ORRSTOWN FINANCIAL SERVICES, INC.
3580 Orrstown Road
Orrstown, PA l7244
(7l7) 532-6ll4
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD on Tuesday,
April 8, l997
TO THE SHAREHOLDERS OF ORRSTOWN FINANCIAL SERVICES, INC.:
NOTICE IS HEREBY GIVEN that pursuant to the call of its
directors, the regular annual meeting of the shareholders of
ORRSTOWN FINANCIAL SERVICES, INC., with principal offices in
Orrstown, Pennsylvania, will be held on Tuesday, April 8, l997, at
9:00 A.M., at the Shippensburg Firefighters Activities Center, 33-
35 West Orange Street, Shippensburg, Pennsylvania, for the purpose
of considering and voting upon the following matters:
1. ELECTION OF DIRECTORS. To elect four directors for a three-
year term.
2. AMENDMENT OF ARTICLES OF INCORPORATION. To amend the articles
of incorporation to change the number of authorized shares of
common stock from 2,000,000 shares to l0,000,000 shares.
3. OTHER BUSINESS. To consider such other business as may
properly come before the annual meeting and any adjournments
or postponements thereof.
Only those shareholders of record at the close of business on
March l, l997, shall be entitled to notice of and to vote at the
meeting.
IT IS REQUESTED THAT YOU PROMPTLY EXECUTE THE ENCLOSED PROXY
AND RETURN IT IN THE ENCLOSED POST-PAID ENVELOPE. YOU ARE
CORDIALLY INVITED TO ATTEND THE MEETING. YOUR PROXY IS REVOCABLE
AT ANY TIME BY A WRITTEN INSTRUMENT SIGNED IN THE SAME MANNER AS
THE PROXY AND RECEIVED BY THE SECRETARY OF ORRSTOWN FINANCIAL
SERVICES, INC., AT OR BEFORE THE ANNUAL MEETING. IF YOU ATTEND THE
ANNUAL MEETING YOU MAY, IF YOU WISH, REVOKE YOUR PROXY BY VOTING IN
PERSON.
BY ORDER OF THE BOARD OF DIRECTORS
____________________________________
Galen L. Myers
Chairman of the Board
Dated: March 14, l997
ORRSTOWN FINANCIAL SERVICES, INC.
3580 Orrstown Road
Orrstown, PA l7244
(7l7) 532-6ll4
PROXY STATEMENT
l997 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
TUESDAY, April 8, l997
GENERAL
Solicitation of Proxies
This proxy statement is furnished in connection with the
solicitation of proxies, in the accompanying form, by Orrstown
Financial Services, Inc., (the "Company") on behalf of the Board of
Directors for use at the annual meeting of shareholders to be held
at 9:00 A.M. on Tuesday, April 8, l997, and any adjournments or
postponements thereof. This proxy statement and the accompanying
proxy form are being mailed to shareholders on or about March 14,
l997.
The expense of soliciting proxies will be borne by the
Company, and the officers, directors and employees of the Company
may, without additional compensation, solicit proxies personally or
by telephone.
Date, Time and Place of Meeting
The regular annual meeting of the shareholders of the Company
will be held on Tuesday, April 8, l997, at 9:00 A.M., at the
Shippensburg Firefighters Activities Center, 33-35 West Orange
Street, Shippensburg, Pennsylvania.
Shareholders Entitled to Vote
Shareholders of record at the close of business on March l,
l997, shall be entitled to vote at the meeting.
Purpose of Meeting
The shareholders will be asked to consider the following
matters at the meeting: (i) to elect four directors to Class C for
a three-year term, (ii) to approve the adoption of an amendment to
the articles of incorporation to increase the number of authorized
shares of common stock from 2,000,000 shares to l0,000,000 shares,
and (iii) to consider and vote upon such other business as may
properly be brought before the meeting and any adjournments or
postponements thereof.
Revocability and Voting of Proxies
The execution and return of the enclosed proxy will not affect
a shareholder's right to attend the meeting and to vote in person.
Any proxy given pursuant to this solicitation may be revoked at
any time by a written instrument signed in the same manner as the
proxy and received by the Secretary of the Company at or before the
annual meeting. If you attend the annual meeting, you may, if you
wish, revoke your proxy by voting in person. Unless revoked, any
duly executed proxy given pursuant to this solicitation will be
voted at the meeting in accordance with the instructions thereof of
the shareholder giving the proxy. In the absence of instructions,
all duly executed proxies will be voted FOR the election as
directors to Class C of the four nominees identified in this proxy
statement and FOR the amendment to the articles of incorporation.
Although the Board of Directors knows of no other business to be
presented, in the event that any other matters are properly brought
before the meeting, any proxy given pursuant to this solicitation
will be voted in the discretion of the proxies.
Voting of Shares and Principal Holders Thereof
At the close of business on March l, l997, which is the record
date for determination of shareholders entitled to receive notice
of and to vote at the meeting and any adjournment or postponement
thereof, the Company had outstanding 976,863 shares of common
stock. There is no other class of stock outstanding.
A majority of the outstanding shares of common stock present
in person or by proxy constitutes a quorum for the conduct of
business. Each share is entitled to one vote on all matters
submitted to a vote of the shareholders. Shareholders do not have
the right to vote their shares cumulatively in the election of
directors.
The Company does not know of any person who beneficially owned
more than 5% of the outstanding shares of common stock of the
Company on the record date.
Recommendations of the Board of Directors
The Board of Directors recommends that the shareholders vote
FOR the election as directors to Class C of the four nominees
identified in this proxy statement and FOR the amendment of the
articles of incorporation as set forth in this proxy statement.
INFORMATION CONCERNING ELECTION OF DIRECTORS
General Information
Four directors are to be elected Class C at the l997 annual
meeting, each to hold office until the annual meeting of the
shareholders in 2000 or until a successor is elected. It is the
intention of the persons named in the enclosed form of proxy, if
authorized, to vote the proxies for the election as directors for a
three-year term of Anthony F. Ceddia, Robert T. Henry, Andrea Pugh
and Kenneth R. Shoemaker.
In the event any nominee declines or is unable to serve as a
director, the persons named as proxies shall have full discretion
to vote for any person who may be nominated.
The following table sets forth information regarding the
nominees for directors and current directors whose terms do not yet
expire. Richard M. Diffenbaugh resigned from the board of the
Company on May l, l996. Denver L. Tuckey was appointed to fill Mr.
Diffenbaugh's unexpired term effective July l, l996. All other
current directors of the Company have served since l988 with the
exception of Robert T. Henry who has served since l99l.
<TABLE>
<S> <C> <C> <C>
Name Age Principal Occupation Bank Director
for Last Five Years Since
and Position with
Company
CLASS A DIRECTORS
DIRECTORS WHOSE TERMS EXPIRE IN l999
Jeffrey W. Coy 45 State Legislator l984
Ned R. Fogelsonger 50 President, Fogelsonger l986
Agency, Inc.
Joel R. Zullinger 48 Attorney-at-Law; Vice l98l
Chairman of the Board
of Company and Bank
CLASS B DIRECTORS
WHOSE TERMS EXPIRE IN l998
Denver L. Tuckey 63 Retired Businessman l995
William O. Hykes 6l Retired Bank Officer l982
Galen L. Myers 58 Tax and Accounting l978
Services; Myers
Marketing; Chairman
of Board of Company
and Bank
Raymond I. Pugh 70 Retired US Postal l976
System
NOMINEES FOR CLASS C DIRECTORS
DIRECTORS WHOSE TERMS EXPIRE IN 2000
Anthony F. Ceddia 53 President, Shippensburg l996
University
Robert T. Henry 68 Retired Pharmacist and l989
Businessman
Andrea Pugh 44 President, PharmCare l996
Consultants
Kenneth R. 49 President and Chief l986
Shoemaker Executive Officer of
Company and Bank
</TABLE>
Security Ownership of Nominees for Director, Current Directors and
Management
The following table sets forth the number of shares of common
stock of the Company beneficially owned as of March l, l997, by
each of the Company's nominees for director, current directors, and
officers as a group. Unless otherwise indicated, the shares listed
in the table are owned directly by the individual, his or her
spouse, or both, or as custodian for the benefit of his or her
minor children, and the individual has sole voting and investment
power with respect to the shares or such power is shared with his
or her spouse.
<TABLE>
<S> <C> <C>
Name Shares of Common Stock Percent of Total
Beneficially Owned Common Stock
Anthony F. Ceddia 32l 0.03%
Jeffrey W. Coy 7,039 0.72%
Ned R. Fogelsonger l3,933 1.42%
Robert T. Henry 7,l47 0.73%
William O. Hykes 8,509 0.87%
Galen L. Myers 8,034 0.84%
Andrea Pugh 1,049 0.l0%
Raymond I. Pugh 3,449 0.35%
Kenneth R. Shoemaker 5,5l7 0.57%
Denver L. Tuckey 1,125 0.ll%
Joel R. Zullinger 4,34l 0.44%
All nominees, directors
and officers as a group
(l4 persons) 63,905 7.00%
</TABLE>
Transactions with Directors and Executive Officers
The Company's subsidiary, Orrstown Bank, has had in the past,
and expects to have in the future, transactions in the ordinary
course of business with directors and officers of Orrstown Bank and
the Company, and their associates on substantially the same terms,
including interest rates, collateral and repayment terms, as those
prevailing at the time for comparable transactions with other
persons and did not involve more than a normal risk or
collectibility or present other unfavorable features.
Section l6(a) Beneficial Ownership Compliance
Section l6(a) of the Securities Exchange Act of l934 requires
that directors and certain officers of the Company file reports of
ownership and changes in ownership with the Securities and Exchange
Commission as to the shares of Company common stock beneficially
owned by them. Based solely on its review of copies of such forms
received by it, the Company believes that during the Corporation's
fiscal year ending on December 3l, l997, all filing requirements
applicable to its directors and officers were complied with in a
timely fashion.
MEETINGS AND COMMITTEES
OF THE BOARD OF DIRECTORS
During the year l996 the Board of Directors of the Company
held five meetings, while the Orrstown Bank Board of Directors held
thirteen meetings.
The Company has an executive committee consisting of Jeffrey
W. Coy, Chairman, Galen L. Myers, Kenneth R. Shoemaker, and Joel R.
Zullinger. The executive committee acts on matters between regular
meetings of the board. The executive committee of the Company held
no meetings during the year. Orrstown Bank has an executive
committee consisting of the same members as the Company's executive
committee and which held sixteen meetings during the year. The
Company does not have an audit committee, nominating committee, or
a compensation committee; however, Orrstown Bank has an audit
committee whose members are Raymond I. Pugh, Chairman, Ned R.
Fogelsonger, William O. Hykes and Denver L. Tuckey.
During the year l996 all of the directors attended at least
75% of the aggregate of (l) the total number of meetings of the
Board of Directors and (2) the total number of meetings held by all
committees of the Board on which he served.
For the year l996 the directors of the Company received
$250.00 per board meeting attended and $l50.00 for each committee
meeting attended. All directors of the Company also serve on the
board of Orrstown Bank. For the year l995, Orrstown Bank paid each
director $500.00 per month and a yearly retainer of $3,000.00. In
addition the Chairman of the Board of Orrstown Bank was paid a
stipend of $l,500.00 and the Vice Chairman a stipend of $l,000.00.
Each Orrstown Bank director, with the exception of Kenneth R.
Shoemaker, President and Chief Executive Officer of the Company and
Orrstown Bank, was also paid $l50.00 for each committee meeting
attended.
Orrstown Bank has a deferred compensation arrangement with
seven of its board members or former board members whereby a
director or his beneficiaries will receive a monthly benefit
beginning at age 65. The arrangement is funded by an amount of
life insurance on each participating director calculated to meet
the bank's obligations under the compensation agreement. The cash
value of the life insurance policies is an unrestricted asset of
the bank. The estimated present value of future benefits to be
paid, which are included in other liabilities, amounted to
$l7l,33l.00 at December 3l, l996. Annual expense of $20,l53.00 was
charged to operations for l996.
In l995, Orrstown Bank and the Company established a non-
qualified deferred compensation plan for directors and for Stephen
C. Oldt, Executive Vice President. Each participant may elect each
year to defer all or a portion of his or her board fees and
compensation. Those deferring compensation must begin withdrawal
from the plan by age 75. The amount deferred is invested in a
rabbi trust with the trust department of Orrstown Bank as trustee.
The investments are directed by the participants and there is no
guarantee as to their performance. Growth of each participant's
account is a result of investment performance and not as a result
of an interest factor or interest formula established by the
participant.
EXECUTIVE COMPENSATION AND BENEFITS
Board of Directors Report on Executive Compensation
Neither the Company nor Orrstown Bank have a compensation
committee. However, initial review and recommendations for
compensation of the executive officers of Orrstown Bank are made by
the executive committee of the Bank's Board of Directors. No
compensation was paid to the executive officers by the Company
during 1996. All compensation was paid by the Bank. As set forth
previously, three members of the executive committee are non-
employee directors. The fourth member of the committee is Mr.
Shoemaker. Although Mr. Shoemaker, the President and Chief
Executive Officer of the Company and Bank, served on the executive
committee, he did not participate in any discussions or decisions
regarding his own compensation. All recommendations of the
executive committee relating to the compensation of the Bank's
executive officers are reviewed by the full Board of Directors of
the Bank which has ultimate responsibility for establishing,
implementing and monitoring all compensation policies of the bank.
The bank's executive committee's executive compensation
policies are designed to provide compensation to executive officers
based upon a performance evaluation of each executive officer after
analyzing each officer's completion of previously established
goals. Mr. Shoemaker does not participate in his own performance
evaluation, but does participate in the evaluation of other
executive officers. Levels of base salary paid by the Bank for all
executive officers are intended to be competitive with other banks
of similar size in the region. Comparisons of compensation made by
banks of similar size in the region is obtained by the executive
committee from various sources. Such comparison is not based on
corporate performance of other banks, but only compensation paid by
comparable banks for similar job descriptions.
The Board of Directors are Anthony F. Ceddia, Jeffrey W. Coy,
Ned R. Fogelsonger, Robert T. Henry, William O. Hykes, Galen T.
Myers, Andrea Pugh, Raymond I. Pugh, Kenneth R. Shoemaker, Denver
L. Tuckey, and Joel R. Zullinger.
The following table shows, for the years ending December 3l,
l994, l995 and l996, the cash compensation paid or accrued, as well
as certain other compensation paid or accrued for those years, to
Kenneth R. Shoemaker, President and Chief Executive Officer of the
Company and Orrstown Bank. Pursuant to the executive compensation
disclosure rules of the Securities and Exchange Commission,
information is not required as to the compensation of the Company's
and Bank's other executive officers because the total salary and
bonus earned by such executive officers in l996 did not exceed
$l00,000.00.
Summary Compensation Table - Kenneth R. Shoemaker
<TABLE>
<S> <C> <C> <C> <C>
Year Salary Bonus Other Annual All Other
(l) Compensation Compensation
(2) (3)
l996 $l26,269.67 $4,000.00 $3,9l8.25 $2l,932.73
l995 119,753.59 4,000.00 3,868.00 2l,655.80
l994 114,l50.00 2,000.00 1,873.l0 20,l68.28
(l) Includes amounts received as compensation as member of Board
of Directors and any non-qualified deferred compensation
(2) Includes perquisites ($3,9l8.25)
(3) Includes profit-sharing and 40l(k) contribution ($l8,l46.50)
as well as Company match on 40l(k) plan ($3,786.23)
</TABLE>
No long-term compensation including but not limited to restricted
stock awards, stock options, and long-term incentive plans were
paid to Mr. Shoemaker during the last three fiscal years.
In January, l997, the Company entered into a Change of Control
Agreement with Mr. Shoemaker. Under the terms of the agreement, in
the event Mr. Shoemaker's employment with the Company or the Bank
is terminated by the Company, Bank or Mr. Shoemaker within three
years after a change in control of the Company or the Bank, Mr.
Shoemaker's compensation in effect prior to the change in control
will continue for a period of three years, offset by compensation
from any subsequent employment. Compensation is defined to include
base salary plus cash bonuses or annual incentive cash compensation
earned for the preceding calendar year. A termination pursuant to
a change in control may occur in connection with a merger,
consolidation, acquisition, reorganization, sale of assets or
significant stock acquisition of the Company or the Bank. The
Change in Control Agreement also provides that the Company will
continue to provide Mr. Shoemaker with available insurance
coverages in effect at the time of his termination pursuant to a
change in control for a period of three years, offset by coverage
from any subsequent employment.
Pension and Other Benefit Plans
Orrstown Bank terminated its non-contributory defined benefit
pension plan as of July 3l, l992.
In l988 Orrstown Bank began a profit-sharing plan which covers
all employees who have attained age 2l and completed one year of
service and have worked for l,000 hours or more during the plan
year. Upon being covered by the plan, an employee is fully vested.
Contributions to the plan are based on bank performance and are at
the discretion of the bank's Board of Directors. Substantially all
of the bank's employees are covered by the plan and the
contribution charged to operations was $268,273.52 for l996,
although actual distribution took place on February 4, l997. The
maximum amount allocated to the nine operating officers of the bank
was $80,440.35.
Beginning September l, l992, Orrstown Bank instituted a 40l(k)
plan for its employees. The sum of $38,l05.49 was contributed by
the Bank which represents a 50% match for employee contributions to
the plan up to a maximum of 6% of each employee's base salary.
STOCK PRICE PERFORMANCE GRAPH
The following is a graph comparing the Company's cumulative
total shareholder returns with the performance of the NASDAQ stock
market index (US Companies). In that the Company's stock is not
traded on any stock exchange, the value of the stock is based on
reports to the Company by shareholders who have bought and sold
stock of the Company at various times. The Company is not aware of
the trading price of all transactions involving the Company's
stock, only those reported by shareholders who desire to do so.
AMENDMENT TO ARTICLES OF INCORPORATION
The board of directors proposes an amendment to the Company's
articles of incorporation. The amendment will change the number of
authorized shares of common stock of the Company from 2,000,000 to
10,000,000 shares.
The board of directors proposes the adoption of the following
resolution by the shareholders at the annual meeting:
RESOLVED, that paragraph 6 (a) (i) of the Articles
of Incorporation of the Company be amended to read as
follows: "(i) 10,000,000 shares of common stock with no
par value;"
As of March 1, 1997, 976,863 shares of common stock with no
par value were issued and outstanding by the Company. There were
1,023,137 shares of authorized but unissued common stock available
for issuance in the future.
The additional shares of common stock to be authorized if the
amendment is approved will have the same rights and privileges as
the shares of common stock now authorized and outstanding. Shares
of common stock of the Company do not have preemptive rights.
In the past, the Company has used authorized but unissued
common stock to pay stock dividends, to allow for stock splits, and
to raise capital. In addition such authorized stock can be used to
fund acquisitions by the Company and, if at a future time, there is
a merger, tender offer, or other attempt to gain control of the
Company of which the Board of Directors does not approve, it will
be possible for the Board of Directors to issue additional shares
of common stock in order to frustrate the transaction by increasing
the number of shares necessary to gain control. A possible effect
of the proposed amendment, therefore, would be to deter a future
takeover attempt which the Board of Directors of the Company
consider to be contrary to the best interest of the Company, but
which some or even a majority of the shareholders might deem to be
in their best interest.
If the proposed amendment is approved, no further action or
authorization by the shareholders of the Company will be necessary
prior to the issuance of additional shares of stock, except in
certain limited situations where shareholder approval would be
required by law, and no further shareholder authorization will be
sought prior to issuance. Such shares will be issued for such
consideration, cash or otherwise, at such times and in such
amounts, as the Board of Directors shall determine.
Approval of this amendment requires the affirmative vote of
shareholders entitled to cast a majority of the votes which all
shareholders are entitled to cast. Accordingly, at least 488,432
shares must be voted in favor of the amendment for its approval.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF
THE PROPOSED AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM
2,000,000 TO 10,000,000.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors engaged the accounting firm of Smith
Elliott Kearns and Company as independent auditors for the year
l996.
It is anticipated that Smith Elliott Kearns and Company will
be similarly engaged for the year l997. Representatives of Smith
Elliott Kearns and Company are expected to be present at the annual
meeting, will have the opportunity to make a statement if they
desire to do so and will be available to respond to appropriate
questions.
Smith Elliott Kearns and Company assisted the Company with the
preparation of its income tax returns and provided assistance in
connection with regulatory matters. These non-audit services were
approved by the Board of Directors prior to the rendering of such
services after due consideration of the effect of the performance
thereof on the independence of its auditors. The Board of
Directors reviewed the nature and expense associated with such
services and concluded that there was no effect on the independence
of the auditors.
AVAILABILITY OF ANNUAL REPORT
ON FORM l0-K
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM l0-K FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE FINANCIAL
STATEMENTS AND THE SCHEDULES THERETO, IS AVAILABLE WITHOUT CHARGE
TO SHAREHOLDERS UPON WRITTEN REQUEST ADDRESSED TO KENNETH R.
SHOEMAKER, PRESIDENT, ORRSTOWN FINANCIAL SERVICES, INC., 3580
ORRSTOWN ROAD, ORRSTOWN, PENNSYLVANIA, 17244.
OTHER MATTERS
The Board of Directors of the Company knows of no matters
other than those discussed in this proxy statement which will be
presented at the l997 annual meeting. However, if any other
matters are properly brought before the meeting, any proxy given
pursuant to this solicitation will be voted in the discretion of
the proxies.
SHAREHOLDER PROPOSAL
Shareholder proposals intended to be presented at the l998
annual meeting must be received at the executive offices of the
company at 77 East King Street, Shippensburg, Pennsylvania, not
later than Friday, November l4, l997, in order to be considered for
inclusion in the proxy statement and proxy form to be prepared by
the Company in connection with the l998 annual meeting.
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