UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED
BY RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ORRSTOWN FINANCIAL SERVICES, INC.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i) (4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
______________________________________________________________________Notes:
<PAGE>
[Orrstown Financial Services, Inc. Logo]
Orrstown Financial Service, Inc.
77 East King Street
Shippensburg, PA 17257
March 13, 2000
Dear Shareholder,
You are invited to attend the 2000 Annual Meeting of Shareholders of
Orrstown Financial Services, Inc. to be held on Tuesday, April 11, 2000
beginning at 9:00 a.m. The meeting will be held at the Shippen Place Hotel &
Restaurant located at 32 East King Street, Shippensburg, Pennsylvania.
A Notice of the Annual Meeting, Proxy Statement and Proxy are enclosed with
this mailing. You are encouraged to review this material and complete, sign,
date and return the Proxy in the postage-paid envelope provided. It is important
for you to return the Proxy regardless of whether you plan to attend the Annual
Meeting. I invite you to review the enclosed Annual Report, which includes
details of the success achieved by your company during 1999.
Your company is well positioned to take advantage of opportunities as they
develop.
Sincerely,
Kenneth R. Shoemaker
President and Chief Executive Officer
<PAGE>
[Orrstown Financial Services, Inc. Logo]
Orrstown Financial Services, Inc.
77 East King Street
Shippensburg, Pennsylvania 17257
March 13, 2000
Notice of Annual Meeting of Shareholders
The Annual Meeting of Shareholders of Orrstown Financial Services, Inc.
will be held on Tuesday, April 11, 2000, at 9:00 a.m., at the Shippen Place
Hotel & Restaurant, 32 East King Street, Shippensburg, Pennsylvania, to consider
and take action on the following matters:
1. Elect three directors to Class C for three year terms expiring in
2003;
2. Ratify the adoption by the Board of Directors of the Orrstown
Financial Services, Inc. Employee Stock Purchase Plan;
3. Ratify the adoption by the Board of Directors of the Orrstown
Financial Services, Inc. Employee Stock Option Plan of 2000; and
4. Transact such other business as may properly come before the meeting.
Your Board of Directors recommends a vote "in favor of" the three
proposals.
Denver L. Tuckey
Secretary
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Annual Meeting Information 1
Who is entitled to vote? 1
On what am I voting? 1
How does the Board of Directors recommend I vote on the proposals? 1
How do I vote? 2
What is a quorum? 2
What vote is required to approve each item? 2
Who will count the vote? 2
What is the deadline for shareholder proposals for next year's Annual Meeting? 2
How are proxies being solicited? 3
Share Ownership of Certain Beneficial Owners 3
Share Ownership of Management 4
Section 16(a) Beneficial Ownership Reporting Compliance 5
Item 1 - Election of Directors 5
Biographical Summaries of Nominees and Directors 6
Board Committees and Meeting Attendance 7
Compensation of Directors 8
Report on Executive Compensation 9
Company Performance 11
Executive Compensation 12
Summary of Compensation 12
Retirement Benefits 12
Change in Control Agreement 13
Transactions with Management 14
Item 2 - Ratify Adoption of Employee Stock Purchase Plan 14
Item 3 - Ratify Adoption of Employee Stock Option Plan of 2000 17
</TABLE>
<PAGE>
ORRSTOWN FINANCIAL SERVICES, INC.
77 East King Street
Shippensburg, Pennsylvania 17257
PROXY STATEMENT
Annual Meeting Information
This proxy statement contains information about the Annual Meeting of
Shareholders of Orrstown Financial Services, Inc. to be held Tuesday, April 11,
2000, beginning at 9:00 a.m., at the Shippen Place Hotel & Restaurant, 32 East
King Street, Shippensburg, Pennsylvania, and at any adjournments or
postponements of the meeting. The proxy statement was prepared at the direction
of the Company's Board of Directors to solicit your proxy for use at the Annual
Meeting. It will be mailed to shareholders on March 13, 2000.
Who is entitled to vote?
Shareholders owning Company Common Stock on March 1, 2000 are entitled to
vote at the Annual Meeting or any adjournment or postponement of the meeting.
Each shareholder has one vote per share on all matters to be voted on. On
December 31, 1999 there were 2,218,291 shares of Common Stock outstanding.
On what am I voting?
You will be asked to:
1. Elect 3 directors to Class C for three-year terms expiring in 2003;
2. Ratify the adoption by the Board of Directors of the Orrstown
Financial Services, Inc. Employee Stock Purchase Plan; and
3. Ratify the adoption by the Board of Directors of the Orrstown
Financial Services, Inc. Employee Stock Option Plan of 2000.
The Board of Directors is not aware of any other matters to be presented for
action at the meeting. If any other matter requiring a vote of the shareholders
would be presented at the meeting, the proxies will vote according to the
directions of the Board of Directors.
How does the Board of Directors recommend I vote on the proposals?
The Board of Directors recommends:
1. a vote FOR the election of each of the three nominees as directors to
Class C;
1
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2. a vote FOR ratification of the adoption by the Board of Directors of
the Employee Stock Purchase Plan; and
3. a vote FOR ratification of the adoption by the Board of Directors of
the Employee Stock Option Plan of 2000.
How do I vote?
Sign and date each proxy form you receive and return it in the postage-paid
envelope provided. If you sign your proxy form but do not mark your choices,
your proxies will vote:
o for the three persons nominated for election as directors to Class C;
o for the ratification of the adoption of the Employee Stock Purchase
Plan; and,
o for the ratification of the Employee Stock Option Plan of 2000.
You may revoke your proxy at any time before it is exercised. To do so, you must
give written notice of revocation to the Secretary, Orrstown Financial Services,
Inc., 77 East King Street, Shippensburg, Pennsylvania 17257, submit another
properly signed proxy with a more recent date, or vote in person at the meeting.
What is a quorum?
A "quorum" is the presence at the meeting, in person or by proxy, of the
holders of a majority of the outstanding shares. There must be a quorum for the
meeting to be held. Abstentions are counted for purposes of determining the
presence or absence of a quorum, but are not considered a vote cast under
Pennsylvania law. Shares held by brokers in street name and for which the
beneficial owners have withheld the discretion to vote from brokers are called
"broker non-votes." They are counted to determine if a quorum is present, but
are not considered a vote cast under Pennsylvania law.
What vote is required to approve each item?
In the case of the election of directors, the three nominees for election
to Class C receiving the highest number of votes will be elected to the Board of
Directors. The affirmative vote of a majority of the votes cast is required to
ratify the adoption of the Employee Stock Purchase Plan and the Employee Stock
Option Plan of 2000.
Who will count the vote?
The Judges of Election appointed by the Board of Directors will count the
votes cast in person or by proxy at the Annual Meeting.
What is the deadline for shareholder proposals for next year's Annual Meeting?
Shareholders may submit proposals on matters appropriate for shareholder
action at future annual meetings by following the rules of the Securities and
Exchange Commission and
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<PAGE>
the Company's By-laws. Proposals intended for inclusion in next year's
proxy statement and proxy card must be received by the Company not later than
November 7, 2000. All proposals should be addressed to the Secretary of the
Company.
How are proxies being solicited?
In addition to solicitation by mail, the officers, directors and employees
of the Company may, without additional compensation, solicit proxies by
telephone or personal interview. Brokers and other custodians, nominees and
fiduciaries will be requested to forward soliciting material to the beneficial
owners of Common Stock held by such persons and will be reimbursed by the
Company for their expenses. The cost of soliciting proxies for the Annual
Meeting will be born by the Company.
Share Ownership of Certain Beneficial Owners
The Company does not know of any person who beneficially owned more than 5%
of the Company's Common Stock on January 31, 2000, except as shown in the
following table:
Name and address of Common Stock Percent of
Beneficial Owner Beneficially Owned Class
------------------- ------------------ ----------
Orrstown Bank 248,921(1) 11.22%
77 East King Street
Shippensburg, PA 17257
(1) Shares held directly by the Bank, or by way of its nominees, in its trust
department as fiduciary for certain trusts, estates and agency accounts that
beneficially own the shares. The Bank shares voting power as to 211,452 of these
shares. Pursuant to the provisions of the applicable governing instruments
and/or in accordance with applicable provisions of fiduciary law, the Bank has
the right and power to vote those shares, either in person or by proxy, for the
election as directors to Class C of the three persons nominated by the Board of
Directors; for ratification of the adoption of the Employee Stock Purchase Plan;
and for ratification of the adoption of the Employee Stock Option Plan of 2000,
as long as such votes are in the best interest of any such trust, estate or
agency account. The Bank intends to vote the 211,452 shares for which it shares
voting power in that manner. The Bank does not have the right to vote the
remaining 37,469 shares.
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<PAGE>
Share Ownership of Management
The following table shows the number of shares of Company Common Stock
beneficially owned by each director and named executive officer of the Company
and by all of the directors and executive officers as a group, as of January 31,
2000.
Common Stock Percent of
Name Beneficially Owned(1)(2) Class(3)
---- ------------------------ ----------
Anthony F. Ceddia 742(4) *
Jeffrey W. Coy 13,147(5) *
Bradley S. Everly 1,398 *
Stephen C. Oldt 3,482(6) *
Andrea Pugh 2,985 *
Gregory Rosenberry 2,998 *
Kenneth R. Shoemaker 13,098(7) *
Glenn W. Snoke 3,637(4) *
Denver L. Tuckey 3,364(4) *
John S. Ward 309 *
Joel R. Zullinger 10,595 *
Directors and executive 57,521 2.59%
officers as a group (14
persons including those
named above)
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(1) Fractional shares rounded down to number of whole shares held.
(2) Shares held individually unless otherwise indicated.
(3) Less than 1% of outstanding shares unless otherwise indicated.
(4) Shares held jointly with spouse.
(5) 11,052 shares held jointly with spouse; 2,095 shares held individually.
(6) 1,384 shares held jointly with spouse; 2,098 shares held individually.
(7) 11,759 shares held jointly with spouse; 1,339 shares held individually.
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Section 16(a) Beneficial Ownership Reporting Compliance
Based on our records, we believe that during 1999 our directors and
executive officers complied with all SEC filing requirements applicable to them.
ITEM 1 - ELECTION OF DIRECTORS
The By-laws of the Company provide that the directors will serve in three
classes, as nearly equal in number as possible, with each class of directors
serving a staggered, three year term of office. At each annual meeting of
shareholders, a class consisting of approximately one third of all of the
Company's directors is elected to hold office for a term expiring at the annual
meeting held in the third year following the year of their election and until
their successors have been elected. At the Annual Meeting the shareholders will
be asked to elect three directors to Class C to serve until the annual meeting
of shareholders in 2003 or until their successor is elected.
The Board of Directors has nominated the following persons for election as
directors to Class C:
Anthony F. Ceddia
Andrea Pugh
Kenneth R. Shoemaker
All of the nominees are presently serving as directors of the Company and of
Orrstown Bank, the wholly owned bank subsidiary of the Company.
Your shares of Company Common Stock represented by your proxy will be voted
FOR the election of the 3 named nominees unless you mark the proxy form to
withhold authority to vote for one or more of the nominees. If one or more of
the nominees is unable or unwilling to serve as a director, the persons named in
the proxy will vote for the election of such substitute nominee, if any, as will
be named by the Board of Directors. The Company has no reason to believe that
any of the nominees will be unable or unwilling to serve as a director. Each
nominee has expressed a willingness to serve if elected.
The Board of Directors recommends a vote FOR the election of all 3 nominees
as directors to Class C.
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<PAGE>
Biographical Summaries of Nominees and Directors
Information about the nominees for election as directors to Class C at the
Annual Meeting and information about the directors in Class A and Class B is set
forth below.
<TABLE>
<CAPTION>
NOMINEES FOR DIRECTOR -- CLASS C - TERM EXPIRES 2003
Principal occupation
for last 5 years and Director
Name Age position with the Company Since(1)
---- --- ------------------------- --------
<S> <C> <C> <C>
Anthony F. Ceddia 56 President, 1996
(3) Shippensburg University
Andrea Pugh 47 Owner, PharmCare 1996
(3) Consultants, a pharmacy
consulting business
Kenneth R. Shoemaker 52 President and Chief 1986
(2) Executive Officer of the
Company and the Bank
<CAPTION>
CLASS A DIRECTORS - TERM EXPIRES 2002
Principal occupation
for last 5 years and Director
Name Age position with the Company Since(1)
---- --- ------------------------- --------
<S> <C> <C> <C>
Jeffrey W. Coy 48 State Legislator; Vice 1984
(2) Chairman of the Company
and the Bank
John S. Ward 61 Chief Clerk, Cumberland 1999
County, Pennsylvania
Joel R. Zullinger 51 Attorney-at-Law; 1981
(2) Chairman of the Board of
the Company and the Bank
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
CLASS B DIRECTORS - TERM EXPIRES 2001
Principal occupation
for last 5 years and Director
Name Age position with the Company Since(1)
---- --- ------------------------- --------
<S> <C> <C> <C>
Denver L. Tuckey 65 Retired businessman; 1995
(2) (3) Secretary of the Company
and the Bank
Glenn W. Snoke 51 President, Snokes 1999
Excavating & Paving, Inc.
Gregory A. Rosenberry 43 President, Tri-Valley 1997
Forestry, Inc.; a timber
harvesting and wholesale
business
</TABLE>
- --------------------------------------------------------------------------------
(1) Includes service as director of Orrstown Bank during period prior to 1988,
when Orrstown Bank became a wholly-owned subsidiary of the Company.
(2) Member of the Executive Committee of the Bank.
(3) Member of the Audit Committee of the Bank.
Board Committees and Meeting Attendance
During 1999 the Board of Directors of the Company met 6 times and the Board
of Directors of Orrstown Bank met 13 times. The Board of Directors of the
Company has an Executive Committee that did not hold any meetings in 1999. The
Board of Directors of the Bank has an Executive Committee and an Audit
Committee.
Executive Committee. The Executive Committee of the Bank's Board of
Directors acts on matters between regular meetings of the Board of Directors.
The Executive Committee also makes recommendations regarding compensation to the
Board of Directors and reviews the qualifications of and makes recommendations
to the Board of Directors regarding persons eligible to stand for election as
directors. The Executive Committee met 16 times during 1999. The members of the
Executive Committee are Jeffrey W. Coy, Chairman, Kenneth R. Shoemaker, Denver
L. Tuckey and Joel R. Zullinger. The same individuals also constitute the
Executive Committee of the Board of Directors of the Company.
Audit Committee. The Audit Committee examines the activities of the
Company's and the Bank's independent auditors and internal audit department to
determine whether these activities are reasonably designed to assure the
soundness of accounting and financial procedures. The Audit Committee met 6
times during 1999. The members of the Audit Committee are Andrea Pugh, Chair,
Anthony F. Ceddia, and Denver L. Tuckey.
7
<PAGE>
During 1999 all of the Directors of the Company and the Bank attended at
least 75% of all meetings of the respective Boards and committees on which they
served.
Compensation of Directors
Directors' Fees. During 1999, each director of the Company received $275.00
for each meeting of the Company Board of Directors attended and $150.00 for each
committee meeting attended. Each director of Orrstown Bank was paid an annual
fee of $5,000.00 and a fee of $625.00 for each meeting attended. Non-employee
directors of the Bank also receive $175.00 for each committee meeting attended.
In addition, the Chairman of the Board of the Bank receives an annual fee of
$5,000, the Vice Chairman receives an annual fee of $3,000 and the Secretary
receives an annual fee of $2,000.
Deferred Compensation Plan. In 1995, the Company and Orrstown Bank
established a non-qualified deferred compensation plan for directors.
Participation in the plan is voluntary. Kenneth R. Shoemaker, President and
Chief Executive Officer of the Company and the Bank, and Stephen C. Oldt,
Executive Vice President and Chief Operating Officer of the Bank, also
participate in the Plan. Each participant may elect each year to defer all or a
portion of his or her directors' fees or, in the case of Messrs. Shoemaker and
Oldt, base salary. Those deferring compensation must begin withdrawals from the
plan by age 75. The amounts deferred are invested in a rabbi trust with the
trust department of Orrstown Bank as trustee. The participants direct the
investment of their own accounts and there is no guarantee as to investment
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.
In addition, Orrstown Bank has a separate deferred compensation arrangement
with seven of its directors or former members of its Board of Directors whereby
a director or his or her 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 future benefits to be paid, which are
included in other liabilities on the Company's consolidated balance sheet,
amounted to $192,503 at December 31, 1999. Annual expense of $28,133 was charged
to operations for 1999.
Directors Retirement Plan. In 1998 Orrstown Bank established a director's
retirement plan which provides participating directors a $12,000 per year
benefit (indexed for inflation by 4.00% per year until payments commence) for
the lesser of ten years or the number of years served. This program encourages
current directors to continue to serve as directors and enables the Bank to
reward its long-serving directors for their valuable services.
Non-Employee Director Stock Option Plan of 2000. On January 27, 2000, the
Board of Directors of the Company approved the Orrstown Financial Services, Inc.
Non-Employee Director Stock Option Plan of 2000. The Directors' Option Plan is a
formula plan under which options to purchase shares of Company Common Stock are
granted each year to directors in office on April 1. The number of options
granted each year is based on the Company's return on
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<PAGE>
average equity for the most recent fiscal year. All options have a term of 10
years from the regular grant date, are fully exercisable from the regular grant
date and have an exercise price equal to the "fair market value" of Company
Common Stock as of the date of the grant of the option. As long as shares of
Company Common Stock are traded over-the-counter and quotations for the shares
appear on the National Association of Securities Dealers, Inc.'s OTC Bulletin
Board service, "fair market value" will mean the average of the average of the
daily high bid and low offer quotations for shares of Company Common Stock
reported through the OTC Bulletin Board service for the 10 trading days
immediately preceding the date of the grant of the option. If no bid or no offer
quotations are available during the 10 day pricing period, then "fair market
value" will mean the price of the last trade reported for the shares through the
OTC Bulletin Board service. If a director "retires," whether as a result of
reaching mandatory retirement age or under any other circumstances the Board of
Directors, in its discretion, may determine to constitute retirement, the
options previously granted to the director will expire at their scheduled
expiration date. If a director's service as a director terminates for any other
reason, the options previously granted to the director will expire six months
after the date of termination of service unless scheduled to expire sooner. As
of the date of this proxy statement, no options have been granted under the
Directors' Option Plan. The first options to be granted under the Director's
Option Plan will be to directors in office on April 1, 2000.
Report on Executive Compensation
The Company does not have a compensation committee and no compensation was
paid to executive officers of the Company by the Company in 1999. All
compensation was paid by the Bank.
The Executive Committee of the Bank, composed of three non-employee
Directors of the Bank and Kenneth R. Shoemaker, President and Chief Executive
Officer of the Company and the Bank, conducts a full review each year of the
Bank's executive compensation programs and is responsible for making
recommendations to the full Board of Directors. Mr. Shoemaker does not
participate in the Committee's evaluation of his performance for purposes of his
compensation. With respect to other executive officers, the Committee considers
the recommendations of Mr. Shoemaker before making final recommendations to the
Board of Directors.
The Bank's executive compensation program has three main components:
Base Salary. The Executive Committee determines base salaries for executive
officers based upon competitive pay practices of other banks of similar size on
a regional basis for similar positions and responsibilities. The Executive
Committee obtains comparisons of base salaries paid by other banks from various
sources, including L. R. Webber Associates, a Holidaysburg, Pennsylvania
consulting firm. Annually, the Executive Committee recommends changes in base
salaries of executive officers based on its evaluation of past performance, job
duties, scope and responsibilities and expected future contributions. In
determining the level of base salary, an individual's personal performance in
achieving previously established goals is the most important factor.
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<PAGE>
Executive Incentive Plan. The Executive Committee also oversees the Bank's
Executive Incentive Plan established in 1998. The purpose of the Plan is to
support and promote the pursuit of the Bank's organizational objectives and
financial goals through the payment of annual cash bonuses to executive officers
and other key employees. Under the Plan, the percentage increase in earnings for
the year is given a 75% weighting and the percentage increase in funds (deposits
and short-term purchased funds) for the year is given a 25% weighting. The
resulting percentage factors are then added together, resulting in a bonus
percentage factor to be applied to an executive's salary to determine the amount
of his or her bonus. For example, a 10% increase in earnings and a 20% increase
in funds would result in a 12.5% bonus percentage factor (10% x .75 = 7.5%, 20%
x .25 = 5%; 7.5% + 5% = 12.5%). Assuming a base salary of $100,000, the amount
of the bonus would be $12,500. Under the Plan, the Bank will pay out 50% of the
bonus amount in the year to which the bonus relates, 25% in the next year and
25% in the second year. Thus, the amounts reported below in the Summary
Compensation Table as paid in 1999 pursuant to the Executive Incentive Plan
include 50% of the bonus amount earned in 1999 and 25% of the bonus amount
earned in 1998. The bonus amounts as to which payment is deferred to subsequent
years are not vested and will be forfeited by an employee whose employment with
the Bank is terminated prior to payment of the deferred amounts. In addition, in
both 1998 and 1999, the Board of Directors has determined, within its discretion
under the Plan, to actually fund bonuses under the Plan at the rate of 50% of
the bonus amount calculated pursuant to the principles described above. The
Executive Committee and the Board of Directors have complete discretion as to
whom bonuses will be awarded under the Plan and have the further discretion to
award bonuses in excess of the amounts calculated pursuant to the Plan.
Deferred Compensation and Supplemental Benefit Programs. The Bank has
established certain deferred compensation and supplemental benefit programs
described elsewhere in this proxy statement for certain of its executive
officers. The purposes of these programs are to provide to those executive
officers an economic incentive for long term service to the Company and the
Bank. The Executive Committee believes that these programs are competitive with
those offered by other banks of similar size on a regional basis.
Chief Executive Officer Compensation. Mr. Shoemaker's compensation for 1999
was established based upon the same factors and policies used to establish
compensation for executive officers generally.
Executive Committee:
Jeffrey W. Coy, Chairman
Kenneth R. Shoemaker
Denver L. Tuckey
Joel R. Zullinger
10
<PAGE>
Company Performance
The following graph shows a five-year comparison of the cumulative total
return on Company Common Stock as compared to two other indexes: the S&P 500
Index and an index of banks with assets of under $500 million in assets. For
1999, shareholder returns on Company Common Stock are based upon trades reported
by the National Association of Securities Dealers' Inc.'s OTC Bulletin Board
service. For prior years, shareholder returns on Company Common Stock are based
upon reports to the Company by shareholders that bought or sold shares during
the indicated periods. The Company is not aware of all prices at which shares
traded during such periods. The shareholder returns shown in the graph are not
necessarily indicative of future performance.
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
<TABLE>
<CAPTION>
Period Ending
--------------------------------------------------------------
Index 12/31/94 1/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Orrstown Financial Services, Inc. 100.00 103.50 119.41 166.96 246.38 371.88
S&P 500 100.00 137.58 169.03 225.44 289.79 350.78
SNL < $500M Bank Asset-Size Index 100.00 136.80 176.08 300.16 274.05 253.69
</TABLE>
SNL SECURITIES LC
(C) 2000
The performance illustrated assumes that $100 was invested in Company Common
Stock and each index on December 31, 1994 and that all dividends were
reinvested.
11
<PAGE>
Executive Compensation
Summary of Compensation. The following table shows cash and other
compensation paid or accrued during the last three fiscal years to the Company's
Chief Executive Officer and other executive officers who received total annual
salary and bonus exceeding $100,000 in 1999.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Other
Fiscal annual All other
Name and principal position Year Salary(1) Bonus(2) compensation(3) compensation(4)
------ --------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Kenneth R. Shoemaker, 1999 138,000 14,000 -- 69,254
President and Chief 1998 130,000 12,000 -- 24,735
Executive Officer 1997 122,000 10,000 -- 22,813
- -------------------------------------------------------------------------------------------------------------------
Bradley S. Everly, Executive Vice 1999 105,000 9,542 -- 32,979
President and Chief Financial 1998 -- -- -- --
Officer 1997 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Stephen C. Oldt, Executive Vice 1999 94,320 9,594 -- 45,668
President and Chief Operating 1998 90,820 5,000 -- 17,403
Officer 1997 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Amounts shown include cash compensation earned and received as well as
amounts earned but deferred at the election of the executive officer.
(2) Includes bonuses paid in 1999 under the Executive Incentive Plan. Also
includes special bonuses of $2,000 each paid to Messrs. Shoemaker, Everly and
Oldt during 1999.
(3) Perquisites and other personal benefits which do not exceed the lesser of
$50,000 or 10% of total annual salary and bonuses are excluded.
(4) Includes for 1999 for Messrs. Shoemaker, Everly and Oldt, respectively, the
following compensation amounts: (i) profit sharing contributions, $20,761,
$15,775 and $14,148; (ii) matching contributions to the 401(k) plan, $4,140,
$3,285 and $2,759; (iii) the present value of the economic benefit to the
executive from premiums paid by the Company to purchase split dollar life
insurance contracts under the Company's salary continuation plans, $43,753,
$13,755, and $28,240; (iv) cash payments in lieu of benefits under the Company's
cafeteria plan not selected by Mr. Shoemaker, $408, and Mr. Everly, $164; and
(v) the amount of premiums paid by the Company for death benefit in excess of
$50,000 under the Company's group term life insurance policy on behalf of Mr.
Shoemaker, $192, and Mr. Oldt, $521.
Retirement Benefits. In 1988 Orrstown Bank established a profit sharing
plan covering all employees who have attained age 21, completed one year of
service and have worked for 1,000 hours or more during the plan year. Upon
becoming eligible to participate in 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 Director's. Substantially all of the Bank's
employees are
12
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covered by the plan The total amount allocated to the executive officers
identified in the Summary Compensation Table was $50,684.
In 1992 the Bank established a 401(k) plan for its employees. The Bank
makes annual matching contributions of up to 50% of employee contributions to
the plan. The total amount allocated to the executive officers identified in the
Summary Compensation Table was $10,184.
In 1998, the Bank's Board of Directors established salary continuation
plans for Kenneth R. Shoemaker, Bradley S. Everly, Stephen C. Oldt and Philip E.
Fague, Executive Vice President and Senior Trust Officer, in order to provide
them with supplemental retirement income so that when combined with Social
Security and amounts available under the Bank's profit sharing and 401(k) plan,
they will be provided a total retirement income equal in amount to 70% of final
annual salary. In projecting the amount of an employee's final annual salary,
annual salary was assumed to increase at the rate of 5% per year. Vesting in the
benefits of the salary continuation plans is determined within the discretion of
the Board of Directors. As a result, an intended purpose of the plans is to
provide an incentive to such persons to continue in the employ of the Bank.
In 1998, the Bank's Board of Directors also established an officer group
term replacement plan for the benefit of Messrs. Shoemaker, Everly, Oldt and
Fague. This plan provides participating officers with a benefit equal to two
times current salary with no cap. Under the plan the officer receives the same
coverage as he currently receives under the Bank's group term plan at less cost
to the Bank while the officer is employed. The officer receives continued
coverage after retirement for a small annual charge. The post-retirement
coverage will approximate two times annual salary (not to exceed the net
coverage purchased).
Change in Control Agreement. The Company and the Bank have entered into a
change in control agreement with Mr. Shoemaker. The agreement generally provides
that in the event of termination of Mr. Shoemaker's employment (other than for
cause) with the Company or the Bank under certain circumstances following a
"change in control" of the Company or the Bank, Mr. Shoemaker will be entitled
to receive continued payment of his annual cash compensation for three years. If
Mr. Shoemaker would obtain other employment at any time during the three year
period, his compensation from his new employer would be offset against the
amounts to be paid to him under the agreement. The 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 for any subsequent
employment, or until he reaches age 65. For purposes of the agreement a "change
in control" is defined to include an acquisition of 20% or more of the
outstanding voting securities of the Company; a merger or consolidation of the
Company or the Bank if, as a result of the transaction, less than 50% of the
voting securities of the surviving corporation are owned by the former
shareholders of the Company; a sale of substantially all the assets of the
Company; or the occurrence of any other event designated by a majority of the
non-employee directors to constitute a change in control for purposes of the
Agreement.
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Transactions with Management
During 1999 some of the directors and executive officers of the Company and
the Bank, members of their immediate families and some of the companies with
which they are associated, had banking transactions in the ordinary course of
business with the Bank and may be expected to have similar transactions in the
future. These transactions were made on substantially the same terms, including
interest rates, collateral requirements and repayment terms, as those prevailing
at the time for comparable transactions with non-affiliated persons and did not
involve more than the normal risk of collectability or present other unfavorable
features.
ITEM 2 - RATIFY ADOPTION OF EMPLOYEE STOCK PURCHASE PLAN
On January 27, 2000 the Board of Directors of the Company unanimously
approved and adopted, subject to shareholder ratification, the Employee Stock
Purchase Plan. The purpose of the Stock Purchase Plan is to provide an
opportunity for employees of the Company and its subsidiaries to become
shareholders of the Company. The Board of Directors believes that by becoming
shareholders of the Company, the interests of employees will become more closely
linked to the interests of the Company's shareholders.
The following is a summary of the key provisions of the Stock Purchase
Plan. You are encouraged to read the Plan in its entirety. A complete copy of
the Plan is attached to this proxy statement as Exhibit A.
Administration and Amendment
The Board of Directors of the Company will administer the Stock Purchase
Plan. The Board of Directors may delegate its duties with respect to the Plan to
a committee composed of two or more directors appointed by the Board. The Board
of Directors will be responsible to administer, interpret and construe all
provision of the Plan, to adopt rules and regulations for administering the Plan
and to make all other determinations deemed necessary or appropriate for
administering the Plan. At any time the Board of Directors may amend, terminate
or suspend the Plan or any of its provisions. Amendments to the Plan will be
subject to approval by the shareholders of the Company only if and to the extent
that applicable laws, rules or regulations require such approval.
Eligible Employees
Any employee of the Company or any of its subsidiaries who is customarily
scheduled to work at least 20 hours per week and has been employed by the
Company or any of its subsidiaries for at least one year, may purchase shares of
Company Common Stock pursuant to the Plan if they are employed by the Company or
any of its subsidiaries on the relevant "offering date" and continue to be
employed by the Company or any of its subsidiaries on the corresponding
"purchase date." "Offering date" is defined by the Plan to mean each May 1 and
November 1 occurring during the term of the Plan. "Purchase date" is defined by
the Plan to
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mean each April 30 and October 31 occurring during the term of the Plan. Each
May 1 offering date will correspond with a succeeding October 31 purchase date,
and each November 1 offering date will correspond with a succeeding April 30
purchase date. An employee whose customary employment with the Company or any of
its subsidiaries is not for more than five months in any calendar year will not
be eligible to participate in the Plan.
Purchase of Shares
Any employee who is eligible to participate in the Stock Purchase Plan and
who has enrolled in the Plan by filing the appropriate enrollment form and other
required documents, may purchase shares of Company Common Stock on each
"purchase date" under the Plan. If the Plan is ratified by the shareholders at
the Annual Meeting, the first offering date will be May 1, 2000 and the first
purchase date will be October 31, 2000.
The total purchase price of all shares of Company Common Stock an employee
may purchase pursuant to the Plan in any calendar year may not exceed the lesser
of 10% of the employee's annual compensation for that year or $25,000. For the
purposes of the Plan, annual compensation means basic annual salary plus
overtime pay, but does not include bonuses, profit sharing or any other form of
compensation.
In addition, an employee may not purchase shares pursuant to the Plan if,
after the purchase, the employee would own 5% or more of the total combined
voting power or value of all classes of capital stock of the Company or any of
its subsidiaries. For this purpose, shares of stock the employee may purchase
pursuant to outstanding options the employee may hold will be counted as shares
owned by the employee.
In the event employees subscribe to purchase more shares than are available
for purchase under the Plan, then the number of shares available for purchase
will be allocated among participating employees on a pro rata basis.
An employee's right to purchase shares of Company Common Stock pursuant to
the Plan will terminate immediately upon the termination of his or her
employment with the Company and its subsidiaries.
Shares Available under the Plan
75,000 shares of Company Common Stock are available for purchase pursuant
to the Plan, subject to anti-dilution adjustments. The Plan provides for
appropriate adjustments in the purchase price per share as of a particular
offering date or purchase date and in the number and kind of shares available
for issuance and subject to options under the Plan to avoid dilution in the
event of mergers, stock splits, stock dividends or other changes in the
capitalization of the Company. Fractional shares may not be purchased.
Purchase Price
The purchase price of shares under the Stock Purchase Plan is the lower of
85% of the "fair market value" of the shares on the applicable offering date or
the corresponding purchase date. For example, in connection with the October 31,
2000 purchase date, the purchase price for
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shares under the Plan will be the lower of 85% of the fair market value of the
shares on May 1, 2000 or 85% of the fair market value of the shares on October
31, 2000.
As long as shares of Company Common Stock are traded over-the-counter and
quotations for the shares appear on the National Association of Securities
Dealers, Inc.'s OTC Bulletin Board service, "fair market value" will mean the
average of the average of the daily high bid and low offer quotations for shares
of Company Common Stock reported through the OTC Bulletin Board service for the
10 trading days immediately preceding the relevant date. If no bid or no offer
quotations are available during the 10 day pricing period, then "fair market
value" will mean the price of the last trade reported for the shares through the
OTC Bulletin Board service. The Plan provides the Board of Directors with the
discretion to determine "fair market value" if none of the methods specified in
the Plan are applicable.
Payment for Shares Purchased
Upon enrolling in the Stock Purchase Plan, an employee will designate an
amount to be withheld from each paycheck. $10.00 is the minimum amount that may
be withheld. Amounts withheld will be on an after-tax basis, credited to an
account established in the employee's name on the books of the Company, or one
of its subsidiaries, and held in a non-interest bearing escrow account
established by the Company for purposes of the Plan.
Subject to the limitations on the number of shares that may be purchased
described above, on each purchase date the full amount of an employee's
withholding account will be used to purchase the maximum number of whole shares
that can be purchased with that amount based upon the purchase price of the
shares.
In addition, in connection with each October 31 purchase date, an employee
may contribute amounts toward the purchase of shares pursuant to the Plan in
addition to the amounts withheld from his or her paycheck, subject to the
limitations on the number of shares that may be purchased described above.
Employees may not contribute such additional amounts in connection with an April
30 purchase date.
Any amounts remaining in an employee's withholding account after the
purchase of shares on a purchase date will remain credited to the employee's
account and used to purchase shares on the next purchase date, unless the
employee instructs the Company to pay such amounts to him or her. In addition,
such amounts will be paid to the employee upon termination of the employee's
participation in the Plan.
Federal Tax Consequences of Purchasing Shares Pursuant to the Plan
The Plan is intended to be an "Employee Stock Purchase Plan" as defined in
Section 423 of the Internal Revenue Code. An employee who is continuously
employed by the Company or one of its subsidiaries during an offering period and
who makes no disposition of shares of Company Common Stock received by the
employee with respect to such offering period within one year after the date of
transfer of the shares to the employee or within two years after the related
offering date, will not realize taxable income upon the subscription or when the
employee completes payment or receives delivery of the shares of Company Common
Stock. Under these circumstances, there will be no tax effect upon the Company
(it will not be entitled to any
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deduction from income by reason of the employee's subscription or purchase, nor
will it recognize gain or loss upon the transfer of the shares to the
employees).
In the event of any disposition of Company Common Stock acquired under the
Plan by an employee which meets the holding period requirements set forth above,
or in the event of the employee's death while owning such shares, there is
included as compensation income of the employee for the taxable year of such
disposition or death, an amount equal to the lesser of (1) the excess of the
fair market value of the shares of Company Common Stock at the time of such
disposition or death over the amount paid for the shares, or (2) the excess of
the fair market value of the shares of Company Common Stock at the time the
option was granted over the amount paid for the shares. Gain in excess of such
amount or any loss on disposition will be treated as a capital gain or loss to
the individual.
A disposition of shares acquired under the Plan by an employee prior to the
expiration of the required holding period will result in any excess of the fair
market value of such shares at the time of exercise of the option over the
option price being treated as compensation income to the employee in the year in
which the disposition occurs, in which event the Company will be entitled to a
corresponding deduction from income.
Effective Date
The Stock Purchase Plan will be effective upon ratification by the
shareholders at the Annual Meeting. The Plan does not have a specified
termination date, although the Board of Directors may terminate the Plan at any
time. The Board of Directors may not, however, increase the maximum number of
shares available under the Plan, except for anti-dilution adjustments, without
shareholder approval. Thus, the Plan will effectively terminate when no shares
remain available under the Plan, unless the Board of Directors sooner terminates
the Plan.
Vote Required
The affirmative vote of a majority of the votes cast is required to ratify
adoption of the Employee Stock Purchase Plan.
Board Recommendation
The Board of Directors recommends a vote FOR ratification of the Employee
Stock Purchase Plan.
ITEM 3 - RATIFY ADOPTION OF EMPLOYEE STOCK OPTION PLAN
On January 27, 2000 the Board of Directors of the Company unanimously
approved and adopted, subject to shareholder ratification, the Employee Stock
Option Plan of 2000. The purpose of the Stock Option Plan is to promote the long
term success of the Company and the creation of shareholder value by:
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o providing additional incentives to those officers and key employees
who are in a position to contribute to the long term growth and
profitability of the Company,
o assisting the Company to attract, retain and motivate key personnel
with experience and ability, and
o linking employees receiving options directly to shareholder interests
through increased stock ownership.
The Plan seeks to achieve these purposes by providing for awards of options
to purchase Company Common Stock in the forms of incentive stock options - also
called ISOs - as provided in Section 422 of the Internal Revenue Code of 1986,
and non-qualified stock options - also called NQSOs.
The following is a summary of the key provisions of the Stock Option Plan.
You are encouraged to read the Plan in its entirety. A complete copy of the Plan
is attached to this proxy statement as Exhibit B.
Administration and Amendment
The Board of Directors of the Company will administer the Stock Option
Plan. The Board may delegate its duties with respect to the Plan to a committee
composed of two or more "non-employee directors" as defined by the Securities
and Exchange Commission's Rule 16b-3. The Board of Directors will be responsible
to administer, interpret and construe all provision of the Plan, to adopt rules
and regulations for administering the Plan and to make all other determinations
deemed necessary or appropriate for administering the Plan. At any time the
Board of Directors may amend, terminate or suspend the Plan or any of its
provisions, except that amendments to materially increase the total number of
shares available to be issued pursuant to options under the Plan or materially
modify the class of eligible employees must be approved by the shareholders.
Otherwise, amendments to the Plan will be subject to approval by the
shareholders of the Company only if and to the extent that applicable laws,
rules or regulations require such approval.
Eligible Employees
All officers and key employees of the Company or any of its subsidiaries
that are employed on a full time basis are eligible to receive options under the
Stock Option Plan. The Board of Directors will select each officer and key
employee who is granted an option under the Plan.
Term of the Plan
The Stock Option Plan became effective on January 27, 2000 when approved
and adopted by the Board of Directors. The Plan will continue in effect until
terminated by the Board of Directors and until all options awarded under the
Plan have lapsed, been exercised, satisfied or cancelled according to their
terms.
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The ISO provisions of the Plan, however, will not become effective until
the Plan is ratified by the shareholders within 12 months after the date of
adoption of the Plan by the Board of Directors. No ISO may be granted more than
10 years after adoption of the Plan by the Board of Directors. If the Plan is
not ratified by the shareholders, all options granted under the Plan will be
NQSOs.
Options
Options awarded under the Stock Option Plan will give the recipient the
right to purchase a number of shares of Company Common Stock at future dates at
an option price equal to the "fair market value" of the Common Stock at the date
of the grant of the option. As long as shares of Company Common Stock are traded
over the counter and quotations for the shares appear on the National
Association of Securities Dealers, Inc.'s OTC Bulletin Board service, "fair
market value" shall mean the average of the average of the daily high bid and
low offer quotations for shares of Company Common Stock reported through the OTC
Bulletin Board service for the 10 trading days immediately preceding the
relevant date. If no bid or no offer quotations are available during the 10 day
pricing period, then "fair market value" will mean the price of the last trade
reported for the shares through the OTC Bulletin Board service. The Plan
provides the Board of Directors with the discretion to determine "fair market
value" if none of the methods specified in the Plan are applicable.
The Board of Directors will determine the number of shares to be covered by
each option granted, the term of the option, the period of time for options to
vest after grant, if any, and other terms and limitations applicable to the
exercise of the option. The time during which an option may be exercised,
however, may not be more than 10 years after the date the option is granted. The
terms of each option will be set forth in a written option agreement between the
Company and the employee awarded the option in a form approved by the Board of
Directors. The terms of option agreements need not be identical.
The maximum amount of shares for which options may be granted to all
recipients in any calendar year is limited to a combined fair market value equal
to 25% of the consolidated net income of the Company for the preceding year. For
example, if 1999 consolidated net income is $4,000,000, the maximum amount of
shares for which options could be granted in 2000 would be limited to a combined
fair market value of $1,000,000. If the fair market value of shares of the
Company's Common Stock was $40 per share on the option grant date, the maximum
number of shares for which options could be granted in 2000 would be 25,000.
No single employee may be granted options during any calendar year for more
than 100,000 shares, subject to adjustment to avoid dilution as described below.
Grants of ISOs are subject to certain additional limitations. No ISO may be
granted more than 10 years after the date the Plan was adopted by the Board of
Directors. ISOs also may not be granted to any individual owning, on the grant
date, stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company. In addition, no individual may be granted an
ISO which results in the aggregate fair market value (at the time the option is
granted) of stock with respect to which ISOs are exercisable for the first time
by that individual during any calendar year exceeding $100,000.
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Under the terms of the Stock Option Plan, an employee who has been granted
an ISO and who ceases to be an officer or employee of the Company or any of its
subsidiaries for any reason other than death or disability, will have the right
to exercise the ISO, to the extent it was exercisable at the time of
termination, for three months after the termination of employment, unless by its
terms the ISO expires sooner. In the case of disability, the period is extended
to six months. In the case of death, the period of exercise will be one year.
In the event an employee who has been granted an NQSO retires, becomes
permanently disabled, dies or resigns within six months after a change in
control, the NQSO will not expire until the date originally specified for
expiration in the option agreement. In all other cases, the employee may
exercise the NQSO, to the extent it was exercisable at the time of termination,
within six months after the termination of employment unless, by its terms, the
NQSO expires sooner.
Options may be exercised according to the terms of the related option
agreement. Options, however, may not be exercised for fractional shares. In
addition, options may not be exercised for less than 100 shares unless the total
number of shares then available for exercise under the option is less than 100.
The option price is to be paid to the Company in full at the time the
option is exercised. Although payment of the option price typically is made in
cash, payment of the option price may be made in shares of Company Common Stock
owned by the employee for at least six months prior to the exercise of the
option, or partly in cash and partly in Common Stock. In the event any payment
is made in shares of Common Stock, shares delivered in full or partial payment
of the option price will be valued at their "fair market value" on the date of
payment.
Prior to delivery of the shares of Common Stock issuable upon the exercise
of an Option, any amount necessary to satisfy applicable federal, state, and/or
local withholding requirements must be paid promptly by the employee. The Stock
Option Plan provides the Board of Directors with the authority to permit payment
of withholding taxes by withholding all or a portion of any shares of Common
Stock that otherwise would be issued to the employee upon exercise of an option
or by the employee surrendering all or a portion of any shares of Common Stock
previously acquired by the employee.
Shares Available under the Plan
200,000 shares of Company Common Stock may be issued pursuant to options
granted under the Stock Option Plan, subject to anti-dilution adjustments. The
Plan provides appropriate adjustments in the number and kind of shares available
for grants of options under the Plan and subject to outstanding options under
the Plan to avoid dilution in the event of mergers, stock splits, stock
dividends or other changes in the capitalization of the Company. The per share
purchase price of outstanding options at the time of an event leading to
adjustment may also be subject to appropriate adjustment to prevent dilution
upon the occurrence of these events. In addition, shares subject to options that
are unexercised upon expiration of an option will become available for issuance
pursuant to future options granted under the Plan.
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Federal Tax Consequences of the Plan
ISOs granted under the Stock Option Plan are intended to constitute
"incentive stock options" within the meaning of Section 422A of the Internal
Revenue Code of 1986, while NQSOs will be "non-qualified stock options." Upon
the exercise of an NQSO, an employee will recognize taxable income (subject to
withholding) in an amount equal to the difference between the fair market value
of the shares on the date of exercise and the exercise price. Upon subsequent
sale of the shares by the employee, any difference between the sale price and
the employee's tax basis in the shares(generally, the fair market value of the
shares on the date of exercise) will be treated generally as capital gain or
loss.
In contrast, upon the exercise of an ISO, an employee generally will not
recognize income for federal income tax purposes. The difference between the
exercise price of the ISO and the fair market value of the shares subject to the
ISO at the time of exercise, however, is an item of tax preference which may
require payment by the employee of an alternative minimum tax. On the sale of
shares acquired by exercise of an ISO (assuming that the sale does not occur
within two years of the date of grant of the option or within one year from the
date of exercise), any gain will be taxed to the employee as capital gain. A
sale of shares acquired by exercise of an ISO within two years of the date of
grant or within one year from the date of exercise will result in the employee
recognizing ordinary income to the extent the fair market value of a share on
the date of exercise exceeds the exercise price. The capital gain or loss will
be short term or long term depending on whether the stock was held for more than
one year. Special rules may apply to executive officers that are subject to the
"short swing profit" recapture provisions of the Securities Exchange Act of
1934.
The Company will not be entitled to a deduction upon the grant or exercise
of an ISO, or upon the sale of any shares acquired pursuant to the exercise of
an ISO, except that a tax deduction may be available to the Company if an
employee sells the shares so acquired within two years of the date the ISO was
granted or one year of the date of exercise. Upon the exercise of an NQSO, the
Company is entitled to a deduction for federal income tax purposes in an amount
equal to the income recognized by the employee, provided the Company complies
with applicable tax withholding requirements.
The federal income tax consequences to an employee and to the Company may
vary from those described above, depending upon individual actions and
circumstances, including restrictions and other terms and conditions applicable
to the particular option granted under the Stock Option Plan.
Vote Required
The affirmative vote of a majority of the votes cast is required to ratify
adoption of the Employee Stock Option Plan of 2000.
Board Recommendation
The Board of Directors recommends a vote FOR the ratification of the
Employee Stock Option Plan of 2000.
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EXHIBIT A
ORRSTOWN FINANCIAL SERVICES, INC.
EMPLOYEE STOCK PURCHASE PLAN
TABLE OF CONTENTS
-----------------
Section I Definitions
Section II Purpose
Section III Available Shares; Adjustments
Section IV Grants and Terms of Options
Section V Payment For and Delivery of Shares
Section VI Termination and Amendment
Section VII Limitation on Resale
Section VIII Miscellaneous Provisions
Section IX Effective Date
A-1
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ORRSTOWN FINANCIAL SERVICES, INC.
EMPLOYEE STOCK PURCHASE PLAN
SECTION I
DEFINITIONS
ss.1.1. "Account" shall mean the book entry account established by the
Corporation for a participating Employee pursuant to ss.5.1 hereto.
ss.1.2. "Code" shall mean the Internal Revenue Code of 1986, as amended, and
any successor statute thereto.
ss.1.3. "Committee" shall mean that Committee appointed by the Corporation's
Board of Directors as described in Section 8.1 hereof or, if the Board
of Directors does not appoint such a Committee, the Board of Directors
itself in its capacity as administrator of the Plan.
ss.1.4. "Corporation" shall mean Orrstown Financial Services, Inc.
ss.1.5. "Employee" shall mean any employee of the Corporation, or any
Subsidiary of the Corporation who is customarily scheduled to work at
least 20 hours per week and has been employed by the Corporation, or
any Subsidiary of the Corporation, for at least one (1) year and who
is still employed on an Offering Date. Any employee of the Corporation
or Subsidiary whose customary employment is for not more than five
months in any calendar year shall not be eligible to participate in
the Plan.
ss.1.6. "Fair Market Value" as of any date shall be determined on a per share
basis by the Board of Directors as follows:
(a) If the Shares were traded over-the-counter on the date in
question and the Shares were classified by Nasdaq as a national market
issue (or, in the judgment of the Board of Directors, a comparable
designation), then the Fair Market Value shall be equal to the average
of the high and low sales prices of the Shares reported in Nasdaq
trading for that date or if no reported sale of Shares shall have
occurred on such date, then on the next preceding day on which there
was a reported sale.
(b) If the Shares were traded over-the-counter on the date in
question but the Shares were not classified by Nasdaq as a national
market issue (or, in the judgment of the Board of Directors, a
comparable designation), then the Fair Market Value shall be equal to
the mean between
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the last reported representative bid and asked prices quoted by the
Nasdaq system for such date.
(c) If the Shares were traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing
price reported by the applicable composite transactions reported for
such date.
(d) If none of the above are applicable, then the Fair Market
Value shall equal the average of the average of the daily high bid and
low offer quotations for the Shares reported through the National
Association of Securities Dealers, Inc.'s OTC Bulletin Board service
for the ten (10) trading days immediately preceding the applicable
date (the "Pricing period"). If, however, no bid or no offer quotation
for the Shares is reported through the OTC Bulletin Board service
during the Pricing Period, then the Fair Market Value will be the
price of the last trade reported for the Shares through the OTC
Bulletin Board service.
(e) If none of the foregoing provisions are applicable, then the
Fair Market Value shall be determined by the Board of Directors in
good faith on such basis as it deems appropriate.
ss.1.7. "Offering Date(s)" shall be May 1 and November 1 of each year.
ss.1.8. "Plan" shall mean the Orrstown Financial Services, Inc. Employee Stock
Purchase Plan.
ss.1.9. "Purchase Dates" shall be April 30th and October 31st of each year.
ss.1.10. "Shares" shall mean shares of the Common Stock, no par value, of the
Corporation.
ss.1.11. "Subsidiary" shall, subject to the determination to be made by the
Board of Directors of the Corporation pursuant to Section 8.3 hereof,
have the meaning that is ascribed to that term in Section 424 (f) of
the Code.
ss.1.12. "Trust Officer" shall be such person or persons (including vice or
assistant officers) as the Board of Directors shall from time to time
appoint to administer the Plan as contemplated by Section 8.1 of the
Plan, subject to the authority and responsibility of the Board or the
Committee
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SECTION II
PURPOSE
ss.2.1. The purpose of the Employee Stock Purchase Plan (the "Plan") is to
provide Employees of the Corporation and its subsidiaries, who wish to
become shareholders, an opportunity to purchase stock of the
Corporation. The Board of Directors of the Corporation believes that
Employee participation in the ownership of the Corporation will be to
the mutual benefit of both the Employees and the Corporation. The Plan
is intended to qualify as an "employee stock purchase plan" within the
meaning of Section 423 of Code.
SECTION III
AVAILABLE SHARES; ADJUSTMENTS
ss.3.1. A total of 75,000 Shares (subject to anti-dilution adjustments
provided in Section 3.2) may be sold pursuant to options to purchase
granted under the Plan. Either authorized and unissued Shares or
issued Shares heretofore or hereafter reacquired by the Corporation
may be made available for purchase under the Plan.
ss.3.2. Appropriate adjustments in the Fair Market Value per share as of a
particular Offering Date or Purchase Date and/or in the number and
kind of shares of stock which are available for the grant of options
under this Plan, shall be made to give effect to any mergers,
consolidations, acquisitions, stock splits, stock dividends, or other
relevant changes in the capitalization occurring after the effective
date of the Plan. No fractional Shares shall be subject to an option
to purchase and each Employee's option to purchase shall be adjusted
downward to the nearest full Share. In the case of adjustments to Fair
Market Value, the Fair Market Value shall be adjusted downward to the
nearest whole cent. Any agreement of merger or consolidation will
include appropriate provisions for protection of the then existing
rights of Employees under the Plan.
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SECTION IV
GRANTS AND TERMS OF OPTIONS
ss.4.1. All Employees granted options to purchase under this Plan shall have
the same rights and privileges, except as set forth herein.
ss.4.2. On the Offering Dates each year while this Plan is in effect, the
Corporation will grant options to purchase Shares to all Employees. By
way of such options, each Employee shall be entitled to purchase up to
a maximum number of Shares each calendar year as determined in
ss.4.4-ss.4.8 below. In order to exercise the option to purchase, an
Employee must complete and file with the Trust Officer, on or before
the applicable Purchase Date, an enrollment form and any other papers
prescribed by the Corporation.
ss.4.3. The purchase price of Shares acquired pursuant to the above-described
options shall be the lower of 85 percent of the Fair Market Value of
the Shares on the applicable Offering Date or related Purchase Date.
For example, the lower of the Fair Market Values on the November 1st
Offering Date or the subsequent April 30th Purchase Date times 85%
will be the purchase price for the April 30th Purchase Date. The lower
of the Fair Market Values on May 1st or October 31st times 85% will be
the purchase price for the October 31st Purchase Date. The Board of
Directors may choose to use an alternative valuation method provided
that such valuation method is considered an appropriate method of
determining the fair market value of the Shares for the purposes of
Section 423 of the Code.
ss.4.4. Each Employee shall be limited in the number of Shares which can be
acquired in any calendar year to that number of Shares the total
purchase price of which does not exceed 10 percent of such Employee's
annual compensation during such calendar year. For the purposes of
this Plan, annual compensation shall mean basic annual salary plus
payments for overtime work but shall not include bonuses, profit
sharing or any other form of additional compensation.
ss.4.5. No employee shall be granted an option or have the right to acquire
Shares if immediately after the option is granted the Employee owns,
actually or constructively (as determined with reference to Section
424 (d) of the Code), 5 percent or more of the total combined voting
power or value of all classes of Stock of the Corporation or any
Subsidiary at the time of the Offering Date. In making such
determinations, shares of stock which the Employee may purchase under
outstanding options shall be treated as stock owned by the Employee.
ss.4.6. If at any time during the term of this Plan the available Shares are
oversubscribed, pursuant to any applicable rules, laws, and
regulations of any government agency imposing limitations on the
number of Shares which may be issued, or by reason of the limitations
in ss.3.1 above, then the total purchase price which in ss.4.4 fixes
the
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maximum number of shares available for purchase by each Employee
shall be reduced to that percentage of each Employee's compensation as
may be necessary to eliminate such over subscription on a pro rata
basis.
ss.4.7. The right to purchase Shares shall terminate upon an Employee's
termination of employment for any reason. Any amounts credited to an
Employee's account, pursuant to ss.5.1, shall be paid to the
terminated Employee or Employee's estate, if applicable, as soon as
administratively feasible following the Employee's termination.
ss.4.8. Notwithstanding any other provision of this Plan, no Employee shall be
granted options which would result in such Employee's right to
purchase stock to accrue at a rate which exceeds $25,000 of fair
market value (determined as of the beginning of the six month offering
period) for the calendar year in which the option to purchase under
this Plan is outstanding.
ss.4.9. Rights and options under this Plan are not assignable or transferable
by an Employee and are exercisable only by the Employee.
SECTION V
PAYMENT FOR AND DELIVERY OF SHARES
ss.5.1. Each Employee shall, upon enrollment in the Plan, designate a
contribution amount to be withheld from each paycheck. Deductions will
be taken on an after-tax basis. The minimum contribution that can be
deducted from each paycheck is $10.00. The payroll deductions will be
credited to an Account established in each employee's name on the
Corporation's, or one of its subsidiaries' books with said funds being
held in a non-interest bearing escrow account established by the
Corporation for purpose of this Plan. Except as provided below, all
amounts credited to an Employee's Account shall be applied toward the
purchase of Shares on the applicable Purchase Date. The Corporation
shall pay all administrative expenses of the Plan. The full amount of
payroll deductions will be used to purchase Shares. However, no
interest will be paid on the balance credited to employee accounts on
each pay date. Only amounts available via payroll deductions may be
utilized to purchase Shares on the April 30th Purchase Date each year.
Any purchase of Shares under this Plan will be only for whole shares.
In addition to the payroll deductions, an Employee may file a
Subscription Agreement whereby the Employee may apply additional funds
to purchase Shares on the October 31st Purchase Date, but not,
however, in excess of an amount equal to the annual maximum determined
pursuant toss.4.4-ss.4.8. Any amounts remaining in an Employee's
Account following a purchase of Shares on an applicable Purchase Date,
due to the requirement of purchasing whole Shares, shall remain
credited to the Employee's Account and applied toward the purchase of
Shares on the next Purchase
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Date. Any amounts remaining in an Employee's account immediately
following a purchase of Shares on an applicable Purchase Date, shall
be paid to the Employee if he/she elects to cease participation in the
Plan. An Employee may cease participation in the Plan no later than
seven (7) days prior to a Purchase Date. In the event an Employee
ceases participation, the Employee may request, in writing, that his
Account be paid to him/her in lieu of being applied toward the
purchase of Shares. Alternatively, an Employee may allow funds
credited to his/her Account to be applied toward the purchase of
Shares as of a Purchase Date and elect to cease participation with
respect to any future Purchase Date. In order to re-participate in the
Plan, an Employee must re-submit documents as required by ss.9.2.
ss.5.2. The Shares so purchased shall by issued to such Employee within thirty
days after the Purchase Date.
SECTION VI
TERMINATION AND AMENDMENT
ss.6.1. The Board of Directors of the Corporation reserves the right to make
any amendment to this Plan which it deems to be required or
appropriate to qualify the Plan as "employee stock purchase plan"
under the Code or the regulations adopted thereunder by the Internal
Revenue Service.
ss.6.2. The Board of Directors of the Corporation shall have complete power
and the authority to terminate or amend the Plan; provided, however,
that the Board of Directors shall not, without the approval of the
shareholders of the Corporation increase the maximum number of shares
which are or may be available pursuant to ss.3.1 hereof except for
adjustments permitted by this Agreement.
ss.6.3. This Plan does not have a specified termination date. The Board of
Directors of the Corporation reserves the right to terminate the Plan
at any time without notice provided that no such termination can
affect a Participant's right to purchase Shares, with funds credited
to his Account, up through the effective date of the termination of
the Plan. In the event of the termination of the Plan after an
Offering Date but prior to the subsequent Purchase Date, the effective
date of the termination of the Plan shall constitute the Purchase Date
for the then applicable Offering Date.
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SECTION VII
LIMITATION ON RESALE
ss.7.1. The Shares so purchased shall not be resold by the registered owner or
owners thereof within one year of purchase, except in case of death of
any registered owner or as otherwise permitted by the Board of
Directors. There shall be no other limitation on resale of shares
purchased under this Plan, except as provided under applicable federal
or state laws, rules or regulations. However, notwithstanding anything
to the contrary contained in this Plan, Shares shall be distributed
pursuant to the Plan only if the Shares are registered under such
federal and state securities laws as the Corporation may deem
necessary, or if exemptions from such registration are deemed to be
available; but in no event shall distributions be made during any
period of time in which the Corporation deems that the same may
violate a federal, state or securities exchange rule, regulation or
law. Further, in the absence of registration under federal and state
securities laws as referenced above, each participant may be required
by the Corporation to execute such acknowledgment and agreements as
may be deemed necessary or appropriate by the Corporation to secure
compliance with exemptions from registration under federal or state
securities laws, which compliance may involve regulation of the manner
in which the Shares may be sold or transferred by the participant, and
may prohibit the sale of Shares for a period of time. Certificates for
Shares issued under this Plan may bear an appropriate legend making
reference to any applicable resale, transfer and other restrictions.
SECTION VIII
MISCELLANEOUS PROVISIONS
ss.8.1. Subject to the express provisions of the Plan, the Board of Directors
or a Committee of two or more directors appointed by the Board, shall
have plenary authority to administer, interpret and construe all
provisions of the Plan, to adopt rules and regulations for
administering the Plan, and to make all other determinations deemed
necessary or appropriate for administering the Plan; and the
determinations of the Board (or the Committee, as the case may be) as
to the foregoing matters shall be final and conclusive and binding
upon all participants. Subject to the authority and responsibility of
the Board of Directors or Committee as aforesaid, the Trust Officer
shall administer, interpret and apply all provisions of the Plan.
Nothing contained in this Plan shall be deemed to authorize amendments
to the Plan or administration of the Plan in a manner inconsistent
with the provisions of Section 423 of the Code.
ss.8.2. No member of the Board of Directors or the Committee shall be liable
for any act or omission (whether or not negligent) taken or omitted in
good faith, or for the exercise
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of authority or discretion granted in connection with this Plan to the
Board of Directors or the Committee, or for the acts or omissions of
any other members of the Board of Directors or the Committee. Subject
to any numerical limitations on Committee membership set forth in
Section 8.1 hereof, the Board of Directors may at any time appoint
additional members of the Committee and may at any time remove any
member of the Committee with or without cause. Vacancies in the
Committee, however caused, may be filled by the Board of Directors if
it so desiresss.8.3. Employees of any corporation or other entity
which becomes a subsidiary (within the meaning of Section 424 (f) of
the Code) of the Corporation after the effective date of this Plan
shall not be eligible to participate in the Plan unless and until the
Board of Directors of the Corporation shall designate such corporation
or entity as one whose employees may be offered options under the
Plan. At the time this Plan is adopted, the only subsidiary designated
by the Board of Directors is Orrstown Bank. New designations of
employer corporations from time to time from among the Corporation and
its subsidiaries, including corporations that subsequently become its
parent or subsidiaries, shall not require shareholder approval.
ss.8.3. Nothing contained in this Plan or any option granted pursuant to this
Plan shall confer upon any Employee the right to continue in the
employ of the Corporation or any present or future subsidiary, or
interfere in any way with the rights of the Corporation and any
subsidiary to terminate his employment in any way.
ss.8.4. The provisions of the Plan shall, in accordance with its terms, be
binding upon, and inure to the benefit of, all successors of each
Employee participating in the Plan, including, without limitation,
such Employee's estate and the executors, administrators or trustees
thereof, heirs and legatees, and any receiver, trustee in bankruptcy
or representative of creditors of such Employee.
ss.8.5. The laws of the Commonwealth of Pennsylvania will govern all matters
relating to this Plan except to the extent superseded by the laws of
the United States.
SECTION IX
EFFECTIVE DATE
ss.9.1. The Plan shall become effective upon approval by the shareholders of
the Corporation at the Annual Meeting of Shareholders in the Year
2000. The Corporation's obligation to offer, sell and deliver its
Shares under this Plan is subject to the approval of any governmental
authority required in connection with the authorized issuance or sale
of such Shares and is further subject to the Corporation receiving,
should it determine to do so, the advice of its counsel that all
applicable laws and regulations have been complied with.
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EXHIBIT B
ORRSTOWN FINANCIAL SERVICES, INC.
EMPLOYEE STOCK OPTION PLAN
OF 2000
TABLE OF CONTENTS
-----------------
Section I Definitions
Section II Purpose
Section III Available Shares; Adjustments
Section IV Class of Employees Eligible to Receive Options
Section V Incentive Stock Options and Nonqualified Stock Options
Section VI Termination and Amendment
Section VII Limitation on Resale
Section VIII Miscellaneous Provisions
Section IX Effective Date
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ORRSTOWN FINANCIAL SERVICES, INC.
EMPLOYEE STOCK OPTION PLAN
OF 2000
SECTION I
DEFINITIONS
ss.1.1. "Code" shall mean the Internal Revenue Code of 1986, as amended, and
any successor statute thereto.
ss.1.2. "Committee" shall mean that committee or committees appointed by the
Corporation's Board of Directors as described in Section 8.1 hereof
or, if the Board of Directors does not appoint a Committee, the Board
of Directors itself in its administrative capacity with respect to the
Plan.
ss.1.3. "Corporation" shall mean Orrstown Financial Services, Inc.
ss.1.4. "Incentive Stock Option" shall mean an option granted pursuant to this
Plan which satisfies all of the requirements of Section 422 of the
Code and the regulations thereunder.
ss.1.5. "Nonqualified Stock Option" shall mean an option granted pursuant to
this Plan which does not satisfy all of the requirements of Section
422 of the Code and the regulations thereunder.
ss.l.6. "Permanently Disabled" shall mean the physical or mental condition of
an optionee which renders him incapable of continuing his customary
duties of employment as determined by the Committee.
ss.1.7. "Shares" shall mean shares of the Common Stock, no par value, of the
Corporation.
ss.1.8. "Subsidiary" or "Subsidiaries" shall have the meaning that is ascribed
to those terms in Section 424(f) of the Code, and the Corporation
shall be deemed to be the grantor corporation for purposes of applying
such meaning.
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SECTION II
PURPOSE
ss.2.1. The purpose of this Employee Stock Option Plan (this "Plan") is to
provide additional incentive to officers and key employees of the
Corporation and its Subsidiaries who make substantial contributions by
their abilities, loyalty and industry. By encouraging them to invest
in Shares and thereby to acquire a proprietary interest in the
business of the Corporation, the Corporation intends that this Plan
will facilitate motivating, retaining and securing officers and key
employees of high caliber and potential.
SECTION III
AVAILABLE SHARES; ADJUSTMENTS
ss.3.1. A total of 200,000 Shares (subject to anti-dilution adjustments
provided in Section 3.2) may be issued pursuant to options granted
under this Plan. Shares subject to options which are unexercised upon
termination of such options shall be available for future options
granted under the Plan. Either authorized and unissued Shares or
issued Shares heretofore or hereafter reacquired by the Corporation
may be made available for purchase under the Plan.
ss.3.2. Appropriate adjustments shall be made in the number and kind of shares
of stock available for the grant of options under this Plan and
subject to outstanding options issued under this Plan and, in the case
of outstanding options at the time of the event leading to the
adjustment, in the per share purchase price of Shares upon exercise,
to give effect to any mergers, consolidations, acquisitions, stock
splits, stock dividends, or other relevant changes in the
capitalization occurring after the effective date of the Plan or the
award of an option. Subject to Section 6.4, any agreement of merger or
consolidation will include appropriate provisions for protection of
the then existing rights of optionees under the Plan.
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SECTION IV
CLASS OF EMPLOYEES ELIGIBLE TO RECEIVE OPTIONS
ss.4.1. All officers and key employees of the Corporation and of any present
or future Subsidiary who are employed on a full-time basis are
eligible to receive an option or options under this Plan. Each officer
and key employee who is granted an option or options shall be selected
by the Committee hereinafter referred to in Section 8.1 hereof.
SECTION V
INCENTIVE STOCK OPTIONS AND NONQUALIFIED STOCK OPTIONS
ss.5.1. Options granted pursuant to this Plan may be either Incentive Stock
Options granted pursuant to Section 5.3 hereof or Nonqualified Stock
Options granted pursuant to Section 5.4 hereof, as determined by the
Committee, and shall be clearly identified as such. Option agreements
containing terms and conditions not inconsistent with this Plan (and,
in the case of Incentive Stock Options, Section 422 of the Code),
including, without limitation, vesting or exercisability provisions,
in such form as the Committee shall determine, shall be delivered to
each optionee and likewise shall clearly identify the type of option
being granted. The terms of option agreements need not be identical.
The Committee may grant both an Incentive Stock Option and a
Nonqualified Stock Option to the same person, or more than one of
either type of option to the same person. The Plan is effective as of
January 27, 2000, the date it was adopted by the Board of Directors,
provided that effectiveness of the Incentive Stock Option provisions
contained herein is conditioned upon approval of this Plan within 12
months after such date (or such other period as the Code or
regulations applicable to Incentive Stock Options shall permit), in
the manner required by state law. If the Plan is not approved by the
shareholders, all Options granted under the Plan shall be Nonqualified
Stock Options.
ss.5.2. The purchase price of Shares acquired pursuant to an option shall be
100 percent of the "Fair Market Value" of the Shares as of the date of
grant of the option. The "Fair Market Value" as of any date shall be
determined on a per share basis by the Board of Directors as follows:
(f) If the Shares were traded over-the-counter on the date in
question and the Shares were classified by Nasdaq as a national market
issue (or, in the judgment of the Board of Directors, a comparable
designation), then the Fair Market Value shall be equal to the average
of the high and low sales prices of the Shares reported in Nasdaq
trading for that date or if no reported sale of Shares shall
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have occurred on such date, then on the next preceding day on which
there was a reported sale.
(g) If the Shares were traded over-the-counter on the date in
question but the Shares were not classified by Nasdaq as a national
market issue (or, in the judgment of the Board of Directors, a
comparable designation), then the Fair Market Value shall be equal to
the mean between the last reported representative bid and asked prices
quoted by the Nasdaq system for such date.
(h) If the Shares were traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing
price reported by the applicable composite transactions reported for
such date.
(i) If none of the above are applicable, then the Fair Market
Value shall equal the average of the average of the daily high bid and
low offer quotations for the Shares reported through the National
Association of Securities Dealers, Inc.'s OTC Bulletin Board service
for the ten (10) trading days immediately preceding the applicable
date (the "Pricing period"). If, however, no bid or no offer quotation
for the Shares is reported through the OTC Bulletin Board service
during the Pricing Period, then the Fair Market Value will be the
price of the last trade reported for the Shares through the OTC
Bulletin Board service.
(j) If none of the foregoing provisions are applicable, then the
Fair Market Value shall be determined by the Board of Directors in
good faith on such basis as it deems appropriate.
ss.5.3. Options granted pursuant to this Plan may be designated as Incentive
Stock Options. Incentive Stock Options granted pursuant to this Plan
(i) shall not be granted to any individual owning, at the time the
option is granted, stock possessing more than ten percent of the total
combined voting power of all classes of stock of the Corporation, and
(ii) shall not be exercisable after the expiration of ten years after
the date they are granted and shall be subject to earlier termination
as provided in the Plan or in the related option agreement. Further,
no individual shall be granted an Incentive Stock Option which results
in the aggregate fair market value (determined at the time the option
is granted) of the stock with respect to which Incentive Stock Options
(under all stock option plans of the optionee's employer corporation
and its parent and subsidiary corporations) are exercisable for the
first time by that optionee during any calendar year exceeding
$100,000. Each of the options granted pursuant to this Section 5.3 is
intended, if possible, to be an "incentive stock option" as that term
is defined in Section 422 of the
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Code and the regulations there-under. In the event this Plan or any
option granted pursuant to this Section 5.3 is any way inconsistent
with the applicable legal requirements of the Code or the regulations
thereunder for an incentive stock option, this Plan and such option
shall be deemed automatically amended as of the date hereof to conform
to such legal requirements, if such conformity may be achieved by
amendment, unless the Committee, in its discretion, provides
otherwise. Incentive Stock Options granted pursuant to this Plan must
be granted within 10 years from the earlier of (i) the date the Board
of Directors adopted this Plan as set forth in Section 5.1 and (ii)
the date of approval by shareholders in accordance with Section 5.1,
unless otherwise permitted under Section 422 of the Code and
applicable regulations. Incentive Stock Options shall have such other
terms and conditions not inconsistent with this Plan and Section 422
of the Code (and applicable regulations) as the Committee shall
establish.
ss.5.4. Options granted pursuant to this Plan may be designated as
Nonqualified Stock Options. Nonqualified Stock Options shall have such
terms and conditions not inconsistent with this Plan as the Committee
shall establish. Nonqualified Stock Options shall not be exercisable
after the expiration of ten years after the date they are granted and
shall be subject to earlier termination as may be provided in this
Plan or in the related option agreement. If any Option designated as
an Incentive Stock Option is determined for any reason not to qualify
as an Incentive Stock Option within the meaning of Section 422 of the
Code, such Option shall be treated as a Nonqualified Stock Option for
all purposes under the provisions of the Plan.
ss.5.5. The maximum amount of share options (Incentive and/or Nonqualified)
that may be granted to all optionees in any calendar year pursuant to
this Plan shall be limited to a combined market value (purchase price
per Section 5.2) equal to 25% of the preceding year's consolidated net
income of the Corporation. (For example, if 1999 consolidated net
income is $4,000,000, the maximum amount of share options that could
be granted in 2000 would have an aggregate market value of $1,000,000.
Thus, for example, if the market value at the date of grant was $40,
the aggregate market value of $1,000,000 would establish a limit of
25,000 share options that could be granted in 2000 pursuant to this
Plan.) Notwithstanding anything else to the contrary set forth herein,
no optionee shall be granted options during any calendar year of the
Corporation for more than 100,000 Shares (such maximum number to be
subject to adjustment on the same basis as the anti-dilution
adjustments provided in Section 3.2).
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ss.5.6. Options granted under this Plan, to the extent exercisable at any
time, may be exercised by giving written notice to the Corporation, on
such form as the Corporation shall provide, accompanied by full
payment of the option price for the total number of whole Shares being
purchased. Options may not be exercised for fractional shares. Such
payment may be made in any of the following forms: (i) cash, which may
be evidenced by a check, (ii) the surrender of certificates
representing Shares which have been owned by the optionee for at least
six months, which will be valued according to their Fair Market Value
determined in accordance with the formula set forth in Section 5.2 of
this Plan, or (iii) any combination of cash and such Shares. Any
payment made by the surrender of currently owned Shares shall be by
assignment in form and substance satisfactory to the Secretary of the
Corporation, including guarantees of signature where the same is
deemed to be necessary or desirable; and if the same is specifically
permitted in the optionee's option agreement, such optionee upon
surrendering Shares shall automatically receive an additional option
to buy the number of shares surrendered at the Fair Market Value at
the date of surrender and according to the other terms and conditions
set forth in his option agreement. An option may not be exercised for
less than 100 Shares unless the total number of Shares then available
for exercise under the option is less than 100.
ss.5.7. Neither the Corporation nor any present or future Subsidiary, nor
their officers, directors, shareholders, compensation or benefit plan
committees, employees or agents shall have any liability to any
optionee in the event an option designated as an Incentive Stock
Option hereof does not qualify as an "incentive stock option" as that
term is used in Section 422 of the Code and the regulations
thereunder, or in the event any optionee does not obtain the tax
benefits of such an incentive stock option, or in the event any option
granted as a Nonqualified Stock Option is an "incentive stock option".
ss.5.8. In the event that an optionee holding a Nonqualified Stock Option (i)
dies, retires or becomes Permanently Disabled, or (ii) terminates all
positions held as an officer or employee of the Corporation and any of
its Subsidiaries within six months following a Change of Control of
the Corporation as defined in Section 5.10, in either case prior to
expiration of such option without its having been fully exercised,
said employee or the employee's legal successor shall have the right
to exercise the option in accordance with its terms, until the tenth
anniversary date of its grant, unless the option earlier expires or is
terminated in accordance with the terms of this Plan or the related
option agreement. In the event of termination of employment by
resignation, for cause or for any other reason (other than retirement,
death, Permanent Disability or during such
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six month period following a Change of Control), an optionee holding a
Nonqualified Stock Option shall have the right to exercise the
Nonqualified Stock Option as to any shares which the optionee in
accordance with its terms had a right to purchase (i.e., that were
vested by acceleration or otherwise) and did not purchase prior to the
optionee's termination of employment, during the period of time which
is the shorter of (a) the stated term of exercise of the option, or
(b) a period of six months after termination of employment. The
occurrence of retirement for purposes of this Section 5.8 shall be
determined by the Committee with reference to corporate standards or
policies as in effect from time to time or according to such other
standards as the Committee shall decide; and retirement shall be
deemed to include "early retirement" to the extent the same is
actually defined in corporate standards or policies. No Nonqualified
Stock Option may be exercised after the applicable periods set forth
above in this Section 5.8 without the written consent of the
Committee.
ss.5.9. In the event that an optionee holding an Incentive Stock Option dies
while employed by the Corporation or a subsidiary of the Corporation,
the optionee's executor or administrator may, at any time within one
year after the date of death (but in no event later than the stated
term of exercise), exercise the option with respect to any shares
which the optionee had a right to purchase (i.e., that were vested by
acceleration or otherwise) and did not purchase during the optionee's
lifetime. In the event the employment by the Corporation or a
subsidiary of the Corporation of an optionee holding an Incentive
Stock Option is terminated by reason of the optionee becoming disabled
(within the meaning of Section 22(e)(3) of the Code and the
regulations thereunder), the optionee or the optionee's legal guardian
or custodian may at any time within six months after the date of such
termination (but in no event later than the stated term of exercise),
exercise the Incentive Stock Option as to any shares which the
optionee had a right to purchase and did not purchase prior to the
optionee's termination of employment. Except in cases of death or
disability, in the event that the employment by the Corporation or a
subsidiary of the Corporation of an optionee holding an Incentive
Stock Option terminates (whether such termination is voluntary or
involuntary), the optionee may exercise the Incentive Stock Option
within three months after the termination date as to any shares which
the optionee had a right to purchase and did not purchase prior to the
optionee's termination of employment. No Incentive Stock Option may be
exercised after the applicable periods set forth above in this Section
5.9 without the written consent of the Committee.
ss.5.10. For purposes of this Plan, a "Change of Control" shall have occurred
if:
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(a) Any corporation or other person or group makes a tender or
exchange offer for shares of the Corporation's common stock and any
shares are purchased pursuant thereto; or
(b) Any corporation or other person or group (i) becomes the
beneficial owner (as that term is defined in Section 2552 of the
Pennsylvania Business Corporation Law of 1988 (the "BCL") or any
successor provision) of, or (ii) acquires voting power over, twenty
percent or more of the Corporation's common stock; or
(c) During any period of two consecutive years, individuals who
at the beginning of such period were members of the Board of Directors
cease for any reason to constitute at least a majority thereof (unless
the election, or the nomination for election by the Corporation's
shareholders, of each new director was approved by a vote of at least
two-thirds of the directors then still in office who were directors at
the beginning of the period); or
(d) An agreement is executed by the Corporation providing for any
merger, consolidation or similar transaction of the Corporation in
which the Corporation is not to be the surviving corporation.
For purposes of subparts (a) and (b) above, "corporation or other
person or group" shall not include the Corporation or any of
Subsidiaries or any employee benefit plans or trusts established by
the Corporation or any of its Subsidiaries. In the event of occurrence
of a Change of Control, then from and after the date of the first
purchase of common stock pursuant to such offer, the date on which
public announcement of the acquisition of such percentage of stock
shall have been made, the date on which such change in the composition
of the Board shall have occurred, or the date of execution of a
merger, consolidation or similar agreement, as the case may be, all
options granted pursuant to the Plan which remain outstanding shall
automatically become exercisable in full, whether or not otherwise
exercisable.
ss.5.11. Rights and options under this Plan are not assignable or transferable
by an optionee except by will or the laws of descent and distribution.
During his or her lifetime, options under this Plan are exercisable
only by the optionee.
ss.5.12. An optionee may elect to surrender Shares which have been owned for at
least six months, or authorize the Corporation to withhold a portion
of the Shares otherwise deliverable upon exercise, valued at their
Fair Market Value on the date of surrender or withholding of such
shares, in satisfaction of any tax withholding requirements (a
"Withholding Election"); provided, however, that:
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(a) Any Withholding Election shall be made by written notice to
the Corporation; and
(b) Any Withholding Election shall be subject to approval by the
Committee.
ss.5.13. An optionee's employment shall not be deemed to have terminated if the
optionee is transferred from the Corporation to a subsidiary or vice
versa or if the optionee continues to be employed by a corporation or
a subsidiary of a corporation that is the successor to the Corporation
and has assumed the Corporation's obligations with respect to the Plan
and options issued thereunder.
SECTION VI
TERMINATION AND AMENDMENT
ss.6.1. The Board of Directors of the Corporation reserves the right to make
any amendment to this Plan which it deems to be required or
appropriate to permit the granting of Incentive Stock Options in
accordance with Section 422 of the Code or the regulations thereunder
adopted by the Internal Revenue Service.
ss.6.2. The Board of Directors of the Corporation shall have complete power
and authority to amend this Plan; provided, however, that the Board of
Directors shall not, without the approval of the shareholders of the
Corporation, (i) materially increase the total number of Shares
available for grant under this Plan or (ii) materially modify the
class of eligible employees under this Plan. No termination,
modification or amendment of the Plan may, without the consent of an
employee then having an option under the Plan to purchase stock,
adversely affect the rights of such employee under such option,
subject to the provisions of this Plan.
ss.6.3. This Plan does not have a specified termination date. However,
Incentive Stock Options may not be granted after the period provided
in Section 5.3. The Board of Directors of the Corporation reserves the
right to terminate or suspend this Plan at any time without notice.
Except as provided in Section 6.4, termination or suspension shall not
adversely affect options previously granted pursuant to this Plan, and
the applicable terms of this Plan shall survive such termination or
suspension until all outstanding options have been exercised in full,
forfeited or completely expired in accordance with the terms of this
Plan and the related option agreement.
ss.6.4. Any agreement to which the Corporation is a party which provides for
any merger, consolidation or similar transaction of the Corporation
with
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or into another corporation whereby the Corporation is not to be the
surviving corporation may provide, without limitation, for the
assumption of outstanding options by the surviving corporation or its
parent, for accelerated vesting and accelerated expiration, or for an
equitable mandatory settlement of outstanding options in cash based on
the consideration paid to shareholders in such transaction and all
outstanding options shall be subject to such agreement. In any case
where the options are assumed by another corporation, appropriate
equitable adjustments as to the number and kind of shares or other
securities and the per share purchase prices shall be made.
SECTION VII
LIMITATION ON RESALE
ss.7.1. There shall be no limitation on resale of shares purchased under this
plan, except as are provided under applicable federal or state laws,
rules or regulations.
SECTION VIII
MISCELLANEOUS PROVISIONS
ss.8.1. The Board of Directors may administer the Plan and/or it may, in its
discretion, designate a committee or committees of two or more
directors of the Corporation to administer the Plan with respect to
all or a designated portion of the participants. To the extent that a
committee (other than the Board itself acting as the Committee) is
empowered to grant options to officers subject to Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), such
committee shall be composed only of directors satisfying such
requirements as the Securities and Exchange Commission may establish
for non-employee directors or for other eligible directors, if any,
administering plans intended to qualify for exemptions under Rule
16b-3 (or its successor) under the Exchange Act dependent on approval
by non-employee or disinterested directors. References herein to
"Committee" shall mean the Board of Directors or such committee or
committees of disinterested directors, as applicable. The Committee
shall, in addition to its other authority and subject to the
provisions of this Plan, have authority in its sole discretion to
determine the officers and key employees of the Corporation and each
present and future Subsidiary who shall be eligible to receive options
under this Plan; which officers and key employees shall in fact be
granted an option or options; whether the option or options shall be
an Incentive Stock Option (if the shareholders have granted the
necessary
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approval) or a Nonqualified Stock Option; the number of Shares to be
subject to each of the options; the time or times at which each option
shall be granted; the duration of each option; the rate of option
exercisability; subject to Section 5.2 hereof, the price at which each
of the options is exercisable; restrictions on sale or other
transferability (in addition to the restrictions arising under
Sections 7.1 and 8.8 hereof) of Shares obtained upon exercise, and
other terms and conditions as the Committee shall determine not
inconsistent with this Plan. Additionally and subject to the express
provisions of this Plan, the Committee shall have plenary authority to
interpret and construe all provisions of this Plan and the options
issued pursuant to it; to correct defects, supply omissions and
reconcile inconsistencies to the extent necessary to effectuate this
Plan and the options issued pursuant to it; to adopt rules and
regulations for administering this Plan; and to make all other
determinations deemed necessary or appropriate for administering the
Plan. The Committee's determination as to the foregoing matters shall
be final and conclusive and binding upon all participants. Subject to
the authority and responsibility of the Board of Directors and
Committee as aforesaid. the Committee may authorize such of the
Corporation's officers or other persons to perform functions related
to the execution and administration of this Plan (other than the
granting of stock options, the interpretation of the Plan and the
adoption of rules governing its administration).
ss.8.2. No member of the Committee or the Board of Directors shall be liable
for any act or omission (whether or not negligent) taken or omitted in
good faith, or for the exercise of authority or discretion granted in
connection with this Plan to the Committee or the Board of Directors.
Subject to any numerical limitations and other qualifications on
Committee membership set forth in Section 8.1 hereof, the Board of
Directors may at any time appoint additional members of the Committee
from the Board of Directors and may at any time remove any member of
the Committee with or without cause. Vacancies in the Committee,
however caused, may be filled by the Board of Directors from among its
members if it so desires.
ss.8.3. Employees of any corporation or other entity which becomes a
Subsidiary after the effective date of this Plan shall not be eligible
to participate in the Plan unless and until the Board of Directors of
the Corporation shall designate such corporation or entity as one
whose employees may be offered options under the Plan.
ss.8.4. Nothing contained in this Plan or any option granted pursuant to this
Plan shall confer upon any employee the right to continue in the
employ of the Corporation or any present or future Subsidiary, or
interfere in
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any way with the rights of the Corporation and any Subsidiary to
terminate his employment in any way and with or without cause.
ss.8.5. The provisions of the Plan shall, in accordance with its terms, be
binding upon, and inure to the benefit of, all successors of each
employee participating in the Plan, including, without limitation,
such employee's estate and the executors, administrators or trustees
thereof, heirs and legatees, and any receiver, trustee in bankruptcy
or representative of creditors of such employee.
ss.8.6. Corporate action constituting an offer of stock for sale to any
employee under the terms of the options to be granted hereunder shall
be deemed completed as of the date when the Committee authorizes the
grant of the option to the employee, regardless of when the option is
actually delivered to the employee or acknowledged or agreed to by
him.
ss.8.7. The laws of the Commonwealth of Pennsylvania will govern all matters
relating to this Plan except to the extent superseded by the laws of
the United States.
ss.8.8. Notwithstanding anything to the contrary contained in the Plan,
options shall be exercisable only if the Shares subject to the options
are registered under such federal and state securities laws as the
Corporation may deem necessary, or if exemptions from such
registration are deemed to be available; but in no event shall options
be exercisable during any period of time in which the Corporation
deems that exercisability, the offer to sell the Shares subject to
option, or the sale thereof, may violate a federal, state or
securities exchange rule, regulation or law, or may cause the
Corporation to be legally obligated to issue or sell more Shares than
the Corporation is legally entitled to issue or sell. Further, in the
absence of registration under federal and state securities laws as
referenced above, each optionee, and each optionee obtaining Shares
upon exercise, may be required by the Corporation to execute such
acknowledgements and agreements as may be deemed necessary or
appropriate to secure compliance with exemptions from registration
under federal or state securities law, which compliance may involve
regulation of the manner in which the Shares may be sold or
transferred, and may prohibit the sale of Shares for a period of time.
ss.8.9 Any reference contained in this Plan to a particular section or
provision of law, rule or regulations, including, but not limited to,
the Internal Revenue Code of 1986 and the Securities Exchange Act of
1934, both as amended, shall include any subsequently enacted or
promulgated section or provision of law, rule or regulation, as the
case may be, of similar import.
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<PAGE>
SECTION IX
EFFECTIVE DATE
ss.9.1. The Plan shall become effective when the Plan has been adopted by the
Board of Directors of the Corporation, except that the Incentive Stock
Option provisions contained herein shall not be effective until
shareholder approval is obtained in accordance with Section 5.1. Any
options granted under this Plan prior to approval of shareholders
shall be deemed Nonqualified Stock Options. The Corporation's
obligation to offer, sell and deliver its Shares under this Plan is
subject to the approval of any governmental authority required in
connection with the authorized issuance or sale of such Shares and is
further subject to the Corporation receiving, should it determine to
do so, the advice of its counsel that all applicable laws and
regulations have been complied with.
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<PAGE>
ORRSTOWN FINANCIAL SERVICES, INC.
This Proxy is solicited on behalf of the Board of Directors.
The undersigned hereby appoints Patricia A. Corwell and Robert B. Russell, or
either of them, each with full power of substitution as attorneys and proxies of
the undersigned to vote all Orrstown Financial Services, Inc. Common Stock of
the undersigned at the Annual Meeting of Shareholders of the Company to be held
on Tuesday, April 11, 2000, at 9:00 A.M., at the Shippen Place Hotel &
Restaurant, 32 East King Street, Shippensburg, Pennsylvania, and at any
adjournment of such meeting, as fully and effectually as the undersigned could
do if personally present, and hereby revokes all previous proxies for said
meeting.
Where a vote is not specified, the proxies will vote shares represented by this
Proxy FOR the election of all three nominees for director to Class C and FOR
Proxy Items 2 and 3 and will vote in accordance with the directions of the Board
of Directors on such other matters that may properly come before the meeting.
Please mark your votes as indicated in this example [X]
Proxy Item 1 --
Election of three directors to Class C to serve for a three (3) year term.
Nominees: Anthony F. Ceddia, Andrea Pugh and Kenneth R. Shoemaker.
FOR WITHHOLD
all nominees AUTHORITY
listed herein to vote for all
(except as withheld) nominees
in space provided listed herein
[ ] [ ]
(Instructions: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
<PAGE>
- --------------------------------------------------------------------------------
Proxy Item 2 -- Ratification of adoption of the Company's Employee Stock
Purchase Plan
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Proxy Item 3 -- Ratification of adoption of the Company's Employee Stock Option
Plan of 2000
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Please date and sign exactly as name appears hereon. When signing as attorney,
executor, administrator, trustee, guardian, etc., full title as such should be
shown. For joint accounts, each joint owner should sign. If more than one
trustee is listed, all trustees should sign, unless one trustee has power to
sign for all.
_____________________________(Signature of Shareholder)
_____________________________(Signature of Shareholder)
Dated: _______________________________________, 2000
