursuant to a
"cashless exercise" with a third party who provides financing for the
purposes of (or who otherwise facilitates) the purchase or exercise of
such Stock Option.
In no event shall any shares newly-issued by the Company be issued for less than
the minimum lawful consideration for such shares or for consideration other than
consideration permitted by applicable state law. In the event that the Committee
allows a Participant to exercise an Option by delivering shares of Common Stock
previously owned by such Participant, any such shares delivered which were
initially acquired by the Participant from the Company (upon exercise of a stock
option or otherwise) must have been owned by the Participant for at least six
months prior to such date of delivery. Shares of Common Stock used to satisfy
the Exercise Price of an Option shall be valued at their Fair Market Value on
the date of exercise. The Company will not be obligated to deliver any shares
unless and until it receives full payment of the Exercise Price and any related
withholding obligations under Section 9.5 have been satisfied, or until any
other conditions applicable to exercise or purchase have been satisfied. No
Shares of Common Stock shall be issued until full payment has been received by
the Company, and no Participant shall have any of the rights of a stockholder of
the Company until shares of Common Stock are issued upon the exercise of such
Stock Options. Unless expressly provided otherwise in the applicable Award
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Agreement, the Committee may at any time within its sole discretion eliminate or
limit a Participant's ability to pay the purchase or Exercise Price of any Award
by any method other than a cash payment to the Company.
6.4 Limitations on Awards.
(a) Vesting of Awards. Except as otherwise provided by the terms of the
Plan or by action of the Committee at the time of the grant of an
Award, Stock Options will be first exercisable at the rate of 100% of
such Award on the one year anniversary of the date of grant during
such periods of service as an Employee, Director or Director Emeritus.
7. EFFECT OF TERMINATION OF SERVICE ON AWARDS.
7.1 General. The Committee shall establish the effect of a termination of
employment or service on the continuation of rights and benefits available under
an Award, and, in so doing, may make distinctions based upon, INTER ALIA, the
recipient of such Award, the cause of termination and the type of the Award.
Notwithstanding the foregoing, the terms of Awards shall be consistent with the
following, as applicable:
(a) Termination of Employment. In the event that any Participant's
employment with the Company shall terminate for any reason, other than
Disability or death, all of any such Participant's Incentive Stock
Options, and all of any such Participant's rights to purchase or
receive shares of Common Stock pursuant thereto, shall automatically
terminate on (A) the earlier of (i) or (ii): (i) the respective
expiration dates of any such Incentive Stock Options, or (ii) the
expiration of not more than three (3) months after the date of such
termination of employment; or (B) at such later date as is determined
by the Committee at the time of the grant of such Award based upon the
Participant's continuing status as a Director or Director Emeritus of
the Bank or the Company, but only if, and to the extent that, the
Participant was entitled to exercise any such Incentive Stock Options
at the date of such termination of employment, and further that such
Award shall thereafter be deemed a Non-Statutory Stock Option.
(b) Disability. In the event that any Participant's employment with the
Company shall terminate as the result of the Disability of such
Participant, such Participant may exercise any Incentive Stock Options
granted to the Participant pursuant to the Plan at any time prior to
the earlier of (i) the respective expiration dates of any such
Incentive Stock Options or (ii) the date which is one (1) year after
the date of such termination of employment, but only if, and to the
extent that, the Participant was entitled to exercise any such
Incentive Stock Options at the date of such termination of employment.
(c) Death. In the event of the death of a Participant, any Incentive Stock
Options granted to such Participant may be exercised by the
Participant's Beneficiary or the person or persons to whom the
Participant's rights under any such Incentive Stock Options pass by
will or by the laws of descent and distribution (including the
Participant's estate during the period of administration) at any time
prior to the earlier of (i) the respective expiration dates of any
such Incentive Stock Options or (ii) the date which is two (2) years
after the date of death of such Participant, but only if, and to the
extent that, the Participant was entitled to exercise any such
Incentive Stock Options at the date of death. For purposes of this
Section 7.1(c), any Incentive Stock Option held by an Participant
shall be considered exercisable at the date of his death if the only
unsatisfied condition
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precedent to the exercisability of such Incentive Stock Option at the
date of death is the passage of a specified period of time. At the
discretion of the Committee, upon exercise of such Options, the
Beneficiary may receive Shares or cash or a combination thereof. If
cash shall be paid in lieu of shares of Common Stock, such cash shall
be equal to the difference between the Fair Market Value of such
Shares and the exercise price of such Options on the exercise date.
7.2 Events Not Deemed Terminations of Employment or Service. Unless Company
policy or the Committee provides otherwise, the employment relationship shall
not be considered terminated in the case of (a) sick leave, (b) military leave,
or (c) any other leave of absence authorized by the Company or the Committee;
provided that, unless reemployment upon the expiration of such leave is
guaranteed by contract or law, such leave is for a period of not more than 90
days. In the case of any Employee on an approved leave of absence, continued
vesting of the Award while on leave may be suspended until the Employee returns
to service, unless the Committee otherwise provides or applicable law otherwise
requires. In no event shall an Award be exercised after the expiration of the
term set forth in the Award Agreement.
7.3 Effect of Change of Affiliate Status. For purposes of this Plan and any
Award, if an entity ceases to be an Affiliate of the Company, a termination of
employment or service shall be deemed to have occurred with respect to each
individual who does not continue as an Employee or Outside Director with another
entity within the Company after giving effect to the Affiliate's change in
status.
8. ADJUSTMENTS; ACCELERATION UPON A CHANGE IN CONTROL.
8.1 Adjustments. Upon any reclassification, recapitalization, stock split
(including a stock split in the form of a stock dividend) or reverse stock split
("stock split"); any merger, combination, consolidation, or other
reorganization; any spin-off, split-up, or similar extraordinary dividend
distribution with respect to the Common Stock (whether in the form of securities
or property); any exchange of Common Stock or other securities of the Company,
or any similar, unusual or extraordinary corporate transaction affecting the
Common Stock; or a sale of all or substantially all the business or assets of
the Company in its entirety; then the Committee shall, in such manner, to such
extent (if any) and at such times as it deems appropriate and equitable under
the circumstances:
(a) proportionately adjust any or all of: (1) the number and type of
shares of Common Stock (or other securities) that thereafter may be
made the subject of Awards (including the specific Share Limits,
maximums and numbers of shares set forth elsewhere in this Plan); (2)
the number, amount and type of shares of Common Stock (or other
securities or property) subject to any or all outstanding Awards; (3)
the grant, purchase, or Exercise Price of any or all outstanding
Awards; (4) the securities, cash or other property deliverable upon
exercise or payment of any outstanding Awards; or (5) the performance
standards applicable to any outstanding Awards; or
(b) make provision for a cash payment or for the assumption, substitution
or exchange of any or all outstanding Awards, based upon the
distribution or consideration payable to holders of the Common Stock.
8.2 The Committee may adopt such valuation methodologies for outstanding Awards
as it deems reasonable in the event of a cash or property settlement and, in the
case of Options, may base such settlement solely upon the excess, if any, of the
per share amount payable upon or in respect of such event over the Exercise
Price or base price of the Award. With respect to any Award of an Incentive
Stock
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Option, the Committee may make an adjustment that causes the Option to
cease to qualify as an Incentive Stock Option without the consent of the
affected Participant.
8.3 Upon any of the events set forth in Section 8.1, the Committee may take such
action prior to such event to the extent that the Committee deems the action
necessary to permit the Participant to realize the benefits intended to be
conveyed with respect to the Awards in the same manner as is or will be
available to stockholders of the Company generally. In the case of any stock
split or reverse stock split, if no action is taken by the Committee, the
proportionate adjustments contemplated by Section 8.1(a) above shall
nevertheless be made.
8.4 Automatic Acceleration of Awards. Unless otherwise determined by the
Committee, upon the death or Disability of an Award recipient or upon a Change
in Control of the Company or the Bank, each Stock Option then outstanding shall
become fully vested and exercisable and remain exercisable for its remaining
term.
8.5 Acceleration of Vesting. The Committee shall at all times have the power to
accelerate the exercise date of Options with respect to previously granted
Awards.
9. MISCELLANEOUS PROVISIONS.
9.1 Compliance with Laws. This Plan, the granting and vesting of Awards under
this Plan, the offer, issuance and delivery of shares of Common Stock, the
acceptance of payment of money under this Plan or under Awards are subject to
compliance with all applicable federal and state laws, rules and regulations
(including, but not limited to, state and federal securities laws) and to such
approvals by any listing, regulatory or governmental authority as may, in the
opinion of counsel for the Company, be necessary or advisable in connection
therewith. The person acquiring any securities under this Plan will, if
requested by the Company, provide such assurances and representations to the
Company as may be deemed necessary or desirable to assure compliance with all
applicable legal and accounting requirements.
9.2 Claims. No person shall have any claim or rights to an Award (or additional
Awards, as the case may be) under this Plan, subject to any express contractual
rights to the contrary (set forth in a document other than this Plan).
9.3 No Employment/Service Contract. Nothing contained in this Plan (or in any
other documents under this Plan or in any Award Agreement) shall confer upon any
Participant any right to continue in the employ or other service of the Company,
constitute any contract or agreement of employment or other service or affect an
Employee's status as an employee-at-will, nor interfere in any way with the
right of the Company to change a Participant's compensation or other benefits,
or terminate his or her employment or other service, with or without cause.
Nothing in this Section 9.3, however, is intended to adversely affect any
express independent right of such Participant under a separate employment or
service contract other than an Award Agreement.
9.4 Plan Not Funded. Awards payable under this Plan shall be payable in shares
of Common Stock or from the general assets of the Company. No Participant,
beneficiary or other person shall have any right, title or interest in any fund
or in any specific asset (including shares of Common Stock, except as expressly
provided otherwise) of the Company by reason of any Award hereunder. Neither the
provisions of this Plan (or of any related documents), nor the creation or
adoption of this Plan, nor any action taken pursuant to the provisions of this
Plan shall create, or be construed to create, a trust of any kind or a fiduciary
relationship between the Company and any Participant, Beneficiary or other
person. To the extent that a Participant, Beneficiary or other person acquires a
right to receive payment pursuant to any
A-10
Award hereunder, such right shall be no greater than the right of any unsecured
general creditor of the Company.
9.5 Tax Withholding. Upon any exercise, vesting, or payment of any Award, the
Company shall have the right, within its sole discretion, to:
(a) require the Participant (or the Participant's personal representative
or Beneficiary, as the case may be) to pay or provide for payment of
at least the minimum amount of any taxes which the Company may be
required to withhold with respect to such Award or payment; or
(b) deduct from any amount otherwise payable in cash to the Participant
(or the Participant's personal representative or Beneficiary, as the
case may be) the minimum amount of any taxes which the Company may be
required to withhold with respect to such cash payment, or
(c) in any case where tax withholding is required in connection with the
delivery of shares of Common Stock under this Plan, the Committee may,
in its sole discretion, pursuant to such rules and subject to such
conditions as the Committee may establish, reduce the number of shares
to be delivered to the Participant by the appropriate number of
shares, valued in a consistent manner at their Fair Market Value as
necessary to satisfy the minimum applicable withholding obligation. In
no event shall the shares withheld exceed the minimum whole number of
shares required for tax withholding under applicable law.
9.6 Effective Date, Termination and Suspension, Amendments.
(a) This Plan is effective upon the later of approval of the Plan by the
Board of Directors of the Company or the vote of approval by the
stockholders of the Company ("Approval Date"). Unless earlier
terminated by the Board, this Plan shall terminate at the close of
business on the day before the tenth anniversary of the Approval Date.
After the termination of this Plan either upon such stated expiration
date or its earlier termination by the Board, no additional Awards may
be granted under this Plan, but previously granted Awards (and the
authority of the Committee with respect thereto, including the
authority to amend such Awards) shall remain outstanding in accordance
with their applicable terms and conditions and the terms and
conditions of this Plan.
(b) Board Authorization. Subject to applicable laws and regulations, the
Board of Directors may, at any time, terminate or, from time to time,
amend, modify or suspend this Plan, in whole or in part; provided,
however, that no such amendment may have the effect of repricing the
Exercise Price of Options. No Awards may be granted during any period
that the Board of Directors suspends this Plan.
(c) Stockholder Approval. Stockholder approval of such Plan shall be
determined by an affirmative vote of a majority of the votes cast on
the matter at a meeting of stockholders of the Company. Any material
amendment to the Plan deemed to require a ratification vote of
stockholders shall be ratified by an affirmative vote of a majority of
the votes cast on the matter at a meeting of stockholders of the
Company.
A-11
(d) Limitations on Amendments to Plan and Awards. No amendment, suspension
or termination of this Plan or change affecting any outstanding Award
shall, without the written consent of the Participant, affect in any
manner materially adverse to the Participant any rights or benefits of
the Participant or obligations of the Company under any Award granted
under this Plan prior to the effective date of such change. Changes,
settlements and other actions contemplated by Section 8 shall not be
deemed to constitute changes or amendments for purposes of this
Section 9.6.
9.7 Governing Law; Compliance with Regulations; Construction; Severability.
(a) This Plan, the Awards, all documents evidencing Awards and all other
related documents shall be governed by, and construed in accordance
with, the laws of the United States and the laws of the Commonwealth
of Pennsylvania to the extent not preempted by Federal law.
(b) Severability. If a court of competent jurisdiction holds any provision
invalid and unenforceable, the remaining provisions of this Plan shall
continue in effect.
(c) Plan Construction; Rule 16b-3. It is the intent of the Company that
the Awards and transactions permitted by Awards be interpreted in a
manner that, in the case of Participants who are or may be subject to
Section 16 of the Exchange Act, qualify, to the maximum extent
compatible with the express terms of the Award, for exemption from
matching liability under Rule 16b-3 promulgated under the Exchange
Act. Notwithstanding the foregoing, the Company shall have no
liability to any Participant for Section 16 consequences of Awards or
events affecting Awards if an Award or event does not so qualify.
(d) Shares of Common Stock shall not be issued with respect to any Award
granted under the Plan unless the issuance and delivery of such shares
shall comply with all relevant provisions of applicable law,
including, without limitation, the Securities Act of 1933, as amended,
the rules and regulations promulgated thereunder, any applicable state
securities laws and the requirements of any stock exchange upon which
the shares may then be listed.
(e) The inability of the Company to obtain any necessary authorizations,
approvals or letters of non-objection from any regulatory body or
authority deemed by the Company's counsel to be necessary to the
lawful issuance and sale of any shares of Common Stock issuable
hereunder shall relieve the Company of any liability with respect to
the non-issuance or sale of such shares.
(f) As a condition to the exercise of any Option or the delivery of shares
in accordance with an Award, the Company may require the person
exercising the Option or receiving delivery of the shares to make such
representations and warranties as may be necessary to assure the
availability of an exemption from the registration requirements of
federal or state securities laws.
(g) Upon the exercise of an Option, the Committee, in its sole and
absolute discretion, may make a cash payment to the Participant, in
whole or in part, in lieu of the delivery of shares of Common Stock.
Such cash payment to be paid in lieu of delivery of Common Stock shall
be equal to the difference between the Fair Market Value of the Common
Stock on the date of the Option exercise and the exercise price per
share of the Option.
A-12
Such cash payment shall be in exchange for the cancellation of such
Option. Such cash payment shall not be made in the event that such
transaction would result in liability to the Participant or the
Company under Section 16(b) of the Exchange Act and regulations
promulgated thereunder, or subject the Participant to additional tax
liabilities related to such cash payments pursuant to Section 409A of
the Code.
9.8 Captions. Captions and headings are given to the sections and subsections of
this Plan solely as a convenience to facilitate reference. Such headings shall
not be deemed in any way material or relevant to the construction or
interpretation of this Plan or any provision thereof.
9.9 Non-Exclusivity of Plan. Nothing in this Plan shall limit or be deemed to
limit the authority of the Board of Directors or the Committee to grant Awards
or authorize any other compensation, with or without reference to the Common
Stock, under any other plan or authority.
9.10 Limitation on Liability. No Director, member of the Committee or the
Trustee shall be liable for any determination made in good faith with respect to
the Plan or any Awards granted thereunder. If a Director or a member of the
Committee is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by any reason of anything done or not done by
him in such capacity under or with respect to the Plan, the Company shall
indemnify such person against expenses (including attorney's fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him or
her in connection with such action, suit or proceeding if he or she acted in
good faith and in a manner he or she reasonably believed to be in the best
interests of the Company and its Affiliates and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his or her conduct was
unlawful.
A-13
NORWOOD
FINANCIAL CORP. [LOGO]
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Please complete, date, sign and mail the
detached proxy card in the enclosed postage-prepaid envelope.
-------------------------------------------------
PROXY VOTING
COMPLETE BOTH SIDES OF THIS PROXY AND
RETURN IN THE ENCLOSED ENVELOPE TO:
Illinois Stock Transfer Co.
209 West Jackson Boulevard, Suite 903
Chicago, Illinois 60606
-------------------------------------------------
DETACH PROXY CARD HERE
--------------------------------------------------------------------------------
Should the undersigned be present and elect to vote at the Meeting, or
at any adjournment thereof, and after notification to the Secretary of the
Company at the Meeting of the stockholder's decision to terminate this proxy,
the power of said attorneys and proxies shall be deemed terminated and of no
further force and effect. The undersigned may also revoke this proxy by filing a
subsequently dated proxy or by written notification to the Secretary of the
Company of his or her decision to terminate this proxy.
The undersigned acknowledges receipt from the Company, prior to the
execution of this proxy, of Notice of the Meeting, a proxy statement dated March
21, 2006 and a 2005 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: ______________________, 2006 I/We do plan to attend [_]
the Annual Meeting.
COMMON
----------------------------------------
Please sign exactly as your name appears above. When signing as attorney,
executor, administrator, trustee, or guardian, please give your full title. If
shares are held jointly, each holder should sign.
--------------------------------------------------------------------------------
NORWOOD FINANCIAL CORP.
Annual Meeting of Stockholders, April 25, 2006 COMMON
--------------------------------------------------------------------------------
The undersigned hereby appoints the official proxy committee of the Board of
Directors of the Norwood Financial Corp. (the "Company") with full powers of
substitution to act as attorneys and proxies for the undersigned, to vote all
shares of common stock of the Company that the undersigned is entitled to vote
at the Annual Meeting of Stockholders (the "Meeting"), to be held at the
administrative office of Wayne Bank, 717 Main Street, Honesdale, Pennsylvania
18431, on Tuesday, April 25, 2006, at 11:00 a.m. local time and at any and all
adjournments thereof, as follows:
FOR WITHHELD FOR EXCEPT
1. The election as director of all nominees listed below:
01 William W. Davis, Jr. [ ] [ ] [ ]
02 John E. Marshall
INSTRUCTIONS: To withhold your vote for any individual nominees, mark FOR EXCEPT and
insert that nominee's name on the line provided below.
_____________________________________________________________________
FOR AGAINST ABSTAIN
2. Approval of the Norwood Financial Corp. 2006 Stock [ ] [ ] [ ]
Option Plan.
FOR AGAINST ABSTAIN
3. To ratify the appointment of Beard Miller Company LLP as [ ] [ ] [ ]
independent accountants for the Company for the fiscal year
ending December 31, 2006.
In their discretion, such attorneys and proxies are authorized to vote upon such other
business as may properly come before the Meeting or any adjournments thereof.
The Board of Directors recommends a vote "FOR" each of the above propositions.
THE SIGNED PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE
SPECIFIED, THIS SIGNED PROXY WILL BE VOTED FOR THE PROPOSITION STATED. IF ANY
OTHER BUSINESS IS PRESENTED AT THE MEETING, THIS SIGNED PROXY WILL BE VOTED BY
THOSE NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD
OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
NORWOOD
FINANCIAL CORP.
---------------
ESOP VOTING INSTRUCTION FORM
Please complete both sides, date, sign and mail the
detached proxy card in the enclosed postage-prepaid envelope.
DETACH PROXY CARD HERE
--------------------------------------------------------------------------------
V A
O B
T O NORWOOD
E V --------------
R E FINANICAL CORP.
C N If you plan to personally attend the
O A Annual Meeting of Stockholders, please
N M check the box below and list names of
T E attendees on reverse side.
R
O H Return this stub in the enclosed
L E envelope with your completed proxy
R card.
N E
U
M I/We do plan to attend [_]
B ESOP the Annual Meeting
E Signature ________________
R Signature ________________
Date _______________, 2006 ESOP
Please sign exactly as your name appears above, When signing as attorney,
executor, administrator, trustee or guardian, please give your full title. If
shares are held jointly, each holder should sign.
--------------------------------------------------------------------------------
NORWOOD FINANCIAL CORP.
Annual Meeting of Stockholders, April 25, 2006 ESOP
--------------------------------------------------------------------------------
The undersigned hereby instructs the Trustees of the Wayne Bank Employee Stock
Ownership Plan and Trust ("ESOP") to vote, as designated below, all the shares
of Common Stock of Norwood Financial Corp. ("Company") allocated to the
undesigned pursuant to the ESOP as of March 17, 2006, at the Annual Meeting of
Stockholders to be held at the administrative office of Wayne Bank, 717 Main
Street, Honesdale, Pennsylvania 18431, on Tuesday, April 25, 2006, at 11:00 a.m.
local time, and at any an all adjournments thereof. In the following manner.
FOR WITHHELD FOR EXCEPT
1. The election as director of all nominees listed below:
01 William W. Davis, Jr. [ ] [ ] [ ]
02 John E. Marshall
INSTRUCTIONS: To withhold your vote for any
individual nominees, mark FOR EXCEPT and
insert that nominee's name on the line provided below.
_____________________________________________________________________
FOR AGAINST ABSTAIN
2. Approval of the Norwood Financial Corp. 2006 Stock [ ] [ ] [ ]
Option Plan.
FOR AGAINST ABSTAIN
3. To ratify the appointment of Beard Miller Company LLP as [ ] [ ] [ ]
independent accountants for the Company for the fiscal year
ending December 31, 2006.
The Board of Directors recommends a vote "FOR" each of the above propositions.
Dated: _________________, 2006 ________________________________________
Signature
If you return this card properly signed, but you do not otherwise specify,
shares will be voted "FOR" the above listed nominees and proposals. If you do
not return this card, your shares will be voted by the Trustee in a manner
proportionate to the voting directions of the allocated shares received by the
ESOP participants, subject to the fiduciary duty of the trustees.