QNB CORP
10-Ks and 10-Qs
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Proxy
Statement
April
19,
2010
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P.O.
Box 9005
Quakertown,
PA 18951-9005
TEL
(215)538-5600
FAX
(215)538-5765
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April 19,
2010
Dear
Fellow Shareholder:
You are
invited to attend QNB Corp.’s 2010 Annual Meeting of Shareholders on Tuesday,
May 18, 2010. The meeting will be held at the offices of QNB Bank, 320 West
Broad Street, Quakertown, Pennsylvania at 11:00 a.m., Eastern time. Enclosed are
the notice of the annual meeting, proxy statement and proxy card for the annual
meeting. Our 2009 Annual Report on Form 10-K accompanies these
enclosures.
At this
year's annual meeting, you are being asked to elect the three Class I director
nominees of the Board of Directors and to ratify the Audit Committee’s
appointment of ParenteBeard LLC as QNB Corp’s independent registered public
accounting firm for 2010. These proposals are fully described in the
accompanying proxy statement, which you are urged to read
carefully.
YOUR
BOARD OF DIRECTORS HAS UNANIMOUSLY ENDORSED THE NOMINEES FOR ELECTION. WE
RECOMMEND THAT YOU VOTE "FOR" ALL THREE NOMINEES AND “FOR” THE RATIFICATION OF
THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2010.
YOUR VOTE IS IMPORTANT.
Whether or not you plan to attend, you can ensure that your shares are
represented at the meeting by promptly voting and submitting your proxy by
completing, signing, dating and returning your proxy card in the enclosed
envelope.
If you
have any questions with regard to the annual meeting, please contact Jean Scholl
at (215) 538-5600, extension 5719.
Thank you
for your cooperation and continuing support.
Sincerely,
Thomas J.
Bisko
President
and
Chief
Executive Officer
NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
QNB
CORP.
TO
BE HELD ON MAY 18, 2010
TO OUR
SHAREHOLDERS:
The 2010
annual meeting of the shareholders of QNB Corp. will be held at the offices of
QNB Bank, 320 West Broad Street, Quakertown, Pennsylvania on Tuesday, May 18,
2010, beginning at 11:00 a.m., Eastern time, for the purpose of considering and
acting upon the following matters:
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(1)
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election
of the three Class I director nominees of the Board of
Directors;
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(2)
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ratification
of the appointment of ParenteBeard LLC as QNB’s independent registered
public accounting firm for 2010;
and
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(3)
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such
other business as may properly come before the meeting or any adjournment
thereof.
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The Board
of Directors fixed the close of business on April 5, 2010 as the record date for
the purpose of determining those shareholders entitled to notice of, and to vote
at, the annual meeting, either in person or by proxy.
All
shareholders are cordially invited to attend the annual meeting. Whether or not
you plan to attend the annual meeting, you are requested to complete, date and
sign the proxy card, and return it promptly in the enclosed envelope provided.
At any time prior to the proxy being voted, it is revocable by written notice to
QNB in accordance with the instructions set forth in the enclosed proxy
statement, including by voting at the meeting in person.
IMPORTANT NOTICE REGARDING INTERNET
AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON MAY
18, 2010: Under Securities and Exchange Commission rules, you
are receiving this notice that the proxy materials for the 2010 Annual Meeting
of Shareholders are available on the Internet. The proxy statement, the proxy
card and the 2009 Annual Report to Shareholders on Form 10-K are available
at www.qnb.com
under the “Investor Relations” link.
If you
plan to attend the annual meeting, please bring photo identification. If your
shares are held in the name of a broker or other nominee, please bring with you
a letter (and a legal proxy if you wish to vote your shares) from the broker or
nominee confirming your ownership as of the record date.
By Order
of the Board of Directors,
Charles
M. Meredith, III
Secretary
Quakertown,
Pennsylvania
April 19,
2010
QNB
Corp.
15
North Third Street
P.O.
Box 9005
Quakertown,
Pennsylvania 18951
(215)
538-5600
PROXY
STATEMENT
2010
ANNUAL MEETING OF SHAREHOLDERS – MAY 18, 2010
This
proxy statement is being furnished to holders of the common stock, par value
$0.625 per share, of QNB Corp. (herein referred to as QNB or the Corporation) in
connection with the solicitation of proxies by the Board of Directors for use at
the 2010 Annual Meeting of Shareholders.
As of the
date of this proxy statement, the Board of Directors knows of no business that
will be presented for consideration at the annual meeting other than that
referred to in the accompanying Notice of Annual Meeting and described in this
proxy statement. As to other business, if any, properly presented at the annual
meeting, executed proxies will be voted in accordance with the judgment of the
person or persons voting the proxy or the recommendation of the Board of
Directors.
The cost
of solicitation of proxies will be paid by QNB. QNB will reimburse brokerage
firms and other custodians, nominees, and fiduciaries for reasonable expenses
incurred by them in sending proxy materials to the beneficial owners of QNB’s
common stock. In addition to solicitations by mail, directors, officers, and
employees of QNB and the Bank may solicit proxies personally, by telephone or
other electronic means without additional compensation.
These
proxy materials are first being mailed to shareholders on or about April 19,
2010.
Date,
Time and Place of Meeting
QNB
Corp.’s annual shareholders’ meeting will be held on Tuesday, May 18, 2010,
beginning at 11:00 a.m., Eastern time. The meeting will be held at QNB Bank’s
(the Bank) offices at 320 West Broad Street, Quakertown,
Pennsylvania.
Outstanding
Securities; Quorum; Voting Rights; and Record Date
The close
of business on April 5, 2010 was fixed as the record date for the purpose of
determining those shareholders entitled to notice of, and to vote at, the annual
meeting and any adjournments or postponements of the meeting. As of the close of
business on the record date, QNB had 3,098,805 shares of common stock issued and
outstanding.
Shareholders
are entitled to one vote for each share of common stock held of record on the
record date with respect to each matter to be voted on at the annual
meeting.
The
presence, in person or by proxy, of the holders of a majority of the outstanding
shares of the common stock on the record date is necessary to constitute a
quorum at the annual meeting. We intend to count as present shares present in
person but not voting and shares for which we have received proxies but for
which the holders of such shares have withheld votes or abstained. We also
intend to count as present shares represented by proxies returned by a broker
holding shares for a beneficial owner in nominee or street name even if the
shares are not entitled to be voted on a particular proposal because the nominee
does not have discretionary voting authority with respect to that proposal and
has not received instructions from the beneficial owner (commonly referred to as
“broker non-votes”).
1
QNB’s
Bylaws and Pennsylvania law govern the vote needed to elect directors and
approve the proposal to ratify the appointment of ParenteBeard LLC as QNB’s
independent registered public accounting firm for 2010. In the case of the
election of the Class I directors, assuming the presence of a quorum, the three
candidates receiving the highest number of votes will be elected to the Board of
Directors. With respect to the ratification of the appointment of ParenteBeard
LLC, assuming the presence of a quorum, the affirmative vote of a majority of
the votes cast is required for approval. Because they are not considered votes
cast, abstentions and broker non-votes have no effect on the proposal to ratify
the appointment of ParenteBeard LLC as QNB’s independent registered public
accounting firm for 2010.
You may
not vote your shares held by a broker in nominee or “street” name at the annual
meeting unless you obtain a legal proxy from your broker or holder of
record.
Solicitation
of Proxies
The Board
of Directors is soliciting proxies for use at QNB’s 2010 Annual Meeting of
Shareholders.
Voting
and Revocability of Proxies
Shares of
common stock represented by properly executed proxies will, unless the proxies
have previously been revoked, be voted in accordance with the instructions
indicated on the proxies. If no instructions are indicated on the proxies, the
shares will be voted FOR the election of
QNB’s nominees to the Board of Directors and FOR the appointment
of ParenteBeard LLC as QNB’s independent registered public accounting firm for
2010. The Board of Directors does not anticipate that any matters will be
presented at the annual meeting other than as set forth in the accompanying
Notice of Annual Meeting. In the event that any other matters are properly
presented at the annual meeting, proxies will be voted at the discretion of the
proxy holders as to such matters upon the recommendation of the Board of
Directors.
A
shareholder of record who executes and returns a proxy has the power to revoke
it at any time before it is voted by delivering to Mr. Charles M. Meredith, III,
Secretary of QNB, at the offices of QNB, at 320 West Broad Street, P.O. Box 9005
Quakertown, Pennsylvania, 18951, either a written notice of the revocation or a
duly executed later-dated proxy, or by attending the annual meeting and voting
in person after giving notice of the revocation.
2
PROPOSAL
1
ELECTION
OF THE THREE CLASS I DIRECTOR NOMINEES
The
Board of Directors
QNB’s
Articles of Incorporation and Bylaws provide that the Board of Directors
consists of ten members divided into three classes, Class I, Class II, and Class
III, as nearly equal in number as possible. The three directors currently
constituting Class I have been nominated for re-election at the annual meeting.
Directors in Class II and Class III will hold office until the 2011 and 2012
annual meetings, respectively.
The
Class I Director Nominees of the Board of Directors
At the
annual meeting, three Class I directors will be elected. Each director so
elected will hold office until the 2013 Annual Meeting of Shareholders and until
his or her successor in office is duly qualified and elected.
To the
extent given discretion, the persons named in the accompanying proxy intend to
vote FOR each of the nominees listed below. Each nominee has consented to being
nominated as a director and, as far as the Board of Directors and management of
QNB are aware, will serve as a director if elected. In the event that any
nominee should decline to serve or be unable to serve, the persons named in the
accompanying proxy may vote for the election of such person or persons as the
Board of Directors recommends.
Set forth
on the following pages, we include the following information with respect to
each director and director nominee:
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their
names and ages;
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the
years they first became directors of QNB and the
Bank;
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their
principal occupations and other directorships over the past five years;
and
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a
brief discussion of the specific experience, qualifications, attributes or
skills that led to our Board’s conclusion that the person should serve as
a director.
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Voting
Requirements
The three
director candidates are required to be elected by a plurality of the total votes
cast. Thus, the three persons receiving the highest number of votes will be
elected. Votes may be cast in favor or withheld for any or all of the
nominees.
RECOMMENDATION
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT EACH OF THESE
NOMINEES
BE ELECTED AS A CLASS I DIRECTOR.
3
CURRENT
CLASS I DIRECTORS AND NOMINEES FOR THREE YEAR TERM EXPIRING IN 2013
Charles
M. Meredith, III
Director
of QNB since 1984
Director
of the Bank since 1968
Secretary
of QNB and the Bank since 1994
Age
74
Mr.
Meredith is a newspaper columnist as well as the Owner of Franklin &
Meredith Inc., a commercial publisher. Over the years Mr. Meredith has served as
a Director and Trustee for various local organizations including the Upper Bucks
YMCA, the American Automobile Association (AAA), the Lehigh Valley Community
Foundation and the Quakertown Rotary. Mr. Meredith was also an elected Bucks
County Commissioner (1966 through 1972). Mr. Meredith’s educational background
includes a Bachelor’s Degree from the Wharton School of Business at the
University of Pennsylvania. The Board believes that Mr. Meredith’s business and
public service experience along with his years of service as a director of QNB
and the Bank give him the qualifications and skills to serve as a QNB
director.
Gary
S. Parzych
Director
of QNB and the Bank since 1995
Age
54
Mr.
Parzych is the President of Eugene T. Parzych, Inc., a construction company
(1980 to present), President of Finland Leasing Company, Inc., a real estate
holding company (1986 to present), a Partner in G & T Properties, a real
estate holding company (1999 to present) and President of Gargen
Incorporated a sporting goods dealer (2008 to present). Mr. Parzych was a
Quakertown School Board director from 1987 to 2004 and is currently a Trustee
for the Upper Bucks YMCA. Mr. Parzych is also involved in other service
organizations. Mr. Parzych’s business experience and his knowledge of the
construction industry along with his years of service as a director provide the
Board with valuable industry experience and knowledge of QNB.
Bonnie
L. Rankin
Director
of QNB and the Bank since 2007
Age
56
Ms.
Rankin retired from Harleysville Group Inc. after serving as the Senior Vice
President/Vice President-Strategic Planning, from 2003 to 2008. Prior to this
position Ms. Rankin served as the Chief Service Officer/Senior Vice President-
Business Process Consulting from 2000 to 2003, and President & Chief
Operating Officer of Harleysville Insurance of New York from 1996 to 2000. Ms.
Rankin held officer-level responsibility with the Harleysville Insurance
organization for 23 years prior to retirement. Ms. Rankin holds a Master of
Science degree from the University of Pennsylvania and a Bachelor of Arts degree
from Millersville University. In addition Ms. Rankin has earned Chartered
Property Casualty Underwriter (CPCU) and Certified Insurance Counselor (CIC)
designations; completed Insurance Executive Development program at the
University of Pennsylvania’s Wharton School and the Strategic Planning &
Implementation Program at University of Michigan’s Ross School of Business. Ms.
Rankin’s senior level experience with a public company as well as her knowledge
of strategic planning gives her the qualifications and skills to serve as a
director of QNB.
Continuing Directors Serving Until
2011 (Class II Directors)
Kenneth
F. Brown, Jr.
Director
of QNB and the Bank since 1993
Age
54
Mr. Brown
is the President of McAdoo & Allen, Inc., a manufacturer of pigment
dispersions and high performance coatings (September 1989 to present). Mr. Brown
also serves as a Director and Trustee for various local nonprofit organizations
including the Upper Bucks YMCA and St. Luke’s Quakertown Hospital. Mr. Brown’s
success in building and managing McAdoo and Allen, Inc. along with his prominent
role in the community and years of service as a director of QNB give Mr. Brown
the qualifications and skills to serve as a director of QNB.
4
Anna
Mae Papso
Director
of QNB and the Bank since 2004
Age
66
Ms. Papso
retired from West Pharmaceutical Services, Inc., a manufacturer of specialized
pharmaceutical packaging & medical device components in 2001. Ms. Papso
served as a Corporate Vice President and Chief Financial Officer from 2000 to
2001 and prior thereto as Vice President & Corporate Controller from 1989 to
2000. Ms. Papso’s educational background includes a Bachelor of Science degree
in business administration and a Masters of Business Administration, both from
Drexel University. The Board believes that Ms. Papso’s financial, business and
accounting experience at publicly traded companies as well as her background in
public accounting give her the qualifications and skills to serve as a QNB
director.
Henry
L. Rosenberger
Director
of QNB and the Bank since 1984
Age
64
Mr.
Rosenberger owns and operates Tussock Sedge Farms and is a Director of Wood
Composite Technologies, Inc. (2000 to present). Mr. Rosenberger was the
President of Rosenberger Companies, Ltd., a cold storage company from 1998 to
2006. Mr. Rosenberger is very active in the local community and served as
President of Dock Woods Community, Inc., a retirement community, from 1992 to
2002 and was a Director of Dock Woods Community, Inc. from 1978 to December
2002. The Board believes that Mr. Rosenberger’s business experience combined
with his years of service on the board and his prominence in the community give
him the qualifications to serve as a director of QNB.
Edgar
L. Stauffer
Director
of QNB since 1984
Director
of the Bank since 1983
Age
72
Prior to
his retirement, Mr. Stauffer was Co-Owner, President, Vice President and
Secretary of Stauffer Manufacturing Corporation, a manufacturer and importer of
industrial work gloves and safety equipment and Co-Owner and President of H.
Texier Glove Corporation. Mr. Stauffer serves on the Boards of various nonprofit
organizations. Mr. Stauffer’s educational background includes a Bachelor of
Science degree in Commerce and Finance from Bucknell University. Mr. Stauffer’s
business experience combined with his years of service on the board and his
prominence in the community give him the qualifications to serve as a director
of QNB.
Continuing Directors Serving Until
2012 (Class III Directors)
Thomas
J. Bisko
Director
of QNB since 1986
Director
of the Bank since 1985
Age
62
Mr. Bisko
has been the Chief Executive Officer of QNB and the Bank from March 1988 to
present. Mr. Bisko also serves as the President of QNB since 1986 and the
President of the Bank since 1985. Mr. Bisko has also held the position of
Treasurer of QNB since February 1986. Prior to joining QNB, Mr. Bisko was an
examiner for the Office of the Comptroller of the Currency and a consultant with
a firm specializing in the banking industry. Mr. Bisko serves on many local
Boards including St. Luke’s Quakertown Hospital and the Upper Bucks YMCA. Mr.
Bisko’s educational background includes a Bachelor of Science degree from Kings
College. The Board believes Mr. Bisko’s career in banking gives him the
qualifications and skills to serve as a QNB director.
5
Dennis
Helf
Chairman
of the Board since 2002
Director
of QNB since 1997
Director
of the Bank since 1996
Age
63
Mr. Helf
has been a Registered Investment Advisor since 1995 and has over 30 years of
experience investing in community bank stocks. Prior to 1995 Mr. Helf was the
managing partner in a law firm and spent 22 years representing five financial
institutions in all facets of the law affecting financial institutions with a
particular concentration in commercial lending and workouts. Mr. Helf served on
the Board of Sellersville Savings & Loan and has long-term involvement with
many nonprofit organizations in QNB’s market area. Mr. Helf’s educational
background includes a Bachelor of Arts degree from Muhlenberg College, a Juris
Doctorate from Villanova School of Law and a Masters in Tax Law from Temple
University Law School. The Board believes that Mr. Helf’s extensive legal and
business experience in the financial services industry gives him the
qualifications and skills to serve as a QNB director.
G.
Arden Link
Director
of QNB since 2001
Director
of the Bank since 1997
Age
70
Mr. Link
is the owner of Link Beverages, Inc., a beverage distributor in Coopersburg PA.
Mr. Link is actively involved in various service organizations in the Southern
Lehigh area. Mr. Link’s business experience combined with his years of service
on the board and his prominence in the community give him the qualifications to
serve as a director of QNB.
EXECUTIVE
OFFICERS OF QNB AND/OR THE BANK
The
following list sets forth the names of the executive officers of QNB, and other
significant employees of the Bank, their respective ages, positions held, recent
business experience with QNB and the Bank, and the period they have served in
their respective capacities.
Thomas
J. Bisko
Age 62;
Chief Executive Officer of QNB and the Bank from March 1988 to present;
President of QNB from May 1986 to present; Treasurer of QNB from February 1986
to present; President of the Bank from September 1985 to present.
Bret
H. Krevolin
Age 47;
Chief Financial Officer of QNB from May 2003 to present; Chief Accounting
Officer of QNB from January 1992 to present; Executive Vice President/Chief
Financial Officer of the Bank from January 2000 to present; Senior Vice
President/Chief Financial Officer of the Bank from January 1995 to December
1999; Vice President/Controller of the Bank from August 1989 to December
1994.
Scott
G. Orzehoski
Age 44;
Senior Vice President/Chief Lending Officer of the Bank from January 2002 to
present; Vice President/Commercial Lending Officer of the Bank from August 1997
to December 2001; Assistant Vice President/Commercial Lending Officer of the
Bank from February 1996 to July 1997.
Mary
Ann Smith
Age 56;
Senior Vice President/Chief Information Officer of the Bank from January 1999 to
present; Senior Vice President/Operations of the Bank from January 1995 to
December 1998; Vice President/Operations of the Bank from January 1988 to
December 1994.
Dale
A. Wentz
Age 54;
Senior Vice President/Retail Banking of the Bank from October 2008 to present;
Vice President, Fairmont Quality Service & Sales Development, Frederick, PA
from March 1999 to September 2008.
6
PROPOSAL
2
RATIFICATION
OF THE APPOINTMENT OF
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR 2010
Independent
Registered Public Accounting Firm
Our
Board’s Audit Committee is comprised entirely of directors who are independent
pursuant to the rules adopted by the Securities and Exchange Commission (SEC)
and the corporate governance standards promulgated by the NASDAQ Stock Market.
Among other things, the Board has determined that each member has a general
understanding of finance and accounting practices. The Board made these
determinations in its business judgment, based on its interpretation of the
Nasdaq Stock Market’s requirements for audit committee members.
Under the
Audit Committee’s charter, the Committee is responsible for selecting QNB’s
independent registered public accounting firm. The Committee evaluates and
monitors the auditors’ qualifications, performance and independence. You can
learn more about the committee’s responsibilities with respect to the
independent registered public accounting firm in the Committee’s charter, which
is available on QNB’s website at www.qnb.com under
“Governance Documents”.
Based on
the recommendation of the Audit Committee, the Board unanimously recommends that
shareholders vote to ratify the Audit Committee’s selection of ParenteBeard LLC
as QNB’s independent registered public accounting firm for 2010.
Representatives
of ParenteBeard LLC will be present at the Annual Meeting and will have an
opportunity to make a statement if they so desire. They will also be available
to respond to appropriate questions presented at the Annual
Meeting.
Voting
Requirements
The
affirmative vote of a majority of the votes cast at the meeting, assuming the
presence of a quorum, is required for the adoption of this
Proposal.
In the
event that the shareholders do not ratify the selection of ParenteBeard LLC, the
selection of QNB’s independent registered public accounting firm will be
reconsidered by the Audit Committee. The Committee will be under no obligation,
however, to select a new independent registered public accounting firm. If the
Committee does select a new independent registered public accounting firm for
2010, we will not seek shareholder ratification of the new independent
registered public accounting firm selected by the Committee.
RECOMMENDATION
THE
BOARD OF DIRECTORS AND MANAGEMENT RECOMMEND THAT YOU VOTE “FOR” THE
RATIFICATION OF THE APPOINTMENT OF PARENTEBEARD LLC AS THE QNB’S INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR 2010.
7
BENEFICIAL
OWNERSHIP OF DIRECTORS AND OFFICERS
The
following table sets forth, as of April 5, 2010, the number of shares of common
stock, par value $0.625 per share, beneficially owned by each current director
and nominee for director, by each named executive officer, and by all directors,
nominees and executive officers of QNB and the Bank, as a group. Unless
otherwise indicated, shares are held individually and not pledged as security.
The address for each person is 320 West Broad Street, P.O. Box 9005, Quakertown,
Pennsylvania 18951.
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Name of Beneficial Owner
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Amount and Nature of
Beneficial Ownership (1)
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Percentage of
Class (2)
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Thomas
J. Bisko
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50,143 | (3) | 1.54 | % | ||||
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Kenneth
F. Brown, Jr.
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150,100 | (4) | 4.61 | % | ||||
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Dennis
Helf
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31,172 | (5) | * | |||||
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Bret
H. Krevolin
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30,664 | (6) | * | |||||
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G.
Arden Link
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7,600 | (7) | * | |||||
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Charles
M. Meredith III
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57,789 | (8) | 1.78 | % | ||||
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Scott
G. Orzehoski
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20,516 | (9) | * | |||||
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Anna
Mae Papso
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2,825 | * | ||||||
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Gary
S. Parzych
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9,039 | (10) | * | |||||
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Bonnie
L. Rankin
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2,000 | * | ||||||
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Henry
L. Rosenberger
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38,872 | (11) | 1.19 | % | ||||
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Mary
Ann Smith
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35,631 | (12) | 1.09 | % | ||||
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Edgar
L. Stauffer
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100,814 | (13) | 3.10 | % | ||||
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Dale
A. Wentz
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590 | * | ||||||
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Current
Directors, Nominees & Executive Officers
as a Group (14 persons) |
537,755 | (14) | 16.52 | % | ||||
* Less
than 1.00%
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(1)
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The
securities "beneficially owned" by an individual are determined in
accordance with the definitions of "beneficial ownership" set forth in the
General Rules and Regulations of the SEC and may include securities owned
by or for the individual's spouse and minor children and any other
relative who has the same home, as well as securities as to which the
individual has, or shares, voting or investment power or has the right to
acquire beneficial ownership within 60 days after April 5, 2010.
Beneficial ownership may be disclaimed as to certain of the
securities.
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(2)
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Numbers
are rounded-off to the nearest one-hundredth
percent.
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(3)
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Includes
17,738 shares owned jointly by Mr. Bisko with his wife, Barbara, 325
shares held in her individual capacity, and 27,160
options.
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(4)
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Includes
148,336 shares owned jointly by Mr. Brown with his wife,
Pamela.
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(5)
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Includes
22,043 shares owned jointly by Mr. Helf with his wife,
Mary.
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(6)
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Includes
5,554 shares owned jointly by Mr. Krevolin with his wife, Susan, and
25,110 options.
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(7)
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Includes
1,800 shares owned jointly by Mr. Link with his wife,
Dorothy.
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(8)
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Includes
13,527 shares owned jointly by Mr. Meredith with his wife, Elizabeth,
5,030 shares held in her individual capacity, and 3,738 shares held of
record by Franklin & Meredith, Inc, a commercial publishing company
owned by Mr. Meredith.
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(9)
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Includes
17,580 options.
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(10)
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Includes
2,589 shares owned by Mr. Parzych’s wife, Karen, and 2,595 shares held of
record by Eugene T. Parzych, Inc., a construction company owned by Mr.
Parzych.
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(11)
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Includes
8,796 shares owned by Mr. Rosenberger’s wife,
Charlotte.
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(12)
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Includes
1,788 shares owned jointly by Ms. Smith with her husband, Randall, and
24,660 options.
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(13)
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Includes
65,034 shares owned jointly by Mr. Stauffer with his wife, Mary Blake, and
10,664 shares held in her individual
capacity.
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(14)
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Includes
155,464 options, in the aggregate which are exercisable within 60 days of
the record date; thus, the percentage ownership calculation is based upon
an aggregate of 3,254,269 shares
outstanding.
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8
GOVERNANCE
OF THE CORPORATION
Our Board
of Directors believes that the purpose of corporate governance is to ensure that
we maximize shareholder value in a manner consistent with legal requirements and
the highest standards of integrity. The Board has adopted and adheres to
corporate governance practices which the Board and senior management believe
promote this purpose, are sound and represent best practices. We continually
review these governance practices, Pennsylvania law (the state in which we are
incorporated), the rules and listing standards of the Nasdaq Stock Market and
SEC regulations, as well as best practices suggested by recognized governance
authorities.
The
structure of the Corporation’s Board leadership consists of an independent
non-employee Chairman, Mr. Helf, a non-independent President and Principal
Executive Officer, Thomas Bisko, and eight other independent non-employee
directors. The independent directors of the Board meet separately twice a year
without management present. Additionally, the Corporation has an active Board
Committee structure in which members of the Board of Directors attend and
actively participate in the following Committees: Asset & Liability
Management Committee, Audit Committee, Compensation Committee, Executive
Committee, Investment Committee, Loan Committee, Nominating and Governance
Committee and Wealth Management Committee. The active participation in
these Committees in addition to the monthly Board of Directors’ meetings
provides the independent members of the Board the necessary insight into the
daily operations of the Corporation. The Board believes that this Board
leadership structure most effectively represents the best interests of
shareholders in maximizing value.
Currently,
our Board of Directors has 10 members. Under the rules adopted by the Securities
and Exchange Commission and Nasdaq Stock Market for independence, Kenneth F.
Brown, Jr., Dennis Helf, G. Arden Link, Charles M. Meredith, III, Anna Mae
Papso, Gary S. Parzych, Bonnie L. Rankin, Henry L. Rosenberger and Edgar L.
Stauffer meet the standards for independence. These
directors represent more than a majority of our Board of Directors.
Our Board
of Directors determined that the following director was not independent within
the meaning of the rules and listing standards of the Nasdaq Stock Market:
Thomas J. Bisko, President and Chief Executive Officer of QNB.
Our Board
of Directors has determined that a lending relationship resulting from a loan
made by the Bank to a director would not affect the determination of
independence if the loan complies with Regulation O under the federal
banking laws. Our Board of Directors also determined that maintaining with the
Bank a deposit, savings or similar account by a director or any of the
director’s affiliates would not affect the determination of independence if the
account is maintained on the same terms and conditions as those available to
similarly situated customers. Additional categories or types of transactions or
relationships considered by our Board of Directors regarding director
independence include, but are not limited to, vendor or contractual
relationships with directors or their affiliates.
Risk
Management
The
management of risk is fundamental to the business of banking and integral to the
daily operations of the Corporation. The Board of Directors oversees the Risk
Management functions of the Corporation through policies which are reviewed at
least on an annual basis and by representation on Loan Committee, Investment
Committee and the Asset & Liability Committee. The minutes from these
Committees are reported into the full Board of Directors. Currently, QNB does
not have a Chief Risk Officer or an Enterprise Risk Management
Committee.
Code
of Ethics
We have
adopted a Code of Ethics for directors, officers and employees of QNB and the
Bank. It is intended to promote honest and ethical conduct, full and accurate
reporting and compliance with laws as well as other matters. A copy of the Code
of Ethics is posted on our website at http://www.qnb.com.
9
MEETINGS
AND COMMITTEES OF THE BOARD OF DIRECTORS OF QNB AND THE BANK
Set forth
below is a list of each of our current board members and our current Board
committee members. The respective chairperson of each of the Board committees is
also noted below. Each current director of QNB is also a current member of the
Bank’s Board of Directors.
|
Board Member
|
Board
|
Audit
|
Compensation
|
Executive
|
Nominating
|
||||||||||
|
Thomas
J. Bisko
|
X
|
X
|
|||||||||||||
|
Kenneth
F. Brown, Jr.
|
X
|
X
|
C
|
||||||||||||
|
Dennis
Helf
|
C
|
X
|
C
|
||||||||||||
|
G.
Arden Link
|
X
|
X
|
|||||||||||||
|
Charles
M. Meredith, III
|
X
|
X
|
X
|
X
|
|||||||||||
|
Anna
Mae Papso
|
X
|
C
|
|||||||||||||
|
Gary
S. Parzych
|
X
|
||||||||||||||
|
Bonnie
L. Rankin
|
X
|
X
|
|||||||||||||
|
Henry
L. Rosenberger
|
X
|
X
|
X
|
X
|
|||||||||||
|
Edgar
L. Stauffer
|
X
|
X
|
C
|
X
|
X
|
||||||||||
|
Meetings
Held in 2009
|
13
|
5
|
1
|
2
|
1
|
C – Chairperson
All
current directors attended at least 75% of the aggregate of the total number of
meetings of the Board of Directors (held for the period for which he or she has
been a director) and the total number of meetings held by all committees of the
Board of Directors on which he or she served (during the periods that he or she
served).
QNB has
no specific policy requiring directors to attend the Annual Meeting of
Shareholders; however, director attendance is strongly encouraged. All current
members of the Board of Directors were present at the 2009 Annual Meeting of
Shareholders. It is anticipated that all members of the Board of Directors will
be attending the 2010 Annual Meeting of Shareholders.
QNB’s
Board of Directors established and maintains the following committees, among
others:
Audit Committee. The Audit
Committee recommends the engagement and dismissal of the independent registered
public accounting firm, reviews their annual audit plan and the results of their
auditing activities, and considers the range of audit and non-audit fees. It
also reviews the general audit plan, scope and results of QNB's procedures for
internal auditing. The reports of examination of QNB and its subsidiary by bank
regulatory examiners are also reviewed by the Audit Committee. The Audit
Committee also reviews all SEC filings and earnings press releases. The Audit
Committee meets with management and the auditors prior to the filing of
officers’ certifications with the SEC to receive information concerning, among
other things, the adequacy of the design and operation of internal controls,
including significant deficiencies identified, if any.
All
members of the Audit Committee are non-executives and are independent directors
pursuant to the rules adopted by the SEC and the corporate governance standards
promulgated by the Nasdaq Stock Market. In determining whether a director is
independent for purposes of each of the above stated guidelines, the Board of
Directors must affirmatively determine that the directors on the Audit Committee
do not, among other things, accept any consulting, advisory, or other
compensatory fee from QNB. Applying these standards, the Board of Directors has
determined that all of the directors on the Audit Committee are independent. The
members of QNB’s Audit Committee are Directors Meredith, Papso, Rosenberger and
Stauffer.
The Board
of Directors has determined that Anna Mae Papso meets the requirements adopted
by the SEC and Nasdaq Stock Market for qualification as an Audit Committee
financial expert. Ms. Papso has past employment experience as a Corporate Vice
President, Chief Accounting Officer and Chief Financial Officer providing her
with diverse and progressive financial management experience, as well as
expertise in internal controls and U.S. accounting rules and SEC reporting. An
Audit Committee financial expert is defined as a person who has the following
attributes: (i) an understanding of generally accepted accounting principles and
financial statements; (ii) the ability to assess the general application of such
principles in connection with the accounting for estimates, accruals and
reserves; (iii) experience preparing, auditing, analyzing or evaluating
financial statements that present a breadth and level of complexity or
accounting issues that are generally comparable to the breadth and complexity of
issues that can reasonably be expected to be raised by the registrant’s
financial statements, or experience actively supervising one or more persons
engaged in such activities; (iv) an understanding of internal controls and
procedures for financial reporting; and (v) an understanding of audit committee
functions.
10
The
identification of a person as an audit committee financial expert does not
impose on such person any duties, obligations or liability that are greater than
those that are imposed on such person as a member of the Audit Committee and the
Board of Directors in the absence of such identification. Moreover, the
identification of a person as an audit committee financial expert for purposes
of the regulations of the SEC does not affect the duties, obligations or
liability of any other member of the Audit Committee or the Board of Directors.
Additionally, a person who is determined to be an Audit Committee financial
expert will not be deemed an “expert” for purposes of Section 11 of the
Securities Act of 1933.
The Audit
Committee operates under a formal charter that governs its duties and conduct.
The Audit Committee Charter is available on our website at www.qnb.com.
The Audit
Committee has also adopted a Whistleblower Policy to enable confidential and
anonymous reporting of questionable accounting or auditing matters, fraudulent
activities, or misconduct to the Audit Committee. The policy also is available
on our website at www.qnb.com.
Compensation
Committee. The
Compensation Committee's primary functions are to review and approve key
executive salaries and salary policy, determine the salary of the Chief
Executive Officer and to administer equity compensation plans. In
formulating its recommendations for the other executive officers, the
Compensation Committee will consider information provided by Mr. Bisko related
to subordinate executives. In addition, the Committee reviews the
general guidelines on compensation for all employees. The Board of Directors has
determined that all of the directors serving on the Compensation Committee are
independent for the purposes of the rules adopted by the SEC and the corporate
governance standards promulgated by the Nasdaq Stock Market. The Compensation
Committee has a formal charter which is available on our website at www.qnb.com. The members of the Compensation
Committee are Directors Helf, Meredith, Rankin, Rosenberger and
Stauffer.
Executive Committee. The
Executive Committee is authorized to exercise all of the authority of the Board
of Directors in the management of QNB between Board meetings, unless otherwise
provided in QNB’s Bylaws. The members of the Executive Committee are Directors
Bisko, Brown, Helf, Meredith and Stauffer.
Nominating Committee. The
Board of Directors has determined that all of the directors serving on the
Nominating Committee are independent for the purposes of the rules adopted by
the SEC and the corporate governance standards promulgated by the Nasdaq Stock
Market. The principal duties of the Nominating Committee include developing and
recommending to the Board criteria for selecting qualified director candidates,
identifying individuals qualified to become Board members, evaluating and
selecting, or recommending to the Board, director nominees for each election of
directors, considering committee member qualifications, appointment and removal,
recommending codes of conduct and codes of ethics applicable to the Corporation
and providing oversight in the evaluation of the Board and each committee. The
Nominating Committee has no formal process for considering director candidates
recommended by shareholders, but the Nominating Committee will consider such
candidates and its policy is to give due consideration to all candidates. If a
shareholder wishes to recommend a director candidate as a possible nominee for
the 2011 annual meeting of shareholders, the shareholder should mail the name,
background and contact information for the candidate to the Nominating Committee
at the Corporation's offices at P.O. Box 9005, Quakertown, PA 18951 no later
than April 3, 2011. The Nominating Committee has a formal charter which is
available on our website at www.qnb.com. Members
of the Nominating Committee include Directors Brown, Link, Rosenberger and
Stauffer.
11
In
considering individual director candidates, the Nominating Committee considers
individuals who, in the judgment of the Committee, would be best qualified to
serve on the Board. The Nominating Committee does not specifically consider
diversity of gender or ethnicity in fulfilling its responsibilities to select
qualified and appropriate director candidates. Instead, the Committee will
seek to balance the existing skill sets of current Board members with the need
for other diverse skills and qualities that will complement the Corporation’s
strategic vision. All director candidates are evaluated based on general
characteristics and specific talents and skills needed to increase the Board’s
effectiveness. Additionally, all candidates must possess an unquestionable
commitment to high ethical standards and have a demonstrated reputation for
integrity.
AUDIT
COMMITTEE REPORT
Pursuant
to rules adopted by the SEC designed to improve disclosures related to the
functioning of corporate audit committees and to enhance the reliability and
credibility of financial statements of public companies, QNB’s Audit Committee
submits the following report:
Audit Committee Report to
Board of Directors
The Board
of Directors has formally adopted an Audit Committee Charter setting forth the
Committee's duties. The Charter delegates to the Committee responsibility for
overseeing QNB's financial reporting process. In that connection, the Committee
has discussed and reviewed the Corporation's audited financial statements for
2009 with management and ParenteBeard LLC, QNB's independent registered public
accounting firm.
Management
has the primary responsibility for the financial statements and the reporting
process, including the systems of internal control. ParenteBeard LLC is
responsible for expressing an opinion on the conformity of the QNB's audited
financial statements with generally accepted accounting principles.
In
discharging its responsibilities, the Committee's review of the Corporation's
financial statements for 2009 included discussion of the quality, not just the
acceptability, of the accounting principles used, the reasonableness of
significant judgments made, and the clarity, consistency and completeness of
disclosures in such financial statements with management and ParenteBeard LLC,
as required by U.S. Auditing Standards Section AU380, Communication with Audit
Committees.
The Audit
Committee has considered the compatibility of non-audit services provided by
ParenteBeard LLC with the maintenance of QNB's registered public accounting
firm's independence. ParenteBeard LLC has provided written disclosures and a
letter required by the applicable requirements of the Public Company Accounting
Oversight Board regarding its firm's communications with the Audit Committee
concerning independence. These disclosures have been reviewed by the Audit
Committee and discussed with management and ParenteBeard LLC.
The
Committee discussed with QNB's internal auditors and ParenteBeard LLC the
overall scope and plans for their respective audits, and met with both firms,
with and without management present, to discuss the results of their
examinations, their evaluations of QNB's internal controls and the overall
quality of QNB's financial reporting process.
In
reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors (and the Board has approved) that the
audited financial statements be included in the Annual Report on Form 10-K for
the year ended December 31, 2009, for filing with the SEC.
|
Respectfully
submitted,
|
|
|
THE
AUDIT COMMITTEE
|
|
|
Anna
Mae Papso, Chairperson
|
|
|
Charles
M. Meredith, III
|
|
|
Henry
L. Rosenberger
|
|
|
Edgar
L. Stauffer
|
12
Audit
Committee Pre-Approval of Audit and Permissible Non-Audit Services of the
Independent Registered Public Accounting Firm
The Audit Committee has a policy for
the pre-approval of services provided by the independent registered public
accounting firm. The policy requires the Audit Committee to pre-approve all
audit and permissible non-audit services provided by the independent registered
public accounting firm. These services may include audit services, audit related
services, tax services, and other services. Under the policy, pre-approval is
generally provided for up to one year and any pre-approval is detailed as to the
particular service or category of services and is subject to a specific budget.
In addition, the Audit Committee may also pre-approve particular services on a
case by case basis. The Audit Committee has delegated to the Chairperson of the
Audit Committee authority to pre-approve services not prohibited by law to be
performed by our independent registered public accounting firm and associated
fees up to a maximum for any one service of $5,000. All of the services related
to the Audit Related Fees, Tax Fees, and All Other Fees described below were
approved by the Audit Committee pursuant to the pre-approval provisions set
forth in applicable rules issued by the SEC and the Audit Committee’s
pre-approval policy.
Appointment
of ParenteBeard LLC During 2009
On
October 1, 2009, QNB was notified that the audit practice of Beard Miller
Company LLP (“Beard”), an independent registered public accounting firm, was
combined with ParenteBeard LLC (“ParenteBeard”) in a transaction pursuant to
which Beard combined its operations with ParenteBeard and certain of the
professional staff and partners of Beard joined ParenteBeard either as employees
or partners of ParenteBeard. On October 1, 2009, Beard resigned as the auditors
of QNB and with the approval of the Audit Committee of QNB’s Board of Directors,
ParenteBeard was engaged as its independent registered public accounting
firm.
Prior to
engaging ParenteBeard, QNB did not consult with ParenteBeard regarding the
application of accounting principles to a specific completed or contemplated
transaction or regarding the type of audit opinions that might be rendered by
ParenteBeard on QNB’s financial statements, and ParenteBeard did not provide any
written or oral advice that was an important factor considered by QNB in
reaching a decision as to any such accounting, auditing or financial reporting
issue.
The
report of Beard regarding QNB’s financial statements for the fiscal years ended
December 31, 2008 and 2007 did not contain any adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles.
During
the years ended December 31, 2008 and 2007, and during the interim period from
the end of the most recently completed fiscal year through October 1, 2009, the
date of resignation, there were no disagreements with Beard on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedures, which disagreements, if not resolved to the satisfaction of
Beard would have caused it to make reference to such disagreement in its
reports.
Audit
Fees, Audit Related Fees, Tax Fees, and All Other Fees
ParenteBeard
was QNB’s independent registered public accounting firm from October 1, 2009
through December 31, 2009 while Beard Miller Company LLP was QNB’s independent
registered public accounting firm for 2008 and during the interim period from
January 1, 2009 through October 1, 2009. Aggregate fees billed to QNB by them
for services rendered are presented below.
|
2009
|
2008
|
|||||||
|
Audit
fees
|
$ | 93,155 | $ | 90,000 | ||||
|
Audit
related fees
|
10,900 | 7,500 | ||||||
|
Audit
and audit related fees
|
104,055 | 97,500 | ||||||
|
Tax
fees
|
1,775 | - | ||||||
|
All
other fees
|
- | - | ||||||
|
Total
fees
|
$ | 105,830 | $ | 97,500 | ||||
13
Audit Fees include
professional services rendered for the audit of QNB’s annual
financial statements and review of financial statements included in Forms
10-Q, including out-of-pocket expenses.
Audit Related Fees include
assurance and related services reasonably related to the performance of the
audit or review of the financial statements including the following: employee
benefit plan audits for 2009 and 2008 and consent procedures in
regards to From S-3 registration statement filing for 2009.
Tax Fees include fees billed
for tax consultation and tax compliance services.
All Other Fees would
include fees billed for products and services other than the services reported
under the Audit Fees, Audit Related Fees, or Tax Fees sections of the table
above.
A
representative of ParenteBeard LLP is expected to be present at the Annual
Meeting. The representative will have an opportunity to make a statement and be
available to respond to appropriate questions.
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The
Compensation Committee makes recommendation to the Board of Directors concerning
general guidelines on compensation of employees and specific recommendations for
Mr. Bisko. The Compensation Committee is composed entirely of the following five
independent outside directors: Stauffer, Rosenberger, Rankin,
Meredith, and Helf. No member of the Compensation Committee during fiscal year
2009 was an officer or employee of the Corporation or its subsidiary or was
formerly an officer of the Corporation or its subsidiary. No member of the
Compensation Committee had any relationship or transaction with the Corporation
requiring disclosure under applicable SEC rules.
EXECUTIVE
COMPENSATION
The
following table is a summary of the compensation for the past two years earned
by the principal executive officer and two other named executive
officers:
Summary
Compensation Table
|
Name and Position
|
Year
|
Salary
($)(6)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)(1)
|
Non-Equity
Incentive Plan
Compensation
($)
|
All Other
Compensation
($)
|
Total
($)
|
||||||||||||||||||||||
|
Thomas
J. Bisko
|
2009
|
275,000 | 0 | 0 | 7,053 | N/A | 29,514 | (2) | 311,567 | |||||||||||||||||||||
|
President
and
|
2008
|
265,685 | 13,284 | 0 | 7,890 | N/A | 28,251 | (2) | 315,110 | |||||||||||||||||||||
|
Principal
Executive Officer
|
||||||||||||||||||||||||||||||
|
Robert
C. Werner
|
2009
|
193,982 | 0 | 0 | 6,510 | N/A | 123,708 | (3) | 324,200 | |||||||||||||||||||||
|
Former
Executive Vice President
|
2008
|
188,918 | 9,446 | 0 | 7,233 | N/A | 20,304 | (3) | 225,901 | |||||||||||||||||||||
|
and
Chief Operating Officer
|
||||||||||||||||||||||||||||||
|
Bret
H. Krevolin
|
2009
|
177,488 | 0 | 0 | 6,510 | N/A | 15,314 | (4) | 199,312 | |||||||||||||||||||||
|
Executive
Vice President and
|
2008
|
170,252 | 8,513 | 0 | 7,233 | N/A | 13,620 | (4) | 199,618 | |||||||||||||||||||||
|
Principal
Financial Officer
|
||||||||||||||||||||||||||||||
|
Mary
Ann Smith
|
2009
|
143,700 | 0 | 0 | 6,185 | N/A | 11,496 | (5) | 161,381 | |||||||||||||||||||||
|
Senior
Vice President and
|
2008
|
137,842 | 6,892 | 0 | 6,838 | N/A | 11,027 | (5) | 163,847 | |||||||||||||||||||||
|
Chief
Information Officer
|
||||||||||||||||||||||||||||||
|
(1)
|
The
amounts reported in the column reflect the aggregate fair value computed
in accordance with FASB ASC Topic 718. This method of reporting using the
aggregate grant date fair value differs from the method used in previous
years of reporting the amount recognized each year for financial statement
reporting purposes, and is the result of a recent rule change promulgated
by the SEC. All of the option awards vest ratably over a three-year
period. The assumptions used to arrive at the estimated fair value using
the Black-Scholes option pricing model are disclosed in Note 1 to our
consolidated financial statements included in our 2009 Annual Report on
Form 10-K.
|
14
|
(2)
|
Includes
the Bank's contributions on behalf of Mr. Bisko to the Retirement Savings
Plan of $19,600 and $18,400; country club membership dues of $8,898 and
$8,756; and reimbursement of spousal travel expense of $1,016 and $1,095
for 2009 and 2008, respectively.
|
|
(3)
|
Includes
the Bank's contributions on behalf of Mr. Werner to the Retirement Savings
Plan of $15,323 and $15,113; country club membership dues of $5,547 and
$5,191; reimbursement of spousal travel expense of $1,294 and $0 for 2009
and 2008, respectively and a severance payment of $101,544. In connection with
Mr. Werner’s termination of employment on November 23, 2009, the
Corporation, the Bank, and Mr. Werner entered into a separation agreement
(the “Agreement”) dated as of December 21, 2009. Under the
Agreement, the Corporation agreed to pay Mr. Werner a total severance
amount of $101,543.52, in three installments of $16,923.92 on each of
January 1, 2010, January 23, 2010, and February 23, 2010, and a final
installment of $50,771.76 on or by March 12, 2010, and maintain Mr.
Werner’s coverage under the Corporation’s medical benefit plan for a
period of six months. The Agreement contains a non-solicitation
provision relating to customers or employees of the Corporation or the
Bank for a period of one year, and includes a mutual release of
claims.
|
|
(4)
|
Includes
the Bank's contributions on behalf of Mr. Krevolin to the Retirement
Savings Plan of $14,199 and $13,620 for 2009 and 2008,
respectively.
|
|
(5)
|
Includes
the Bank’s contributions on behalf of Ms. Smith to the Retirement Savings
Plan of $11,496 and $11,027 for 2009 and 2008
respectively.
|
|
(6)
|
“Salary”
is the actual base pay compensation paid through December 31, 2009. The
annual base salaries for 2010 for the named executive officers are: Mr.
Bisko $300,000, Mr. Krevolin $195,000 and Ms. Smith
$148,730.
|
Stock
Option Grants for 2009
On
January 20, 2009, the Corporation granted 3,250, 3,000, 3,000 and 2,850 stock
options to Messrs. Bisko, Krevolin, Werner and Ms. Smith, respectively, under
the Corporation’s existing stock option program. The stock options are all
subject to a ten-year term, are exercisable at $17.15 per share, and vest
ratably over a three-year period from the grant date. The 3,000 options granted
to Mr. Werner were forfeited in connection with his termination of employment on
November 23, 2009.
15
Outstanding
Equity Awards at Fiscal Year End
The
following table sets forth information concerning exercisable and unexercisable
stock options held by each named executive officer as of December 31,
2009.
|
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
|
|||||||||||||||||||
|
Option Awards
|
|||||||||||||||||||
|
Name
|
Option
Grant Date
|
Number of
Securities
Underlying
Unexercised
Options
(#) Exercisable
|
Number of
Securities
Underlying
Unexercised
Options
(#) Unexercisable
|
Equity Incentive Plan
Awards: Number of
Securities Underlying
Unexercised Unearned
Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date (1)
|
|||||||||||||
|
Thomas
J. Bisko
|
1/16/2001
|
3,360 | 0 | 13.30 |
1/16/2011
|
||||||||||||||
|
1/15/2002
|
6,000 | 0 | 16.13 |
1/15/2012
|
|||||||||||||||
|
1/21/2003
|
6,000 | 0 | 20.00 |
1/21/2013
|
|||||||||||||||
|
4/27/2004
|
2,800 | 0 | 33.25 |
4/27/2014
|
|||||||||||||||
|
1/18/2005
|
3,000 | 0 | 32.35 |
1/18/2015
|
|||||||||||||||
|
1/17/2006
|
3,000 | 0 | 26.00 |
1/17/2011
|
|||||||||||||||
|
1/16/2007
|
3,000 | 0 | 25.15 |
1/16/2012
|
|||||||||||||||
|
1/15/2008
|
3,000 | 0 | 21.00 |
1/15/2013
|
|||||||||||||||
|
1/20/2009
|
3,250 | 0 | 17.15 |
1/20/2014
|
|||||||||||||||
|
Robert
C. Werner
|
1/16/2001
|
3,360 | 0 | 13.30 |
1/16/2011
|
||||||||||||||
|
1/15/2002
|
5,500 | 0 | 16.13 |
1/15/2012
|
|||||||||||||||
|
1/21/2003
|
5,500 | 0 | 20.00 |
1/21/2013
|
|||||||||||||||
|
4/27/2004
|
2,500 | 0 | 33.25 |
4/27/2014
|
|||||||||||||||
|
1/18/2005
|
2,750 | 0 | 32.35 |
1/18/2015
|
|||||||||||||||
|
1/17/2006
|
2,750 | 0 | 26.00 |
1/17/2011
|
|||||||||||||||
|
Bret
H. Krevolin
|
1/18/2000
|
3,528 | 0 | 13.09 |
1/18/2010
|
||||||||||||||
|
1/16/2001
|
3,360 | 0 | 13.30 |
1/16/2011
|
|||||||||||||||
|
1/15/2002
|
5,500 | 0 | 16.13 |
1/15/2012
|
|||||||||||||||
|
1/21/2003
|
5,500 | 0 | 20.00 |
1/21/2013
|
|||||||||||||||
|
4/27/2004
|
2,500 | 0 | 33.25 |
4/27/2014
|
|||||||||||||||
|
1/18/2005
|
2,750 | 0 | 32.35 |
1/18/2015
|
|||||||||||||||
|
1/17/2006
|
2,750 | 0 | 26.00 |
1/17/2011
|
|||||||||||||||
|
1/16/2007
|
2,750 | 0 | 25.15 |
1/16/2012
|
|||||||||||||||
|
1/15/2008
|
2,750 | 0 | 21.00 |
1/15/2013
|
|||||||||||||||
|
1/20/2009
|
3,000 | 0 | 17.15 |
1/20/2014
|
|||||||||||||||
|
Mary
Ann Smith
|
1/16/2001
|
3,360 | 0 | 13.30 |
1/16/2011
|
||||||||||||||
|
1/15/2002
|
5,500 | 0 | 16.13 |
1/15/2012
|
|||||||||||||||
|
1/21/2003
|
5,500 | 0 | 20.00 |
1/21/2013
|
|||||||||||||||
|
4/27/2004
|
2,500 | 0 | 33.25 |
4/27/2014
|
|||||||||||||||
|
1/18/2005
|
2,600 | 0 | 32.35 |
1/18/2015
|
|||||||||||||||
|
1/17/2006
|
2,600 | 0 | 26.00 |
1/17/2011
|
|||||||||||||||
|
1/16/2007
|
2,600 | 0 | 25.15 |
1/16/2012
|
|||||||||||||||
|
1/15/2008
|
2,600 | 0 | 21.00 |
1/15/2013
|
|||||||||||||||
|
1/20/2009
|
2,850 | 0 | 17.15 |
1/20/2014
|
|||||||||||||||
(1)
Options vest after a 3 year period, commencing upon the date of
grant.
In
connection with Mr. Werner’s termination of employment on November 23, 2009, the
Corporation agreed that all outstanding stock options granted to him pursuant to
the Corporation’s equity incentive plan which were vested and outstanding on
such date will remain exercisable until the expiration of the term of such stock
options.
16
Employment
Agreements
QNB and
Mr. Bisko are parties to an employment agreement that terminates on December 31,
2013; provided however, that the employment agreement may be terminated by
either party upon three years' prior written notice. Under the terms of the
employment agreement, Mr. Bisko is to be employed as the President of the Bank
and to render services as may be reasonably required of him from time to time by
the Board of Directors. Mr. Bisko may be discharged at any time for just and
proper cause, which includes:
|
|
(1)
|
his
failure to properly perform his
duties;
|
|
|
(2)
|
his
violation of any covenants or commitments set forth in the
Agreement;
|
|
|
(3)
|
his
failure or refusal to comply with the proper and reasonable written
policies or directives of the Board which do not violate any of the
provisions in the Agreement;
|
|
|
(4)
|
conduct
on his part, which violates any applicable state or Federal law;
or
|
|
|
(5)
|
conduct
on his part, which, in the reasonable discretion of the Board, would make
his continued employment prejudicial to the best interest of
QNB.
|
Following
a change of control of QNB (which is defined as any one person or group
obtaining voting control of 25% or more of QNB’s outstanding common stock) Mr.
Bisko's employment may only be terminated if he materially breaches his
obligations under the employment agreement, fails or refuses to comply with the
proper and reasonable written policies of the Board of Directors, or is
convicted of a felony. If Mr. Bisko's employment is terminated for reasons other
than, among others, discharge for cause, a change in control of QNB, or death or
disability, Mr. Bisko is entitled to receive a lump sum severance payment equal
to 2.99 times his then current base salary. If Mr. Bisko were terminated at the
minimum base salary of $300,000 as of January 1, 2010, he would be entitled to
receive a maximum lump sum payment equal to $897,000. Such a provision may be
deemed to be "anti-takeover" in nature inasmuch as it may discourage a potential
acquirer who may desire to replace Mr. Bisko with a new president. In the event
of Mr. Bisko's death or disability, QNB shall pay either to Mr. Bisko, his
estate, or his designated beneficiary, an amount equal to his then current base
salary in twelve equal monthly installments, which amounts may be reduced based
upon the receipt of any life or disability insurance proceeds from policies
maintained by and at the expense of QNB. Under Section 280G of the
Internal Revenue Code, payments to an executive made upon a change of control
(“parachute payments”) which exceed three times the executive’s five year
average annualized compensation will be subject to the following tax
consequences: (i) the paying corporation is denied any deduction for
employee compensation on the excess payment and (ii) the recipient is subject to
a nondeductible 20% excise tax on such excess payment (in addition to income
taxes). If 280G were to be applicable to payments made to Mr. Bisko
upon a change of control, Mr. Bisko would be responsible for any taxes on
benefits in excess of amounts that are considered parachute payments under the
Internal Revenue Code, and QNB would not be entitled to take a deduction for the
amounts paid with respect to the parachute payment.
The Bank
provides Mr. Bisko, for the benefit of his named beneficiary, with a salary
continuation agreement. In the event of Mr. Bisko's death, the agreement
provides his beneficiary with monthly income for 180 consecutive months. The
agreement is enforceable only while Mr. Bisko remains employed by the Bank. If
Mr. Bisko's employment is terminated for any reason other than death all rights
under the agreement will be terminated. The benefits are funded through an
insurance policy with the cost limited to the annual premium on the policy. Mr.
Bisko is also reimbursed for all reasonable and necessary expenses related to
his duties.
Change
of Control Agreement
On July
18, 2000, QNB and the Bank entered into a change of control agreement with Bret
H. Krevolin, Executive Vice President and Chief Financial Officer of the Bank.
This agreement provides certain benefits to Mr. Krevolin in the event of a
change of control of QNB or the Bank. The agreement becomes operative only if
(i) Mr. Krevolin is an employee of QNB and the Bank upon a change in control and
(ii) he is not offered substantially equivalent position following the change in
control. Under the Agreement, a change in control includes, among other things,
a merger, consolidation, division or disposition of substantially all of the
assets of QNB or the Bank, or a purchase by QNB or the Bank of substantially all
of the assets of another entity, unless, in either case, the transaction is
approved in advance by 70% or more of the members of the Board of QNB or the
Bank who are not interested in the transaction and a majority of the members of
the Board of the surviving entity and of the Board of Directors of such entity’s
parent corporation, if any, are former members of the Board of QNB or Bank. A
change of control also includes the acquisition by a person or group of
beneficial ownership of 25% of more of the voting securities of QNB or the Bank.
It also includes a situation where, during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of QNB or
the Bank cease for any reason to constitute at least a majority thereof, unless
the election of each director who was not a director at the beginning of such
period has been approved in advance by directors representing at least
two-thirds of the directors then in office who were directors at the beginning
of the period.
17
The
agreement specifies payment to Mr. Krevolin upon his termination on or before
the three year anniversary of the date of the change of control in an amount
equal to the product of the average aggregate annual compensation paid by QNB
and the Bank which is includable in his gross income for Federal income tax
purposes during the five calendar years preceding the taxable year in which the
date of the termination occurs, multiplied by two. The agreement further
provides that, if this lump sum payment, when added to all other amounts or
benefits provided to or on behalf of Mr. Krevolin in connection with his
termination of employment, would result in the imposition of an excise tax under
Section 4999 of the Internal Revenue Code of 1986, as amended (the Code), such
payment would be reduced to the extent necessary to avoid such excise tax
imposition. In addition, if any portion of the amount payable to Mr. Krevolin is
determined to be non-deductible pursuant to the regulations promulgated under
Section 280G of the Code, QNB is required only to pay to him the amount
determined to be deductible under Section 280G. The determination of any
reduction in the lump sum payment pursuant to the foregoing provisions will be
made by QNB’s independent registered public accounting firm.
DIRECTOR
COMPENSATION
The
following table illustrates compensation earned by non-employee directors for
the year ended December
31, 2009. Each director of QNB is also a member of the Bank’s Board of
Directors.
|
Name and Position
|
Fees Earned or
Paid in Cash
($)
|
|||
|
Kenneth
F. Brown, Jr.
|
26,683 | |||
|
Dennis
Helf
|
43,500 | |||
|
G.
Arden Link
|
21,158 | |||
|
Charles
M. Meredith, III
|
27,442 | |||
|
Anna
Mae Papso
|
27,683 | |||
|
Gary
S. Parzych
|
24,233 | |||
|
Bonnie
L. Rankin
|
18,558 | |||
|
Henry
L. Rosenberger
|
17,958 | |||
|
Edgar
L. Stauffer
|
19,408 | |||
During
2010, directors, with the exception of Mr. Bisko, will receive an annual fee of
$7,500. The Chairman of the Board, Dennis Helf, will receive additional
compensation of $10,000 and the Corporate Secretary, Charles Meredith, will
receive an additional $2,000. In addition, each director will receive a fee of
$600 for each Bank Board meeting attended. Directors are not reimbursed for QNB
Board meetings. Members of the committees of the Board of Directors will receive
$325 for each committee meeting attended, provided the committee meeting was not
held as part of a scheduled Board meeting. The Chairperson of the Audit
Committee, Anna Mae Papso, will receive additional compensation of $2,000. In
addition, the Chairman of the Compensation Committee, Edgar Stauffer, will
receive additional compensation of $750 and the Chairman of the Building
Committee, Gary Parzych, will receive additional compensation of
$750.
18
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
QNB and
the Bank have not entered into any material transactions, proposed or
consummated, with any director or executive officer, or any 5% security holder,
of QNB or the Bank, or any associate of the foregoing persons, with the
exception of that disclosed below. QNB and the Bank have engaged in and intend
to continue to engage in banking and financial transactions in the ordinary
course of business with directors and officers of QNB and the Bank and their
associates on comparable terms with similar interest rates as those prevailing
from time to time for other bank customers. The Bank makes loans to its officers
and directors, as well as their immediate families and companies, 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 not related to the Bank, and these loans did not
involve more than the normal risk of collection or present other unfavorable
features. The aggregate amount of indebtedness outstanding as of the latest
practicable date, February 28, 2010, to the above described group was
$5,404,000.
SHAREHOLDER
COMMUNICATIONS
The Board
of Directors does not have a formal process for shareholders to send
communications to the Board. Due to the infrequency of shareholder
communications to the Board of Directors, the Board does not believe that a
formal process is necessary. Written communications received by QNB from
shareholders are shared with the full Board no later than the next regularly
scheduled Board meeting. Written communication should be mailed to the
President/CEO at the Corporation's offices at P.O. Box 9005, Quakertown, PA
18951.
NOMINATIONS
AND SHAREHOLDER PROPOSALS
Nominations
of individuals for election to the Board of Directors may be made by any
shareholder if made in writing and delivered or mailed to the President of QNB,
not less than 45 days or more than 60 days prior to any shareholder meeting
called for the election of directors; provided, however, that if less than 21
days notice of the meeting is given to shareholders, the nomination shall be
mailed or delivered to the President of QNB not later than the close of business
on the 7th day
following the day on which the notice of the meeting was mailed. The
notification must contain the following information to the extent known to the
notifying shareholder:
|
(a)
|
the
name and address of each proposed
nominee;
|
|
(b)
|
the
principal occupation of each proposed
nominee;
|
|
(c)
|
the
total number of shares of QNB common stock that will be voted for each
proposed nominee;
|
|
(d)
|
the
name and residential address of the notifying shareholder;
and
|
|
(e)
|
the
number of shares of QNB common stock owned by the notifying
shareholder.
|
Nominations
not made in accordance with these provisions may be disregarded by the Chairman
at the annual meeting.
If you
wish to include a proposal in the Proxy Statement for the 2011 Annual Meeting of
Shareholders, your written proposal must be received by the Corporation no later
than December 20, 2010. The proposal should be mailed by certified mail, return
receipt requested, and must comply in all respects with applicable rules and
regulations of the SEC, the laws of the State of Pennsylvania, and the
Corporation’s Bylaws. Shareholder proposals may be mailed to the Secretary of
QNB, QNB Corp., P.O. Box 9005, Quakertown, PA 18951-9005.
The rules
of the SEC provide that, if the Corporation does not receive notice of a
shareholder proposal at least 45 days prior to the first anniversary of the date
of mailing of the prior year’s proxy statement, then the Corporation will be
permitted to use its discretionary voting authority when the proposal is raised
at the annual meeting. The deadline for these proposals for the year 2011 annual
meeting is March 5, 2011. If a shareholder gives notice of such a proposal after
this deadline, the Corporation’s proxy holders will be allowed to use their
discretionary authority to vote against the shareholder proposal when and if the
proposal is raised at our 2011 Annual Meeting.
19
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934 requires QNB's officers and
directors and persons who own more than 10% of QNB's common stock to file
reports of ownership and changes in ownership with the SEC. Officers, directors
and greater than 10% owners are required by SEC regulations to furnish QNB with
copies of all Section 16(a) forms they file.
To the
Board of Directors’ knowledge, based solely on review of the copies of such
reports furnished to QNB during fiscal year ended December 31, 2009, no
director, officer or beneficial owner of more than 10% of the Corporation’s
common stock failed to file on a timely basis any report required by Section
16(a) of the Exchange Act.
OTHER
MATTERS
Management
is not aware of any business to come before the annual meeting other than those
matters described in the proxy statement and the accompanying notice of annual
meeting. However, if any other matters should properly come before the annual
meeting, it is intended that the proxies hereby solicited will be voted with
respect to those other matters in accordance with the judgment of the persons
voting the proxies or the recommendation of the Board of Directors.
If there
are not sufficient votes for approval of any of the matters to be acted upon at
the annual meeting, the annual meeting may be adjourned to permit the further
solicitation of proxies.
MISCELLANEOUS
Some
banks, brokers and other nominee record holders may be participating in the
practice of “householding” proxy statements and annual reports. This means that
only one copy of the QNB’s Proxy Statement may have been sent to multiple
shareholders in your household. QNB will promptly deliver a separate copy of the
document to you if you request one by writing or calling as follows: Jean Scholl
at QNB Corp., P.O. Box 9005, Quakertown, PA 18951-9005, telephone (215)
538-5600. If you want to receive separate copies of the proxy statement in the
future, or if you are receiving multiple copies and would like to receive only
one copy for your household, you should contact your bank, broker or other
nominee record holder, or you may contact us at the above address and phone
number.
UPON
REQUEST OF ANY SHAREHOLDER, A COPY OF THE CORPORATION’S ANNUAL REPORT ON FORM
10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009, INCLUDING A LIST OF THE
EXHIBITS THERETO, REQUIRED TO BE FILED WITH THE SEC PURSUANT TO RULE 13a-1 UNDER
THE EXCHANGE ACT MAY BE OBTAINED, WITHOUT CHARGE, BY WRITING TO THE
CORPORATION’S ASSISTANT SECRETARY AT QNB CORP., P.O. BOX 9005, QUAKERTOWN, PA
18951-9005.
20
TABLE OF CONTENTS