 |
Proxy
Statement
April
17, 2006
|
 |
P.O.
Box 9005
Quakertown,
PA 18951-9005
TEL
(215)538-5600
FAX
(215)538-5765
|
April
17,
2006
Dear
Shareholder:
The
2006
Annual Meeting of Shareholders of QNB Corp. will be held at the offices of
The
Quakertown National Bank, 320 West Broad Street, Quakertown, Pennsylvania 18951
on Tuesday, May 16, 2006, at 11:00 a.m., local time. Notice of the annual
meeting, QNB's proxy statement, proxy card and 2005 annual report are
enclosed.
At
this
year's annual meeting, you are being asked to elect three Class III directors
and approve the Corporation’s 2006 Employee Stock Purchase Plan. 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 ADOPTION OF THE
2006 EMPLOYEE STOCK PURCHASE PLAN.
YOUR
VOTE IS IMPORTANT.
Whether
or not you plan to attend the meeting in person, please mark, date and sign
the
enclosed proxy card and return it in the envelope provided.
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 16, 2006
Notice
is
hereby given that the 2006 Annual Meeting of Shareholders of QNB Corp.
will be
held at the offices of The Quakertown National Bank, 320 West Broad Street,
Quakertown, Pennsylvania 18951, on Tuesday, May 16, 2006 at 11:00 a.m.,
local
time, for the following purposes:
| (1) |
To
elect three Class III directors;
and
|
| (2) |
To
approve the Corporation’s 2006 Employee Stock Purchase Plan;
and
|
| (3) |
To
transact any other business properly presented at the annual
meeting or
any adjournment(s)
or postponement(s) of the
meeting.
|
The
Board
of Directors fixed the close of business on April 3, 2006 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 mark, date,
sign,
and mail the enclosed proxy in the envelope supplied, as soon as possible.
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. If you attend
the
annual meeting, you may withdraw your proxy before it is voted and then
vote
your shares in person.
By
Order
of the Board of Directors,
Charles
M. Meredith, III
Secretary
Quakertown,
Pennsylvania
April
17,
2006
QNB
Corp.
15
North Third Street
P.O.
Box 9005
Quakertown,
Pennsylvania 18951
(215)
538-5600
PROXY
STATEMENT
2006
ANNUAL MEETING OF SHAREHOLDERS - MAY 16, 2006
This
proxy statement is being furnished to holders of the common stock, par
value
$0.625 per share, of QNB Corp. in connection with the solicitation of
proxies by
the Board of Directors for use at the 2006 Annual Meeting of Shareholders.
The
annual meeting will be held at the offices of The Quakertown National
Bank at
320 West Broad Street, Quakertown, Pennsylvania 18951, on May 16, 2006
at 11:00
a.m., local time.
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
17,
2006.
Date,
Time and Place of Meeting
The
annual meeting will be held on Tuesday, May 16, 2006 at 11:00 a.m., local
time,
at the Bank’s offices at 320 West Broad Street, Quakertown, Pennsylvania
18951.
Outstanding
Securities; Quorum; Voting Rights; and Record Date
The
close
of business on April 3, 2006 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 issued and outstanding 3,125,492
shares of
common stock.
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.
QNB’s
Bylaws and Pennsylvania law govern the vote needed to approve the proposal.
Directors are elected by a plurality of the total votes cast. The affirmative
vote of a majority of the votes cast must approve the 2006 Employee Stock
Purchase Plan.
Broker
non-votes, votes withheld and abstentions will be counted for purposes
of
determining whether a quorum has been reached. Abstentions and broker
non-votes
with respect to the matters which the broker has not expressly voted
will not be
counted as a vote cast, but the shares represented by any abstention
or broker
non-vote will be considered present at the annual meeting for quorum
purposes.
Broker non-votes, however, are not counted as shares present and entitled
to be
voted with respect to the matters which the broker has not expressly
voted. A
broker “non-vote” occurs when a nominee holding shares for a beneficial owner
does not vote on a particular proposal because the nominee does not have
the
discretionary voting power with respect to that item and has not received
instructions from the beneficial owner. Therefore, abstentions and broker
non-votes are not counted in determining whether the affirmative vote
required
for the approval of Proposals 1 and 2 has been cast.
Solicitation
of Proxies
The
Board
of Directors is soliciting proxies for use at QNB’s 2006 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
adoption of the proposed 2006 Employee Stock Purchase Plan. 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 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 the address indicated on the previous
page,
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.
SECURITY
OWNERSHIP OF MANAGEMENT
The
following table sets forth, as of April 3, 2006, 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. The address for each
person
is 320 West Broad Street, P.O. Box 9005, Quakertown, Pennsylvania
18951.
|
Name
of Beneficial Owner
|
Amount
and Nature of
Beneficial
Ownership (1)
|
Percentage
of
Class
(2) (3)
|
||||||||
|
Norman
L. Baringer, Director
|
15,000
|
(4)
|
|
*
|
||||||
|
Thomas
J. Bisko, Director
President/Chief
Executive Officer (Corp. and Bank)
|
42,481
|
(5)
|
|
1.31%
|
|
|||||
|
Kenneth
F. Brown, Jr., Director
|
150,100
|
(6)
|
|
4.64%
|
|
|||||
|
Heather
J. Gossler, Senior Vice President/
Senior
Vice President/Retail Banking (Bank)
|
11,786
|
(7)
|
|
*
|
||||||
|
Dennis
Helf, Director/Chairman of the Board
|
15,422
|
(8)
|
|
*
|
||||||
|
Bret
H. Krevolin, Executive Vice President/
Chief
Financial Officer (Bank)
Chief
Financial Officer (Corp.)
|
25,933
|
(9)
|
|
*
|
||||||
|
G.
Arden Link, Director
|
7,600
|
(10)
|
|
*
|
||||||
|
Charles
M. Meredith III, Director
|
66,524
|
(11)
|
|
2.06%
|
|
|||||
|
Scott
G. Orzehoski, Senior Vice President/
Commercial
Lending (Bank)
|
11,928
|
(12)
|
|
*
|
||||||
|
Anna
Mae Papso, Director
|
2,000
|
*
|
||||||||
|
Gary
S. Parzych, Director
|
8,827
|
(13)
|
|
*
|
||||||
|
|
||||||||||
|
Henry
L. Rosenberger, Director
|
33,872
|
(14)
|
|
1.05%
|
|
|||||
|
Mary
Ann Smith, Senior Vice President/
Chief
Information Officer (Bank)
|
29,983
|
(15)
|
|
*
|
||||||
|
Edgar
L. Stauffer, Director
|
100,462
|
(16)
|
|
3.11%
|
|
|||||
|
Robert
C. Werner, Executive Vice President/
Chief
Operating Officer (Bank)
Vice
President (Corp.)
|
28,265
|
(17)
|
|
*
|
||||||
|
Current
Directors, Nominees
&
Executive Officers
as
a Group (15 persons)
|
550,183
|
17.02%
|
|
|||||||
* Less
than
1.00%
|
(1)
|
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 Securities and Exchange
Commission
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 3, 2006. Beneficial ownership may be disclaimed
as to certain
of the securities.
|
|
(2)
|
Numbers
are rounded-off to the nearest one-hundredth
percent.
|
|
(3)
|
Includes
107,396 immediately exercisable options in the aggregate; thus,
the
percentages calculation is based upon an aggregate of 3,232,888
shares
outstanding.
|
|
(4)
|
Includes
8,340 shares owned jointly by Mr. Baringer with his wife, Nancy,
and 2,615
shares held in her individual
capacity.
|
|
(5)
|
Includes
15,363 shares owned jointly by Mr. Bisko with his wife, Barbara,
and
22,416 exercisable options awarded under the Stock Incentive
Plan.
|
|
(6)
|
Includes
148,336 shares owned jointly by Mr. Brown with his wife,
Pamela.
|
|
(7)
|
Includes
1,273 shares owned jointly by Ms. Gossler with her husband,
Barry, and
10,366 exercisable options
awarded under the Stock Incentive
Plan.
|
|
(8)
|
Includes
13,658 shares owned jointly by Mr. Helf with his wife,
Mary.
|
|
(9)
|
Includes
4,517 shares owned jointly by Mr. Krevolin with his wife, Susan,
and
21,416 exercisable options awarded under the Stock Incentive
Plan.
|
|
(10)
|
Includes
1,800 shares owned jointly by Mr. Link with his wife,
Dorothy.
|
|
(11)
|
Includes
11,112 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.
|
|
(12)
|
Includes
10,366 exercisable options awarded under the Stock Incentive
Plan.
|
|
(13)
|
Includes
2,504 shares owned by Mr. Parzych’s wife, Karen, and 2,559 shares held of
record by Eugene T. Parzych, Inc.
|
|
(14)
|
Includes
6,296 shares owned by Mr. Rosenberger’s wife,
Charlotte.
|
|
(15)
|
Includes
1,788 shares owned jointly by Ms. Smith with her husband, Randall,
and
21,416 exercisable options awarded under the Stock Incentive
Plan.
|
|
(16)
|
Includes
65,034 shares owned jointly by Mr. Stauffer with his wife,
Mary Blake, and
10,664 shares held in her individual
capacity.
|
|
(17)
|
Includes
6,849 shares owned jointly by Mr. Werner with his wife, Judith,
and 21,416
exercisable options awarded under the Stock Incentive
Plan.
|
BENEFICIAL
OWNERSHIP OF SECURITIES
On
April
3, 2006, 3,125,492 shares of common stock, par value $0.625 per share
were
issued, outstanding and entitled to vote. The following table sets forth
the
names of persons who, directly or indirectly, are known to QNB’s management to
be the beneficial owners (as determined in accordance with Rule 13d-3
under the
Securities Exchange Act of 1934), of at least 5% of QNB's outstanding
common
stock as of April 3, 2006.
|
Name
and Address of
Beneficial
Owner
|
Number
of Shares
Owned
(1)
|
Percentage
of
Class
(2)
|
|||||
|
James
C. Ebbert
303
Edgemont Avenue
Quakertown,
PA 18951
|
259,368
|
8.30%
|
|
||||
|
(1)
|
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 Securities and Exchange
Commission
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 to which the individual has, or shares, voting or
investment
power or has the right to acquire beneficial ownership within
60 days
after April 3, 2006. Beneficial ownership may be disclaimed
as to certain
of the securities.
|
| (2) |
Numbers
are rounded off to the nearest one-hundredth
percent.
|
PROPOSAL
1
ELECTION
OF DIRECTORS
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 III have been nominated for re-election at the annual
meeting. Directors in Class I and Class II will hold office until the
2007 and
2008 annual meetings, respectively.
The
Nominees
At
the
annual meeting, three directors will be elected. Each director so elected
will
hold office until the 2009 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
as
proxies may vote for the election of such person or persons as the Board
of
Directors recommends.
Set
forth
on the following page, with respect to each director and director nominee,
is
his or her name, age, the time period served as a director and his or
her other
principal occupation(s) or employment and business affiliation(s) at
present and
during the last five years.
Voting
Requirements
The
three
director candidates are required to be elected by a plurality of the
total votes
cast. 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 III DIRECTOR.
CURRENT
CLASS III DIRECTORS AND NOMINEES FOR THREE YEAR TERM EXPIRING IN
2009
Thomas
J. Bisko
Age
58;
Chief Executive Officer of the Bank and QNB from March 1988 to present;
President of the Bank from September 1985 to present; Treasurer of QNB
from
February 1986 to present; President of QNB from May 1986 to present;
a Director
of the Bank since 1985; a Director of QNB since 1986.
Dennis
Helf
Age
59;
Registered Investment Advisor from 1995 to present; a Director of the
Bank since
January 1996; a Director of QNB since 1997.
G.
Arden Link
Age
66;
Owner, Link Beverages, Inc.; a Director of the Bank since March 1997;
a Director
of QNB since December 2001.
Continuing
Directors Serving Until 2007 (Class
I
Directors)
Norman
L. Baringer
Age
75;
Retired, Baringer Assoc. Inc. (insurance, real estate brokerage), Quakertown,
PA; a Director of QNB and the Bank since 1992.
Charles
M. Meredith, III
Age
70;
Newspaper Columnist; Co-owner, Franklin & Meredith Inc. (commercial
publisher), Quakertown, PA; Secretary of QNB and the Bank from April
1994 to
present; a Director of the Bank since 1968; a Director of QNB since
1984.
Gary
S. Parzych
Age
50;
President, Eugene T. Parzych, Inc. (construction company), Trumbauersville,
PA
from 1980 to present; President, Finland Leasing Company, Inc. (real
estate
holding company), Trumbauersville, PA from June 1986 to present; Director
of
Quakertown Community School Board from January 1987 to present; a Director
of
QNB and the Bank since 1995.
Continuing
Directors Serving Until 2008 (Class
II
Directors)
Kenneth
F. Brown, Jr.
Age
50;
President, McAdoo & Allen, Inc. (manufacturer of pigment dispersions and
high performance coatings), Quakertown, PA from September 1989 to present;
a
Director of QNB and the Bank since 1993.
Anna
Mae Papso
Age
62;
Retired, West Pharmaceutical Services, Inc. (manufacturer of specialized
pharmaceutical packaging & medical device components), Lionville,
PA-Corporate Vice President/Chief Financial Officer from 2000 to 2001
and prior
thereto Vice President & Corporate Controller from 1989 to 2000; a Director
of QNB and the Bank since October 2004.
Henry
L. Rosenberger
Age
60;
President, Rosenberger Companies, Ltd. from 1998 to present; owns and
operates
Tussocks Edge Farms; President, Dock Woods Community, Inc. (retirement
community) from 1992 to 2002; Director of Dock Woods Community, Inc.
1978 to
December 2002; a Director of QNB and the Bank since 1984.
Edgar
L. Stauffer
Age
68;
Retired, Stauffer Manufacturing Corporation (manufacturer and importer
of
industrial work gloves and safety equipment), Red Hill, PA; a Director
of the
Bank since 1983; a Director of QNB since 1984.
PROPOSAL 2
TO
APPROVE AND ADOPT THE QNB CORP.
2006
EMPLOYEE STOCK PURCHASE PLAN
Summary
Plan Description
On
March
21, 2006, the Board of Directors adopted the Corporation’s 2006 Employee Stock
Purchase Plan, subject to approval by the shareholders at the annual
meeting.
The QNB Corp. Employee Stock Purchase Plan offers eligible employees
an
opportunity to purchase from the corporation shares of QNB Corp. common
stock,
$0.625 par value at a 10% discount from the fair market value as determined
in
accordance with the terms of the Plan. An employee is considered eligible
to
participate in the Plan if they have had at least one year of continuous
service
to QNB preceding the Offer Date. Employees who are regularly scheduled
to work
20 hours or less a week are not eligible to participate in the Plan.
As of
February 28, 2006, there were 139 employees eligible to participate in
the Plan.
As of February 28, 2006 there were 67 employees participating in the
current
plan.
Purchases
under the Plan will be made by payroll deductions over a six month offering
period. The purpose of the Plan is to provide an incentive for eligible
employees to remain in the employ of QNB and to devote their best efforts
to its
success by affording such employees an opportunity to acquire the common
stock
in a convenient and advantageous manner and to maintain a proprietary
interest
in QNB.
The
Plan
is intended to be an “Employee Stock Purchase Plan” within the meaning of
Section 423 of the Internal Revenue Code of 1986, as amended. The Plan
is not
subject to the provisions of the Employee Retirement Income Security
Act of
1974, nor is it qualified under Section 401(a) of the Code. The Plan
document is
attached as Exhibit A to this proxy statement.
Duration
of the Plan
The
Plan
will remain in effect until (i) terminated by action of the Board of
Directors
of QNB, (ii) all common stock subject to the Plan has been purchased
by the
employees, or (iii) June 1, 2011, whichever occurs first. A maximum of
20,000
shares of common stock may be issued under the Plan.
One
or
more offerings to purchase common stock will be made during the term
of the
Plan. It is anticipated that additional offerings of six months each
will be
made under the Plan commencing on June 1 and December 1 of each year
during the
term of the Plan. The initial offering, pending shareholder approval,
will
commence on June 1, 2006.
New
Plan Benefits
No
awards
have been granted to date under the Plan. The amount of common stock
that may be
received or allocated to any individual under the Plan, or that would
have been
received by or allocated to any individual under the Plan if the Plan
had been
in effect during the last fiscal year, is not determinable, as all such
determinations under the Plan are made by the Board in its discretion.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE PROPOSAL TO APPROVE
THE 2006 EMPLOYEE STOCK PURCHASE PLAN.
GOVERNANCE
OF THE COMPANY
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.
Currently,
our Board of Directors has 10 members. Under the rules adopted by the
Securities
and Exchange Commission for independence, Norman L. Baringer, Dennis
Helf, G.
Arden Link, Charles M. Meredith, III, Anna Mae Papso, Henry L. Rosenberger
and
Edgar L. Stauffer, meet the standards for independence.
This constitutes more than a majority of our Board of Directors.
Code
of Ethics
We
have
adopted a Code of Ethics for directors, officers and employees of QNB.
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 www.qnb.com.
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 chairman 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
|
|
Norman
L. Baringer
|
X
|
X
|
X
|
||
|
Thomas
J. Bisko
|
X
|
C
|
|||
|
Kenneth
F. Brown, Jr.
|
X
|
X
|
C
|
||
|
Dennis
Helf
|
C
|
X
|
X
|
||
|
G.
Arden Link
|
X
|
|
X
|
||
|
Charles
M. Meredith, III
|
X
|
X
|
X
|
X
|
|
|
Anna
Mae Papso
|
X
|
X
|
|||
|
Gary
S. Parzych
|
X
|
||||
|
Henry
L. Rosenberger
|
X
|
C
|
X
|
X
|
|
|
Edgar
L Stauffer
|
X
|
X
|
C
|
X
|
X
|
|
Meetings
Held in 2005
|
12
|
6
|
1
|
2
|
1
|
C
-
Chairman
The
Board
of Directors of QNB met 12 times in 2005. All current directors, except
Gary S.
Parzych, attended at least 75% of the aggregate of (1) the total number
of
meetings of the Board of Directors (held for the period for which he
or she has
been a director) and (2) 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
members
of the Board of Directors except for Norman L. Baringer were present
at the 2005
Annual Meeting of Shareholders. It is anticipated that all members of
the Board
of Directors will be attending the 2006 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
certified public accountants, 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
state and federal 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, consistent with the Sarbanes-Oxley Act
of 2002
and the rules adopted thereunder, meets with management and the auditors
prior
to the filing of officers’ certifications with the SEC to receive information
concerning, among other things, significant deficiencies in the design
or
operation of internal controls.
All
members of the Audit Committee are non-executives and independent pursuant
to the rules adopted by the Securities and Exchange Commission 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 Baringer, Meredith, Papso,
Rosenberger and Stauffer. The Audit Committee of QNB met six times in
2005.
The
Board
of Directors has determined that Anna Mae Papso meets the requirements
adopted
by the Securities and Exchange Commission and Nasdaq Stock Market for
qualification as an Audit Committee financial expert. Ms. Papso has past
employment experience as a Corporate Vice President/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.
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 Securities and Exchange Commission 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 activities, fraudulent information,
or
misconduct to the Audit Committee. The policy is also available on our
website
at www.qnb.com.
Compensation
Committee.
The
Compensation Committee's primary function is to review and determine
the
compensation of present and proposed senior members of QNB’s management. 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 Securities and Exchange Commission. The
members of the Compensation Committee are Directors Baringer, Helf, Meredith,
Rosenberger, and Stauffer. The Compensation Committee met one time in
2005.
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. The Executive Committee met
two times
in 2005.
Nominating
Committee. The
Board
of Directors has determined that all of the directors serving on the
Nominating
Committee, except Director Brown, are independent for the purposes of
the rules
adopted by the Securities and Exchange Commission 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, 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 December
18, 2006.
The Nominating Committee intends to develop a process for identifying
and
evaluating all nominees for director, including any recommended by shareholders,
and minimum requirements for nomination. In addition, the Nominating
Committee
does not have a formal charter. Members
of the Nominating Committee include Directors Brown, Link, Rosenberger
and
Stauffer. The
Nominating Committee met one time in 2005.
COMPENSATION
OF THE BOARD OF DIRECTORS
Each
director of QNB is also a member of the Bank’s Board of Directors. During 2005,
directors, with the exception of those who are full-time employees of
QNB or the
Bank, received an annual fee of $5,500. The Chairman of the Board received
additional compensation of $10,000 and the Corporate Secretary received
an
additional $2,000. In addition, each director received a fee of $450
for each
Bank Board meeting attended. Directors are not reimbursed for QNB Board
meetings. For the period of January 1, 2005 to April 30, 2005, members
of the
committees of the Board of Directors also received $175 for each committee
meeting attended, provided the committee meeting was not held as part
of a
scheduled Board meeting. Effective May 1, 2005, members of the committees
of the
Board of Directors, with the exception of the Audit Committee members,
received
$200 for each committee meeting attended, provided the committee meeting
was not
held as part of a scheduled Board meeting. The Chairman of the Audit
Committee
received $400 for each Audit Committee meeting attended while the other
members
of the Committee received $250 per Audit Committee meeting attended.
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
Audit
Committee oversees QNB’s financial reporting process on behalf of the Board of
Directors. In that connection, the Committee, along with the Board of
Directors,
has formally adopted an Audit Committee Charter setting forth its
responsibilities. In addition, appropriate policies have been established
to
further strengthen disclosure procedures required under the Sarbanes-Oxley
Act
of 2002.
Management
has the primary responsibility for the financial statements and the reporting
process, including the systems of internal control. In fulfilling its
oversight
responsibilities, the Committee reviewed the audited financial statements
in the
annual report with management, including a discussion of the quality,
not just
the acceptability, of the accounting principles, the reasonableness of
significant judgments and the clarity of disclosures in the financial
statements.
In
the
discharge of its responsibilities, the Audit Committee has reviewed and
discussed the Corporation’s audited financial statements for 2005 with
management and the independent registered public accounting firm. In
addition,
the Audit Committee has discussed with the independent registered public
accounting firm matters such as the quality (in addition to acceptability),
clarity, consistency, and completeness of the Corporation’s financial reporting,
as required by U.S. Auditing Standards Section AU380, Communication with
Audit
Committees.
The
Audit
Committee has considered the compatibility of the provision of non-audit
services with the independent registered public accounting firm’s maintenance of
independence and has received from the independent registered public
accounting
firm written disclosures and a letter concerning the independent registered
public accounting firm’s independence from the Corporation, as required by
Independence Standards Board Standard No. 1, Independence Discussions
with Audit
Committees. These disclosures have been reviewed by the Audit Committee
and
discussed with the independent registered public accounting firm.
The
Committee discussed with QNB’s internal and independent registered public
accounting firm the overall scope and plans for their respective audits.
The
Committee meets with the internal and independent registered public accounting
firm, 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.
In
reliance on the reviews and discussion 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, 2005, for filing with the Securities and
Exchange
Commission. The Committee and the Board of Directors have also approved
the
selection of S. R. Snodgrass, A.C. as QNB’s independent registered public
accounting firm for 2006.
|
Respectfully
submitted,
THE
AUDIT COMMITTEE
Henry
L. Rosenberger, Chairman
Norman
L. Baringer
Charles
M. Meredith, III
Anna
Mae Papso
Edgar
L. Stauffer
|
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. For each proposed
service, the independent registered public accounting firm is required
to
provide detailed back-up documentation at the time of approval. The Audit
Committee has delegated to the Chairman of the Audit Committee the 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, or All Other Fees described below were approved by the Audit
Committee
pursuant to the pre-approval provisions set forth in applicable rules
of the
SEC.
Appointment
of the Independent Registered Public Accounting Firm
On
August
16, 2004, QNB Corp. (QNB) retained S.R. Snodgrass, A.C. (Snodgrass) as
its new
independent accountants to audit QNB’s consolidated financial statements for the
fiscal year ended December 31, 2004. KPMG LLP (KPMG) was dismissed on
August 16,
2004. The decision to change independent accountants was recommended
and
approved by the Audit Committee of QNB.
During
each of the fiscal years ended December 31, 2002 and 2003, none of KPMG’s
reports on the financial statements of QNB contained an adverse opinion
or a
disclaimer of opinion or was qualified or modified as to uncertainty,
audit
scope or accounting principle and there were no disagreements between
QNB and
KPMG on any matter of accounting principles and practices, financial
statement
disclosure, or audit scope or procedure, which disagreement, if not resolved
to
the satisfaction of KPMG would have caused it to make reference to the
subject
matter of the disagreement in connection with its reports. There were
no
“reportable events” as that term is defined in Item 304 (a) (1) (v) of
Regulation S-K occurring within QNB in the two most recent fiscal
years.
During
QNB’s two most recent fiscal years, QNB has not consulted with Snodgrass
regarding any of the matters or events set forth in Item 304 (a) (2)
of
Regulation S-K.
The
Audit
Committee has also approved the selection of S. R. Snodgrass, A.C. as
QNB’s
independent registered public accounting firm for 2006.
Audit
Fees, Audit Related Fees, Tax Fees, and All Other Fees
Aggregate
fees billed to QNB by KPMG LLP and S.R. Snodgrass, A.C. for services
rendered
are presented below. The total amount of fees billed by S.R. Snodgrass,
A.C. for
2005 and 2004 was $135,435 and $86,025, respectively. The total amount
of fees
billed by KPMG LLP for 2004 was $62,050.
|
2005
|
2004
|
||||||
|
Audit
fees
|
$
|
128,635
|
$
|
112,575
|
|||
|
Audit
related fees
|
6,800
|
19,200
|
|||||
|
Audit
and audit related fees
|
135,435
|
131,775
|
|||||
|
Tax
fees
|
-
|
16,300
|
|||||
|
All
other fees
|
-
|
-
|
|||||
|
Total
fees
|
$
|
135,435
|
$
|
148,075
|
|||
Audit
Fees
include
fees billed for professional services rendered for the audit of the annual
financial statements and fees billed for the review of financial statements
included in QNB Forms
10-Q or services that are normally provided in connection with statutory
and
regulatory filings or engagements. For 2005, billings from S.R. Snodgrass,
A.C.
were $128,635. For 2004, billings from S.R. Snodgrass, A.C. were $79,525
and
billings from KPMG LLP were $33,050.
Audit
Related Fees
include
fees billed for assurance and related services that are reasonably related
to
the performance of the audit or review of the registrants financial statements
and are not reported under the Audit Fees section of the table above.
These
services include audits of financial statements of certain employee benefit
plans.
Tax
Fees
include
fees billed for professional services rendered by KPMG LLP 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.
The
Audit
Committee has considered whether, and determined that, the provision
of the
non-audit services is compatible with maintaining the independence of
KPMG LLP’s
and S.R. Snodgrass, A.C.’s independence.
A
representative of Snodgrass 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.
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
58;
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.
Robert
C. Werner
Age
49;
Vice President of QNB from October 1988 to present; Executive Vice
President/Chief Operating Officer of the Bank from January 1994 to present;
Senior Vice President/Chief Financial Officer of the Bank from January
1989 to
December 1993.
Bret
H. Krevolin
Age
43;
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.
Heather
J. Gossler
Age
42;
Senior Vice President/Retail Banking of the Bank from January 2006 to
present;
Senior Vice President/Sales and Branch Administration of the Bank from
January
2002 to December 2005; Vice President/Branch Administration of the Bank
from May
1995 to December 2001.
Scott
G. Orzehoski
Age
40;
Senior Vice President/Commercial 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
52;
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.
EXECUTIVE
COMPENSATION
Since
the
formation of QNB in 1984, none of its executive officers have received
any
separate compensation from QNB. All compensation is paid by the Bank.
Thomas J.
Bisko, Robert C. Werner, and Bret H. Krevolin are the only executive
officers of
QNB that are also executive officers of the Bank. The following information
is
furnished concerning the chief executive officer and up to four of the
most
highly compensated named executive officers of QNB or the Bank (the “named
executive officers”) whose aggregate remuneration from the Bank exceeded
$100,000 during the fiscal year ended December 31, 2005.
Summary
Compensation Table
|
Annual
Compensation
|
Long-Term
Compensation
|
||||||||
|
Awards
|
Pay-outs
|
||||||||
|
Name
and Position
|
Year
|
Salary
($)
(1)
|
Bonus
($)
|
Other
Annual
Compen-
sation
(2)
|
Restricted
Stock
Awards
($)
|
Options/
SARs
(#)
|
Pay-outs
($)
|
All
Other
Compen-
sation
($)
|
|
|
Thomas
J. Bisko
|
2005
|
$234,845
|
$0
|
$7,404
|
$0
|
3,000
|
$0
|
$17,545
|
(3)
|
|
President
and
|
2004
|
$222,075
|
$22,208
|
$6,816
|
$0
|
2,800
|
$0
|
$16,844
|
(3)
|
|
Chief
Executive Officer
|
2003
|
$218,082
|
$21,808
|
$6,213
|
$0
|
6,000
|
$0
|
$16,904
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
C. Werner
|
2005
|
$161,296
|
$0
|
$6,707
|
$0
|
2,750
|
$0
|
$12,904
|
(4)
|
|
Executive
Vice President
|
2004
|
$154,350
|
$15,435
|
$6,160
|
$0
|
2,500
|
$0
|
$12,348
|
(4)
|
|
Chief
Operating Officer
|
2003
|
$152,654
|
$15,265
|
$2,251
|
$0
|
5,500
|
$0
|
$12,212
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
Bret
H. Krevolin
|
2005
|
$148,129
|
$
7,500
|
$0
|
$0
|
2,750
|
$0
|
$11,850
|
(5)
|
|
Executive
Vice President
|
2004
|
$141,750
|
$14,175
|
$0
|
$0
|
2,500
|
$0
|
$11,945
|
(5)
|
|
Chief
Financial Officer
|
2003
|
$140,192
|
$14,019
|
$0
|
$0
|
5,500
|
$0
|
$11,810
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
Mary
Ann Smith
|
2005
|
$123,134
|
$0
|
$0
|
$0
|
2,600
|
$0
|
$10,456
|
(6)
|
|
Senior
Vice President
|
2004
|
$118,398
|
$11,840
|
$0
|
$0
|
2,500
|
$0
|
$10,077
|
(6)
|
|
Chief
Information Officer
|
2003
|
$118,223
|
$11,822
|
$0
|
$0
|
5,500
|
$0
|
$10,063
|
(6)
|
|
(1)
|
Salary
for 2003 includes 27 pay periods while salary for 2005 and
2004 includes
26 pay periods.
|
|
(2)
|
Includes
country club membership dues.
|
|
(3)
|
Includes
the Bank's contributions on behalf of Mr. Bisko to the Retirement
Savings
Plan of $17,545, $16,844, and $16,904 for 2005, 2004 and 2003,
respectively.
|
|
(4)
|
Includes
the Bank's contributions on behalf of Mr. Werner to the Retirement
Savings
Plan of $12,904, $12,348, and $12,212 for 2005, 2004 and 2003,
respectively.
|
|
(5)
|
Includes
the Bank's contributions on behalf of Mr. Krevolin to the Retirement
Savings Plan of $11,850, $11,385, and $11,260 for 2005, 2004
and 2003,
respectively, and payments of $560 for 2004 and 2003 for declining
coverage under the Bank’s health benefits
plan.
|
|
(6)
|
Includes
the Bank's contributions on behalf of Ms. Smith to the Retirement
Savings
Plan of $9,896, $9,517, and $9,503 for 2005, 2004 and 2003,
respectively,
and payments of $560 for each of the three years for declining
coverage
under the Bank’s health benefits
plan.
|
Stock
Option Grants for 2005
The
following table reflects grants of stock options to Mr. Bisko, Mr. Werner,
Mr.
Krevolin and Ms. Smith in fiscal year 2005.
OPTION/SAR
GRANTS IN LAST FISCAL YEAR (1)
|
|
Options
Granted
|
%
of Total
Options
Granted
To Employees
In
Fiscal
|
Exercise
Or
Base
Price
|
Expiration
|
Potential
Realizable
Value
At
Assumed
Annual
Rates of
Stock
Appreciation
For
Option Term (2)
|
|
|
Name
|
(#)
|
Year
|
($/Share)
|
Date
|
5%
($)
|
10%
($)
|
|
Thomas
J. Bisko
|
3,000
|
15.00%
|
$32.35
|
01/18/2015
|
$61,024
|
$154,640
|
|
Robert
C. Werner
|
2,750
|
13.75%
|
$32.35
|
01/18/2015
|
$55,938
|
$141,753
|
|
Bret
H. Krevolin
|
2,750
|
13.75%
|
$32.35
|
01/18/2015
|
$55,938
|
$141,753
|
|
Mary
Ann Smith
|
2,600
|
13.00%
|
$32.35
|
01/18/2015
|
$52,887
|
$134,021
|
|
(1)
|
Options
granted were incentive stock options pursuant to the 1998 Stock
Option
Plan. The options granted vest and become exercisable after
the third
anniversary of their grant date.
|
|
(2)
|
In
order to realize the potential value of the stock options,
QNB’s common
stock would be approximately $52.69 and $83.91 at a 5% and
10%
appreciation rate, respectively. The dollar amounts under these
columns
are the result of calculations at the 5% and the 10% annualized
rates set
by the Securities and Exchange Commission and therefore are
not intended
to forecast possible future appreciation, if any, of QNB’s common stock
price.
|
Aggregate
Option Exercises and Option Values
The
following table provides information as to stock options exercised by
Mr. Bisko,
Mr. Werner, Mr. Krevolin and Ms. Smith in 2005 and the value of stock
options
held by each officer at year-end 2005 measured in terms of the $27.00
closing
bid price of QNB’s common stock on December 31, 2005. Some stock options are
immediately exercisable while others become exercisable over time.
AGGREGATED
STOCK OPTION EXERCISES IN LAST FISCAL YEAR
AND
FISCAL YEAR-END STOCK OPTION VALUES
|
Name
|
Shares
Acquired
On
Exercise
(#)
|
Value
Realized
($)
|
Number
of Securities
Underlying
Unexercised
Options
at 12/31/05
(Exercisable/Unexercisable)
(#)
|
Value
of Unexercised
In-the-Money
Options
at 12/31/05
(Exercisable/Unexercisable)
($)
|
|
|
|
|
|
|
||
|
Thomas
J. Bisko
|
0
|
$0
|
16,416/11,800
|
$196,722/$42,000
|
|
|
|
|
|
|
|
|
|
Robert
C. Werner
|
0
|
$0
|
15,916/10,750
|
$191,284/$38,500
|
|
|
|
|
|
|
|
|
|
Bret
H. Krevolin
|
0
|
$0
|
15,916/10,750
|
$191,284/$38,500
|
|
|
|
|
|
|
|
|
|
Mary
Ann Smith
|
0
|
$0
|
15,916/10,600
|
$191,284/$38,500
|
|
Equity
Compensation Plan Information
The
following table summarizes our equity compensation plan information as
of
December 31, 2005. Information is included for both equity compensation
plans
approved by QNB shareholders and equity compensation plans not approved
by QNB
shareholders.
|
Plan
Category
|
Number
of shares to be issued upon exercise of outstanding options,
warrants and
rights
|
Weighted-average
exercise price of outstanding options, warrants and
rights
|
Number
of shares available for future issuance under equity compensation
plans
(excluding securities reflected in column (a))
|
|||||||
|
(a)
|
(b)
|
(c)
|
||||||||
|
Equity
compensation plans approved by
QNB
Corp. shareholders
|
||||||||||
|
1998
Stock Option Plan
|
193,374
|
$
|
19.18
|
13,936
|
||||||
|
2005
Stock Option Plan
|
-
|
-
|
200,000
|
|||||||
|
2001
Employee Stock Purchase Plan
|
-
|
-
|
28,094
|
|||||||
|
Equity
compensation plans not approved by QNB Corp.
shareholders
None
|
-
|
-
|
-
|
|||||||
|
Totals
|
193,374
|
$
|
19.18
|
242,030
|
||||||
Employment
Agreements
On
September 2, 1986, as amended on April 3, 2002, QNB and Mr. Bisko entered
into
an employment agreement for a term of 27 years, commencing immediately
and
terminating 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, except that, 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 $244,474
as of January 1, 2006, he would be entitled to receive a maximum lump
sum
payment equal to $730,977. Such a provision may be deemed to be "anti-takeover"
in nature inasmuch as it may discourage a potential acquiror 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.
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 Agreements
On
July
18, 2000, QNB and the Bank entered into change of control agreements
with Bret
H. Krevolin, Executive
Vice President and Chief Financial Officer of the Bank, and Robert C.
Werner,
Executive Vice President and Chief Operating Officer of the Bank. These
agreements provide certain benefits to Mr. Krevolin and Mr. Werner in
the event
of a change of control of QNB or the Bank. The agreements become operative
only
if Mr. Krevolin and Mr. Werner are employees of QNB and the Bank upon
a change
in control of QNB or the Bank, as defined in the agreement. The agreements
specify payments to Mr. Krevolin
and Mr. Werner upon their 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 to the respective executive which is includable in the
executive’s 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.
COMPENSATION
COMMITTEE REPORTS ON EXECUTIVE COMPENSATION
QNB’s
Board of Directors is responsible for the governance of QNB and its subsidiary.
In fulfilling its fiduciary duties, the Board of Directors acts in the
best
interests of QNB's shareholders, customers and the communities served
by QNB and
its subsidiary. To accomplish QNB’s strategic goals and objectives, the Board of
Directors engages competent persons who undertake to accomplish these
objectives
with integrity and in a cost-effective manner. The compensation of these
individuals is part of the Board of Directors' fulfillment of its duties
to
accomplish QNB's strategic mission.
The
fundamental philosophy of QNB's and the Bank's compensation program is
to offer
competitive compensation opportunities for all employees based on the
individual's contribution and personal performance. The compensation
program is
administered by a Compensation Committee comprised of five outside directors
who
are listed below. The objective of the Committee is to establish a fair
compensation policy to govern all salaries in order to attract and motivate
competent, dedicated and ambitious employees whose efforts will enhance
the
products and services of QNB, the results of which may include improved
profitability, increased dividends to our shareholders and subsequent
appreciation in the market value of QNB shares. While general guidelines
are
provided for all employees, the Compensation Committee makes specific
recommendations for Mr. Bisko.
Mr.
Bisko's compensation is reviewed and approved annually by the Compensation
Committee. As a guideline for determining Mr. Bisko's salary, the Committee
reviews information provided by a human resource consultant, engaged
by the
Compensation Committee, who compares salaries of Pennsylvania financial
institutions operating within QNB's general market area. The Compensation
Committee focuses on the survey data for peer financial institutions
operating
in Southeastern Pennsylvania. Pennsylvania peer group banks have been
used
because of common industry issues and competition for the same executive
talent
group.
Chief
Executive Officer Compensation
Mr.
Bisko's base salary is $244,474 for 2006, subject to an annual review
and
adjustment. Mr. Bisko's base pay is determined annually by the Compensation
Committee. In addition, Mr. Bisko is eligible to receive a cash bonus,
in the
next year, equivalent to 5% to 10% of his salary based on QNB increasing
its
earnings per share at an average rate of 7.5% to 10%. The bonus percentage
increases by 1% for each .5% increase in earnings per share up to a maximum
of
10%. For 2005, Mr. Bisko did not receive a bonus.
|
Respectfully
submitted,
THE
COMPENSATION COMMITTEE
Edgar
L. Stauffer, Chairman
Norman
L. Baringer
Henry
L. Rosenberger
Charles
M. Meredith, III
Dennis
Helf
|
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: Messrs. Stauffer, Baringer, Rosenberger,
Meredith
and Helf. No member of the Compensation Committee during fiscal year
2005 was an
officer or employee of the Corporation or any of its subsidiaries or
was
formerly an officer of the Corporation or any of its subsidiaries. No
member of
the Compensation Committee had any relationship requiring disclosure
by the
Corporation under the proxy rules promulgated under the Securities and
Exchange
Act of 1934.
STOCK
PERFORMANCE GRAPH
Set
forth
on the following page is a performance graph comparing the yearly cumulative
total shareholder return on QNB's common stock with:
| · |
the
yearly cumulative total shareholder return on stocks included
in the
NASDAQ Market Index, a broad market
index,
|
| · |
the
yearly cumulative total shareholder return on the SNL $500M
to $1B Bank
Index, a group encompassing 114 publicly traded banking
companies trading on the NYSE, AMEX, or NASDAQ with assets between
$500 million and $1 billion,
|
| · |
the
yearly cumulative total shareholder return on the SNL Mid-Atlantic
Bank Index, a group encompassing 99 publicly traded banking
companies trading on the NYSE, AMEX, or NASDAQ headquartered in
Delaware, District of Columbia, Maryland, New Jersey, New York,
Pennsylvania, and Puerto Rico.
|
All
of
these cumulative total returns are computed assuming the reinvestment
of
dividends at the frequency with which dividends were paid during the
applicable
years.
Comparison
of Five Year Cumulative Total Shareholder Return
QNB
Corp., SNL $500 M - $1B Bank Index & NASDAQ Market
Index
|
Period
Ending
|
|||||||||||||||||||
|
Index
|
12/31/00
|
12/31/01
|
12/31/02
|
12/31/03
|
12/31/04
|
12/31/05
|
|||||||||||||
|
QNB
Corp.
|
100.00
|
123.42
|
174.99
|
271.21
|
269.38
|
226.24
|
|||||||||||||
|
NASDAQ
- Composite
|
100.00
|
79.18
|
54.44
|
82.09
|
89.59
|
91.54
|
|||||||||||||
|
SNL
$500M-$1B Bank Index
|
100.00
|
129.74
|
165.63
|
238.84
|
270.66
|
282.26
|
|||||||||||||
|
SNL
Mid-Atlantic Bank Index
|
100.00
|
94.24
|
72.48
|
103.05
|
109.15
|
111.08
|
|||||||||||||
Source:
SNL Financial LC, Charlottesville, VA
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.
Total
loans outstanding from the Bank at December 31, 2005, to QNB’s and the Bank’s
officers and directors as a group, members of their immediate families
and
companies in which they had an ownership interest of 10% or more amounted
to
$3,154,000, or approximately 7.4% of the Bank’s total equity capital. The Bank
made these loans 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 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, 2006, to the above described group was
$3,598,000.
On
July
21, 2004, QNB Corp.’s wholly owned subsidiary, The Quakertown National Bank (the
“Bank”), entered into an agreement with a director of QNB Corp. for the purchase
by the Bank of a two story building for a purchase price of $600,000.
The price
was supported by an independent third party appraisal. Management of
QNB Corp.
and the Bank believe that the transaction reflects arm’s-length, negotiated
terms. The Bank intends to use the acquired property for additional office
space. On September 22, 2005, the Bank entered into an agreement with
a
construction company for the renovation of this property. The president
of this
company is a director of QNB Corp. The bids for this project were submitted
through a formal bidding process and reviewed by the Board of Directors.
The
estimated costs for this renovation are expected to be approximately
$1,000,000.
The total paid during 2005 was $214,000.
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
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
14 days
or more than 50 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;
|
|
(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 2007 Annual
Meeting of
Shareholders, your written proposal must be received by the Corporation
no later
than December 18, 2006. The proposal should be mailed by certified mail,
return
receipt requested, and must comply in all respects with applicable rules
and
regulations of the Securities and Exchange Commission, the laws of the
State of
Pennsylvania, and the Corporation’s Bylaws. Shareholder proposals may be mailed
to the Secretary, QNB Corp., P.O. Box 9005, Quakertown, PA
18951-9005.
Securities
and Exchange Commission rules 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 2007
annual meeting is March 2, 2007. 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 2007 Annual Meeting.
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 Securities and
Exchange
Commission. Officers, directors and greater than 10% owners are required
by
Securities and Exchange Commission 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, 2005,
all Section
16(a) filing requirements applicable to its executive officers and directors
were complied with.
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.
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 Corporation’s Proxy Statement may have been sent to
multiple shareholders in your household. The Corporation 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, 2005, 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.
Exhibit
A
QNB
CORP.
2006
EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE.
The
purpose of the QNB Corp. 2006 Employee Stock Purchase Plan is to provide
an
incentive for Eligible Employees to remain in the employ of the Corporation
and
to devote their best efforts to its success by affording such employees
an
opportunity to acquire the Corporation's Common Stock in a convenient
and
advantageous manner and to maintain a proprietary interest in the Corporation.
The Plan is intended to be an "Employee Stock Purchase Plan", pursuant
to
Section 423 of the Code. The provisions of the Plan shall, accordingly,
be
construed so as to extend and limit participation in a manner consistent
with
the requirements of that section of the Code.
2. DEFINITIONS.
Whenever used in the Plan:
|
(a)
|
"Alternative
Offering Price" means 90% of the Fair Market Value of Common
Stock on the
last day of the Offering Period (November 30 or May 31) next
following the
beginning of the Offering Period.
|
|
(b)
|
"Beneficiary"
means the person designated by an Eligible Employee, in accordance
with
Section 11(e), to make the elections prescribed in Section
11(d) in the
event of such Eligible Employee's
death.
|
|
(c)
|
"Board"
means the Board of Directors of QNB
Corp.
|
|
(d)
|
"Code"
means the Internal Revenue Code of 1986, as
amended.
|
|
(e)
|
"Committee"
means the Committee of officers appointed by the Corporation's
Board of
Directors. The initial members of the Committee shall be Thomas
J. Bisko,
President and Chief Executive Officer, Robert C. Werner, Vice
President,
and Bret H. Krevolin, Chief Financial
Officer.
|
|
(f)
|
"Common
Stock" means the Common Stock, par value $.625 per share, of
the
Corporation, adjusted in accordance with Section 17 of the
Plan.
|
|
(g)
|
"Compensation"
means the Eligible Employee's wages, salaries, fees for professional
services and other amounts received for professional services
actually
rendered in the course of employment with the Corporation to
the extent
that the amounts are includible in gross income (including
but not limited
to, commissions paid to salesmen, compensation for services
on the basis
of percentage of the profits, commissions on insurance premiums,
tips,
bonuses, fringe benefits, and reimbursements or other expense
allowances
under a nonaccountable plan (as described in Treasury Regulation
1.62-2(c)) for a Plan Year.
|
|
(h)
|
"Continuous
Status as an Eligible Employee" means the absence of any interruption
or
termination of service as an Eligible Employee. Continuous
Status as an
Eligible Employee shall not be considered interrupted in the
case of (i)
sick leave; (ii) military leave; (iii) any other leave of absence
approved
by the Plan Administrator, provided that such leave is for
a period of not
more than 90 days, unless reemployment upon the expiration
of such leave
is guaranteed by contract or statute, or unless provided otherwise
pursuant to Corporation policy adopted from time to time; or
(iv)
transfers between locations of the Corporation or between the
Corporation
and its Subsidiaries.
|
|
(i)
|
"Contributions"
means all amounts credited to the account of a participant
pursuant to the
Plan.
|
|
(j)
|
"Corporate
Transaction" means a sale of all or substantially all of the
Corporation's
assets, or a merger, consolidation or other capital reorganization
of the
Corporation with or into another corporation, or any other
transaction or
series of related transactions in which the Corporation's shareholders
immediately prior thereto own less than 50% of the voting stock
of the
Corporation (or its successor or parent) immediately thereafter.
|
|
(k)
|
"Corporation"
means QNB Corp. and such of its Subsidiaries existing as of
the effective
date of the adoption of the Plan, or thereafter acquired, as
may be
designated from time to time by the
Board.
|
|
(l)
|
"Disability"
means total disability as defined in the long term disability
plan of the
Corporation.
|
|
(m)
|
"Effective
Date" means June 1, 2006, the date the initial Plan offering
will
commence.
|
|
(n)
|
"Eligible
Employee" means any person, including a Corporation officer,
who is an
employee of the Corporation for tax purposes and who is customarily
employed for at least twenty (20) hours per week and has been
continuously
employed by the Corporation for at least one year preceding
the Offering
Date.
|
|
(o)
|
"Exchange
Act" means the Securities Exchange Act of 1934, as
amended.
|
|
(p)
|
"Fair
Market Value" means (a) the bid price on the principal established
domestic securities exchange on which listed, and if not listed,
then (b)
the dealer "bid" price thereof on the New York over-the-counter
market, as
reported by the National Association of Securities Dealers,
Inc.
|
|
(q)
|
"Offering
Date" means each June 1 or December 1 during the term of the
Plan, the
days designated by the Board for any offering made under the
Plan.
|
|
(r)
|
"Offering
Period" means the period of six (6) months for each offering
made under
the Plan commencing on each offering date, during which payroll
deductions
shall be made from the Compensation of Eligible Employees granted
an
option under the offering.
|
|
(s)
|
"Offering
Price" means 90% of the Fair Market Value of Common Stock on
an Offering
Date (June 1 or December 1) of each year during the term of
the
Plan.
|
|
(t)
|
"Plan"
means the QNB Corp. 2006 Employee Stock Purchase Plan, as amended
from
time to time.
|
|
(u)
|
"Plan
Administrator" means the person or entity appointed by the
Board to
administer the Plan in accordance with Section
3.
|
|
(v)
|
"Plan
Custodian" means the Corporation or a successor Plan Custodian
selected by
the Committee.
|
|
(w)
|
"Purchase
Date" means the date on which the Plan Custodian credits the
Eligible
Employee's account (customarily the last day of each Offering
Period) for
shares purchased under the Plan.
|
|
(x)
|
"Retirement"
means retirement under the Quakertown National Bank Retirement
Savings
Plan or any pension plan of a
Subsidiary.
|
|
(y)
|
"Subsidiary"
means a domestic or foreign subsidiary corporation of QNB Corp.,
of which
not less than 50% of the voting shares are held by the Corporation
or by a
Subsidiary, whether or not such Corporation now exists or is
hereafter
organized or acquired by the Corporation or a
Subsidiary.
|
3. ADMINISTRATION.
|
(a)
|
The
Committee shall serve as Plan Administrator. Except where the
Plan
specifically reserves the determination of matters to the Board,
the Plan
shall be administered by the Plan Administrator. In addition
to the Plan
Administrator's duties with respect to the Plan stated elsewhere
in the
Plan, the Plan Administrator shall have full authority, consistently
with
the Plan, to interpret the Plan, to promulgate such rules and
regulations
with respect to the Plan as are deemed desirable and to make
all other
determinations necessary or desirable for the administration
of the Plan.
Except as provided in paragraph (b), all decisions, determinations
and
interpretations of the Plan Administrator shall be binding
upon all
persons participating in the Plan.
|
|
(b)
|
If
a claim for benefits under the Plan is wholly or partially
denied by the
Plan Administrator, the claimant may request the Committee
to review the
denial of his or her claim. The Committee shall make a decision
and
furnish such decision to the claimant and the Plan Administrator
within a
reasonable period of time after the request for review is made.
All
decisions of the Committee shall be final and binding upon
all persons
participating in the Plan.
|
|
(c)
|
It
is intended that the Plan shall constitute an "Employee Stock
Purchase
Plan" within the meaning of Section 423 of the Code. The Plan
Administrator shall administer the Plan in such a manner as
to carry out
this intention.
|
4. SHARES
SUBJECT TO THE PLAN.
The
aggregate number of shares of Common Stock that may be purchased pursuant
to
options granted under the Plan is 20,000 shares, subject to adjustment
pursuant
to Section 17. All options granted pursuant to the Plan shall be subject
to the
same rights and privileges. The shares of Common Stock delivered by the
Corporation pursuant to the Plan may be previously issued shares reacquired
by
the Corporation or authorized but unissued shares. If any option expires
or
terminates for any reason without having been exercised in full, the
shares
covered by the unexercised portion of such option shall again be available
for
options within the limit specified above.
5. OFFERINGS.
Subject
to the provisions of the Plan, the Board shall from time to time in its
discretion make offerings to Eligible Employees to purchase Common Stock
under
the Plan. The terms and conditions for each such offering shall specify
the
Offering Date, the Offering Price, the Offering Period and the number
of shares
of Common Stock that may be purchased under the offering. It is anticipated,
but
not required, that additional offerings of six months each will be made
under
the Plan commencing on December 1 and June 1 of each year during the
term of the
Plan. The initial offering will commence on June 1, 2006.
6. NUMBER
OF SHARES EMPLOYEE MAY PURCHASE.
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(a)
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Pursuant
to any offering made under the Plan, and subject to the provisions
of the
Plan, no Eligible Employee maybe granted an option to purchase
shares of
Common Stock under the Plan that would permit him or her to
purchase
shares of Common Stock that exceed $15,000 of Fair Market Value
of such
stock (determined at the time such option was granted) for
each calendar
year for which such option was outstanding. The Board may change
from time
to time the total dollar limit of shares that may be purchased
by an
Eligible Employee for each calendar year for which such option
was
outstanding, but not to exceed the limitations contained in
Section 423 of
the Code.
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(b)
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No
Eligible Employee may be granted an option to purchase shares
of Common
Stock under the Plan if such Eligible Employee, immediately
after the
option is granted, would own stock possessing five (5) percent
or more of
the total combined voting power or value of all classes of
stock of the
Corporation or its Subsidiaries. For purposes of determining
stock
ownership under this paragraph, the rules of Section 424(d)
of the Code
shall apply and stock which the Eligible Employee may purchase
under
outstanding stock options shall be treated as stock owned by
such Eligible
Employee.
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7. METHOD
OF PARTICIPATION.
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(a)
|
The
Plan Administrator shall give notice to Eligible Employees
of each
offering of options to purchase shares of Common Stock pursuant
to the
Plan and the terms and conditions for each
offering.
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(b)
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Each
Eligible Employee who desires to accept all or any part of
the option to
purchase shares of Common Stock under an offering shall signify
his or her
election to do so by authorizing the Corporation, in the form
and manner
prescribed by the Plan Administrator, to make payroll deductions
in any
whole percentage of Compensation of at least 1 percent (1%)
and not more
than 5 percent (5%). Such election and authorization must be
made at least
15 days prior to an Offering Period and shall continue in effect
unless
and until such Eligible Employee changes his or her payroll
deductions or
terminates his or her employment with the Corporation, as provided
in
Section 8 and 11 respectively.
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(c)
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The
Board may change from time to time the minimum and maximum
percentage
limits of payroll deductions set forth in Section 7(b) of the
Plan.
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8. PAYROLL
DEDUCTIONS.
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(a)
|
The
percentage of Compensation elected by each Eligible Employee
for the
purchase of shares of Common Stock covered by the option granted
to such
Eligible Employee in any offering shall be deducted during
the Offering
Period specified in the offering through regular payroll deductions,
and
shall be credited to an account maintained in his or her name.
The
percentage of Compensation so deducted may not be increased
or decreased
by the Eligible Employee at any time during the Offering Period
except as
provided in Sections 7(b) and 8(b) of the
Plan.
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(b)
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To
the extent necessary to comply with the provisions of Section
423(b) of
the Code, at any time during the Offering Period for any offering,
an
Eligible Employee granted an option to purchase shares of Common
Stock
under such offering may direct the Corporation to suspend further
payroll
deductions with respect to such option, in which case all payroll
deductions with respect to such option shall cease as soon
as
administratively practical. In that event, any amounts already
credited to
his or her account during the Offering Period in which such
suspension
occurs shall be retained by the Corporation until the end of
such Offering
Period, at which time such amounts shall be used to purchase
shares under
the option in accordance with Section 9. An Eligible Employee
who has
suspended further payroll deductions may direct the Corporation
to
reinstate deductions at the next Offering Period. An Eligible
Employee's
election to suspend payroll deductions, or to reinstate deductions,
shall
be made by the filing of a notice with the Plan Administrator
in the form
and manner and within the time period prescribed by the Plan
Administrator, and such changes shall be effective as soon
as
administratively practical.
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9. EXERCISE
OF OPTIONS AND PURCHASE OF SHARES.
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(a)
|
Unless
an Eligible Employee granted an option under any offering has
subsequently
suspended payroll deductions pursuant to Section 8, such option
shall be
deemed to have been exercised as of the last day of the Offering
Period
for such offering and shall become on such date an irrevocable
obligation
to purchase Common Stock in accordance with the provisions
of the Plan.
The number of shares of Common Stock purchased each Offering
Period by
each such Eligible Employee shall be determined by dividing
(i) the amount
(including all payroll deductions) accumulated in his or her
account
during such Offering Period by (ii) the lower of the Offering
Price or the
Alternative Offering Price, but in no event shall the aggregate
number of
shares purchased in any Offering Period exceed the maximum
number of
shares such Eligible Employee was entitled to purchase pursuant
to the
limitations provided in Section 6. The shares of Common Stock
purchased by
each such Eligible Employee pursuant to this Section 9 shall
be credited
to such Eligible Employee's account, and shall be held in such
account
until withdrawn, distributed or sold pursuant to Section 10,
11 or 19,
whichever is applicable. Any dividends paid by the Corporation
on shares
credited to an Eligible Employee’s account shall be paid in cash directly
to the Eligible Employee.
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|
(b)
|
If,
with respect to any offering made under the Plan, the Eligible
Employees
participating in the offering become entitled at the end of
the Offering
Period to purchase more than the aggregate number of shares
of Common
Stock specified by the Board as available under the offering,
number of
shares of Common Stock purchased by each Eligible Employee
shall be
reduced proportionately so that the maximum number of available
shares for
the offering is not exceeded, and any amounts remaining in
the accounts of
Eligible Employees shall be refunded to each as soon as practicable
thereafter.
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10.
WITHDRAWAL
OF SHARES.
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(a)
|
An
Eligible Employee may, at any time, elect to withdraw part
or all of the
shares of Common Stock, except fractional shares, held in his
or her
account pursuant to Section 9. As soon as practicable thereafter,
a
certificate for the number of whole shares which such Eligible
Employee
has elected to withdraw shall be issued to him or her. No certificate
for
fractional shares shall be issued and the value of any such
fractional
shares, as determined by the Plan Custodian, shall be paid
in
cash.
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| (b) |
An
Eligible Employee's election to withdraw shares of Common Stock
pursuant
to paragraph (a) shall be made by the filing of a notice with
the Plan
Administrator in the form and manner prescribed by the Plan
Administrator.
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11.
RIGHTS
UPON DEATH OR OTHER TERMINATION OF EMPLOYMENT.
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(a)
|
If
the employment of an Eligible Employee granted an option to
purchase
shares of Common Stock under any offering terminates during
the Offering
Period for such offering because of (i) death, (ii)disability,
or (iii)
retirement within three months of the end of the Offering Period,
the
Eligible Employee or, if applicable, such Eligible Employee's
Beneficiary
or estate representative, may elect to (i) cancel the option,
in which
event the Corporation shall distribute the balance in such
Eligible
Employee's account as soon as practicable thereafter, or (ii)
exercise the
semi-annual installment of the option for the Offering Period
during which
such termination of employment occurs, in which event any amounts
already
credited to such Eligible Employee's account during such Offering
Period
shall be retained by the Corporation until the end of such
Offering
Period, at which time such amounts shall be used to purchase
shares under
the option in accordance with Section 9, and as soon as practicable
thereafter the Corporation shall distribute the balance of
such
account.
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(b)
|
If
the employment of an Eligible Employee granted an option under
any
offering terminates for any reason other than death, disability
or
retirement within three month of the end of the Offering Period,
the
Corporation shall distribute such Eligible Employee's account
as soon as
practicable thereafter.
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|
(c)
|
If
shares of Common Stock represent any portion of the balance
in an Eligible
Employee's account which is required to be distributed pursuant
to
paragraph (a) or (b) of this section, the Eligible Employee
or, if
applicable, such Eligible Employee's Beneficiary or estate
representative,
may elect to receive a distribution of such shares, in which
event a
certificate for such shares shall be issued, provided that
no certificate
for fractional shares shall be issued and the value of any
remaining
amounts, as determined by the Plan Custodian, shall be distributed
in
cash.
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|
(d)
|
An
election pursuant to paragraph (a) or (c) of this section shall
be made by
the filing of a notice with the Plan Administrator in the form
and manner
and within the time period prescribed by the Plan Administrator.
If no
such notice is filed within the time period prescribed by the
Plan
Administrator, (i) in the case of the election provided in
paragraph (a),
the Corporation shall treat the option as canceled in accordance
with
subdivision (i) of that paragraph, and (ii) in the case of
the election
provided in paragraph (c), the Plan Custodian shall distribute
certificates for the shares in accordance with that paragraph.
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(e)
|
Each
Eligible Employee may designate a Beneficiary, in the form
and manner
prescribed by the Plan Administrator, to make the elections
prescribed in
paragraph (d) of the section in the event of such Eligible
Employee's
death. Such Beneficiary designation may be changed by the Eligible
Employee at any time. If there is no valid Beneficiary designation
at the
time of the Eligible Employee's death (because the designated
Beneficiary
predeceased the Eligible Employee for any other reason), the
election
shall be made by the executor or administrator who is the representative
of the Eligible Employee's estate.
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12. SHAREHOLDER
RIGHTS.
An
Eligible Employee granted an option to purchase shares of Common Stock
under the
Plan shall not be entitled to any rights as a shareholder with respect
to any
shares covered by such option until such shares shall have been registered
on
the transfer books of QNB Corp. in the name of such person.
13. RIGHTS
NOT TRANSFERABLE.
An
Eligible Employee's rights under the Plan are exercisable, during his
or her
lifetime, only by such employee and may not be sold, pledged, assigned
or
transferred in any manner other than by will or the laws of descent and
distribution. Any attempt to sell, pledge, assign or transfer such rights
shall
be void and shall automatically cause the option held by the Eligible
Employee
to be terminated. In such event, any cash remaining in the account of
such
Eligible Employee shall be refunded to him or her.
14. NOTICE
OF PREMATURE DISPOSITION.
If
within two years after the date of grant of an option to an Eligible
Employee
under the Plan or within one year after the transfer of shares of Common
Stock
to such Eligible Employee on any exercise of the option, the Eligible
Employee
makes a disposition (as defined in Section 424 (c) of the Code) of shares
of
such Common Stock, such Eligible Employee shall notify the Plan Administrator
within 10 days after such disposition.
15. USE
OF PROCEEDS.
The
proceeds received by the Corporation from the sale by it of shares of
Common
Stock to persons exercising options pursuant to the Plan will be used
for the
general purposes of the Corporation.
16. LAWS,
REGULATIONS AND LISTINGS.
All
rights granted or to be granted to Eligible Employees under the Plan
are
expressly subject to all applicable laws and regulations and to the approval
of
all governmental authorities required in connection with the authorization,
issuance, sale or transfer of the shares of Common Stock reserved for
the Plan
including without limitation, there being a current registration statement
covering the offer of shares of Common Stock purchasable under options
on the
last day of the Offering Period applicable to such options. If a registration
statement shall not then be effective, the term of such options and the
Offering
Period shall be extended until the first business day after the effective
date
of such registration statement, or post-effective amendment thereto,
but in no
event later than 27 months after the date such options were granted.
In
addition, all rights are subject to the due listing of such shares of
Common
Stock on any stock exchanges where the Common Stock is listed.
17. ADJUSTMENT
UPON CHANGES IN CAPITALIZATION.
If
there is a change in the number or kind of outstanding shares of Common
Stock of
QNB Corp., by reason of a stock dividend, stock split, reverse stock
split,
recapitalization, merger, consolidation, combination or reclassification
of the
Common Stock, including any change in the number of shares of Common
Stock in
connection with a change of domicile of the Corporation, or any increase
or
decrease in the number of shares of Common Stock effected without receipt
of
consideration by the Corporation, including the conversion of any convertible
securities, appropriate adjustments shall be made by the Board to the
number and
kind of shares available for options, the Offering Price and Alternative
Offering Price, and other relevant provisions, to the extent that the
Board, in
its sole discretion, determines that such change makes the adjustments
necessary
or equitable, which adjustments shall be final, binding and
conclusive.
18. NO
EMPLOYMENT RIGHTS.
Nothing
in the Plan shall confer upon any employee of the Corporation any right
to
continued employment, or interfere with the right of the Corporation
to
terminate his or her employment at any time.
19. TERMINATION;
AMENDMENTS.
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(a)
|
The
Board may, at any time, terminate the Plan. Unless the Plan
shall
previously have been terminated by the Board, it shall terminate
on May
31, 2011. No option may be granted after such termination.
Upon
termination of the Plan, shares of Common Stock held in the
accounts of
Eligible Employees shall be issued to them, and cash, if any,
remaining in
such accounts shall be refunded to them, unless such shares
and cash are
transferred to a successor plan, if any, at the election of
the Eligible
Employee.
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|
(b)
|
The
Board may, at any time or times, amend the Plan or amend any
outstanding
options or options for the purpose of satisfying the requirements
of any
changes in applicable laws or regulations or for any other
purpose which
at the time may be permitted by
law.
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|
(c)
|
Except
as provided in Section 17, no such amendment of the Plan shall,
without
the approval of the shareholders of QNB Corp. (which shall
not occur more
frequently than once every six months): (i) increase the maximum
number of
shares which may be purchased pursuant to options granted under
the Plan;
(ii) reduce the price at which shares of Common Stock subject
to options
granted under the Plan may be purchased; (iii) change the definition
of
Subsidiaries eligible to participate in the Plan; or (iv) materially
increase the benefits accruing to participants in the
Plan.
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|
(d)
|
No
termination or amendment of the Plan shall, without the consent
of an
Eligible Employee, adversely affect the Eligible Employee's
rights under
any option previously granted under the
Plan.
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20. EFFECTIVE
DATE.
The
Plan shall become effective upon approval by the Board; provided, however,
that
the Plan shall be submitted to the shareholders of QNB Corp. for approval
in
accordance with corporate law of the Commonwealth of Pennsylvania, and
if not
approved by the shareholders shall be of no force and effect.
IN
WITNESS WHEREOF, the Corporation has caused the Plan to be duly executed
by its
officers as of the 21st
day of
March, 2006.
(SEAL)
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Attest:
|
QNB
CORP.
|
||
|
/s/
Bret H. Krevolin
|
/s/
Thomas J. Bisko
|
||
|
Bret
H. Krevolin
|
Thomas
J. Bisko
|
||
|
Chief
Financial Officer
|
President/CEO
|