def14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities
Exchange Act of 1934 (Amendment
No. )
Filed by the
Registrant þ
Filed by a Party other than the
Registrant o
Check the appropriate box:
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o Preliminary
Proxy Statement
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o Confidential,
for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
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þ Definitive
Proxy Statement
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o Definitive
Additional Materials
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o Soliciting
Material Pursuant to §240.14a-12
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Citizens & Northern Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if
other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act
Rules 14a-6(i)(1) and 0-11.
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(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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Fee paid previously with preliminary materials.
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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.
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(1) |
Amount Previously Paid:
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(2) |
Form, Schedule or Registration Statement No.:
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90-92 Main Street
Wellsboro, Pennsylvania 16901
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD TUESDAY, APRIL 17, 2007
TO OUR STOCKHOLDERS:
Notice is hereby given that the Annual Meeting of the stockholders of Citizens & Northern
Corporation (the Corporation) will be held at Citizens & Northern Bank, located at 90 Main
Street, Wellsboro, Pennsylvania, on Tuesday, April 17, 2007, at 2:00 P.M., local time, for the
following purposes:
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To elect one Class I director to serve for a term of 2 years and five Class II directors
to serve for a term of 3 years; and |
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To transact such other business as may properly be brought before the meeting or any
adjournment or adjournments thereof. |
Only stockholders of record at the close of business on February 27, 2007 are entitled to
notice of, and to vote at, the meeting. Such stockholders may vote in person or by proxy.
All stockholders are urged to complete, sign, date and return the enclosed proxy in the
accompanying envelope, whether or not you expect to attend the meeting. If you do attend the
meeting, you may, if you wish, withdraw your proxy and vote your shares in person.
By Order of the Board of Directors,
Jessica R. Brown
Corporate Secretary
March 20, 2007
CITIZENS & NORTHERN CORPORATION
90-92 Main Street
Wellsboro, Pennsylvania 16901
PROXY STATEMENT
Annual Meeting of Stockholders April 17, 2007
This proxy statement is furnished in connection with the solicitation of proxies by the Board
of Directors of Citizens & Northern Corporation to be used at the Annual Meeting of Stockholders of
the Corporation to be held on Tuesday, April 17, 2007, at 2:00 P.M. at Citizens & Northern Bank
(C&N Bank), located at 90 Main Street, Wellsboro, Pennsylvania, and at any adjournment thereof.
The approximate date upon which this Proxy Statement and proxy will first be mailed to stockholders
is March 20, 2007.
Shares represented by properly completed proxies will be voted in accordance with the
instructions indicated thereon unless such proxies have previously been revoked. If no direction
is indicated, such shares will be voted in favor of the election as directors of the nominees named
below, and in the discretion of the proxy holder as to any other matters that may properly come
before the Annual Meeting or any adjournment thereof. A proxy may be revoked at any time before it
is voted by written notice to the Secretary of the Corporation or by attending the Annual Meeting
and voting in person.
The Corporation will bear the entire cost of soliciting proxies for the Annual Meeting. In
addition to the use of the mails, proxies may be solicited by personal interview, telephone,
telegram, e-mail or other electronic means by the Corporations directors, officers and employees.
American Stock Transfer & Trust Company, the transfer agent and registrar for the Corporation, will
assist in the distribution of proxy materials and the solicitation and tabulation of votes.
Arrangements also may be made with custodians, nominees and fiduciaries for forwarding proxy
materials to beneficial owners of stock held of record by such persons, and the Corporation may
reimburse such custodians, nominees and fiduciaries for reasonable out-of-pocket expenses incurred
by them in connection therewith.
The Board of Directors has fixed the close of business on February 27, 2007 as the record date
for the determination of stockholders entitled to notice of and to vote at the Annual Meeting and
at any adjournment thereof. On the record date, there were outstanding and entitled to vote
8,292,759 shares of common stock. Common stockholders will be entitled to one vote per share on
all matters to be submitted at the meeting. The presence, in person or by proxy, of stockholders
entitled to cast at least 50% of the votes that all stockholders are entitled to cast shall
constitute a quorum at the Annual Meeting. An abstention will be considered present at the meeting
for purposes of determining a quorum, but will not be counted as voting for or against the issue to
which it relates. Neither abstentions nor broker non-votes will be counted as votes cast and
neither will have any effect on the result of the vote, although both will count toward the
determination of the presence of a quorum. The Articles of Incorporation of the Corporation do not
permit cumulative voting.
No person is known by the Corporation to have beneficially owned 5% or more of the outstanding
common stock of the Corporation as of February 27, 2007.
PROPOSAL 1 ELECTION OF DIRECTORS
The Articles of Incorporation of the Corporation provide that the Board of Directors shall
consist of not less than five nor more than twenty-five directors and that within these limits the
numbers of directors shall be as established by the Board of Directors. The Board of Directors has
set the number of directors at fourteen. The Articles further provide that the Board shall be
classified into three classes, as nearly equal in number as possible. Typically, one class of
directors is elected annually, and the term for each Class is typically three years. At the 2007
Annual Meeting, one director in Class I to serve for a two-year term and five directors in Class II
to serve for a three-year term are to be elected. The Board of Directors recommended the
nomination of an additional Class I director in 2007 in an effort to increase the number of Class I
directors to four, which is closer to the number of Class II and Class III (5 each). It is the
intention of the persons named as proxyholders on the enclosed form of proxy, unless other
directions are given, to vote all shares which they represent for the election of managements
nominees named in the tabulation below. Directors are elected by a plurality of the votes cast.
Plurality means that the nominees receiving the highest number of votes cast are elected as
directors up to the maximum number of directors who are nominated to be elected at the meeting. Any
stockholder who wishes to withhold authority from
- 1 -
the proxyholders to
vote for the election of directors, or to withhold authority to vote for any individual nominee,
may do so by marking the proxy to that effect. Each director elected will continue in office until
a successor has been elected. The Board of Directors recommends a vote FOR the election of the
nominees listed below, each of whom has consented to be named as a nominee and to serve if elected.
If for any reason any nominee named is not a candidate (which is not expected) when the election
occurs, proxies will be voted for a substitute nominee determined by the Board of Directors.
All Directors and Nominees are independent, except for Craig Litchfield, according to the
definition of independent director under NASDAQ rules, which the Corporation uses to determine
independence. The Board of Directors of the Corporation has adopted a written policy for Director
Independence, which is available on our website at www.cnbankpa.com by clicking on Shareholder
News, then Corporate Governance, then Independence Standards.
The following table sets forth certain information about the director nominees and about the
other directors whose terms of office will continue after the Annual Meeting.
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Name, Age and Certain Biographical Information |
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Period of Service as a Director |
Class I- MANAGEMENTS NOMINEE FOR A 2 YEAR TERM ENDING IN 2009: |
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Raymond R. Mattie, 45 |
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President of M & S Conversion Co. Inc. |
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Class II MANAGEMENTS NOMINEES FOR A 3 YEAR TERM ENDING IN 2010: |
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R. Bruce Haner, 59
Auto Buyer for New Car Dealers
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Director since 1998 |
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Susan E. Hartley, 49
Attorney at Law
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Director since 1998 |
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Leo F. Lambert, 53
President and General Manager of Fitzpatrick & Lambert, Inc.
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Director since 2001 |
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Edward L. Learn, 59
Former owner of Learn Hardware & Building Supply
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Director since 1989 |
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Leonard Simpson, 58
Attorney at Law
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Director since 1989 |
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Class III Continuing Directors with Terms Expiring in 2008: |
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Dennis F. Beardslee, 56
Owner of Terrace Lanes Bowling Center
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Director since 1999 |
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Jan E. Fisher, 52
Executive Vice President & COO Executive of Laurel Health System, formerly
Director for Healthcare Services of Laurel Health System
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Director since 2002 |
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Karl W. Kroeck, 67
Farmer
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Director since 1996 |
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Craig G. Litchfield, 59
President & Chief Executive Officer of Citizens & Northern
Corporation and Citizens & Northern Bank
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Director since 1996 |
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Ann M. Tyler, 62
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Director since 2002 |
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Name, Age and Certain Biographical Information |
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Period of Service as a Director |
Certified Public Accountant in firm of Ann M. Tyler CPA, PC |
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CLASS I Continuing Directors with Terms Expiring in 2009: |
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R. Robert DeCamp, 66
President of Patterson Lumber Co.,
Inc.
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Director since 1988 |
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Edward H. Owlett, III, 52
President & CEO of Putnam Company
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Director since 1994 |
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James E. Towner, 60
General Manager of The Scranton Times, formerly
Publisher of The Daily / Sunday Review
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Director since 2000 |
CORPORATIONS AND C&N BANKS EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the current executive
officers of the Corporation and C&N Bank.
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Name and Position for Last Five Years |
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Age |
Craig G. Litchfield
President and Chief Executive Officer of the Corporation and C&N Bank since January 1997
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59 |
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Dawn A. Besse
Executive Vice President and Director of Sales, Service and Employee Development
of C&N Bank since August 2000
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56 |
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Harold F. Hoose, III
Executive Vice President and Director of Lending of the Bank since March 2005; formerly
Vice President of C&N Bank since September 2001
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40 |
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Mark A. Hughes
Treasurer of the Corporation since November 2000; Executive Vice President and
Chief Financial Officer of C&N Bank since August 2000
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46 |
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Thomas L. Rudy, Jr.
Executive Vice President and Director of Branch Delivery of C&N Bank since
February 2004; President of C&N Financial Services Corporation since January
2000
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43 |
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Deborah E. Scott
Executive Vice President and Senior Trust Officer of C&N Bank since September 1999
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47 |
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SECURITY OWNERSHIP OF MANAGEMENT
The following table shows beneficial ownership of the Corporations common stock as of
February 22, 2007 by (i) each director of the Corporation, (ii) each nominee for director, (iii)
each executive officer named in the Summary Compensation Table on page 16 and (iv) all directors,
the nominee, and executive officers as a group.
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Amount and Nature of |
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Percent of Class |
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Beneficial Ownership (1) (2) (3) |
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(if 1% or Greater) |
Dennis F. Beardslee |
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8,137 |
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R. Robert DeCamp |
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5,967 |
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Jan E. Fisher |
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4,104 |
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R. Bruce Haner |
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17,119 |
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Susan E. Hartley |
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5,394 |
(4) |
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Karl W. Kroeck |
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3,358 |
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Leo F. Lambert |
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7,506 |
(5) |
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Edward L. Learn |
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7,014 |
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Craig G. Litchfield |
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78,352 |
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Edward H. Owlett, III |
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6,373 |
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Leonard Simpson |
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32,722 |
(6) (7) |
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James E. Towner |
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8,767 |
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Ann M. Tyler |
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7,157 |
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Raymond R. Mattie |
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175 |
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Dawn A. Besse |
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13,949 |
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Mark A. Hughes |
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16,349 |
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Thomas L. Rudy, Jr. |
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9,811 |
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Deborah E. Scott |
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19,466 |
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Directors, Nominee and Executive Officers as a Group (19 Persons) |
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256,769 |
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3.10 |
% |
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Pursuant to the regulations of the Securities and Exchange Commission, an
individual is considered to beneficially own shares of common stock if he or she directly or
indirectly has or shares (a) the power to vote or direct the voting of the shares; or (b)
investment power with respect to the shares, which includes the power to dispose of or direct
the disposition of the shares. Unless otherwise indicated in a footnote below, each
individual holds sole voting and investment authority with respect to the shares listed. |
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In addition, an individual is deemed to be the beneficial owner if he or she has the
right to acquire shares within 60 days through the exercise of any option. Therefore, the
following stock options that are exercisable within 60 days after February 22, 2007 are
included in the shares above: Mr. Beardslee, 2,593 shares; Mr. DeCamp, 2,056 shares; Mrs.
Fisher, 1,756 shares; Mr. Haner, 2,356 shares; Ms. Hartley, 2,356 shares; Mr. Kroeck, 1,756
shares; Mr. Lambert, 1,756 shares; Mr. Learn, 2,356 shares; Mr. Litchfield, 50,643 shares; Mr.
Owlett, 3,721 shares; Mr. Simpson, 2,873 shares; Mr. Towner, 1,756 shares; Ms. Tyler, 1,756
shares; Mrs. Besse, 6,910 shares; Mr. Hughes, 9,738 shares; Mr. Rudy, 7,202 shares; and Mrs.
Scott, 15,428 shares. |
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Includes the following restricted stock awards granted under the Corporations Stock
Incentive Plan and Independent Director Stock Incentive Plan: Mr. Beardslee, 104 shares; Mr.
DeCamp, 104 shares; Mrs. Fisher, 104 shares; Mr. Haner, 104 shares; Ms. Hartley, 104 shares;
Mr. Kroeck, 104 shares; Mr. Lambert, 104 shares; Mr. Learn, 104 shares; Mr. Litchfield, 941
shares; Mr. Owlett, 104 shares; Mr. Simpson, 104 shares; Mr. Towner, 104 shares; Ms. Tyler,
104 shares; Mrs. Besse, 292 shares; Mr. Hughes, 422 shares; Mr. Rudy, 317 shares; and Mrs.
Scott, 337 shares. Restricted stock awards vest ratably over a three-year period; however,
the recipients have the right to vote all awarded shares. |
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Includes 1,484 shares being pledged as security on borrowing facilities with C&N
Bank. |
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Includes 151 shares held in a SEP-IRA Plan for the benefit of Mr. Lamberts
retirement plan. |
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Includes 4,152 shares held in a SEP-IRA Plan for the benefit of Mr. Simpsons
retirement plan. |
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Includes 20,000 shares being pledged as security on borrowing facilities with C&N
Bank. |
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BOARD OF DIRECTOR COMMITTEES AND
ATTENDANCE
Both the Corporations and C&N Banks by-laws provide that the Board may create any number of
committees of the Board as it deems necessary or appropriate from time to time.
Executive Committee of the Corporation. The Corporation has an Executive Committee whose
purpose is to monitor and oversee the Corporations management succession plan and leadership
development processes, review and provide advice and counsel to the CEO regarding the Corporations
strategic plan, mission, goals and objectives and action plans as well as various other matters and
to act on behalf of and with full authority of the Board of Directors in matters that may arise
between the regular monthly meetings of the Board, which require immediate Board level action. This
committee consists of the following seven members of the Board of Directors: R. Robert DeCamp, R.
Bruce Haner, Leo F. Lambert, Craig G. Litchfield, Edward H. Owlett, III, Leonard Simpson and James
E. Towner. During 2006, the Executive Committee held ten meetings.
Nominating Committee. The Nominating Committee for each of the Corporation and C&N Bank
consists of the following six independent members of the Board of Directors: R. Robert DeCamp, Jan
E. Fisher, R. Bruce Haner, Edward H. Owlett, III, Leonard Simpson and James E. Towner. The purpose
of the Nominating Committee is to establish criteria for Board member selection and retention,
identify individuals qualified to become Board members, and recommend to the Board the individuals
to be nominated and re-nominated for election as directors. The Nominating Committee held two
meetings during 2006.
All members of the Nominating Committee are independent directors within the meaning of Rule
4200 of NASDAQ. The Board of Directors of the Corporation has adopted a written charter for the
Nominating Committee, which is available on our website at www.cnbankpa.com by clicking on
Shareholder News, then Corporate Governance, then Nominating Committee Charter of C&N Corp.
Qualifications considered by the Nominating Committee in assessing director candidates include
but are not limited to the following:
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An understanding of business and financial affairs. A career in business is not essential, but the candidate should
have a proven record of competence and accomplishments and should be willing to commit the time and energy necessary to
be an effective director; |
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A genuine interest in representing all of Citizens & Northerns stakeholders, including the long-term interest of the
stockholders; |
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A willingness to support the Values, Mission and Vision of Citizens & Northern; |
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An open-mindedness and resolve to independently analyze issues presented for consideration. Additionally, a candidate
should be inquisitive and feel a duty to ask questions of management and challenge the status quo; |
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A reputation for honesty and integrity; |
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A high level of financial literacy; |
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A mature confidence and ability to approach others with self-assurance, responsibly and supportively; |
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The ability, capacity and willingness to serve as a conduit of business referrals to the organization; |
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Diversity (in terms of gender, race or other factors) that would reflect representation of different perspectives; |
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Residency in the geographically defined market area of the Bank, with emphasis placed on maintaining representation
throughout the market area; and |
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Knowledge, judgment, skill diversity, business experience, as well as the interplay or fit of the candidates
experience and skill with the experience and skills of other Board members. |
Other than the foregoing, there are no stated minimum criteria for director nominees, although
the Nominating Committee may also consider such other factors as it may deem are in the best
interests of the Corporation and its stockholders and such factors may change from time to time.
The Nominating Committee does, however, believe it appropriate that at least one director meet the
criteria for audit committee financial expert as defined by the SEC rules, even though no one
currently meets this criteria, and that a majority of the Board members meet the definition of
independent director under NASDAQ rules.
The Committee identifies nominees by first evaluating the current directors who are willing to
continue in service. If any member of the Board does not wish to continue its service or the Board
determines not to re-
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nominate a current director for re-election, the Nominating Committee
identifies the desired skills and experience of a new nominee in light of the criteria above. The
evaluation procedure for candidates recommended by the stockholders would be the same as is done
for those recommended by the Board of Directors and management. The Committee recommends a
director nominee to the Board, and the Board makes the final determination as to the nominees who
will stand for election.
Current members of the Board of Directors are polled for suggestions as to prospective
candidates meeting criteria for the Nominating Committee. The Committee has the prerogative to
employ and pay third party search firms, but to date has not done so.
Corporate Governance Committee. The Corporate Governance Committee of the Corporation, which
met four times in 2006, consists of the following five independent members of the Board of
Directors: Dennis F. Beardslee, R. Bruce Haner, Susan E. Hartley, Karl W. Kroeck and Ann M. Tyler.
This committee is responsible for reviewing and reporting to the Board periodically on matters of
corporate governance.
Executive Committee. C&N Bank has an Executive Committee consisting of seven members of the
Board of Directors who are as follows: R. Robert DeCamp, R. Bruce Haner, Leo F. Lambert, Craig G.
Litchfield, Edward H. Owlett, III, Leonard Simpson and James E. Towner. The function of this
committee is to monitor and oversee the Banks management succession plan and leadership
development processes, review and provide advice and counsel to the CEO regarding C&N Banks
strategic plan, mission, goals and objectives and action plans and other various matters, as well
as recommend policies and procedures. During 2006, the Executive Committee held twelve meetings.
Compensation Committee. The Compensation Committee of C&N Bank, which held seven meetings in
2006, consists of the following six independent members of the Board of Directors: R. Robert
DeCamp, R. Bruce Haner, Leo F. Lambert, Edward H. Owlett, III, Leonard Simpson and James E. Towner.
The purpose of the committee is to discharge the responsibilities of the Board of Directors
relating to compensation of the executive officers and to provide oversight of the Banks
compensation, benefit, perquisite and employee equity programs.
The Board of Directors of C&N Bank has adopted a written charter for the Compensation
Committee, which is available on our website at www.cnbankpa.com. Click on Shareholder News ,
then Corporate Governance, then Compensation Committee Charter of C&N Bank.
Trust Investment Committee. The Trust Investment Committee of C&N Bank, which met twelve
times in 2006, consists of four members of the Board of Directors; namely, Dennis F. Beardslee,
Susan E. Hartley, Edward L. Learn and Leonard Simpson until the March, 2006 meeting at which Susan
E. Hartley resigned. Deborah E. Scott, Executive Vice President and Senior Trust Officer of
C&NBank, is also a member of this committee, which determines the policy and investments of the
Trust Department, the acceptance of all fiduciary relationships and relinquishments of all
fiduciary relationships.
Asset Liability Committee. C&N Bank also has an Asset Liability Committee, which consists of
Board members R. Robert DeCamp, Jan E. Fisher, Craig G. Litchfield, Edward H. Owlett, III and Ann
M. Tyler, as well as Mark A. Hughes, Executive Vice President and Chief Financial Officer of the
Bank. The Asset Liability Committee met nine times during 2006. The purpose of the committee is to
stabilize and improve profitability by balancing the relationship between risk and return over an
extended period of time and to function as an investment committee.
Finance and Loan Committee. C&N Bank has a Finance and Loan Committee consisting of nine
members of the Board of Directors who are as follows: Dennis F. Beardslee, Susan E. Hartley, Karl
W. Kroeck, Leo F. Lambert, Edward L. Learn, Craig G. Litchfield, Edward H. Owlett, III, Leonard
Simpson and Ann M. Tyler. The primary purpose of this committee is to evaluate and act on loan
requests that exceed managements lending authority. During 2006, the Finance and Loan Committee
held five meetings.
Audit Committee. The Audit Committee of the Corporation, which held six meetings in 2006,
consists of six independent members of the Board of Directors. The members of the Committee are R.
Bruce Haner, Karl W. Kroeck, Leo F. Lambert, Edward H. Owlett, III, James E. Towner and Ann M.
Tyler. In addition to the six meetings of the Audit Committee, the chairman and a rotating member
of the Committee met with representatives of Parente
Randolph, LLC, C&N Banks internal audit department and management in May, August and November,
2006 to discuss the Corporations quarterly 10-Q filings. The primary function of the Audit
Committee is to review the
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internal audit program as performed by the internal auditors, recommend
to the Board of Directors the independent auditors for the year, and review the examinations and
reports from those persons. None of the members of the Audit Committee meet the definition of
Audit Committee financial expert as defined in the rules adopted by the Securities and Exchange
Commission. The Board of Directors has determined that each of the present members of the Audit
Committee have sufficient knowledge and experience in financial matters to effectively perform
their duties.
The Board of Directors of the Corporation has adopted a written charter for the Audit
Committee, a copy of which is attached hereto as Appendix A. The current Audit Committee Charter
is also available on our website at www.cnbankpa.com. Click on Shareholder News & Info, then
Corporate Governance, then Audit Committee Charter of C&N Corp. The policies and procedures
for pre-approval of engagements for non-audit services are included in the Charter.
The following table sets forth information concerning fees paid to Parente Randolph, LLC for
the years ended December 31, 2006 and 2005. All services provided by Parente Randolph, LLC in 2006
and 2005 were pre-approved by the Audit Committee.
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Fiscal Years Ended |
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December 31, |
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2006 |
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2005 |
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Audit Fees |
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Audit of Annual financial statements and
Audit of internal control over financial reporting
and managements assertions related thereto, and
reviews of Quarterly financial statements |
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$ |
159,012 |
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$ |
162,092 |
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Audit-Related Fees |
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Audits of employee benefit plans |
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11,900 |
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9,550 |
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Tax Fees |
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Preparation of Corporate tax returns |
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|
9,000 |
|
|
|
7,000 |
|
Preparation of retired employee tax returns |
|
|
4,465 |
|
|
|
4,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate of all fees billed to the Corporation
by Parente Randolph, LLC |
|
$ |
184,377 |
|
|
$ |
182,872 |
|
AUDIT COMMITTEE REPORT
On March 1, 2007, the Audit Committee of the Board of Directors reviewed and discussed the
audited financial statements dated December 31, 2006 with management. They also have discussed
with Parente Randolph, LLC, the independent registered public accounting firm of the Corporation,
the matters for discussion as specified by the AICPA Statement of Auditing Standards No. 61. The
Audit Committee has received from Parente Randolph, LLC the written communications required by
Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees and
has discussed with Parente Randolph, LLC, its independence. Based on its review and discussions
referred to above, the Committee has recommended to the Board of Directors that the audited
financial statements be included in the Corporations annual report on Form 10-K for the fiscal
year ended December 31, 2006 for filing with the Securities and Exchange Commission.
|
|
|
|
|
|
|
Members of the Audit Committee, |
|
|
|
|
|
|
|
|
|
Edward H. Owlett, III, Chairman
|
|
Leo F. Lambert |
|
|
R. Bruce Haner
|
|
James E. Towner |
|
|
Karl W. Kroeck
|
|
Ann M. Tyler |
- 7 -
DirectorsAttendance. The Board of Directors of the Corporation met thirteen times
and the Board of Directors of C&N Bank met thirteen times in 2006. The Board of Directors also
held four quarterly Executive Sessions and Independent Directors Meetings in 2006. The Executive
Sessions include only members of the Board of Directors and the Independent Directors Meetings
include only non-employee members. All of the directors attended at least 75% or more of the
meetings of the Board of Directors of the Corporation and of the board committees on which he or
she served.
Although the Company does not have a formal policy with respect to Board member attendance at
the Annual Meeting of Stockholders, each member is encouraged to attend the Annual Meeting. All
Directors attended the Annual Meeting of Stockholders held in April 2006.
STOCK OWNERSHIP GUIDELINES
The Board of Directors has not adopted formal guidelines for stock ownership by directors, but
the Board encourages directors to increase their ownership over time.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. DeCamp, Haner, Lambert, Owlett, Simpson and Towner served as members of the
Compensation Committee during 2006 and none of them was an officer or employee of the Corporation
or any of its subsidiaries during that time. There are no interlocking relationships, as defined
in regulations of the SEC, involving members of the Compensation Committee.
COMPENSATION DISCUSSION & ANALYSIS
OVERVIEW OF THE EXECUTIVE COMPENSATION PROGRAM
The Citizens & Northern Corporation (C&N) executive compensation program includes a number of
fixed and variable compensation and benefit components, typical of programs among comparable
community banking and financial services companies in our local and regional marketplace.
The program provides participating executives with an industry-competitive level of total
compensation when their collective and individual performances meet or exceed the goals approved by
the Board of Directors.
COMPENSATION PHILOSOPHY AND PROGRAM OBJECTIVES
We believe that the compensation program for executives should directly support the
achievement of specific annual, longer-term and strategic goals of the business, and, thereby,
align the interests of executives with the interests of C&N shareholders.
The current program provides sufficient levels of fixed income, in the forms of base salary
and health & welfare benefits, to attract high caliber executive talent to the organization. It
also provides competitive annual and longer-term incentive opportunities to encourage specific
performance and to reward the successful efforts of executives.
The incentive opportunities are structured to produce a performance-leveraged program format
where executives are expected to derive as much as 40% to 60% of their total compensation over
time, depending on their role in the organization, from short- and longer-term incentive
opportunities, but only when performance targets are met on a consistent basis.
Lastly, the current program also contains certain benefit features, provided on a selective
basis, to ensure equitable benefits coverage for our highly compensated employees and transition
support in the event of substantial ownership change. These provisions support retention of good
performers by the organization.
We believe that the features and composition of the current program are consistent with
practices of other comparable community banking and financial services organizations in our
marketplace and that it balances the need for competitive pay opportunities at the executive level
with shareholders expectations for reasonable return on their investment.
- 8 -
PROGRAM MANAGEMENT
The Compensation Committee (the Committee) of the Board of Directors has primary
responsibility for the design and administration of the executive compensation program. It reviews
the make-up and administration of the executive compensation program throughout the year in light
of changing organization needs and operating conditions and changing trends in industry practice.
In evaluating program effectiveness, the Committee utilizes information from management and the
services of an outside consultant. Strategic Compensation Planning, Inc. of Malvern, PA is the
Committees consultant on executive and director compensation matters.
The Committee currently consists of six (6) directors, all of whom qualify as independent
members of the Board. R. Robert DeCamp serves as Chair of the Committee. R. Bruce Haner, Leo F.
Lambert, Edward H. Owlett, III, Leonard Simpson, and James E. Towner also serve on the Committee.
Role of Executive Management in the Pay Decision Process. The Committee is responsible for
recommending compensation related decisions to the Board of Directors for final approval. In
formulating its recommendations, the Committee will regularly seek information about the
performance of the business, organization staffing requirements and the performance levels of
incumbent executives from the Chief Executive Officer. It will also utilize the services of the
Companys Chief Financial Officer and, as circumstances suggest, other officers of the Company.
The Committee weighs the information provided by officers carefully, especially the recommendations
of the Chief Executive Officer on decisions affecting subordinate executives, but ultimately makes
its decisions and formulates recommendations for Board approval independently.
Program Review and Pay Decision Process. During the Fall of a calendar year, the Compensation
Committee (1) receives information on current executive compensation levels in the industry and
industry program practices, (2) conducts a comprehensive review of the C&N program structure and
provisions, and (3) considers salary and benefit adjustments and incentive awards for executives.
After examining industry practice information provided by its outside consultant, the
Committee determines (1) if the content and structure of the C&N program is still competitive, (2)
if the current provisions remain consistent with the Corporations overall pay philosophy, and (3)
if the C&N program continues to support achievement of business objectives.
After deciding on the program structure for the coming calendar year, the Compensation
Committee will examine the current compensation and benefit levels of incumbent executives in light
of their continuing or changing roles in the business, the assessments of their individual
performances by the Chief Executive Officer, and industry practice trends. The performance of the
Chief Executive Officer is reviewed and appraised by the Compensation Committee with input from a
questionnaire provided to all Directors.
Based on the information gathered about each executive, the Compensation Committee will
formulate recommendations on possible salary adjustments for executives during the coming calendar
year. It will also determine annual incentive awards for executives based on results achieved
against goals and objectives defined at the beginning of the year, and it will determine
appropriate longer-term incentive awards, usually in the form of stock options and restricted stock
grants.
These recommendations will be presented to the full Board of Directors for consideration,
usually in December, prior to the beginning of the new fiscal (calendar) year.
As incentive awards for the year ending are calculated, the Compensation Committee is also
working with the Chief Executive Officer to construct executive performance plans for the coming
calendar year (the new fiscal year). The Committee will formulate their recommendations on
performance goals and award opportunities for Board consideration and approval.
NOTE: The Committee may be called upon to consider pay related decisions from time to time
throughout the calendar year as executives are reassigned (promoted) and new executives join the
organization. In these instances, the Committee will review all aspects of the executives
compensation including base salary level, annual incentive opportunities, longer-term incentive
awards, participation in special benefit plans, and employment contract provisions, if applicable.
- 9 -
Pay Decision Factors and Considerations. The following factors typically influence
Compensation Committee recommendations on pay and benefits for C&N executives:
|
|
|
Salary: executives overall performance during the year ending, changes in organization
role and scope of responsibility, current salary in relation to the positions market
value, any significant changes in the industrys pay practices for comparable positions. |
|
|
|
|
Annual Incentive Awards: competitive industry practice with respect to size of awards,
actual performance (achievement) against goals and objectives assigned at the beginning of
the fiscal year. |
|
|
|
|
Longer-term Incentive Awards: competitive industry practice with respect to size of
awards and the typical mix of stock options, restricted shares and other forms of
equity-based grants, recent performance of the Corporation and the individual executive,
applicable accounting rules for expensing equity awards, and shareholder concerns about
dilution and overhang. |
|
|
|
|
Nonqualified Benefits: tax rules on qualified benefit plans, likely replacement income
benefits for executives compared to other categories of employees within the organization,
competitive industry practice for comparable type and level of executive positions. |
|
|
|
|
Perquisites: the needs of the executives position, i.e., frequency of need to travel to
other Corporation locations, or to meet with Corporation clients and prospective clients,
and competitive industry practices for comparable executive roles. |
|
|
|
|
Employment Contracts: while not used currently, the Committee would consider employment
agreements where it determined that agreements would serve Corporation needs for
confidentiality about business practices and plans and preservation of the customer base
(noncompetition and nonsolicitation provisions) and competitive industry practices. |
|
|
|
|
Comparator Base: The Basis for Defining Competitive Compensation Levels and Practices.
The types and levels of compensation included in the C&N executive compensation program are
consistent with current features and programming trends among similar size and type
organizations in the Corporations local and regional marketplace. |
Annually, the Compensation Committee asks its outside consultant to review survey reports on
national and regional compensation practice within C&Ns industry group, focusing on pay levels and
practices among Community Banking and Diversified Financial Services institutions based in the
Mid-Atlantic Region and having between $1.0B and $2.0B of assets. This range of institutions
represents banking companies that are somewhat smaller and somewhat larger than C&N. The asset
range will be modified from time to time as C&Ns operating circumstances change.
- 10 -
The consultant also examines proxy information on specific institutions that fall into the
comparison standards noted. For the 2007 program planning review, the outside consultant reviewed
executive compensation information from the following institutions in Pennsylvania, New York, New
Jersey and Ohio:
|
|
|
Camco Financial Corp.
|
|
Oceanfirst Financial |
Center Bancorp, Inc.
|
|
Omega Financial |
ESB Financial
|
|
Parkvale Financial Corp. |
Financial Institutions, Inc.
|
|
Peapack-Gladstone Financial |
First Defiance
|
|
Pennsylvania Commerce |
First National Community
|
|
Peoples Bancorp |
FMS Financial Corp.
|
|
Tompkins Trustco |
Leesport Financial Corp.
|
|
Univest Corp. of Pennsylvania |
PROGRAM COMPONENTS
There are six (6) elements in the current executive compensation program:
1. Base Salary. Base salary opportunities are set at the median level of industry
practice for comparable jobs in like size and type community banking and financial
service organizations. Within the defined competitive range, an executives salary
level is based initially on his/her qualifications for the assignment and experience in
similar level and type roles. Ongoing, salary adjustments reflect the individuals
overall performance of the job against organization expectations and may also reflect
changes in industry practices. For most C&N executive positions, salary will provide
60%-70% of total annual compensation, when considering the value of short-term incentive
awards and benefits provided by the organization.
2. Health & Welfare Benefits. Executives participate in C&Ns qualified health &
welfare benefits programs on the same terms and conditions as all other employees of the
Corporation.
3. Annual Performance Incentives. The annual performance Incentive Award Plan provides
participating executives with opportunities to earn additional cash compensation in a
given year when corporate and business unit operating results and individual performance
contributions meet or exceed established thresholds of acceptable achievement.
Currently, these awards can provide 15% to as much as 35% of an executives total annual
compensation when target levels of performance are achieved. Corporate performance is
typically measured on return on average assets against a peer group and core earnings
growth over the prior years level. Business unit goals vary based on the nature of the
unit, but, where applicable, would include such items as loan and deposit growth, and
non-interest income. The Compensation Committee, at its discretion, may adjust award
payments under the Incentive Award Plan based on extraordinary circumstances, conflicts
with long-term financial and development objectives, or below standard individual
participant performance. All awards under the Incentive Award Plan are paid in cash as
soon as it is practical after the end of a plan year.
4. Longer-term Performance Incentives. Executives are eligible to participate in
longer-term incentive award plans established to focus executive efforts on the
strategic directions and goals of the business and to reward them for their successes in
these areas. Awards can result in additional cash compensation or equity grants in the
form of stock options and restricted stock. While the size of such awards may increase
or decrease based on current business performance, it is the intention of the
Compensation Committee to recommend such awards at least annually as an incentive to
focus executives future efforts on longer-term needs and objectives of the business.
Equity Grant Plans. Our 1995 Stock Incentive Plan, as amended by shareholder vote
on April 15, 2003, authorizes us to grant options to purchase shares of common stock
and to make restricted stock grants to our employees, directors and consultants.
Our Compensation Committee is the administrator of all stock grant plans. Stock
option or restricted stock grants may be made at the commencement of employment and
from time to time to meet other specific retention or performance objectives. The
Compensation Committee reviews and recommends approval of
- 11 -
stock option and
restricted stock awards to executive officers based upon a review of competitive
compensation data, its assessment of individual performance, a review of the
executives existing long-term incentives, and retention considerations. Periodic
grants of stock options or restricted stock are made at the discretion of the
Compensation Committee to eligible employees and, in appropriate circumstances, the
Compensation Committee considers the recommendations of the Chief Executive Officer.
In 2006, no options or restricted shares were granted to named executive officers.
Typically, the Board of directors has approved stock option grants at its late
December meeting, grants to be effective on the second stock trading day of January.
The closing price of C&N stock on the first trading day is typically used as the
exercise price for the option grants. Generally, employee stock option grants vest
six (6) months after the grant date, and generally expire 10-years after the grant
date. Restricted stock grants vest at the rate of one-third each year for three (3)
years following the grant date and are subject to continued employment with C&N.
Incentive stock options and restricted stock grants also include certain other terms
necessary to assure compliance with the Internal Revenue Code of 1986, as amended.
A total of 400,000 shares of common stock may be issued under the Stock Incentive
Plan. As of December 31, 2006, a balance of 131,705 shares are available for
issuance.
The Compensation Committee recommended to the Board and the Board authorized the
awarding of stock options to executives and certain employees on specific dates in
January 2002 through January 2005. The timing of such grants was not tied to the
release of negative or positive material information about C&N. Prior to the January
2002 awards, options were awarded from time to time, as recommended by the Committee and
approved by the Board. No formal structured program of granting annual awards had been
developed prior to 2001.
The company has not established a policy regarding executive ownership of company stock
and/or retention guidelines applicable to equity awards to executives.
5. Nonqualifed Benefits and Perquisites. These provisions include participation in a
supplemental retirement income plan (SERP) as well as, in many instances, use of a
company-provided automobile. In a few instances, the company pays all or a portion of
an executives membership dues for a golf or social club, when such membership can
facilitate the conduct of business with clients.
The SERP has become a virtual necessity for most senior executive level positions within
C&N and most other mid-size and larger corporations because of Federal restrictions on
retirement income benefits to highly compensated employees under qualified retirement
income plans like pensions and 401(k) plans. A SERP, like C&Ns, is intended to replace
some of the benefits lost by executives under the Federally mandated restrictions.
C&Ns SERP provides a retirement benefit to participants who retire after attaining age
55, with 5 years of service. Participants vest earlier than age 55 in the event of
disability, death or if C&N is acquired. Annual contributions to the SERP are at the
discretion of the Board of Directors, and the Board may terminate the SERP at any time.
The SERP is described in more detail in a later section of this Proxy Statement.
6. Employment Contracts and Change of Control Agreements. At present and contrary to
prevailing industry practices, C&N does not offer formal employment contracts to any of
its executives. It may choose to offer such employment arrangements to current or
future executives of C&N as circumstances warrant.
A select group of senior executives, including the Named Executive Officers, do have
Change of Control agreements with C&N. In the event that any of these executives were
terminated following a Change of Control, they would receive a severance benefit equal
to one (1) times their annual base salary rate at the time of termination. They would
also be eligible for continued coverage under the C&N health & welfare benefit plans for
eighteen (18) months, as permitted under law and carrier contract.
|
a. |
|
Severance in the Event of Termination Not for Cause. In the
absence of any formal employment contract with C&N, executives do not have any
predetermined severance commitment from the Corporation, other than its
standard severance policy for all other employees. |
- 12 -
|
b. |
|
Tax Gross-up Provision. None of the Named Executive Officers
have a commitment from the Corporation for a tax gross-up payment in the event
that their severance benefits following separation exceeded the deduction
limits under IRS Code Section 4999. |
RECENT ACTIONS: 2006 AND FIRST QUARTER, 2007
During 2006 and the first quarter of 2007, the Company, through its Compensation Committee and
Board of Directors, has made a number of important decisions regarding executive compensation. The
most important actions are summarized here.
Base Salaries. At the beginning of 2006 and again in the first quarter of 2007, C&N
executives received modest salary increases based on evaluations of corporate and individual
performances and prevailing industry practices for comparable positions. Salary increases ranged
between 2% and 10%. The largest salary increases were awarded to executives who were relatively
new in their respective assignments and had already begun to demonstrate a good level of overall
competency in the performance of their roles.
The salary of the Chief Executive Officer increased by 2% in January, 2007 to a level of
$342,720. The salary of the Chief Financial Officer increased in January 2007 by 5% to a level of
$183,756.
Annual Incentives. Executives received lower incentive awards in 2006 for 2005 performance,
reflecting less than expected results against goals and objectives established for that year.
For 2006, the Board had established a series of Corporate, Business Unit and Individual goals
for each Named Executive Officer. All goals were weighted to reflect their relative importance,
with Corporate goals weighted at 40% or more of an executives total annual incentive award
opportunity. Executives achieved better than expected performance on ROAA against a Peer Group
but achieved less than expected results on Core Earnings Growth. Executives also qualified for
partial payouts against business unit and individual performance goals. The 2006 incentive award,
payable in 2007, for the CEO was $83,462.40. The incentive award for the CFO was $39,959.12.
Longer-term Incentives. There were no stock grants made to executives at the beginning of
2006 based on 2005 performance results. During 2006, the Compensation Committee, on the advice of
its outside consultant, changed its equity grant philosophy to make annual equity grants as an
incentive to drive future performance rather than as a reward for past performance. The Committee
believes this change in policy is consistent with the current practice trend among comparable
banking and financial services institutions. As a result of this policy change, the Committee is
recommending equity grants for executives in early 2007.
Nonqualified Benefits and Perquisites. No changes have been made to existing participation
practices or benefit levels in current program offerings.
Employment Contracts and Change of Control Agreements. No substantial changes in the
Companys current practiceno employment contracts, limited Change of Control protectionis
anticipated.
STATUS OF THE PROGRAM AND LIKELY PRACTICES GOING FORWARD
The structure of the C&N program is well established. It has been refined over time to meet
the changing needs of the business and to maintain a competitive posture in the marketplace for
executive talent.
Currently, all of C&Ns Named Executive Officers are paid salaries that fall in the
competitive median (50th percentile) range of industry practice.
Recent annual incentive awards have been modest, reflecting the Corporations less than
expected results against some of the goals established for 2006 and 2005. The Board is again
offering executives industry competitive incentive award opportunities in 2007 but the achievements
required to earn those awards are stringent.
Equity grants to executives over the past five (5) years have been used as rewards for past
performance. The Compensation Committee has recommended to the Board a change in the Corporations
equity grant practice,
- 13 -
moving to annual grants as an incentive to encourage future performance
rather than as a reward for past
performance. Actual grants may still vary based on most recent Corporate performance, but it
is likely that equity grants will be made annually to C&N executives.
Nonqualified Benefits. The Corporation will continue to offer supplemental retirement income
benefit plans to selected executives, as a make-up for some of the benefits lost to Federal
restrictions. The SERP was designed to provide a benefit equal to 20% of the participants 5-year
average monthly salary. When combined with benefits available under the C&N pension plan, most
executives will receive retirement income benefits which when expressed as a percent of salary are
less than the retirement income benefits afforded to other employees of the company. At its
consultants urging, the Compensation Committee will review the underlying benefit formula for this
plan and make a determination if it should be modified in the future to ensure a competitive
benefit opportunity for participating executives.
Perquisites. C&Ns program has always been modest, offering use of a company vehicle
primarily to those executives who travel among C&Ns multiple branch and operations center
locations and those who frequently meet with clients and prospects offsite.
Employment Contracts. As noted earlier, the Committee has no plans at present to introduce
formal employment contracts for executives.
The Compensation Committee believes that the direct compensation components of the executive
compensation programsalary, annual incentive opportunities, equity grantsare competitive and
reflect the median of prevailing industry practices. However, the absence of formal employment
contracts with key executives and limited severance benefit agreements place the overall program at
a less than fully competitive level against its peer banking companies. The Compensation Committee
intends to maintain the current leveraged approach to total compensation, directly tying a
significant portion of an executives total earnings to achievements against goals and objectives
approved by the Board of Directors.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the Compensation Discussion & Analysis
required by Item 402(b) of Regulation S-K with management and, based on such review and
discussions, the Compensation Committee recommended to the Board of Directors that the Compensation
Discussion & Analysis be included in the Proxy Statement.
|
|
|
COMPENSATION COMMITTEE
|
|
R. Robert DeCamp, Chairman |
|
|
R. Bruce Haner |
|
|
Leo F. Lambert |
|
|
Edward H. Owlett, III |
|
|
Leonard Simpson |
|
|
James E. Towner |
- 14 -
EXECUTIVE COMPENSATION
The following table contains information with respect to annual compensation for services in
all capacities to the Corporation and C&N Bank for the fiscal year ended December 31, 2006 of those
persons who were, at December 31, 2006, (i) the Chief Executive Officer, (ii) the Chief Financial
Officer and (iii) the three (3) other most highly compensated executives (collectively, the Named
Executive Officers) to the extent such persons total compensation exceeded $100,000:
SUMMARY COMPENSATION TABLE
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Change in |
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Pension Value |
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|
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and |
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|
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|
|
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|
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|
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Nonqualified |
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All |
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Stock |
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Deferred Plan |
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Other |
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Name and |
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Salary |
|
|
Bonus |
|
|
Awards |
|
|
Compensation |
|
|
Compensation |
|
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Total |
|
Principal Position |
|
Year |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
CRAIG G. LITCHFIELD |
|
|
2006 |
|
|
|
336,000 |
|
|
|
83,462 |
|
|
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6,585 |
|
|
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30,014 |
|
|
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55,852 |
|
|
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511,913 |
|
Chairman, President and
CEO |
|
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|
|
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|
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|
|
|
|
|
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MARK A. HUGHES |
|
|
2006 |
|
|
|
175,006 |
|
|
|
39,959 |
|
|
|
2,442 |
|
|
|
9,912 |
|
|
|
21,872 |
|
|
|
249,191 |
|
Executive Vice President
and Chief Financial Officer |
|
|
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|
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|
|
|
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DEBORAH E. SCOTT |
|
|
2006 |
|
|
|
141,007 |
|
|
|
26,085 |
|
|
|
2,442 |
|
|
|
8,478 |
|
|
|
20,566 |
|
|
|
198,578 |
|
Executive Vice President
and Senior Trust Officer |
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|
|
|
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DAWN A. BESSE |
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2006 |
|
|
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124,800 |
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|
|
23,840 |
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|
|
2,442 |
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|
|
18,134 |
|
|
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22,566 |
|
|
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191,782 |
|
Executive Vice President
and Director of Sales,
Service and Employee
Development |
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THOMAS L. RUDY, JR. |
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2006 |
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|
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121,315 |
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|
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22,117 |
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|
|
2,442 |
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|
|
4,556 |
|
|
|
15,985 |
|
|
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166,415 |
|
Executive Vice President
and Director of Branch
Delivery |
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- 15 -
The bonus is paid pursuant to the Incentive Award Plan, which is described in the
Program Components section of Compensation Discussion and Analysis.
The amount shown in the Stock Awards column equals the amount recognized during 2006 as
compensation expense for financial statement reporting purposes as a result of restricted stock
awards made in 2004 and 2005. Stock awards are valued at the closing price on the grant date. A
portion of that grant-date value is recorded as expense over the vesting period applicable to the
grant. There were no restricted stock awards in 2006.
The Option Awards column has been omitted from the Summary Compensation Table because no
there were no stock options awarded in 2006. Accordingly, the Option Awards amounts were $0 for
2006.
Amounts shown in the column headed Change in Pension Value and Nonqualified Deferred
Compensation Earnings are for the year ended December 31, 2006, which is the pension plan
measurement date used for financial reporting purposes.
The Non-Equity Incentive Plan Compensation column has been omitted from the Summary
Compensation Table because no Named Executive Officers earned compensation during 2006 of a type
required to be disclosed in that column.
Amounts shown as All Other Compensation include: (a) employer contributions to the 401 (k)
Employee Savings Plan (Mr. Litchfield, $17,600; Mr. Hughes $16,669; Mrs. Scott, $12,808; Mrs.
Besse, $11,028; and Mr. Rudy, $11,243, (b) contribution to the Supplemental Executive Retirement
Plan (SERP) accounts: Mr. Litchfield, $36,488; Mr. Hughes $4,788; Mrs. Scott, $4,614; Mrs. Besse,
$9,621; and Mr. Rudy, $2,878, and (c) dollar value of insurance premium paid for group term life
insurance (Mr. Litchfield, $1,191; Mr. Hughes $415; Mrs. Scott, $415; Mrs. Besse, $1,191; and Mr.
Rudy, $277). For Mr. Litchfield, Mrs. Scott, and Mr. Rudy perquisites and other personal benefits
include a company-supplied automobile. For Mr. Litchfield, Mrs. Scott, Mrs. Besse, and Mr. Rudy,
perquisites also include the cost of club memberships, which are used primarily, but not
exclusively, for business purposes.
There were no plan-based awards with a grant date in 2006. There were plan-based awards with
a January, 2007 grant date. The exercise price of stock options with a January 3, 2007 grant date
was $22.325, which was the market price on the grant date. Awards of stock options to the
Executive Officers in January 2007 were as follows: Mr. Litchfield, 4,820; Mr. Hughes 2,285; Mrs.
Scott, 1,755; Mrs. Besse, 1,450; and Mr. Rudy, 1,635.
- 16 -
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table sets forth information with respect to outstanding equity awards for the
fiscal yearended December 31, 2006 for the Named Executive Officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market |
|
|
|
Option Awards |
|
|
Number of |
|
|
Value of |
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
Shares or |
|
|
Shares or |
|
|
|
Underlying |
|
|
|
|
|
|
|
|
|
|
Units of |
|
|
Units of |
|
|
|
Unexercised |
|
|
Option |
|
|
|
|
|
|
Stock |
|
|
Stock |
|
|
|
Options |
|
|
Exercise |
|
|
Option |
|
|
That Have |
|
|
That Have |
|
|
|
(#) |
|
|
Price |
|
|
Expiration |
|
|
Not Vested |
|
|
Not Vested |
|
Name |
|
Exercisable |
|
|
($) |
|
|
Date |
|
|
(#) |
|
|
($) |
|
Craig G. Litchfield |
|
|
4,999 |
|
|
$ |
22.17 |
|
|
|
12/18/2007 |
|
|
|
|
|
|
|
|
|
|
|
|
6,000 |
|
|
$ |
24.25 |
|
|
|
12/17/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
7,500 |
|
|
$ |
18.00 |
|
|
|
12/23/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
4,305 |
|
|
$ |
13.50 |
|
|
|
12/21/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
9,405 |
|
|
$ |
17.00 |
|
|
|
1/2/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
7,204 |
|
|
$ |
20.73 |
|
|
|
1/2/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
5,715 |
|
|
$ |
26.59 |
|
|
|
1/2/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
5,515 |
|
|
$ |
27.00 |
|
|
|
1/3/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
650 |
|
|
$ |
14,300 |
|
Total: |
|
|
50,643 |
|
|
|
|
|
|
Total: |
|
|
650 |
|
|
$ |
14,300 |
|
Mark A. Hughes |
|
|
2,828 |
|
|
$ |
17.00 |
|
|
|
1/2/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
2,700 |
|
|
$ |
20.73 |
|
|
|
1/2/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
2,145 |
|
|
$ |
26.59 |
|
|
|
1/2/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
2,065 |
|
|
$ |
27.00 |
|
|
|
1/3/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
238 |
|
|
$ |
5,236 |
|
Total: |
|
|
9,738 |
|
|
|
|
|
|
Total: |
|
|
238 |
|
|
$ |
5,236 |
|
Deborah E. Scott |
|
|
1,125 |
|
|
$ |
24.25 |
|
|
|
12/17/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
2,250 |
|
|
$ |
18.00 |
|
|
|
12/23/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
1,615 |
|
|
$ |
13.50 |
|
|
|
12/21/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
3,528 |
|
|
$ |
17.00 |
|
|
|
1/2/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
2,700 |
|
|
$ |
20.73 |
|
|
|
1/2/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
2,145 |
|
|
$ |
26.59 |
|
|
|
1/2/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
2,065 |
|
|
$ |
27.00 |
|
|
|
1/3/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
238 |
|
|
$ |
5,236 |
|
Total: |
|
|
15,428 |
|
|
|
|
|
|
Total: |
|
|
238 |
|
|
$ |
5,236 |
|
Dawn A. Besse |
|
|
2,700 |
|
|
$ |
20.73 |
|
|
|
1/2/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
2,145 |
|
|
$ |
26.59 |
|
|
|
1/2/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
2,065 |
|
|
$ |
27.00 |
|
|
|
1/3/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
238 |
|
|
$ |
5,236 |
|
Total: |
|
|
6,910 |
|
|
|
|
|
|
Total: |
|
|
238 |
|
|
$ |
5,236 |
|
Thomas L. Rudy Jr. |
|
|
2,352 |
|
|
$ |
17.00 |
|
|
|
1/2/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
1,350 |
|
|
$ |
20.73 |
|
|
|
1/2/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
1,435 |
|
|
$ |
26.59 |
|
|
|
1/2/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
2,065 |
|
|
$ |
27.00 |
|
|
|
1/3/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
211 |
|
|
$ |
4,642 |
|
Total: |
|
|
7,202 |
|
|
|
|
|
|
Total: |
|
|
211 |
|
|
$ |
4,642 |
|
- 17 -
Effective January 3, 2007, the Corporation awarded options and restricted stock under the
Stock Incentive Plan. The exercise price of the options, and the value of the restricted stock,
was $22.325 per share, which was the closing price of the Corporations stock on January 3, 2007.
The following awards on January 3, 2007 are not included in the table entitled :Outstanding Equity
Awards at Fiscal Year-End: Mr. Litchfield- 4,820 options and 730 shares of restricted stock; Mr.
Hughes- 2,285 options and 345 shares of restricted stock; Mrs. Scott-1,755 options and 260 shares
of restricted stock; Mrs. Besse- 1,450 options and 215 shares of restricted stock and Mr. Rudy-
1,635 options and 240 shares of restricted stock.
OPTIONS EXERCISED AND STOCK VESTED
The following table sets forth information concerning the exercise during 2006 of options
granted, and value realized on vesting of restricted stock, under the Stock Incentive Plan by the
Named Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
|
Stock Awards |
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Shares Acquired |
|
|
Value Realized |
|
|
Shares Acquired |
|
|
Value Realized |
|
|
|
On Exercise |
|
|
on Exercise |
|
|
on Vesting |
|
|
On Vesting |
|
Name |
|
(#) |
|
|
($) |
|
|
(#) |
|
|
($) |
|
Craig G. Litchfield |
|
|
0 |
|
|
|
0 |
|
|
|
702 |
|
|
$ |
18,154 |
|
|
Mark A. Hughes |
|
|
700 |
|
|
$ |
5,670 |
|
|
|
262 |
|
|
$ |
6,775 |
|
|
Deborah E. Scott |
|
|
0 |
|
|
|
0 |
|
|
|
262 |
|
|
$ |
6,775 |
|
|
Dawn A. Besse |
|
|
0 |
|
|
|
0 |
|
|
|
262 |
|
|
$ |
6,775 |
|
|
Thomas L. Rudy, Jr. |
|
|
0 |
|
|
|
0 |
|
|
|
185 |
|
|
$ |
4,784 |
|
- 18 -
PENSION BENEFITS(1)
The following table sets forth information with respect to pension benefits for the fiscal
year ended December 31, 2006 for the Named Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present Value |
|
|
|
|
|
|
|
Number of Years |
|
|
of Accumulated |
|
|
|
|
|
|
|
Credited Service |
|
|
Benefit |
|
Name |
|
Plan Name |
|
(#) |
|
|
($) |
|
Craig G. Litchfield |
|
Citizens & Northern Bank Pension Plan(3) |
|
|
34 |
|
|
$ |
397,803 |
|
|
|
Supplemental Executive Retirement Plan(4) |
|
|
18 |
|
|
$ |
344,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
742,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark A. Hughes |
|
Citizens & Northern Bank Pension Plan(3) |
|
|
6 |
|
|
$ |
44,652 |
|
|
|
Supplemental Executive Retirement Plan(4) |
|
|
6 |
|
|
$ |
34,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
78,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deborah E. Scott |
|
Citizens & Northern Bank Pension Plan(3) |
|
|
9 |
|
|
$ |
62,974 |
|
|
|
Supplemental Executive Retirement Plan(4) |
|
|
8 |
|
|
$ |
31,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
94,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dawn A. Besse |
|
Citizens & Northern Bank Pension Plan(3) |
|
|
6 |
|
|
$ |
69,185 |
|
|
|
Supplemental Executive Retirement Plan(4) |
|
|
6 |
|
|
$ |
62,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
131,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas L. Rudy, Jr. |
|
Citizens & Northern Bank Pension Plan |
|
|
7 |
|
|
$ |
19,592 |
|
|
|
Supplemental Executive Retirement Plan |
|
|
3 |
|
|
$ |
8,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
28,353 |
|
|
|
|
(1) |
|
The column disclosing benefits paid from any of the plans named in the
table has been omitted from the table because no named executive
officer received any such payments during 2006. |
|
(2) |
|
Values are as of December 31, 2006, which is the pension plan
measurement date used by the Corporation for financial reporting
purposes. |
|
(3) |
|
Tax-qualified defined benefit plan. |
|
(4) |
|
A nonqualified plan, described in more detail below. |
- 19 -
PENSION PLAN
The Citizens & Northern Bank Pension Plan (the Plan) is a qualified defined benefit plan
under Section 401(a) of the Internal Revenue Code. The Plan is intended to provide a defined
retirement benefit to participants without regard to the profits of the Corporation. Employees are
neither required nor permitted to contribute to the Plan. Annual contributions by the employer are
determined actuarially. To participate in the Plan, an employee must be 18 years of age and have
completed one year of service. A participants retirement benefit, which becomes fully vested
after 5 years of service, is based on compensation and credited service with the employer. For
purposes of determining a retirement benefit, the term compensation is defined to include an
employees total remuneration received from the employer, including base salary, bonus and
overtime. Benefits are a percentage of the average compensation for the five consecutive years of
highest compensation preceding retirement, multiplied by the number of years of completed service,
up to 25 years. For 2006, the Pension Plan benefits are determined on only the first $220,000, as
indexed, in compensation as determined by the Commissioner of the Internal Revenue Service and as
prescribed by law. C&N Banks Trust and Financial Services Department serves as Trustee under the
Plan.
The Present Value of Accumulated Benefit amounts shown in the Pension Benefit Table assume a
normal retirement age of 65, and are calculated using a discount rate of 5.75%.
A participant is eligible for early retirement at age 55 upon completion of 10 years of
vesting service. The early retirement pension is the actuarial equivalent of the pension accrued
to the date of early retirement, with a 5% reduction in benefit for each year a participant retires
prior to reaching age 65.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (SERP)
The SERP provides selected key employees a supplement to the pension benefit payable to them
under the Citizens & Northern Bank Pension Plan. The SERP is a target benefit pension plan. The
annual contribution amount is based on a formula designed to provide an annual benefit equal to 20%
of pay, with a target age of 65. In determining the annual contribution amounts, the discount rate
used is 8.0%. Also, a standard mortality table is used. The annual contribution amounts are
deposited into each participants account within a trust (discussed below). The actual amount a
participant has at separation of employment depends upon investment results over time. The actual
investment returns do not impact the annual contributions. Investment returns are allocated to
participant accounts quarterly based on balances as of the beginning of the quarter.
C&N Bank has established a trust account for the SERP. Our Trust and Financial Management
Group manage the trust assets established for the SERP. The individual balances for each SERP
participant are accounted for by our Human Resources Department. C&N Bank has funded the trust,
but all assets in the trust are subject to the claims of C&N Banks creditors in the event of
insolvency. The participation and funding of the SERP is entirely at the discretion of C&N Banks
Board of Directors each year, and the Board of Directors may terminate the SERP at any time.
The individual participants account balances are payable, in the form of an annuity that
would be purchased from an unrelated entity, when any of the following events occur:
|
§ |
|
Retirement at the later of age 55 and 5 years of plan participation |
|
|
§ |
|
In the event of death |
|
|
§ |
|
In the event of disability |
|
|
§ |
|
In the event the Corporation is acquired by another institution. |
- 20 -
401 (k) SAVINGS PLAN / ESOP
The Citizens & Northern Savings and Retirement Plan (Savings Plan) is qualified under
Section 401(k) of the Internal Revenue Code. It allows a participant to authorize the deposit into
the Plan of before tax earnings of from 1% to 15% of his compensation. Under the Tax Reform Act,
the maximum amount of elective contributions that could be made by a participant during 2006 was
Fifteen Thousand Dollars ($15,000.00) plus a Five Thousand Dollar ($5,000.00) catch-up contribution
if over age 50, also subject to a $220,000 compensation limit. All officers and employees,
including the Named Executive Officers, are eligible to participate in the 401(k) Plan. A
participant also may make voluntary contributions to the Savings Plan from after tax savings of up
to 10% of the participants compensation. There is a required basic employer contribution equal to
2% of each eligible participants compensation; in addition, the employer may make a discretionary
basic contribution. The total actual basic employer contribution for 2006 was equal to 4%. In
addition, the employer makes matching contributions equal to 100% of a participants before tax
contributions up to 3% of compensation and equal to 50% of such contributions between 3% and 5% of
compensation. The basic employer contributions are invested in the common stock of the
Corporation, in an Employee Stock Ownership Plan (ESOP). All participants contributions and the
employer matching contributions for 2006, at the participants election, were invested in a choice
of investment funds maintained by C&N Bank as Trustee. In 2006, the employer contributions to the
401 (k) Savings Plan / ESOP for the accounts of the Named Executive Officers are included in All
Other Compensation in the Summary Compensation Table.
As of January 1, 2007, the Corporation established an ESOP, with essentially all of the same
features as the previous ESOP, except that it was removed from the profit sharing / 401 (k) Plan.
The value of participants ESOP accounts, which were 100% vested as of December 31, 2006, were
transferred from the profit sharing / 401 (k) Plan to the new ESOP.
CHANGE IN CONTROL AGREEMENTS
The Corporation and C&N Bank (the Employer) have entered into Change in Control Agreements
(the Agreements) with Messrs. Litchfield, Hughes, Mrs. Scott, Mrs. Besse, Mr. Rudy and certain
other officers (each an Employee). The purpose of the Agreements is to retain and secure key
employees and encourage their continued attention and dedication to their assigned duties without
the distraction of potential disturbing circumstances arising from the possibility of a change in
control of the Corporation and C&N Bank.
The Change in Control Agreements are not employment agreements. The Agreements provide for a
lump sum severance benefit in the event certain events take place after there is a change in
control, as defined in the Agreement, of the Corporation, or for a period of twenty-four (24)
months thereafter. If the Employee remains employed for more than twenty-four (24) months after a
change in control, nothing is payable.
- 21 -
Under the Agreements, the term termination means the termination of the employment of the
officer either by the Employer for any reason other than death, disability, or cause, or by
resignation of the Employee upon the occurrence of one or more of the following events: a
significant change in the Employees authorities or duties, a reduction in annual salary, or a
material reduction in benefits; the relocation of the Employees office to a location more than 35
miles from the location of the Employees office immediately prior to the employment period; the
Employee is unable to exercise the authorities, powers, functions or duties associated with the
Employees position; or the failure of the Corporation to obtain a satisfactory agreement from any
successor to assume and agree to perform the Agreement in the same manner and extent as if no
succession had taken place.
In the event of a termination, the Agreements provide severance benefits of (i) Employer-paid
group medical insurance continuation premiums for a period of eighteen (18) months after the date
of termination, and (ii) a lump sum payment in cash no later than thirty (30) business days after
the date of termination equal to the sum of the Employees unpaid salary, accrued vacation pay and
unreimbursed business expenses through and including the date of termination; and an amount equal
to one (1) times the Employees base salary in effect immediately prior to the date of termination.
The original Agreements terminated on December 31, 2005, but are automatically extended for
additional one-year periods unless written notice is provided by the Employer or Employee that such
party does not wish to extend the term. If a change in control occurs during the original or
extended term of the Agreements, the term shall continue for a period of twenty-four (24) months
and end upon the expiration of such twenty-four (24) month period.
The amount of severance salary benefits that each of the above-named executive officers would
be entitled to, pursuant to the Agreements, if an event which triggered the payment occurred on the
date of the Proxy Statement, is as follows: Messrs. Litchfield $342,720, Hughes $183,756, Mrs.
Scott $140,419, Mrs. Besse $128,544 and Mr. Rudy $117,957. The total of such severance salary
benefit payments for all covered Employees would be $1,409,528.
INDEMNIFICATION AGREEMENTS
On April 20, 2004, the Stockholders of the Corporation authorized the Corporation to enter
into Indemnification Agreements with the Directors of the Corporation and C&N Bank and certain
officers of C&N Bank, as designated by the Board of Directors. The primary purpose of the
Agreements is to ensure the ability of the Corporation and C&N Bank to continue to attract and
retain responsible, competent and otherwise qualified directors and officers. The Indemnification
Agreements were entered into with all Directors of C&N Bank and the Corporation, as well as the
Corporations and C&N Banks Executive Officers as named on page 3, beginning in late May 2004.
The indemnification agreements provide to covered directors and officers the most advantageous
of any combination of benefits under (i) the benefits provided by the Bylaws of the Corporation in
effect as of the date the agreements were are entered into; (ii) the benefits provided by the
Bylaws, the Articles of Incorporation or their equivalent of the Corporation in effect at the time
indemnification expenses are incurred by an indemnitee; (iii) the benefits allowable under
Pennsylvania law in effect on the date of the agreements; (iv) the benefits allowable under the law
of the jurisdiction under which the Corporation exists at the time indemnifiable expenses are
incurred by an indemnitee; (v) the benefits available under a liability insurance policy obtained
by the Corporation and its subsidiaries in effect on the date of the agreements; (vi) the benefits
available under a liability insurance policy obtained by the Corporation and its subsidiaries, in
effect at the time the indemnifiable expenses are incurred by an indemnitee; and (vii) such other
benefits as are or may otherwise be available to the indemnitee.
The Corporation is not obligated to, nor has it agreed to provide funding for its obligations
under the agreements. The Corporation is obligated, however, to pay its obligations under the
agreements from general assets or insurance. The agreements do require the Corporation to continue
to purchase D&O Coverage for so long as it is available on a commercially reasonable basis.
- 22 -
The indemnification available pursuant to the agreements is subject to a number of exclusions.
No indemnification is required under the agreements with respect to any claim as to which it is
finally proven by clear and convincing evidence in a court of competent jurisdiction that the
covered person acted or failed to act with deliberate intent to cause injury to the Corporation or
a subsidiary thereof or with reckless disregard for the Corporations best interest. The
Corporation is also not required to make any payment finally determined by a court to be unlawful
or any payment required under Section 16(b) of the Securities and Exchange Act of 1934, as amended.
In addition, any claim (or part thereof) against an indemnitee which falls within the prohibitions
of 12 C.F.R. §7.5217 (i.e. a prohibition on indemnification or insurance coverage for expenses,
penalties or other payments incurred in connection with an action by a banking regulatory agency
which results in a final order assessing monetary penalties or requiring affirmative action in the
form of payment to said bank) is excluded from indemnification under the agreements.
DIRECTOR COMPENSATION (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees |
|
|
|
|
|
|
|
|
|
Earned or |
|
|
Stock |
|
|
|
|
|
|
Paid in |
|
|
Awards |
|
|
|
|
|
|
Cash(2) |
|
|
(3) (4) |
|
|
Total |
|
Name |
|
($) |
|
|
($) |
|
|
($) |
|
Dennis F. Beardslee |
|
|
25,200 |
|
|
|
514 |
|
|
|
25,714 |
|
R. Robert DeCamp |
|
|
27,200 |
|
|
|
514 |
|
|
|
27,714 |
|
Jan E. Fisher |
|
|
23,950 |
|
|
|
514 |
|
|
|
24,464 |
|
R. Bruce Haner |
|
|
26,300 |
|
|
|
514 |
|
|
|
26,814 |
|
Susan E. Hartley |
|
|
22,200 |
|
|
|
514 |
|
|
|
22,714 |
|
Karl W. Kroeck |
|
|
27,450 |
|
|
|
514 |
|
|
|
27,964 |
|
Leo F. Lambert |
|
|
26,600 |
|
|
|
514 |
|
|
|
27,114 |
|
Edward L. Learn |
|
|
23,150 |
|
|
|
514 |
|
|
|
23,664 |
|
Edward H. Owlett, III |
|
|
30,500 |
|
|
|
514 |
|
|
|
31,014 |
|
Leonard Simpson |
|
|
29,100 |
|
|
|
514 |
|
|
|
29,614 |
|
James E. Towner |
|
|
25,450 |
|
|
|
514 |
|
|
|
25,964 |
|
Ann M. Tyler |
|
|
23,750 |
|
|
|
514 |
|
|
|
24,264 |
|
|
|
|
(1) |
|
The columns disclosing option awards, non-equity incentive plan compensation, changes in pension value
and nonqualified deferred compensation earnings, and other forms of compensation have been omitted from
the table because no director earned any compensation during 2006 or in prior years of a type required to
be disclosed in those columns. There were plan-based awards with a January 3, 2007 grant date that are
not included in the Director Compensation table. Each director listed in the table was awarded 545 stock
options with an exercise price of $22.325, which was the closing market price on the grant date. |
|
(2) |
|
Includes annual cash retainer, Committee chair retainer (if any) and per meeting fees. |
|
(3) |
|
Reflects compensation expense attributable to shares awarded in 2004 and 2005. As of December 31, 2006,
each non-employee director owned 48 shares of common stock awarded pursuant to the Independent Directors
Stock Incentive Plan for which transfer restrictions had not yet lapsed. For each director; those
shares had a value of $1,056 based on the closing price of the Corporations common stock on December 29,
2006 (the last business day of the year). |
|
(4) |
|
Effective January 3, 2007, the Corporation awarded 56 shares of restricted stock under the Independent
Director Stock Incentive Plan to each director. For each director, those shares had a value of $1,250
based on the closing price of the Corporations common stock on January 3, 2007. The value of the
restricted stock award made in January 2007 is not included in the table. |
- 23 -
Compensation of the Board of Directors of Citizens & Northern Bank is established by the
board, upon recommendation of the Executive Committee. Directors who are employed by Citizens &
Northern Bank are not entitled to additional compensation for board or committee service. Directors
who are not employed by Citizens & Northern Bank receive compensation according to the following
table; however, no separate compensation will be paid to a director of Citizens & Northern Bank who
attends a board or committee meeting that is held jointly with a board or committee meeting of
Citizens & Northern Corporation and who is compensated for that meeting by Citizens & Northern
Corporation.
|
|
|
|
|
Annual Fees: |
|
|
|
|
Cash Retainer (all Directors) |
|
$ |
14,000 |
|
Committee Chairman: |
|
|
|
|
Audit Committee |
|
$ |
2,500 |
|
Executive Committee |
|
$ |
2,500 |
|
All Other Committees |
|
$ |
1,500 |
|
Per-Meeting Attendance Fees: |
|
|
|
|
Board meetings (all Directors) |
|
$ |
400 |
|
Advisory board meetings |
|
$ |
150 |
|
Committee meetings |
|
$ |
200 |
|
A director who, by invitation, attends a meeting of a committee of which he or she is not a
regular member will be paid the same attendance fee as is payable to members of that committee.
In addition to cash fees, non-employee directors also receive compensation in the form of
Citizens & Northern Corporation common stock, or stock options, under the Independent Directors
Stock Incentive Plan. This plan permits awards of nonqualified stock options and/or restricted
stock to non-employee directors. A total of 75,000 shares of common stock may be issued under the
Independent Directors Stock Incentive Plan. The recipients rights to exercise stock options under
this plan vest immediately and expire 10 years from the date of grant. The exercise prices of all
stock options awarded under the Independent Directors Stock Incentive Plan are equal to market
value as of the dates of grant. The restricted stock awards vest ratably over 3 years. A balance
of 30, 973 shares are available for issuance under the Independent Directors Stock Incentive Plan
as of December 31, 2006.
Cash dividends payable with respect to shares of common stock issued to directors under the
Independent Directors Stock Incentive Plan are paid in the same amount and at the same time as
dividends are paid to stockholders generally. Stock dividends, stock splits and similar
transactions will have the same effect on shares of stock issued pursuant to the Independent
Directors Stock Incentive Plan as on all other shares of Citizens & Northern Corporation common
stock outstanding.
- 24 -
CERTAIN TRANSACTIONS
Certain directors and officers of the Corporation and the Bank and their associates (including
corporations of which such persons are officers or 10% beneficial owners) were customers of, and
had transactions with the Bank in the ordinary course of business during the year ended December
31, 2006. Similar transactions may be expected to take place in the future. Such transactions
included the purchase of certificates of deposit and extensions of credit in the ordinary course of
business on substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons and did not involve more than
the normal risks of collectibility or present other unfavorable features. The Corporation expects
that any other transactions with directors and officers and their associates in the future will be
conducted on the same basis.
In June 2006, Citizens & Northern Bank sold real estate to Putnam Company, a Corporation owned
by a director, Edward H. Owlett, III. The property sold was one of two properties that had been
acquired through foreclosure on the commercial and residential loans to an unrelated customer. The
sale of the commercial property was executed after completion of an arms length auction in which
Putnam Company was the highest bidder. Proceeds from the sale amounted to $418,462. The Bank
recognized a charge-off related to the acquisition and sale of the two properties totaling
approximately $42,000 in the second quarter of 2006.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Parente Randolph, LLC, has been the independent registered public accounting firm appointed by
the Corporation since 1981, and was selected by the Board as the independent registered public
accounting firm for the Corporation for the fiscal year ended December 31, 2007. The engagement of
Parente Randolph, LLC as its independent accountants for the year 2007 is subject to the review and
approval by the Audit Committee. No member of the firm or any of its associates has a financial
interest in the Corporation. A representative of Parente Randolph, LLC is expected to be present
at the Annual Meeting to answer appropriate questions from stockholders and will be afforded an
opportunity to make any statement that the firm desires.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Securities Exchange Act of 1934 requires the Corporations officers and
directors, and persons who own more than ten percent of the Corporations common stock, to file
reports of ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten percent stockholders are required by Securities and
Exchange Commission regulations to furnish the Corporation with copies of all Section 16(a) forms
they file.
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the
Corporation during 2006 and Forms 5 and amendments thereto furnished to the Corporation with
respect to 2006, the Corporation believes that no director, officer or ten percent stockholder or
any other person subject to Section 16 of the Exchange Act, failed to make on a timely basis during
2006 any reports required to be filed by Section 16(a) of the Exchange Act.
STOCKHOLDER PROPOSALS
The Corporations Articles of Incorporation contain provisions that address the process by
which a stockholder may nominate an individual to stand for election to the Board of Directors.
Stockholder recommendations for members of the Board should be submitted in writing to the
President of the Corporation, and must include the stockholders name, address, and the number of
shares owned. The recommendation must also include the name, address and principal occupation of
the proposed nominee as well as the number of shares owned by the notifying stockholder and the
total number of shares that will be voted for the proposed nominee. Stockholder recommendations
must also include the information that would be required to be disclosed in the solicitation of
proxies for the election of directors under federal securities laws, including the candidates
consent to be elected and to serve. The Articles of Incorporation specify that nominations from
stockholders must be delivered or mailed not less than fourteen (14) days nor more than fifty (50)
days prior to the stockholder meeting at which directors will be elected, except in the case where
less than twenty-one (21) days notice is given of a stockholder meeting, in which case a notifying
stockholder can mail or deliver a nomination not later than the close of business
on the seventh day after the day the meeting notice was mailed.
- 25 -
The Corporations 2008 Annual Meeting of stockholders is scheduled to be held in April 2008.
Any stockholder who intends to present a proposal at the 2008 Annual Meeting and who wishes to have
the proposal included in the Corporations proxy statement and form of proxy for that meeting must
deliver the proposal to the Corporations executive offices, 90-92 Main Street, P.O. Box 58,
Wellsboro, Pennsylvania 16901, by November 20, 2007. Citizens & Northern must receive notice of
all other stockholder proposals for the 2008 annual meeting delivered or mailed no less than 14
days nor more than 50 days prior to the Annual Meeting; provided, however, that if less than
twenty-one days notice of the annual meeting is given to stockholders then the Corporation must
receive notice not less than seven days following the date on which notice of the annual meeting
was mailed. If notice is not received by the Corporation within this time frame, the Corporation
will consider such notice untimely. The Corporation reserves the right to vote in its discretion
all of the shares of common stock for which it has received proxies for the 2008 annual meeting
with respect to any untimely shareholder proposals.
OTHER MATTERS
The management of the Corporation does not intend to bring any other matters before the Annual
Meeting and is not presently informed of any other business which others may bring before such
meeting. However, if any other matters should properly come before such meeting or any adjournment
thereof, it is the intention of the persons named in the accompanying proxy to vote on such matters
as they, in their discretion, determine.
ADDITIONAL INFORMATION
If you wish to communicate with the Board, you may send correspondence to Jessica R. Brown,
Corporate Secretary, Citizens & Northern Corporation, 90-92 Main Street, Wellsboro, PA 16901. The
Corporate Secretary will submit your correspondence to the Board or the appropriate committee, as
applicable. You may also communicate directly with the presiding non-management director of the
Board by sending correspondence to Lead Director, Board of Directors, Citizens & Northern
Corporation, 90-92 Main Street, Wellsboro, PA 16901.
The Corporations Annual Report on Form 10-K for the year 2006, including financial statements
as certified by Parente Randolph, LLC, was mailed with this Proxy Statement on or about March 20,
2007, to the stockholders of record as of the close of business on February 27, 2007.
An additional copy of the Corporations 2006 Annual Report on Form 10-K filed with the
Securities and Exchange Commission, including the financial statements and schedules thereto, will
be furnished free of charge to stockholders. Written request should be directed to the Treasurer,
Citizens & Northern Corporation, 90-92 Main Street, Wellsboro, PA, 16901, or by phone at
570-724-3411.
By Order of the Board of Directors,
Jessica R. Brown
Corporate Secretary
Dated: March 20, 2007
- 26 -
APPENDIX A
CITIZENS & NORTHERN CORPORATION
AUDIT COMMITTEE CHARTER
I. Purpose
The Audit Committee of the Board of Directors of Citizens & Northern Corporation (together
with its affiliates, including Citizens & Northern Bank, C&N Financial Services Corporation,
Bucktail Life Insurance Company, Canisteo Valley Corporation and Citizens & Northern Investment
Corporation, the Corporation) shall be appointed by the Board to:
|
A. |
|
Assist the Board in fulfilling its oversight responsibility relating to the: |
|
|
|
integrity of the Corporations financial statements and related disclosure
matters; |
|
|
|
|
qualifications, independence and performance of, and the Corporations
relationship with, the independent auditor; |
|
|
|
|
performance of the Corporations risk management and internal audit function; and |
|
|
|
|
Corporations compliance with legal and regulatory requirements. |
|
B. |
|
Provide the report required by the rules of the Securities and Exchange
Commission to be included in the Corporations annual proxy statement. |
II. Membership
The Committee shall be comprised of at least three outside directors as determined by the
Board each of whom shall be independent, non-executive directors, free from any relationship that
would interfere with the exercise of his or her independent judgment. The Committee members shall
meet the requirements for independence, experience and expertise set forth in applicable laws,
under the regulations of the Securities and Exchange Commission and NASDAQ rules. One member of the
Committee may be an audit committee financial expert as such term is defined under the
regulations of the Securities and Exchange Commission and NASDAQ rules. (If the Committee does not
have a member that qualifies as an audit committee financial expert, the Corporation shall
disclose that fact and the reasons therefore.) At least one member of the Committee shall have
accounting or related financial management expertise as such terms are defined by regulations of
the Securities and Exchange Commission and NASDAQ rules. The Board shall appoint the Committee
members at the Board meeting held after the annual meeting or at any other Board meeting as it
deems necessary or appropriate. The Board shall appoint the Chair of the Committee. If a Chair is
not designated or present, the members of the Committee may designate a Chair by majority vote of
the Committee membership.
Service on the Committee requires a significant time commitment from its members. In
determining whether a Committee member would be able to meet the significant time commitment, the
Board will take into consideration the other obligations of such member, including full-time
employment and service on other boards of directors and audit committees. Committee members may
not receive any compensation from the Corporation other than directors fees.
III. Meetings and Reports
The Committee shall meet as frequently as it deems necessary and appropriate. The Chair of
the Committee, or any two members of the Committee, may call meetings of the Committee as they deem
necessary and appropriate. Meetings of the Committee may be held telephonically.
The Chair shall preside at all sessions of the Committee at which he or she is present and
shall set the agendas for Committee meetings. Members of management and the Board are free to
suggest items for inclusion in the agenda for the Committees meetings. The agenda and information
concerning the business to be conducted at
- 27 -
each Committee meeting shall, to the extent practical, be communicated to the members of the
Committee sufficiently in advance of each meeting to permit meaningful review.
The Committee may meet separately in executive session when necessary with each of the
following: (i) senior management, (ii) Director of Risk Management (iii) members of the Internal
Audit Department, (iv) the Compliance Officer, (v) the independent auditors, and (vi) as a
Committee to discuss any matters that the Committee or each of these groups believe should be
discussed.
The Committee shall report regularly to the Board with respect to such matters that are within
the Committees responsibilities and with respect to such recommendations as the Committee may deem
appropriate. The report to the Board may take the form of an oral report by the Chair or by any
other member designated by the Committee to make such report. The Committee shall maintain minutes
or other records of meetings and activities of the Committee, including executive sessions, and
make them available to the Board.
The Committee shall provide the report of the Committee to be contained in the Corporations
annual proxy statement, as required by the rules of the Securities and Exchange Commission.
IV. Authority and Responsibilities
The Committee shall perform the following functions and may carry out additional functions and
adopt additional policies and procedures in furtherance of the purpose of the Committee outlined in
Section I of this Charter, as may be appropriate in light of changing business, legislative,
regulatory, or other conditions, or as may be delegated to the Committee by the Board from time to
time.
|
A. |
|
Financial Statements and Disclosure Matters |
|
1. |
|
The Committee shall review and discuss with management and the
independent auditor the Corporations annual audited and quarterly consolidated
financial statements, including the disclosures contained in the Corporations
Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q, under the
heading Managements Discussion and Analysis of Financial Condition and
Results of Operations. After review of the annual audited consolidated
financial statements and the reports and discussions required by Sections IV.
A. 7. and IV. B. 5. of this Charter, the Committee shall determine whether to
recommend to the Board that such financial statements be included in the
Corporations Form 10-K. |
|
|
2. |
|
The Committee shall be advised of the execution by the
Corporations Chief Executive Officer and Chief Financial Officer of the
certifications required to accompany the filing of the Form 10-K and the Forms
10-Q, and any other information required to be disclosed to it in connection
with the filing of such certifications, including (i) all significant
deficiencies and material weaknesses in the design or operation of internal
control over financial reporting that are reasonably likely to adversely affect
the Corporations ability to record, process, summarize and report financial
information, and (ii) any fraud that involves management or other employees who
have a significant role in the Corporations internal control over financial
reporting. |
|
|
3. |
|
The Committee shall discuss with management and the independent
auditor at least quarterly any significant financial reporting issues that
arose and judgments made in connection with the preparation of the
Corporations financial statements, including any significant changes in the
Corporations selection or application of critical accounting principles, any
major issues as to the adequacy and quality of the Corporations disclosure
procedures and controls and any special steps taken or changes made to respond
to material control deficiencies. |
|
|
4. |
|
The Committee shall review and discuss with the independent
auditor the reports from the independent auditor with respect to: |
|
|
|
all critical accounting policies and decisions; |
- 28 -
|
|
|
all alternative treatments of financial information within generally
accepted accounting principles that have been discussed with
management, ramifications of the use of such alternative disclosures
and treatments, and the treatment recommended by the independent
auditor; and |
|
|
|
|
other material written communications between the independent
auditor and management, such as any management letter or schedule of
adjustments. |
|
5. |
|
The Committee shall review and discuss periodically, as
necessary, with the independent auditors and the Internal Audit Department the
adequacy of the Corporations internal accounting controls, the Corporations
financial, auditing and accounting organizations and personnel, and the
Corporations policies and compliance procedures with respect to business
practices, which shall include the disclosures regarding internal controls and
matters required by Sections 302 and 404 of the Sarbanes-Oxley Act of 2002 and
any rules promulgated thereunder by the Securities and Exchange Commission. |
|
|
6. |
|
The Committee shall discuss with management the Corporations
earnings press releases, and financial information and earnings guidance
provided to analysts and rating agencies. Such discussions may be conducted
generally (i.e., by discussing the types of information to be disclosed
and the types of presentations to be made). The Committee may delegate
responsibility for the review of the quarterly earnings press release to a
member of the Committee. |
|
|
7. |
|
The Committee shall discuss with management and the independent
auditor the effect of regulatory and accounting initiatives as well as
off-balance sheet structures on the Corporations financial statements. |
|
|
8. |
|
The Committee shall discuss with the independent auditor the
matters required to be discussed by Statement on Auditing Standards No. 61
relating to the conduct of the audit, including any difficulties encountered in
the course of the audit work, any restrictions on the scope of activities or
access to requested information, and any significant disagreements with
management, as well as any other matters required to be disclosed by the
independent auditor or of concern to the Committee. |
|
B. |
|
Oversight of the Corporations Relationship with the Independent Auditor |
|
1. |
|
The Committee shall have the sole authority to appoint or
replace the independent auditor. The Committee shall be directly responsible
for the compensation and oversight of the work of the independent auditor
(including resolution of disagreements between management and the independent
auditor regarding financial reporting) for the purposes of preparing or issuing
an audit report or related work. The independent auditor shall report directly
to the Committee. |
|
|
2. |
|
The Committee shall review and approve in advance the annual
plan and scope of work of the independent auditor and fee arrangements,
including staffing of the audit, and shall review with the independent auditor
any audit-related concerns and managements response. With respect to auditing
services, the Committees approval of the engagement letter with the
independent auditor will constitute approval of the audit services to be
provided thereunder. |
|
|
3. |
|
The Committee shall pre-approve all non-audit services
(including the fees and terms thereof) to be performed for the Corporation by
the independent auditor, to the extent required by law, according to
established procedures. The Committee may delegate to one or more Committee
members the authority to pre-approve non-audit services to be performed by the
independent auditor, provided that such pre-approvals shall be reported
to the full Committee at its next regularly scheduled meeting. Attached
hereto as Appendix A are the Committees pre-approval policies for the
approval of non-audit |
- 29 -
|
|
|
services. |
|
|
4. |
|
The Committee shall review and evaluate the experience,
qualifications and performance of the senior members of the independent auditor
team on an annual basis. As part of such evaluation, to the extent required by
law, the Committee shall review with the lead audit partner whether any of the
audit team members receive any discretionary compensation from the audit firm
with respect to procurement or performance of any services, other than audit,
review or attest services, by the independent auditor. |
|
|
5. |
|
The Committee shall obtain and review a report from the
independent auditor at least annually addressing (i) the independent auditors
internal quality-control procedures, (ii) any material issues raised by the
most recent internal quality-control review or peer review of the firm, or by
any inquiry or investigation by governmental or professional authorities,
within the preceding five years, respecting one or more independent audits
carried out by the firm, (iii) any steps taken to deal with any such issues,
and (iv) all relationships between the independent auditor and the Corporation
(in order to assess if the provision of permitted non-audit services is
compatible with maintaining the auditors independence, taking into account the
opinions of management and the internal auditors). |
|
|
6. |
|
The Committee shall ensure the rotation of members of the audit
engagement team, as required by law, and will require that the independent
auditor provide a plan for the orderly transition of audit engagement team
members. The Committee shall also consider whether, in order to assure
continuing auditor independence, it is appropriate to adopt a policy of
rotating the independent auditing firm on a regular basis. |
|
|
7. |
|
The Committee shall pre-approve the Corporations policies for
the hiring by the Corporation of employees or former employees of the
independent auditor who participated in any capacity in the audit of the
Corporation. |
C. Oversight of the Corporations Risk Management Function
|
1. |
|
The Committee shall monitor the Corporations risk management function
that incorporates internal audit, compliance, security and credit administration,
as well as other functions or departments that may be included under the Risk
Management Division. |
|
|
2. |
|
The Committee shall review the activities, organizational structure and
qualifications of the Risk Management Division, as needed. The Committee shall also
review the adequacy of resources, budget and staffing, and if appropriate shall
recommend changes. |
|
|
3. |
|
The Committee shall be responsible for the appointment, performance
review and replacement of the Director of Risk Management. |
D. Oversight of the Corporations Internal Audit Function
|
1. |
|
The Committee shall review and discuss with the independent
auditor the annual audit plan of the Internal Audit Department, including
responsibilities, budget and staffing, and, if appropriate, shall recommend
changes. |
|
|
2. |
|
The Committee shall review, as appropriate, the results of
internal audits and shall discuss related significant internal control matters
with the Internal Audit Department, Director of Risk Management and with the
Corporations management, including significant reports to management prepared
by the Internal Audit Department and managements responses. |
|
|
3. |
|
The Committee shall review managements evaluation of the
adequacy of the
Corporations internal controls and discuss the results of such evaluation
with the Director of Risk management and Internal Audit Department. The
Committee shall |
- 30 -
|
|
|
review the activities, organizational structure and
qualifications of the Internal Audit Department, as needed. The Committee
also shall review the adequacy of resources to support the internal audit
function, and, if appropriate, recommend changes. |
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4. |
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The Committee shall review the appointment, performance and
replacement of the senior staff members of the Internal Audit Department,
including the Auditor. |
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E. |
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Oversight of the Corporations Compliance Function |
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1. |
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The Committee shall monitor the Corporations compliance
function, including compliance with the Corporations policies and the
Corporations Code of Ethics, and shall review with the appropriate officers
and/or staff of the Corporation and the Corporations counsel, as necessary,
the adequacy and effectiveness of the Corporations procedures to ensure
compliance with legal and regulatory requirements. |
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2. |
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The Committee shall establish procedures for the receipt,
retention and treatment of complaints received by the Corporation regarding
accounting, internal controls or auditing matters, and the confidential,
anonymous submissions by employees of concerns regarding questionable
accounting or auditing matters, including but not limited to those received
under and pursuant to the established Reporting Suspected Fraudulent
Activities Policy (a/k/a Whistleblower Policy). |
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3. |
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The Committee shall discuss with management, the Director of
Risk Management, the Compliance Officer, the Internal Auditor, the
Corporations counsel and the independent auditor any correspondence with
regulators or governmental agencies and any published reports that raise
material issues regarding the Corporations financial statements or accounting
policies. |
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4. |
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The Committee shall review and discuss with the Director of
Risk Management, Compliance Officer, Internal Auditor and the Corporations
counsel legal matters that may have a material impact on the financial
statements or the Corporations compliance policies, including reports and
disclosures of insider and affiliated party transactions and any knowledge of
fraud or breach of fiduciary duties. |
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5. |
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The Committee shall review and approve all related party
transactions as such terminology is defined under Item 404 of Regulation S-K
under the Securities Act of 1933. |
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6. |
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The Committee shall review the appointment, performance and
replacement of the Compliance Officer. |
V. Clarification of Committees Role
The Committees role is one of oversight. It is the responsibility of the Corporations
management to plan and conduct audits and to prepare consolidated financial statements in
accordance with generally accepted accounting principles, and it is the responsibility of the
Corporations independent auditor to audit those financial statements. Therefore, each member of
the Committee, in exercising his or her business judgment, shall be entitled to rely on the
integrity of those persons and organizations within and outside the Corporation from whom he or she
receives information, and on the accuracy of the financial and other information provided to the
Committee by such persons or organizations unless he or she has reason to inquire further. The
Committee does not provide any expert or other special assurance as to the Corporations financial
statements or any expert or professional certification as to the work of the Corporations
independent auditor.
VI. Access to Management; Retention of Outside Advisers
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A. |
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Access to Management |
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The Committee shall have full, free and unrestricted access to the Corporations
senior |
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management and employees, and to the Corporations internal and independent
auditors. |
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B. |
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Access to Outside Advisers |
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The Committee shall have the authority to retain legal counsel, consultants or other
outside advisers with respect to any issue or to assist it in fulfilling its
responsibilities, without consulting or obtaining the approval of any officer of the
Corporation. |
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The Corporation shall provide for appropriate funding, as determined by the
Committee, for payment of compensation to the independent auditor and to any
advisers retained by the Committee. |
VII. Annual Evaluation; Charter Review
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A. |
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Annual Self-Evaluation |
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The Committee shall perform an annual review and self-evaluation of the Committees
performance, including a review of the Committees compliance with this Charter.
The Committee shall conduct such evaluation and review in such manner as it deems
appropriate and report the results of the evaluation to the entire Board. |
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B. |
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Charter Review |
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The Committee shall review and assess the adequacy of this Charter on an annual
basis, and, if appropriate, shall recommend changes to the Board for approval. The
Committee shall submit this Charter to the Board for approval and cause this Charter
to be published in accordance with applicable regulations including, but not limited
to, those of the Securities and Exchange Commission. |
VIII. Delegation to Subcommittee
The Committee, in its discretion, may delegate all or a portion of its duties and
responsibilities to a subcommittee consisting of one or more members of the Committee, provided
that any action taken by such subcommittee is ratified by the full Committee and provided that any
such subcommittee must conduct its business in accordance with this Charter.
APPENDIX A
STATEMENT OF POLICY
OF THE
AUDIT COMMITTEE OF
CITIZENS & NORTHERN CORPORATION
PRE-APPROVAL OF ENGAGEMENTS FOR NON-AUDIT SERVICES
The Sarbanes-Oxley Act of 2002 (the Act) vests the Audit Committee of the Board of Directors
of Citizens & Northern Corporation (the Corporation) with the responsibility to appoint and to
oversee the work of the Independent Auditor of the Corporation. Under the Act and under rules (the
SEC Rules) that the Securities and Exchange Commission (SEC) has issued pursuant to the Act,
that responsibility includes in particular the requirement that the Audit Committee review and
pre-approve all audit and non-audit services performed by the Independent Auditor. In exercising
that responsibility with respect to proposed engagements for non-audit services, it is the policy
of the Audit Committee to give paramount consideration to the question of whether the engagement of
the Independent Auditor to perform those services is likely to create a risk that the Independent
Auditors independence may be compromised. To that end, the Audit Committee will endeavor to
exercise its discretion in a
manner that will avoid or minimize the risk of compromising the independence of the Independent
Auditor.
In making this determination, the Committee is mindful of the guidance provided by the SEC:
The
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Commissions principles of independence with respect to services provided by auditors are
largely predicated on three basic principles, violations of which would impair the auditors
independence: (1) an auditor cannot function in the role of management, (2) an auditor cannot
audit his or her own work, and (3) an auditor cannot serve in an advocacy role for his or her
client. Thus, in evaluating whether a proposed engagement presents a material risk of
compromising the independence of the Independent Auditor, the factors that the Audit Committee will
typically consider will include whether the service in question is likely to cause the Independent
Auditor to function in a management role, to be put in the position of auditing its own work, or to
serve in an advocacy role for the Corporation. In addition, the Audit Committee believes that the
risk of such compromise may increase in direct proportion to the volume of non-audit services
performed by the Independent Auditor. Accordingly, it is the policy of the Audit Committee that,
in the absence of very strong countervailing considerations, the total amount of fees payable to
the Independent Auditor on account of non-audit services with respect to any fiscal year should not
exceed the total amount of audit fees plus audit-related fees (as both such terms are used in the
SEC Rules) plus tax-compliance/return-preparation services payable to the Independent Auditor with
respect to such year. Solely for purposes of the preceding sentence, amounts payable with respect
to audit-related services and tax- compliance/return-preparation services will not be considered
fees payable on account of non-audit services. This policy is adopted with the intent to maintain
Committee flexibility in circumstances under which the proposed engagement is likely to provide the
Corporation with benefits that substantially outweigh the risk to independence.
In order to assist the Audit Committee in applying this policy, any officer or other employee
of the Corporation who proposes to engage the Independent Auditor to perform non-audit services
will be expected to submit such a proposal in writing to the Audit Committee accompanied by the
following supporting materials:
1. A detailed description of each service proposed to be provided by the Independent
Auditor.
2. An estimate of the amount of fees that the Independent Auditor is likely to be paid for
performance of the non-audit services in question.
The Committee may also request the following:
1. A description of the extent, if any, to which the non-audit services in question are
likely to cause the Independent Auditor to function in the role of management, to recommend
actions by the Corporation that the Independent Auditor may be called upon to review in its
role as the Corporations Independent Auditor, or to serve as an advocate for the
Corporation.
2. A description of the qualifications of the Independent Auditor that demonstrate its
capability to perform each of the non-audit services in question.
3. The name or names of service-providers who were considered as alternatives to the
Independent Auditor to perform the services in question, and a description of the
qualifications of each such alternative service-provider relating to its capability to
perform the services in question.
4. A detailed explanation of the benefits that the Corporation is expected to enjoy as a
result of engaging the Independent Auditor, rather than an alternative service-provider, to
perform the non-audit service in question.
The Audit Committee will typically be inclined to approve requests to engage the Independent
Auditor to provide those types of non-audit services that are closely related to the audit services
performed by the Independent Auditor, such as audit-related services,
tax-compliance/return-preparation services, and due diligence services relating to transactions
that the Corporation may be considering from time to time. Because such non-audit services bear a
close relationship to the audit services provided by the Independent Auditor, the Audit Committee
believes that they will not ordinarily present a material risk of compromising the Independent
Auditors independence, subject to the Audit Committees policy concerning the total amount payable
to the Independent Auditor for non-audit services with respect to any fiscal year.
Under no circumstances will the Audit Committee approve the engagement of the Independent
Auditor for the performance of services that are prohibited by section 201(a) of the Act (15 U.S.C.
§78j-1(g)), or by §210.2-01(4) of the SEC Rules (17 CFR Part 210.2-01(c)(4)). Such prohibited
services include the following:
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1. Bookkeeping or other services related to the accounting records or financial statements
of the Corporation, unless the results of those services will not be subject to audit
procedures during an audit of the Corporations financial statements;
2. Services relating to the design or implementation of financial information systems,
unless the results of such services will not be subject to audit procedures during an audit
of the Corporations financial statements;
3. Services relating to appraisals or valuations, fairness opinions, or contribution-in-kind
reports, unless the results of such services will not be subject to audit procedures during
an audit of the Corporations financial statements;
4. Any actuarially-oriented services (other than assisting the Corporation in understanding
the methods, models, assumptions, and inputs used in computing an amount), unless the
results of those services will not be subject to audit procedures during an audit of the
Corporations financial statements;
5. Internal audit outsourcing services relating to the Corporations internal accounting
controls, financial systems, or financial statements, unless the results of such services
will not be subject to audit procedures during an audit of the Corporations financial
statements;
6. Any management functions, whether or not temporary, including any decision-making,
supervisory, or ongoing monitoring function for the Corporation;
7. Any services relating to human resources of the Corporation, including searching for,
testing, investigating, negotiating, or providing recommendations or advice with respect to
human resources or prospective human resources;
8. Any services relating to acting as a broker-dealer, promoter, or underwriter for the
Corporation, including providing advice, exercising discretionary authority, or assuming
custodial responsibility with respect to investment decisions or assets of the Corporation;
9. Any service that can be provided only by a person licensed, admitted, or otherwise
qualified to practice law in the jurisdiction in which the service is to be rendered;
10. Providing an expert opinion or other expert service for the Corporation, or for the
Corporations legal representative, for the purpose of advocating the Corporations
interests in litigation or in a regulatory or administrative proceeding or investigation,
except for factual accounts or testimony explaining work that the Independent Auditor has
performed, positions that the Independent Auditor has taken, or conclusions that the
Independent Auditor has reached during the performance of any permitted service for the
Corporation; and
11. Any other service that the Public Corporation Accounting Oversight Board may from time
to time determine by regulation to be impermissible.
Between meetings of the Audit Committee, the Chair of the Committee is authorized to review
and, where consistent with this policy, to pre-approve non-audit services proposed to be performed
by the Independent Auditor that are budgeted for fees of Five Thousand Dollars ($5,000) or less.
The Chair shall report any pre-approval decisions to the Audit Committee as soon as practicable and
in any event at its next scheduled meeting.
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CITIZENS & NORTHERN CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 17, 2007
The undersigned hereby appoints Dennis F. Beardslee and R. Robert DeCamp, and each or either of
them, as the attorneys and proxies of the undersigned, with full power of substitution in each, to
vote all shares of the common stock of Citizens & Northern Corporation which the undersigned would
be entitled to vote if personally present at the Annual Meeting of Stockholders to be held on
Tuesday, April 17, 2007, at 2:00 P.M. (local time), at Citizens & Northern Bank, 90 Main Street,
Wellsboro, Pennsylvania 16901, and at any adjournments thereof, and to vote as follows:
1. |
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ELECTION OF ONE CLASS I DIRECTOR AND FIVE CLASS II DIRECTORS. |
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Nominee: Raymond R. Mattie, R. Bruce Haner, Susan E. Hartley, Leo F. Lambert, Edward L. Learn,
and Leonard Simpson.. |
o VOTE FOR all nominees listed above (except as marked to the contrary below) o VOTE WITHHELD from
all nominees listed above.
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(INSTRUCTIONS: To withhold authority to vote for any individual nominee, write that nominees
name on the space provided above.) |
2. |
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OTHER MATTERS. In their discretion, to vote with respect to any other matters that may
properly come before the Meeting or any adjournments thereof. |
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DIRECTED HEREIN BY THE STOCKHOLDER. UNLESS
OTHERWISE INDICATED, THIS PROXY WILL BE VOTED FOR THE ELECTION AS DIRECTORS OF THE NOMINEES LISTED
IN PROPOSAL 1.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. When shares are held as joint tenants, both should
sign. When signing as attorney, executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED POSTAGE-PAID
ENVELOPE.