UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
|_| TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-11783
PENNSYLVANIA 23-2233457
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16 LINCOLN SQUARE, GETTYSBURG, PENNSYLVANIA 17325-3129
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(Address of principal executive offices) (Zip Code)
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Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X|
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes |X| No |_|
The aggregate market value of the voting stock held by nonaffiliates of the Registrant at June 30, 2004 was approximately $136,109,000.
The number of shares of Registrant's Common Stock outstanding on March 1, 2005 was 5,436,101.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 2005 definitive Proxy Statement are incorporated by reference into Part III of this report.
ACNB CORPORATION
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business .................................................... 3
Item 2. Properties .................................................. 10
Item 3. Legal Proceedings ........................................... 10
Item 4. Submission of Matters to a Vote of Stockholders ............. 10
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters and Issuer Purchases of Equity
Securities .................................................. 11
Item 6. Selected Financial Data ..................................... 12
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............... 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .. 29
Item 8. Financial Statements and Supplementary Data ................. 33
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ...................... 61
Item 9A. Controls and Procedures ..................................... 62
Item 9B. Other Information ........................................... 62
PART III
Item 10. Directors and Executive Officers of the Registrant .......... 63
Item 11. Executive Compensation ...................................... 63
Item 12. Security Ownership of Certain Beneficial Owners and
Management .................................................. 63
Item 13. Certain Relationships and Related Transactions .............. 63
Item 14. Principal Accountant Fees and Services ...................... 63
PART IV
Item 15. Exhibits, Financial Statement Schedules ..................... 64
Signatures .................................................. 65
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PART I
The management of ACNB Corporation has made forward-looking statements in this Annual Report on Form 10-K. These forward-looking statements may be subject to risks and uncertainties. Forward-looking statements include the information concerning possible or assumed future results of operations of ACNB Corporation and its wholly-owned subsidiaries, Adams County National Bank and Pennbanks Insurance Company. When words such as "believes," "expects," "anticipates," "may," "could," "should," "estimates," or similar expressions occur in this annual report, management is making forward-looking statements.
Stockholders should note that many factors, some of which are discussed elsewhere in this report, could affect the future financial results of ACNB Corporation and its subsidiaries, both individually and collectively, and could cause those results to differ materially from those expressed in this report. These risk factors include the following:
o Operating, legal and regulatory risks;
o Economic, political and competitive forces impacting our various lines of business;
o The risk that our analysis of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful;
o The possibility that increased demand or prices for ACNB's financial services and products may not occur;
o Volatility in interest rates; and/or,
o Other risks and uncertainties.
ACNB undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this report. Readers should carefully review the risk factors described in other documents ACNB files periodically with the Securities and Exchange Commission, including Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.
ITEM I - BUSINESS
ACNB CORPORATION
ACNB Corporation is an $924 million financial holding company headquartered in Gettysburg, Pennsylvania. Through its banking and nonbanking subsidiaries, ACNB provides a full range of banking and financial services to individuals and businesses, including commercial and retail banking, trust, accounting and insurance. ACNB's operations are conducted through its primary operating subsidiary, Adams County National Bank, with nineteen offices in Adams, Cumberland and York Counties. The Corporation was organized in 1983 and has had no acquisitions for the previous five years.
However, on November 19, 2004, ACNB Corporation and ACNB Acquisition Subsidiary LLC entered into a definitive agreement to purchase Russell Insurance Group, Inc. Under the terms of the definitive agreement, ACNB Corporation agreed to pay $4,750,000 in cash to acquire Russell Insurance Group. Additional consideration of up to $2,882,000 is subject to performance criteria for payment over the next three years. On January 5, 2005, ACNB Corporation and ACNB Acquisition Subsidiary, LLC completed the acquisition of Russell Insurance Group, Inc. and Russell Insurance Group, Inc. will continue to operate as a separate subsidiary of ACNB Corporation. In addition, ACNB Acquisition Subsidiary LLC has entered into a three year employment contract with Frank C. Russell, Jr., the President of Russell Insurance Group, Inc. For more information concerning this transaction please refer to the ACNB Corporation, ACNB Acquisition Subsidiary LLC and Russell Insurance Group Stock Purchase Agreement included as Exhibit 10.2 hereto, incorporated in entirety by reference in response to this Item I.
ACNB's major source of operating funds is dividends that it receives from its subsidiary bank. ACNB's expenses consist principally of losses from low-income housing investments. Dividends that ACNB pays to stockholders consist of dividends declared and paid to ACNB by the subsidiary bank.
ACNB and its subsidiaries are not dependent upon a single customer or a small number of customers, the loss of which would have a material adverse effect on the Corporation. ACNB does not depend on foreign sources of funds, nor does it make foreign loans.
The common stock of ACNB is listed on the Over The Counter Bulletin Board under the symbol ACNB.
Commercial lending includes commercial mortgages, real estate development, accounts receivable financing, and agricultural loans. Consumer lending programs include home equity loans, automobile and recreational vehicle loans, and manufactured housing loans. Mortgage lending programs include personal residential mortgages, residential construction loans, and speculative construction loans.
Management measures the net interest income of each segment based upon the earnings and fees for each segment recognized less the charge for the funds used. The charge for funds used is based on the average cost of funds used by the respective segment. Other non-interest expense, which includes salaries and employee benefits, occupancy and equipment expense, and other expenses, is allocated to each segment and is netted against net interest income after provision to possible loan losses to arrive at income before income taxes for each respective segment.
BANKING SUBSIDIARY
ADAMS COUNTY NATIONAL BANK
Adams County National Bank is a full-service commercial bank operating under charter from the Office of the Comptroller of the Currency. The Bank's principal market area is Adams County, Pennsylvania, which is located in south central Pennsylvania. Adams County depends on agriculture, industry and tourism to provide employment for its residents. No single sector dominates the county's economy. At December 31, 2004, Adams County National Bank had total assets of $917 million, total loans of $441 million and total deposits of $647 million.
The main office of the bank is located at 16 Lincoln Square, Gettysburg, Pennsylvania. In addition to its main office, the bank has thirteen branches in Adams County, two branches in York County, and three branches in Cumberland County. Adams County National Bank's service delivery channels for its customers also include the ATM network, Customer Contact Center, Internet and telephone banking. The Bank is subject to regulation and periodic examination by the Office of the Comptroller of the Currency. The Federal Deposit Insurance Corporation, as provided by law, insures the bank's deposits.
NONBANKING SUBSIDIARY
PENNBANKS INSURANCE CO.
Pennbanks Insurance Co. was organized in 2000 and holds an unrestricted Class "B" Insurer's License under Cayman Islands Insurance Law. The segregated portfolio is engaged in the business of reinsuring credit life and credit accident and disability risks. Total assets of the segregated portfolio as of December 31, 2004 totaled $452,000.
COMPETITION
The financial services industry in ACNB's market area is highly competitive, including competition from commercial banks, savings banks, credit unions, finance companies and nonbank providers of financial services. Several of ACNB's competitors have legal lending limits that exceed those of ACNB's subsidiary, as well as funding sources on the capital markets that exceed ACNB's availability. The increased competition has resulted from a changing legal and regulatory climate, as well as from the economic climate.
In addition, savings banks, savings and loan associations, credit unions, money market and other mutual funds, mortgage companies, leasing companies, finance companies, and other financial services companies offer competitive products and services similar in terms to those offered by ACNB.
Many bank holding companies have elected to become financial holding companies under the Gramm-Leach-Bliley Act, which gives them a broader range of products with which the bank must compete. Although the long-range effects of this development cannot be predicted, most probably it will further narrow the differences and intensify competition among commercial banks, investment banks, insurance firms and other financial services companies.
SUPERVISION AND REGULATION
BANK HOLDING COMPANY REGULATION
BANK HOLDING COMPANY ACT OF 1956 - ACNB is a financial holding company and is subject to the regulations of the Board of Governors of the Federal Reserve System under the Bank Holding Company Act of 1956. Bank holding companies are required to file periodic reports with and are subject to examination by the Federal Reserve. The Federal Reserve has issued regulations under the Bank Holding Company Act that require a financial holding company to serve as a source of financial and managerial strength to its subsidiary bank. As a result, the Federal Reserve may require ACNB to stand ready to use its resources to provide adequate capital funds to the bank during periods of financial stress or adversity.
In addition, the Federal Reserve may require a financial holding company to end a nonbanking business if the nonbanking business constitutes a serious risk to the financial soundness and stability of any bank subsidiary of the financial holding company.
The Bank Holding Company Act prohibits ACNB from acquiring direct or indirect control of more than 5% of the outstanding voting stock of any bank, or substantially all of the assets of any bank, or merging with another bank holding company, without the prior approval of the Federal Reserve. The Bank Holding Company Act allows interstate bank acquisitions and interstate branching by acquisition and consolidation in those states that had not elected out by the required deadline. The Pennsylvania Department of Banking also must approve any similar consolidation. Pennsylvania law permits Pennsylvania financial holding companies to control an unlimited number of banks.
In addition, the Bank Holding Company Act restricts ACNB's nonbanking activities to those that are determined by the Federal Reserve Board to be financial in nature, incidental to such financial activity, or complementary to a financial activity. The Bank Holding Company Act does not place territorial restrictions on the activities of nonbank subsidiaries of financial holding companies.
GRAMM-LEACH-BLILEY ACT OF 1999 - The Gramm-Leach-Bliley Act of 1999 eliminated many of the restrictions placed on the activities of bank holding companies that become financial holding companies. Among other things, the Gramm-Leach-Bliley Act repealed certain Glass-Steagall Act restrictions on affiliations between banks and securities firms, and amended the Bank Holding Company Act to permit bank holding companies that are financial holding companies to engage in activities, and acquire companies engaged in activities, that are: financial in nature (including insurance underwriting, insurance company portfolio investment, financial advisory, securities underwriting, dealing and market-making, and merchant banking activities); incidental to financial activities; or complementary to financial activities if the Federal Reserve determines that they pose no substantial risk to the safety or soundness of depository institutions or the financial system in general. The Gramm-Leach-Bliley Act also permits national banks, under certain circumstances, to engage through special financial subsidiaries in the financial and other incidental activities authorized for financial holding companies.
REGULATION W - Transactions between a bank and its "affiliates" are quantitatively and qualitatively restricted under the Federal Reserve Act. The Federal Deposit Insurance Act applies Sections 23A and 23B to insured nonmember banks in the same manner and to the same extent as if they were members of the Federal Reserve System. The Federal Reserve has also issued Regulation W, which codifies prior regulations under Sections 23A and 23B of the Federal Reserve Act, and interpretative guidance with respect to affiliate transactions. Regulation W incorporates the exemption from the affiliate transaction rules, but expands the exemption to cover the purchase of any type of loan or extension of credit from an affiliate. Affiliates of a bank include, among other entities, the bank's holding company and companies that are under common control with the bank. ACNB Corporation and Russell Insurance Group, Inc. are considered to be affiliates of Adams County National Bank.
RECENT LEGISLATION
USA PATRIOT ACT OF 2001 - In October 2001, the USA Patriot Act of 2001 was enacted in response to the terrorist attacks in New York, Pennsylvania and Washington, D.C., which occurred on September 11, 2001. The Patriot Act is intended to strengthen U.S. law enforcement's and the intelligence communities' abilities to work cohesively to combat terrorism on a variety of fronts. The potential impact of the Patriot Act on financial institutions of all kinds is significant and wide ranging. The Patriot Act contains sweeping anti-money laundering and financial transparency laws and imposes various regulations, including standards for verifying client identification at account opening, and rules to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering.
SARBANES-OXLEY ACT OF 2002 - On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002, or the SOA. The stated goals of the SOA are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies, and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities law.
The SOA is the most far-reaching U.S. securities legislation enacted in some time. The SOA generally applies to all companies, both U.S. and non-U.S., that file or are required to file periodic reports with the Securities and Exchange Commission (the "SEC") under the Securities Exchange Act of 1934, or the Exchange Act. Given the extensive SEC role in implementing rules relating to many of the SOA's new requirements, the final scope of these requirements remains to be determined.
The SOA includes very specific additional disclosure requirements and new corporate governance rules; requires the SEC and securities exchanges to adopt extensive additional disclosure, corporate governance and other related rules; and, mandates further studies of certain issues by the SEC. The SOA represents significant federal involvement in matters traditionally left to state regulatory systems, such as the regulation of the accounting profession, and to state corporate law, such as the relationship between a board of directors and management and between a board of directors and its committees.
The SOA addresses, among other matters:
o Audit committees for all reporting companies;
o Certification of financial statements by the chief executive officer and the chief financial officer;
o The forfeiture of bonuses or other incentive-based compensation and profits from the sale of an issuer's securities by directors and senior officers in the twelve-month period following initial publication of any financial statements that later require restatement;
o A prohibition on insider trading during pension plan black out periods;
o Disclosure of off-balance sheet transactions;
o A prohibition on personal loans to directors and officers;
o Expedited filing requirements for Forms 4s;
o Disclosure of a code of ethics and filing a Form 8-K for a change or waiver of such code;
o "Real time" filing of periodic reports;
o Formation of a public accounting oversight board;
o Auditor independence; and,
o Increased criminal penalties for violations of securities laws.
The SOA contains provisions that became effective upon enactment on July 30, 2002 and provisions that will become effective from within 30 days to one year from enactment. The SEC has been delegated the task of enacting rules to implement various provisions with respect to, among other matters, disclosure in periodic filings pursuant to the Exchange Act.
THE AMERICAN JOBS CREATION ACT OF 2004 - In 2004, the American Jobs Creation Act was enacted as the first major corporate tax act in years. The act addresses a number of areas of corporate taxation including executive deferred compensation restrictions. The impact of the act on ACNB is unknown at this time, but management is monitoring its developments.
DIVIDENDS
ACNB is a legal entity separate and distinct from its subsidiary bank. ACNB's revenues, on a parent company only basis, result almost entirely from dividends paid to the corporation by its subsidiary. Federal and state laws regulate the payment of dividends by ACNB's subsidiary. See "Regulation of Bank" below.
REGULATION OF BANK
The operations of the subsidiary bank are subject to federal and state statutes applicable to banks chartered under the banking laws of the United States, to members of the Federal Reserve System, and to banks whose deposits are insured by the FDIC. The bank's operations are also subject to regulations of the Office of the Comptroller of the Currency, Federal Reserve and FDIC.
The Office of the Comptroller of the Currency, which has primary supervisory authority over national banks, regularly examines banks in such areas as reserves, loans, investments, management practices, and other aspects of operations. These examinations are designed for the protection of the bank's depositors rather than ACNB's shareholders. The subsidiary bank must file quarterly and annual reports to the Federal Financial Institutions Examinations Council or FFIEC.
NATIONAL BANK ACT - The National Bank Act requires the subsidiary national bank to obtain the prior approval of the Office of the Comptroller of the Currency for the payment of dividends if the total of all dividends declared by the bank in one year would exceed the bank's net profits in the current year, as defined and interpreted by regulation, plus retained earnings for the two preceding years, less any required transfers to surplus. In addition, the bank may only pay dividends to the extent that the retained net profits, including the portion transferred to surplus, exceed statutory bad debts, as defined by regulation. These restrictions have not had, nor are they expected to have, any impact on the corporation's dividend policy.
FEDERAL DEPOSIT INSURANCE CORPORATION ACT OF 1991 - Under the Federal Deposit Insurance Corporation Insurance Act of 1991, any depository institution, including the bank, is prohibited from paying any dividends, making other distributions or paying any management fees if, after such payment, it would fail to satisfy the minimum capital requirement.
FEDERAL RESERVE ACT - A subsidiary bank of a bank holding company is subject to certain restrictions and reporting requirements imposed by the Federal Reserve Act, including:
o Extensions of credit to the bank holding company, its subsidiaries or principal shareholders;
o Investments in the stock or other securities of the bank holding company
o or its subsidiaries; and,
o Taking such stock or securities as collateral for loans.
COMMUNITY REINVESTMENT ACT OF 1977 - Under the Community Reinvestment Act of 1977, the OCC is required to assess the record of all financial institutions regulated by it to determine if these institutions are meeting the credit needs of the community, including low and moderate income neighborhoods, which they serve and to take this record into account in its evaluation of any application made by any of such institutions for, among other things, approval of a branch or other deposit facility, office relocation, a merger or an acquisition of bank shares. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 amended the CRA to require, among other things, that the OCC make publicly available the evaluation of a bank's record of meeting the credit needs of its entire community, including low and moderate income neighborhoods. This evaluation will include a descriptive rating like "outstanding," "satisfactory," "needs to improve" or "substantial noncompliance" and a statement describing the basis for the rating. These ratings are publicly disclosed.
FDICIA - The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) requires that institutions be classified, based on their risk-based capital ratios into one of five defined categories, as illustrated below: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.
UNDER A
TOTAL RISK TIER 1 TIER 1 CAPITAL
BASED RISK BASED LEVERAGE ORDER OR
RATIO RATIO RATIO DIRECTIVE
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CAPITAL CATEGORY
Well capitalized >10.0 >6.0 >5.0% NO
Adequately capitalized >8.0 >4.0 >4.0%*
Undercapitalized <8.0 <4.0 <4.0%*
Significantly undercapitalized <6.0 <3.0 <3.0%
Critically undercapitalized <2.0%
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* 3.0 for those banks having the highest available regulatory rating.
In the event an institution's capital deteriorates to the undercapitalized category or below, FDICIA prescribes an increasing amount of regulatory intervention, including: the institution of a capital restoration plan and a guarantee of the plan by a parent institution; and the placement of a hold on increases in assets, number of branches or lines of business. If capital has reached the significantly or critically undercapitalized levels, further material restrictions can be imposed, including restrictions on interest payable on accounts, dismissal of management and, in critically undercapitalized situations, appointment of a receiver. For well capitalized institutions, FDICIA provides authority for regulatory intervention where the institution is deemed to be engaging in unsafe or unsound practices or receives a less than satisfactory examination report rating for asset quality, management, earnings or liquidity. All but well capitalized institutions are prohibited from accepting brokered deposits without prior regulatory approval. Under FDICIA, financial institutions are subject to increased regulatory scrutiny and must comply with certain operational, managerial and compensation standards to be developed by Federal Reserve Board regulations. FDICIA also requires the regulators to issue new rules establishing certain minimum standards to which an institution must adhere including standards requiring a minimum ratio of classified assets to capital, minimum earnings necessary to absorb losses and minimum ratio of market value to book value for publicly held institutions. Additional regulations are required to be developed relating to internal controls, loan documentation, credit underwriting, interest rate exposure, asset growth and excessive compensation, fees and benefits.
ACNB and its subsidiary bank are affected by the monetary and fiscal policies of government agencies, including the Federal Reserve and FDIC. Through open market securities transactions and changes in its discount rate and reserve requirements, the Board of Governors of the Federal Reserve exerts considerable influence over the cost and availability of funds for lending and investment. The nature of monetary and fiscal policies on future business and earnings of ACNB cannot be predicted at this time. From time to time, various federal and state legislation is proposed that could result in additional regulation of, and restrictions on, the business of ACNB and the subsidiary bank, or otherwise change the business environment. Management cannot predict whether any of this legislation will have a material effect on the business of ACNB.
ACCOUNTING POLICY DISCLOSURE
Disclosure of the Corporation's significant accounting policies is included in Note A to the consolidated financial statements. Some of these policies are particularly sensitive requiring significant judgments, estimates and assumptions to be made by management. Additional information is contained in Management's Discussion and Analysis for the most sensitive of these issues, including the provision and allowance for loan losses which are located in Note D to the consolidated financial statements.
Management, in determining the allowance for loan losses, makes significant estimates. Consideration is given to a variety of factors in establishing this estimate. In estimating the allowance for loan losses, management considers current economic conditions, diversification of the loan portfolio, delinquency statistics, results of internal loan review, financial and managerial strengths of borrowers, adequacy of collateral, if collateral dependent, or present value of future cash flows, and other relevant factors.
STATISTICAL DISCLOSURES
The following statistical disclosures are included in Management's Discussion and Analysis, Item 7 hereof, and are incorporated by reference in this Item 1:
o Interest Rate Sensitivity Analysis
o Interest Income and Expense, Volume and Rate Analysis
o Investment Portfolio
o Loan Maturity and Interest Rate Sensitivity
o Loan Portfolio
o Allocation of Allowance for Loan Losses
o Deposits
o Short-Term Borrowings
AVAILABLE INFORMATION
The Corporation's reports, proxy statements and other information are available for inspection and copying at the Public Reference Room at Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC, 20549, at prescribed rates. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Corporation is an electronic filer with the Commission. The Commission maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of the Commission's website is http://www.sec.gov.
Upon a stockholder's written request, a copy of the Corporation's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as required to be filed with the SEC pursuant to Securities Exchange Act Rule 13a-1, may be obtained, without charge, from John W. Krichten, Secretary/Treasurer, 16 Lincoln Square, P.O. Box 3129, Gettysburg, PA 17325, or visit our website at http://www.acnb.com.
EMPLOYEES
As of December 31, 2004, ACNB had 223 full-time equivalent employees. None of these employees are represented by a collective bargaining agreement, and ACNB believes it enjoys good relations with its personnel.
ITEM 2 - PROPERTIES
Adams County National Bank, in addition to its main office, had an office network of nineteen offices at December 31, 2004. All offices are located in Adams County with the exception of three offices located in Cumberland County and two offices located in York County. Offices at fifteen locations are owned, while four are leased. All real estate owned by the subsidiary bank is free and clear of encumbrances.
ITEM 3 - LEGAL PROCEEDINGS
As of December 31, 2004, there were no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which ACNB or its subsidiaries are a party or by which any of their property is the subject.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
There were no matters submitted to a vote of stockholders during the fourth quarter of 2004.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ACNB Corporation's common stock trades on the Over The Counter Bulletin Board under the symbol ACNB. There were 20,000,000 shares of common stock authorized at December 31, 2004, and 5,436,101 shares outstanding. As of December 1, 2004, ACNB had approximately 2,900 stockholders of record. There is no other class of stock authorized or outstanding. ACNB is restricted as to the amount of dividends that it can pay to stockholders by virtue of the restrictions on the subsidiary's ability to pay dividends to ACNB. ACNB Corporation has no equity compensation plans.
There have been no unregistered sales of stock in 2004, 2003, or 2002.
The following table reflects the quarterly high and low prices of ACNB's common stock for the periods indicated and the cash dividends on the common stock for the periods indicated.
PRICE RANGE PER SHARE PER SHARE
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HIGH LOW DIVIDEND
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2004:
First Quarter $27.25 $26.50 $0.21
Second Quarter $26.50 $24.05 $0.21
Third Quarter $25.15 $23.50 $0.21
Fourth Quarter $25.95 $24.90 $0.27
2003:
First Quarter $26.65 $21.00 $0.21
Second Quarter $25.75 $22.80 $0.21
Third Quarter $26.50 $24.05 $0.21
Fourth Quarter $28.50 $25.25 $0.26
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ITEM 6 - SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
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2004 2003 2002 2001 2000
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(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA
Interest income $37,752 $ 36,689 $ 37,794 $ 39,161 $ 39,837
Interest expense 13,183 13,945 13,453 16,056 16,929
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Net interest income 24,569 22,744 24,341 23,105 22,908
Provision for loan losses 300 265 370 240 240
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Net interest income after provision for loan
losses 24,269 22,479 23,971 22,865 22,668
Proceeds recognized from life insurance - 2,161 - -
proceeds -
Other income 5,865 7,268 5,028 3,533 2,797
Other expenses 18,571 17,998 16,988 14,327 13,212
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Income before income taxes 11,563 13,910 12,011 12,071 12,253
Applicable income taxes 2,255 3,142 3,107 3,734 4,158
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Net income $ 9,308 $ 10,768 $ 8,904 $ 8,337 $ 8,095
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BALANCE SHEET DATA (AT YEAR-END)
Assets $924,188 $873,083 $734,644 $630,234 $567,330
Securities 405,943 388,252 309,655 219,841 168,540
Loans, net 436,631 411,051 368,469 357,816 357,159
Deposits 646,872 639,388 582,615 509,235 453,149
Borrowings 196,966 156,676 76,445 51,501 48,957
Stockholders' equity 74,521 72,743 70,460 63,025 60,437
COMMON SHARE DATA
Earnings per share - basic $1.71 $ 1.98 $ 1.64 $ 1.53 $ 1.44
Cash dividends paid 0.90 0.89 1.08 0.88 0.87
Book value per share 13.71 13.38 12.96 11.59 10.75
Weighted average number of common shares 5,436,000 5,436,000 5,436,000 5,436,000 5,623,000
Dividend payout ratio 52.56% 44.93% 65.94% 57.37% 60.23%
PROFITABILITY RATIOS AND CONDITION
Return on average assets 1.04% 1.32% 1.35% 1.45% 1.46%
Return on average equity 12.84% 15.41% 13.45% 13.34% 13.50%
Average stockholders' equity to average assets 8.11% 8.55% 10.04% 11.42% 10.81%
SELECTED ASSET QUALITY RATIOS
Nonperforming loans to total loans 1.86% 1.21% 0.65% 0.51% 0.79%
Net charge-offs to average loans outstanding 0.08% 0.03% 0.07% 0.06% 0.02%
Allowance for loan losses to total loans 0.89% 0.96% 1.02% 1.03% 1.02%
Allowance for loan losses to nonperforming loans 47.94% 79.26% 158.82% 202.34% 129.83%
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ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION AND FORWARD-LOOKING STATEMENTS
INTRODUCTION
The following is management's discussion and analysis of the significant changes in the results of operations, capital resources and liquidity presented in its accompanying consolidated financial statements for ACNB Corporation (the Corporation or ACNB), a financial holding company. Please read this discussion in conjunction with the consolidated financial statements and disclosures included herein. Current performance does not guarantee, assure or indicate similar performance in the future.
FORWARD-LOOKING STATEMENTS
In addition to historical information, this 2004 Annual Report contains
forward-looking statements. Examples of forward-looking statements include, but
are not limited to, (a) projections or statements regarding future earnings,
expenses, net interest income, other income, earnings or loss per share, asset
mix and quality, growth prospects, capital structure and other financial terms,
(b) statements of plans and objectives of management or the board of directors,
and (c) statements of assumptions, such as economic conditions in the
Corporation's market areas. Such forward-looking statements can be identified by
the use of forward-looking terminology such as "believes," "expects," "may,"
"intends," "will," "should," "anticipates," or the negative of any of the
foregoing or other variations thereon or comparable terminology, or by
discussion of strategy. Forward-looking statements are subject to certain risks
and uncertainties. Actual results may differ materially from those projected in
the forward-looking statements. We caution readers not to place undue reliance
on these forward-looking statements. They only reflect management's analysis, as
of this date. The Corporation does not revise or update these forward-looking
statements to reflect events or changed circumstances. Please carefully review
the risk factors described in other documents the Corporation files from
time-to-time with the Securities and Exchange Commission, including the
Quarterly Reports on Form 10-Q, filed by the Corporation in 2004 and any Current
Reports on Form 8-K filed by the Corporation.
CRITICAL ACCOUNTING POLICIES
The accounting policies that the Corporation's management deems to be most important to the portrayal of its financial condition and results of operations, and that require management's most difficult, subjective or complex judgment, often result in the need to make estimates about the effect of such matters which are inherently uncertain. The following policies are deemed to be critical accounting policies by management:
The allowance for loan losses represents management's estimate of probable losses inherent in our loan portfolio. Management makes numerous assumptions, estimates and adjustments in determining an adequate allowance. The Corporation assesses the level of potential loss associated with its loan portfolio and provides for that exposure through an Allowance for Loan Losses. The allowance is established through a provision for loan losses charged to earnings. The allowance is an estimate of the losses inherent in the loan portfolio as of the end of each reporting period. The Corporation assesses the adequacy of its allowance on a quarterly basis. The specific methodologies applied on a consistent basis are discussed in greater detail under the caption, "Allowance for Loan Losses," in a subsequent section of the following Management's Discussion and Analysis of Financial Condition and Results of Operations.
The evaluation of securities for other than temporary impairment requires a significant amount of judgment. In estimating other than temporary impairment losses, management considers various factors, including length of time the fair value has been below cost, the financial condition of the issuer and the intent and ability of the corporation to hold the securities until recovery. Declines in fair value that are determined to be other than temporary are charged against earnings. For additional information see Footnote C in the Corporation's December 31, 2004 financial statements.
EXECUTIVE OVERVIEW
The Corporation's executive management team and board of directors have identified two performance measurements that they feel are key elements of enhancing shareholder value. These include: a) increase in earnings per share; and b) return on realized equity.
The primary source of the Corporation's revenues is net interest income derived from loans and investments, less their deposit and borrowing funding costs. Revenues are influenced by general economic factors, including market interest rates, the economy of the markets served, stock market conditions, as well as competitive forces within the markets.
Because of a low interest rate environment and overall decline in the financial services industry's net interest margin, the Corporation was unable to improve its net interest margin during 2004, but it has stabilized at 2.92% and 2.96% in 2004 and 2003, down from 3.91% in 2002. The stabilization during 2004 was primarily the result of a stronger emphasis on the securities portfolio as management leveraged the Corporation's interest earning assets. In addition, average loans increased 9.1% from 2003 to 2004 as compared to 5.8% from 2002 to 2003. Net interest income increased to $24,569,000 in 2004, compared to $22,744,000 in 2003, and $24,341,000 in 2002.
Other income was $5,865,000, $9,429,000, and $5,028,000 in 2004, 2003 and 2002. The significant decrease from 2003 was primarily caused by a gain recognized from life insurance proceeds of $2,161,000 and an $879,000 decrease in gains on sale of securities.
Other expense increased to $18,571,000 in 2004, compared to $17,998,000 in 2003 and $16,988,000 in 2002. This increase can be attributed to necessary emphasis on new technology to serve our customers better and to comply with new government regulations, and expansion of our market in to new geographic regions. These efforts have resulted in increases in salaries and employee benefits, higher occupancy and equipment charges, and other operating expenses.
The Corporation's overall strategy is to enhance growth in existing markets and complement this with new products and services through the leveraging of existing resources. This has resulted in net income of $9,308,000, or $1.71 per share in 2004, compared to $10,768,000, or $1.98 per share in 2003, and $8,904,000, or $1.64 per share in 2002. Without the unusual occurrence of $2,161,000 in insurance proceeds, net income during 2003 would have been $8,607,000 or $1.58.
Returns on average equity were 12.84%, 15.41% and 13.45% in 2004, 2003 and 2002.
A more thorough discussion of Corporation's results of operations is included in the following pages.
NEW ACCOUNTING STANDARDS
SAB 105
In March 2004, the SEC released Staff Accounting Bulletin (SAB) No. 105, "Application of Accounting Principles to Loan Commitments." SAB 105 provides guidance about the measurements of loan commitments recognized at fair value under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." SAB 105 also requires companies to disclose their accounting policy for those loan commitments including methods and assumptions used to estimate fair value and associated hedging strategies. SAB 105 is effective for all loan commitments accounted for as derivatives that are entered into after March 31, 2004. The adoption of SAB 105 did not have any impact on our consolidated financial statements.
SOP 03-3
In December 2003, the Accounting Standards Executive Committee issued Statement of Position 03-3 (SOP 03-3), "Accounting for Certain Loans or Debt Securities Acquired in a Transfer." SOP 03-3 addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor's initial investment in loans or debt securities acquired in a transfer, including business combinations, if those differences are attributable, at least in part, to credit quality. SOP 03-3 is effective for loans or debt securities acquired in fiscal years beginning after December 15, 2004. The Corporation adopted the provisions of SOP 03-3 effective January 1, 2005, and the initial implementation did not have any impact on the Corporation's consolidated financial statements.
RESULTS OF OPERATIONS
NET INTEREST INCOME
The primary source of ACNB's traditional banking revenue is net interest income, which represents the difference between interest income on earning assets and interest expense on liabilities used to fund those assets. Earning assets include loans, securities, and federal funds sold. Interest-bearing funds include deposits and borrowings.
Net interest income is affected by changes in interest rates, volume of interest bearing assets and liabilities, and the composition of those assets and liabilities. The "interest rate spread" and "net interest margin" are two common statistics related to changes in net interest income. The interest rate spread represents the difference between the yields earned on interest earning assets and the rates paid for interest bearing liabilities. The net interest margin is defined as the percentage of net interest income to average earning assets, which also considers the Corporation's net noninterest bearing funding sources, the largest of which are noninterest bearing demand deposits and stockholders' equity.
The following table includes average balances, rates and interest income and expense, the interest rate spread and the net interest margin:
TABLE 1 - AVERAGE BALANCES, RATES AND INTEREST INCOME AND EXPENSE
2004 2003 2002
------------------------------ ----------------------------- ------------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
---------- --------- -------- --------- --------- -------- -------- ---------- ---------
ASSETS DOLLARS IN THOUSANDS
Interest Earning Assets
Loans $424,299 $23,578 5.56% $388,842 $23,670 6.09% $367,494 $24,752 6.74%
Taxable securities 384,563 13,155 3.42% 351,346 12,062 3.43% 247,272 12,727 5.15%
Tax-exempt securities 23,283 917 3.94% 22,236 882 3.97% 5,788 241 4.16%
--------- --------- ------- --------- --------- ------- -------- --------- -------
TOTAL SECURITIES 407,846 14,072 3.45% 373,582 12,944 3.46% 253,060 12,968 5.12%
Other 8,152 102 1.25 5,173 75 1.45 2,336 74 3.17
--------- --------- ------- --------- --------- ------- -------- --------- -------
TOTAL INTEREST EARNING
ASSETS 840,297 37,752 4.49% 767,597 36,689 4.78% 622,890 37,794 6.07%
--------- ------- --------- ------- --------- -------
Cash and due from banks 21,772 20,974 19,050
Premises and equipment 8,296 7,371 6,338
Other assets 27,558 25,628 14,783
Allowance for loan losses (4,067) (3,887) (3,722)
--------- --------- --------
TOTAL ASSETS $893,856 $817,683 $659,339
========= ========= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest Bearing Liabilities
Interest bearing demand
deposits $110,293 659 0.60% $100,586 1,088 1.08% $ 83,825 1,134 1.35%
Savings deposits 241,192 2,544 1.05% 225,099 3,415 1.52% 158,804 3,070 1.93%
Time deposits 230,117 6,308 2.74% 225,043 6,721 2.99% 223,308 8,054 3.61%
--------- --------- ------- --------- --------- ------- -------- --------- -------
TOTAL INTEREST BEARING
DEPOSITS 581,602 9,511 1.64% 550,728 11,224 2.04% 465,937 12,258 2.63%
Short-term borrowings 51,437 793 1.54% 45,290 741 1.64% 45,618 961 2.11%
Long-term borrowings 108,507 2,879 2.65% 76,563 1,980 2.59% 5,342 234 4.38%
--------- --------- ------- --------- --------- ------- -------- --------- -------
TOTAL INTEREST BEARING
LIABILITIES 741,546 13,183 1.78% 672,581 13,945 2.07% 516,897 13,453 2.60%
--------- ------- --------- ------- --------- -------
Non-interest bearing
demand deposits 75,472 71,474 72,408
Other liabilities 4,363 3,744 3,829
Stockholders' equity 72,475 69,884 66,205
--------- --------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $893,856 $817,683 $659,339
========= ========= ========
NET INTEREST INCOME $24,569 $22,744 $24,341
========= ========= =========
INTEREST RATE SPREAD 2.71% 2.71% 3.47%
======= ======= =======
NET INTEREST MARGIN 2.92% 2.96% 3.91%
======= ======= =======
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For yield calculation purposes, non-accruing loans are included in average loan
balances.
Interest income on loans includes amortized fees and costs on loans totaling
$186,000 in 2004, $637,000 in 2003 and $420,000 in 2002.
Table 1 presents balance sheet items on a daily average basis, net interest income, interest rate spread, and net interest margin for the years ending December 31, 2004, 2003 and 2002. Table 2 analyzes the relative impact on net interest income for changes in the volume of earning assets and interest-bearing liabilities and changes in rates earned and paid by the Corporation on such assets and liabilities.
Net interest income totaled $24,569,000 in 2004, compared to $22,744,000 in 2003, and $24,341,000 in 2002. The increase in net interest income during 2004 was primarily related to an increase in average earning assets. During 2003, net interest income declined as a result of a decline in rates, partially offset by an increase in interest bearing assets.
The net interest margin during 2004 was 2.92% compared to 2.96% during 2003. The decline in margin was primarily related to a decrease in average net noninterest bearing sources, primarily non-interest bearing demand deposits and stockholders' equity, as a percentage of interest bearing assets from 12.38% during 2003 to 11.75% during 2004. The yield on interest earning assets and cost of interest bearing liabilities declined by 0.29% during 2004.
The net interest margin during 2003 was 2.96% compared to 3.91% during 2002. Several factors impacted the net interest margin for 2003. First, ACNB was in an asset sensitive interest rate risk position in 2003, and interest earning assets repriced more quickly than interest bearing liabilities. Longer-term funding sources, including certificates of deposit, have to reach their maturity date to reprice. The yield on interest earning assets declined by 1.29% while the cost of interest bearing liabilities declined only 0.53%. Second, ACNB had a less profitable interest earning asset mix, as deposits and borrowings were used to fund securities because loan growth remained weak. Finally, the market area served by ACNB is highly competitive, resulting in financial institutions pricing quality credits competitively in order to increase volume.
Average earning assets were $840,297,000 in 2004, an increase of 9.5% over the 2003 balance of $767,597,000. Average earning assets for 2002 were $622,890,000. Securities growth was the primary contributor to the increase in average earning assets during these periods with loans remaining a secondary source.
A rate/volume analysis detailed in Table 2 shows that the significant increase in interest income change in 2004 was centered in taxable securities volume while the largest decrease in interest expense was in savings deposits. Positive volume changes in net interest income in 2003 were more than offset by negative rate changes. Management's emphasis on additional loan and security volume in 2004 resulted in increased net interest income and this emphasis will continue in 2005. Higher interest rates should also have a positive impact on net interest income.
Average interest bearing liabilities were $741,546,000 in 2004, up from $672,581,000 in 2003, and $516,897,000 in 2002. Loan and securities growth was primarily funded by an increase in interest bearing liabilities in 2004 and 2003, with a continued shift in mix from time deposits to borrowed money and lower-cost demand and savings deposits.
The following table shows changes in net interest income attributed to changes in rates and changes in average balances of interest-earning assets and interest-bearing liabilities:
TABLE 2 - RATE/VOLUME ANALYSIS
2004 VERSUS 2003 2003 VERSUS 2002
---------------------------------------- ---------------------------------------
DUE TO CHANGES IN DUE TO CHANGES IN
------------------------- -------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
--------- ------- ------- -------- ------- ---------
IN THOUSANDS
Interest Earning Assets
Loans $2,068 $(2,160) $ (92) $1,389 $(2,471) $(1,082)
Taxable securities 1,126 (33) 1,093 4,372 (5,037) (665)
Tax-exempt securities 42 (7) 35 653 (12) 641
------------ ------------ ------------ ------------ ------------ ------------
TOTAL SECURITIES 1,168 (40) 1,128 5,025 (5,049) (24)
Other 38 (11) 27 56 (55) 1
------------ ------------ ------------ ------------ ------------ ------------
TOTAL 3,274 (2,211) 1,063 6,470 (7,575) (1,105)
------------ ------------ ------------ ------------ ------------ ------------
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2004 VERSUS 2003 2003 VERSUS 2002
----------------------------------------- ----------------------------------------
DUE TO CHANGES IN DUE TO CHANGES IN
------------------------ ----------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
--------- ------- ------- -------- ------ -------
IN THOUSANDS
Interest Bearing Liabilities
Interest bearing demand deposits $ 96 $ (525) $ (429) $ 203 $ (249) $ (46)
Savings deposits 232 (1,103) (871) 1,092 (747) 345
Time deposits 151 (564) (413) (393) (940) (1,333)
Short-term borrowings 98 (46) 52 (7) (213) (220)
Long-term borrowings 849 50 899 1,880 (134) 1,746
------------ ------------ ------------ ------------ ------------ ------------
TOTAL 1,426 (2,188) (762) 2,775 (2,283) 492
------------ ------------ ------------ ------------ ------------ ------------
CHANGE IN NET INTEREST INCOME $1,848 $ (23) $1,825 $3,695 $(5,292) $(1,597)
============ ============ ============ ============ ============ ============
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The net change attributable to the combination of rate and volume has been allocated to the change is due to volume and rate. For yield calculation purposes, non-accruing loans are included in average balances.
PROVISION FOR LOAN LOSSES
The provision for loan losses charged against earnings was $300,000 in 2004, compared to $265,000 in 2003 and $370,000 in 2002. ACNB adjusts the provision for loan losses periodically as necessary to maintain the allowance at a level deemed to meet the risk characteristics of the loan portfolio.
See further discussion in the "Asset Quality" discussion of this annual report.
OTHER INCOME
Other income was $5,865,000 for the year ended December 31, 2004, a $3,564,000 decrease from 2003. The decrease was primarily the result of a $2,161,000 gain realized from insurance proceeds due to the death of an executive officer during 2003 and $1,992,000 of gains on sales of securities during 2003 as compared to $1,113,000 during 2004. Excluding the gain from insurance proceeds and gains from sales of securities, other income totaled $5,276,000 during 2003 as compared to $5,028,000 during 2002.
Income from fiduciary activities, which includes both institutional and personal trust management services and brokerage service fees, totaled $714,000 for the year ended December 31, 2004, as compared to $663,000 during 2003 and $683,000 in 2002. At December 31, 2004, ACNB had total assets under administration of approximately $74,000,000, up 15.6% compared to $64,000,000 at the end of 2003 and $59,000,000 at the end of 2002. The increase in income was the result of an increase in assets under management.
Other income was $862,000 for the year ended December 31, 2004, a decrease of $635,000 as compared to income of $1,497,000 during 2003. Other income during 2002 totaled $1,538,000. The major factors in the decline in 2004 as compared to 2003 were a decline in gains on loan sales from $337,000 during 2003 to $113,000 during 2004, which is a result of a major slowdown in mortgage refinancings and a gain on sale of bank real estate of $173,000 during 2003.
OTHER EXPENSE
The largest component of other expense is salaries and employee benefits, which decreased $18,000, or 0.2%, to $9,884,000 in 2004, after increasing by $448,000, or 4.7%, in 2003. The decrease in salary and employee benefits was the result of loan expenses deferred in accordance with Statement of Financial Accounting Standards No. 91. Excluding the increase in the SFAS No. 91 adjustment, salaries and benefits would have increased by $423,000 or 4.3%. The change in salaries and employee benefits during 2004, 2003 and 2002 is attributable to the following factors:
o Normal merit increases to employees;
o Increases in administrative personnel expense as the bank's strategic direction continues to focus on greater growth; and,
o Increases in employee benefit costs, particularly health and welfare benefit plans, consistent with the rising health care cost trend noted nationwide and increased net periodic pension costs due to the underperformance of investments in the pension plan.
Net occupancy expense was $952,000 in 2004, $933,000 in 2003, and $829,000 in 2002 and furniture and equipment expense totaled $2,131,000 during 2004 as compared to $1,960,000 during 2003 and $1,411,000 during 2002. The increases were the result of additional operational expenses and maintenance associated with the overall bank growth and more sophisticated delivery channels offered to the bank's customer base.
Professional services expense totaled $730,000 during 2004, as compared to $543,000 for 2003 and $648,000 during 2002. During 2004, due diligence fees for the acquisition of Russell Insurance Group were included in professional services. During 2002, payments for the rights to and implementation of Overdraft Privilege were included in professional services expense. The overdraft privilege service allows checking account overdrafts up to a pre set dollar amount with a fee for every check paid. The Corporation experienced an increase in service charges on deposits during 2002 as compared 2001.
Other operating expenses totaled $3,251,000 during 2004, compared to $3,084,000 during 2003 and $3,060,000 in 2002. Significant expense components in this category include marketing and advertising and Pennsylvania Bank Shares Tax.
INCOME TAX EXPENSE
ACNB recognized income taxes of $2,255,000, or 19.5% of pretax income during 2004 as compared to $3,142,000, or 22.6% of pre-tax income during 2003, and $3,107,000, or 25.9% of pre-tax income in 2002. The variances from the federal statutory rate of 35% are generally due to tax-exempt income and investments in low-income housing partnerships (which qualify for federal tax credits).
The decline in the effective tax rate during 2004 is a result of historical tax credits of $891,000 associated with a low income housing project. The downward trend in the effective tax rate from 2002 to 2004 is consistent with the increase in tax-free investment securities and low income housing credits during this period.
At December 31, 2004, net deferred tax assets amounted to $2,702,000. Deferred tax assets are realizable primarily through future reversal of existing taxable temporary differences. Management currently anticipates future earnings will be adequate to utilize the net deferred tax assets.
FINANCIAL CONDITION
Average earning assets increased in 2004 to $840,297,000 or 9.5% or from $767,597,000 in 2003, and $622,890,000 in 2002. ACNB's investment portfolio has increased over the last three years, as a result of planned growth using borrowed funds. To a lesser degree, growth in commercial and consumer loans contributed to the increase in average earning assets. Average funding sources, or interest bearing liabilities, increased in 2004 to $741,546,000 from $672,581,000 in 2003, and $516,897,000 in 2002.
INVESTMENT SECURITIES
ACNB uses investment securities to generate interest and dividend income, to manage interest rate risk, and to provide liquidity. The growth in the security portfolio, in part, reflects the trends in loans, deposits, and borrowed funds during 2004 and 2003. As deposit and borrowing growth outpaced loan growth during 2004 and 2003, excess funding was invested in the securities portfolio. Much of the investment activity focused on U.S. Government agencies, tax-free municipal, and corporate securities. These securities provide the appropriate characteristics with respect to yield and maturity relative to the management of the overall balance sheet.
At December 31, 2004, the securities balance included a net unrealized loss on available for sale securities of $1,762,000, net of taxes, versus a net unrealized gain of $442,000, net of taxes at December 31, 2003. The reduction in interest rates during 2003 led to the appreciation in the fair value of securities during 2003.
The following tables set forth the composition of the securities portfolio and the securities maturity schedule, including weighted average yield, as of the dates indicated:
TABLE 3 - INVESTMENT SECURITIES
2004 2003 2002
--------------- ----------------- ----------------
IN THOUSANDS
AVAILABLE FOR SALE SECURITIES AT FAIR VALUE
U.S. Government and agencies $157,810 $ 39,836 $ 32,428
Mortgage-backed securities 118,000 176,061 184,893
State and municipal 22,928 23,271 -
Corporate bonds 82,071 106,401 65,068
Stock in other banks 574 500 -
---------------- ---------------- ----------------
381,383 346,069 282,389
---------------- ---------------- ----------------
HELD TO MATURITY SECURITIES AT AMORTIZED COST
U.S. Government and agencies 10,000 15,535 25,540
Mortgage-backed securities 14,206 26,201 1,509
State and municipal 354 447 217
---------------- ---------------- ----------------
24,560 42,183 27,266
---------------- ---------------- ----------------
$405,869 $388,252 $309,655
================ ================ ================
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TABLE 4 - SECURITIES MATURITY SCHEDULE
OVER 10 YEARS
1 YEAR OR LESS OVER 1-5 YEARS OVER 5-10 YEARS OR NO MATURITY TOTAL
---------------- ---------------- ----------------- --------------- ---------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
--------- ----- ------- ------ ------- ------ ------- ------ ------- ------
DOLLARS IN THOUSANDS
U.S. Government and agencies $ - - % $55,000 3.61% $78,912 4.07% $ 35,000 4.02% $168,912 3.91%
Mortgage-backed securities - - 59,450 3.57 39,017 3.72 34,956 4.85 133,423 3.95
State and municipal - - 354 3.33 15,999 3.69 6,917 4.56 23,270 3.94
Corporate bonds 10,178 2.12 72,372 3.44 - - - - 82,550 3.28
Stock in other banks - - - - - - 500 2.50 500 2.50
-------- ----- --------- ----- -------- ------ --------- ----- --------- ------
$10,178 2.12% $187,176 3.65% $133,928 3.92 % $77,373 4.43% $408,655 3.80%
======== ===== ========= ===== ======== ====== ========= ===== ========= ======
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Securities are at amortized cost. Mortgage-backed securities are allocated based upon scheduled maturities.
LOANS
Loans outstanding increased $25,540,000, or 6.1% in 2004, compared to 10.7% growth experienced in 2003. The growth in loans is consistent with a stable local economy and lending to support existing customers. The commercial loan portfolio experienced solid growth during 2003, increasing by approximately $17,000,000. The commercial loan growth experienced in 2004 is the result of actively marketing to local businesses. Additionally, ACNB has been able to participate with other institutions on larger loans.
TABLE 5 - LOAN PORTFOLIO Loans at December 31 were as follows:
2004 2003 2002 2001 2000
----------- ------------ ---------- ----------- ----------
IN THOUSANDS
Commercial, financial and agricultural $ 31,187 $ 18,080 $ 21,128 $ 18,027 $ 18,376
Real estate:
Commercial 99,988 100,536 90,967 83,067 79,629
Construction 20,232 22,298 16,096 15,497 15,786
Residential 278,519 262,893 232,669 232,821 234,620
Installment 10,643 11,222 11,446 12,127 12,443
------------ ------------ ------------ ------------ ------------
TOTAL LOANS $440,569 $415,029 $372,306 $361,539 $360,854
============ ============ ============ ============ ============
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The maturity range of the loan portfolio and the amounts of loans with predetermined and fixed rates are presented in the table below:
TABLE 6 - LOAN MATURITIES AND SENSITIVITIES
LESS THAN 1
YEAR 1-5 YEARS OVER 5 YEARS TOTAL
--------------- ---------------- ---------------- ---------------
IN THOUSANDS
Commercial, financial and agricultural $ 14,615 $ 10,463 $ 6,109 $ 31,187
Real estate:
Commercial 33,721 50,404 15,863 99,988
Construction 13,390 6,306 536 20,232
--------------- ---------------- ---------------- ---------------
TOTAL $ 61,726 $ 67,173 $22,508 $151,407
=============== ================ ================ ===============
Loans with a fixed interest rate 8,331 5,252 7,592 21,175
Loans with a variable interest rate 53,395 61,921 14,916 130,232
--------------- ---------------- ---------------- ---------------
TOTAL $ 61,726 $ 67,173 $22,508 $151,407
=============== ================ ================ ===============
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Most of the Corporation's activities are with customers located within the south central Pennsylvania and northern Maryland region of the country. The Corporation does not have any significant concentrations greater than 10% of loans to any one industry or customer.
ASSET QUALITY
ACNB loan portfolios are subject to varying degrees of credit risk. Credit risk is mitigated through prudent underwriting standards, on-going credit review, and monitoring and reporting asset quality measures. Additionally, loan portfolio diversification, limiting exposure to a single industry or borrower, and requiring collateral also reduces ACNB's credit risk.
ACNB's commercial, consumer and residential mortgage loans are principally to borrowers in south central Pennsylvania and northern Maryland. As the majority of ACNB's loans are located in this area, a substantial portion of the debtor's ability to honor their obligations may be affected by the level of economic activity in the market area.
The unemployment rate in ACNB's market area remained below the national average during 2004. Additionally, reasonably low interest rates, a stable local economy and minimal inflation continued to support favorable economic conditions in the area.
Nonperforming assets include nonaccrual and restructured loans, accruing loans past due 90 days or more and other foreclosed assets. ACNB's general policy has been to cease accruing interest on loans when management determines that a reasonable doubt exists as to the collectibility of additional interest. When management places a loan on non-accrual status, it reverses unpaid interest credited to income in the current year. ACNB recognizes income on these loans only to the extent that it receives cash payments. ACNB occasionally returns nonaccrual loans to performing status when the borrower brings the loan current and performs in accordance with contractual terms for a reasonable period of time. ACNB categorizes a loan as restructured if it changes the terms of the loan such as interest rate, repayment schedule or both, to terms that it otherwise would not have granted originally.
The following table sets forth the Corporation's non-performing assets as of the dates indicated:
TABLE 7 - NON-PERFORMING ASSETS
2004 2003 2002 2001 2000
------------ ------------- ------------ ------------ ------------
DOLLARS IN THOUSANDS
Non-accrual loans $8,054 $4,413 $1,037 $837 $1,318
Accruing loans 90 days past due 160 606 1,379 1,003 1,528
------------ ------------- ------------ ------------ ------------
TOTAL NON-PERFORMING LOANS 8,214 5,019 2,416 1,840 2,846
Foreclosed real estate 213 394 559 1,646 981
------------ ------------- ------------ ------------ ------------
TOTAL NON-PERFORMING ASSETS $8,427 $5,413 $2,975 $3,486 $3,827
============ ============= ============ ============ ============
Ratios:
Non-performing loans to total loans 1.86% 1.21% 0.65% 0.51 0.79%
Non-performing assets to total assets 0.91% 0.62% 0.40% 0.55 0.67%
Allowance for loan losses to non-
performing loans 47.94% 79.26% 158.82% 202.34 129.83%
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If interest due on all nonaccrual loans had been accrued at original contract rates, it is estimated that income before income taxes would have been greater by $384,000 in 2004, $82,000 in 2003, and $55,000 in 2002.
Impaired loans at December 31, 2004 and 2003 totaled $7,539,000 and $200,000, respectively. The related allowance for loan losses totaled $619,000 and $20,000, respectively. The increase in nonaccrual and impaired loans during 2004 is related to 3 commercial loan relationships, which are collateralized by real estate. Even though all 3 relationships' payments were current as of December 31, 2004, they were classified as nonaccrual and impaired during 2004 because cash flows reported by the related companies are not sufficient to service the debt.
Potential problem loans are defined as performing loans that have characteristics that cause management to have doubts as to the ability of the borrower to perform under present loan repayment terms and which may result in the reporting of these loans as nonperforming loans in the future. Total potential problem loans approximated $5.2 million at December 31, 2004. The majority of these loans are secured by real estate with acceptable loan-to-value ratios.
ALLOWANCE FOR LOAN LOSSES
ACNB maintains the allowance for loan losses at a level believed adequate by management to absorb potential losses in the loan portfolio and is established through a provision for loan losses charged to earnings. On a quarterly basis, the Corporation utilizes a defined methodology in determining the adequacy of the allowance for loan losses, which considers specific credit reviews, past loan loss historical experience, and qualitative factors. This methodology, which has remained consistent for the past several years, results in an allowance consisting of two components, "allocated" and "unallocated".
Management assigns internal risk ratings for each significant commercial lending relationship. Utilizing migration analysis for the previous eight quarters, management develops a loss factor test, which it then uses to estimate losses for non-rated and non-classified loans. When management finds loans with uncertain collectibility of principal and interest, it places those loans on the "problem list," and evaluates a specific reserve on a quarterly basis in order to estimate potential losses. Management's analysis considers:
o adverse situations that may affect the borrower's ability to repay;
o estimated value of underlying collateral; and
o prevailing market conditions.
If management determines that a specific reserve allocation is not required, it assigns the general loss factor to determine the reserve. For homogeneous loan types, such as consumer and residential mortgage loans, management bases specific allocations on the average loss ratio for the previous three years for each specific loan pool. Additionally, management adjusts projected loss ratios for other factors, including the following:
o trends in delinquency levels;
o trends in non-performing and potential problem loans;
o trends in composition, volume and terms of loans;
o effects in changes in lending policies or underwriting procedures;
o experience, ability and depth of management;
o national and local economic conditions;
o concentrations in lending activities; and
o other factors that management may deem appropriate.
Management determines the unallocated portion of the allowance for loan losses based on the following criteria:
o risk of error in the specific and general reserve allocations;
o other potential exposure in the loan portfolio;
o variances in management's assessment of national and local economic conditions; and
o other internal or external factors that management believes appropriate at that time.
Management believes the above methodology accurately reflects losses inherent in the portfolio. Management charges actual loan losses to the allowance for loan losses. Management periodically updates the methodology discussed above, which reduces the difference between actual losses and estimated losses.
Management bases the provision for loan losses, or lack of provision, on the overall analysis taking into account the methodology discussed above.
The following tables set forth information on the analysis of the allowance for loan losses and the allocation of the allowance for loan losses as of the dates indicated:
TABLE 8 - ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
YEARS ENDED DECEMBER 31,
2004 2003 2002 2001 2000
------------ ------------- ------------ ------------ ------------
DOLLARS IN THOUSANDS
Beginning balance $3,978 $3,837 $3,723 $3,695 $3,543
Provision for loan losses 300 265 370 240 240
Loans charged off:
Commercial, financial and
agricultural 316 90 87 39 11
Real estate 31 32 192 131 42
Consumer 43 47 57 139 84
------------ ------------- ------------ ------------ ------------
TOTAL CHARGED-OFF 390 169 336 309 137
------------ ------------- ------------ ------------ ------------
Recoveries:
Commercial, financial and
agricultural 8 6 27 49 5
Real estate - 7 22 3 2
Consumer 42 32 31 45 42
------------ ------------- ------------ ------------ ------------
TOTAL RECOVERIES 50 45 80 97 49
------------ ------------- ------------ ------------ ------------
Net charge-offs 338 124 256 212 88
------------ ------------- ------------ ------------ ------------
Ending balance $3,938 $3,978 $3,837 $3,723 $3,695
============ ============= ============ ============ ============
Ratios:
Net charge-offs to average loans 0.08% 0.03% 0.07% 0.06 0.02%
Allowance for loan losses to total
loans 0.89% 0.96% 1.02% 1.03 1.02%
|
TABLE 9 - ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
2004 2003 2002 2001 2000
------------------ ----------------- --------------------- ------------------ --------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF LOAN OF LOAN OF LOAN OF LOAN OF LOAN
TYPE TO TYPE TO TYPE TO TYPE TO TYPE TO
TOTAL TOTAL TOTAL TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
--------- -------- --------- --------- --------- -------- -------- --------- -------- ---------
DOLLARS IN THOUSANDS
Commercial,
financial and
agricultural $ 941 7.1% $ 875 4.4% $ 930 5.6% $ 937 5.0% $ 1,007 5.1%
Real estate:
Commercial 1,288 22.7 1,388 24.2 1,394 24.3 1,543 22.9 1,481 22.1
Construction 248 4.6 308 5.4 258 4.3 275 4.3 307 4.4
Residential 674 63.2 684 63.3 467 62.7 533 64.5 339 65.0
Consumer 420 2.4 504 2.7 375 3.1 360 3.3 132 3.4
Unallocated 367 N/A 219 N/A 413 N/A 75 N/A 429 N/A
--------- -------- --------- --------- --------- -------- -------- --------- -------- ---------
TOTAL $3,938 100.00% $3,978 100.00% $3,837 100.00% $3,723 100.00% $3,695 100.00%
========= ======== ========= ========= ========= ======== ======== ========= ======== =========
|
The allocation of the allowance for loan losses between the various loan portfolios has changed over the past few years, consistent with the historical net loss experience in each of the portfolios. The unallocated portion of the allowance reflects estimated inherent losses within the portfolio that have not been detected. The unallocated portion of the reserve exists due to risk of error in the specific and general reserve allocations, other potential exposure in the loan portfolio, variances in management's assessment of national and local economic conditions, and other internal and external factors that management believes appropriate at the time. The unallocated portion of the reserve has increased due to variances in management's assessment of national and local economic conditions as may be affected by the current political environment and other external factors.
While management believes ACNB's allowance for loan losses is adequate based on information currently available, future adjustments to the reserve may be necessary due to changes in economic conditions, and management's assumptions as to future delinquencies or loss rates.
PREMISES AND EQUIPMENT
The increase in premises and equipment from $7,053,000 at December 31, 2003 to $11,992,000 at December 31, 2004 is primarily related to the Corporation's new Operations Center, which is scheduled to be completed during 2005. Additionally, the Corporation anticipates incurring an additional $2.8 million related to the Operations Center.
DEPOSITS
ACNB continues to rely on deposit growth as the primary source of funds for lending activities. Average deposits increased 5.6% or $34.9 million during 2004 compared to 15.6% during 2003. The 2003 growth was accomplished primarily through the marketing of a special money market rate account to compete with money market mutual funds. Additionally, deposits have grown as consumers have migrated towards deposit products, which are generally regarded as safer, more liquid investments as compared to the stock market. ACNB will continue to explore new products for its customers, to attract and retain other funds seeking safe havens. However, ACNB's ability to maintain and add to its deposit base may experience additional competitive pressures from the stock market and/or other alternative investment products offered by the insurance industry and others.
TABLE 10 - TIME DEPOSITS
Maturities of time deposits of $100,000 or more outstanding at December 31, 2004 are summarized as follows:
IN THOUSANDS
Three months or less $ 6,724
Over three through six months 4,446
Over six through twelve months 5,872
Over twelve months 18,958
--------
TOTAL $36,000
========
|
BORROWINGS
Short-term borrowings are comprised primarily of securities sold under agreements to repurchase, and overnight borrowings at the Federal Home Loan Bank in Pittsburgh (FHLB). As of December 31, 2004, short-term borrowings were $64,966,000, a decrease of $4,710,000, or 6.8%, from the December 31, 2003 balance of $69,676,000.
2004 2003 2002
------------ ------------ ------------
IN THOUSANDS
Amounts outstanding at end of year:
FHLB overnight advance $30,706 $29,320 $20,050
Securities sold under repurchase agreements 33,810 39,906 35,945
Treasury tax and loan note 450 450 450
------------ ------------ ------------
$64,966 $69,676 $56,445
============ ============ ============
2004 2003 2002
------------ ------------ ------------
IN THOUSANDS
Average interest rate at year-end 1.84% 1.37% 1.84%
Maximum amount outstanding at any month-end $79,589 $75,867 $73,064
Average amount outstanding $51,437 $45,290 $45,618
Weighted average interest rate 1.54% 1.64% 2.11%
|
Long-term debt consists of advances from the Federal Home Loan Bank to fund ACNB's growth in its securities portfolio. Long-term debt totaled $132,000,000 at December 31, 2004, versus $87,000,000 at December 31, 2003. The increase in long-term debt was used to fund additional investments in securities and loans.
CAPITAL
The management of capital in a regulated financial services industry must properly balance return on equity to stockholders while maintaining sufficient capital levels and related risk-based capital ratios to satisfy regulatory requirements. Capital management must also consider growth opportunities that may exist, and the resulting need for additional capital. ACNB's capital management strategies have been developed to provide attractive rates of returns to stockholders, while maintaining its "well-capitalized" position.
The primary source of additional capital to ACNB is earnings retention, which represents net income less dividends declared. During 2004, ACNB retained $4,416,000, or 47%, of its net income as compared to $5,930,000 or 55% during 2003 and $4,120,000 or 46% during 2002.
ACNB is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on ACNB. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, ACNB must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and reclassifications are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy requires ACNB to maintain minimum amounts and ratios of total and Tier 1 capital to average assets. Management believes, as of December 31, 2004 and 2003, that ACNB's banking subsidiary met all minimum capital adequacy requirements to which they are subject and are categorized as "well-capitalized." There are no conditions or events since the notification that management believes have changed the subsidiary bank's category.
TABLE 11 - RISKED-BASED CAPITAL
ACNB's capital ratios are as follows:
2004 2003
-------- ---------
Tier 1 leverage ratio (to average assets) 8.34 8.85
Tier 1 risk-based capital ratio (to risk-weighted assets) 13.91 13.93
Total risk-based capital ratio 14.64 14.70
|
LIQUIDITY
Another source of liquidity is securities sold under repurchase agreement to customers of ACNB's banking subsidiary totaling $33,810,000 and $39,906,000 at December 31, 2004 and 2003, respectively.
Effective liquidity management ensures the cash flow requirements of depositors and borrowers, as well as the operating cash needs of ACNB are met.
ACNB's funds are available from a variety of sources, including assets that are readily convertible to such as cash and federal funds sold, maturities and repayments from the securities portfolio, scheduled repayments of loans receivable, the core deposit base, and the ability to borrow from the FHLB. At December 31, 2004, ACNB could borrow approximately $450,136,000 from the FHLB of which $287,430,000 was available.
The liquidity of the parent company also represents an important aspect of
liquidity management. The parent company's cash outflows consist principally of
dividends to stockholders and corporate expenses. The main source of funding for
the parent company is the dividends it receives from its banking subsidiary.
Federal and state banking regulations place certain restrictions on dividends
paid to the parent company from the subsidiary banks. The total amount of
dividends that may be paid from the subsidiary bank to ACNB were $7,357,000 at
December 31, 2004. For a discussion of ACNB's dividend restrictions, see Item 1
- "Business."
ACNB manages liquidity by monitoring projected cash inflows and outflows on a daily basis, and believes it has sufficient funding sources to maintain sufficient liquidity under varying degrees of business conditions. The Corporation's operating cash flows totaled $11,034,000 during 2004 as compared to $12,742,000 during 2003 and $4,862,000 during 2002. The primary sources of cash flows are payments received for interest and dividends, partially offset by payments for interest on deposits and borrowings and payments for other expenses. See the cash flows statement for additional information.
AGGREGATE CONTRACTUAL OBLIGATIONS
The following table represents the Corporation's on and off-balance sheet aggregate contractual obligations to make future payments as of December 31, 2004:
LESS THAN 1 - 3 4 - 5 OVER 5
1 YEAR YEARS YEARS YEARS TOTAL
------------ ------------ ------------ ------------ ------------
IN THOUSANDS
Time deposits $126,780 $68,101 $28,938 $ - $223,819
Long-term debt 57,000 55,000 - 20,000 132,000
Operating leases 465 523 217 104 1,309
Payments under benifit plans 683 1,512 1,694 9,040 12,929
------------ ------------ ------------ ------------ ------------
TOTAL $184,928 $125,136 $30,849 $29,144 $370,057
============ ============ ============ ============ ============
|
In addition, the Corporation in the conduct of business operations routinely enters into contracts for services. These contracts may require payment for services to be provided in the future and may also contain penalty clauses for the early termination of the contracts.
Management expects to incur approximately $2,775,000 in capital expenditures during 2005, approximately $2,500,000 for completion of an operations center and $275,000 for low income housing projects.
Management is not aware of any other commitments or contingent liabilities which may have a material adverse impact on the liquidity or capital resources of the Corporation.
OFF-BALANCE SHEET ARRANGEMENTS
The Corporation is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and, to a lesser extent, standby letters of credit. At December 31, 2004, the Corporation had unfunded outstanding commitments to extend credit of $73 million and outstanding standby letters of credit of $5,732,000. Because these commitments generally have fixed expiration dates and many will expire without being drawn upon, the total commitment level does not necessarily represent future cash requirements. Refer to footnote N of the consolidated financial statements for a discussion of the nature, business purpose and importance of the Corporation's off-balance sheet arrangements.
Financial institutions can be exposed to several market risks that may impact the value or future earnings capacity of an organization. These risks involve interest rate risk, foreign currency exchange risk, commodity price risk and equity market price risk. ACNB's primary market risk is interest rate risk. Interest rate risk is inherent because as a financial institution, ACNB derives a significant amount of its operating revenue from "purchasing" funds (customer deposits and borrowings) at various terms and rates. These funds are then invested into earning assets (loans, leases, investments, etc.) at various terms and rates. This risk is further discussed below.
ACNB does not have any exposure to foreign currency exchange risk, commodity price risk or equity market risk.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
Interest rate risk is the exposure to fluctuations in the Corporation's future earnings (earnings at risk) and value (value at risk) resulting from changes in interest rates. This exposure results from differences between the amounts of interest earning assets and interest bearing liabilities that reprice within a specified time period as a result of scheduled maturities and repayment and contractual interest rate changes.
The primary objective of the Corporation's asset/liability management process is to maximize current and future net interest income within acceptable levels of interest rate risk while satisfying liquidity and capital requirements. Management recognizes that a certain amount of interest rate risk is inherent, appropriate, and necessary to ensure the Corporation's profitability. Thus the goal of interest rate risk management is to maintain a balance between risk and reward such that net interest income is maximized while risk is maintained at a tolerable level.
Management endeavors to control the exposure to changes in interest rates by understanding, reviewing and making decisions based on its risk position. The bank subsidiary asset/liability committee is responsible for these decisions. The Corporation primarily uses the securities portfolios and FHLB advances to manage its interest rate risk position. Additionally, pricing, promotion and product development activities are directed in an effort to emphasize the loan and deposit term or repricing characteristics that best meet current interest rate risk objectives. At present, there is no use of hedging instruments.
The committee operates under management policies defining guidelines and limits on the level of risk. These policies are approved by the Board of Directors.
The Corporation uses simulation analysis to assess earnings at risk and net present value analysis to assess value at risk. These methods allow management to regularly monitor both the direction and magnitude of the
Corporation's interest rate risk exposure. These modeling techniques involve assumptions and estimates that inherently cannot be measured with complete precision. Key assumptions in the analyses include maturity and repricing characteristics of both assets and liabilities, prepayments on amortizing assets, non-maturity deposit sensitivity, and loan and deposit pricing. These assumptions are inherently uncertain due to the timing, magnitude and frequency of rate changes and changes in market conditions and management strategies, among other factors. However, the analyses are useful in quantifying risk and provide a relative gauge of the Corporation's interest rate risk position over time.
EARNINGS AT RISK
Simulation analysis evaluates the effect of upward and downward changes in market interest rates on future net interest income. The analysis involves changing the interest rates used in determining net interest income over the next twelve months. The resulting percentage change in net interest income in various rate scenarios is an indication of the Corporation's shorter-term interest rate risk. The analysis utilizes a "static" balance sheet approach. The measurement date balance sheet composition (or mix) is maintained over the simulation time period, with maturing and repayment dollars being rolled back into like instruments for new terms at current market rates. Additional assumptions are applied to modify volumes and pricing under the various rate scenarios. These include prepayment assumptions on mortgage assets, the sensitivity of non-maturity deposit rates, and other factors deemed significant.
The simulation analysis results are presented in Table 13a. These results as of December 31, 2004, indicate that the Corporation would expect net interest income to decrease over the next twelve months by 18.8% assuming an immediate upward shift in market interest rates of 3.00% and to decrease by 8.5% if rates shifted downward 1.00%. The results for a downward shift in market rates of 3.00% were not presented as they would not be meaningful in an already low interest rate environment. This profile reflects a liability sensitive short-term rate risk position and exceeds guidelines set by policy. However, included in this simulation were borrowings of $45,000,000 that matured in January and February of 2005 and were re-termed at 2 and 3 years with an average rate of 3.76%. The Corporation relies more on cash flow statements and a dynamic gap report for day to day operations and both indicate an asset sensitive position.
The model indicates that net interest income would decline in both up and down directions of interest rates because of a large amount of transaction accounts positioned to change rates overnight. Since they are theoretically positioned to change rates immediately they cause a negative change in net interest income regardless of direction of interest rates. In actual practice, management would change these rates much more gradually than the model predicts. Since interest rates are at 50-year lows, an asset sensitive position will enable the Corporation to capitalize on rising rates. Additionally, management aims to manage interest rate risk on the asset side or the balance sheet by keeping security maturities relatively short (average of 7 years to maturity at December 31, 2004) and by trying to attract variable rate loans and commercial loans with a maximum rate lock period of no more than 5 years.
VALUE AT RISK
The net present value analysis provides information on the risk inherent in the balance sheet that might not be taken into account in the simulation analysis due to the shorter time horizon used in that analysis. The net present value of the balance sheet is defined as the discounted present value of expected asset cash flows minus the discounted present value of the expected liability cash flows. The analysis involves changing the interest rates used in determining the expected cash flows and in discounting the cash flows. The resulting percentage change in net present value in various rate scenarios is an indication of the longer term repricing risk and options embedded in the balance sheet.
The net present value analysis results are presented in Table 13b. These results, as of December 31, 2004, indicate that the net present value would decrease 18.9% assuming an immediate upward shift in market interest rates of 3.00% and to decrease 2.0% if rates shifted 1.00% in the same manner. The results for a downward shift in market rates of 3.00% were not presented as they would not be meaningful in an already low interest rate environment.
The Corporation's current strategy is to extend liability maturities and keep asset maturities relatively short to protect against both greater earnings at risk and value at risk.
DECEMBER 31, 2004 DECEMBER 31, 2004
-------------------------------------- ---------------------------------------
TABLE 13A TABLE 13B
NET INTEREST INCOME PROJECTIONS PRESENT VALUE EQUITY
-------------------------------------- ---------------------------------------
CHANGES IN CHANGES IN
BASIS POINTS % CHANGE BASIS POINTS % CHANGE
------------------ ---------------- ------------------ -----------------
(300) N/A % (300) N/A %
(100) (8.54)% (100) (1.98)%
- - % - - %
100 (11.52)% 100 (3.63)%
300 (18.80)% 300 (18.94)%
|
DECEMBER 31, 2003 DECEMBER 31, 2003
-------------------------------------- ---------------------------------------
TABLE 13A TABLE 13B
NET INTEREST INCOME PROJECTIONS PRESENT VALUE EQUITY
-------------------------------------- ---------------------------------------
CHANGES IN CHANGES IN
BASIS POINTS % CHANGE BASIS POINTS % CHANGE
------------------ ---------------- ------------------ -----------------
(300) (17.56)% (300) 2.70 %
(100) (9.89)% (100) (1.38)%
- -% - - %
100 (3.38)% 100 2.85%
300 4.39 % 300 3.98%
|
ITEM 8 - FINANCIAL STATEMENTS
(a) The following audited consolidated financial statements and related documents are set forth in this Annual Report on Form 10-K on the following pages:
PAGE
Report of Independent Registered Public Accounting Firm ..................... 33 Consolidated Statements of Condition ........................................ 34 Consolidated Statements of Income ........................................... 35 Consolidated Statements of Changes in Stockholders' Equity .................. 36 Consolidated Statements of Cash Flows ....................................... 37 Notes to Consolidated Financial Statements .................................. 38 |
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Stockholders
ACNB Corporation
Gettysburg, Pennsylvania
We have audited the accompanying consolidated statement of condition of ACNB Corporation and subsidiaries as of December 31, 2004, and the related consolidated statements of income, changes in stockholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The December 31, 2003 and 2002 consolidated financial statements were audited by other auditors whose report, dated January 17, 2004, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 2004 consolidated financial statements referred to above present fairly, in all material respects, the financial position of ACNB Corporation and subsidiaries as of December 31, 2004, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Beard Miller Company LLP
Harrisburg, Pennsylvania
March 10, 2005
|
ACNB CORPORATION
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31,
----------------------------------------
2004 2003
---------------- ----------------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
ASSETS
Cash and due from banks $ 21,757 $ 32,381
Interest-bearing deposits in banks 938 1,033
---------------- ----------------
Cash and Cash Equivalents 22,695 33,414
Securities available for sale 381,383 346,069
Securities held to maturity, fair value 2004 $25,089; 2003 $43,076 24,560 42,183
Loans held for sale 511 86
Loans, net of allowance for loan losses 2004 $3,938; 2003 $3,978 436,631 411,051
Premises and equipment 11,992 7,053
Restricted investment in bank stocks 10,271 7,047
Investment in bank owned life insurance 19,198 14,683
Investments in low income housing partnerships 6,153 3,371
Other assets 10,794 8,126
---------------- ----------------
TOTAL ASSETS $924,188 $873,083
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing $ 74,667 $ 75,819
Interest bearing 572,205 563,569
---------------- ----------------
Total Deposits 646,872 639,388
Short-term borrowings 64,966 69,676
Long-term borrowings 132,000 87,000
Other liabilities 5,829 4,276
---------------- ----------------
TOTAL LIABILITIES 849,667 800,340
---------------- ----------------
STOCKHOLDERS' EQUITY
Common stock, $2.50 par value; 20,000,000 shares authorized;
5,436,101 shares issued and outstanding 13,590 13,590
Retained earnings 63,127 58,711
Accumulated other comprehensive income (loss) (2,196) 442
---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 74,521 72,743
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $924,188 $873,083
================ ================
|
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
2004 2003 2002
---------------- --------------- ----------------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
INTEREST INCOME
Loans, including fees $23,578 $23,670 $24,752
Securities:
Taxable 13,002 11,904 12,608
Tax-exempt 917 882 241
Dividends 153 158 119
Other 102 75 74
---------------- --------------- ----------------
TOTAL INTEREST INCOME 37,752 36,689 37,794
---------------- --------------- ----------------
INTEREST EXPENSE
Deposits 9,511 11,224 12,258
Short-term borrowings 793 741 961
Long-term debt 2,879 1,980 234
---------------- --------------- ----------------
TOTAL INTEREST EXPENSE 13,183 13,945 13,453
---------------- --------------- ----------------
NET INTEREST INCOME 24,569 22,744 24,341
PROVISION FOR LOAN LOSSES 300 265 370
---------------- --------------- ----------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 24,269 22,479 23,971
---------------- --------------- ----------------
OTHER INCOME
Service charges on deposit accounts 1,780 1,788 1,755
Income from fiduciary activities 714 663 683
Earnings on investment in bank owned life insurance 683 722 572
Gain recognized from life insurance proceeds - 2,161 -
Gains on sales of securities 1,113 1,992 -
Service charges on ATM and debt card transactions 713 606 480
Other 862 1,497 1,538
---------------- --------------- ----------------
TOTAL OTHER INCOME 5,865 9,429 5,028
---------------- --------------- ----------------
OTHER EXPENSES
Salaries and employee benefits 9,884 9,902 9,454
Net occupancy expense 952 933 829
Equipment expense 2,131 1,960 1,411
Professional services 730 543 648
Other tax expense 990 937 875
Supplies and postage 633 639 711
Other operating 3,251 3,084 3,060
---------------- --------------- ----------------
TOTAL OTHER EXPENSES 18,571 17,998 16,988
---------------- --------------- ----------------
INCOME BEFORE INCOME TAXES 11,563 13,910 12,011
PROVISION FOR INCOME TAXES 2,255 3,142 3,107
---------------- --------------- ----------------
NET INCOME $ 9,308 $10,768 $ 8,904
================ =============== ================
PER SHARE DATA
Basic earnings $ 1.71 $ 1.98 $ 1.64
================ =============== ================
Cash dividends declared $0.90 $ 0.89 $ 1.08
================ =============== ================
|
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
ACNB CORPORATION
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
ACCUMULATED
OTHER TOTAL
COMMON RETAINED COMPREHENSIVE STOCKHOLDERS'
STOCK EARNINGS INCOME (LOSS) EQUITY
---------- ----------- ---------------- ---------------
DOLLARS IN THOUSANDS
BALANCE - DECEMBER 31, 2001 $13,590 $48,661 $ 774 $63,025
-------
Comprehensive income:
Net income - 8,904 - 8,904
Change in net unrealized gains on securities available for
sale, net of reclassification adjustment and taxes - - 3,315 3,315
-------
TOTAL COMPREHENSIVE INCOME 12,219
-------
Cash dividends declared - (4,784) - (4,784)
------- ------- ------- --------
BALANCE - DECEMBER 31, 2002 13,590 52,781 4,089 70,460
-------
Comprehensive income:
Net income - 10,768 - 10,768
Change in net unrealized gains on securities available for
sale, net of reclassification adjustment and taxes - - (3,647) (3,647)
-------
TOTAL COMPREHENSIVE INCOME 7,121
-------
Cash dividends declared - (4,838) - (4,838)
------- ------- ------- --------
BALANCE - DECEMBER 31, 2003 13,590 58,711 442 72,743
--------
Comprehensive income:
Net income - 9,308 - 9,308
Change in net unrealized gains on securities available for
sale, net of reclassification adjustment and taxes - - (2,205) (2,205)
Change in unfunded pension liability, net of taxes - - (433) (433)
-------
TOTAL COMPREHENSIVE INCOME 6,670
-------
Cash dividends declared - (4,892) - (4,892)
------- ------- ------- --------
BALANCE - DECEMBER 31, 2004 $13,590 $63,127 $(2,196) $74,521
======= ======= ======= ========
|
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
YEARS ENDED DECEMBER 31,
-----------------------------------------------
2004 2003 2002
IN THOUSANDS
---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Interest and dividends received $ 40,700 $ 40,467 $ 39,348
Fees and commissions received 2,485 5,066 358
Interest paid (13,064) (14,417) (13,998)
Cash paid to suppliers and employees (16,432) (18,116) (15,675)
Income taxes paid (2,343) (3,053) (3,959)
Loans originated for sale (8,778) (18,735) (22,360)
Proceeds on mortgage loans sold 8,466 21,530 21,148
------------- ------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 11,034 12,742 4,862
------------- ------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities held to maturity 17,491 5,366 16,821
Proceeds from maturities of investment securities available for sale 184,614 148,086 117,852
Proceeds from sales of securities available for sale 200,181 131,253 -
Purchase of investment securities held to maturity - (23,438) -
Purchase of investment securities available for sale (424,870) (344,980) (221,947)
Net purchase of restricted investment in bank stocks (3,224) (3,155) (736)
Net (increase) decrease in loans (25,880) (42,723) (12,271)
Purchase of bank owned life insurance (4,400) - -
Investments in low income housing partnerships (2,944) (1,025) (966)
Capital expenditures (5,784) (675) (2,109)
Proceeds from sale of other real estate owned 181 699 1,140
------------- ------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (64,635) (130,592) (102,216)
------------- ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, interest-bearing deposits, and savings 6,116 63,507 73,770
accounts
Net increase (decrease) in time certificates of deposit 1,368 (6,734) 1,684
Net increase (decrease) in short-term borrowings (4,710) 13,231 4,944
Dividends paid (4,892) (4,838) (5,871)
Proceeds from long-term borrowings 45,000 67,000 20,000
------------- ------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 42,882 132,166 94,527
------------- ------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (10,719) 14,316 (2,827)
CASH AND CASH EQUIVALENTS - BEGINNING 33,414 19,098 21,925
------------- ------------- --------------
CASH AND CASH EQUIVALENTS - ENDING $ 22,695 $ 33,414 $ 19,098
============= ============= ==============
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net income $ 9,308 $ 10,768 $ 8,904
Adjustments to reconcile net income to net cash provided by operating
activities:
Gains on sales of loans (113) (337) (292)
Earnings on investment in bank owned life insurance (683) (722) (572)
Gains on sales of securities (1,113) (1,992) -
Depreciation and amortization 845 804 631
Provision for loan losses 300 265 370
(Benefit) expense for deferred taxes 350 146 (349)
Amortization of investment securities premiums 2,614 3,240 795
(Increase) decrease in interest receivable 334 538 759
Increase (decrease) in interest payable 119 (472) (545)
(Increase) decrease in mortgage loans held for sale (312) 2,795 (1,212)
(Increase) decrease in other assets (1,406) (1,312) (3,806)
Increase (decrease) in other liabilities 791 (979) 179
------------- ------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $11,034 $12,742 $4,862
============= ============= ==============
|
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
ACNB Corporation provides banking and financial services to businesses and consumers through its wholly-owned banking subsidiary, Adams County National Bank. The Corporation engages in full-service commercial and consumer banking and trust services through its nineteen locations in Adams, Cumberland and York counties.
The Corporation, along with seven other banks, entered into a joint venture to form Pennbanks Insurance Company, an offshore reinsurance company. Each participating entity owns an insurance cell through which its premiums and losses from credit life, health and accident insurance are funded. Each entity is responsible for the activity in its respective cell. The financial activity for the insurance cell has been reported in the consolidated financial statements and is not material to the consolidated financial statements.
The Corporation's primary source of revenue is interest income on loans and investment securities and fee income on its products and services. Expenses consist of interest expense on deposits and borrowed funds, provisions for loan losses, and other operating expenses.
BASIS OF FINANCIAL STATEMENTS
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles and include the accounts of the Corporation and its wholly-owned subsidiaries. All significant inter-company transactions have been eliminated.
Financial statements prepared in accordance with accounting principles generally accepted in the United States of America require management to make estimates and assumptions that affect the reported amounts and disclosures of contingencies. Actual results could differ from these estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, fair value disclosures, the valuation of deferred tax assets, and the evaluation of other than temporary impairment of securities.
Assets held by the Trust Department in an agency or fiduciary capacity for its customers are excluded from the financial statements since they do not constitute assets of the Corporation. Assets held by the Trust Department amounted to $74,000,000 and $64,000,000 at December 31, 2004 and 2003, respectively. Income from fiduciary activities is recognized on the cash method, which approximates the accrual method.
SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
Most of the Corporation's activities are with customers located within south central Pennsylvania and northern Maryland. Note C discusses the types of securities that the Corporation invests in. Note D discusses the types of lending that the Corporation engages in. The Corporation does not have any significant concentrations greater than 10% of loans to any one industry or customer.
RECLASSIFICATIONS
For comparative purposes, prior years' consolidated financial statements have been reclassified to conform with the 2004 presentation. Such reclassifications had no impact on net income.
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash on hand, balances due from banks, and federal funds sold, all of which mature within ninety days.
SECURITIES
Debt securities that management has the positive intent and ability to hold to maturity are classified as "held to maturity" and recorded at amortized cost. Securities not classified as held to maturity or trading, including equity securities with readily determinable fair values, are classified as "available for sale" and recorded at fair value, with unrealized gains and losses excluded from earnings and reported, net of tax, in other comprehensive income.
Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.
RESTRICTED INVESTMENT IN BANK STOCKS
Restricted investment in bank stocks includes Federal Reserve, Atlantic Central Bankers Bank and Federal Home Loan Bank (FHLB) stocks. Federal law requires a member institution of the FHLB to hold stock of its district FHLB according to a predetermined formula. The stock is carried at cost.
LOANS HELD FOR SALE
Loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by aggregate outstanding commitments from investors or current investor yield requirements. Net unrealized losses are recognized through a valuation allowance by charges to income.
Mortgage loans held for sale are sold with the mortgage servicing rights released to another financial institution through a correspondent relationship. The correspondent financial institution absorbs all of the risk related to rate lock commitments. Gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold.
LOANS
The Corporation grants mortgage, commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans throughout south central Pennsylvania and northern Maryland. The ability of the Corporation's debtors to honor their contracts is dependent upon the real estate and general economic conditions in this area.
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS (CONTINUED)
The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Personal loans are typically charged off no later than 120 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on non-accrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon management's periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as either doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management's estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent.
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Corporation does not separately identify individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a restructuring agreement.
OFF-BALANCE SHEET CREDIT RELATED FINANCIAL INSTRUMENTS
In the ordinary course of business, the Corporation has entered into commitments to extend credit, including commitments under commercial lines of credit, and standby letters of credit. Such financial instruments are recorded when they are funded.
FORECLOSED ASSETS
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets. Foreclosed real estate totaled $213,000 and $394,000 at December 31, 2004 and 2003, respectively, and was included in other assets.
PREMISES AND EQUIPMENT
Land is carried at cost. Bank premises and furniture and equipment are carried at cost, less accumulated depreciation computed principally by the straight-line method over the assets' estimated useful lives.
INVESTMENTS IN LOW INCOME HOUSING PARTNERSHIPS
The Corporation's investments in low income housing partnerships are accounted for using the "cost method" prescribed by Emerging Issues Task Force (EITF) No. 94-1. In accordance with EITF 94-1, tax credits are recognized as they become available. Any residual loss is amortized as the tax credits are received.
TRANSFERS OF FINANCIAL ASSETS
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Corporation, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Corporation does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
INCOME TAXES
Deferred income tax assets and liabilities are determined using the liability method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.
RETIREMENT PLAN
The compensation cost of an employee's pension benefit is recognized on the projected unit credit method over the employee's approximate service period. The aggregate cost method is utilized for funding purposes.
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER SHARE
The Corporation has a simple capital structure. Basic earnings per share of common stock is computed based on 5,436,101 weighted average shares of common stock outstanding for all years presented.
ADVERTISING COSTS
Costs of advertising are expensed when incurred. Advertising expense was $284,000, $369,000 and $312,000 for the years ended December 31, 2004, 2003 and 2002, respectively.
COMPREHENSIVE INCOME
Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Changes in certain assets and liabilities, such as unrealized gains (losses) on securities available for sale and the minimum pension liability, are reported as a separate component of the stockholders' equity section of the balance sheet. Such items, along with net income, are components of comprehensive income.
The components of other comprehensive income (loss) and the related tax effects are as follows:
YEARS ENDED DECEMBER 31,
2004 2003 2002
------------ ------------ ------------
IN THOUSANDS
Unrealized holding gains (losses) arising during the period $(2,279) $(3,618) $5,100
Reclassification adjustment for gains realized in net income 1,113 1,992 -
------------ ------------ ------------
Net Unrealized Gains (Losses) (3,392) (5,610) 5,100
Tax effect 1,187 1,963 (1,785)
------------ ------------ ------------
(2,205) (3,647) 3,315
------------ ------------ ------------
Change in minimum pension liability (660) - -
Tax effect 227 - -
------------ ------------ ------------
(433) - -
------------ ------------ ------------
NET OF TAX AMOUNT $(2,638) $(3,647) $3,315
============ ============ ============
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The December 31 balances of accumulated other comprehensive income (loss) are as follows:
MINIMUM
UNREALIZED PENSION ACCUMULATED OTHER
GAINS (LOSSES) LIABILITY COMPREHENSIVE
ON SECURITIES ADJUSTMENT INCOME (LOSS)
---------------- --------------- ---------------
IN THOUSANDS
BALANCE, DECEMBER 31, 2003 $ 442 $ - $ 442
Change during 2004 (2,205) (433) (2,638)
---------------- --------------- ---------------
BALANCE, DECEMBER 31, 2004 $(1,763) $(433) $(2,196)
================ =============== ===============
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NEW ACCOUNTING STANDARDS
SAB 105
In March 2004, the SEC released Staff Accounting Bulletin (SAB) No. 105, "Application of Accounting Principles to Loan Commitments." SAB 105 provides guidance about the measurements of loan commitments recognized at fair value under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." SAB 105 also requires companies to disclose their accounting policy for those loan commitments including methods and assumptions used to estimate fair value and associated hedging strategies. SAB 105 is effective for all loan commitments accounted for as derivatives that are entered into after March 31, 2004. The adoption of SAB 105 did not have any impact on our consolidated financial statements.
SOP 03-3
In December 2003, the Accounting Standards Executive Committee issued Statement of Position 03-3 (SOP 03-3), "Accounting for Certain Loans or Debt Securities Acquired in a Transfer." SOP 03-3 addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor's initial investment in loans or debt securities acquired in a transfer, including business combinations, if those differences are attributable, at least in part, to credit quality. SOP 03-3 is effective for loans or debt securities acquired in fiscal years beginning after December 15, 2004. The Corporation adopted the provisions of SOP 03-3 effective January 1, 2005, and the initial implementation did not have any impact on the Corporation's consolidated financial statements.
NOTE B - RESTRICTIONS ON CASH AND DUE FROM BANKS
In return for services obtained through correspondent banks, the Corporation is required to maintain non-interest bearing cash balances in those correspondent banks. At December 31, 2004 and 2003, compensating balances approximated $14,507,000 and $15,797,000, respectively. During 2004, 2003 and 2002, average required balances approximated $14,300,000, $13,145,000 and $11,613,000, respectively.
NOTE C - SECURITIES
Amortized cost and fair value at December 31, 2004 and 2003 were as follows:
GROSS GROSS
UNREALIZED UNREALIZED FAIR
AMORTIZED COST GAINS LOSSES VALUE
---------------- --------------- ---------------- ----------------
IN THOUSANDS
SECURITIES AVAILABLE FOR SALE:
DECEMBER 31, 2004:
U.S. Government and agencies $158,912 $ 77 $1,179 $157,810
Mortgage-backed securities 119,217 270 1,487 118,000
State and municipal 22,916 87 75 22,928
Corporate bonds 82,550 18 497 82,071
Stock in other banks 500 74 - 574
---------------- --------------- ---------------- ----------------
$384,095 $526 $3,238 $381,383
=============== ================ ================ ===============
DECEMBER 31, 2003:
U.S. Government and agencies $ 40,000 $ 32 $ 196 $ 39,836
Mortgage-backed securities 176,467 1,180 1,586 176,061
State and municipal 22,922 355 6 23,271
Corporate bonds 105,500 957 56 106,401
Stock in other banks 500 - - 500
--------------- ---------------- ---------------- ---------------
$345,389 $2,524 $1,844 $346,069
=============== ================ ================ ===============
SECURITIES HELD TO MATURITY:
DECEMBER 31, 2004:
U.S. Government and agencies $10,000 $735 $ - $10,735
Mortgage-backed securities 14,206 - 206 14,000
State and municipal 354 - - 354
--------------- ---------------- ---------------- ---------------
$24,560 $735 $206 $25,089
=============== ================ ================ ===============
DECEMBER 31, 2003:
U.S. Government and agencies $15,535 $1,265 $ - $16,800
Mortgage-backed securities 26,201 - 372 25,829
State and municipal 447 - - 447
--------------- ---------------- ---------------- ---------------
$42,183 $1,265 $372 $43,076
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NOTE C - SECURITIES (CONTINUED)
The following table shows the Corporation's investments' gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2004:
LESS THAN 12 MONTHS 12 MONTHS OR MORE TOTAL
---------------------------- ---------------------------- -----------------------------
FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED
VALUE LOSSES VALUE LOSSES VALUE LOSSES
------------ ------------ ------------ ------------- ------------- ------------
IN THOUSANDS
SECURITIES AVAILABLE FOR SALE:
U.S. Government and
agencies $78,821 $1,179 $ - $ - $ 78,821 $1,179
Mortgage-backed
securities 55,744 439 39,068 1,048 94,812 1,487
State and municipal 5,921 25 2,572 50 8,493 75
Corporate bonds 68,992 497 - - 68,992 497
------------ ------------ ------------ ------------- ------------- ------------
$209,478 $2,140 $41,640 $1,098 $251,118 $3,238
============ ============ ============ ============= ============= ============
SECURITIES HELD TO MATURITY:
Mortgage-backed securities $ - $ - $14,000 $206 $14,000 $206
============ ============ ============ ============= ============= ============
|
At December 31, 2004, 11 mortgage-backed and 4 U.S. Government and agency securities have unrealized losses, and only 3 of the securities have been in a continuous loss position for 12 months or more. These unrealized losses relate principally to changes in interest rates subsequent to the acquisition of specific securities. None of the securities in this category had an unrealized loss that exceeded 4% of book value and a majority had unrealized losses totaling less than 1% of book value.
At December 31, 2004, 15 state and municipal securities and 13 corporate bonds have unrealized losses, and only 2 of the securities have been in a continuous loss position for 12 months or more. In analyzing the issuer's financial condition, management considers industry analysts' reports, financial performance and projected target prices of investment analysts within a one-year time frame. None of the securities in this category had an unrealized loss that exceeded 2% of book value and a majority had unrealized losses totaling less than 1% of book value.
Management routinely sells securities from its available for sale portfolio in an effort to manage and allocate the portfolio. At December 31, 2004, management had not identified any securities with an unrealized loss that it intends to sell. As management has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available for sale, no declines are deemed to be other-than-temporary.
NOTE C - SECURITIES (CONTINUED)
Amortized cost and fair value at December 31, 2004 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay with or without penalties.
AVAILABLE FOR SALE HELD TO MATURITY
----------------------------------- ------------------------------------
FAIR AMORTIZED COST FAIR
AMORTIZED COST VALUE VALUE
--------------- ---------------- ---------------- ---------------
IN THOUSANDS
1 year or less $ 10,178 $ 10,126 $ - $ -
Over 1 year through 5 years 117,372 116,253 10,354 11,089
Over 5 years through 10 years 94,911 94,956 - -
Over 10 years 41,917 41,474 - -
Mortgage-backed securities 119,217 118,000 14,206 14,000
Equity securities 500 574 - -
--------------- ---------------- ---------------- ---------------
$384,095 $381,383 $24,560 $25,089
=============== ================ ================ ===============
|
The Corporation realized gross gains of $2,019,000 during 2004 and $2,694,000 during 2003 and gross losses of $906,000 during 2004 and $702,000 during 2003 on sales of securities available for sale. During 2002, the Corporation did not realize any gross gains or losses on securities available for sale.
At December 31, 2004 and 2003, securities with a carrying value of $94,122,000 and $130,424,000, respectively, were pledged as collateral as required by law on public and trust deposits, repurchase agreements and for other purposes.
NOTE D - LOANS
Loans at December 31, 2004 and 2003 were as follows:
2004 2003
--------------- ---------------
IN THOUSANDS
Commercial, financial and agricultural $ 31,187 $ 18,080
Real estate:
Commercial 99,988 100,536
Construction 20,232 22,298
Residential 278,140 262,446
Installment 10,643 11,222
--------------- ---------------
TOTAL LOANS 440,190 414,582
Deferred loan fees and costs, net 379 447
Allowance for loan losses (3,938) (3,978)
--------------- ---------------
NET LOANS $436,631 $411,051
=============== ===============
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NOTE D - LOANS (CONTINUED)
The Bank grants commercial, residential and consumer loans to customers primarily within south central Pennsylvania and northern Maryland and the surrounding area. A large portion of the loan portfolio is secured by real estate. Although the Bank has a diversified loan portfolio, its debtors' ability to honor their contracts is influenced by the region's economy.
Changes in the allowance for loan losses were as follows:
2004 2003 2002
------------ ------------ ------------
IN THOUSANDS
Balance, beginning $3,978 $3,837 $3,723
Provision charged to operations 300 265 370
Recoveries on charged off loans 50 45 80
Loans charged off (390) (169) (336)
------------ ------------ ------------
Balance, ending $3,938 $3,978 $3,837
============ ============ ============
|
Nonaccrual loans totaled $8,054,000 and $4,413,000 at December 31, 2004 and 2003, respectively. Loans past due 90 days or more and still accruing totaled $160,000 and $606,000 at December 31, 2004 and 2003, respectively. If interest on all nonaccrual loans had been accrued at original contract rates, it is estimated interest income would have been higher by $384,000 in 2004, $82,000 in 2003, and $55,000 in 2002.
The following is a summary of information pertaining to impaired loans:
DECEMBER 31,
-------------------------------------
2004 2003
---------------- ----------------
IN THOUSANDS
Impaired loans with a valuation allowance $7,539 $ 200
=============== ===============
Valuation allowance related to impaired loans $ 619 $ 20
=============== ===============
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YEARS ENDED DECEMBER 31,
------------------------------------------------
2004 2003 2002
------------ ------------- ------------
IN THOUSANDS
Average investment in impaired loans $5,085 $200 $ -
============ ============ ============
Interest income recognized using a cash basis method on $ 331 $ - $ -
impaired loans
============ ============ ============
Interest income recognized on impaired loans $ - $ - $ -
============ ============ ============
|
There were no impaired loans without a related valuation allowance. The increase in nonaccrual and impaired loans during 2004 is related to 3 commercial loan relationships. Payments on these loans were current as of December 31, 2004, however, cash flows reported to the Bank by each of the related companies are not sufficient to service the debt. As a result, the loans have been classified as impaired. The loans were also classified as nonaccrual as a result of a banking regulatory requirement to stop accruing interest on loans for which full payment of principal and interest is not expected. All three of the loans are collateralized by real estate.
No additional funds are committed to be advanced in connection with impaired loans.
NOTE E - PREMISES AND EQUIPMENT
Premises and equipment at December 31 were as follows:
2004 2003
--------------- ---------------
IN THOUSANDS
Land $ 1,384 $ 1,343
Buildings and improvements 7,659 7,278
Furniture and equipment 5,735 6,427
Construction in process 5,541 329
--------------- ---------------
20,319 15,377
Accumulated depreciation (8,327) (8,324)
--------------- ---------------
$11,992 $ 7,053
=============== ===============
|
The increase in construction in process is primarily related to the Corporation's new operations center, which is scheduled to be completed during 2005. The Corporation anticipates incurring an additional $2.8 million related to the operations center.
NOTE F - INVESTMENTS IN LOW INCOME HOUSING PARTNERSHIPS
ACNB Corporation is a limited partner in five partnerships, whose purpose is to develop, manage and operate residential low-income properties. At December 31, 2004 and 2003, the carrying value of these investments was approximately $6,153,000 and $3,371,000, respectively.
NOTE G - DEPOSITS
Deposits were comprised of the following as of December 31:
2004 2003
--------------- ---------------
IN THOUSANDS
Non-interest bearing demand $ 74,667 $ 75,819
Interest bearing demand 113,259 101,560
Savings 235,127 239,558
Time certificates of deposit less than $100,000 187,819 187,448
Time certificates of deposit greater than $100,000 36,000 35,003
--------------- ---------------
$646,872 $639,388
=============== ===============
|
NOTE G - DEPOSITS (CONTINUED)
Scheduled maturities of time certificates of deposit at December 31, 2004 were as follows:
IN THOUSANDS
2005 $126,780
2006 38,029
2007 30,072
2008 19,759
2009 9,179
---------------
$223,819
===============
|
NOTE H - LEASE COMMITMENTS
Certain branch offices and equipment are leased under agreements which expire at varying dates through 2011. Most leases contain renewal provisions at the Corporation's option. The total rental expense for all operating leases was $504,000, $200,000 and $192,000 for the years ended December 31, 2004, 2003 and 2002, respectively.
The following is a schedule by years of future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31:
IN THOUSANDS
2005 $465
2006 322
2007 201
2008 117
2009 100
Later years 104
---------------
$1,309
===============
|
NOTE I - BORROWINGS
Short-term borrowings and weighted-average interest rates at December 31 are as follows:
2004 2003
------------------------------- --------------------------------
AMOUNT RATE AMOUNT RATE
--------------- ------------ ---------------- ------------
IN THOUSANDS
Treasury tax and loan note $ 450 2.10% $ 450 0.89%
Federal Home Loan Bank (FHLB)
overnight advance 30,706 2.21 29,320 1.22
Securities sold under repurchase
agreements 33,810 1.51 39,906 1.48
--------------- ------------ ---------------- ------------
$64,966 1.84% $69,676 1.37%
=============== ============ ================ ============
|
NOTE I - BORROWINGS (CONTINUED)
Under an agreement with the FHLB, the Bank has a line of credit available in the amount of $65,000,000, of which $30,706,000 was outstanding at December 31, 2004. All FHLB advances are collateralized by a security agreement covering qualifying loans and unpledged treasury, agency and mortgage-backed securities. In addition, all FHLB advances are secured by the FHLB capital stock owned by the Corporation having a par value of $9,951,000 at December 31, 2004 and $6,727,000 at December 31, 2003.
The Corporation offers a short-term investment program for corporate customers for secured investing. This program consists of overnight and short-term repurchase agreements that are secured by designated investment securities of the Corporation. The investment securities are under the control of the Corporation.
A summary of long-term debt as of December 31 is as follows:
2004 2003
------------------------------- -------------------------------
AMOUNT RATE AMOUNT RATE
--------------- ------------ ---------------- ------------
IN THOUSANDS
FHLB fixed-rate advances maturing:
2005 $ 57,000 1.83% $57,000 1.83%
2006 55,000 2.91 10,000 2.32
2012 10,000 4.41 10,000 4.41
FHLB convertible advance maturing:
2012 10,000 4.27 10,000 4.27
--------------- ------------ ---------------- ------------
$132,000 2.66% $87,000 2.47%
=============== ============ ================ ============
|
The FHLB advances are collateralized by the security agreement and FHLB capital stock described previously. The Corporation can borrow a maximum of $450,136,000 from the FHLB, of which $287,430,000 was available at December 31, 2004. The FHLB has the option to convert the $10,000,000 convertible advance commencing after August 2004 but not before three-month LIBOR reaches 8%. Upon the FHLB's conversion, the Bank has the option to repay the respective advance in full.
NOTE J - RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS AND ADVANCES
Certain restrictions exist regarding the ability of the bank to transfer funds to the Corporation in the form of cash dividends, loans or advances. The approval of the Office of the Comptroller of the Currency is required to pay dividends in excess of earnings retained in the current year plus retained net profits for the preceding two years. As of December 31, 2004, $7,355,000 of undistributed earnings of the bank, included in consolidated retained earnings, was available for distribution to the Corporation as dividends without prior regulatory approval. Additionally, dividends paid by the Bank to the Corporation would be prohibited if the effect thereof would cause the Bank's capital to be reduced below applicable minimum capital requirements.
Under national banking laws, the Bank is also limited as to the amount it may loan to its affiliates, including the Corporation, unless such loans are collateralized by specific obligations. At December 31, 2004, the maximum amount available for transfer from the Bank to the Corporation in the form of loans was approximately $7,151,000.
NOTE K - INCOME TAXES
The components of income tax expense for the years ended December 31, 2004, 2003 and 2002 are as follows:
2004 2003 2002
------------ ------------ ------------
IN THOUSANDS
Federal:
Current $1,905 $2,996 $3,456
Deferred 350 146 (349)
------------ ------------ ------------
$2,255 $3,142 $3,107
============ ============ ============
|
Reconciliations of the statutory federal income tax at a rate of 35% to the income tax expense reported in the consolidated statements of income for the years ended December 31, 2004, 2003 and 2002 are as follows:
PERCENTAGE OF INCOME
BEFORE INCOME TAXES
-----------------------------------------------
2004 2003 2002
------------ ------------ ------------
Federal income tax at statutory rate 35.0% 35.0% 35.0%
Tax-exempt income (3.2) (2.2) (1.3)
Earnings on investment in life insurance (2.0) (1.8) (1.7)
Gain on proceeds from life insurance - (5.4) -
Rehabilitation and low-income housing credits (9.9) (2.4) (5.6)
Other (0.4) (0.6) (0.5)
------------ ------------ ------------
19.5% 22.6% 25.9%
============ ============ ============
|
The provision for federal income taxes includes $390,000 and $697,000 of income taxes related to net gains on sales of securities in 2004 and 2003, respectively. There were no sales of securities during 2002. Rehabilitation and low-income housing Income tax credits were $1,139,000 during 2004, $337,000 for 2003, and $672,000 for 2002. Projected credits are $708,000 in 2005, $608,000 in 2006 to 2009, and $2,111,000 thereafter.
Components of deferred tax assets and liabilities at December 31 were as follows:
2004 2003
--------------- ---------------
IN THOUSANDS
Deferred tax assets:
Allowance for loan losses $1,351 $1,370
Available for sale securities 949 -
Accrued deferred compensation 346 336
Additional minimum pension liability 227 -
Deferred loan fees 129 154
AMT credit carryforward 215 -
Other 158 147
--------------- ---------------
3,375 2,007
--------------- ---------------
|
NOTE K - INCOME TAXES (CONTINUED)
2004 2003
--------------- ---------------
IN THOUSANDS
Deferred tax liabilities:
Accumulated depreciation $ 141 $ 131
Available for sale securities - 238
Prepaid benefit cost 268 -
Prepaid expenses 264 -
--------------- ---------------
673 369
--------------- ---------------
NET DEFERRED TAX ASSETS $2,702 $1,638
=============== ===============
|
NOTE L - RETIREMENT PLANS
The Corporation's banking subsidiary has a non-contributory pension plan. Retirement benefits are a function of both years of service and compensation. The funding policy is to contribute annually the amount that is sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act.
Information pertaining to the activity in the plan, using a measurement date of November 1, 2004 is as follows:
2004 2003
--------------- ---------------
IN THOUSANDS
Change in benefit obligation:
Benefit obligation, at beginning of year $13,308 $11,550
Service cost 436 356
Interest cost 783 735
Actuarial loss 1,240 1,150
Benefits paid (471) (483)
--------------- ---------------
Benefit obligation, at end of year 15,296 13,308
--------------- ---------------
Change in plan assets:
Fair value of plan assets at beginning of year 10,649 8,679
Actual return on plan assets 758 1,299
Employer contribution 1,250 1,154
Benefits paid (471) (483)
--------------- ---------------
Fair value of plan assets at end of year 12,186 10,649
--------------- ---------------
FUNDED STATUS (3,110) (2,659)
Unrecognized net actuarial loss 3,373 2,225
Unrecognized transition asset 95 107
Unrecognized prior service costs 429 478
--------------- ---------------
PREPAID BENEFIT COST 787 151
Recognition of additional minimum liability (1,183) (540)
--------------- ---------------
NET ACCRUED PENSION LIABILITY $ (396) $ (389)
=============== ===============
|
NOTE L - RETIREMENT PLANS (CONTINUED)
The accumulated benefit obligation totaled $12,582,000 and $11,038,000 at December 31, 2004 and 2003, respectively. The intangible pension asset totaled $523,000 and $540,000 at December 31, 2004 and 2003, respectively.
The components of net periodic benefit cost for the years ended December 31 are as follows:
2004 2003 2002
------------ ------------ ------------
IN THOUSANDS
Components of net periodic benefit cost:
Service cost $436 $356 $424
Interest cost 783 735 702
Expected return on assets (740) (656) (689)
Recognized net actuarial loss 74 47 74
Amortization of transition asset 12 12 -
Amortization of prior service costs 49 73 67
------------ ------------ ------------
NET PERIODIC BENEFIT COST $614 $567 $578
============ ============ ============
|
For the years ended December 31, 2004, 2003 and 2002, the assumptions used to determine the net periodic benefit cost are as follows:
2004 2003 2002
------------ ------------ ------------
Discount rate 5.50% 6.00% 6.50%
Expected long-term rate of return on plan assets 7.50% 7.25% 7.75%
Annual salary increase 4.69% 4.66% 4.62%
|
The Corporation's pension plan weighted-average assets' allocations at December 31, 2004 and 2003 are as follows:
2004 2003
------------ ------------
Equity securities 60% 63%
Debt securities 34 32
Real estate 6 5
------------ ------------
100% 100%
============ ============
|
Equity securities included Corporation common stock in amounts of $939,000, 8% of total plan assets and $962,000, 9% of total plan assets at December 31, 2004 and 2003, respectively.
The Bank expects to contribute $1,250,000 to its pension plan in 2005.
NOTE L - RETIREMENT PLANS (CONTINUED)
Based on current data and assumptions, the following benefit payments, which reflect expected future service, as appropriate, are expected to be paid over the next ten fiscal years:
IN THOUSANDS
2005 $ 597 2006 667 2007 673 2008 696 2009 826 2010-2014 5,110 |
The Corporation's banking subsidiary maintains a 401(k) plan for the benefit of eligible employees. Employees may contribute up to 100% of their compensation subject to certain limits based on federal tax laws. The Bank makes matching contributions up to 100% of the first 4% of an employee's compensation contributed to the plan. Matching contributions vest to the employee equally over a 5 year period. Bank contributions to the Plan were $276,000, $251,000 and $240,000 for 2004, 2003 and 2002, respectively.
The Corporation's banking subsidiary maintains non-qualified compensation plans for selected senior officers. The estimated present value of future benefits is accrued over the period from the effective date of the agreements until the expected retirement dates of the individuals. The balance accrued for these plans included in other liabilities as of December 31, 2004 and 2003 totaled $991,000 and $943,000, respectively. The annual expense included in salaries and benefits expense totaled $143,000, $116,000 and $86,000 during the years ended December 31, 2004, 2003 and 2002, respectively. To fund the benefits under these plans, the Bank is the owner of single premium life insurance policies on participants in the non-qualified retirement plans. At December 31, 2004 and 2003, the cash surrender value of these policies were $3,380,000 and $3,776,000, respectively.
NOTE M - REGULATORY MATTERS
The Corporation and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet the minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios (set forth below) of Tier 1 capital to average assets and of Tier 1 and total capital (as defined in the regulations) to risk-weighted assets. Management believes, as of December 31, 2004, that the Corporation and the Bank meet all capital adequacy requirements to which they are subject.
NOTE M - REGULATORY MATTERS (CONTINUED)
As of December 31, 2004, the most recent notification from the regulators categorized the Bank as "well capitalized" under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank's category.
The actual and required capital amounts and ratios were as follows:
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
-------------------- ----------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ------- --------- ------- --------- -------
DOLLARS IN THOUSANDS
CORPORATION:
AS OF DECEMBER 31, 2004:
Tier 1 leverage ratio (to average
assets) $74,521 8.34% $=>35,656 =>4.0 % N/A N/A
Tier 1 risk-based capital ratio (to
risk-0weighted assets) 74,521 13.91 =>21,429 =>4.0 N/A N/A
Total risk-based capital ratio (to
risk-weighted assets) 78,459 14.64 =>42,874 =>8.0 N/A N/A
AS OF DECEMBER 31, 2003:
Tier 1 leverage ratio (to average
assets) 72,391 8.85% $=>32,719 =>4.0 % N/A N/A
Tier 1 risk-based capital ratio (to
risk-weighted assets) 72,391 13.93 =>20,787 =>4.0 N/A N/A
Total risk-based capital ratio (to
risk-weighted assets) 76,369 14.70 =>41,561 =>8.0 N/A N/A
BANK:
AS OF DECEMBER 31, 2004:
Tier 1 leverage ratio (to average
assets) 67,598 7.35% $=>36,788 =>4.0 % $=>45,985 => 5.0%
Tier 1 risk-based capital ratio (to
risk-weighted assets) 67,598 12.77 =>21,174 =>4.0 =>31,736 => 6.0
Total risk-based capital ratio (to
risk-weighted assets) 71,506 13.52 =>42,311 =>8.0 =>52,889 =>10.0
AS OF DECEMBER 31, 2003:
Tier 1 leverage ratio (to average
assets) 66,091 7.70% $=>34,333 =>4.0 % $=>42,916 => 5.0%
Tier 1 risk-based capital ratio (to
risk-weighted assets) 66,091 12.82 =>20,621 =>4.0 =>30,932 => 6.0
Total risk-based capital ratio (to
risk-weighted assets) 70,069 13.60 =>41,217 =>8.0 =>51,521 =>10.0
|
NOTE N - FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK
The Corporation is a party to financial instruments with off balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments consist primarily of commitments to extend credit (typically mortgages and commercial loans) and, to a lesser extent, standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized on the balance sheet.
The Corporation's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on balance sheet instruments. The Corporation does not anticipate any material losses from these commitments.
Commitments to extend credit, including commitments to grant loans and unfunded commitments under lines of credit, are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extensions of credit, is based on management's credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, property and equipment and income-producing commercial properties. On loans secured by real estate, the Corporation generally requires loan to value ratios of no greater than 80%.
Standby letters of credit are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements and similar transactions. The terms of the letters of credit vary and may have renewal features. The credit risk involved in using letters of credit is essentially the same as that involved in extending loans to customers. The Corporation holds collateral supporting those commitments for which collateral is deemed necessary. Management believes that the proceeds obtained through a liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees. The current amount of the liability as of December 31, 2004 and 2003 for guarantees under standby letters of credit issued is not material.
The Corporation has not been required to perform on any financial guarantees, and has not incurred any losses on its commitments, during the past two years.
A summary of the Corporation's commitments at December 31 were as follows:
2004 2003
--------- --------
IN THOUSANDS
Commitments to extend credit $73,268 $68,654
Standby letters of credit 5,732 5,915
|
NOTE O - FAIR VALUE OF FINANCIAL INSTRUMENTS
Management uses its best judgment in estimating the fair value of the Corporation's financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Corporation could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year ends and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year end.
The following information should not be interpreted as an estimate of the fair value of the entire Corporation since a fair value calculation is only provided for a limited portion of the Corporation's assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporation's disclosures and those of other companies may not be meaningful. For the following financial instruments, the carrying amount is a reasonable estimate of fair value:
Cash and cash equivalents Interest-bearing deposits in banks
Accrued interest receivable
Restricted investment in bank stocks Short-term borrowings
Accrued interest payable
SECURITIES
Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair value is based on quoted market prices of comparable securities.
MORTGAGE LOANS HELD FOR SALE
Fair values of mortgage loans held for sale are based on commitments on hand from investors or prevailing market prices.
LOANS
For variable rate loans that reprice frequently and which entail no significant changes in credit risk, the carrying amount is a reasonable estimate of fair value. For fixed rate loans, fair value is estimated using discounted cash flow analysis, at interest rates currently offered for loans with similar terms to borrowers of similar credit quality.
DEPOSITS
For demand deposits, the carrying amount is a reasonable estimate of fair value. For time deposits, fair value is estimated using discounted cash flow analysis, at interest rates currently offered for time deposits with similar maturities.
NOTE O - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
SHORT-TERM BORROWINGS
The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings maturing within ninety days approximate their fair values.
LONG-TERM BORROWINGS
The fair values of the Corporation's convertible fixed rate advances are based on quoted market values. The fair values of the Corporation's other fixed rate advances are estimated using discounted cash flow analyses based on the Corporation's current incremental borrowing rates for similar types of borrowing arrangements.
OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS
Off-balance sheet instruments of the Bank consist of letters of credit, loan commitments and unfunded lines of credit. Fair value is estimated using fees currently charged for similar agreements, taking into account the remaining terms of the agreements and the counterparties credit standings. Any fees charged are immaterial.
Estimated fair values of financial instruments at December 31 were as follows:
2004 2003
---------------------------- ----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ---------- ----------- ----------
IN THOUSANDS
Financial assets:
Cash and due from banks $ 21,757 $ 21,757 $32,381 $32,381
Interest-bearing deposits in banks 938 938 1,033 1,033
Investment securities:
Available for sale 381,383 381,383 346,069 346,069
Held to maturity 24,560 25,089 42,183 43,076
Loans held for sale 511 511 86 86
Loans, less allowance for loan losses 436,631 433,345 411,051 415,195
Accrued interest receivable 4,283 4,283 4,617 4,617
Restricted investment in bank stocks 10,271 10,271 7,047 7,047
Financial liabilities:
Deposits 646,872 647,728 639,388 641,830
Short-term borrowings 64,966 64,966 69,676 69,676
Long-term borrowings 132,000 134,108 87,000 90,648
Accrued interest payable 2,277 2,277 2,158 2,158
Off-balance sheet financial instruments - - - -
|
NOTE P - CONTINGENCIES
The Corporation is subject to claims and lawsuits which arise primarily in the ordinary course of business. Based on information presently available and advice received from legal counsel representing the Corporation in connection with any such claims and lawsuits, it is the opinion of management that the disposition or ultimate determination of any such claims and lawsuits will not have a material adverse effect on the consolidated financial position, consolidated results of operations or liquidity of the Corporation.
NOTE Q - ACNB CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION
STATEMENTS OF CONDITION
DECEMBER 31,
2004 2003
------------ ------------
IN THOUSANDS
ASSETS
Cash $ 475 $ 1,523
Investment in subsidiaries 66,252 67,125
Investments in low income housing partnerships 6,153 3,371
Securities and other assets 1,114 947
Receivable from banking subsidiary 935 185
------------ ------------
TOTAL ASSETS $74,929 $73,151
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ 408 $ 408
Stockholders' equity 74,521 72,743
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $74,929 $73,151
============ ============
|
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
-----------------------------------------------
2004 2003 2002
------------ ------------ ------------
IN THOUSANDS
Dividends from banking subsidiary $6,592 $ 6,338 $6,871
Other dividends 31 5 -
------------ ------------ ------------
6,623 6,343 6,871
Expenses 384 213 112
------------ ------------ ------------
6,239 6,130 6,759
Income tax benefit 1,256 422 730
------------ ------------ ------------
7,495 6,552 7,489
Equity in undistributed earnings of subsidiaries 1,813 4,216 1,415
------------ ------------ ------------
NET INCOME $9,308 $10,768 $8,904
============ ============ ============
|
NOTE Q - ACNB CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION
(CONTINUED)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
------------------------------------------------
2004 2003 2002
------------ ------------ ------------
IN THOUSANDS
CASH FLOWS FROM OPERATING ACTIVITIES
Dividends and interest received $7,172 $ 7,996 $ 6,989
Payments to vendors (384) (213) (112)
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,788 7,783 6,877
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in low income housing partnerships (2,944) (1,025) (966)
Purchase of securities - (500) -
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (2,944) (1,525) (966)
------------ ------------ ------------
CASH FLOWS USED IN FINANCING ACTIVITIES
Dividends paid (4,892) (4,838) (5,871)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,048) 1,420 50
CASH AND CASH EQUIVALENTS - BEGINNING 1,523 103 53
------------ ------------ ------------
CASH AND CASH EQUIVALENTS - ENDING $ 475 $ 1,523 $ 103
============ ============ ============
RECONCILIATION OF NET INCOME OF NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net income $ 9,308 $10,768 $ 8,904
Equity in undistributed earnings of subsidiaries (1,813) (4,216) (1,415)
(Increase) decrease in receivable from banking subsidiary (750) 1,034 (730)
Decrease in other assets 43 197 118
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $6,788 $7,783 $6,877
============ ============ ============
|
NOTE R -SUBSEQUENT EVENT
On November 19, 2004, the Corporation, through its acquisition subsidiary, entered into a definitive agreement to purchase Russell Insurance Group Inc. Under the terms of the definitive agreement, the Corporation agreed to pay $4,750,000 in cash to acquire Russell Insurance Group Inc. Additional consideration of up to $2,882,000 is subject to performance criteria for payment over the next three years. On January 5, 2005, the acquisition was completed. In addition, the Corporation through its acquisition subsidiary has entered into a three-year employment contract with Frank Russell, Jr., the President of Russell Insurance Group Inc. The purchase price allocation has not been finalized.
QUARTERLY RESULTS OF OPERATIONS
Selected quarterly information for the years ended December 31, 2004 and 2003 is as follows:
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------
IN THOUSANDS, EXCEPT PER SHARE DATA
2004
Interest income $8,938 $9,182 $10,004 $9,628
Interest expense 3,069 3,085 3,491 3,538
------------ ------------ ------------ ------------
Net interest income 5,869 6,097 6,513 6,090
Provision for loan losses 75 75 75 75
------------ ------------ ------------ ------------
Net income after provision for loan losses 5,794 6,022 6,438 6,015
Net gains (losses) on sales of securities 817 (46) 243 99
Other income 1,139 1,179 1,234 1,200
Other expenses 5,629 5,337 5,476 4,384
------------ ------------ ------------ ------------
Net income $2,121 $1,818 $2,439 $2,930
============ ============ ============ ============
Basic earnings per share $0.39 $0.33 $0.45 $0.54
============ ============ ============ ============
Dividends per share $0.21 $0.21 $0.21 $0.27
============ ============ ============ ============
2003
Interest income $9,565 $9,012 $8,982 $9,130
Interest expense 3,696 3,728 3,292 3,229
------------ ------------ ------------ ------------
Net interest income 5,869 5,284 5,690 5,901
Provision for loan losses 60 60 60 85
------------ ------------ ------------ ------------
Net income after provision for loan losses 5,809 5,224 5,630 5,816
Net gains on sales of securities 450 545 996 1
Gain recognized from life insurance proceeds - - 646 1,515
Other income 1,489 1,264 1,232 1,291
Other expense 5,281 5,148 5,353 5,358
------------ ------------ ------------ ------------
Net income $2,467 $1,885 $3,151 $3,265
============ ============ ============ ============
Basic earnings per share $0.45 $0.35 $0.58 $0.60
============ ============ ============ ============
Dividends per share $0.21 $0.21 $0.21 $0.26
============ ============ ============ ============
|
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
In connection with the change of accountants for the fiscal year ended 2004, there were no disagreements with Stambaugh Ness, PC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of Stambaugh Ness, PC would have caused them to make reference thereto in their reports on the financial statements for such year. In addition, during the fiscal year ended December 31, 2003, there were no reportable events (as defined in Regulation S-K Item 304(a)(1)(v)).
ITEM 9A - CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our chief executive officer and chief financial officer have, within 90 days of the date of this report, reviewed our process of gathering, analyzing, and disclosing information that is required to be disclosed in our periodic reports (and information that, while not required to be disclosed, may bear upon the decision of management as to what information is required to be disclosed) under the Securities Exchange Act of 1934, including information pertaining to the condition of and material developments with respect to our business, operations, and finances.
The Corporation expects to conclude its testing and evaluation of internal controls over financial reporting and management's assessment of such controls prior to filing its amended annual report on Form 10-K/A within the 45-day period provided by the exemptive order issued by the SEC on November 30, 2004. The Form 10-K/A will include a management report and auditor report on the Company's internal control over financial reporting.
As a part of the annual audit of our consolidated financial statements for the year ended December 31, 2004, control deficiencies have been identified regarding the preparation of certain financial statement disclosures, the review of certain types of journal entries, and approval of loans. Adjustments to the financial statement disclosures were recorded in the accompanying financial statements. In regards to the journal entry review and loan approvals deficiencies, management is in the process of testing mitigating procedures and has not assessed the type of deficiency. These control deficencies may be considered to be material weakness under the rules specified by the Public Accounting Oversight Board Auditing Standard No. 2.
Based on our evaluation of the effectiveness of the design and operation of the disclosure controls and procedures, because of the matters discussed above, our chief executive officer and chief financial officer concluded that the Company's disclosure controls and procedures were not effective as of December 31, 2004. However, the Company believes that the accompanying financial statements fairly present the financial condition and results of operations for the fiscal years presented in this report on Form 10-K.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
We continue to review, revise and improve the effectiveness of our internal controls including strengthening our income tax provision review control procedure noted above. We have made no significant changes in the Company's internal controls over financial reporting in connection with our fourth quarter evaluation that would materially affect, or are reasonably likely to materially affect our internal controls over financial reporting.
ITEM 9B - OTHER INFORMATION
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item, relating to directors, executive officers, and control persons, is set forth in sections "Principal Beneficial Owners of the Corporation's Stock," "Information as to Nominees, Directors and Executive Officers" and "Principal Officers of the Corporation" of the Registrant's definitive Proxy Statement to be used in connection with the 2005 Annual Meeting of Shareholders, which pages are incorporated herein by reference.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Registrant's officers and directors, and persons who own more than 10 percent of a registered class of the Registrant's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission, or SEC. Officers, directors and greater than 10 percent shareholders are required by SEC regulation to furnish the Registrant with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it or written representations from certain reporting persons that no Forms 5 were required for those persons, the Registrant believes that during the period of January 1, 2004, through December 31, 2004, its officers and directors were in compliance with all filing requirements applicable to them.
The Company has adopted a Code of Ethics that applies to directors, officers, and employees of the Company and the Bank. A copy of the Code of Ethics was included as an exhibit to the Company's Form 10-K for the year ended December 31, 2003 and filed with the Securities and Exchange Commission. A request for the Company's Code of Ethics can be made either in writing to Lynda Glass, ACNB Corporation, 16 Lincoln Square, Gettysburg, Pennsylvania, 17325-0129 or by telephone to 717-334-3161.
ITEM 11 - EXECUTIVE COMPENSATION
Incorporated by reference in response to this Item 11 is the information under the headings "Executive Compensation" and "ACNB Corporation" in ACNB Corporation's 2005 definitive Proxy Statement.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference is in response to this Item 12 the information appearing under the heading "Share Ownership" in ACNB Corporation's 2005 definitive Proxy Statement.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference in response to this Item 13 is the information appearing under the heading "Transactions with Directors and Executive Officers" in ACNB Corporation's 2005 definitive Proxy Statement.
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
Incorporated by reference in response to this Item 14 is the information appearing under heading "Report of Audit Committee" in ACNB Corporation's definitive Proxy Statement.
PART IV
ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) 1. FINANCIAL STATEMENTS
The following financial statements are filed as part of this report:
o Report of Independent Registered Public Accounting Firm
o Consolidated Statements of Condition
o Consolidated Statements of Income
o Consolidated Statements of Changes in Stockholders' Equity
o Consolidated Statements of Cash Flows
o Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
Financial statement schedules are omitted because the required information is either not applicable, not required or is shown in the respective financial statements or in the notes thereto.
(B) EXHIBITS
3(i) - Articles of Incorporation of ACNB Corporation, as amended.
3(ii) - Bylaws of Registrant; a copy of the Bylaws, as amended, of ACNB Corporation is incorporated by reference to Exhibit 99 of the Registrant's Current Report on Form 8-K, filed with the Commission on December 19, 2003.
10.1 - Executive Employment Agreement Dated as of January 1, 2000 between Adams County National Bank, ACNB Corporation and Thomas A. Ritter. (Incorporated by reference to Exhibit 99 of the Registrant's Current Report on Form 8-K, filed with the Commission on March 26, 2001).
10.2 - ACNB Corporation, ACNB Acquisition Subsidiary LLC, Russell Insurance Group, Inc. Stock Purchase Agreement.
10.3 - Salary Continuation Agreement - applicable to Thomas A. Ritter, Lynda L. Glass, John W. Krichten, John M. Kiehl, Carl L. Ricker and Ronald L. Hankey.
10.4 - Executive Supplemental Life Insurance Plan - applicable to Gary Bennett, Lynda L. Glass, Ronald L. Hankey, John M. Kiehl, John W. Krichten, Carl L. Ricker and Thomas A. Ritter.
10.5 - Director Supplemental Life Insurance Plan - applicable to Philip P. Asper, Frank Elsner, III, D. Richard Guise, Wayne E. Lau, William B. Lower, Daniel W. Potts, Marian B. Schultz, Jennifer L. Weaver and Harry L. Wheeler.
10.6 - Director Deferred Fee Agreement - applicable to Frank Elsner, III, D. Richard Guise, Marian B. Schlutz, Jennifer L. Weaver and Harry L. Wheeler.
10.7 - Adams County National Bank Salary Savings Plan.
10.8 - Group Pension Plan for Employees of Adams County National Bank.
14 - Code of Ethics (incorporated by reference to Exhibit 14 of the registrants annual report on Form 10-K for the year ended December 31, 2003, filed with the Commission on March 12, 2004)
16.1 - (Incorporated by reference to Exhibit 16.1 of the registrants annual report on Form 10-K for the year ended December 31, 2003, filed with the Commission March 12, 2004)
21 - Subsidiaries of the Registrant
23 - Consent of Stambaugh Ness, P.C.
31.1 - Chief Executive Officer certification of annual report on Form 10-K
31.2 - Chief Financial Officer certification of annual report on Form 10-K
32.1 - Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350 as Added by Section 906 of the Sarbanes-Oxley Act of 2002
32.2 - Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350 as Added by Section 906 of the Sarbanes-Oxley Act of 2002
99 - Independent Auditors' Report for the consolidated statement of condition of ACNB Corporation and subsidiaries as of December 31, 2003 and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the two-year period ended December 31, 2003.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
By: /s/ Thomas A. Ritter By: /s/ John W. Krichten
--------------------------------------------- -------------------------------------------
Thomas A. Ritter John W. Krichten
President & CEO Secretary & Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on March 3, 2005, by the following persons in the capacities
indicated.
/s/ Philip P. Asper /s/ Wayne E. Lau
--------------------------------------------- -------------------------------------------
Philip P. Asper Wayne E. Lau
Director Director
/s/ Thomas A. Ritter
--------------------------------------------- -------------------------------------------
Guy F. Donaldson Thomas A. Ritter
Director Director, President & CEO
--------------------------------------------- -------------------------------------------
Frank Elsner, III Marian B. Shultz
Director Director
--------------------------------------------- -------------------------------------------
D. Richard Guise Jennifer L. Weaver
Director & Vice Chairman of the Board Director
/s/ Harry L. Wheeler
--------------------------------------------- -------------------------------------------
Ronald L. Hankey Harry L. Wheeler
Director and Chairman Director
/s/ Daniel W. Potts
--------------------------------------------- -------------------------------------------
Edgar S. Heberlig Daniel W. Potts
Director Director
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STOCK PURCHASE AGREEMENT
ACNB CORPORATION
ACNB ACQUISITION SUBSIDIARY LLC
AND
RUSSELL INSURANCE GROUP INC.
NOVEMBER 19 , 2004
TABLE OF CONTENTS
Page
SECTION 1. Certain Definitions...................................................................................2
SECTION 2. Closing, Effective Time...............................................................................5
SECTION 3. Purchase Price and Payment Terms......................................................................6
SECTION 4. Representations and Warranties of ACNB Corp and Acquisition Subsidiary...............................14
SECTION 5. Representations and Warranties of RIG and RIG Shareholder............................................19
SECTION 6. Covenants of RIG and RIG Shareholder.................................................................38
SECTION 7. Covenants of ACNB Corp and Acquisition Subsidiary....................................................46
SECTION 8. Conditions to the Obligations of ACNB Corp, RIG, and the RIG Shareholder ............................47
SECTION 9. Termination..........................................................................................53
SECTION 10. Effect of Termination...............................................................................54
SECTION 11. Expenses............................................................................................54
SECTION 12. Confidentiality.....................................................................................55
SECTION 13. Survival of Representations and Warranties, Etc.....................................................56
SECTION 14. Employees...........................................................................................56
SECTION 15. Officers............................................................................................57
SECTION 16. Indemnification.....................................................................................57
SECTION 17. Entire Agreement....................................................................................61
SECTION 18. Publicity...........................................................................................61
SECTION 19. Amendment and Waiver................................................................................61
SECTION 20. Governing Law.......................................................................................61
SECTION 21. Communications......................................................................................61
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SECTION 22. Successors and Assigns..............................................................................62 SECTION 23. Interpretation, Headings, Etc.......................................................................63 SECTION 24. Severability........................................................................................63 SECTION 25. No Third Party Beneficiary..........................................................................63 SECTION 26. Counterparts........................................................................................63 SECTION 27. Further Assurances..................................................................................63 SECTION 28. Disclosure Schedules................................................................................64 EXHIBITS EXHIBIT 1 RIG Employment Agreement EXHIBIT 2 Form of Richard Solomon Legal Opinion EXHIBIT 3 Form of Shumaker Williams, P.C. Legal Opinion EXHIBIT 4 Form of Non-Producer Non-Compete and Non-Solicitation Agreement EXHIBIT 5 Form of Producer Non-Compete and Non-Solicitation Agreement ANNEXES Annex 3.7(2) RIG Measurement Report Annex 8.2(27) Lease Agreement Annex 8.2(30) Commingling Letter SCHEDULES Schedule 4.2 Organization and Good Standing Schedule 4.4 Compliance with Laws; Governmental Authorizations Schedule 4.8 Brokers Schedule 4.10 Regulatory Approvals |
Schedule 5.1 Corporate Organization and Qualification
Schedule 5.2 Authorized Capital
Schedule 5.3 Title
Schedule 5.6(1) Financial Statements
Schedule 5.6(3) Material Liability
Schedule 5.7 Absence of Certain Changes or Events; Undisclosed Liabilities
Schedule 5.9 Litigation
Schedule 5.11 Contracts
Schedule 5.12(7) Labor and Employment Matters
Schedule 5.13 Employee Benefit Plans
Schedule 5.15(2) Compliance with Applicable Laws; Insurance Producer, Agent or
Broker List
Schedule 5.16 Brokers
Schedule 5.19 Insurance
Schedule 5.20 Dividends and Distributions
Schedule 5.22(1) Policy Holders
Schedule 5.22(2) Policy Holder Notices
Schedule 5.25 Powers of Attorney; Guarantees
Schedule 5.26 Software
Schedule 5.33(2) Intellectual Property
Schedule 5.36 No Liens
Schedule 5.39 Assumability of Contracts
Schedule 5.42 RIG Transaction Fees and Expenses
Schedule 5.43 Licenses and Qualifications
iii
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Schedule 5.44 Inquires Schedule 5.46 Insurance Producers Schedule 5.47 Certificates of Authority Schedule 5.48(1) Insurance Products Schedule 5.48(2) Claims and Service Agreements Schedule 6.9 Distributions and Dividends |
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is made and entered into as of November ____, 2004, among ACNB Acquisition LLC, a Maryland limited liability company ("Acquisition Subsidiary"), ACNB Corporation ("ACNB Corp"), a Pennsylvania corporation and Russell Insurance Group, Inc. ("RIG"), a Maryland corporation and Frank C. Russell, Jr., an adult individual (individually as "Seller" or the "RIG Shareholder") (each a "Party") (all parties are collectively referred to as the "Parties") (the "Agreement").
WITNESSETH:
WHEREAS, the RIG Shareholder and the respective Boards of Directors of ACNB Corp, Acquisition Subsidiary and RIG have each determined that it is in the best interests of their respective companies to consummate the transactions provided for in this Agreement and the Exhibits, Annexes, and Schedules hereto in the manner provided herein;
WHEREAS, ACNB Corp has organized and shall capitalize Acquisition Subsidiary with sufficient funds as ACNB Corp's direct, wholly owned subsidiary prior to the effectuation of the transactions contemplated by this Agreement and the Exhibits, Annexes, and Schedules hereto;
WHEREAS, as a condition to ACNB Corp's, Acquisition Subsidiary's and RIG's entry into this Agreement and to induce such entry, Frank C. Russell, Jr., an adult individual and officer, shareholder, or employee of RIG is entering into an Employment Agreement with Acquisition Subsidiary (the "Employment Agreement") attached hereto as Exhibit 1 with such Employment Agreement becoming effective on the Effective Date;
WHEREAS, the RIG Shareholder collectively owns all of the issued and outstanding shares of common stock, par value $ 0.00 per share of RIG (the "RIG Shares");
WHEREAS, the RIG Shareholder desires to sell the RIG Shares to the Acquisition Subsidiary and the Acquisition Subsidiary is willing to purchase the RIG Shares from the RIG Shareholder, for the consideration and on the terms and conditions set forth herein;
WHEREAS, RIG has a vested interest in the transactions contemplated by this Agreement and is a Party to this Agreement in order to make certain representations and warranties to Acquisition Subsidiary and ACNB Corp;
WHEREAS, the RIG Shareholder has a vested interest in the transaction contemplated by this Agreement and is a Party to this Agreement in order to make certain representations and warranties regarding RIG to Acquisition Subsidiary and ACNB Corp and to provide certain undertakings, covenants, and agreements;
WHEREAS, at Closing the RIG Shareholder shall sell, assign, transfer, and convey to Acquisition Subsidiary and Acquisition Subsidiary shall purchase from the RIG Shareholder, all of the RIG Shareholders' rights, title, and interest in and to the RIG Shares, free and clear of all liens and encumbrances, against payment of the Purchase Price (as defined herein);and
WHEREAS, the Parties hereto agree that this transaction shall qualify as a Qualified Stock Purchase under ss.338 of the Code;
NOW THEREFORE, for and in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, intending to be legally bound hereby, the Parties agree as follows:
SECTION 1. CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the meanings indicated below. Whenever the words "include", "includes", or "including" are used in this Agreement, they shall be deemed followed by the words "without limitation". Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular.
"AFFILIATE"-- With respect to any Person, any Person directly or indirectly controlling, controlled by, or under common control with such other Person. For purposes of this definition, "control" (including with correlative meaning, the terms "controlled by" and "under common control with") as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities, by contract or otherwise.
"APPOINTMENT" -- A written agreement between an agent and an entity under which the agent may solicit, negotiate, make or procure insurance policies, for compensation, which are issued by the appointing entity.
"ARMOR"- The Armor Insurance Group, Inc. located at 3203 Corporate Court Ellicott City, Maryland 21042, a wholly owned subsidiary of BUCS Financial Corporation, Inc..
"ARMOR LOAN"- The loan made by Adams County National Bank to RIG for the purpose of acquiring Armor, in the principle amount of $709,944.00 entered into on September 29, 2004.
"ARMOR TRANSACTION"- The asset purchase agreement entered into on September 30, 2004 by and between Armor, BUCS Financial Corporation, Inc. and RIG.
"CLOSING DATE" -- The date and time of Closing as specified in Section 2.1 of this Agreement.
"CODE" -- The Internal Revenue Code of 1986, as amended.
"EFFECTIVE DATE AND TIME" - The date and time on which the transactions shall be effective as specified in Section 2.2 of this Agreement.
"ENCUMBRANCE" -- Any lien, pledge, security interest, claim, charge, easement, limitation, commitment, restriction or encumbrance of any kind or nature whatsoever.
"ENVIRONMENTAL LAW" - Any federal, state or local law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, order, judgment, decree, injunction or agreement with any governmental entity relating to: the protection, preservation or restoration of the environment (including, without limitation, air, water vapor, surface water, groundwater, drinking water supply, surface soil, subsurface soil, plant and animal life or any other natural resource); and the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of Hazardous Substances. The term Environmental Law includes, without limitation: the Comprehensive Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.ss.9601, et seq., the Resource Conservation and Recovery Act, as amended, 42 U.S.C.ss.6901, et seq., the Clean Air Act, as amended, 42 U.S.C. ss.7401, et seq., the Federal Water Pollution Control Act, as amended, 33 U.S.C. ss.1251, et seq., the Endangered Species Act of 1973, as amended, 16 U.S.C. ss.1531, et seq., the Toxic Substances Control Act, as amended, 15 U.S.C. ss.9601, et seq., the Emergency Planning and Community Right to Know Act, 42 U.S.C. ss.11001, et seq., the Safe Drinking Water Act, 42 U.S.C. ss.300f, et seq., and all comparable state and local laws; and any common law (including, without limitation, common law that may impose strict liability) that may impose liability or obligation for injuries or damages due to, or threatened as a result of, the presence of or exposure to any Hazardous Substance.
"GAAP" - Generally accepted accounting principles as used in the United States of America as in effect at the time any applicable financial statements were prepared.
"HAZARDOUS SUBSTANCE" -- Any substance presently listed, defined, designated or classified as hazardous, toxic, radioactive or dangerous or otherwise regulated under any Environmental Law, whether by type or by quantity, including any material containing any such substance as a component. Hazardous Substances include, without limitation, petroleum or any derivative or by-product thereof, asbestos, radiologically contaminated material, and polychlorinated biphenyls (PCBs).
"INTELLECTUAL PROPERTY"-- Trademarks (registered or unregistered), service marks, brand names, certification marks, trade dress, assumed names, trade names, and other indications of origin, the goodwill associated with the foregoing and registrations in any jurisdiction of, and applications in any jurisdiction to register, the foregoing, including any extension, modification or renewal of any such registration or application; inventions, discoveries and ideas, whether patented, patentable, or not in any jurisdiction; trade secrets and confidential information and rights in any jurisdiction to limit the use or disclosure thereof by any person; writings and other works of authorship, whether copyrighted, copyrightable, or not in any jurisdiction; registration or applications for registration of copyrights in any jurisdiction, and any renewals or extensions thereof; any similar intellectual property or proprietary rights and computer programs and software (including source code, object code, and data); and licenses, immunities, covenants not to sue, and the like relating to the foregoing.
"IRS" -- Internal Revenue Service.
"JOINT VENTURE" -- With respect to any entity, any corporation or organization (other than such entity and any Subsidiary thereof) of which such entity or any Subsidiary thereof is, directly or indirectly, the beneficial owner of 25% or more of any class of equity securities or equivalent profit participation interest.
"KNOWLEDGE" -- As pertaining to RIG, shall mean the actual knowledge of any RIG Shareholder, or those facts that the RIG Shareholder would reasonably be expected to be aware of in the prudent discharge of his or her duties as an officer of RIG in the ordinary course of business.
"LOSS" -- Any liability, loss, cost, damage, penalty, fine, interest, obligation or expense of any kind whatsoever (including, without limitation, reasonable attorneys' accountants', consultants' or experts' fees and disbursements).
"MATERIAL" -- Material to the party in question (as the case may be) and its respective subsidiaries, taken as a whole.
"MATERIAL ADVERSE EFFECT" -- With respect to a person, means any condition, event, change or occurrence that has or results in an effect which is material and adverse to (A) the financial condition, properties, assets, business, business prospects or results of operations of such person and its subsidiaries, taken as a whole, or (B) the ability of such person to perform its obligations under, and to consummate the transactions contemplated by, this Agreement.
"MATERIAL CONTRACT" -- Each contract, agreement, arrangement, instrument, bond, commitment, franchise, indemnity, indenture, lease, license or understanding to which RIG is a party or to which any of its properties is subject, that: (i) obligates RIG to pay an amount in excess of $15,000 in any twelve-month period beginning after October 31, 2001; (ii) provides for the extension of credit by or to RIG in excess of $15,000; (iii) provides for a guaranty by RIG of obligations of others in excess of $15,000; (iv) constitutes an employment agreement, severance agreement or personal service contract not terminable on less than sixty (60) days' notice without penalty; (v) constitutes a reinsurance agreement or treaty under which RIG is a reinsured or is the reinsurer, or (vi) expressly limits, in any material respect, the ability of RIG to engage in any line of business, compete with any person or expand the nature or geographic scope of its business. Notwithstanding the foregoing, the term "Material Contract" does not include insurance policies issued by, or agreements with insurance agents and brokers entered into by, RIG in the ordinary course of business.
"NESMITH"- The NeSmith Insurance Group, LLC, located at 10176 Baltimore National Pike, Suite 213, Ellicott City, MD 21042.
"NESMITH TRANSACTION"- The asset purchase agreement entered into on October 5, 2004, by and among NeSmith, Rosa NeSmith, and Russell Insurance Group, LLC.
"NET REVENUE" -- Net revenue as that term is determined in accordance with GAAP.
"PERSON"-- Any individual, corporation, company, partnership (limited or general), joint venture, association, trust or other entity.
"STATE REGULATORY AGENCY" -- Any state agency with authority to regulate the business of RIG.
"RIG SHARES" - The issued and outstanding shares of RIG common stock, par value $0.00 per share, held by the RIG Shareholder.
"SUBSIDIARY" -- A company is a Subsidiary of another company if 50% or more of its outstanding voting securities is owned by such other company.
"TAXES" -- the term "Tax" (including, with correlative meaning, the term "Taxes," and "Taxable") shall mean all federal, state, county, and local income, gross receipts, windfall profits, severance, property, production, sales, use, license, excise, customs, duties, franchise, bank shares, built in gains (and state and local equivalent taxes), employment, payroll, surplus lines, withholding and other taxes, together with all interest, penalties and additions imposed with respect to such amounts.
"TAX RETURN" -- Any return, report or information return (including elections, declarations, disclosures, schedules, and estimates) required to be filed with any taxing authority with respect to Taxes.
SECTION 2. CLOSING; EFFECTIVE TIME
2.1. CLOSING. Provided that all conditions precedent set forth in this Agreement shall have been satisfied or shall have been waived in accordance with Section 19 of this Agreement, the closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of ACNB Corp, 16 Lincoln Square, Gettysburg, Pennsylvania, or such other mutually agreed upon location, on such date and at such time as shall be agreed upon by the Parties, which date shall, unless otherwise agreed upon by the Parties, be the first business day of a calendar month and not be later than the 15th business day after the last approval of required governmental authorities is granted and any related waiting periods expire, but in no event later then December 31, 2004, unless extended by both Parties in writing. At the Closing, the Parties shall deliver the certificates required by Sections 8.2(1) and 8.3(1) of this Agreement, the tax forms required by Section 6.14 and such other documents and instruments as may be necessary or appropriate to effectuate the purposes of this Agreement.
2.2 EFFECTIVE DATE AND TIME. The "Effective Date" shall be the day on which the Closing occurs and the transactions provided herein shall have occurred or on such other date as mutually agreed upon by the Parties. The "Effective Time" shall be the time specified at the Closing for the transactions provided herein to be effective. If at any time after the Effective Time, any further assignments or assurances in law or any other things are necessary or desirable to carry out the provisions of this Agreement, the RIG Shareholder and the officers and directors of
each Party are hereby authorized and empowered on behalf of each Party, in the name of and on behalf of them as appropriate, to execute and deliver any and all things necessary or proper to carry out the purposes and provisions of this Agreement.
SECTION 3. PURCHASE PRICE AND PAYMENT TERMS
3.1 PURCHASE PRICE.
Subject to the terms and conditions of this Agreement, Acquisition Subsidiary agrees to purchase from, and the RIG Shareholder agrees to, sell to Acquisition Subsidiary, all of the issued and outstanding RIG Shares (representing 100% of the issued and outstanding shares of RIG) for cash, payable as specified below:
(1) FIXED CASH CONSIDERATION. At Closing, Acquisition
Subsidiary shall pay to the RIG Shareholder, by wire
transfer of immediately available funds,
$4,750,000.00 as shall be adjusted pursuant to
Section 3.1(4)(b) (the "Fixed Cash Consideration").
(2) CONTINGENT PURCHASE PRICE CONSIDERATION.
Subject to the provisions, limitations, terms, and
adjustments of Section 3.7 and Section 16 hereof,
after the Effective Time, the RIG Shareholder, shall
be eligible to receive additional purchase price
consideration for the RIG Common Stock, as follows:
(a) Additional cash consideration in an amount
of up to $2,882,000.00, subject to
adjustment pursuant to Section 3.7(4)(a)
and Section 3.7(4)(b) hereof (the
"Contingent Cash Consideration").
(3) The Fixed Cash Consideration is sometimes referred to
herein as the "Fixed Purchase Price Consideration."
The Contingent Cash Consideration is sometimes
referred to herein as the "Contingent Purchase Price
Consideration." The Fixed Purchase Price
Consideration and the Contingent Purchase Price
Consideration are sometimes referred to herein
collectively as the "Purchase Price Consideration."
The Purchase Price Consideration is to be payable is
US Currency.
(4) (a) RIG shall prepare a preliminary balance
sheet and income statement as of the
Effective Date setting forth all existing
assets, liabilities, income and expenses of
RIG including the RIG Transaction Fees
(defined herein) delineated on Schedule
5.42 (the "Preliminary Balance Sheet" and
"Preliminary Income Statement"). Such
Preliminary Balance Sheet shall be prepared
in accordance with RIG's historical
accounting methodologies with exceptions
for specific accruals as
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required by Section 5.8(3), 5.42, and 6.11 purposes of estimating the net worth of RIG.
(b) (i) If the net worth of RIG as of the Effective Date on the Preliminary Balance Sheet is less than $118,000.00 then the Fixed Cash Consideration to be paid to the RIG Shareholder at Closing shall be reduced by an amount equal to the dollar amount by which the net worth of RIG on the Preliminary Balance Sheet is less than $118,000.00.
(ii) If the net worth of RIG as of the Effective Date on the Preliminary Balance Sheet is more than $118,000.00 then the RIG Shareholder shall be permitted to withdrawal an amount equal to the dollar amount by which the net worth of RIG on the Preliminary Balance Sheet is more than $118,000.00 as delineated in Schedule 6.9 of this Agreement.
(c) Within thirty (30) days after the Closing Date, RIG shall prepare for review and comment by ACNB Corp a balance sheet and income statement for RIG as of the Effective Date in accordance with RIG's historical accounting methodologies with exceptions for specific accruals as required by Section 5.8(3), 5.42 and 6.11 of this Agreement (the "Closing Balance Sheet" and "Closing Income Statement").
(d) (i) If the net worth of RIG as of the Effective Date on the Closing Balance Sheet is less than $118,000.00 then the RIG Shareholder shall pay to the Acquisition Subsidiary within 5 business days after receipt of written notification requesting payment an amount equal to the difference between the dollar amount by which the net worth of RIG on the Closing Balance Sheet is less than $118,000.00 and the dollar amount by which the net worth of RIG on the Preliminary Balance Sheet is less than $118,000.00 as of the Effective Date.
(ii) If the net worth of RIG as of the Effective Date on the Closing Balance Sheet is more than $118,000.00 then the Acquisition Subsidiary shall pay to the RIG Shareholder within 5 business days after receipt of written notification requesting payment an amount equal to the difference between the dollar amount by which the net worth of RIG on the Closing Balance Sheet is more than $118,000.00 and the dollar amount by which the net worth of RIG on the Preliminary Balance Sheet is more than $118,000.00 as of the Effective Date
(e) INTENTIONALLY OMITTED.
(f) If within ninety calendar days of delivery
of the Closing Balance Sheet and the Closing
Income Statement to ACNB Corp, ACNB Corp has
not provided RIG with written notice of
objection(s) then THE Closing Balance Sheet
and the Closing Income Statement shall be
binding and final for all purposes. If the
parties are unable to resolve the disputed
issues within five (5) days after the
receipt by RIG of notice of such
objection(s), such objection(s) shall be
resolved by an independent accounting firm
selected by mutual agreement between the RIG
Shareholder and ACNB Corp, provided that any
accounting firm which shall have provided
services to the RIG Shareholder or ACNB Corp
or any of their respective affiliates during
the twelve month period ending on the
Effective Date shall be disqualified. The
determination of the accounting firm shall
be final and binding for all purposes. The
difference between each party's
determination and the accounting firm's
determination of any adjustments shall be
calculated and the fees of such firm shall
be divided equally between both parties. If
there is any money owned to either party
because of the accounting firm's
determination of any adjustments, such
payment due under this provision shall be
paid within sixty (60) calendar days or
deducted from any future payments owed.
(5) The Parties mutually agree that the Purchase
Price Consideration will be allocated $90,000
to fixed assets with the remainder to goodwill
and other assets and liabilities.
(6) In addition to the Purchase Price Consideration,
ACNB will reimburse RIG for the purchase price
of the NeSmith Transaction, totaling $73,687.50,
at Closing.
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3.2 WAIVER OF APPRAISAL RIGHTS. The RIG Shareholder hereby waives any and all appraisal rights under applicable law relating to the transactions contemplated by this Agreement and agrees to execute any and all documents requested by ACNB Corp to confirm such waiver.
3.3 DELIVERY OF STOCK CERTIFICATES. RIG Common Stock certificates shall be delivered at Closing and exchanged for the Fixed Purchase Price Consideration at the Effective Time in accordance with the following procedures:
(1) At Closing, the RIG Shareholder shall surrender all of their RIG Common Stock certificates to Acquisition Subsidiary. Upon receiving a proper surrender of RIG Common Stock certificates from the RIG Shareholder, Acquisition Subsidiary shall issue, in exchange therefore to the RIG Shareholder a wire transfer, in the amount of the Fixed Cash Consideration.
(2) Each certificate for shares of RIG Common Stock delivered under this Section 3 must be endorsed in blank by the shareholder thereof or be accompanied by a power of attorney to transfer such shares endorsed in blank by such shareholder. The RIG Shareholder hereby agrees to surrender to Acquisition Subsidiary and exchange all shares representing 100% of the ownership interest in RIG.
(3) Each certificate representing shares of RIG Common Stock surrendered shall thereafter represent the right to receive the Purchase Price Consideration pursuant to this Section 3.
(4) At the Effective Time, ACNB Corp shall deposit, or
shall cause to be deposited, with Acquisition
Subsidiary, for exchange in accordance with this
Section 3:
(a) Cash in the amount of the aggregate Fixed Cash
Consideration pursuant to Section 3.1(1).
(b) Cash in the amount of the NeSmith Transaction
purchase price pursuant to Section 3.1(6).
(5) At the Closing, Acquisition Subsidiary shall distribute to the holder of shares of RIG Common Stock, upon surrender of his shares in one or more certificates, a wire transfer authorization for an amount equal to the cash, which such holder has the right to receive pursuant to this Agreement. In no event shall the holder of any such surrendered certificates be entitled to receive interest on any of the Fixed Cash Consideration. If a wire transfer authorization is made in the name of a person other than the person in whose name the certificates surrendered for exchange therefore are registered, it shall be a condition of the exchange that the person requesting such exchange shall pay to Acquisition Subsidiary any transfer taxes required by reason of issuance of such wire transfer to a person other than the registered holder of the certificates surrendered, or shall establish to the reasonable satisfaction of Acquisition Subsidiary that such tax has been paid or is not applicable.
3.4 CLOSING OF STOCK TRANSFER BOOKS; CANCELLATION OF RIG
CERTIFICATES. At the Effective Time, the stock transfer books
of RIG shall be closed and no transfer of RIG Common Stock
shall thereafter be made or recognized. If, after the
Effective Time, certificates representing such shares are
presented for transfer to Acquisition Subsidiary, they shall
be deemed owned by Acquisition Subsidiary and exchanged for
the Purchase Price Consideration as provided in this Section
3. Any other provision of this Agreement notwithstanding,
neither ACNB Corp nor its agent nor any Party to this
Agreement shall be liable to a holder of RIG Common Stock for
any amount paid or properly delivered in good faith to a public official pursuant to any applicable abandoned property, escheat or similar law.
3.5 INTENTIONALLY OMITTED
3.6 OTHER MATTERS.
(1) Notwithstanding any term of this Agreement to the contrary, ACNB Corp may, in its discretion at any time prior to the Effective Time, designate another direct subsidiary to substitute for Acquisition Subsidiary as the purchasing entity by written notice to RIG so long as the exercise of this right does not cause a Material delay in the consummation of the transactions contemplated herein or otherwise have a Material Adverse Effect on the interests of the RIG Shareholder or cause a Material delay in, or otherwise adversely affect the consummation or the tax consequences of the transactions contemplated herein; if such right is exercised, this Agreement shall be deemed to be modified to accord such change.
(2) Nothing in this Agreement shall be deemed to restrict the ability of ACNB Corp or any of its subsidiaries to acquire or to merge with or into another entity so long as such other transaction shall not Materially, adversely affect the Parties' ability to consummate or cause a Material delay in, or otherwise adversely affect, the transactions contemplated herein.
3.7 POST CLOSING ADJUSTMENTS; CONTINGENT PURCHASE PRICE PAYMENT
(1) (a) Because a significant portion of the
Contingent Purchase Price Consideration to
be paid to the RIG Shareholder is based upon
the financial success of RIG during the 36
month period following the
Effective Date (the "Earnout Period"), the
Parties agree that, during the Earnout
Period, the RIG Shareholder will be
permitted general operational autonomy with
respect to the day to day operations of RIG
and RIG shall be operated within applicable
laws and regulations, generally accepted
industry standards and practices, as well as
ACNB Corp's Code of Ethics, corporate
policies, and procedures, as published and
made available to the RIG Shareholder and as
provided in this Agreement, and subject to
the RIG Shareholder's and officer's
fiduciary duties to ACNB Corp and in a
manner which allows for the accounting for
Earnings Before Interest, Income Taxes,
Depreciation and Amortization ("EBITDA"), of
RIG, calculated as provided herein, in
accordance with RIG's historical accounting
methodologies, but in accordance with GAAP
for the Armor Transaction, the NeSmith
Transaction and any acquisition made after
the Effective Date. Further, RIG shall be
maintained as a separate "profit center"
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with financial records maintained separately
from the consolidated records of ACNB Corp,
or records of other subsidiaries or profit
centers of ACNB Corp, during the Earnout
Period for the purposes of calculating the
RIG Shareholder's right to receive the
Contingent Purchase Price Consideration.
(b) Without limiting the generality of
Subsection 3.7(1)(a), but subject to
applicable laws, regulations, generally
accepted industry standards and practices
and ACNB Corp's Code of Ethics, corporate
policies, and procedures, as published and
provided to the RIG Shareholder and subject
to fiduciary duties to ACNB Corp, during the
Earnout Period:
(i) The RIG officers and RIG Shareholder shall
be required to devote substantially all of
their time and efforts to the business
of RIG;
(ii) The RIG officers shall maintain
administrative control of RIG's workforce;
(iii) The RIG officers shall have final
decision-making authority with respect to
the acceptance and the pricing of business
by RIG;
(iv) RIG shall be used as ACNB Corp's "platform
company" for expansion in the case of
additional acquisitions in the area of
RIG's business;
(v) Following the Closing, ACNB Corp shall
provide RIG with such marketing, sales,
technology, and administrative support as
the RIG Shareholder shall reasonably
request, which shall be charged to RIG at
ACNB Corp's reasonable cost and expense;
(vi) Following the Closing, the RIG Shareholder
shall have the corporate title as set forth
in the respective Employment Agreement
attached hereto as Exhibit 1 and shall have
general authority to establish RIG's
budgets, solicit and manage its customers,
price its services, and operate and manage
its business;
(vii) Within a reasonable period of time after the
Effective Time, Acquisition Subsidiary and
ACNB Corp shall enter into a Tax Sharing
Agreement that is in compliance with any
requirements of the Board of Governors of
the Federal Reserve System.
(2) (a) Sixty (60) business days following the 12 month,
24 month, 36 month anniversary of the Effective Date,
ACNB Corp shall prepare and provide to the RIG
Shareholder an unaudited revenue and expense
financial report of RIG, substantially in the format
attached hereto as Annex 3.7(2), prepared in
accordance with RIG's historical accounting
methodologies, but in accordance with GAAP for the
Armor Transaction, the NeSmith Transaction and any
acquisition made after the Effective Date (the "RIG
Measurement Report"). Each RIG Measurement Report
shall be subject to the review of the RIG
11
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Shareholder. In the event that the RIG Shareholder
notifies ACNB Corp of an objection to a RIG
Measurement Report within thirty (30) days of receipt
thereof, the Parties will promptly meet to resolve
such dispute. If such dispute is not resolved within
sixty (60) days thereafter, an accounting firm of
national or regional reputation shall be jointly
chosen by ACNB Corp and the RIG Shareholder to
resolve such dispute, whose determination shall be
final, conclusive and binding on all Parties.
(b) Each RIG Measurement Report shall set forth the
revenues, expenses and EBITDA of RIG for the period
covered as determined in accordance with Annex 3.7(2)
and in accordance with RIG's historical accounting
methodologies, but in accordance with GAAP for the
Armor Transaction, the NeSmith Transaction and any
acquisition made after the Effective Date.
(c) Without limiting the foregoing, the RIG EBITDA (the,
"RIG EBITDA") as set forth on a RIG Measurement
Report shall include RIG's pre-tax profits associated
with the sales of insurance products related to
existing and new customers of RIG (including existing
and new customers of ACNB who have become customers
of RIG), and the pre-tax profits associated with
sales from the addition of new producers to the RIG
staff, as well as any other agencies purchased by
RIG, plus depreciation and amortization, but shall
not include:
(i) fees and interest income associated with
loan referrals; and
(ii) fees and interest income associated with
non-insurance products
(3) (a) The RIG Measurement Report for the period of time
from the Effective Time to 12 months after the
Effective Time shall be referred to as "RIG
Measurement Report No. 1", the time period from the
Effective Time to 12 months after the Effective Time
shall be referred to as "Measurement Report Period
No. 1."
(b) The RIG Measurement Report for the period of time
from 12 months after the Effective Time to 24 months
after the Effective Time shall be referred to as "RIG
Measurement Report No. 2", the time period from 12
months after the Effective Time to 24 months after
the Effective Time shall be referred to as
"Measurement Report Period No. 2."
(c) The RIG Measurement Report for the period of time
from 24 months after the Effective Time to 36 months
after the Effective Time shall be referred to as "RIG
|
Measurement Report No. 3", the time period from 24 months after the Effective Time to 36 months after the Effective Time shall be referred to as "Measurement Report Period No. 3."
(d) The RIG EBITDA reported in each of the RIG Measurement Reports Nos. 1, 2, and 3 shall be averaged. The resulting average shall be the, "Average RIG EBITDA".
(4) Subject to Section 3.7(3) hereof, within ninety (90) business days following the 36-month anniversary of the Effective Time a Contingent Purchase Price Consideration payment shall be paid to the RIG Shareholder as provided below:
(a) (i) If the Average RIG EBITDA, as calculated pursuant
to Section 3.7(3)(d) hereof, equals or exceeds
$848,000.00 (the "Current EBITDA Threshold") then
ACNB Corp shall pay the RIG Shareholder, subject to
adjustment as provided hereinafter and subject to
Section 3.1(2) hereof, the Contingent Purchase Price
Consideration;
(ii) If the Average RIG EBITDA, as calculated pursuant to Section 3.7(3)(d) hereof, exceeds the Current EBITDA Threshold the excess amount (the, "EBITDA Over Performance Amount") will be multiplied by 9.0 and added to the Contingent Purchase Price Consideration to be paid to the RIG Shareholder (the, "Increase Amount");
Provided however that in no event shall the Purchase Price Consideration to be paid under this Agreement exceed $7,750,000.00.
(b) However, if the Average RIG EBITDA, as calculated pursuant to Section 3.7(3)(d) hereof, is less than Current EBITDA Threshold (the amount of this difference is the "EBITDA Underperformance Amount"), then the Contingent Purchase Price Consideration that would otherwise be payable shall be reduced by an amount equal to the EDITDA Underperformance Amount multiplied by 9.0 (the "Reduction Amount").
(c) If after 120 days following the 36-month anniversary date of the Effective Date there is any Contingent Cash Consideration that has not been earned as provided in this Section 3.7, ACNB Corp's obligations under Section 3.7 to pay any such unearned amount shall immediately terminate .
(5) (a) Following the Effective Time, in the event of (A) a termination of the employment relationship between Frank C. Russell, Jr. and ACNB Corp or an ACNB Corp affiliate or successor for Cause (as hereinafter defined) or (B) a voluntary termination of the employment relationship, for other than Good Reason as defined in the Employment Agreement attached hereto as Exhibit 1, between Frank C. Russell, Jr.
and ACNB Corp or an ACNB Corp affiliate or successor by Frank C. Russell, Jr. the Current EBITDA Threshold shall be increased by $75,000.00.
(b) As used in this Subsection 3.7 the following terms shall have the meanings indicated:
(i) "Cause" shall mean the willful or intentional Material breach by a RIG Shareholder of any agreement between ACNB Corp or an ACNB Corp affiliate or successor and the RIG Shareholder, after notice from ACNB Corp (which notice shall describe in reasonable detail the nature of the breach), and a failure to cure such breach within fifteen (15) days of said notice.
(c) In the event of death or disability of Frank C. Russell, Jr. there will be no increase in the Current EBITDA Threshold.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF ACNB CORP AND ACQUISITION SUBSIDIARY
ACNB Corp and Acquisition Subsidiary represent and warrant to RIG and the RIG Shareholder as follows:
4.1 CORPORATE AUTHORITY. ACNB Corp has all requisite corporate power and authority to enter into and perform all of its obligations under this Agreement. The execution and delivery of this Agreement and the Employment Agreement and the consummation of the transactions contemplated herein and therein, respectively, have been duly and validly authorized by the Board of Directors of ACNB Corp, and ACNB Corp has taken all corporate action necessary on its part to authorize this Agreement and the Employment Agreement and the performance of the transactions contemplated herein and therein, respectively. This Agreement and the Employment Agreement have been duly executed and delivered by ACNB Corp and, assuming due authorization, execution and delivery by RIG and the RIG Shareholder, and receipt of required regulatory approvals, constitute valid and binding obligations of ACNB Corp in each case enforceable against ACNB Corp in accordance with their respective terms, subject to bankruptcy, insolvency, and other laws of general applicability relating to or affecting creditors' rights and general equity principles. Subject to regulatory approval, the execution, delivery and consummation of this Agreement and the Employment Agreement will not constitute a violation or breach of or default under the Articles of Incorporation or the Bylaws of ACNB Corp or any statute, rule, regulation, order, decree, directive, agreement, indenture or other instrument to which ACNB Corp is a party or by which ACNB Corp or any of its properties are bound, nor constitute a Material default under or give rise to any right of termination, cancellation or acceleration with respect to, or result in the creation of any lien, charge or encumbrance upon any property or asset of ACNB Corp pursuant to any note, bond, mortgage, indenture, license, agreement or other instrument or obligation.
4.2 ORGANIZATION AND STANDING. ACNB Corp is a business corporation that is duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania. ACNB Corp is a registered financial holding company under the Bank Holding Company Act of 1956, as amended, and has full power and lawful authority to own and hold its properties and to carry on its present business. ACNB Corp owns, directly or indirectly all of the issued and outstanding shares of capital stock of the subsidiaries listed on Schedule 4.2. ACNB Corp and its subsidiaries are in good standing as a foreign corporation in each jurisdiction where the properties owned, leased or operated, or the business conducted, by ACNB Corp requires such qualification, except for such failure to qualify or be in such good standing which, when taken together with all other such failures, would not have a Material Adverse Effect on ACNB Corp and its subsidiaries, taken as a whole.
4.3 CAPITALIZATION. The authorized capital stock of ACNB Corp, as of June 30, 2004, consists of 20,000,000 shares of capital stock, consisting of 20,000,000 shares of common stock, par value $2.50 per share of which, as of June 30, 2004, 5,436,101 shares were issued and outstanding and zero shares of preferred stock of which, as of June 30, 2004, no shares were issued and outstanding. All outstanding shares of ACNB Corp Common Stock have been duly issued and are validly outstanding, fully paid and nonassessable.
4.4 COMPLIANCE WITH LAWS; GOVERNMENTAL AUTHORIZATIONS. Except as disclosed on Schedule 4.4 or where noncompliance would not have a Material Adverse Effect upon the condition (financial or otherwise), assets, liabilities, business, operations or future prospects of ACNB Corp: (i) ACNB Corp is in compliance with all statutes, laws, ordinances, rules, regulations, judgments, orders, decrees, directives, consent agreements, memoranda of understanding, permits, concessions, grants, franchises, licenses, and other governmental authorizations or approvals applicable to ACNB Corp or to any of its properties; and (ii) all permits, concessions, grants, franchises, licenses and other governmental authorizations and approvals necessary for the conduct of the business of ACNB Corp as presently conducted have been duly obtained and are in full force and effect and there are no proceedings pending, or to the knowledge of ACNB Corp threatened, which may result in the revocation, cancellation, suspension or Material adverse modification of any thereof.
4.5 REGISTRATION UNDER THE SECURITIES EXCHANGE ACT OF 1934. ACNB
Corp Common Stock is registered under Section 12 of the
Securities Exchange Act of 1934 (the "Exchange Act"), and is
subject to the periodic reporting requirements imposed by
Section 13 of the Exchange Act.
4.6 SEC REPORTS AND FINANCIAL STATEMENTS.
(a) Since June 30, 2002, ACNB Corp has filed on a timely basis with the SEC, and has made or will make available to RIG true and complete copies of all forms, reports, schedules, statements, registrations and other documents required to be filed by it under the Exchange Act or the Securities Act, and ACNB Corp will file on a timely basis all such forms, reports, schedules, statements, registrations and other documents required to be filed by it from the date of this Agreement to the Closing Date (as such documents have been or will be amended or supplemented since the time of their filing, collectively, the "ACNB Corp SEC Documents"). The ACNB Corp SEC Documents, including without limitation any financial statements or schedules included therein, at the time filed, did not and will not contain any untrue statement of a Material fact or omit to state a Material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and complied and will comply in all Material respects with the applicable requirements of the Exchange Act and the Securities Act, as the case may be, and the applicable rules and regulations of the SEC thereunder, and, with respect to all ACNB Corp SEC Documents filed after July 30, 2002, at the time filed complied or will comply in all Material respects with the applicable requirements of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"). The financial statements of ACNB Corp included in the ACNB Corp SEC Documents comply as to form in all Material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of the unaudited statements, as permitted by Form 10-Q) and fairly present (subject in the case of the unaudited statements, to normal, recurring adjustments) the consolidated financial position of ACNB Corp as at the dates thereof and the consolidated results of their operations and cash flows for the periods then ended. ACNB Corp shall deliver to RIG copies of all such documents filed after the date of this Agreement.
(b) Since December 31, 2003, and to the Effective Time, ACNB Corp has not suffered a change, or any event involving a prospective change, in the business, assets, financial condition, or results of operations of ACNB Corp which has had, or is reasonably likely to have, individually or in the aggregate, a Material Adverse Effect (other than as a result of changes or proposed changes in federal or state regulations of general applicability or interpretations thereof, changes in generally accepted accounting principles, and changes that could, under the circumstances, reasonably have been anticipated in light of disclosures made in writing by RIG to ACNB Corp pursuant hereto).
4.7 OTC BULLETIN BOARD. ACNB Corp Common Stock is traded on the Over The Counter Bulletin Board (the, "OTCBB") under the trading symbol "ACNB."
4.8 BROKERS. Except as disclosed on Schedule 4.8, neither ACNB Corp nor any of its officers, directors, employees or agents have employed any broker or finder or incurred any liability for any investment banking fees, brokerage fees, commissions, or finder's fees, and no broker or finder has acted directly or indirectly for it in connection with this Agreement or the transactions contemplated hereby.
4.9 REPRESENTATIONS AND WARRANTIES OF ACQUISITION SUBSIDIARY.
(1) Organization. Acquisition Subsidiary is a Maryland limited liability company and validly exists and duly subsists under the laws of the State of Maryland. All of the outstanding membership interests of Acquisition Subsidiary are validly issued, fully paid and nonassessable and owned directly by ACNB Corp free and clear of any lien, charge or other encumbrance.
(2) Authority. Acquisition Subsidiary has the requisite power and authority to enter into this Agreement and to carry out its obligations hereunder. The execution, delivery and performance of this Agreement by Acquisition Subsidiary and the consummation of the transactions described herein have been duly and validly authorized by all corporate actions (including without limitation shareholder action) in respect thereof on the part of Acquisition Subsidiary. Upon execution by Acquisition Subsidiary, this Agreement will be a valid and binding obligation of Acquisition Subsidiary, enforceable against Acquisition Subsidiary in accordance with its terms, except to the extent enforcement is limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium, and other similar laws affecting creditor's rights or general principles of equity.
(3) Tax Status. Acquisition Subsidiary will be, at the Effective Time, a "disregarded entity" as such term is defined in Section 1.368-2T(b)(1)(i)(A) of the regulations under the Code.
(4) Sufficient Financial Resources. At Closing, Acquisition Subsidiary shall have sufficient financial resources to enable it to lawfully satisfy its obligations pursuant to this Agreement.
4.10 APPROVALS. Schedule 4.10 sets forth all of the regulatory approvals necessary for ACNB Corp and Acquisition Subsidiary to consummate the transactions contemplated by this Agreement. Based upon the representations of RIG under the Agreement and the disclosures of RIG and the RIG Shareholder, ACNB Corp believes that the business of RIG is a permissible activity for a financial holding company under applicable bank regulations.
4.11 CONSENTS AND APPROVALS; NO VIOLATIONS. The execution,
delivery, and performance of this Agreement by ACNB Corp does
not, and the consummation of the transactions contemplated
hereby by it will not, constitute (i) subject to receipt of
any required regulatory approvals, a breach or violation of,
or a default under, any law, rule, or regulation or any
judgment, decree, order, governmental permit or license, to
which ACNB Corp (or any or its properties) is subject, which
breach, violation, or default would have a Material Adverse
Effect on it, or enable any person to enjoin the transactions,
(ii) a breach or violation of, or a default under ACNB Corp's
Articles of Incorporation, or Bylaws, or (iii) a breach or
violation of, or a default under (or an event which with due
notice or lapse of time or both would constitute a default
under), or result in the termination of, accelerate the
performance required by, or result in the creation of any
lien, pledge, security interest, charge, or other encumbrance
upon any of the properties or assets of ACNB Corp under any of
the terms, conditions, or provisions of any note, bond,
indenture, deed of trust, capital lease, security agreement,
loan agreement, or commitment for the borrowing of money, or
the deferred purchase price of assets, or other agreement,
instrument, or obligation to which ACNB Corp is a party, or to
which any of ACNB Corp's properties or assets may be bound, or
affected, except for any of the foregoing that, individually
or in the aggregate, would not have a Material Adverse Effect
on ACNB Corp or enable any person to enjoin the transactions;
and, the consummation of the transactions contemplated hereby
will not require any approval, consent or waiver under any
such law, rule, regulation, judgment, decree, order,
governmental permit or license or the approval, consent, or
waiver of any other party to any such agreement, indenture, or
instrument, other than (x) all required approvals, consents,
and waivers of governmental authorities, (y) any such
approval, consent, or waiver that already has been obtained,
and (z) any other approvals, consents, or waivers, the absence
of which, individually or in the aggregate, would not result
in a Material Adverse Effect on ACNB Corp or enable any person
to enjoin the transactions.
4.12 NO UNDISCLOSED INFORMATION. No provision of this Section 4 or any Annex, Schedule, or any document agreement furnished by ACNB Corp contains any untrue statement of a Material fact, or omits to state a Material fact necessary in order to make the statement contained herein or therein in light of the circumstances under which such statements were made, not misleading.
4.13 COMPLETE AND ACCURATE DISCLOSURE. Neither this Agreement (insofar as it relates to ACNB Corp, ACNB Corp Common Stock and ACNB Corp's involvement in the transactions contemplated hereby) nor ACNB Corp's representations, warranties, or covenants, nor any financial statement, schedule (including, without limitation, the Exhibits, Annexes, and Schedules attached hereto), certificate, or other statement or document delivered by ACNB Corp to RIG in connection herewith, when read together, contains any statement which, at the time and in light of the circumstances under which it is made, is
incorrect, false, or misleading with respect to any Material fact or omits to state any Material fact necessary to make the statements contained herein or therein not false or misleading.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF RIG AND THE RIG SHAREHOLDER
RIG and the RIG Shareholder, on behalf of RIG and its subsidiaries and affiliates, each represent and warrant jointly and severally to ACNB Corp and Acquisition Subsidiary as follows:
5.1 CORPORATE ORGANIZATION AND QUALIFICATION. The RIG Shareholder is an adult individual and shareholder of RIG holding, in the aggregate, 100% of the issued and outstanding shares of RIG and owned as delineated in the name, number and percentages set forth on Schedule 5.1. The RIG Shareholder has good and marketable title to all of the issued and outstanding capital stock of RIG free and clear of all encumbrances, contracts, rights, options and assignments whatsoever. RIG is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Maryland and is in good standing as a foreign corporation in each jurisdiction where the properties owned, leased or operated, or the business conducted, by RIG requires such qualification, except for the failure to qualify or be in good standing which, when taken together with all other such failures, would not have a Material Adverse Effect on RIG taken as a whole. RIG owns, directly or indirectly, all of the issued and outstanding shares, units, or interests of the subsidiaries listed on Schedule 5.1 and each such subsidiary is in good standing.
5.2 AUTHORIZED CAPITAL. The authorized capital stock of RIG consists of 500 shares of RIG Common Stock, $0.00 par value per share, of which 100 shares of RIG Common Stock are issued and outstanding, and 0 shares of RIG Common Stock are held in the treasury of RIG as of September 1, 2004. Except as disclosed on Schedule 5.2, all of the outstanding shares of capital stock of RIG have been duly authorized and are validly issued, fully paid and nonassessable. No shares of RIG are held in connection with a debt previously contracted. Except to the extent that all of the RIG authorized shares have not been issued, RIG does not have shares of capital stock reserved for issuance. RIG does not have outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote (or convertible into or exercisable for securities having the right to vote) with shareholders on any matter. The outstanding shares of capital stock of RIG have not been issued in violation of any preemptive rights. There are no outstanding subscriptions, options, warrants, rights, convertible securities or other agreements or commitments of any character relating to the issued or unissued capital stock or other securities of RIG and there are no outstanding agreements, restrictions, contracts, commitments or demands of any character to which any RIG Shareholder or RIG is a party, which relate to the transfer or restrict the transfer of any shares of RIG Common Stock. Except as disclosed on Schedule 5.2, there are no shareholder agreements, understandings or commitments relating to the right to vote or dispose of RIG Common Stock. All shareholder agreements, understandings, or commitments listed on Schedule 5.2 shall be terminated at or
prior to Closing. After the Effective Time, RIG will have no obligation which is being assumed by ACNB Corp that will result in any obligation to issue, transfer or sell any shares of capital stock pursuant to any RIG Employee Plan (as defined in Subsection 5.13).
5.3 TITLE. Except as disclosed on Schedule 5.3, the RIG Shareholder has good and marketable title to all of the issued and outstanding capital stock of RIG free and clear of all encumbrances, contracts, rights, options and assignments whatsoever. Following the sale and transfer of the RIG Common Stock by the RIG Shareholder to ACNB Corp in accordance with the terms and subject to the conditions of this Agreement, ACNB Corp shall have good and marketable title to the RIG Shares free and clear of any and all valid claims, charges, defenses, offsets, encumbrances of any kind or nature, contracts, rights, options and assignments, except as created by action of ACNB Corp.
5.4 CORPORATE AUTHORITY. Subject only to approval of this Agreement by the holders of the number of votes required by RIG's Articles of Incorporation or Bylaws cast by all holders of RIG Common Stock (without any minority, class or series voting requirement), RIG has the requisite corporate power and authority, and legal right, and has taken all corporate action necessary in order to execute and deliver this Agreement and to consummate the transactions applicable to RIG contemplated hereby. This Agreement has been duly and validly executed and delivered by RIG and the RIG Shareholder and constitutes the valid and binding obligations of RIG and the RIG Shareholder enforceable against them, in accordance with its terms, except to the extent enforcement is limited by bankruptcy, insolvency and other similar laws affecting creditors' rights or the application by a court of equitable principles and subject to compliance with all regulatory requirements and the execution hereof by ACNB Corp and Acquisition Subsidiary. As of the date of this Agreement, RIG and the RIG Shareholder know of no reason why the regulatory approvals referred to in Subsection 8.1(2) should not be timely obtained.
5.5 CONSENTS AND APPROVALS; NO VIOLATIONS. The execution, delivery and performance of this Agreement by RIG and the RIG Shareholder does not, and the consummation of the transactions contemplated hereby by it will not, constitute (i) subject to receipt of any required regulatory approvals, a breach or violation of, or a default under, any law, rule or regulation or any judgment, decree, order, governmental permit or license, to which RIG (or any of its properties) is subject, which breach, violation or default would have a Material Adverse Effect on it, or enable any person to enjoin the transactions, (ii) a breach or violation of, or a default under RIG's Articles of Incorporation, or Bylaws, or (iii) a breach or violation of, or a default under (or an event which with due notice or lapse of time or both would constitute a default under), or result in the termination of, accelerate the performance required by, or result in the creation of any lien, pledge, security interest, charge or other encumbrance upon any of the properties or assets of RIG or of the RIG Shareholder as an individual under any of the terms,
conditions or provisions of any note, bond, indenture, deed of trust, capital lease, security agreement, loan agreement, or commitment for the borrowing of money, or the deferred purchase price of assets, or other agreement, instrument or obligation to which the RIG Shareholder as individuals or RIG is a party, or to which any of RIG's properties or assets may be bound, or affected, except for any of the foregoing that, individually or in the aggregate, would not have a Material Adverse Effect on RIG or enable any person to enjoin the transactions; and, the consummation of the transactions contemplated hereby will not require any approval, consent or waiver under any such law, rule, regulation, judgment, decree, order, governmental permit or license or the approval, consent or waiver of any other party to any such agreement, indenture or instrument, other than (x) all required approvals, consents and waivers of governmental authorities, (y) any such approval, consent or waiver that already has been obtained, and (z) any other approvals, consents or waivers, the absence of which, individually or in the aggregate, would not result in a Material Adverse Effect on RIG or enable any person to enjoin the transactions.
5.6 REPORTS AND FINANCIAL STATEMENTS.
(1) Attached as Schedule 5.6(1) are copies of the following financial statements, each of which (including any related notes and schedules) presents fairly, in all Material respects, the financial condition and results of operations of RIG and do not contain any untrue statements of Material fact or omit any Material facts necessary in order to make the statements contained therein misleading.
(i) Balance Sheets and Profit and Loss Statements (the "RIG 2003 Financial Statements"), at December 31, 2003 and for the year then ended; and
(ii) Updated monthly Balance Sheets and Profit and Loss Statements (the "RIG Monthly Reports") that RIG has provided to ACNB Corp since March 31, 2004 and those RIG Monthly Reports that RIG has or will have provided to ACNB Corp after the date hereof through the Closing Date.
(2) RIG has provided ACNB Corp with copies of all financial statements and other documents issued to its shareholders after March 31, 2004, and will provide ACNB Corp with copies of such statements and documents issued after the date hereof, on or prior to the Effective Time, and all reports and other documents filed by it with any federal or state authority during such period. RIG shall make available for inspection by officials or representatives of ACNB Corp all financial statements prepared by RIG.
(3) Except as disclosed on Schedule 5.6(3) or in the RIG 2003 Financial Statements, RIG had no Material liability (whether accrued, absolute, contingent or otherwise) which is required to be reflected, noted or reserved against therein which is in any case or in the aggregate Material. Since December 31, 2003 RIG has not incurred any such liability other than liabilities of the same nature as those set forth in the RIG 2003 Financial Statements, all of which have been reasonably incurred in the ordinary course of business.
(4) The documents referred to in this Subsection 5.6, or to be contained in any financial statement, document or other written materials provided to ACNB Corp as required by Subsection 5.6, as of the date of such document or other materials, contained, or as to documents or other materials to be delivered after the date hereof will not contain, any untrue statement of Material fact, or, at the date thereof, omit to state a Material fact necessary in order to make the statements contained therein, in light of the circumstances under which such statements will be made, misleading; provided, however, that information as of a later date shall be deemed to modify information as of any earlier date.
5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS; UNDISCLOSED LIABILITIES.
(1) As of June 30, 2004, RIG's liabilities do not exceed $1,139,705 and as of June 30, 2004, each liability and the creditor's name is listed on Schedule 5.7. Since June 30, 2004, RIG has not: (i) incurred any liability Material to RIG on a consolidated basis, except in the ordinary course of its business, consistent with past practices; (ii) suffered a change, or any event involving a prospective change, in the business, assets, financial condition, or results of operations of RIG which has had, or is reasonably likely to have, individually or in the aggregate, a Material Adverse Effect, (other than as a result of changes or proposed changes in federal or state regulations of general applicability or interpretations thereof, changes in generally accepted accounting principles, and changes that could, under the circumstances, reasonably have been anticipated in light of disclosures made in writing by RIG to ACNB Corp pursuant hereto); or (iii) subsequent to the date hereof, except as permitted by Subsection 6.1 hereof, conducted its business and operations other than in the ordinary course of business and consistent with past practices.
(2) RIG has no liability (and RIG is not aware of any basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against any of them giving rising to any liability) which individually is or in the aggregate are reasonably likely to have a Material Adverse Effect on RIG except as listed on the RIG 2003 Financial Statements or on Schedules 5.6, 5.7 or 5.9.
5.8 TAXES.
(1) RIG has timely filed all federal, state, county and local Tax Returns in respect of Taxes. Each such Tax Return is complete and accurate in all Material respects. RIG has paid all taxes owed or owing. No waivers of statutes of limitations, and no agreement relating to assessment or collection, are in effect in respect of any Taxes. There are no claims pending against RIG for the alleged deficiency in the payment of any Taxes, and RIG does not know of any pending or threatened audits, investigations or claims for unpaid Taxes or relating to any liability in respect of Taxes.
(2) As of the date of this Agreement, RIG has made available to ACNB Corp true and correct copies of all income, franchise, capital and other Tax Returns filed by RIG for all taxable years or periods for which the relevant statute of limitations has not expired. RIG is not a party to any tax allocation or sharing agreement, is not or has not been a member of an affiliated group filing consolidated or combined Tax Returns or otherwise has any tax liability for the Taxes of any Person (other than RIG). No closing agreements, private letter rulings, technical advice memoranda or similar agreements or rulings have been entered into or issued by any taxing authority with respect to RIG.
(3) The provision for current Taxes payable reflected in
"Other Liabilities" in the RIG Financial Statements,
as of the date hereof and as of the Effective Time,
is and will be adequate to cover all Taxes that may
become due and payable (based upon the accrual method
of accounting) by RIG in future periods (i) in
respect of all transactions, sales or services
occurring or performed on or prior to the Effective
Date, which by virtue of tax or accounting treatment
will not be payable until subsequent to such date, or
(ii) in respect of deductions, costs or other
allowances taken for federal income tax purposes
which RIG accountants have reason to believe are
likely to be disallowed by the IRS if audited by such
Service.
(4) No consent has been filed relating to RIG pursuant to Section 341(f) of the Code of 1986.
5.9 LITIGATION. Except as set forth on Schedule 5.9, as of the date of this Agreement, (i) there is no action, suit, judicial, or administrative proceeding, arbitration or investigation pending or to RIG's Knowledge threatened against or involving RIG or any RIG Shareholder or any of their properties or rights, before any court, arbitrator, or administrative or governmental body; (ii) there is no judgment, decree, injunction, rule, or order of any court, governmental department, commission, agency, instrumentality, or arbitrator outstanding against RIG or any of the RIG Shareholder; and (iii) RIG and its Shareholders are not in violation of any term of any judgments, decrees, injunctions,
or orders outstanding against them, except to the extent that
such events, violations or incidents set forth in (i) through
(iii) above in the aggregate would not have a Material Adverse
Effect on RIG. RIG will furnish to ACNB Corp prior to the
Closing, in writing, a description of all litigation, actions,
suits, proceedings, arbitrations, investigations known to it,
judgments, decrees, injunctions or orders pending; or to its
Knowledge, threatened against or involving RIG or any of the
RIG Shareholder, or any of their properties or rights as of
the date hereof.
5.10 ABSENCE OF REGULATORY ACTIONS. RIG is not subject to any federal or state governmental actions by any authority charged with the supervision or regulation of insurance agencies or insurance producers, agents or brokers.
5.11 CONTRACTS.
(1) Each of the Material Contracts, instruments, mortgages, notes, security agreements, leases, agreements, or understandings, whether written or oral, to which RIG or any of the RIG Shareholder is a party that relates to or affects the assets or operations of RIG or to which RIG or any of the RIG Shareholder or their respective assets or operations may be bound or subject is a valid and binding obligation of RIG and is in full force and effect (with respect to RIG), except for where the failure to be in full force and effect would not, individually or in the aggregate, have a Material Adverse Effect. Schedule 5.11 sets forth a complete description of all Material Contracts.
(2) Except for this Agreement and any contract listed on
Schedule 5.11, neither RIG nor the RIG Shareholder is
a party to any oral or written (i) consulting
agreement not terminable on 30 days' or less notice
involving the payment of more than $15,000 per annum,
in the case of any such agreement with an individual;
(ii) joint venture agreement; (iii) noncompetition or
similar agreements that restricts RIG or any of the
RIG Shareholder from engaging in a line of business;
(iv) with any executive officer or other employee of
RIG or any subsidiary the benefits of which are
contingent, or the terms of which are Materially
altered, upon the occurrence of a transaction
involving RIG of the nature contemplated by this
Agreement and which provides for the payment of in
excess of $15,000; (v) agreement with respect to any
executive officer of RIG providing any term of
employment or compensation guaranty in excess of
$15,000 per annum; or (vi) agreement or plan,
including any stock option plan, stock appreciation
rights plan, restricted stock plan, or stock purchase
plan, any of the benefits of which shall be
increased, or the vesting of the benefits of which
shall be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the
value of any of the benefits of which shall be
calculated on the basis of any of the transactions
contemplated by this Agreement.
5.12 LABOR AND EMPLOYMENT MATTERS.
(1) RIG and the RIG Shareholder are and have been in compliance in all Material respects with all applicable laws respecting employment and employment practices, terms, and conditions of employment and wages and hours, including, such laws respecting employment discrimination, equal opportunity, affirmative action, worker's compensation, occupational safety, and health requirements and unemployment insurance and related matters, and are not engaged in and have not engaged in any unfair labor practice;
(2) RIG and the RIG Shareholder have not received notice, correspondence, or oral or written indication or communication of, nor to the Knowledge of RIG or the RIG Shareholder, RIG is not subject to, any investigation or review by or before any governmental entity concerning any violations of any such applicable labor or employment laws, and, to the Knowledge of RIG, there is no such investigation threatened nor has any such investigation occurred during the last three years, nor has any governmental entity provided any notice to RIG or otherwise asserted an intention to conduct any such investigation;
(3) there is no labor strike, dispute, slowdown, or stoppage actually pending or threatened against RIG;
(4) no union representation question or union organizational activity exists respecting the employees of RIG;
(5) no collective bargaining agreement exists which is binding on RIG;
(6) RIG has not experienced any work stoppage or other labor difficulty; and
(7) except as described on Schedule 5.12(7), in the event of termination of the employment of any of the current officers, directors, employees, or agents of RIG, RIG, pursuant to any agreement or by reason of anything done prior to the Effective Time by RIG or any of the RIG Shareholder, will not be liable to any of such officers, directors, employees, or agents for so-called "severance pay", retention bonuses, change of control or other bonuses, or any other similar payments or benefits, including, without limitation, post-employment healthcare (other than pursuant to COBRA) or insurance benefits, except to the extent that any matter in Clauses (1), (2) and (6) could reasonably be expected individually or in the aggregate to have a Material Adverse Effect on RIG.
5.13 EMPLOYEE BENEFIT PLANS. Schedule 5.13 contains a complete list of all pension, retirement, stock option, stock purchase, stock ownership, savings, stock appreciation right, profit
sharing, deferred compensation, consulting, bonus, change of control, group insurance, severance and other employee benefits, incentive and welfare policies, contracts, plans and arrangements, and all trust agreements related thereto, in respect to any of RIG's present or former directors, officers or other employees (hereinafter referred to collectively as the "Employee Plans").
(1) All of the Employee Plans comply in all Material
respects with all applicable requirements of the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), the Code and other applicable
laws; it has not engaged in a "prohibited
transaction" (as defined in Section 406 of ERISA or
Section 4975 of the Code) with respect to any
Employee Plan which is likely to result in any
Material penalties, taxes or other events under
Section 502(i) of ERISA or Section 4975 of the Code
which would have a Material Adverse Effect on it.
(2) No liability to the Pension Benefit Guaranty Corporation has been or is expected by it to be incurred with respect to any Employee Plan which is subject to Title IV of ERISA ("Pension Plan"), or with respect to any "single-employer plan" (as defined in Section 4001 (a)(15) of ERISA) currently or formerly maintained by it or any entity which is considered one employer with RIG under Section 4001 of ERISA or Section 414 of the Code (an "ERISA Affiliate").
(3) No Pension Plan or single-employer plan of an ERISA
Affiliate had an "accumulated funding deficiency" (as
defined in Section 302 of ERISA (whether or not
waived)) as of the last day of the end of the most
recent plan year ending prior to the date hereof; all
contributions to any Pension Plan or single-employer
plan of an ERISA Affiliate that were required by
Section 302 of ERISA and were due prior to the date
hereof have been made on or before the respective
dates on which such contributions were due; the fair
market value of the assets of each Pension Plan or
single-employer plan of an ERISA Affiliate exceeds
the present value of the "benefit liabilities" (as
defined in Section 4001(a)(16) of ERISA) under such
Pension Plan or single employer plan of an ERISA
Affiliate as of the end of the most recent plan year
with respect to the respective Pension Plan or
single-employer plan of an ERISA Affiliate ending
prior to the date hereof, calculated on the basis of
the actuarial assumptions used in the most recent
actuarial valuation for such Pension Plan or
single-employer plan of an ERISA Affiliate as of the
date hereof; and no notice of a "reportable event"
(as defined in Section 4043 of ERISA) for which the
30-day reporting requirement has not been waived has
been required to be filed for any Pension Plan or
single-employer plan of an ERISA Affiliate within the
12-month period ending on the date hereof.
(4) Neither has it provided, nor is it required to provide, security to any Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the Code.
(5) Neither it nor any ERISA Affiliate has contributed to any "multi-employer plan," as defined in Section 3(37) of ERISA, on or after September 26, 1980.
(6) Each Employee Plan of it which is an "employee
pension benefit plan" (as defined in Section 3(2) of
ERISA) and which is intended to be qualified under
Section 401(a) of the Code (a "Qualified Plan") has
received a favorable determination letter from the
Internal Revenue Service ("IRS") covering the
requirements of the Tax Equity and Fiscal
Responsibility Act of 1982, the Retirement Equity Act
of 1984 and the Deficit Reduction Act of 1984 and the
Tax Reform Act of 1986; it is not aware of any
circumstances likely to result in revocation of any
such favorable determination letter; each such
Employee Plan has been amended to reflect the
requirements of subsequent legislation applicable to
such plans; and each Qualified Plan has complied at
all relevant times in all Material respects with all
applicable requirements of Section 401(a) of the
Code.
(7) Neither it nor any ERISA Affiliate has committed any act or omission or engaged in any transaction that has caused it to incur, or created a Material risk that it may incur, liability for any excise tax under Sections 4971 through 4980B of the Code, other than excise taxes which heretofore have been paid and fully reflected in its financial statements.
(8) There is no pending or threatened litigation, administrative action or proceeding relating to any Employee Plan, other than routine claims for benefits.
(9) There has been no announcement or legally binding commitment by it to create an additional Employee Plan, or to amend an Employee Plan, except for amendments required by applicable law which do not Materially increase the cost of such Employee Plan, and, except as disclosed on Schedule 5.13 hereto, it does not have any obligations for retiree health and life benefits under any Employee Plan that cannot be terminated without incurring any liability thereunder.
(10) The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not result in any payment or series of payments by RIG to any person which is an "excess parachute payment" (as defined in Section 280G of the Code) under any Employee Plan, increase any benefits payable under any Employee Plan, or accelerate the time of payment or vesting of any such benefit.
(11) All annual reports have been filed timely with
respect to each Employee Plan, it has made available
to ACNB Corp a true and correct copy of (i) reports
on the applicable form of the Form 5500 series filed
with the IRS for plan years beginning after 1996,
(ii) such Employee Plan, including amendments
thereto, (iii) each trust agreement and insurance
contract relating to such Employee Plan, including
amendments thereto, (iv) the most recent summary plan
description for such Employee Plan, including
amendments thereto, if the Employee Plan is subject
to Title I of ERISA, (v) the most recent actuarial
report or valuation if such Employee Plan is a
Pension Plan and (vi) the most recent determination
letter issued by the IRS if such Employee Plan is a
Qualified Plan.
(12) Except as disclosed on Schedule 5.13 hereto, there are no retiree health benefit plans except as required to be maintained by COBRA.
5.14 TITLE TO ASSETS.
(1) RIG does not own any real property. RIG has good and marketable title, free and clear of all liens and encumbrances, to all other property and assets, tangible and intangible, reflected in the RIG 2003 Financial Statements or purported to have been acquired by it since the date thereof except liens for taxes or assessments not delinquent, and such other liens and encumbrances and imperfections of title as do not Materially affect the value of such property or as reflected in the RIG 2003 Financial Statements and which do not interfere with or impair its present and continued use. All real properties leased or operated by the RIG Shareholder (the "RIG Shareholder Real Property") that are Material to the business, operations or financial condition of RIG are in substantially good operating condition and repair (ordinary wear and tear excepted). None of the Material structures on the RIG Shareholder Real Property encroaches upon real property of another Person, and no structure of any Person encroaches upon the RIG Shareholder Real Property. The RIG Shareholder Real Property and its continued use, occupancy and operation as currently used, occupied and operated does not in any Material respect constitute a nonconforming use under any applicable law, statute, ordinance, code, order, regulation or standard.
(2) All properties held by RIG under leases are held by it under valid, binding and enforceable leases (subject to applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and similar laws affecting creditors' rights generally and subject, as to enforceability, to general principles of equity), with such exceptions as are not Material and do not interfere with the conduct of its business, as the case may be, and it enjoys quiet and peaceful possession of such leased properties. RIG, and to its Knowledge any third party, is not in default in any Material respect under any Material
lease, agreement or obligation regarding RIG's properties or to which RIG is a party or by which it is bound.
5.15 COMPLIANCE WITH APPLICABLE LAWS.
(1) RIG and each RIG Shareholder and employee holds all licenses, permits, and governmental authorizations necessary for the lawful conduct of its business, and to the Knowledge of RIG and the RIG Shareholder, the business of RIG is not being conducted in violation of, any provision of any federal, state, local, or foreign statute, law, ordinance, rule, regulation, judgment, decree, order, concession, grant, franchise, permit or license, or other governmental authorization or approval applicable to RIG or any RIG Shareholder, officer, director or employee except for such licenses, permits or governmental authorizations, the failure of which, and violations which, would not have in the aggregate a Material Adverse Effect on RIG.
(2) (i) Where required or advisable, RIG and each RIG Shareholder, officer, director and employee, is duly registered as an insurance producer, agent or broker (or in a similar capacity) with all appropriate governmental authorities, and each such registration is in full force and effect except where the failure to do so would not reasonably be expected to have a Material Adverse Effect; and (ii) except where the failure to so register, when aggregated with all other such failures, would not reasonably be expected to have a Material Adverse Effect on RIG. Schedule 5.15(2) sets forth the list of each RIG Shareholder, officer, director and employee that acts or has acted as an insurance producer, agent or broker in the United States or otherwise within the past five years. RIG has made available to ACNB Corp its current compliance manual and any other supervisory and compliance policies and procedures, as applicable.
(3) RIG has been duly authorized by all applicable state insurance regulatory authorities to issue the insurance policies that it is currently writing in the respective states in which it conducts its business, except for authorizations the failure to have which would not, individually or in the aggregate, have a Material Adverse Effect. RIG has all other Material licenses, permits, consents, approvals and authorizations of any governmental entity ("Permits") necessary to conduct its business in the manner and in the jurisdictions in which it is presently being conducted, and all such Permits are valid and in full force and effect, except where the failure to have such a Permit or the invalidity or ineffectiveness thereof would not, individually or in the aggregate, have a Material Adverse Effect.
(4) RIG has made (or in the case of filings after the date hereof, will make) available to ACNB Corp true and complete copies of (i) all filings made by RIG
with any insurance regulatory agency within the past two years, (ii) all inspection reports related to RIG provided by any governmental authority during the past four years and (iii) all Material correspondence relating to any inquiry or investigation by a governmental authority relating to RIG provided to RIG since December 31, 2003.
5.16 BROKERS. Except as set forth on Schedule 5.16, neither RIG nor any of its officers, directors, employees or agents have employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions, or finder's fees, and no broker or finder has acted directly or indirectly for it in connection with this Agreement or the transactions contemplated hereby.
5.17 ENVIRONMENTAL MATTERS.
To the Knowledge of RIG's management and the RIG Shareholder:
(1) RIG has not been, nor is, in violation of or liable under any Environmental Law.
(2) RIG and the RIG Shareholder have no Knowledge that
any environmental contaminant, pollutant, toxic or
hazardous waste or other similar substance has been
generated, used, stored, processed, disposed of or
discharged onto any of the real estate now or
previously owned or acquired (including, without
limitation, any real estate acquired by means of
foreclosure or exercise of any other creditor's
right) or leased by RIG. In particular, without
limiting the generality of the foregoing sentence,
RIG and the RIG Shareholder have no Knowledge that:
(i) any materials containing asbestos have been used
or incorporated in any building or other structure or
improvement located on any of the real estate now or
previously owned or acquired (including, without
limitation, any real estate acquired by means of
foreclosure or exercise of any other creditor's
right) or leased by RIG; (ii) any electrical
transformers, fluorescent light fixtures with
ballasts or other equipment containing PCB's are or
have been located on any of the real estate now or
previously owned or acquired (including, without
limitation, any real estate acquired by means of
foreclosure or exercise of any other creditor's
right) or leased by RIG; (iii) any underground
storage tanks for the storage of gasoline, petroleum
products or other toxic or hazardous substances are
or have ever been located on any of the real estate
now or previously owned or acquired (including,
without limitation, any real estate acquired by means
of foreclosure or exercise of any other creditor's
right) or leased by RIG.
(3) There is no legal, administrative, arbitration or other proceeding, claim, action, cause of action or governmental investigation of any nature seeking to impose, or that, to the Knowledge of RIG and the RIG Shareholder, could result in the imposition on RIG of any liability arising under any local, state or federal environmental statute, regulation or ordinance including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, pending or threatened against RIG; to the Knowledge of RIG and the RIG Shareholder, there is no reasonable basis for any such proceeding, claim, action or governmental investigation; and RIG is not subject to any agreement, order, judgment, decree or memorandum by or with any court, governmental authority, regulatory agency or third party imposing any such liability.
5.18 ADDITIONAL TAX MATTERS. RIG is, and has been at all times since August 1, 1979, an "S" corporation within the meaning of Code Section 1361(a). A valid election under Code Section 1362 (and a comparable election under state or local law in each jurisdiction where RIG is required to file Tax Returns and reports that provides for such an election) has been in effect with respect to RIG at all times since August 1, 1979. The RIG Shareholder has filed, in a timely fashion, with each of the IRS and any other applicable state taxing authority, to the extent required by law, a consent to such "S" corporation election with respect to RIG. RIG has not been, and will not be, subject to Tax under Code Section 1374 or 1375 (or any comparable provision of state or local law) for any period prior to Closing. Further, except to the extent provided and accrued in the provision for Taxes reflected on RIG's Financial Statements, no additional federal, state or local Tax liability will accrue to ACNB Corp for that portion of tax year 2004 occurring prior to the Effective Time. The federal, state and local allocable share of income to the shareholder of RIG has been or will be accurately and completely stated on the Forms K-1 issued by RIG to the shareholder for the tax years since inception and through the Effective Time.
5.19 INSURANCE. RIG maintains insurance policies, including errors and omissions, directors and officers, and fire and casualty policies, in such amounts as is customary and necessary for RIG to conduct its business. All policies of insurance insuring RIG or its business, assets, employees, officers, shareholders and directors are in full force and effect. As of the date hereof, there are no claims by RIG or any RIG officer, director, employee, or shareholder under any such policy or instrument as to which any insurance company is denying liability or defending under a reservation of rights clause. At Closing, all RIG insurance policies will continue in full force and effect. Schedule 5.19 lists all of RIG's insurance policies.
5.20 DIVIDENDS AND DISTRIBUTIONS. The only dividends or other distributions which RIG has made on its capital stock since January 31, 2003, are set forth on Schedule 5.20.
5.21 BOOKS AND RECORDS. RIG's books and records have been, and are being, maintained in accordance with applicable legal, regulatory and accounting requirements and reflect in all Material respects the substance of events and transactions that should be included therein.
5.22 POLICY HOLDERS. Schedule 5.22(1) sets forth, as of August 31,
2004,the names of all of RIG's policyholders. Except as
otherwise listed on Schedule 5.22(2), RIG has not received any
notices or otherwise has any Knowledge that any policy holder
(x) has ceased, or will cease, to use the products, goods or
services of RIG, (y) has substantially reduced or will
substantially reduce its use of the products, goods or
services of RIG or (z) has sought, or is seeking, to
Materially reduce the price it will pay for the products,
goods or services of RIG, including in each case after the
consummation of the transactions contemplated hereby, which
would in the aggregate have a Material Adverse Effect. To RIG
and the RIG Shareholder's Knowledge, no policyholder has
otherwise threatened to take any action described in the
immediately preceding sentence due to the consummation of the
transactions contemplated by this Agreement or any of the
ancillary agreements.
5.23 COMPLETE AND ACCURATE DISCLOSURE. Neither this Agreement (insofar as it relates to RIG, RIG Common Stock and the RIG Shareholder's involvement in the transactions contemplated hereby) nor RIG's representations, warranties or covenants, nor any financial statement, schedule (including, without limitation, the Exhibits, Annexes and Schedules attached hereto), certificate, or other statement or document delivered by RIG to ACNB Corp in connection herewith, when read together, contains any statement which, at the time and in light of the circumstances under which it is made, is incorrect, false or misleading with respect to any Material fact or omits to state any Material fact necessary to make the statements contained herein or therein not false or misleading.
5.24 ABSENCE OF QUESTIONABLE PAYMENTS. From and after December 31, 2003 RIG has not, nor has any RIG Shareholder, director, officer, agent, employee, consultant or other person associated with or acting on behalf of RIG (1) used any RIG corporate funds for unlawful contributions, gifts, entertainment or unlawful expenses relating to political activity; or (2) made any direct or indirect unlawful payments to governmental officials from any RIG corporate funds, or established or maintained any unlawful or unrecorded accounts with funds received from RIG.
5.25 POWERS OF ATTORNEY; GUARANTEES. Except as disclosed in Schedule 5.25, neither RIG nor its officers, directors, shareholders or affiliates have any power of attorney outstanding, or any obligation or liability, actual, constructive or contingent, as guarantor, surety, cosigner, endorser, co-maker or indemnitor in respect of the obligation of any person, corporation, partnership, joint venture, association, organization or other entity that would in any way obligate RIG, impair the assets of RIG, affect the ability of the RIG shareholder to perform any obligations hereunder or Materially impair RIG to operate it's business in compliance with applicable laws.
5.26 OWNED SOFTWARE. The current software applications used by RIG in the operation of its business are set forth and described on Schedule 5.26 (the "Software"). To the extent that any of the Software has been designed or developed by RIG's management information or development staff or by consultants on RIG's behalf, RIG has complete rights to and ownership of such Software, including possession of, or ready access to, the source code for such Software in its most recent version. No part of any such Software infringes upon the software of any other person or entity, or violates or infringes upon any common law or statutory rights of any other person or entity, including, without limitation, rights relating to defamation, contractual rights, copyrights, trade secrets, and rights of privacy or publicity. RIG has not sold, assigned, licensed, distributed or in any other way disposed of or encumbered any of the Software.
5.27 LICENSED SOFTWARE. The Software, to the extent it is licensed from any third party licensor or constitutes "off-the-shelf" software, is held by RIG legitimately and is fully transferable hereunder without any third party consent. All of RIG's computer hardware has legitimately licensed software installed therein.
5.28 NO ERRORS; NONCONFORMITY. To the Knowledge of RIG's management, the Software is free from any significant defect or programming or documentation error, operates and runs in a reasonable and efficient business manner, conforms to the stated specifications thereof, and, with respect to owned Software, the applications can be recreated from their associated source codes.
5.29 NO BUGS OR VIRUSES. RIG has not knowingly altered its data, or any Software or supporting software that may, in turn, damage the integrity of the data, stored in electronic, optical, or magnetic or other form. RIG has no Knowledge of the existence of any bugs or viruses with respect to the Software.
5.30 DOCUMENTATION. RIG has furnished ACNB Corp with true and accurate copies of all documentation (end user or otherwise) relating to the use, maintenance and operation of the Software and as to the Software owned by RIG, the source code.
5.31 OTHER NAMES. The legal name of RIG is as set forth in the introductory paragraph of this Agreement and within the preceding 5 years RIG has not used, and RIG currently does not use, any trade names, fictitious names, assumed names or "doing business as" names except for the "RIG."
5.32 PLACES OF BUSINESS. The principal executive offices of RIG are in Westminster, Maryland and the offices where RIG keeps its records are in Westminster, Maryland. There is an additional sales office located in Timonium, Maryland.
(1) Except to the extent that any inaccuracy of any of
the following (or the circumstances giving rise to
such inaccuracy), in the aggregate, would not
reasonably be expected to have a Material Adverse
Effect on RIG: (i) RIG owns, or is licensed or
otherwise has the legally enforceable right to use
(in each case, clear of any liens or encumbrances of
any kind), all Intellectual Property (as hereinafter
defined) used in or necessary for the conduct of its
business as currently conducted; (ii) no claims are
pending or, to the Knowledge of RIG, threatened that
RIG is infringing on or otherwise violating the
rights of any person with regard to any Intellectual
Property used by, owned by, and/or licensed to RIG;
(iii) as of the date of this Agreement, to the
Knowledge of RIG, no person is infringing on or
otherwise violating any right of RIG with respect to
any Intellectual Property owned by and/or licensed to
RIG; and (iv) as of the date of this Agreement, RIG
has not received any notice of any claim challenging
the ownership or validity of any Intellectual
Property owned by RIG or challenging RIG's license or
legally enforceable right to use any Intellectual
Property licensed by it.
(2) Schedule 5.33(2) sets forth the complete list of Intellectual Property owned by RIG and any claims or causes of action arising out of related to any infringement or misappropriate of any Intellectual Property.
5.34 ACCOUNTS RECEIVABLE. Except to the extent that any inaccuracy would not reasonably be expected to have a Material Adverse Effect on RIG, all accounts receivable of RIG are reflected properly on their books and records, are valid receivables subject to no setoffs or counterclaims, are current and collectible, and will be collected in accordance with the terms at the recorded amounts, subject only to the reserve for bad debts set forth on the face of the RIG 2003 Financial Statements as adjusted for passage of time with the Effective Time in accordance with past custom and practice of RIG.
5.35 ACCOUNTS PAYABLE. Except to the extent that any inaccuracy would not reasonably be expected to have a Material Adverse Effect on RIG, all accounts payable of RIG are reflected properly on their books and records, are valid, current payables and will be paid in accordance with the terms at the recorded amounts.
5.36 NO LIENS. All of the assets, both tangible and intangible of RIG, except as set forth on Schedule 5.36 are and will be free and clear of any security interests, liens, claims, charges or other encumbrances of any nature.
5.37 NO UNDISCLOSED INFORMATION. No provision of this Section 5 or any annex, schedule or any document agreement furnished by RIG contains any untrue statement of a Material fact, or omits to state a Material fact necessary in order to make this statement contained herein or therein in light of the
circumstances under which such statements were made, not misleading. No pre-closing investigation of RIG and its assets for its business shall relieve the RIG Shareholder of their indemnification and obligation under this Agreement.
5.38 REQUIRED VOTE OF RIG SHAREHOLDER. The unanimous consent of the holders of the outstanding shares of RIG Common Stock approving the transactions contemplated by this Agreement has been executed and delivered to ACNB Corp as of the date of this Agreement. No other vote of the shareholders of RIG is required by law, the Articles of Incorporation or Bylaws of RIG or otherwise in order for RIG to consummate the transactions contemplated hereby.
5.39 ASSUMABILITY OF CONTRACTS AND LEASES. Except as disclosed on Schedule 5.39, all contracts between RIG and any other entity or person are assumable and assignable and do not contain any term or provision that would accelerate or increase payments that would otherwise be due by RIG to such person or entity, or change or modify the provisions or terms of such leases, contracts and agreements by reason of this Agreement or the transactions contemplated hereby. Each lease pursuant to which RIG, as lessee, leases real or personal property is valid and in effect in accordance with its respective terms, and there is not, under any of such leases, on the part of the lessee any Material existing default or any event which with notice or lapse of time, or both, would constitute such a default, other than defaults which would not individually or in the aggregate have a Material Adverse Effect on the financial condition, business, prospects, or operating results of RIG.
5.40 REAL PROPERTY. RIG does not own any real property or interests in real property, other than the leasehold interest in the corporate offices. RIG has delivered to ACNB Corp complete copies of all operative documents with respect to the rights of RIG as to the leased properties. The leases are in full force and effect and are valid and enforceable in accordance with their terms. Neither the landlords, RIG nor the RIG Shareholder are in default, technical or otherwise with respect to their obligation pursuant to any lease and RIG has not received any notices from the landlords or any governmental agency that would prevent RIG from operating its business at any of the leased properties.
5.41 DISASTER RECOVERY/BACKUP SITE PLAN. RIG maintains a disaster recovery plan and maintains backup files and all other backup systems as required by any regulatory agencies, to implement such disaster recovery plan so as to reasonably provide for conducting its business promptly and in a timely manner in the event of a disaster.
5.42 FEES AND EXPENSES. Schedule 5.42 delineates all RIG fees and expenses, including all attorney, accountant, advisory, and brokers fees, in connection with the transactions contemplated by this Agreement, including the Armor Transaction and the NeSmith Transaction ("RIG Transaction Fees"). All RIG
Transaction Fees not paid and accrued as of the Effective Date shall be the responsibility of and paid by the RIG Shareholder within thirty days of the Effective Date.
5.43 LICENSES AND QUALIFICATIONS. RIG, and each of its subsidiaries and affiliates (i) is licensed and in good standing as an insurance producer or broker by the State of Maryland Insurance Department and each other State Regulatory Agency, as applicable, in each state in which it conducts business or has obtained, for itself and each of its employees doing business as a producer or agent, an Appointment from each insurance entity on whose behalf collection and forwarding of premiums for insurance policies is being performed; (ii) has obtained, for itself and each of its employees doing business as a producer or agent in the State of Maryland and in each state in which it conducts business, a Certificate of Qualification or, for states outside the State of Maryland, equivalent certification to conduct business as an insurance producer or agent; and (iii) has all other Material certifications, authorizations, licenses, permits and other regulatory approvals necessary to conduct its current insurance agency and brokerage business ("Licenses"), and is in good standing under all state, federal and local laws and regulations thereunder as an insurance producer or agent and broker. Except as set forth on Schedule 5.43, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will affect the validity or any License currently possessed by RIG or its employees, and all such Licenses will remain in full force and effect after the Closing Date. Schedule 5.43 lists each state in which RIG and/or its employees has obtained or applied for a License. Schedule 5.43 also sets forth all complaints, formal or informal, filed or alleged against RIG and/or its current or former employees with the Maryland Insurance Department and/or any of the insurance entities that RIG represents or represented.
5.44 INQUIRIES. Schedule 5.44 contains a true and correct list of all of the audits, investigations, complaints and inquiries of RIG, the RIG Shareholder or any RIG employee by a State Regulatory Agency, or an insurance underwriter commenced since June 30, 1999, or ongoing as of the date of this Agreement. Except for customary ongoing quality control reviews and except as disclosed on Schedule 5.44, no audit or investigation is pending or, to the Knowledge of the RIG Shareholder and RIG, threatened that could result in:
(i) a claim of a Material failure to comply with applicable Regulations;
(ii) indemnification by RIG in connection with insurance policies or Appointments;
(iii) rescission of any insurance policy or Appointment; or
(iv) payment of a Material penalty to any State Regulatory Agency, or an insurance entity.
RIG has made available to ACNB Corp copies of all written reports and materials received in connection with such audits, investigations, complaints and inquiries.
5.45 RESERVES. All insurance reserves reflected in the RIG Financial Statements have been computed in all Material respects in accordance with RIG historical accounting methodologies and in accordance with sound loss reserving principles, consistently applied; provided that the foregoing representation does not and is not intended to constitute in any way a representation or guaranty as to the adequacy or sufficiency of the insurance reserves of RIG.
5.46 INSURANCE PRODUCERS. Schedule 5.46 sets forth a summary description of the compensation arrangements in place on the date of this Agreement with RIG's insurance agents, managers, brokers and other producers, which summary is true and complete in all Material respects. RIG has provided to ACNB Corp copies of each form of agreement in place on the date of this Agreement between RIG and its insurance producers.
5.47 CERTIFICATES OF AUTHORITY. Schedule 5.47 lists all active licenses (including, without limitation, licenses and Certificates of Authority from insurance regulatory authorities), permits or authorizations to transact the business of insurance (the "Certificates of Authority," and each a "Certificate of Authority"), and sets forth the lines of insurance which are permitted to be written with respect to each such Certificate of Authority. No Certificate of Authority identified in such Schedule has been revoked, restricted, suspended, limited or modified nor is any Certificate of Authority the subject of, nor to the Knowledge of RIG or the RIG Shareholder is there a reasonable basis for, a proceeding for revocation, restriction, suspension, limitation or modification, nor, to the Knowledge of RIG or the RIG Shareholder, has any such proceeding been threatened by any licensing authority, nor is RIG operating under any formal or informal agreement or understanding with any insurance regulatory authority which restricts its authority to do business or to take, or refrain from taking, any action.
5.48 INSURANCE, CLAIMS AND SERVICE AGREEMENTS.
(1) Schedule 5.48(1) contains a complete and correct list of all types of insurance policy products Material to RIG's current operations issued by RIG on or after June 30, 2004 and currently in force or currently issuable by RIG. RIG has made or will make available to ACNB Corp complete and correct copies of all forms of insurance policy products Material to RIG's current operations together with all forms of endorsements used in connection with such forms.
(2) Schedule 5.48(2) contains a complete and correct list of all claims and service administration agreements to which RIG is a party. Copies of all such claims and service administration agreements have been or will be made available to ACNB Corp.
(3) No default of or breach by RIG or, to the Knowledge of RIG and the RIG Shareholder, by any other party under any claims and service administration agreement has occurred and, to the Knowledge of RIG and the RIG Shareholder, no basis currently exists for the declaration of any default or termination right thereunder.
SECTION 6. COVENANTS OF RIG AND THE RIG SHAREHOLDER
From the date of this Agreement until the Effective Time, RIG and the RIG Shareholder covenant and agree to do the following:
6.1 CONDUCT OF BUSINESS. Except as otherwise consented to by ACNB Corp in writing and except as otherwise permitted in this Agreement, RIG and the RIG Shareholder shall, from the date of this Agreement until the Effective Time:
(1) use all reasonable efforts to carry on its business in, and only in, the ordinary course of business consistent with its past customary business practices (hereinafter referred to as "Ordinary Course of Business");
(2) to the extent consistent with prudent business judgment, use all reasonable efforts to preserve its present business organization, to retain the services of its present officers and employees, to maintain good relationships with its employees, and to maintain its relationships with customers, suppliers and others having business dealings with RIG;
(3) maintain all of RIG's structures, equipment and other real property and tangible personal property in good repair, order and condition, except for ordinary wear and tear and damage by unavoidable casualty;
(4) use all reasonable efforts to preserve or collect all claims and causes of action belonging to RIG;
(5) keep in full force and effect all insurance policies now carried by RIG;
(6) perform in all Material respects RIG's obligations under all agreements, contracts, instruments and other commitments to which it is a party or by which it may be bound or which relate to or affect its properties, assets and business;
(7) maintain its books of account, financial statements and other financial records in accordance with past practices;
(8) comply in all Material respects with all statutes, laws, ordinances, rules and regulations, decrees, orders, directives, consent agreements, examination reports, and other federal, state, county, local and municipal governmental directives applicable to RIG and to the conduct of its business;
(9) not amend RIG's Articles of Incorporation or Bylaws unless requested to do so by ACNB Corp;
(10) not enter into or assume any Material contract, incur any Material liability or obligation, make any Material commitment, acquire or dispose of any property or asset or engage in any transaction or subject any of RIG's properties or assets to any Material lien, claim, charge, or encumbrance of any kind whatsoever;
(11) not take or permit to be taken any action that would constitute a breach of any representation, warranty or covenant set forth in this Agreement;
(12) not declare, set aside or pay any dividend or make any other distribution in respect of RIG Common Stock, except as provided in Subsection 6.9;
(13) not authorize, purchase, issue, transfer or sell (or authorize, issue or grant options, warrants or rights to purchase or sell) any shares of RIG Common Stock or any other equity or debt securities of RIG or any securities convertible into RIG Common Stock;
(14) not incur, assume, or prepay any Material indebtedness, liability, or obligation or any other Material liabilities or issue any debt securities other than in the Ordinary Course of Business and consistent with past practices;
(15) (a) not increase the rate of compensation of, or enter into any employment, severance, deferred compensation or other agreement with any officer, director, employee or consultant of RIG, or (b) pay a bonus or severance compensation to any officer, director, employee or consultant of RIG;
(16) not enter into any related party transaction except for the lease agreement attached hereto as Annex 8.2(27) and except such related party transactions relating to extensions of credit made in accordance with all applicable laws, regulations and rules and in the Ordinary Course of Business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable arm's length transactions with other persons that do not involve more than the normal risk of collectability or present other unfavorable features;
(17) not change the presently outstanding number of shares or effect any capitalization, reclassification, stock dividends, stock split or like change in capitalization;
(18) not merge with or into, or consolidate with, or be purchased or acquired by, any other corporation, financial institution, entity, or person (or agree to any such merger, consolidation, affiliation, purchase or acquisition) or permit (or agree to permit) any other corporation, financial institution, entity or person to be merged with it or consolidate or affiliate with any other corporation, financial institution, entity or person; acquire control over any other firm, financial institution, corporation or organization or create any subsidiary; acquire, liquidate, sell or dispose (or agree to acquire, liquidate, sell or dispose) any assets;
(19) not solicit or encourage inquiries or proposals with respect to, furnish any information relating to, or participate in any negotiations or discussions concerning any acquisition or purchase of all or a substantial equity interest or portion of the assets in or of RIG or any business combination with RIG other than as contemplated by this Agreement, or authorize or permit any officer, director, agent or affiliate of it to do any of the above; or fail to notify ACNB Corp immediately if any such inquiries or proposals are received by, any such information is requested from, or any such negotiations are sought to be initiated with the RIG Shareholder or RIG;
(20) not enter into or substantially modify (except as may be required by applicable law) any pension, retirement, stock option, stock warrant, stock purchase, stock appreciation right, savings, profit sharing, deferred compensation, severance, consulting, bonus, group insurance or other employee benefit, incentive or welfare contract, or plan or arrangement, or any trust agreement related thereto, in respect to any of its directors, officers, or other employees;
(21) not change any method, practice or principle of accounting except as may be required by GAAP or any applicable regulation;
(22) not make any loan to any officer, shareholder or employee or compromise, expand, renew or modify any such outstanding commitment;
(23) not enter into any agreement or arrangement, except in the Ordinary Course of Business and consistent with past practices;
(24) not waive, release, grant or transfer any rights of value or modify or change in any Material respect any existing agreement to which RIG is a party, other than in the Ordinary Course of Business consistent with past practice;
(25) not take any action that would, under any statute, regulation or administrative practice of any regulatory agency, have a Material Adverse Effect on the ability of any party to this Agreement to obtain any required approvals for consummation of the transaction;
(26) not take any action that is inconsistent with the qualification of the transactions contemplated in this Agreement to qualify as a Qualified Stock Purchase transaction within the meaning of Section 338 of the Code;
(27) not pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, contingent or otherwise) against RIG, its directors, officers, employees or agents, other than the payment, discharge or satisfaction in the Ordinary Course of Business and consistent with past practice of claims for contractual benefits under any insurance or reinsurance contract under which RIG or any of its syndicates managed by RIG is the insurer or reinsurer;
(28) not agree to any of the foregoing items (1) through (27).
6.2 BEST EFFORTS. RIG shall cooperate with ACNB Corp and shall use its best efforts to do or cause to be done all things necessary or appropriate on its part in order to fulfill the conditions precedent set forth in Section 8 of this Agreement and to consummate this Agreement. In particular, without limiting the generality of the foregoing sentence, RIG and the RIG Shareholder shall:
(1) take, in good faith, all actions which are necessary or appropriate on its part in order to secure the approval and adoption of this Agreement by its shareholders, including recommending the approval of such Agreement by the RIG Shareholder;
(2) cooperate with ACNB Corp in making RIG's employees reasonably available for training by ACNB Corp prior to the Effective Time, to the extent that such training is deemed reasonably necessary by ACNB Corp;
(3) accrue all of its expenses and RIG Transaction Fees and pay all such expenses and RIG Transaction Fees within thirty days of the Effective Date;
(4) modify the Articles of Incorporation or Bylaws or any other documents of RIG reasonably requested by ACNB Corp and necessary to effectuate the transactions contemplated hereby; and
(5) promptly prepare and file, with the cooperation and assistance of ACNB Corp, all required applications and notices for regulatory approval of the transactions contemplated by this Agreement.
6.3 ACCESS TO PROPERTIES AND RECORDS. RIG shall afford to the officers and authorized representatives of ACNB Corp access to properties, books and records pertaining to RIG in order that ACNB Corp may have full opportunity to make such reasonable investigations at such reasonable times as it shall desire, of the properties, books, contracts, documents and records of RIG, and the officers of RIG will furnish ACNB Corp with such additional financial and operating data, including test tapes, and other information as to its business and properties as ACNB Corp shall from time to time reasonably request and as shall be available, including, without limitation, information required for inclusion in all governmental applications necessary to consummate the transaction. Nothing in this Subsection 6.3 shall be deemed to require RIG to breach any obligation of confidentiality. ACNB Corp shall maintain the confidentiality of all information furnished to it by RIG pursuant to this Subsection 6.3 and if the transactions contemplated by this Agreement are not consummated for any reason, ACNB Corp agrees, at the option of RIG, either to return all such information and any copies thereof, including any extracts therefrom or memoranda relating thereto prepared by ACNB Corp, or to destroy all such information.
6.4 SUBSEQUENT FINANCIAL STATEMENTS. Between the date of execution of this Agreement and the Effective Time, RIG shall promptly prepare and deliver to ACNB Corp, as soon as practicable, RIG's Monthly Reports for the month of May 2004 and each month thereafter through the Closing Date, and reports to shareholders and reports to regulatory authorities prepared by or for RIG.
6.5 BOARD AND COMMITTEE MINUTES. RIG shall provide to ACNB Corp within three days after any meeting of the Board of Directors, or any committee thereof, or any senior or executive management committee, a copy of the minutes of such meeting.
6.6 UPDATE SCHEDULES. RIG shall promptly disclose to ACNB Corp in writing any change, addition, deletion or other modification to the information set forth in the schedules to this Agreement. Notwithstanding the foregoing, disclosures made subsequent to the date of this Agreement shall not relieve RIG or the RIG Shareholder from any and all liabilities for prior statements and disclosures to ACNB Corp.
6.7 NOTICE. RIG shall promptly notify ACNB Corp in writing of any actions, claims, investigations, proceedings or other developments which, if pending or in existence on the date of this Agreement, would have been required to be disclosed to ACNB Corp in order to ensure the accuracy of the representations and warranties set forth in this Agreement or which otherwise could have a Material Adverse Effect on the condition (financial or otherwise), assets, liabilities, business operations or future prospects of RIG.
6.8 RIG AND RIG SHAREHOLDER CONSENT. RIG and the RIG Shareholder shall have executed and delivered to ACNB Corp, contemporaneously with the execution of this Agreement, a duly
executed unanimous written consent of RIG and the RIG Shareholder approving the transactions contemplated by this Agreement.
6.9 DISTRIBUTIONS AND DIVIDENDS. Except as otherwise provided in this Section 6.9 RIG shall not declare or pay any cash dividend or make any distributions to shareholders without the express, written approval of ACNB Corp.
6.10 PUBLIC ANNOUNCEMENTS. So long as this Agreement is in effect, RIG agrees that it shall obtain the approval of ACNB Corp prior to issuing any press release and shall use its best efforts to consult with ACNB Corp before otherwise making any public statement or responding to any press inquiry with respect to this Agreement or the transactions contemplated hereby, except as may be required by law or any governmental agency if required by such agency or the rules of the SEC or OTCBB on which ACNB Corp's common stock is listed.
6.11 PAYMENT OF TAXES. RIG, and to the Knowledge of RIG's management, the RIG Shareholder shall have made payment in full of all taxes, penalties and interest assessed by the Internal Revenue Service associated with its examination of returns filed for tax years 2001, 2002 and 2003. RIG shall accrue and reserve amounts necessary for tax liabilities for the tax year 2004.
6.12 GOOD FAITH COOPERATIVE EFFORT TO REVISE STRUCTURE. RIG and the RIG Shareholder hereby agree to cooperate with ACNB Corp to approve any revision to this Agreement, or to the attached Schedules, Annexes and Exhibits, involving a structural change to the transactions contemplated thereunder as contemplated by Subsection 3.6 hereof.
6.13 DISASTER RECOVERY ACCESS. RIG shall permit ACNB Corp, in the event (i) a severe system problem or disaster occurs and (ii) RIG fails to take reasonable steps to respond to such severe system problem or disaster, reasonable access to systems, technical personnel and disaster recovery resources, so as to assure the continuity of business and systems required.
6.14 POST-CLOSING SECTION 338(H)(10) ELECTION.
(1) The RIG Shareholder and Acquisition Subsidiary shall jointly file the Election under Section 338(h)(10) of the Code and under any comparable provisions of state, local, or foreign law with respect to the purchase of the RIG Shares (the "Election"). No later than one hundred fifty (150) days following the Effective Date, Acquisition Subsidiary shall supply the RIG Shareholder with Form 8883 prepared by Acquisition Subsidiary's regularly employed accountants which shall be attached to ACNB Corp's federal income Tax Return (and the forms, if any, to be attached to ACNB Corp's state income Tax Return). The RIG Shareholder and Acquisition Subsidiary shall take any action requested in writing by ACNB Corp that is consistent with the joint Election or its validity under the Code and the applicable Treasury Regulations.
(2) On the Closing Date, RIG and the RIG Shareholder shall execute and deliver to Acquisition Subsidiary five signed and executed copies of IRS Form 8023 provided by Acquisition Subsidiary and the equivalent forms for state income tax purposes, and shall thereafter provide any additional or similar forms under applicable federal, state, local or foreign law (the "Election Forms") to Acquisition Subsidiary as Acquisition Subsidiary may reasonably request.
(3) Acquisition Subsidiary shall be responsible for the preparation and filing of all forms and documents required in connection with the Election. Acquisition Subsidiary shall provide RIG and the RIG Shareholder with copies of (a) any necessary corrections, amendment, or supplements to Form 8023, (b) all attachments required to be filed therewith pursuant to applicable Treasury Regulations, and (c) any comparable forms and attachments with respect to any applicable state, foreign, or local elections included as part of the Election. RIG and the RIG Shareholder shall execute and deliver to Acquisition Subsidiary within five (5) days of receipt by RIG and the RIG Shareholder such documents or forms as are required properly to complete the Election.
(4) RIG and the RIG Shareholder shall cooperate fully with Acquisition Subsidiary and make available to Acquisition Subsidiary such tax data and other information as may be reasonably required by Acquisition Subsidiary in order for Acquisition Subsidiary to timely file the Election and any other required statements or schedules (or any amendments or supplements thereto) and shall, if requested by Acquisition Subsidiary, attach to the federal income Tax Return filed for ACNB Corp for the period ending with the Closing Form 8883 as referred to in Section 6.14(1).
(5) The Parties have mutually agreed that the Purchase Price Consideration of RIG shall be allocated in the following manner: $90,000 to fixed assets and the remainder to goodwill and other assets and liabilities.
6.15. POST-CLOSING ACCESS AND COOPERATION. From and after the Closing Date, Acquisition Subsidiary agrees to permit the RIG Shareholder and their representatives to have reasonable access, during normal business hours, to the books and records of Acquisition Subsidiary, to the extent that such books and records relate to a Pre-Closing Period, and personnel, for the purpose of enabling the RIG Shareholder to: (i) prepare Tax Returns, (ii) investigate or contest any tax matter which the RIG Shareholder has the authority to conduct, and (iii) evaluate any claim for indemnification.
6.16. BUILT IN GAINS. If RIG is subject to any tax under Code
Section 1374 or 1375 (or any comparable provision of state or
local law) prior to, at or after the Closing as a result of
the Election, then such tax amount or amounts that are
required to be paid by RIG, shall be borne by the RIG
Shareholder.
6.17. CONTRIBUTION OF RIG SHAREHOLDER GOODWILL. On or prior to the Closing Date, each RIG Shareholder shall contribute to RIG, 100% of their personal goodwill attributable to RIG.
6.18. CONSENT TO POST-CLOSING MERGER. The RIG Shareholder hereby consents to the post-closing merger of RIG with and into Acquisition Subsidiary at ACNB Corp's sole discretion and RIG and the RIG Shareholders shall take all actions necessary or advisable to consummate such merger. The merger of RIG into Acquisition Subsidiary will not constitute a change in control nor trigger any rights to payment under the respective Employment Agreement attached to this Agreement as Exhibit 1 .
6.19 TAX RETURNS AND TAX AUDITS. RIG shall prepare or cause to be prepared and file or cause to be filed all Tax Returns for RIG for all periods ending on or prior to the Effective Date that are filed after the Effective Date. The Tax Returns shall conform to RIG's historical tax treatment and be consistent with past practice. Such Tax Returns shall be prepared by Robert W. Krop, CPA and subject to review by and approval of Beard Miller LLP and ACNB Corp. RIG shall permit Beard Miller, LLP and ACNB Corp to review and approve such Tax Returns described in the preceding sentences prior to filing. ACNB Corp and the RIG Shareholder shall cooperate fully to the extent reasonably requested by the other Parties in connection with the filing of Tax Returns pursuant to this Subsection 6.19, and any audit, litigation or other proceeding with respect to such Taxes. Such cooperation shall include the retention and (upon any Party's request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and the making
available of employees on a mutually convenient basis to provide additional information and explanation of any records or information provided hereunder.
SECTION 7. COVENANTS OF ACNB CORP AND ACQUISITION SUBSIDIARY
From the date of this Agreement until the Effective Time, ACNB Corp and Acquisition Subsidiary covenant and agree to do the following:
7.1 BEST EFFORTS. ACNB Corp and Acquisition Subsidiary each agree to cooperate with RIG and the RIG Shareholder to use its best efforts to do or cause to be done all things necessary or appropriate on its part in order to fulfill the conditions precedent set forth in Section 8 of this Agreement and to consummate this Agreement. In particular, without limiting the generality of the foregoing sentence, ACNB Corp and Acquisition Subsidiary agree to do the following:
(1) Applications for Regulatory Approval. ACNB Corp shall promptly prepare and file, with the cooperation and assistance of RIG and the RIG Shareholder, all required applications for regulatory approval of the transactions contemplated by this Agreement.
7.2 SUBSEQUENT FINANCIAL STATEMENTS. Between the date of signing this Agreement and the Effective Time, ACNB Corp shall promptly prepare and deliver to RIG, as soon as practicable, each report prepared by ACNB Corp and filed with the SEC.
7.3 UPDATE SCHEDULES. ACNB Corp shall promptly disclose to RIG in writing any change, addition, deletion or other modification to the information set forth in the schedules to this Agreement. Notwithstanding the foregoing, disclosures made subsequent to the date of this Agreement shall not relieve ACNB Corp from any and all liabilities for prior statements and disclosures to RIG and the RIG Shareholder.
7.4 NOTICE. ACNB Corp shall promptly notify RIG in writing of any actions, claims, investigations or other developments which, if pending or in existence on the date of this Agreement, would have been required to be disclosed to RIG in order to ensure the accuracy of the representations and warranties set forth in this Agreement or which otherwise could have a Material Adverse Effect on the condition (financial or otherwise), assets, liabilities, business, operations or future prospects of ACNB Corp.
7.5 LAWS, RULES, ETC. ACNB Corp and Acquisition Subsidiary shall comply with and perform all Material obligations and duties imposed upon it by all federal and state laws and all rules, regulations and orders imposed by federal or state governmental authorities, except in respects not Materially adverse to the business, operations, assets or financial condition of ACNB Corp or Acquisition Subsidiary or which would not Materially impair the ability of ACNB Corp or Acquisition Subsidiary to consummate the transactions contemplated hereby.
7.6 APPROVAL. As the sole member of Acquisition Subsidiary, ACNB Corp will vote to approve this Agreement.
7.7 TAX MATTERS. Neither ACNB Corp nor Acquisition Subsidiary
shall take any action that would result in the failure of the
transactions contemplated in this Agreement to qualify as a
Qualified Stock Purchase transaction within the meaning of
Section 338 of the Code.
7.8 TAX RETURNS AND TAX AUDITS. The Acquisition Subsidiary shall prepare or cause to be prepared and file or cause to be filed all Tax Returns for the Acquisition Subsidiary and or RIG for all periods ending after the Effective Date and subject to review by and approval of Beard Miller LLP and ACNB Corp. The Acquisition Subsidiary and the RIG Shareholder shall cooperate fully to the extent reasonably requested by the other Parties in connection with the filing of Tax Returns pursuant to this Subsection 7.8, and any audit, litigation or other proceeding with respect to such Taxes. Such cooperation shall include the retention and (upon any Party's request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and the making available of employees on a mutually convenient basis to provide additional information and explanation of any records or information provided hereunder.
7.9 ASSUMPTION OF DEBT. At Closing, ACNB Corp shall only assume RIG's bank debt incurred to purchase any insurance agency that has been acquired as of April 21, 2004. The total assumption of debt by ACNB Corp shall not exceed $635,000.00. The Armor Loan, which will be assumed by ACNB Corp at Closing, is not included in this limitation on the assumption of debt.
SECTION 8. CONDITIONS TO THE OBLIGATIONS OF ACNB CORP, ACQUISITION SUBSIDIARY.
RIG AND THE RIG SHAREHOLDER
8.1 COMMON CONDITIONS. The obligations of the Parties to
consummate this Agreement shall be subject to the satisfaction
of each of the following common conditions prior to or as of
the Closing, except to the extent that any such condition
shall have been waived in accordance with the provisions of
Section 19 of this Agreement:
(1) This Agreement shall have been duly authorized, approved and adopted by the RIG Shareholder, as required by applicable provisions of Maryland Law, and the required provisions of RIG's Articles of Incorporation. This Agreement shall have been duly authorized, approved and adopted by ACNB Corp, as required by the applicable provisions of the PBCL and the applicable provisions of ACNB Corp's Articles of Incorporation and the applicable provisions of the rules and requirements of the OTCBB.
(2) The Parties hereto shall have received all regulatory approvals required in connection with the transactions contemplated by this Agreement and all notice periods and waiting periods required after the granting of such approvals shall have passed; provided, however, that no such approval shall have imposed any condition or requirement which in the opinion of the Board of Directors of ACNB Corp renders consummation of the transactions inadvisable.
(3) No action, suit or proceeding shall be pending or threatened before any federal, state or local court or governmental authority or before any arbitration tribunal which seeks to modify, enjoin or prohibit or otherwise have a Material Adverse Effect on the transactions contemplated by this Agreement.
(4) No statute, rule, regulation, order, injunction or decree shall have been enacted, entered, promulgated or enforced by any governmental authority that prohibits, restricts or makes illegal the consummation of the transactions contemplated by this Agreement.
(5) All other requirements prescribed by law that are necessary to the consummation of the transactions contemplated by this Agreement shall have been satisfied.
8.2 CONDITIONS TO THE OBLIGATIONS OF ACNB CORP. The obligations of ACNB Corp to effect the transactions shall be subject to the satisfaction or waiver prior to the Effective Time of the following additional conditions:
(1) Each of the representations and warranties of RIG and the RIG Shareholder contained in this Agreement shall be true and correct in all Material respects as of the Effective Time as if made on such date (or on the date when made in the case of any representation or warranty which specifically relates to an earlier date); RIG and the RIG Shareholder shall have performed each of its respective covenants and agreements contained in this Agreement; and ACNB Corp shall have received certificates signed by the President and Secretary of RIG and the RIG Shareholder, dated as of the date of the Closing, to the foregoing effect.
(2) There shall not have occurred any change in the financial condition, properties, assets, business, results of operation or future prospects of RIG which, individually or in the aggregate, has had or might reasonably be expected to result in a Material Adverse Effect on RIG.
(3) No environmental problem of a kind contemplated in Subsection 5.17 of this Agreement shall have been discovered which would, or which potentially could, have a Material Adverse Effect on the condition (financial or otherwise), assets, liabilities, business, operations or future prospects of RIG; provided, that for purposes of determining the Materiality of an undisclosed environmental problem or problems, the definition of "Material" shall be governed by the definition in Section 1 of this Agreement.
(4) RIG shall have performed and complied in all Material respects with all obligations and agreements required by this Agreement to be performed or complied with by it prior to or at the Closing.
(5) ACNB Corp shall have received an opinion or advice satisfactory to ACNB Corp from Robert W. Krop, CPA, reasonably satisfactory in form and substance to ACNB Corp as to the tax matters relating to this Agreement and the transactions contemplated hereby to the effect that:
(i) The transactions contemplated by this
Agreement will constitute a Qualified Stock
Purchase transaction within the meaning of
Section 338 of the Code; and
(ii) The transactions contemplated by this Agreement will not have adverse tax consequences or result in adverse tax attributes to ACNB Corp or Acquisition Subsidiary.
(6) All applicable securities laws of the federal government and of any state government or governmental authority having jurisdiction over the transactions contemplated by this Agreement shall have been complied with to the reasonable satisfaction of ACNB Corp or ACNB Corp's counsel.
(7) ACNB Corp shall have received from the RIG Shareholder, contemporaneously with executing this Agreement, the written consent of the RIG Shareholder approving the transactions contemplated by this Agreement.
(8) Except as otherwise provided in this Agreement, prior to Closing, all issued and outstanding options, warrants or rights to acquire RIG Common Stock or any capital stock of RIG shall have been canceled. No compensation or other rights will be payable or exchangeable with respect to any such rights that remain unexercised at the Effective Time.
(9) Employment Agreement for Frank C.Russell, Jr. on terms and conditions mutually acceptable to the respective Parties shall have been executed no later than the Closing Date. Such executed and delivered Employment Agreement shall be made a part of this Agreement and attached hereto as Exhibit 1.
(10) ACNB Corp shall have received an opinion or opinions dated as of the Effective Time from Richard Solomon or other counsel reasonably satisfactory to ACNB Corp substantially in the form attached hereto as Exhibit 2
(11) All RIG Transaction Fees as described in Subsection 5.42 shall be delineated on Schedule 5.42 of this Agreement to be paid by the RIG Shareholder within thirty days of the Effective Date.
(12) Prior to Closing, all of RIG's and its subsidiaries'
insurance carriers shall have received written
notification of the transactions contemplated by this
Agreement and written acknowledgements shall have
been received from insurance carriers representing at
least 80% of the 2003 annual commission revenue of
RIG and its' subsidiaries.
.
(13) At the Effective Time, RIG and/or the RIG Shareholder
shall have delivered to ACNB Corp, or a subsidiary of
ACNB Corp designated by ACNB Corp, an assignment of
all of RIG's rights in any Intellectual Property and
associated goodwill. At the Effective Time, RIG and
the RIG Shareholder shall have delivered to ACNB
Corp, or a subsidiary of ACNB Corp designated by ACNB
Corp, an assignment of all of RIG's and its
subsidiaries and affiliates rights to all fictitious
names, trade names, etc.
(14) At Closing, ACNB Corp shall have received all required or advisable licenses, permits, consents, approvals, and authorizations of any governmental entity necessary to conduct its business and in the jurisdictions in which RIG and its subsidiaries as of the date of this Agreement and until the Closing Date conduct business except for those which individually or in the aggregate would not be Material to the conduct of RIG's or Acquisition Subsidiary business.
(15) At Closing, all consents and assignments required or advisable to be obtained by the contracts delineated on Schedule 5.11 or Schedule 5.39 shall have been executed and delivered to ACNB Corp and shall be effective as of the Closing Date, except for those which individually or in the aggregate would not be Material to the conduct of RIG's or Acquisition Subsidiary business.
(16) At Closing, neither RIG or the RIG shareholder shall have any litigation, investigation, or proceeding, pending or threatened that involves RIG and that, if determined adversely to either, would Materially and adversely affect the condition (financial or otherwise), assets, liabilities, business operations, or future prospects of RIG or Acquisition Subsidiary.
(17) At Closing, the RIG Shareholder shall execute Code Form 8023 Corporate Qualified Stock Purchase Election in accordance with Section 6.14 of this Agreement.
(18) Prior to Closing, Grau & Russell Associates shall be a registered trade name, d.b.a., of RIG and Bruce Grau & Associates and RIG and Bruce Grau & Associates shall have entered into a one year contract regarding the joint use of the d.b.a. in a form satisfactory to ACNB Corp. Moreover, any contracts held under the name Grau and Russell Associates will be amended to read, "Russell Insurance Group and Bruce Grau & Associates d.b.a. Grau & Russell Associates."
(19) Prior to Closing, the Maryland corporation known as Grau & Russell Associates, Inc. shall be properly dissolved.
(20) Prior to Closing, the RIG Shareholder as a member of the Maryland LLC known as Freestate LLC will execute an operating agreement for Freestate LLC in a form satisfactory to ACNB Corp.
(21) Prior to Closing, ACNB Corp shall have received copies of all new or renewing insurance policies of RIG.
(22) Prior to Closing, all accounts receivable open items shall be cleared and be current and an accounts receivable open items aging report that reconciles to the Preliminary Balance Sheet shall be provided to ACNB Corp for review.
(23) Prior to Closing, all accounts payable open items, including producer payables, shall be cleared and current and an accounts payable open item report and binders payable open item report that reconcile to the Preliminary Balance Sheet shall be provided to ACNB Corp for review.
(24) Prior to Closing, the loan with Fidelity representing both personal and company borrowings will be amended and removed from the RIG Balance Sheet along with the related leasehold improvements.
(25) Prior to Closing, any and all loans to employees shall be paid to RIG by the employees.
(26) Prior to Closing, any Certificates of Deposits on the balance sheet of RIG issued in the name of the RIG shareholder shall be distributed to the RIG Shareholder.
(27) Prior to Closing, a lease agreement between the RIG shareholder and RIG for the building located at 2526 W. Liberty Road, Westminster, Maryland shall be executed and attached hereto as Annex 8.2(27) in a form satisfactory to ACNB.
(28) Prior to Closing, the RIG Shareholder will use his best efforts to obtain from the employees of RIG signed non-solicitation, non-compete and confidentiality agreements in the forms attached as Exhibits 4 and 5, respectively.
(29) Prior to Closing, the Fair Labor Standards Act status of each employee of RIG shall be determined by RIG.
(30) Prior to Closing, each RIG insurance carrier will have been provided with a commingling letter as required by Maryland law in the form attached hereto as Annex 8.2 (30).
(31) Prior to Closing, ACNB will have been afforded the opportunity to perform a due diligence review of the Armor Transaction.
(32) Prior to Closing, ACNB will have been afforded the opportunity to perform a due diligence review of the NeSmith Transaction.
8.3 CONDITIONS TO THE OBLIGATIONS OF RIG AND THE RIG SHAREHOLDER. The obligations of RIG and the RIG Shareholder to effect the transactions shall be subject to the satisfaction or waiver prior to the Effective Time of the following additional conditions:
(1) Each of the representations, warranties and covenants of ACNB Corp contained in this Agreement shall be true and correct in all Material respects on the Effective Time as if made on such date (or on the date when made in the case of any representation or warranty which specifically relates to an earlier date); ACNB Corp shall have performed each of its covenants and agreements contained in this Agreement; and RIG shall have received a certificate signed by the President or Executive Vice President and Secretary of ACNB Corp dated as of the date of the Closing, to the foregoing effect.
(2) ACNB Corp shall have performed and complied in all Material respects with all obligations and agreements required by this Agreement to be performed or complied with by it prior to or at the Closing.
(3) RIG shall have received an opinion dated as of the Effective Time from Shumaker Williams, P.C. or other counsel reasonably satisfactory to RIG, addressed to RIG and the RIG Shareholder, substantially in the form attached hereto as Exhibit 3.
(4) The RIG Shareholder shall have received an opinion or advice satisfactory to the RIG Shareholder from Beard Miller, LLP, or such other accounting or law firm reasonably acceptable to the RIG Shareholder, reasonably satisfactory in form and substance to the RIG Shareholder as to the tax matters relating to this Agreement and the transactions contemplated hereby.
(5) Frank C. Russell, Jr. and Rena Russell shall be removed as guarantors from the Armor Loan.
SECTION 9. TERMINATION
This Agreement may be terminated, and the acquisition abandoned, at any time prior to the Effective Time, whether before or after the receipt of required approvals only if one or more of the following events shall occur:
9.1 by the mutual written consent of the Parties hereto;
9.2 by RIG, if (i) by written notice to ACNB Corp that there has been a Material breach of any obligation of ACNB Corp contained herein and such breach has not been remedied within twenty (20) days after receipt by ACNB Corp of written notice specifying the nature of such breach and requesting that it be remedied or (ii) by written notice to ACNB Corp that any condition in Subsections 8.1 and 8.3 to RIG's obligations hereunder has not been satisfied prior to Closing or such earlier date as may be specified herein;
9.3 (a) by ACNB Corp, if (i) by written notice to RIG that there
has been a Material breach of any obligation of RIG contained
herein and such breach has not been remedied within twenty
(20) days after receipt by RIG of written notice specifying
the nature of such breach and requesting that it be remedied
(ii) by written notice to RIG that any condition in
Subsections 8.1 and 8.2 to ACNB Corp's obligations hereunder
has not been satisfied prior to Closing or such earlier date
as may be specified herein or (iii) by written notice to RIG
if any matter has come to the attention of ACNB in the course
of their due diligence investigation, or otherwise, with
respect to the Armor Transaction or the NeSmith Transaction
that, in ACNB's sole opinion, that leads ACNB to believe that
it would be inadvisable for ACNB in ACNB's sole and exclusive
judgment, to proceed with the transactions contemplated by
this Agreement; (b) for the purpose of Section 9.3(a)(i) the
failure to Close by December 31, 2004 in and of itself will
not be a Material breach.
9.4 by ACNB Corp or RIG, if the Closing shall not have occurred on or prior to December 31, 2004, unless the failure of such occurrence shall be due to the Material failure of the Party seeking to terminate this Agreement to perform or observe its agreements as set forth in this Agreement required to be performed or observed by such Party on or before the Closing; provided, however, that such date may be extended by the written agreement of the Parties; or
9.5 by ACNB Corp or RIG, if the conditions set forth in Subsection 8.1(2) are unable to be fulfilled as a result of either Party's inability to obtain necessary regulatory approvals and consents by December 31, 2004; provided, however, that such date may be extended by the written agreement of the Parties.
SECTION 10. EFFECT OF TERMINATION
10.1 EFFECT. In the event of termination of this Agreement as provided above, this Agreement shall immediately become null and void and the transactions contemplated herein shall thereupon be abandoned, except that the provisions relating to brokers Subsections 4.8 and 5.16, limited liability Subsection 10.2, confidentiality Subsection 10.3, publicity Section 18, and expenses Section 11 of this Agreement shall survive.
10.2 LIMITED LIABILITY. The termination of this Agreement in accordance with the terms of Section 9 shall create no liability on the part of any Party, or on the part of any Party's directors, officers, shareholders, agents or representatives, except that if this Agreement is terminated by ACNB Corp by reason of a Material breach by RIG, or if this Agreement is terminated by RIG by reason of a Material breach by ACNB Corp, the breaching Party shall be liable to the nonbreaching Party or Parties for all costs or such liability as may be pursued and found as a matter of law or in equity, including but not limited to, reasonable out-of-pocket costs and expenses reasonably incurred by the nonbreaching Party or Parties in connection with the preparation, execution and consummation of this Agreement, including the fees of its or their counsel, accountants, consultants and other representatives.
10.3 CONFIDENTIALITY. In the event of the termination of this Agreement, neither ACNB Corp nor RIG shall use or disclose to any other person any confidential information obtained by it during the course of its investigation of the other party or parties.
SECTION 11. EXPENSES
11.1 Each Party hereto will bear all expenses incurred by it in connection with this Agreement and the transactions contemplated hereby. In the event of termination of this
Agreement pursuant to Section 9, this Agreement shall thereafter become void and there shall be no liability on the part of any Party hereto or their respective officers or directors, except as provided in Subsections 10.2 and 10.3 and 11.2 hereof, and except that any such termination shall be without prejudice to the rights of any Party hereto arising out of the intentional or willful breach of any covenant or intentional or willful misrepresentation contained in this Agreement by any other Party hereto.
11.2 So long as ACNB Corp shall not have breached its obligations hereunder, if this Agreement is terminated by ACNB Corp pursuant to Subsection 9.3(i), RIG shall promptly, but in no event later than thirty (30) business days after such termination, pay ACNB Corp a fee of $250,000, which amount shall be payable by check and shall be liquidated and exclusive damages. If RIG fails to promptly pay the amount due pursuant to this Subsection 11.2, and, in order to obtain payment, ACNB Corp commences a suit which results in judgment against RIG for all or a substantial portion of the fee set forth in this Subsection 11.2, RIG shall pay to ACNB Corp all costs and expenses (including reasonable attorney's fees) incurred by ACNB Corp in connection with such suit.
11.3 INTENTIONALLY OMITTED..
SECTION 12. CONFIDENTIALITY
Any non-public or confidential information disclosed by RIG, the RIG Shareholder or by ACNB Corp pursuant to this Agreement or as a result of the discussions and negotiations leading to this Agreement, or otherwise disclosed, or to which any other party has acquired or may acquire access, and indicated (either expressly, in writing or orally, or by the context of the disclosure or access) by the disclosing Party to be non-public or confidential, or which by the context thereof reasonably appears to be non-public or confidential, shall be kept strictly confidential and shall not be used in any manner by the recipient except in connection with the transactions contemplated by this Agreement. To that end, the Parties hereto will each, to the maximum extent practicable, restrict knowledge of and access to non-public or confidential information of the other Party to its officers, directors, employees and professional advisors who are directly involved in the transactions contemplated hereby and reasonably need to know such information. Further to that end, all non-public or confidential documents (including all copies thereof) obtained or created hereunder by any Party shall be returned as soon as practicable after any termination of this Agreement.
SECTION 13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC.
Except as otherwise provided in this Section 13, the representations and warranties set forth in Sections 4 and 5 hereof shall be deemed to have been relied upon by the Party to whom they are made and shall survive Closing unless by their terms, an earlier time is specified. All covenants and duties which relate to a time after Closing, including but not limited to those contained in Sections 3.1, 3.3, 3.4, 3.7, 6.11, 6.14, 6.15, 6.16, 6.18, 9, 10, 11, 12, 13, 14, 15, 16, 17, 19, 20, 21, 22, 24, and 27 shall survive Closing and all other covenants and duties which do not relate to a time after Closing shall not survive Closing. No investigation made by or on behalf of either Party shall affect the representations and warranties made pursuant to this Agreement.
SECTION 14. EMPLOYEES
14.1 Except as may be otherwise specifically agreed to in writing by the Parties and subject to ACNB Corp's satisfactory review of personnel records, ACNB Corp and any of its affiliates (collectively, the "ACNB Corp Affiliates") shall continue to employ all persons who are officers and employees of RIG immediately before the Effective Time as officers and employees of RIG or an ACNB Corp Affiliate immediately following the Effective Time. Except for Frank C. Russell, Jr., the hired officers and employees will be employees' at-will with no express or implied right to continued employment. It shall be a condition to employment by ACNB Corp or any ACNB Corp Affiliate that any former officer or employee of RIG agree to cancel any existing employment contract, agreement or understanding between him or herself and RIG, including, without limitation, all benefits related to severance arrangements, bonuses, upon a change of control or otherwise and release ACNB Corp, ACNB Corp Affiliates and RIG from all contractual obligations under such agreements, prior to accepting such new employment and without accepting any of the severance benefits or other benefits or payments associated with such contract, agreement or understanding.
14.2 ACNB Corp reserves any and all rights it may have regarding modification, amendment or termination of RIG's present health, welfare, benefit, pension and profit sharing plans. Any rights that ACNB Corp has to modify, amend or terminate such plans are unconditional if they are done to alleviate or correct any problems or deficiencies in the structure or administration of the plans. All other modifications, amendments or terminations of the plans are subject to the plans remaining, in the aggregate, at least equal to or better than RIG's existing plans.
SECTION 15. OFFICERS
15.1 OFFICERS. Frank C. Russell, Jr. shall be employed
as President pursuant to the terms and conditions of his
respective Employment Agreement attached as Exhibit 1 and Dan
Coughlin shall be employed as Vice President of RIG as an
employee at will.
SECTION 16. INDEMNIFICATION
16.1 From and for 3 years after the Effective Time, subject to the
terms and conditions of this Agreement, the RIG Shareholder
shall indemnify and hold harmless ACNB Corp from and against
any and all liabilities, losses, costs, damages, judgments,
settlements, penalties, fines, interest, obligations or
expenses of any kind whatsoever (including, without
limitation, reasonable attorneys' accountants', consultants'
or experts' fees and disbursements) ("Losses") which ACNB Corp
or any of its affiliates actually suffers, incurs or sustains
arising out of or attributable to (whether or not arising out
of third party claims) (i) any breach of any representation or
warranty made by RIG or the RIG Shareholder in this Agreement,
(ii) any breach of any covenant to be performed by RIG or the
RIG Shareholder pursuant to this Agreement, (iii) any Loss
incurred by ACNB Corp in respect of any legal, administrative,
arbitral, governmental or other proceedings, actions or
governmental investigations of any nature ("Legal
Proceedings") in progress, open, pending or threatened on the
Effective Time and (iv) any actions, suits or proceedings,
whether civil, criminal, administrative or investigative
(including an action by or in the right of the corporation),
commenced on or after the Effective Date which relate to
facts, circumstances, events or actions on or prior to the
Effective Date against ACNB Corp, brought by reason of the
fact that ACNB Corp is a successor by operation of law to RIG.
16.2 The RIG Shareholder shall indemnify and hold harmless ACNB
Corp from and against any Losses, that ACNB Corp may sustain
or become subject to as a result of the assertion against ACNB
Corp of any liability or obligation with respect to any and
all taxes, charges, fees, levies, penalties or other
assessments imposed by any United States federal, state, local
or foreign taxing authority, including, but not limited to,
income, excise, property, sales, transfer, franchise payroll,
gains, withholding, ad valorem, social security, surplus lines
or other taxes, including any interest penalties or additions
attributable thereto ("Taxes") attributable to RIG prior to
the Effective Date. This Section 16.2 and the obligations
hereunder shall be, and continue without limitation and shall
not be subject to any of the limitations on time or amounts as
set forth in this Section 16.
16.3 (I) The RIG Shareholder shall indemnify and hold harmless ACNB
Corp and its assigns, successors, affiliates, directors,
officers and representatives from any and all Losses resulting
from or in connection with any investigation, litigation,
claims, suits and causes of action that are associated with or
arise from the criminal investigation of William Miller and
the administrative order previously issued or the facts
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associated therewith. Further, the RIG Shareholder shall fully cooperate in any manner with regard to defending any litigation, claims, suits and causes of action that are associated with William Miller. This Section 16.3(i) and the obligations hereunder shall be, and continue without limitation and shall not be subject to any of the limitations on time or amounts as set forth in this Section 16.
(II) The RIG Shareholder shall indemnify and hold harmless ACNB Corp and its assigns, successors, affiliates, directors, officers and representatives from any and all Losses resulting from or in connection with any investigation, litigation, claims, suits and causes of action or UCC Financing Statements that are associated with or arise from the contracts entered into by and between Frank C, Russell, Jr, RIG and Norvergence or any further assignment of such contracts; or contracts entered into by and between Frank C, Russell, Jr, RIG and Continental Casualty Company or any further assignment of such contracts. This Section 16.3(ii) and the obligations hereunder shall be, and continue without limitation and shall not be subject to any of the limitations on time or amounts as set forth in this Section 16.
16.4 From and for 3 years after the Effective Time, subject to the terms and conditions of this Agreement, ACNB Corp shall indemnify and hold harmless, the RIG Shareholder from and against any and all Losses which either actually suffers, incurs or sustains arising out of or attributable to (whether or not arising out of third party claims) (i) any breach of any representation or warranty made by ACNB Corp in this Agreement (ii) any breach of any covenant to be performed by ACNB Corp pursuant to this Agreement.
16.5 The indemnified Party shall promptly notify the indemnifying Party of the discovery by it of, or the assertion against it of, any claim or potential liability for which indemnification is provided herein or the commencement of any action or proceeding in respect of which indemnity may be sought hereunder; provided, however; that the failure promptly to give such notice shall affect any indemnified Party's rights hereunder only to the extent that such failure shall (i) actually materially and adversely affect any indemnifying Party or its rights hereunder or (ii) result in the indemnified Party failing to give notice of a claim for indemnification prior to the expiration of the survival period set forth in Section 16 hereof to which the claim relates.
16.6 The right of an indemnified Party under this Section 16 shall be subject to the following conditions and limitations: (1) notice of any claim for indemnification under Section 16 shall have been given prior to the expiration of the survival period set forth in Subsections 16.1 and 16.4; (2) notice of any claim for indemnification with respect to Taxes and Losses attributable thereto, as set forth in Subsection 16.1 and Subsection 16.4, shall have been given prior to the expiration of the applicable statute of limitations (giving effect to any
extensions thereof) for the assertion of claims by the relevant tax authority; and (3) with respect to a claim for indemnification arising out of or involving an assertion by a third party of liability on the part of an indemnified Party, the indemnified Party shall advise the indemnifying Party of all facts relating to such assertion within the knowledge of the indemnified Party, and shall afford the indemnifying Party the opportunity, at the indemnifying Party's cost and expense, to defend against such claims for liability; in any such action or proceeding, the indemnified Party shall have the right to retain its own counsel and to participate in the defense, but the fees and expenses of such counsel shall be at the expense of the indemnified Party unless (1) the indemnifying Party and indemnified Party mutually agree in writing to the retention of such counsel or (2) in the reasonable judgment of counsel for the indemnifying Party, representation of the indemnifying Party and the indemnified Party by the same counsel would be inadvisable due to actual or potential differing or conflicts of interest between them.
16.7 Except in connection with the obligations under Sections 16.2 and 16.3(i) and 16.3(ii):
(a) Notwithstanding anything else to the contrary contained herein and in addition to any of the other conditions, limitations and exclusions set forth herein, the RIG Shareholder shall not be required to indemnify ACNB Corp, and neither ACNB Corp shall seek indemnity from the RIG Shareholder for Losses for which ACNB Corp is indemnified by any Person who is not affiliated with a Party, whether pursuant to an insurance policy, guarantee or otherwise.
(b) The indemnification obligations under this Section shall be net of any indemnity, contribution, or similar payments received hereunder from any third party not affiliated with a Party with respect to Losses indemnified hereunder.
16.8 The indemnifying Party shall have the right to settle or compromise any claim or liability subject to indemnification under this Section 16 which is susceptible to being settled or compromised, provided, however, that any such settlement shall require the consent of the indemnified Party, which consent shall not be unreasonably withheld, provided further however, that the consent of the indemnified Party shall not be required if (i) the terms of the settlement require only the payment of damages and payment of the full amount of the relevant indemnification obligation to the indemnified Party is assured and (ii) the indemnified Party is not otherwise materially and adversely affected by the terms of the settlement.
16.9 For the limited purposes of determining the RIG Shareholder's indemnification obligations under this Section 16, the "materiality" test set up by the use of the terms material, materially, material adverse effect or similar words to that
effect in this Agreement shall be deemed to have been met
where a Party has incurred, suffered or sustained an actual
Loss.
16.10 The time periods and amounts for indemnification under this
Section 16 shall be unlimited if Losses or Taxes are the
result of or caused by fraud, the intentional or willful
actions, or criminal actions on the part of a Party. In
addition, the rights of a Party shall be unlimited in
connection with Losses that are caused by or the result of
fraud, the intentional and willful actions, or criminal
actions on the part of the other Party. In the case of willful
and intentional actions such actions require the actual
knowledge by the Party that (i) in the case of a breach of
representation or warranty that such representation or
warranty was materially inaccurate at the time it was made,
and (ii) in the case of a material breach of a covenant that
such action or inaction that caused the breach was taken or
not taken with the intent to take or not take said action. The
indemnification provisions of Section 16 are in addition to,
and not in derogation of, any statutory, equitable, or common
law remedy any Party may have in connection with matters
within Section 16.10 of this Agreement.
16.11 The RIG Shareholder shall obtain and maintain an errors and
omissions insurance "tail coverage" policy for three years
after the Effective Time that will include the directors and
officers of RIG.
16.12 The RIG Shareholder hereby agrees that he will not make any
claim for indemnification against ACNB Corp by reason of the
fact that he was a shareholder, director, officer, employee,
or agent of RIG or was serving at the request of such entity
as a partner, trustee, shareholder, director, officer,
employee, or agent of another entity, whether such claim is
for judgments, damages, penalties, fines, costs, amounts paid
in settlement, losses, expenses, or otherwise and whether such
claim is pursuant to any statute, charter, complaint, claim or
demand brought by ACNB Corp against such RIG Shareholder
(whether such action, suit, proceeding, complaint, claim, or
demand is pursuant to this Agreement, applicable law, or
otherwise).
16.13 (a) Except as provided in Subsections 16.2 and 16.3(i) and
16.3(ii), the RIG Shareholder shall have no liability (for
indemnification or otherwise) with respect to the matters
described in this Section until the total of all Losses with
respect to such matters exceeds $50,000, and then only for the
amount by which such Losses exceed $50,000.
(b) Except as provided in Subsections 16.2 and 16.3(i) and
16.3(ii), notwithstanding any other provisions of this
Agreement or any other document, the maximum aggregate
liability of the RIG Shareholder under this Agreement shall be
one hundred percent (100%) of the amount of the aggregate
Purchase Price Consideration actually received by the RIG
Shareholder.
60
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16.14 If ACNB Corp proposes to set-off against the Contingent Cash
Consideration earned with respect to the indemnification
obligations of the RIG Shareholder, then ACNB Corp and the RIG
Shareholder shall attempt to mutually agree on the amount of
the scheduled amount of the Contingent Cash Consideration to
be set-off.
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SECTION 17. ENTIRE AGREEMENT
This Agreement, and all Exhibits, Annexes and Schedules attached hereto, embody the entire agreement among the Parties hereto with respect to the matters agreed to herein. All prior negotiations, discussions and agreements by and among the Parties hereto with respect to matters agreed to in this Agreement, or the Exhibits, Annexes or Schedules hereto, are hereby superseded and shall have no force or effect.
SECTION 18. PUBLICITY
Except as provided in Subsection 6.10, the content and timing of all publicity and announcements concerning this Agreement, and all transactions contemplated by this Agreement, shall be subject to joint consultation and approval of the Parties hereto, subject, however, to the legal and regulatory obligations applicable to the Parties, specifically ACNB Corp shall be permitted to make disclosures it deems necessary to comply with its obligations as a publicly held company.
SECTION 19. AMENDMENT AND WAIVER
Neither this Agreement, nor any term, covenant, condition or other provision hereof, may be amended, modified, supplemented, waived, discharged or terminated except by a document in writing signed by the RIG Shareholder and duly authorized officers by the respective boards of directors of RIG and ACNB Corp.
SECTION 20. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of the State of Maryland except to the extent that federal law is controlling.
SECTION 21. COMMUNICATIONS
All notices, claims, requests, demands, consents and other communications which are required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given if hand delivered, sent by recognized overnight delivery service, sent by certified or registered mail, postage prepaid, return receipt requested, or by confirmed telecopy as follows:
21.1 IF TO ACNB CORP, to:
ACNB CORP.
16 Lincoln Square
Gettysburg, PA 17325-0219
Attn: Ronald L. Hankey, Chairman
or to such other person or place as shall be designated to RIG and the RIG Shareholder in writing, and with a copy to:
SHUMAKER WILLIAMS, P.C.
3425 Simpson Ferry Road
Camp Hill, PA 17011
Attn: Nicholas Bybel, Jr., Esquire
21.2 IF TO RIG OR THE RIG SHAREHOLDER, to:
RUSSELL INSURANCE GROUP
2526 W. Liberty Road
Westminster, Maryland 21157
Attn: Frank C. Russell, Jr., President
or to such other person or place as shall be designated to ACNB Corp in writing, and with a copy to:
RICHARD G. SOLOMON, ESQUIRE
15245 Shady Grove Road, Suite 355
Rockville, MD 20850
Any such notice or other communication so addressed shall be deemed to have been received by the addressee (1) if hand-delivered or sent by overnight delivery, on the next business day following the date so delivered or sent, (2) if sent by registered or certified mail, five (5) business days following the date sent, or (3) if sent by telecopy, upon verbal telephone confirmation of receipt thereof by an individual authorized to accept telecopy communications at the above-specified telecopy number as of the date of such receipt or confirmation.
SECTION 22. SUCCESSORS AND ASSIGNS
The rights and obligations of the Parties hereto shall inure to the benefit of and shall be binding upon the successors and assigns of each of them; provided, however, that ACNB Corp shall be permitted to assign any of the rights, interest or obligations hereunder to any ACNB Corp Affiliate or successor without the prior written consent of the other Party.
SECTION 23. INTERPRETATION; HEADINGS, ETC.
The headings of the Sections and Subsections of this Agreement have been inserted for convenience only and shall not be given substantive or interpretative effect whatsoever. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provisions of this Agreement.
SECTION 24. SEVERABILITY
In the event that any one or more provisions of this Agreement shall for any reason be held invalid, illegal or unenforceable in any respect, by any court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement and the Parties shall use their best efforts to substitute a valid, legal and enforceable provision which, insofar as practicable, implements the purposes and intents of this Agreement.
SECTION 25. NO THIRD PARTY BENEFICIARY
Except as expressly provided for herein, nothing in this Agreement is intended to confer upon any person who is not a Party hereto any rights or remedies of any nature whatsoever under or by reason of this Agreement.
SECTION 26. COUNTERPARTS
To facilitate execution, this Agreement may be executed in as many counterparts as may be required; and it shall not be necessary that the signatures of, or on behalf of, each Party, or that the signatures of all Persons required to bind any Party, appear on each counterpart; but it shall be sufficient that the signature of, or on behalf of, each Party, or that the signatures of the Persons required to bind any Party, appear on one or more of the counterparts. All counterparts shall collectively constitute a single agreement. It shall not be necessary in making proof of this Agreement to produce or account for more than a number of counterparts containing the respective signatures of, or on behalf of, all of the Parties hereto.
SECTION 27. FURTHER ASSURANCES
Each Party will execute and deliver such instruments and take such other actions as the other Party hereto may reasonably request in order to carry out the intent and purposes of this Agreement.
SECTION 28. DISCLOSURE SCHEDULES
The inclusion of a given item in a disclosure schedule annexed to this Agreement shall not be deemed a conclusion or admission that such item (or any other item) is Material or has a Material Adverse Effect. The Disclosure Schedules shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein. Any matter disclosed pursuant to the Disclosure Schedules shall be deemed to be disclosed for all purposes under this Agreement, but such disclosure shall not be deemed to be an admission or representation as to the Materiality of the item so disclosed.
IN WITNESS WHEREOF, the Parties hereto, intending to be legally bound hereby, have caused this Agreement to be duly executed, as of the date set forth above.
ATTEST: ACNB CORP
By: By:
----------------------------------------- ----------------------------------------------
Thomas A. Ritter
Chief Executive Officer
ATTEST: ACNB ACQUISITION, LLC
By: By:
----------------------------------------- ----------------------------------------------
ATTEST: RUSSELL INSURANCE GROUP
By: By:
----------------------------------------- ----------------------------------------------
Frank C. Russell, Jr.
President
WITNESS: RUSSELL SHAREHOLDER
By: By:
----------------------------------------- ---------------------------------------------------
Frank C. Russell, Jr.
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AMENDMENT NO. 1 TO THE STOCK PURCHASE AGREEMENT
This AMENDMENT NO. 1 to THE STOCK PURCHASE AGREEMENT, is dated as of December 31, 2004 (the "Amendment"), and entered into among ACNB Acquisition Subsidiary LLC, a Maryland limited liability company ("Acquisition Subsidiary"), ACNB Corporation, a Pennsylvania corporation ("ACNB"), Russell Insurance Group, Inc. ("RIG"), a Maryland corporation and Frank C. Russell, Jr., an adult individual ("Seller" or the "RIG Shareholder") (each a "Party") (all parties are collectively referred to as the "Parties").
WHEREAS, the Parties entered into a Stock Purchase Agreement, dated as of November 19, 2004 (the "Agreement");
WHEREAS, the Parties hereto wish to modify and amend the Agreement as set forth herein;
NOW, THEREFORE, in consideration of the premises, covenants and agreements hereinafter set forth, the Parties hereto agree as follows:
1. Amendment to Section 2.1 of the Agreement.
Section 2.1 of the Agreement is hereby amended and restated in its entirety to read as follows:
Provided that all conditions precedent set forth in this Agreement
shall have been satisfied or shall have been waived in accordance with
Section 19 of this Agreement, the closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the
offices of ACNB Corp, 16 Lincoln Square, Gettysburg, Pennsylvania, or
such other mutually agreed upon location, on such date and at such time
as shall be agreed upon by the Parties, which date shall, unless
otherwise agreed upon by the Parties, be the first business day of a
calendar month and not be later than the 15th business day after the
last approval of required governmental authorities is granted and any
related waiting periods expire, but in no event later then January 7,
2005, unless extended by both Parties in writing. At the Closing, the
Parties shall deliver the certificates required by Sections 8.2(1) and
8.3(1) of this Agreement, the tax forms required by Section 6.14 and
such other documents and instruments as may be necessary or appropriate
to effectuate the purposes of this Agreement.
2. Amendment to Section 9.3 of the Agreement.
Section 9.3 of the Agreement is hereby amended and restated in its entirety to read as follows:
(a) by ACNB Corp, if (i) by written notice to RIG that there
has been a Material breach of any obligation of RIG contained
herein and such breach has not been remedied within twenty
(20) days after receipt by RIG of written notice specifying
the nature of such breach and requesting that it be remedied
(ii) by written notice to RIG that any condition in
Subsections 8.1 and 8.2 to ACNB Corp's obligations hereunder has not been satisfied prior to Closing or such earlier date as may be specified herein or (iii) by written notice to RIG if any matter has come to the attention of ACNB in the course of their due diligence investigation, or otherwise, with respect to the Armor Transaction or the NeSmith Transaction that, in ACNB's sole opinion, that leads ACNB to believe that it would be inadvisable for ACNB in ACNB's sole and exclusive judgment, to proceed with the transactions contemplated by this Agreement; (b) for the purpose of Section 9.3(a)(i) the failure to Close by January 7, 2005 in and of itself will not be a Material breach.
3. Amendment to Section 9.4 of the Agreement.
Section 9.4 of the Agreement is hereby amended and restated in its entirety to read as follows:
by ACNB Corp or RIG, if the Closing shall not have occurred on or prior to January 7, 2005, unless the failure of such occurrence shall be due to the Material failure of the Party seeking to terminate this Agreement to perform or observe its agreements as set forth in this Agreement required to be performed or observed by such Party on or before the Closing; provided, however, that such date may be extended by the written agreement of the Parties; or
4. Amendment to Section 9.5 of the Agreement.
Section 9.5 of the Agreement is hereby amended and restated in its entirety to read as follows:
by ACNB Corp or RIG, if the conditions set forth in Subsection 8.1(2) are unable to be fulfilled as a result of either Party's inability to obtain necessary regulatory approvals and consents by January 7, 2005; provided, however, that such date may be extended by the written agreement of the Parties.
5. Miscellaneous.
(a) The Agreement is incorporated herein by reference.
(b) Except as otherwise set forth herein, the Agreement, as amended hereby, shall remain in full force and effect and the Parties shall have all the rights and remedies provided thereunder with the same force and effect as if the Agreement was restated herein in its entirety.
(c) The provisions hereof shall be binding upon and inure to the benefit of the Parties and their respective executors, heirs, personal representatives, successors and assigns.
(d) This Amendment may be executed and delivered in several counterparts with the intention that all such counterparts, when taken together, constitute one and the same instrument.
6. This Amendment shall constitute an amendment to the Agreement in accordance with Section 19 of the Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Amendment as of the date first above written.
ATTEST: ACNB CORPORATION By: By: ---------------------------- --------------------------------- |
ATTEST: ACNB ACQUISITION SUBSIDIARY LLC By: By: ---------------------------- --------------------------------- ATTEST: RUSSELL INSURANCE GROUP, INC. By: By: ------------------------------ ---------------------------------- WITNESS: RIG SHAREHOLDER By: By: ------------------------------ ----------------------------------- |
EXHIBIT 10.3
(C) 2001 CLARK/BARDES CONSULTING -- BANKING PRACTICE
THIS DOCUMENT IS PROVIDED TO ASSIST YOUR LEGAL COUNSEL IN DOCUMENTING YOUR SPECIFIC ARRANGEMENT. IT IS NOT A FORM TO BE SIGNED, NOR IS IT TO BE CONSTRUED AS LEGAL ADVICE. FAILURE TO ACCURATELY DOCUMENT YOUR ARRANGEMENT COULD RESULT IN SIGNIFICANT LOSSES, WHETHER FROM CLAIMS OF THOSE PARTICIPATING IN THE ARRANGEMENT, FROM THE HEIRS AND BENEFICIARIES OF PARTICIPANTS, OR FROM REGULATORY AGENCIES SUCH AS THE INTERNAL REVENUE SERVICE AND THE DEPARTMENT OF LABOR. LICENSE IS HEREBY GRANTED TO YOUR LEGAL COUNSEL TO USE THESE MATERIALS IN DOCUMENTING SOLELY YOUR ARRANGEMENT.
ADAMS COUNTY NATIONAL BANK OF GETTYSBURG, P.A.
SALARY CONTINUATION AGREEMENT
THIS AGREEMENT is made effective this 5th day of October, 2001, by and Adams County National Bank of Gettysburg, a national bank located in Gettysburg, Pennsylvania (the "Company") and Thomas A. Ritter (the "Executive").
INTRODUCTION
To encourage the Executive to remain an employee of the Company, the Company is willing to provide salary continuation benefits to the Executive. The Company will pay the benefits from its general assets.
AGREEMENT
The Executive and the Company agree as follows:
ARTICLE 1
DEFINITIONS
1. 1 DEFINITIONS. Whenever used in this Agreement, the following words and phrases shall have the meanings specified:
1. 1.1 "CHANGE OF CONTROL" shall mean any of the following:
(A) any person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended) (the "Exchange Act"), other than the Corporation, a subsidiary of the Corporation, an employee benefit plan (or related trust) of the Corporation or a direct or indirect subsidiary of the Corporation, or affiliates of the Corporation (as defined in Rule 12b-2 under the Exchange Act), becomes the beneficial owner (as determined pursuant to Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Corporation representing more than 50% of the combined voting power of the Corporation's then outstanding securities; or
(B) the liquidation or dissolution of the Corporation or the Company or the occurrence of, or execution of an agreement providing for, a sale of all or substantially all of the assets of the Corporation or the Company to an entity which is not a direct or indirect subsidiary of the Corporation; or
(C) the occurrence of, or execution of an agreement providing for,
a reorganization, merger, consolidation or other similar transaction or
connected series of transactions of the Corporation as a result of which either
(a) the Corporation does not survive or (b) pursuant to which shares of the
Corporation common stock ("Common Stock") would be converted into cash,
securities or other property, unless, in case of either (a) or (b), the holders
of Corporation Common Stock immediately prior to such transaction will,
following the consummation of the transaction, beneficially own, directly or
indirectly, more than 50% of the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors of the
corporation surviving, continuing or resulting from such transaction; or
(D) the occurrence of, or execution of an agreement providing for, a reorganization, merger, consolidation, or similar transaction of the Corporation, or before any connected series of such transactions, if, upon consummation of such transaction or transactions, the persons who are members of the Board of Directors of the Corporation immediately before such transaction or transactions cease or, in the case of the execution of an agreement for such transaction or transactions, it is contemplated in such agreement that upon consummation such persons would cease, to constitute a majority of the Board of Directors of the Corporation or, in a case where the Corporation does not survive in such transaction, of the corporation surviving, continuing or resulting from such transaction or transactions; or
(E) any other event which is at any time designated as a "Change of Control" for purposes of this Agreement by a resolution adopted by the Board of Directors of the Corporation with the affirmative vote of a majority of the non-employee directors in office at the time the resolution is adopted; in the event any such resolution is adopted, the Change of Control event specified thereby shall be deemed incorporated herein by reference and thereafter may not be amended, modified or revoked without the written agreement of Executive; or
(F) during any period of two consecutive years during the term of this Agreement, individuals who at the beginning of such period constitute the Board of Directors of the Bank or Corporation cease for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least two-thirds of the directors then in office who were directors at the beginning of the period, provided
however this provision shall not apply in the event two-thirds of the Board of Directors at the beginning of a period no longer are directors due to death, normal retirement, or other circumstances not related to a Change of Control.
Notwithstanding anything else to the contrary set forth in this Agreement, if (i) an agreement is executed by the Corporation or the Company providing for any of the transactions or events constituting a Change of Control as defined herein, and the agreement subsequently expires or is terminated without the transaction or event being consummated, and (ii) Executive's employment did not terminate during the period after the agreement and prior to such expiration or termination, for purposes of this Agreement it shall be as though such agreement was never executed and no Change of Control event shall be deemed to have occurred as a result of the execution of such agreement.
1.1.2 "CODE" means the Internal Revenue Code of 1986, as amended.
1.1.3 "CORPORATION" means ACNB Corporation.
1.1.4 "DISABILITY" means, if the Participant is covered by a Company- sponsored disability policy, total disability is defined in such policy without regard to any waiting period. If the Participant is not covered by such a policy, disability means the Participant suffers from a mental or physical impairment that prevents the Participant from performing the essential functions of his or her position, with or without a reasonable accommodation. As a condition to any benefits, the Company may require the Participant to submit to such physical or mental evaluations and tests as the Insurance Committee deems appropriate.
1.1.5 "EARLY TERMINATION" means the Termination of Employment before Normal Retirement Age for reasons other than death, Disability, Termination for Cause or following a Change of Control.
1. 1.6 "EARLY TERMINATION DATE" means the month, day and year in which Early Termination occurs.
1. 1.7 "NORMAL RETIREMENT AGE" means the Executive's 65th birthday.
1. 1.8 "NORMAL RETIREMENT DATE" means the later of the Normal Retirement Age or Termination of Employment.
1.1.9 "PLAN YEAR" means each twelve-month period commencing with the effective date of this Agreement.
1.1.10 "TERMINATION FOR CAUSE" See Section 5.2.
1.1.11 "TERMINATION OF EMPLOYMENT" means that the Executive ceases to be employed by the Company for any reason whatsoever other than by reason of a leave of absence which is approved by the Company. For purposes of this Agreement, if there is a dispute over the employment status of the Executive or the date of the Executive's Termination of Employment, the Company shall have the sole and absolute right to decide the dispute.
ARTICLE 2
LIVING BENEFITS
2.1 NORMAL RETIREMENT BENEFIT. Upon Termination of Employment on or after the Normal Retirement Age for reasons other than death, the Company shall pay to the Executive the benefit described in this Section 2.1 in lieu of any other benefit under this Agreement.
2.1.1 AMOUNT OF BENEFIT. The annual Normal Retirement Benefit under this Section 2.1 is $121,000 (One hundred and twenty-one thousand dollars). The Company may increase the annual benefit under this Section 2.1 at the sole and absolute discretion of the Company's Board of Directors. Any increase in the annual benefit shall require the recalculation of all the amounts on Schedule A attached hereto. The annual benefit amounts on Schedule A are calculated by amortizing the annual normal retirement benefit using the interest method of accounting, a 8.50% discount rate, monthly compounding and monthly payments.
2.1.2 PAYMENT OF BENEFIT. The Company shall pay the annual benefit to the Executive in 12 equal monthly installments payable on the first day of each month commencing with the month following the Executive's Normal Retirement Date and continuing for 179 additional months.
2.1.3 BENEFIT INCREASES. Commencing on the first anniversary of the first benefit payment, and continuing on each subsequent anniversary, the Company's Board of Directors, in its sole discretion, may increase the benefit.
2.2 EARLY TERMINATION BENEFIT. Upon Early Termination, the Company shall pay to the Executive the benefit described in this Section 2.2 in lieu of any other benefit under this Agreement.
2.2.1 AMOUNT OF BENEFIT. The annual benefit under this Section 2.2 is the Early Termination Annual Benefit set forth in Schedule A for the Plan Year ending immediately prior to the Early Termination Date.
2.2.2 PAYMENT OF BENEFIT. The Company shall pay the annual benefit to the Executive in 12 equal monthly installments payable on the first day of each month commencing with the month following the Executive's Normal Retirement Age and continuing for 179 additional months.
2.2.3 BENEFIT INCREASES. Benefit payments may be increased as provided in Section 2.1.3.
2.3 DISABILITY BENEFIT. If the Executive terminates employment due to Disability prior to Normal Retirement Age, the Company shall pay to the Executive the benefit described in this Section 2.3 in lieu of any other benefit under this Agreement.
2.3.1 AMOUNT OF BENEFIT. The annual benefit under this Section 2.3 is the Disability Benefit amount set forth in Schedule A for the Plan Year ending immediately prior to the date in which Termination of Employment occurs.
2.3.2 PAYMENT OF BENEFIT. The Company shall pay the benefit to the Executive in 12 equal monthly installments commencing within 90 days after the date of the Executive's Termination of Employment and continuing for 179 additional months.
2.3.3 BENEFIT INCREASES. Benefit payments may be increased as provided in Section 2.1.3.
2.4 CHANGE OF CONTROL BENEFIT. If the Executive is in the active service of the Company at the time of a Change of Control, the Company shall pay to the Executive the benefit described in this Section 2.4 in lieu of any other benefit under this Agreement.
2.4.1 AMOUNT OF BENEFIT. The annual benefit under this Section 2.4 is the Normal Retirement Benefit described in Section 2. 1.1.
2.4.2 PAYMENT OF BENEFIT. The Company shall pay the annual benefit amount to the Executive in 12 equal monthly installments payable on the first day of each month commencing with the month following Normal Retirement Age and continuing for 179 additional months.
2.4.3 BENEFIT INCREASES. Benefit payments may be increased as provided in Section 2.1.3
ARTICLE 3
DEATH BENEFITS
3.1 DEATH DURING ACTIVE SERVICE. If the Executive dies while in the active service of the Company, the Company shall pay to the Executive's beneficiary the benefit described in this Section 3.1. This benefit shall be paid in lieu of the Lifetime Benefits of Article 2.
3.1.1 AMOUNT OF BENEFIT. The annual benefit under this Section 3.1 is the Normal Retirement Benefit described in Section 2.1.1.
3.1.2 PAYMENT OF BENEFIT. The Company shall pay the annual benefit to the beneficiary in 12 equal monthly installments payable on the first day of each month commencing with the month following the Executive's death and continuing for 179 additional months.
3.2 DEATH DURING BENEFIT PERIOD. If the Executive dies after the benefit payments have commenced under this Agreement but before receiving all such payments, the Company shall pay the remaining benefits to the Executive's beneficiary at the same time and in the same amounts they would have been paid to the Executive had the Executive survived.
3.3 DEATH FOLLOWING TERMINATION OF EMPLOYMENT BUT BEFORE BENEFITS COMMENCE. If the Executive is entitled to benefits under this Agreement, but dies prior to receiving said benefits, the Company shall pay to the Executive's beneficiary the same benefits, in the same manner, they would have been paid to the Executive had the Executive survived; however, said benefit payments will commence upon the Executive's death.
ARTICLE 4
BENEFICIARIES
4.1 BENEFICIARY DESIGNATIONS. The Executive shall designate a beneficiary by filing a written designation with the Company. The Executive may revoke or modify the designation at any time by filing a new designation. However, designations will only be effective if signed by the Executive and accepted by the Company during the Executive's lifetime. The Executive's beneficiary designation shall be deemed automatically revoked if the beneficiary predeceases the Executive, or if the Executive names a spouse as beneficiary and the marriage is subsequently dissolved. If the Executive dies without a valid beneficiary designation, all payments shall be made to the Executive's estate.
4.2 FACILITY OF PAYMENT. If a benefit is payable to a minor, to a person declared incapacitated, or to a person incapable of handling the disposition of his or her property, the Company may pay such benefit to the guardian, legal representative or person having the care or custody of such minor, incapacitated person or incapable person. The Company may require proof of incapacity, minority or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Company from all liability with respect to such benefit.
ARTICLE 5
GENERAL LIMITATIONS
Notwithstanding any provision of this Agreement to the contrary, the Company shall not pay any benefit under this Agreement:
5.1 EXCESS PARACHUTE OR GOLDEN PARACHUTE PAYMENT. Notwithstanding any provision of this Agreement to the contrary, the Company shall not pay any benefit under this Agreement to the extent the benefit would be an excess parachute payment under Section 280G of the Code or would be a prohibited golden parachute payment pursuant to 12 C.F.R. ss.359.2 and for which the appropriate federal banking agency has not given written consent to pay pursuant to 12 C.F.R. ss.359.4.
5.2 TERMINATION FOR CAUSE. Notwithstanding any provision of this Agreement to the contrary, the Company shall not pay any benefit under this Agreement, if the Company terminates the Executive's employment for:
5.2.1 Gross negligence or gross neglect of duties;
5.2.2 Commission of a felony or of a gross misdemeanor involving moral turpitude; or
5.2.3 Fraud, disloyalty, dishonesty or willful violation of any law or significant Company policy committed in connection with the Executive's employment and resulting in an adverse effect on the Company.
5.3 REMOVAL. Notwithstanding any provision of this Agreement to the contrary, the Company shall not pay any benefit under this Agreement if the Executive is subject to a final removal or prohibition order issued by an appropriate federal banking agency pursuant to Section 8(e) of the Federal Deposit Insurance Act.
5.4 COMPETITION. No benefits shall be payable if the Executive, without the prior written consent of the Company, violates the following described restrictive covenants.
5.4.1 NON-COMPETE PROVISION. The Executive shall not, for the term of this Agreement and until all benefits have been distributed, directly or indirectly, either as an individual or as a proprietor, stockholder, partner, officer, director, employee, agent, consultant or independent contractor of any individual, partnership, corporation or other entity (excluding an ownership interest of one percent (1 %) or less in the stock of a publicly traded company):
(i) become employed by, participate in, or be connected in any manner with the ownership, management, operation or control of any bank, savings and loan or any financial institution, as that term is defined in the Gramm-Leach- Bliley Act of 1999, Pub. L. 106-102, that has its main office, a branch office, or conducts any business within a fifty (50) mile radius of Gettysburg, Pennsylvania; or
(ii) participate in any way in hiring or otherwise engaging, or assisting any other person or entity in hiring or otherwise engaging, on a temporary, part-time or permanent basis, any individual who was employed by the Corporation or any of its subsidiaries during the three (3) year period immediately prior to the termination of the Executive's employment; or
(iii) assist, advise, or serve in any capacity, representative or otherwise, any third party in any action against the Corporation or any of its subsidiaries or transaction involving the Corporation or any of its subsidiaries; or
(iv) sell, offer to sell, provide banking or other financial services, assist any other person in selling or providing banking or other financial services, or solicit or otherwise compete for, either directly or indirectly, any orders, contract, or accounts for services of a kind or nature like or substantially similar to the services performed or products sold by the Corporation or any of its subsidiaries (the preceding hereinafter referred to as "Services"), to or from any person or entity from whom the Executive or the Corporation or any of its subsidiaries provided banking or other financial services, sold, offered to sell or solicited orders, contracts or accounts for Services during the three (3) year period immediately prior to the termination of the Executive's employment; or
(v) divulge, disclose, or communicate to others in any manner whatsoever, any confidential information of the Corporation or any of its subsidiaries, including, but not limited to, the names and addresses of customers of the Corporation or any of its subsidiaries, as they may have existed from time to time or of any of the Corporation's or any of its subsidiaries' prospective customers, work performed or services rendered for any customer, any method and/or procedures relating to projects or other work developed for the Corporation or any of its subsidiaries, earnings or other information concerning the Corporation or any of its subsidiaries. The restrictions contained in this subparagraph (v) apply to all information regarding the Corporation or any of its subsidiaries unless and until it becomes known to the general public from sources other than the Executive.
5.4.2 JUDICIAL REMEDIES. In the event of a breach or threatened breach by the Executive of any provision of these restrictions, the Executive recognizes the substantial and immediate harm that a breach or threatened breach will impose upon the Corporation or any of its subsidiaries, and further recognizes that in such event monetary damages may be inadequate to fully protect the Corporation or any of its subsidiaries. Accordingly, in the event of a breach or threatened breach of this Agreement, the Executive consents to the Corporation's or any of its subsidiaries' entitlement to such ex parte, preliminary, interlocutory, temporary or permanent injunctive, or any other equitable relief, protecting and fully enforcing the Corporation's or any of its subsidiaries' rights hereunder and preventing the Executive from further breaching any of his or her obligations set forth herein. The Executive expressly waives any requirement, based on any statute, rule of procedure, or other source, that the Corporation or any of its subsidiaries post a bond as a condition of obtaining any of the above-described remedies. Nothing herein shall be construed as prohibiting the Corporation or any of its subsidiaries from pursuing any other remedies available to the Corporation or any of its subsidiaries at law or in equity for such breach or threatened breach, including the recovery of damages from the Executive. The Executive expressly acknowledges and agrees that: (i) the restrictions set forth in Section 5.4.1 are reasonable, in terms of scope, duration, geographic area, and otherwise, (ii) the protections afforded the Corporation or any of its subsidiaries in Section 5.4.1 are necessary to protect its legitimate business interest, (iii) the restrictions set forth in Section 5.4.1 will not be materially adverse to the Executive's employment with the Company, and (iv) his or her agreement to observe such restrictions forms a material part of the consideration for this Agreement.
5.4.3 OVERBREADTH OF RESTRICTIVE COVENANT. It is the intention of the parties that if any restrictive covenant in this Agreement is determined by a court of competent jurisdiction to be overly broad, then the court should enforce such restrictive covenant to the maximum extent permitted under the law as to area, breadth and duration.
5.4.4 The non-compete provision detailed in Section 5.4.1 shall not be enforceable following a Change in Control.
5.5 SUICIDE OR MISSTATEMENT. No benefits shall be payable if the Executive commits suicide within two years after the date of this Agreement, or if the insurance company denies coverage for material misstatements of fact made by the Executive on any application for life insurance purchased by the Company, or any other reason; provided, however that the Company shall evaluate the reason for the denial, and upon advice of legal counsel and in its sole discretion, consider judicially challenging any denial. The Company shall have no liability to the Executive for any denial of coverage by the insurance company.
ARTICLE 6
CLAIMS AND REVIEW PROCEDURES
6.1 CLAIMS PROCEDURE. The Company shall notify any person or entity that makes a claim against the Agreement (the "Claimant") in writing,
within ninety (90) days of Claimant's written application for benefits, of his
or her eligibility or noneligibility for benefits under the Agreement. If the
Company determines that the Claimant is not eligible for benefits or full
benefits, the notice shall set forth (1) the specific reasons for such denial,
(2) a specific reference to the provisions of the Agreement on which the denial
is based, (3) a description of any additional information or material necessary
for the Claimant to perfect his or her claim, and a description of why it is
needed, and (4) an explanation of the Agreement's claims review procedure and
other appropriate information as to the steps to be taken if the Claimant wishes
to have the claim reviewed. If the Company determines that there are special
circumstances requiring additional time to make a decision, the Company shall
notify the Claimant of the special circumstances and the date by which a
decision is expected to be made, and may extend the time for up to an additional
ninety-day period.
6.2 REVIEW PROCEDURE. If the Claimant is determined by the Company not to be eligible for benefits, or if the Claimant believes that he or she is entitled to greater or different benefits, the Claimant shall have the opportunity to have such claim reviewed by the Company by filing a petition for review with the Company within sixty (60) days after receipt of the notice issued by the Company. Said petition shall state the specific reasons which the Claimant believes entitle him or her to benefits or to greater or different benefits. Within sixty (60) days after receipt by the Company of the petition, the Company shall afford the Claimant (and counsel, if any) an opportunity to present his or her position to the Company orally or in writing, and the Claimant (or counsel) shall have the right to review the pertinent documents. The Company shall notify the Claimant of its decision in writing within the sixty-day period, stating specifically the basis of its decision, written in a manner calculated to be understood by the Claimant and the specific provisions of the Agreement on which the decision is based. If, because of the need for a hearing, the sixty-day period is not sufficient, the decision may be deferred for up to another sixty-day period at the election of the Company, but notice of this deferral shall be given to the Claimant.
ARTICLE 7
AMENDMENTS AND TERMINATION
This Agreement may be amended or terminated only by a written agreement signed by the Company and the Executive.
ARTICLE 8
MISCELLANEOUS
8.1 BINDING EFFECT. This Agreement shall bind the Executive and the Company, and their beneficiaries, survivors, executors, successors, administrators and transferees.
8.2 NO GUARANTEE OF EMPLOYMENT. This Agreement is not an employment policy or
contract. It does not give the Executive the right to remain an employee of the Company, nor does it interfere with the Company's right to discharge the Executive. It also does not require the Executive to remain an employee nor interfere with the Executive's right to terminate employment at any time.
8.3 NON-TRANSFERABILITY. Benefits under this Agreement cannot be sold, transferred, assigned, pledged, attached or encumbered in any manner.
8.4 TAX WITHHOLDING. The Company shall withhold any taxes that are required to be withheld from the benefits provided under this Agreement.
8.5 APPLICABLE LAW. The Agreement and all rights hereunder shall be governed by the laws of the Commonwealth of Pennsylvania, except to the extent preempted by the laws of the United States of America.
8.6 UNFUNDED ARRANGEMENT. The Executive and beneficiary are general unsecured creditors of the Company for the payment of benefits under this Agreement. The benefits represent the mere promise by the Company to pay such benefits. The rights to benefits are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. Any insurance on the Executive's life is a general asset of the Company to which the Executive and beneficiary have no preferred or secured claim.
8.7 RECOVERY OF ESTATE TAXES. If the Executive's gross estate for federal estate tax purposes includes any amount determined by reference to and on account of this Agreement, and if the beneficiary is other than the Executive's estate, then the Executive's estate shall be entitled to recover from the beneficiary receiving such benefit under the terms of the Agreement, an amount by which the total estate tax due by the Executive's estate, exceeds the total estate tax which would have been payable if the value of such benefit had not been included in the Executive's gross estate. If there is more than one person receiving such benefit, the right of recovery shall be against each such person. In the event the beneficiary has a liability hereunder, the beneficiary may petition the Company for a lump sum payment in an amount not to exceed the beneficiary's liability hereunder.
8.8 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the Company and the Executive as to the subject matter hereof. No rights are granted to the Executive by virtue of this Agreement other than those specifically set forth herein.
8.9 ADMINISTRATION. The Company shall have powers which are necessary to administer this Agreement, including but not limited to:
8.9.1 Interpreting the provisions of the Agreement;
8.9.2 Establishing and revising the method of accounting for
the Agreement;
8.9.3 Maintaining a record of benefit payments; and
8.9.4 Establishing rules and prescribing any forms necessary or
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desirable to administer the Agreement.
IN WITNESS WHEREOF, the Executive and a duly authorized Company officer have signed this Agreement.
EXECUTIVE: COMPANY:
ADAMS COUNTY NATIONAL BANK OF
GETTYSURG
/s/ Thomas A. Ritter By /s/ Ronald L. Hankey
------------------------------------ ------------------------------------
Thomas A. Ritter
Title Chairman/CEO
----------------------------------
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By execution hereof, ACNB Corporation consents to and agrees to be bound by the terms and condition of this Agreement.
ATTEST: CORPORATION:
ACNB CORPORATION
/s/ David W. Scott By /s/ Ronald L. Hankey
------------------------------------ -----------------------------
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Title Chairman/CEO
SCHEDULE A
ADAMS COUNTY NATIONAL BANK OF GETTYSBURG
SALARY CONTINUATION AGREEMENT
LIVING BENEFITS
THOMAS A. RITTER
--------- ------------- --------------- --------------------- ------------------- --------------------
DISABILITY ANNUAL CHANGE OF CONTROL
PLAN VESTING ACCRUED EARLY TERMINATION BENEFIT ANNUAL BENEFIT
YEAR SCHEDULE BENEFIT ANNUAL BENEFIT (1) (2) (3)
--------- ------------- --------------- --------------------- ------------------- --------------------
--------- ------------- --------------- --------------------- ------------------- --------------------
1 100.00% $33,966 $13,610 $3,985 $121,000
--------- ------------- --------------- --------------------- ------------------- --------------------
--------- ------------- --------------- --------------------- ------------------- --------------------
2 100.00% $70,935 $26,115 $8,323 $121,000
--------- ------------- --------------- --------------------- ------------------- --------------------
--------- ------------- --------------- --------------------- ------------------- --------------------
3 100.00% $111,171 $37,605 $13,045 $121,000
--------- ------------- --------------- --------------------- ------------------- --------------------
--------- ------------- --------------- --------------------- ------------------- --------------------
4 100.00% $154,963 $48,161 $18,183 $121,000
--------- ------------- --------------- --------------------- ------------------- --------------------
--------- ------------- --------------- --------------------- ------------------- --------------------
5 100.00% $202,627 $57,860 $23,776 $121,000
--------- ------------- --------------- --------------------- ------------------- --------------------
--------- ------------- --------------- --------------------- ------------------- --------------------
6 100.00% $254,503 $66,771 $29,863 $121,000
--------- ------------- --------------- --------------------- ------------------- --------------------
--------- ------------- --------------- --------------------- ------------------- --------------------
7 100.00% $310,965 $74,958 $36,488 $121,000
--------- ------------- --------------- --------------------- ------------------- --------------------
--------- ------------- --------------- --------------------- ------------------- --------------------
8 100.00% $372,418 $82,481 $43,699 $121,000
--------- ------------- --------------- --------------------- ------------------- --------------------
--------- ------------- --------------- --------------------- ------------------- --------------------
9 100.00% $439,303 $89,393 $51,547 $121,000
--------- ------------- --------------- --------------------- ------------------- --------------------
--------- ------------- --------------- --------------------- ------------------- --------------------
10 100.00% $512,099 $95,743 $60,088 $121,000
--------- ------------- --------------- --------------------- ------------------- --------------------
--------- ------------- --------------- --------------------- ------------------- --------------------
11 100.00% $591,330 $101,578 $69,385 $121,000
--------- ------------- --------------- --------------------- ------------------- --------------------
--------- ------------- --------------- --------------------- ------------------- --------------------
12 100.00% $677,565 $106,939 $79,504 $121,000
--------- ------------- --------------- --------------------- ------------------- --------------------
--------- ------------- --------------- --------------------- ------------------- --------------------
13 100.00% $771,421 $111,864 $90,517 $121,000
--------- ------------- --------------- --------------------- ------------------- --------------------
--------- ------------- --------------- --------------------- ------------------- --------------------
14 100.00% $873,574 $116,390 $102,503 $121,000
--------- ------------- --------------- --------------------- ------------------- --------------------
--------- ------------- --------------- --------------------- ------------------- --------------------
15 100.00% $984,756 $120,548 $115,549 $121,000
--------- ------------- --------------- --------------------- ------------------- --------------------
--------- ------------- --------------- --------------------- ------------------- --------------------
16 100.00% $1,031,212 $121,000 $121,000 $121,000
--------- ------------- --------------- --------------------- ------------------- --------------------
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(1) Payments commence at Normal Retirement Age
(2) Payments commence at Termination of Employment
BENEFICIARY DESIGNATION
ADAMS COUNTY NATIONAL BANK OF GETTYSBURG, P.A.
SALARY CONTINUATION AGREEMENT
THOMAS A. RITTER
I designate the following as beneficiary of any death benefits under the Salary Continuation Agreement:
Primary: Linda H. Ritter, Spouse of the Insured
Contingent: The Estate of the Insured
NOTE: TO NAME A TRUST AS BENEFICIARY, PLEASE PROVIDE THE NAME OF THE
TRUSTEE(S) AND THE EXACT NAME AND DATE OF THE TRUST AGREEMENT.
I understand that I may change these beneficiary designations by filing a new written designation with the Company. I further understand that the designations will be automatically revoked if the beneficiary predeceases me, or, if I have named my spouse as beneficiary, in the event of the dissolution of our marriage.
Signature /s/ Thomas A. Ritter
----------------------------
Date October 5, 2001
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Accepted by the Company this 5th day of October , 2001
ADAMS COUNTY NATIONAL BANK
By: /s/ Ronald L. Hankey
---------------------------------------
Title Chairman/CEO
-----------------------------
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FIRST AMENDMENT
TO THE
ADAMS COUNTY NATIONAL BANK OF GETTYSBURG
SALARY CONTINUATION AGREEMENT
FOR
THOMAS A. RITTER
THIS AMENDMENT is adopted this 7TH day of November , 2002, by and between ADAMS COUNTY NATIONAL BANK OF GETTYSBURG, located in Gettysburg, Pennsylvania (the "Company") and THOMAS A. RITTER (the "Executive").
On October 5, 2001, the Company and the Executive executed the ADAMS COUNTY NATIONAL BANK OF GETTYSBURG SALARY CONTINUATION AGREEMENT (the "Agreement"). The undersigned hereby amend, in part, said Agreement to (i) change the Plan Year; (ii) amend Schedule A to reflect the change in Plan Year; and (iii) amend the Claim and Review Procedures to comply with changes in ERISA guidance. Therefore, the following revisions shall be made:
ARTICLE 1.1.9 OF THE AGREEMENT SHALL BE DELETED IN ITS ENTIRETY AND
REPLACED BY ARTICLE 1.1.9 BELOW.
1.1.9 "PLAN YEAR" means each twelve month period commencing with May 1 and ending on April 30. Provided, however, the first Plan Year shall begin on the effective date of this Agreement and end on the April 30 first following the effective date.
O ARTICLE 6 OF THE AGREEMENT SHALL BE DELETED IN ITS ENTIRETY AND
REPLACED BY ARTICLE 6 BELOW.
Article 6
Claims and Review Procedures
6.1 CLAIMS PROCEDURE. Any person or entity who has not received benefits under this Agreement that he or she believes should be paid ("claimant") shall make a claim for such benefits as follows:
6.1.1 INITIATION -- WRITTEN CLAIM. The claimant initiates a claim by submitting to the Company a written claim for the benefits.
6.1.2 TIMING OF COMPANY RESPONSE. The Company shall respond to such claimant within 90 days after receiving the claim. If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional 90 days by notifying the claimant in writing, prior to the end of the initial 90-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision.
6.1.3 NOTICE OF DECISION. If the Company denies part or all of the claim, the Company shall notify the claimant in writing of such denial. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:
(a) The specific reasons for the denial,
(b) A reference to the specific provisions of the
Agreement on which the denial is based,
\ (c) A description of any additional information or
material necessary for the claimant to perfect the claim and an
explanation of why it is needed,
(d) An explanation of the Agreement's review procedures
and the time limits applicable to such procedures, and
(e) A statement of the claimant's right to bring a civil
action under ERISA Section 502(a) following an adverse benefit
determination on review.
6.2 REVIEW PROCEDURE. If the Company denies part or all of the
claim, the claimant shall have the opportunity for a full and fair review by
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the Company of the denial, as follows:
6.2.1 INITIATION -- WRITTEN REQUEST. To initiate the review, the claimant, within 60 days after receiving the Company's notice of denial, must file with the Company a written request for review.
6.2.2 ADDITIONAL SUBMISSIONS -- INFORMATION ACCESS. The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Company shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant's claim for benefits.
6.2.3 CONSIDERATIONS ON REVIEW. In considering the review, the Company shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.
6.2.4 TIMING OF COMPANY RESPONSE. The Company shall respond in writing to such claimant within 60 days after receiving the request for review. If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional 60 days by notifying the claimant in writing, prior to the end of the initial 60-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision.
6.2.5 NOTICE OF DECISION. The Company shall notify the claimant in writing of its decision on review. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:
(a) The specific reasons for the denial,
(b) A reference to the specific provisions of the Agreement on which the denial is based,
(c) A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant's claim for benefits, and
(d) A statement of the claimant's right to bring a civil action under ERISA Section 502(a).
O SCHEDULE A OF THE AGREEMENT SHALL BE DELETED IN ITS ENTIRETY AND
REPLACED BY THE ATTACHED FIRST AMENDED SCHEDULE A.
IN WITNESS OF THE ABOVE, the Executive and the Company hereby consent to this First Amendment.
EXECUTIVE: ADAMS COUNTY NATIONAL BANK OF
GETTYSBURG
/s/ Thomas A. Ritter By /s/ Ronald L. Hankey ------------------------------------ -------------------------------------- |
(C) 2003 CLARK CONSULTING
THIS DOCUMENT IS PROVIDED TO ASSIST YOUR LEGAL COUNSEL IN DOCUMENTING YOUR SPECIFIC ARRANGEMENT. IT IS NOT A FORM TO BE SIGNED, NOR IS IT TO BE CONSTRUED AS LEGAL ADVICE. FAILURE TO ACCURATELY DOCUMENT YOUR ARRANGEMENT COULD RESULT IN SIGNIFICANT LOSSES, WHETHER FROM CLAIMS OF THOSE PARTICIPATING IN THE ARRANGEMENT, FROM THE HEIRS AND BENEFICIARIES OF PARTICIPANTS, OR FROM REGULATORY AGENCIES SUCH AS THE INTERNAL REVENUE SERVICE AND THE DEPARTMENT OF LABOR. LICENSE IS HEREBY GRANTED TO YOUR LEGAL COUNSEL TO USE THESE MATERIALS IN DOCUMENTING SOLELY YOUR ARRANGEMENT.
SECOND AMENDMENT
TO THE
ADAMS COUNTY NATIONAL BANK
SALARY CONTINUATION AGREEMENT
THIS AGREEMENT is made this 24th day of November, 2003, by and between ADAMS COUNTY NATIONAL BANK, located in Gettysburg, Pennsylvania (the "Bank"), and Thomas A. Ritter (the "Executive").
The Bank and the Executive executed the SALARY CONTINUATION AGREEMENT on October 5, 2001 (the "Agreement").
The undersigned hereby amends, in part, said Agreement for the purpose of changing the Disability Benefit, Section 2.3. Therefore, said Disability Benefit shall be amended as follows:
Section 2.3 Disability Benefit shall be removed in its entirety.
IN WITNESS WHEREOF, the Director and a duly authorized Bank officer have agreed to this Second Amendment to the Agreement.
EXECUTIVE: BANK:
ADAMS COUNTY NATIONAL BANK
/s/ Thomas A. Ritter
Thomas A. Ritter BY /s/ Ronald L. Hankey
------------------------------------
TITLE Chairman
---------------------------------
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By execution hereof, the Corporation consents to and agrees to be bound by the terms and condition of this Second Amendment to the Agreement.
CORPORATION:
ADAMS COUNTY NATIONAL BANK
BY: /s/ Ronald L. Hankey
-------------------------------------
TITLE: Chairman
--------------------------------
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EXHIBIT 10.4
THIS DOCUMENT IS PROVIDED TO ASSIST YOUR LEGAL COUNSEL IN DOCUMENTING YOUR SPECIFIC ARRANGEMENT. IT IS NOT A FORM TO BE SIGNED, NOR IS IT TO BE CONSTRUED AS LEGAL ADVICE. FAILURE TO ACCURATELY DOCUMENT YOUR ARRANGEMENT COULD RESULT IN SIGNIFICANT LOSSES, WHETHER FROM CLAIMS OF THOSE PARTICIPATING IN THE ARRANGEMENT, FROM THE HEIRS AND BENEFICIARIES OF PARTICIPANTS, OR FROM REGULATORY AGENCIES SUCH AS THE INTERNAL REVENUE SERVICE AND THE DEPARTMENT OF LABOR. LICENSE IS HEREBY GRANTED TO YOUR LEGAL COUNSEL TO USE THESE MATERIALS IN DOCUMENTING SOLELY YOUR ARRANGEMENT.
ADAMS COUNTY NATIONAL BANK
EXECUTIVE SUPPLEMENTAL LIFE INSURANCE PLAN
THIS AGREEMENT, hereby made and entered into this 1st day of January 2001, by and between Adams County National Bank, a Bank located in Gettysburg, Pennsylvania (the "Company") and the executive selected to participate in this Plan.
INTRODUCTION
The Company wishes to attract and retain highly qualified executives. To further this objective, the Company is willing to divide the death proceeds of certain life insurance policies which are owned by the Company on the lives of the participating executives with the designated beneficiary of each insured participating executive. The Company will pay life insurance premiums from its general assets.
ARTICLE 1
GENERAL DEFINITIONS
The following terms shall have the meanings specified:
1.1 "COMPENSATION COMMITTEE" means either the Compensation Committee designated from time to time by the Company's Board of Directors or a majority of the Company's Board of Directors, either of which shall hereinafter be referred to as the Compensation Committee.
1.2 "DISABILITY" means the Executive's inability to perform substantially all normal duties of a Participant, as determined by the Company's Board of Directors in its sole discretion. As a condition to any benefits, the Company may require the Executive to submit to such physical or mental evaluations and tests, as the Board of Directors deems appropriate.
1.3 "INSURED" means the individual whose life is insured.
1.4 "INSURER" means the insurance company issuing the life insurance policy on the life of the insured.
1.5 "OTHER GROUP TERM COVERAGE" means group term life insurance maintained on a Participant's life owned by the Company that is in addition to the Policies covered under this Plan.
1.6 "PARTICIPANT" means the executive who is designated by the Compensation Committee as eligible to participate in the Plan, elects .in writing to participate in the Plan using the form attached hereto as Exhibit A, and signs a Split Dollar Endorsement for the Policy in which he or she is the Insured.
1.7 "POLICY" or "POLICIES" means the individual insurance policy (or policies) adopted by the Compensation Committee for purposes of insuring a Participant's life under this Plan.
1.8 "PLAN" means this instrument, including all amendments thereto.
1.9 "TERMINATED FOR CAUSE" means that the Company has terminated the Insured's employment for any of the following reasons:
1.9.1 Gross negligence or gross neglect of duties;
1.9.2 Commission of a felony or of a gross misdemeanor involving moral turpitude; or
1.9.3 Fraud, disloyalty, dishonesty or willful violation of any law or significant Company policy committed in connection with the Executive's employment.
1.10 "TWO TIMES BASE ANNUAL SALARY" means the current base annual salary
of the Participant at the earliest of: (1) the date of the Participant's death;
(2) the date of the Participant's Disability; or (3) the Participant's date of
termination of employment multiplied by a factor of Two (2).
ARTICLE 2
PARTICIPATION
2.1 ELIGIBILITY TO PARTICIPATE. The Compensation Committee in its sole discretion shall designate from time to time executives that are eligible to participate in this Plan.
2.2 PARTICIPATION. The eligible executive may participate in this Plan by executing an Election to Participate and a Split Dollar Endorsement. The Split Dollar Endorsement shall bind the executive and his or her beneficiaries, assigns and transferees, to the terms and conditions of this Plan. An executive's participation is limited to only Policies where he or she is the Insured. Exhibit B attached hereto sets forth the original Participants and their corresponding Policies.
2.3 TERMINATION OF PARTICIPATION. A Participant's rights under this Plan shall cease and his or her participation in this Plan shall terminate if the Insured's employment with the Company is Terminated for Cause.
In the event that the Company decides to maintain the Policy after the Participant's termination of participation in the Plan, the Company shall be the direct beneficiary of the entire death proceeds of the Policy.
ARTICLE 3
POLICY OWNERSHIP/INTERESTS
3.1 PARTICIPANT'S INTEREST. With respect to each Policy, the Participant, or the Participant's assignee, shall have the right to designate the beneficiary of an amount of death proceeds equal to: (i) Two Times Base Annual Salary of the Insured/Participant; less all such sums as are payable by reason of any other group term insurance coverage on the life of the Participant; or (ii) the maximum dollar amount of the Participant's Interest set forth in the Participant's individual split dollar endorsement and based upon the vesting schedule attached their individual Split Dollar Endorsement. The Participant shall also have the right to elect and change settlement options with the consent of the Company and the Insurer.
3.2 COMPANY'S INTEREST. The Company shall own the Policies and shall have the right to exercise all incidents of ownership. With respect to each Policy, the Company shall be the direct beneficiary of the remaining (after the Participant's Interest is determined) death proceeds of the Policy.
ARTICLE 4
PREMIUMS
4.1 PREMIUM PAYMENT. The Company shall pay all premiums due on all Policies.
4.2 IMPUTED INCOME. The Company shall impute income to the Participant in an amount equal to the current term rate for the Participant's age multiplied by the aggregate death benefit payable to the Participant's beneficiary. The "current term rate" is the minimum amount required to be imputed under Revenue Rulings 64-328 and 66-110, or any subsequent applicable authority.
ARTICLE 5
ASSIGNMENT
Any Participant may assign without consideration all interests in his or her Policy and in this Plan to any person, entity or trust. In the event a Participant shall transfer all of his/her interest in the Policy, then all of that Participant's interest in his or her Policy and in the Plan shall be vested in his/her transferee, who shall be substituted as a party hereunder, and that Participant shall have no further interest in his or her Policy or in this Plan.
ARTICLE 6
INSURER
The Insurer shall be bound only by the terms of their corresponding Policy. Any payments the Insurer makes or actions it takes in accordance with a Policy shall fully discharge it from all claims, suits and demands of all persons relating to that Policy. The Insurer shall not be bound by the provisions of this Plan. The Insurer shall have the right to rely on the Company's representations with regard to any definitions, interpretations, or Policy interests as specified under this Plan.
ARTICLE 7
CLAIMS PROCEDURE
7.1 CLAIMS PROCEDURE. The Company shall notify any person or entity that makes a claim against this Plan (the "Claimant"), in writing, within ninety (90) days of Claimant's written application for benefits, of Claimant's eligibility or ineligibility for benefits under this Plan. If the Company determines that Claimant is not eligible for benefits or full benefits, the notice shall set forth (1) the specific reasons for such denial, (2) a specific reference to the provisions of this Plan on which the denial is based, (3) a description of any additional information or material necessary for the Claimant to perfect Claimant's claim, and a description of why it is needed, and (4) an explanation of this Plan's claims review procedure and other appropriate information as to the steps to be taken if the Claimant wishes to have the claim reviewed. If the Company determines that there are special circumstances requiring additional time to make a decision, the Company shall notify the Claimant of the special circumstances and the date by which a decision is expected to be made, and may extend the time for up to an additional ninety-day period.
7.2 REVIEW PROCEDURE. If a Claimant is determined by the Company not to be eligible for benefits, or if the Claimant believes that Claimant is entitled to greater or different benefits, the Claimant shall have the opportunity to have such claim reviewed by the Company by filing a petition for review with the Company within sixty (60) days after receipt of the notice issued by the Company. Said petition shall state the specific reasons which the Claimant believes entitle Claimant to benefits or to greater or different benefits. Within sixty (60) days after receipt by the Company of the petition, the Company shall afford the Claimant (and counsel, if any) an opportunity to present Claimant's position to the Company verbally or in writing, and the Claimant (or counsel) shall have the right to review the pertinent documents. The Company shall notify the Claimant of its decision in writing within the sixty-day period, stating specifically the basis of its decision, written in a manner calculated to be understood by the Claimant and the specific provisions of this Plan on which the decision is based. If, because of the need for a hearing, the sixty-day period is not sufficient, the decision may be deferred for up to another sixty-day period at the election of the Company, but notice of this deferral shall be given to the Claimant.
ARTICLE 8
AMENDMENTS AND TERMINATION
This Agreement may be amended or terminated at the discretion of the bank. However, each Participant shall be entitled to the benefits in Section 3.1 calculated at the date of termination of the Plan.
ARTICLE 9
MISCELLANEOUS
9.1 BINDING EFFECT. This Plan in conjunction with each Split Dollar Endorsement shall bind each Participant and the Company, their beneficiaries, survivors, executors, administrators and transferees and any Policy beneficiary.
9.2 NO GUARANTEE OF EMPLOYMENT. This Plan is not an employment policy or contract. It does not give a Participant the right to remain an employee of the Company, nor does it interfere with the Company's right to discharge a Participant. It also does not require a Participant to remain an employee nor interfere with a Participant's right to terminate employment at any time.
9.3 REORGANIZATION. The Company shall not merge or consolidate into or with another company, or reorganize, or sell substantially all of its assets to another company, firm, or person unless such succeeding or continuing company, firm, or person agrees to assume and discharge the obligations of the Company under this Agreement.
9.4 NAMED FIDUCIARY. For purposes of the Employee Retirement Income Security Act of 1974, if applicable, the Company shall be the named fiduciary and plan administrator under the Agreement. The named fiduciary may delegate to others certain aspects of the management and operation responsibilities of the plan including the employment of advisors and the delegation of ministerial duties to qualified individuals.
9.5 APPLICABLE LAW. The Plan and all rights hereunder shall be governed by and construed according to the laws of the State of Pennsylvania, except to the extent preempted by the laws of the United States of America.
9.6 NOTICE. Any notice, consent or demand required or permitted to be given under the provisions of this Plan by one party to another shall be in writing, shall be signed by the party giving or making the same, and may be given either by delivering the same to such other party personally, or by mailing the same, by United States certified mail, postage prepaid, to such party, addressed to his/her last known address as shown on the records of the Company. The date of such mailing shall be deemed the date of such mailed notice, consent or demand.
9.7 ENTIRE AGREEMENT. This Plan constitutes the entire agreement between the Company and the Participant as to the subject matter hereof. No rights are granted to the Participant by virtue of this Plan other than those specifically set forth herein.
9.8 ADMINISTRATION. The Company shall have powers which are necessary to administer this Plan, including but not limited to:
9.8.1 Interpreting the provisions of the Plan;
9.8.2 Establishing and revising the method of accounting for the Plan;
9.8.3 Maintaining a record of benefit payments; and
9.8.4 Establishing rules and prescribing any forms necessary or desirable to administer the Plan.
IN WITNESS WHEREOF, the Company executes this Plan as of the date indicated above.
COMPANY:
Adams County National Bank
BY /s/ Thomas A. Ritter
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TITLE President
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EXHIBIT A
ELECTION TO PARTICIPATE
I, ______________________________________, an eligible Participant of the Adams County National Bank Group Term Replacement Plan (the "Plan") dated ___________________2000, hereby elect to become a Participant of the Plan.
Executed this ______________________________ day of _____________ , 2000
SPLIT DOLLAR POLICY ENDORSEMENT
Policy No. ____________________ Insured:_____________________________
Supplementing and amending the application of Adams County National Bank on ___________________, 2000 to ___________________________________________________ ("Insurer"), the applicant requests and directs that:
BENEFICIARIES
1. The beneficiary designated by the Insured, or his/her transferee shall
be the beneficiary (based on the attached vesting schedule) of the lesser of:
(i) Two Times Base Annual Salary of the Insured/Participant less all such sums
as are payable by reason of any other group term insurance coverage on the life
of the Participant or (ii) $_______________.
2. The beneficiary of any remaining death proceeds shall be Adams County National Bank, a banking association located in Gettysburg, Pennsylvania (the "Company").
OWNERSHIP
3. The Owner of the policy shall be the Company. The Owner shall have all ownership rights in the Policy except as may be specifically granted to the Insured or his/her transferee in paragraph (4) of this endorsement.
4. The Insured or his/her transferee shall have the right to assign all rights and interests in the policy with respect to that portion of the death proceeds designated in paragraph (1) of this endorsement, and to exercise all settlement options with respect to such death proceeds.
MODIFICATION OF ASSIGNMENT PROVISIONS OF THE POLICY
Upon the death of the Insured, the interest of any collateral assignee of the Owner of the policy designated in paragraph (3) above shall be limited to the portion of the proceeds described in paragraph (2) above.
OWNERS AUTHORITY
The Insurer is hereby authorized to recognize the Owner's claim to rights hereunder without investigating the reason for any action taken by the Owner, including its statement of the amount of premiums it has paid on the policy. The signature of the Owner shall be sufficient for the exercise of any rights under this Endorsement and the receipt of the Owner for any sums received by it shall be a full discharge and release to the Insurer. Any transferee's rights shall be subject to this Endorsement.
Signed at _______________, PENNSYLVANIA, this ________ day of _______________,
2000 COMPANY
Adams County National Bank
By___________________________
Its___________________________
Acceptance and Beneficiary Designation
The Insured accepts and agrees to the foregoing and, subject to the rights of the Owner as stated above, designates _______________________________ as direct beneficiary and __________________________ as contingent beneficiary of the portion of the proceeds described in paragraph (1) above.
Signed at ____________________, Pennsylvania, this _______ day of ____________, 2000
INSURED
The following table details the participants vested benefit upon termination of service:
VESTING SCHEDULE
End of Plan Year 1 20% vesting in benefit End of Plan Year 2 40% vesting in benefit End of Plan Year 3 60% vesting in benefit End of Plan Year 4 80% vesting in benefit End of Plan Year 5 100% vesting in benefit |
Upon termination of service due to disability, the participant's vested percentage is 100%
If a change of control occurs while employed by the bank, the participant's vested percentage is 100%
EXHIBIT 10.5
(C)
THIS DOCUMENT IS PROVIDED TO ASSIST YOUR LEGAL COUNSEL IN DOCUMENTING YOUR SPECIFIC ARRANGEMENT. IT IS NOT A FORM TO BE SIGNED, NOR IS IT TO BE CONSTRUED AS LEGAL ADVICE. FAILURE TO ACCURATELY DOCUMENT YOUR ARRANGEMENT COULD RESULT IN SIGNIFICANT LOSSES, WHETHER FROM CLAIMS OF THOSE PARTICIPATING IN THE ARRANGEMENT, FROM THE HEIRS AND BENEFICIARIES OF PARTICIPANTS, OR FROM REGULATORY AGENCIES SUCH AS THE INTERNAL REVENUE SERVICE AND THE DEPARTMENT OF LABOR. LICENSE IS HEREBY GRANTED TO YOUR LEGAL COUNSEL TO USE THESE MATERIALS IN DOCUMENTING SOLELY YOUR ARRANGEMENT.
ADAMS COUNTY NATIONAL BANK
DIRECTOR SUPPLEMENTAL LIFE INSURANCE PLAN
THIS AGREEMENT, hereby made and entered into this day 1st of January, 2001, by and between Adams County National Bank, a Bank located in Gettysburg, Pennsylvania (the "Company") and the Director selected to participate in this Plan.
INTRODUCTION
The Company wishes to attract and retain highly qualified Directors. To further this objective, the Company is willing to divide the death proceeds of certain life insurance policies which are owned by the Company on the lives of the participating Directors with the designated beneficiary of each insured participating Director. The Company will pay life insurance premiums from its general assets.
ARTICLE 1
GENERAL DEFINITIONS
The following terms shall have the meanings specified:
1.1 "COMPENSATION COMMITTEE" means either the Compensation Committee designated from time to time by the Company's Board of Directors or a majority of the Company's Board of Directors, either of which shall hereinafter be referred to as the Compensation Committee.
1.2 "DISABILITY" means the Director's inability to perform substantially all normal duties of a Participant, as determined by the Company's Board of Directors in its sole discretion. As a condition to any benefits, the Company may require the Director to submit to such physical or mental evaluations and tests, as the Board of Directors deems appropriate.
1.3 "INSURED" means the individual whose life is insured.
1.4 "INSURER" means the insurance company issuing the life insurance policy on the life of the insured.
1.5 "PARTICIPANT" means the Director who is designated by the Compensation Committee as eligible to participate in the Plan, elects in writing to participate in the Plan using the form attached hereto as Exhibit A, and signs a Split Dollar Endorsement for the Policy in which he or she is the Insured.
1.6 "POLICY" or "POLICIES" means the individual insurance policy (or policies) adopted by the Compensation Committee for purposes of insuring a Participant's life under this Plan.
1.7 "PLAN" means this instrument, including all amendments thereto.
1.8 "TERMINATED FOR CAUSE" means that the Company has terminated the Insured's duties for any of the following reasons:
1.8.1 Gross negligence or gross neglect of duties;
1.8.2 Commission of a felony or of a gross misdemeanor involving moral turpitude; or
1.8.3 Fraud, disloyalty, dishonesty or willful violation of any law or significant Company policy committed in connection with the Director's duties.
ARTICLE 2
PARTICIPATION
2.1 ELIGIBILITY TO PARTICIPATE. The Compensation Committee in its sole discretion shall designate from time to time Directors that are eligible to participate in this Plan.
2.2 PARTICIPATION. The eligible Director may participate in this Plan by executing an Election to Participate and a Split Dollar Endorsement. The Split Dollar Endorsement shall bind the Director and his or her beneficiaries, assigns and transferees, to the terms and conditions of this Plan. A Director's participation is limited to only Policies where he or she is the Insured. Exhibit B attached hereto sets forth the original Participants and their corresponding Policies.
2.3 TERMINATION OF PARTICIPATION. A Participant's rights under this Plan shall cease and his or her participation in this Plan shall terminate if the Director is terminated for Cause.
In the event that the Company decides to maintain the Policy after the Participant's termination of participation in the Plan, the Company shall be the direct beneficiary of the entire death proceeds of the Policy.
ARTICLE 3
POLICY OWNERSHIP/INTERESTS
3.1 PARTICIPANT'S INTEREST. With respect to each Policy, the Participant, or the Participant's assignee, shall have the right to designate the beneficiary of an amount of death proceeds equal to: $100,000.
3.2 COMPANY'S INTEREST. The Company shall own the Policies and shall have the right to exercise all incidents of ownership. With respect to each Policy, the Company shall be the direct beneficiary of the remaining (after the Participant's Interest is determined) death proceeds of the Policy.
ARTICLE 4
PREMIUMS
4.1 PREMIUM PAYMENT. The Company shall pay all premiums due on all Policies.
4.2 IMPUTED INCOME. The Company shall impute income to the Participant in an amount equal to the current term rate for the Participant's age multiplied by the aggregate death benefit payable to the Participant's beneficiary. The "current term rate" is the minimum amount required to be imputed under Revenue Rulings 64-328 and 66-110, or any subsequent applicable authority.
ARTICLE 5
ASSIGNMENT
Any Participant may assign without consideration all interests in his or her Policy and in this Plan to any person, entity or trust. In the event a Participant shall transfer all of his/her interest in the Policy, then all of that Participant's interest in his or her Policy and in the Plan shall be vested in his/her transferee, who shall be substituted as a party hereunder, and that Participant shall have no further interest in his or her Policy or in this Plan.
ARTICLE 6
INSURER
The Insurer shall be bound only by the terms of their corresponding Policy. Any payments the Insurer makes or actions it takes in accordance with a Policy shall fully discharge it from all claims, suits and demands of all persons relating to that Policy. The Insurer shall not be bound by the provisions of this Plan. The Insurer shall have the right to rely on the Company's representations with regard to any definitions, interpretations, or Policy interests as specified under this Plan.
ARTICLE 7
CLAIMS PROCEDURE
7.1 CLAIMS PROCEDURE. The Company shall notify any person or entity that makes a claim against this Plan (the "Claimant"), in writing, within ninety (90) days of Claimant's written application for benefits, of Claimant's eligibility or ineligibility for benefits under this Plan. If the Company determines that Claimant is not eligible for benefits or full benefits, the notice shall set forth (1) the specific reasons for such denial, (2) a specific reference to the provisions of this Plan on which the denial is based, (3) a description of any additional information or material necessary for the Claimant to perfect Claimant's claim, and a description of why it is needed, and (4) an explanation of this Plan's claims review procedure and other appropriate information as to the steps to be taken if the Claimant wishes to have the claim reviewed. If the Company determines that there are special circumstances requiring additional time to make a decision, the Company shall notify the Claimant of the special circumstances and the date by which a decision is expected to be made, and may extend the time for up to an additional ninety-day period.
7.2 REVIEW PROCEDURE. If a Claimant is determined by the Company not to be eligible for benefits, or if the Claimant believes that Claimant is entitled to greater or different benefits, the Claimant shall have the opportunity to have such claim reviewed by the Company by filing a petition for review with the Company within sixty (60) days after receipt of the notice issued by the Company. Said petition shall state the specific reasons which the Claimant believes entitle Claimant to benefits or to greater or different benefits. Within sixty (60) days after receipt by the Company of the petition, the Company shall afford the Claimant (and counsel, if any) an opportunity to present Claimant's position to the Company verbally or in writing, and the Claimant (or counsel) shall have the right to review the pertinent documents. The Company shall notify the Claimant of its decision in writing within the sixty-day period, stating specifically the basis of its decision, written in a manner calculated to be understood by the Claimant and the specific provisions of this Plan on which the decision is based. If, because of the need for a hearing, the sixty-day period is not sufficient, the decision may be deferred for up to another sixty-day period at the election of the Company, but notice of this deferral shall be given to the Claimant.
ARTICLE 8
AMENDMENTS AND TERMINATION
This Agreement may be amended or terminated at the discretion of the bank. However, each Participant shall be entitled to the benefits in Section 3.1 at the date of termination of the Plan.
ARTICLE 9
MISCELLANEOUS
9.1 BINDING EFFECT. This Plan in conjunction with each Split Dollar Endorsement shall bind each Participant and the Company, their beneficiaries, survivors, executors, administrators and transferees and any Policy beneficiary.
9.2 NO GUARANTEE OF EMPLOYMENT. This Plan is not an employment policy or contract. It does not give a Participant the right to remain a Director of the Company, nor does it interfere with the Company's right to discharge a Participant. It also does not require a Participant to remain a Director nor interfere with a Participant's right to terminate at any time.
9.3 REORGANIZATION. The Company shall not merge or consolidate into or with another company, or reorganize, or sell substantially all of its assets to another company, firm, or person unless such succeeding or continuing company, firm, or person agrees to assume and discharge the obligations of the Company under this Agreement.
9.4 NAMED FIDUCIARY. For purposes of the Employee Retirement Income Security Act of 1974, if applicable, the Company shall be the named fiduciary and plan administrator under the Agreement. The named fiduciary may delegate to others certain aspects of the management and operation responsibilities of the plan including the employment of advisors and the delegation of ministerial duties to qualified individuals.
9.5 APPLICABLE LAW. The Plan and all rights hereunder shall be governed by and construed according to the laws of the State of Pennsylvania, except to the extent preempted by the laws of the United States of America.
9.6 NOTICE. Any notice, consent or demand required or permitted to be given under the provisions of this Plan by one party to another shall be in writing, shall be signed by the party giving or making the same, and may be given either by delivering the same to such other party personally, or by mailing the same, by United States certified mail, postage prepaid, to such party, addressed to his/her last known address as shown on the records of the Company. The date of such mailing shall be deemed the date of such mailed notice, consent or demand.
9.7 ENTIRE AGREEMENT. This Plan constitutes the entire agreement between the Company and the Participant as to the subject matter hereof. No rights are granted to the Participant by virtue of this Plan other than those specifically set forth herein.
9.8 ADMINISTRATION The Company shall have powers which are necessary to administer this Plan, including but not limited to:
9.8.1 Interpreting the provisions of the Plan;
9.8.2 Establishing and revising the method of accounting for the Plan;
9.8.3 Maintaining a record of benefit payments; and
9.8.4 Establishing rules and prescribing any forms necessary or desirable to administer the Plan.
IN WITNESS WHEREOF, the Company executes this Plan as of the date indicated above.
COMPANY:
Adams County National Bank
BY: /s/ Thomas A. Ritter
-----------------------------
TITLE President
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EXHIBIT A
ELECTION TO PARTICIPATE
I, ______________________________________, an eligible Participant of the Adams County National Bank Director Supplemental Life Insurance Plan (the "Plan") dated ____________________ 2000, hereby elect to become a Participant of the Plan.
Executed this day of , 2000
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Witness Participant
EXHIBIT B
LIST OF PARTICIPANTS
PARTICIPANT'S NAME INSURER POLICY NUMBER
SPLIT DOLLAR POLICY ENDORSEMENT
Policy No. ____________________ Insured: ____________________
Supplementing and amending the application of Adams County National Bank on ____________________ , 2000 to ("Insurer"), the applicant requests and directs that:
BENEFICIARIES
1. The beneficiary designated by the Insured, or his/her transferee shall be the beneficiary of: $100,000.
2. The beneficiary of any remaining death proceeds shall be Adams County National Bank, a banking association located in Gettysburg, Pennsylvania (the "Company").
OWNERSHIP
3. The Owner of the policy shall be the Company. The Owner shall have all ownership rights in the Policy except as may be specifically granted to the Insured or his/her transferee in paragraph (4) of this endorsement.
4. The Insured or his/her transferee shall have the right to assign all rights and interests in the policy with respect to that portion of the death proceeds designated in paragraph (1) of this endorsement, and to exercise all settlement options with respect to such death proceeds.
MODIFICATION OF ASSIGNMENT PROVISIONS OF THE POLICY
Upon the death of the Insured, the interest of any collateral' assignee of the Owner of the policy designated in paragraph (3) above shall be limited to the portion of the proceeds described in paragraph (2) above.
OWNERS AUTHORITY
The Insurer is hereby authorized to recognize the Owner's claim to rights hereunder without investigating the reason for any action taken by the Owner, including its statement of the amount of premiums it has paid on the policy. The signature of the Owner shall be sufficient for the exercise of any rights under this Endorsement and the receipt of the Owner for any sums received by it shall be a full discharge and release to the Insurer. Any transferee's rights shall be subject to this Endorsement.
Signed at ________________, Pennsylvania, this ____ day of _____________ , 2000
COMPANY
Adams County National Bank
By____________________________
Its___________________________
Acceptance and Beneficiary Designation
The Insured accepts and agrees to the foregoing and, subject to the rights of the Owner as stated above, designates ______________________________ as direct beneficiary and __________________________ as contingent beneficiary of the portion of the proceeds described in paragraph (1) above.
Signed at ________________, Pennsylvania, this ____ day of _____________ , 2000
INSURED
EXHIBIT 10.6
ADAMS COUNTY NATIONAL BANK
DIRECTOR DEFERRED FEE AGREEMENT
THIS AGREEMENT is made this 1st day of January, 2001, by and between Adams County National Bank, located in Gettysburg, Pennsylvania (the "Company"), and __________ (the "Director").
INTRODUCTION
In an effort to reward past service, encourage continued service on the Company's Board of Directors, and as a method to attract future Directors, the Company is willing to provide to the Director a deferred fee opportunity. The Company will pay each Director's benefits from the Company's general assets.
AGREEMENT
The Director and the Company agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. Whenever used in this Agreement, the following words and phrases shall have the meanings specified:
1. 1.1 "ANNIVERSARY DATE" means December 31 of each year.
1.1.2 "CHANGE OF CONTROL" of the Company shall mean: (i) an event of a nature that results in a Change in Control of the Company within the meaning of the Home Owners' Loan Act, as amended (or any successor legislation), and applicable rules and regulations promulgated thereunder or under the Change in Bank Control Act, by the Office of Thrift Supervision ("OTS") (or any successor agency) as in effect at the time of the Change in Control; or (ii) the election to the Board of Directors of the Company of any person who was not nominated for such election by the Board or by a nominating committee of the Board prior to his or her election; or (iii) the merger of the Company with any other entity, or the acquisition of all or substantially all of the assets of the Company by another entity (in either case other than pursuant to an involuntary merger or consolidation mandated by any governmental agency then having jurisdiction over the Company), to which transaction the Director has not consented.
A Change of Control shall also mean an event of a nature that: (i) would be required to be reported in response to Item 1(a) of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(D) of the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change of Control of the Company or the Holding
Company within the meaning of the Home Owners' Loan Act and the Rules and Regulations promulgated by the OTS (or its predecessor agency), as in effect on the date hereof; or (iii) without limitation such a Change of Control shall be deemed to have occurred at such time as (a) any "Person" (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company or the Holding Company representing 25% or more of the Company's or the Holding Company's outstanding securities except for any securities of the Company purchased by the Holding Company in connection with the conversion of the Company to the stock form and any securities purchased by the Company's employee stock ownership plan and trust; (b) a proxy statement soliciting proxies from stockholders of the Company or Holding Company, by someone other than the current management of the Company or Holding Company, seeking stockholder approval of a plan of reorganization, merger or consolidation of the Company or Holding Company or similar transaction with one or more corporations as a result of which the outstanding shares of the class of securities then subject to such plan or transaction are exchanged for or converted into cash or property or securities not issued by the Company or the Holding Company shall be distributed and the requisite number of proxies approving such plan of reorganization, merger or consolidation of the Company or Holding Company are received and voted in favor of such transactions; or (c) a tender offer is made for 25 % or more of the outstanding securities of the Company or Holding Company and shareholders owning beneficially or of record 25 % or more of the outstanding securities of the Company or Holding Company have tendered or offered to sell their shares pursuant to such tender offer and such tendered shares have been accepted by the tender offeror.
1.1.3 "CODE" means the Internal Revenue Code of 1986, as amended.
1.1.4 "DEFERRAL ACCOUNT" means the Company's accounting of the Director's accumulated Deferrals plus accrued interest.
1.1.5 "DEFERRALS" means the amount of the Director's Fees which the Director elects to defer according to this Agreement.
1.1.6 "DISABILITY" means the Director's inability to perform substantially all normal duties of a Director, as determined by the Company's Board of Directors in its sole discretion. As a condition to any benefits, the Company may require the Director to submit to such physical or mental evaluations and tests as the Board of Directors deems appropriate
1.1.7 "EFFECTIVE DATE" means the date of this Agreement. 1.1.8 "ELECTION FORM." means the Form attached as Exhibit 1. 1.1.9 "FEES" means the total Director's fees payable to the Director. |
1.1.10 "PLAN YEAR" means the calendar year.
1.1.11 "PRIME RATE" means the Prime Interest Rate reported in the Wall Street Journal on the business day immediately prior to the plan Anniversary Date.
1.1.12 "TERMINATION OF SERVICE" means the Director ceasing to be a member of the Company's Board of Directors for any reason whatsoever.
ARTICLE 2
DEFERRAL ELECTION
2.1 INITIAL ELECTION. The Director shall make an initial deferral election under this Agreement by filing with the Company a signed Election Form within thirty (30) days after the Effective Date of this Agreement. The Election Form shall set forth the amount of Fees to be deferred. The Election Form shall be effective to defer only Fees earned after the date the Election Form is received by the Company.
2.2 ELECTION. CHANGES
2.2.1 GENERALLY. The Director may modify the amount of Fees to be deferred annually by filing a new Election Form with the Company prior to the beginning of the Plan Year in which the Fees are to be deferred. The modified deferral election shall not be effective until the calendar year following the year in which the subsequent Election Form is received and approved by the Company. The new Election Form may be used to change the Director's distribution option; however, the change shall not be effective before the first day of the Plan Year immediately following the date that the Election Form was executed.
2.2.2 HARDSHIP. If an unforeseeable financial emergency arising
from the death of a family member, divorce, sickness, injury, catastrophe
or similar event outside the control of the Director occurs, the Director,
by written instructions to the Company, may reduce future deferrals under
this Agreement.
ARTICLE 3
DEFERRAL ACCOUNT
3.1 ESTABLISHING AND CREDITING. The Company shall establish a Deferral Account on its books for the Director and shall credit to the Deferral Account the following amounts:
3.1.1 DEFERRALS. The Fees deferred by the Director as of the time the Fees would have otherwise been paid to the Director.
3.1.2 INTEREST. On the first day of each month and immediately prior to the payment of any benefits, interest on the account balance since the preceding credit under this Section 3.1.3, if any, at an annual rate, compounded monthly, equal to the Prime Rate for the previous Anniversary Date. HOWEVER, THE ACTUAL
CREDITING RATE WILL EQUAL THE PRIME RATE UNLESS PRIME IS LESS THAN SIX (6%) OR GREATER THAN TWELVE (12%). IN WHICH CASE THE MAXIMUM CREDITING RATE SHALL BE TWELVE (12%) AND THE MINIMUM SHALL BE SIX (6%).
3.2 STATEMENT OF ACCOUNTS. The Company shall provide to the Director, within one hundred twenty (120) days after each Anniversary Date, a statement setting forth the Deferral Account balance.
3.3 ACCOUNTING DEVICE ONLY. The Deferral Account is solely a device for measuring amounts to be paid under this Agreement. The Deferral Account is not a trust fund of any kind. The Director is a general unsecured creditor of the Company for the payment of benefits. The benefits represent the mere Company promise to pay such benefits. The Director's rights are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by the Director's creditors.
ARTICLE 4
DISTRIBUTION OF BENEFITS
4.1 TERMINATION OF SERVICE BENEFIT. Upon the participants termination of service Date, the Company shall pay to the Director the benefit described in this Section 4.1 in lieu of any other benefit under this Agreement.
4.1.1 AMOUNT OF BENEFIT. The benefit under this Section 4.1 is the Deferral Account balance at the Director's Termination of Service Date.
4.1.2 PAYMENT OF BENEFIT. The Company shall pay the benefit to the Director in the form elected by the Director on the Election Form. If the Director elected to receive his benefit in the form of installments, the Company shall continue to credit interest on the remaining account balance during any applicable installment period fixed at the rate in effect under Section 3.1.2 on the Director's Retirement Date. HOWEVER, THIS FIXED RATE SHALL NOT BE GREATER THAN (9.00%).
4.2 PRE-TERMINATION OF SERVICE BENEFIT. THE PARTICIPANT SHALL HAVE A ONE-TIME OPTION TO RECEIVE BENEFIT PAYMENTS PRIOR THEIR TERMINATION OF SERVICE. HOWEVER, THE DIRECTOR SHALL NOT HAVE THE ABILITY TO DEFER FUTURE COMPENSATION.
4.2.1 AMOUNT OF BENEFIT. THE BENEFIT UNDER THIS SECTION 4.2 IS THE
DEFERRAL ACCOUNT BALANCE ON THE DATE THE DIRECTOR ELECTS TO RECEIVE
BENEFIT PAYMENTS.
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4.2.2 PAYMENT OF BENEFIT. THE COMPANY SHALL PAY THE BENEFIT TO THE DIRECTOR IN THE FORM ELECTED BY THE DIRECTOR ON THE ELECTION FORM. IF THE DIRECTOR ELECTED TO RECEIVE HIS BENEFIT. IN THE FORM OF INSTALLMENTS, THE COMPANY SHALL CONTINUE TO CREDIT INTEREST ON THE REMAINING ACCOUNT BALANCE DURING ANY APPLICABLE
INSTALLMENT PERIOD FIXED AT THE RATE IN EFFECT UNDER SECTION 3.1.2ON THE DIRECTOR'S RETIREMENT. DATE. HOWEVER, THIS FIXED RATE SHALL NOT BE GREATER THAN (9.00%).
4.3 CHANGE F CONTROL BENEFIT. UPON TERMINATION OF SERVICE WITHIN 12 MONTHS OF A CHANGE OF CONTROL, THE COMPANY SHALL PAY TO THE DIRECTOR THE BENEFIT DESCRIBED IN THIS SECTION 4.3 IN LIEU OF ANY OTHER BENEFIT. UNDER THIS AGREEMENT.
4.3.1 AMOUNT OF BENEFIT. THE BENEFIT UNDER THIS SECTION 4.3 SHALL BE THE DEFERRAL ACCOUNT ON THE TERMINATION OF SERVICE.
4.3.2 PAYMENT OF BENEFIT. THE COMPANY SHALL PAY THE BENEFIT TO THE DIRECTOR IN THE FORM OF A LUMP SUM PAYMENT. THIS LUMP-SUM PAYMENT SHALL OCCUR WITHIN 30 DAYS AFTER THE DATE OF TERMINATION OF SERVICE.
4.4 HARDSHIP DISTRIBUTION. Upon the Board of Director's determination (following petition by the Director) that the Director has suffered an unforeseeable financial emergency as described in Section 2.2.2, the Company shall distribute to the Director all or a portion of the Deferral Account balance as determined by the Company, but in no event shall the distribution be greater than is necessary to relieve the financial hardship.
ARTICLE 5
DEATH BENEFITS
5.1 DEATH DURING ACTIVE SERVICE. If the Director dies while in the active service of the Company, the Company shall pay to the Director's beneficiary the benefit described in this Section 5.1 in lieu of any other benefit under this Agreement.
5.1.1 AMOUNT OF BENEFIT. The benefit under Section 5.1 is the Account balance on the date of the Director's death.
5.1.2 PAYMENT OF BENEFIT. The Company shall pay the benefit to the beneficiary in the form elected by the Director on the Election Form. If the Director elected to receive his benefit in the form of installments, the Company shall continue to credit interest on the remaining account balance during any applicable installment period fixed at the rate in effect under Section 3.1.2 on the date of the Director's death. HOWEVER, THIS FIXED RATE SHALL NOT BE GREATER THAN (9.00%).
5.2 DEATH DURING BENEFIT PERIOD. If the Director dies after benefit payments have commenced under this Agreement but before receiving all such payments, the Company shall pay the remaining benefits to the Director's beneficiary at the same time and in the same amounts they would have been paid to the Director had the Director survived.
ARTICLE 6
BENEFICIARIES
6.1 BENEFICIARY DESIGNATIONS. The Director shall designate a beneficiary by filing a written designation with the Company. The Director may revoke or modify the designation at any time by filing a new designation. However, designations will only be effective if signed by the Director and accepted by the Company during the Director's lifetime. The Director's beneficiary designation shall be deemed automatically revoked if the beneficiary predeceases the Director, or if the Director names a spouse as beneficiary and the marriage is subsequently dissolved. If the Director dies without a valid beneficiary designation, all payments shall be made to the Director's estate.
6.2 FACILITY OF PAYMENT. If a benefit is payable to a minor, to a person declared incompetent, or to a person incapable of handling the disposition of his or her property, the Company may pay such benefit to the guardian, legal representative or person having the care or custody of such minor, incompetent person or incapable person. The Company may require proof of incompetence, minority or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Company from all liability with respect to such benefit.
ARTICLE 7
CLAIMS AND REVIEW PROCEDURES
7.1 CLAIMS PROCEDURE. The Company shall notify any person or entity that
makes a claim against the Agreement (the "Claimant") in writing, within ninety
(90) days of his or her written application for benefits, of his or her
eligibility or non-eligibility for benefits under the Agreement. If the Company
determines that the Claimant is not eligible for benefits or full benefits, the
notice shall set forth (1) the specific reasons for such denial, (2) a specific
reference to the provisions of the Agreement on which the denial is based, (3) a
description of any additional information or material necessary for the Claimant
to perfect his or her claim, and a description of why it is needed, and (4) an
explanation of the Agreement's claims review procedure and other appropriate
information as to the steps to be taken if the Claimant wishes to have the claim
reviewed. If the Company determines that there are special circumstances
requiring additional time to make a decision, the Company shall notify the
Claimant of the special circumstances and the date by which a decision is
expected to be made, and may extend the time for up to an additional ninety-day
period.
7.2 REVIEW PROCEDURE. If the Claimant is determined by the Company not to be eligible for benefits, or if the Claimant believes that he or she is entitled to greater or different benefits, the Claimant shall have the opportunity to have such claim reviewed by the Company by filing a petition for review with the Company within sixty (60) days after receipt of the notice issued by the Company. Said petition shall state the specific reasons which the Claimant believes entitle him or her to benefits or to greater or different benefits. Within sixty (60) days after receipt by the Company of the petition, the Company shall afford the Claimant (and counsel, if any) an opportunity to present his or her position to the Company orally or in writing, and the Claimant (or counsel) shall have the right to review the pertinent documents. The Company shall notify the Claimant of its decision in writing within the sixty-day
period, stating specifically the basis of its decision, written in a manner calculated to be understood by the Claimant and the specific provisions of the Agreement on which the decision is based. If, because of the need for a hearing, the sixty-day period is not sufficient, the decision may be deferred for up to another sixty-day period at the election of the Company, but notice of this deferral shall be given to the Claimant.
ARTICLE 8
AMENDMENTS AND TERMINATION
8.1 This Agreement may be amended or terminated only by a written agreement signed by the Company and the Director.
8.2 Notwithstanding Section 8.1, the Company may amend or terminate this Agreement at any time if, pursuant to legislative, judicial or regulatory action, continuation of the Agreement would (i) cause benefits to be taxable to the Director prior to actual receipt, or (ii) result in significant financial penalties or other significantly detrimental ramifications to the Company (other than the financial impact of paying the benefits). In no event shall this Agreement be terminated under this Section 8.2 without payment to the Director of the Deferral Account balance attributable to the Director's Deferrals and interest credited on such amounts.
ARTICLE 9
MISCELLANEOUS
9. 1 BINDING EFFECT. This Agreement shall bind the Director and the Company, and their beneficiaries, survivors, executors, administrators and transferees.
9.2 NO GUARANTEE OF SERVICE. This Agreement is not a contract for services. It does not give the Director the right to remain a Director of the Company. It also does not require the Director to remain a Director nor interfere with the Director's right to terminate services at any time.
9.3 NON-TRANSFERABILITY. Benefits under this Agreement cannot be sold, transferred, assigned, pledged, attached or encumbered in any manner
9.4 TAX WITHHOLDING. The Company shall withhold any taxes that are required to be withheld from the benefits provided under this Agreement TAX WITHHOLDING. The Company shall withhold any taxes that are required to be withheld from the benefits provided under this Agreement
9.5 APPLICABLE LAW. The Plan and all rights hereunder shall be governed by and construed according to the laws of Pennsylvania, except to the extent preempted by the laws of the United States of America.
9.6 RECOVERY OF ESTATE TAXES. If the Director's gross estate for federal estate tax purposes includes any amount determined by reference to and on account of this Agreement, and if the beneficiary is other than the Director's estate, then the Director's estate shall be entitled to recover from the beneficiary receiving such benefit under the terms of the Agreement, an amount by which the total estate tax due by the Director's estate, exceeds the total estate tax which would have been payable if the value of such benefit had not been included in the Director's gross estate. If there is more than one person receiving such benefit, the right of recovery shall be against each such person. In the event the beneficiary has a liability hereunder, the beneficiary may petition the Company for a lump sum payment in an amount not to exceed the beneficiary's liability hereunder.
9.7 UNFUNDED ARRANGEMENT. The Director and the Director's beneficiary are general unsecured creditors of the Company for the payment of benefits under this Agreement. The benefits represent the mere promise by the Company to pay such benefits. The rights to benefits are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. Any insurance on the Director's life is a general asset of the Company to which the Director and the Director's beneficiary have no preferred or secured claim.
9.8 REORGANIZATION. The Company shall not merge or consolidate into or with another company, or reorganize, or sell substantially all of its assets to another company, firm, or person unless such succeeding or continuing company, firm, or person agrees to assume and discharge the obligations of the Company under this Agreement.
9.9 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the Company and the Director as to the subject matter hereof. No rights are granted to the Director by virtue of this Agreement other than those specifically set forth herein.
9.10 ADMINISTRATION. The Company shall have powers which are necessary to administer this Agreement, including but not limited to:
9.10.1 Interpreting the provisions of the Agreement;
9.10.2 Establishing and revising the method of accounting for
the Agreement;
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9.10.3 Maintaining a record of benefit payments; and
9.10.4 Establishing rules and prescribing any forms necessary or desirable to administer the Agreement.
9.11 NAMED FIDUCIARY. For purposes of the Employee Retirement Income Security Act of 1974, if applicable, the Company shall be the named fiduciary and plan administrator under the Agreement. The named fiduciary may delegate to others certain aspects of the management and operation responsibilities of the plan including the employment of advisors and the delegation of ministerial duties to qualified individuals.
IN WITNESS WHEREOF, the Director and a duly authorized Company officer have signed this Agreement.
DIRECTOR: COMPANY:
ADAMS COUNTY NATIONAL BANK
BY /S/ THOMAS A. RITTER
--------------------------------------- ----------------------------------
TITLE PRESIDENT
----------------------------------
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ADAMS COUNTY NATIONAL BANK
EXHIBIT I
TO
DIRECTOR FEE DEFERRAL AGREEMENT
DEFERRAL ELECTION
for
I elect to defer compensation under my Director Fee Deferral Agreement with the Bank, as follows:
AMOUNT OF DEFERRAL
[INITIAL AND COMPLETE]
___ I elect to defer ______% or $_____ of my Retainer and Board Fees
___ I elect not to defer my Retainer and Board Fees
I understand that I may change the amount, frequency and duration of my deferral by filing a new election form with the Bank; provided, however, that any subsequent election will not be effective until the calendar year following the year in which the new election is received by the Bank.
Form of Benefit
I elect to receive benefits under the Agreement in the
following form:
[INITIAL ONE]
______ Lump Sum
______ Equal monthly installments for 120 months
ADAMS COUNTY NATIONAL BANK
BENEFICIARY DESIGNATION
I designate the following as beneficiary of benefits under the Director Fee Deferral Agreement payable following my death:
I understand that I may change these beneficiary designations by filing a new written designation with the Bank. I further understand that the designations will be automatically revoked if the beneficiary predeceases me, or, if I have named my spouse as beneficiary, in the event of the dissolution of our marriage.
Signature ___________________________________
Date ___________________________________
Accepted by Adams County National Bank this day of, 2001.
By ____________________________________
Title ____________________________________
EXHIBIT 10.7
ADAMS COUNTY NATIONAL BANK
SALARY SAVINGS PLAN
12/04
PLAN ARRANGED BY
STEVEN J ALGER
2555 KINGSTON RD STE 100 YORK PA 17402
(717) 755-9266
PLAN HIGHLIGHTS
Plan Highlights briefly describes your plan. The rest of this booklet explains in greater detail how the plan works.
We started your plan on January 1, 1993.
Your 401(k) savings plan:
o Lets you defer a percentage of your pay. You reduce your total taxable income by making 401(k) elective deferral contributions under the plan. This reduces your current taxes. You will be taxed on this money when you receive it later as a benefit.
o Matches a percentage of your 401(k) elective deferral contributions. That's extra money for you.
o Provides that your account resulting from any money you contribute and our contributions for you always belongs to you.
o Gives you tax deferral on any earnings until you receive them as benefits.
o Offers several different ways to receive your benefits. You choose the right way for you.
If you are already making 401(k) elective deferral contributions, you are on your way to a more secure future. If you aren't making 401(k) elective deferral contributions, there's still time to start.
ABOUT THIS BOOKLET
This booklet is the summary plan description. It explains how your plan currently works, when you qualify for benefits, and other information.
The plan is much more detailed and it governs your benefits.
Ask your plan administrator if you have questions. Part 7 of this booklet lists your plan administrator's name and address.
GA 4-6969
(8.0)
TABLE OF CONTENTS
JOINING THE PLAN PART 1
o When You Join
o Signing Up
o Changes in Your Participation
CONTRIBUTIONS TO THE PLAN PART 2
o Your 401(k) Elective Deferral Contributions
o Our Matching Contributions
o Makeup Contributions
o Helpful Terms
o Limits
YOUR ACCOUNT: VESTING AND
GENERAL INFORMATION PART 3
o Your Account
o Investing Your Account
o Vesting in Your Account
o You Can Borrow From Your Account
WHEN THE PLAN PAYS BENEFITS PART 4
o At Retirement
o Required Beginning Date
o Withdrawals From Your Account
o At Termination
o At Death
o Tax Considerations
HOW THE PLAN PAYS BENEFITS PART 5
o At Termination or Retirement
o Death Benefits Before Benefits Begin
o Forms to Choose
o A Spouse's Rights
IMPORTANT INFORMATION FOR YOU PART 6
o Your Rights
o Qualified Domestic Relations Order (QDRO)
o The Plan Administrator
o Processing Distributions and Other Transactions
o Direct Rollovers
o Rollovers From Other Plans
o Top-heavy Plans
o Assigning Your Benefits
o Your Social Security Benefits
o Claiming Benefits Under the Plan
o Changing or Stopping the Plan
o Our Plan and the Pension Benefit Guaranty Corporation (PBGC)
FACTS ABOUT THE PLAN PART 7
PART 1 JOINING THE PLAN
WHEN YOU JOIN
You join the plan as an active participant on the January 1 or July 1 on or
after you meet these requirements:
o You are an employee.
o You have 6 months of entry service.
o You are age 20 1/2 or older.
ENTRY SERVICE means the sum of all of your periods of service. A period of service starts when you start working for us. It ends on the earlier of the date you stop working (you quit or are discharged) or the date you are absent from work one year. Any period of time of less than one year when either you are not working for us, or you are absent from work because of vacation or some other reason, will count as a period of service.
Entry service includes service with:
o FARMERS NATIONAL BANK OF NEWVILLE
SIGNING UP
To make 401(k) elective deferral contributions, you complete an elective deferral agreement. Part 2 tells you more about these contributions.
You need to complete a form naming the person who will receive any death benefit if you die before retirement. If you name someone other than your spouse and you have been married at least one year, your spouse must agree to your selection.
You must complete a form telling us how you wish to use the investment options available for your account (see Part 3).
CHANGES IN YOUR PARTICIPATION
You become an inactive participant on the date you no longer work for us. You stop being a participant on the date you are not an employee and your account is zero. You rejoin the plan as an active participant when you work another hour for us.
PART 2 CONTRIBUTIONS TO THE PLAN
Plan contributions create an account for you. That account holds your money. Contributions share in investment earnings or losses. You don't pay taxes on any earnings until later-when you receive that money.
YOUR 401(K) ELECTIVE DEFERRAL CONTRIBUTIONS
When you sign up, you tell us how much of your pay you want to defer.
You sign up by completing an elective deferral agreement. You change or stop your deferrals by signing another agreement. Your agreement must be signed before it is effective. Your agreement to start or change your deferrals may only be effective on the first day of the pay period following your entry date or any following January 1 or July 1. Your agreement to stop your deferrals may be effective on the first day of a pay period.
Your 40 1(k) elective deferral contributions:
o GIVE you an additional return on your dollars through our matching contributions.
o BUILD income for your retirement years.
o REDUCE your income taxes, letting you save for the future with dollars you would otherwise pay in current taxes.
o MAY PROVIDE investment earnings that aren't taxed until you get your benefits.
You may make catch-up contributions in a taxable year if you will be at least age 50 by the end of that year. Catch-up contributions are 401(k) elective deferral contributions in excess of any limit on such contributions under the plan.
For 2005, the maximum catch-up contribution is $4,000. The maximum is increased by $1,000 each year until 2006 when it will be $5,000. For years after 2006 the maximum is subject to change each year for cost of living changes.
Social Security tax is based on your income before you defer. That means your Social Security benefits stay the same no matter how much you defer.
Federal law limits the amount you can defer under all plans. You can find information about the limits at the end of Part 2.
OUR MATCHING CONTRIBUTIONS
Our matching contributions give you an additional return on the amount you defer. We will make a matching contribution equal to 100% of your 401(k) elective deferral contributions. 401(k) elective deferrals over 4% of your pay are not matched.
Matching contributions are calculated based on your pay and elective deferrals for the pay period. Matching contributions are made for all persons who were active participants at any time during that pay period.
MAKEUP CONTRIBUTIONS
You can make up missed 401(k) elective deferral contributions when you return to work for us after a period of qualified military service as required by law. If you make up such 401(k) elective deferral contributions, we will make any matching contributions that apply.
HELPFUL TERMS
PAY means your total pay including your elective contributions to any of our plans. For purposes of your 401(k) elective deferral contributions and matching contributions, pay excludes any expense repayments or other allowances, fringe benefits, moving expenses, deferred compensation and welfare benefits.
Elective contributions are salary reduction amounts contributed by an employer at an employee's election to a 401(k) plan, simplified employee pension, cafeteria plan, qualified transportation fringe benefit plan, or tax sheltered annuity. Elective contributions also include amounts deferred under a 457 plan or employee contributions "picked up" by a governmental employer and treated as employer contributions.
LIMITS
401(k) Elective Deferral Limits
The law limits the amount you may defer in any tax year. For 2005, the limit under all plans of our type is $14,000. This limit is increased by $1,000 each year until 2006 when it will be $15,000. For years after 2006 the limit is subject to change each year for cost of living changes. If you are also a participant in a plan of an unrelated employer, this limit applies to the amount you defer under both plans. The combined limit for unrelated plans is increased if you will be at least age 50 by the end of the year. For 2005, the increase will be $4,000 for a combined limit of $18,000. The increase for people who are at least age 50 will be increased by $1,000 each year until 2006 when the combined limit will be $20,000. For years after 2006, the increase is subject to change each year for cost of living changes. If you are over the limit, you should request one or both plans to pay any excess to you. Only amounts over the limit may be paid to you, but you may choose whether it is paid from one or both plans. If you don't have the excess paid to you, it is taxable to you, but stays in the plans to be taxed again later when you receive it. Under our plan, you must tell the plan administrator by March 1 of the following year if you want any excess paid to you. If excess 401(k) elective deferral contributions are paid to you, any matching contributions made because of those 401(k) elective deferral contributions will be forfeited.
If you are a highly paid employee, the law may limit your contributions and our matching contributions. Because of the limit, we will either restrict the amount you can contribute in the future, or return your contributions over the limit. Your returned 401(k) elective deferral contributions will be treated as regular taxable income. If 401(k) elective deferral contributions are paid to you, any matching contributions made because of these 401(k) elective deferral contributions will be forfeited. Other vested contributions over the limit will be paid to you. The amount paid to you will include any earnings.
Matching contributions which are forfeited because of these limits reduce our future contributions.
Pay Limits
The law limits the amount of pay that may be used to determine contributions each year. The 2005 limit is $210,000. This limit is subject to change each year for cost of living changes.
415 Limits
The law also limits the amount of contributions that can be made for or by you to the plan in a year to the lesser of 100% of pay or a dollar limit. This limit applies to all defined contribution plans of ours and any related employers. The dollar limit for years beginning after December 31, 2004 is $42,000. This limit is subject to change each year for cost of living changes.
Ask your plan administrator if you want to know more about these limits.
PART 3 YOUR ACCOUNT:
VESTING AND GENERAL INFORMATION
YOUR ACCOUNT
Your contributions and our contributions for you are credited to your account.
Your account equals the current value of these contributions.
INVESTING YOUR ACCOUNT
Contributions made to your account are invested to provide benefits under the plan. We decide which investment options are available for your account.
Many investment options have charges and restrictions that apply when you remove money or transfer funds. The dollar amount that can be removed or transferred may be restricted along with the dates on which such transactions can be made. Your plan administrator can tell you more about these charges and restrictions and when they will apply.
You decide how to use the investment options for your contributions and our contributions for you.
If you do not make an investment choice, we will decide how to use the investment options.
The plan administrator will tell you more about the investment options.
VESTING IN YOUR ACCOUNT
The part of your account to which you always have a right is called your vested account.
Under this plan, you are always 100% vested in your total account.
VESTING SERVICE for early retirement age (see Part 4) means the sum of your periods of service. A period of service begins when you start working for us. It ends on the earlier of the date you stop working (you quit or are discharged) or the date you are absent from work one year. Any period of time of less than one year when either you are not working for us, or you are absent from work because of vacation or some other reason, will count as a period of service.
Vesting service includes service with:
o FARMERS NATIONAL BANK OF NEWVILLE
YOU CAN BORROW FROM YOUR ACCOUNT
Loans are available under the plan. As rules issued by the Department of Labor emphasize, however, the plan's primary purpose is to provide retirement income for you. These rules help make sure your money is available when you retire.
You must be a party-in-interest who is a participant or beneficiary to receive a
loan. The Employee Retirement Income Security Act of 1974 (ERISA) defines a
party-in-interest. Most people cease to be a party-in-interest when they stop
working for us. Loans are made on a reasonably equal basis under the plan's loan
policy. That means the limits and rules in the following paragraphs apply in the
same way to all such participants.
The loan will be limited to the amount you may borrow without the loan being treated as a taxable distribution to you. Generally, the loan may not be more than 50% of your vested account or $50,000, (reduced by the highest outstanding loan balance, if any, during the one-year period ending on the day before your new loan is made) if less. The minimum loan is $ 1,000. You may be granted one loan during any one-year period. Only one loan may be outstanding at a time. Your vested account will provide the security for the loan. You may not use your account as a security for a loan outside the plan.
Call the TeleTouch(R) toll-free number (see Part 7) to request a loan.
You'll be asked for important credit information and earnings history. This is the type of information a bank or other lending institution would request. It's used as a guide to grant loans and helps assure that borrowers can repay the loan as required. You must give the loan administrator permission to check on your credit history. Only participants who are creditworthy will be granted loans.
A charge or restriction might apply for some investment options if you are granted a loan. Talk with your loan administrator before you request a loan.
Because a loan may reduce benefits payable to the spouse at a later date, if you are married you may need to have your spouse's consent to make or revise a loan.
The interest rate will be based on the rates available for similar loans from commercial lending institutions. The loan administrator periodically examines the rates such lenders are using. Once a loan is granted, the interest rate on the loan will not change.
When you are granted a loan, you will need to sign a "promissory note." A promissory note is your written promise to repay the loan. The note will contain information about your loan such as the amount loaned to you, the interest charged, and any processing fees or late charges. You must assign the security for the loan to the plan when the loan is granted.
As you repay the loan, the principal and interest are credited to your account. A loan to a participant does not affect the account of any other participant.
Payment due dates and the length of the repayment period will be set out in the promissory note. Payments will be due at least quarterly. The repayment period won't be longer than five years. Payroll deduction will be used to repay the loan if available. You may repay the loan before it is due. A processing fee may be charged as set out in the promissory note for payments which are not made by payroll deduction.
If any amount remains unpaid for more than 90 days after due the loan shall be in default. Upon default the entire principal balance and interest shall become immediately due and payable. The amount of the outstanding loan will be treated as a distribution and will be taxable to you. To recover the amount due, the plan may use any part of your vested account available for distribution to you.
Processing fees, late charges or extra costs incurred by the plan if you default on a loan will be charged to your account.
However, no default will occur if payments are not made while you are actively serving in the military or for a period up to one year during an approved unpaid leave of absence, other than military leave. The plan administrator has established guidelines for making up these past payments after you return to work following such period of active military service or approved unpaid leave of absence.
When you cease to be an employee and party-in-interest, the balance of any outstanding loan is due.
The balance of any outstanding loan is due if the plan terminates.
PART 4 WHEN THE PLAN PAYS BENEFITS
Your vested account will be used to provide benefits. If you stop working for us and your vested account is $5,000 or less, your benefits will be paid to you or rolled over to an IRA at that time.
AT RETIREMENT
Unless you choose otherwise, benefits will start on your normal retirement date if you are not working for us and you have a vested account under the plan. You may choose to have benefits paid on this date even if you are still working for us.
You may choose to have your benefits paid on your early retirement date.
If you continue working for us after your normal retirement date, your benefits start on your late retirement date, unless you elect otherwise.
NORMAL RETIREMENT DATE means the first day of the month on or after the date you reach age 65.
EARLY RETIREMENT DATE means the first day of any month you choose which is on or after the later of the date you stop working for us or the date you reach early retirement age.
Your early retirement age is your age on the later of:
o The date you reach age 55.
o The date you have 6 years of vesting service (see Part 3).
LATE RETIREMENT DATE MEANS, if you continue working for us after your normal retirement date, the first day of the month on or after the date you stop working. You may choose to have your benefits start on the first day of any month after your normal retirement date and before you stop working. If you do, that date becomes your late retirement date. It's possible to have your benefits begin after your late retirement date. If you think you would like to delay your benefits, talk to the plan administrator before your late retirement date.
REQUIRED BEGINNING DATE
Under the law you must begin receiving benefits by your required beginning date. Your required beginning date is the April 1 following the later of the calendar year in which you reach age 70 1/2 or stop working for us. However, if you are a 5% owner, your benefits must begin by the April 1 following the calendar year in which you reach age 70 1/2.
WITHDRAWALS FROM YOUR ACCOUNT
You may withdraw all or any part of your vested account resulting from rollover contributions (see Part 6). You may make 2 such withdrawals during any one-year period.
If you have a financial hardship, you may be able to withdraw all or any part of your vested account resulting from:
o 401(k) elective deferral contributions (but none of the income earned on such contributions)
FINANCIAL HARDSHIP means your need is immediate and heavy. Federal rules allow hardship withdrawals for these reasons:
o To pay medical expenses for you, your spouse, or your dependents (as defined in Section 152 of the Internal Revenue Code).
o To purchase your primary home, stop your eviction from your primary home, or stop foreclosure on such home.
o To pay tuition, related educational fees, and room and board expenses, for the next 12 months of post secondary education for you, your spouse, your children, or your dependents.
You may have a withdrawal for financial hardship only if you have received all other withdrawals or loans available to you under our plan(s). You may not withdraw more than the amount of your immediate and heavy financial need. The amount of the withdrawal may include the amount of taxes that will result from the withdrawal. After the withdrawal, you may not make 401(k) elective deferrals or other contributions to our plan(s) for 6 months.
Your request for withdrawal must be in writing on a form provided by the plan administrator. You must complete and return it before the date of withdrawal.
Federal law may require you to have your spouse's consent.
A charge or restriction might apply for some investment options if you make a withdrawal. Talk with your plan administrator before you complete the form.
AT TERMINATION
If you stop working for us before you are eligible to retire, you may choose to
have all or any part of your vested account paid to you at any time. You may
leave your account under the plan if your vested account is more than $5,000. It
will continue to participate in the plan investments and provide benefits when
you retire or die.
AT DEATH
If you die before benefits start, your vested account will be paid to your spouse or beneficiary under one or more of the forms available under the plan (see Part 5).
If you die after you start receiving benefits, death benefits will be paid according to the form you chose. Not all forms have death benefits.
TAX CONSIDERATIONS
Benefits you receive are normally subject to income taxes. You may be able to postpone or reduce the taxes that would otherwise be due. In addition, benefits you receive before age 59 1/2 may be subject to a 10% penalty tax.
Each person's tax situation differs. Your financial advisor can help you decide the best way for you to receive benefits.
PART 5 HOW THE PLAN PAYS BENEFITS
You make an important choice when you decide how to receive your benefit. Things to consider include the money you will need every month, any death benefits you want to provide, and your tax situation.
If your vested account is more than $5,000, you may choose to have your vested account paid under any of the optional forms available under the plan. Your plan administrator or tax advisor can help you make your choice. You may also call Principal Financial Group(R) at this toll-free number for answers to your benefit questions: 1-800-547-7754.
The amount of the payments will depend on the amount of your vested account and the optional form chosen. If the optional form pays you a monthly income for life, the amount of the payments will depend on your age. If the option also provides a monthly income for the life of someone who survives you, the amount of the payments will also depend on the age of your survivor.
AT TERMINATION OR RETIREMENT
If your vested account is less than $1,000, it will be paid to you in a single
sum. If
your vested account is at least $1,000, but is $5,000 or less, your vested account will be rolled to an IRA with an affiliate of Principal Life Insurance Company, unless you choose to have it paid to you in a single sum or rolled to another retirement plan or IRA in a direct rollover (see Part 6).
If your vested account is more than $5,000, you may choose from the forms of benefit described in Forms to Choose below. You may need your spouse's consent to choose a form of benefit. See A Spouse's Rights below. You may change or cancel your choice at any time before benefits start.
If you don't choose a form or your spouse revokes consent (if consent is needed), your benefits are paid as follows:
o If you are married, benefits are paid to you monthly for life. After your death 50% of your monthly income is paid to your spouse for as long as your spouse lives. If both you and your spouse die before the total amount paid equals the amount used to purchase the annuity, payments continue to your beneficiary until the total amount paid equals the purchase price.
o If you are single, benefits are paid to you monthly for life. If you die before the total amount paid equals the amount used to purchase the annuity, payments continue to your beneficiary until the total amount paid equals the purchase price.
DEATH BENEFITS BEFORE BENEFITS BEGIN
You may name a beneficiary at any time. You may need your spouse's consent to choose someone other than your spouse as your beneficiary. See A Spouse's Rights below. You may change your beneficiary at any time.
If your vested account is $5,000 or less, your vested account will be paid to your beneficiary in a single sum. However, if your vested account is at least $1,000, any payment to your spouse will be rolled to an IRA with an affiliate of Principal Life Insurance Company instead, unless your spouse chooses to have it paid in a single sum or rolled to another retirement plan or IRA in a direct rollover (see Part 6).
If your vested account is more than $5,000 and your beneficiary is your spouse, your spouse can choose an optional form of death benefit. Otherwise, you may choose an optional form of death benefit for a beneficiary. If you don't choose, that beneficiary may choose an optional form. Generally, a beneficiary can elect
a single sum or any of the annuity options that are available to you at retirement other than a monthly income that continues for the life of a survivor upon death. Any choice of the form of payment by your spouse or beneficiary must be made before benefits begin.
If an optional form of death benefit is not chosen, death benefits are paid as follows:
o If you are married and your spouse is your beneficiary and you have been married for the full year before your death, death benefits are paid to your spouse monthly for as long as your spouse lives. If your spouse dies before the total amount paid equals the amount used to purchase the annuity, payments continue to your spouse's beneficiary until the total amount paid equals the purchase price.
Your spouse may choose when benefits start. Benefits must start by the later of the end of the next calendar year or the end of the calendar year following the calendar year you would have reached age 70 1/2.
o If you are married and your spouse is not your beneficiary or you have not been married for the full year before your death, death benefits are paid to your beneficiary in a single sum.
o If you are single, death benefits are paid to your beneficiary in a single sum.
Because of Federal rules regarding when death benefits must begin and how death benefits can be paid, your beneficiary should contact the plan administrator to determine what options are available and when elections must be made.
FORMS TO CHOOSE
The plan offers the following optional forms of benefit:
Annuity Options
o A monthly income to you for life. No benefits are payable after your death.
o A monthly income to you for life. If you die before the end of a certain number of years (you may choose 5, 10 or 15 years), payments continue to your beneficiary until that period ends.
o A monthly income to you for life. If you die before the total amount paid equals the amount used to purchase the annuity, payments continue to your beneficiary until the total amount paid equals the purchase price.
o A monthly income to you for life. You choose a percentage (50%, 66 2/3% or 100%) of your monthly income to continue for the lifetime of a survivor you name. If both you and your survivor die before the total amount paid equals the amount used to purchase the annuity, payments continue to a beneficiary until the total amount paid equals the purchase price.
o A monthly income paid to you for a fixed period of time (not less than 60 months). If you die before the end of the fixed period, payments continue to your beneficiary until that period ends.
o A series of flexible income payments to you until your vested account equals zero. You choose the amount (not less than $1,000 annually) and how often you wish to receive this amount in a calendar year. You can choose to receive payments on an annual, semiannual, quarterly, or monthly basis. You may also request extra payments each calendar year. A minimum payment applies for years beginning with the year in which you reach age 70 1/2. Additional fees and charges may apply to your flexible income payments.
After benefits begin, you may choose to have the balance of your vested
account paid to you under one of the other options.
Other Options
o A single sum payment.
A charge or restriction might apply for some investment options if you take all or any part of your account in a single sum. Talk with your plan administrator before making this choice.
A SPOUSE'S RIGHTS
Benefit Payments
Federal law may require you to have your spouse's consent to start benefits before the date you reach age 65. No consent is needed if your benefits are to be paid to you monthly for life with 50% of your monthly income paid to your spouse after your death.
Federal law may require you to have your spouse's consent to any form of benefit which does not pay a monthly income to you for life with 50% of your monthly income paid to your spouse after your death. Your spouse has the right to limit consent to a specific optional form of benefit or to limit consent to a specific beneficiary for any form which pays a death benefit. Your spouse can waive one or both of these rights.
Your spouse may revoke consent at any time before benefits begin. A spouse's consent is not valid for a former or a future spouse of yours.
Beneficiary
If you have been married for a full year, your spouse must consent to any beneficiary you name for death benefits which are payable if you die before your benefit payments start. Any consent given by your spouse before the first day of the plan year (see Part 7) in which you reach age 35 will not be valid after the first day of that year. A new consent must be obtained. If you stop working before this date, however, any consent given by your spouse after you stop working will remain valid for benefits from contributions made before you stopped working.
Your spouse's consent may let you make future changes without his or her consent. If it does not, you will need a new consent to make a new choice. You do not need your spouse's consent to cancel a choice.
Your spouse may revoke consent at any time before your death. A spouse's consent is not valid for a former or a future spouse of yours.
PART 6 IMPORTANT INFORMATION FOR YOU
YOUR RIGHTS
As a participant in the plan you have certain rights and protections under the Employee Retirement Income Security Act of 1974 (ERISA). As a plan participant you are entitled to:
RECEIVE INFORMATION ABOUT YOUR PLAN AND BENEFITS
o You can examine all plan documents, without charge, at your plan administrator's office and at other specified locations, such as worksites. This includes insurance contracts and a copy of the latest annual report (Form 5500 series) filed by the plan with the U.S. Department of Labor and available at the Public Disclosure Room of the Employee Benefits Security Administration.
o You can get copies of all plan documents and other plan information upon written request to your plan administrator. Your administrator may make a reasonable charge for the copies.
o You will get a summary of the plan's annual financial report.
o You can get, once a year, a statement of your account values and what part of these values would be yours if you stop working under the plan now. If you don't have a right to these values, the statement will tell you how many more years you have to work to get a right to all or a part of these values. If you don't automatically get this statement, you can request it. The plan must provide the statement free of charge.
PRUDENT ACTIONS BY PLAN FIDUCIARIES
In addition to creating rights for plan participants, ERISA defines the duties
of the people who operate the plan. These people are called "fiduciaries," from
the Latin word meaning "trust" or "confidence". Fiduciaries must perform their
duties prudently and in the interest of plan participants and beneficiaries.
You can't be fired or discriminated against to prevent you from obtaining a benefit or exercising your rights guaranteed under ERISA.
ENFORCE YOUR RIGHTS
If all or a part of your claim to a benefit is denied or ignored, you have a
right to know why this was done, to get copies of documents relating to the
decision without charge, and to appeal any denial, all within certain time
schedules.
Under ERISA you can take certain steps to enforce the rights described above. For example, if you request a copy of plan documents or the latest annual report from the plan you must get them within 30 days. However, if you haven't received the materials after about 20 days, it might be a good idea to check with your plan
administrator to see if there are problems in giving you the materials you requested. Then, if you haven't received them within 30 days of your request, you can file suit in Federal court. The court can require your plan administrator to provide the materials and pay you up to $110 for each day of delay until you get the materials, unless they weren't sent because of reasons beyond your plan administrator's control. Or, if all or a part of your claim for benefits is denied or ignored, you may file suit in a state or Federal court or you can ask the U.S. Department of Labor for help. In addition, if you disagree with the plan's decision or lack thereof concerning the qualified status of a domestic relations order, you may file suit in Federal court. If you think plan fiduciaries are misusing the plan's money, or you feel you are being discriminated against for exercising your rights, you can get assistance from the U.S. Department of Labor or file suit in Federal court. Any time you sue, the court will decide who should pay court costs and legal fees. If you win, the court may order the person you've sued to pay these costs and fees. If you lose, you may have to pay these costs and fees.
ASSISTANCE WITH YOUR QUESTIONS
If you have any questions about the plan, contact your plan administrator. If you have any questions about this statement or about your rights under ERISA, or if you need help in getting documents from the plan administrator, contact the nearest office of the Employee Benefits Security Administration, U.S. Department of Labor, listed in your telephone directory or the division of Technical Assistance and Inquiries, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington D.C. 2021 0. You may also get certain publications about your rights and responsibilities under ERISA by calling the publications hotline of the Employee Benefits Security Administration.
QUALIFIED DOMESTIC RELATIONS ORDER (QDRO)
A domestic relations order is a judgment, decree, or order that provides child support, alimony payments, or marital property rights. A domestic relations order may give all or part of your plan benefits to an alternate payee if it is determined to be a qualified domestic relations order (QDRO). An alternate payee is your spouse, former spouse, child or dependent. In order to be a QDRO, the domestic relations order must include certain information and meet certain other requirements.
The plan administrator is required to set up detailed procedures for determining if a domestic relations order is a QDRO. You and the alternate payee may get a copy of these procedures, without charge, from the plan administrator.
THE PLAN ADMINISTRATOR
The plan administrator has the full power to decide what the plan provisions mean; to answer all questions about the plan, including those about eligibility and benefits; and to supervise the administration of the plan. The plan administrator's decisions are final.
PROCESSING DISTRIBUTIONS AND OTHER TRANSACTIONS
Distributions, investment directions, trades, and similar transactions shall be completed as soon as administratively possible once the information needed to complete such transaction has been received from you or whoever is providing the information. The time it takes to complete a transaction is not guaranteed by the plan, plan administrator, trustee, insurer, or us.
We, the plan administrator, or the trustee reserve the right not to value an investment option on any given valuation date for any reason deemed appropriate by us, the plan administrator, or the trustee.
Factors such as failure of systems or computer programs, failure of transmission of data, forces that can't be controlled or anticipated, failure of a service provider to timely receive values or prices, and corrections of errors will be used to determine how soon it is possible to complete a transaction. While it is anticipated that most transactions will be completed in a short period of time, in no event will the time needed to process a transaction be deemed to be less than 14 days. The processing date of a transaction shall be binding for all purposes under the plan and considered the applicable valuation date for any transaction.
DIRECT ROLLOVERS
Certain benefits which are payable to you may be paid directly to another retirement plan or IRA. Your plan administrator will give you more specific information about this option when it applies.
ROLLOVERS FROM OTHER PLANS
Under certain circumstances, you may rollover an amount from another plan to
this plan. The amount comes from contributions made because of your past
participation in that other plan. This is a rollover contribution and it becomes
a part of your vested account.
The rollover contribution may come from:
o other qualified plans and may include after-tax employee contributions
o tax sheltered annuity plans (excluding after-tax employee contributions)
o governmental 457 plans
o IRAs if the amounts would be included in gross income
Rollover contributions must meet Federal rules so ask your plan administrator if you are interested in knowing more about them. You decide how to use the investment options for your rollover contributions.
TOP-HEAVY PLANS
We test our plan once a year to see if it is top-heavy. It would be top-heavy if the account values for key employees exceed 60% of the account values for all employees. Certain distributions are counted as an account value.
In general, a key employee is an officer or owner. Not all officers or owners are key employees. Factors taken into account are the number of officers or owners and their amount of pay or percentage of ownership.
For any year in which a plan is top-heavy, there are minimum requirements for contributions and vesting.
Your plan administrator can tell you if our plan is top-heavy and if the minimums apply.
ASSIGNING YOUR BENEFITS
Benefits under the plan cannot be assigned, transferred, or pledged to someone else. The plan does make the following exceptions:
o qualified domestic relations orders such as alimony payments or marital property rights to a spouse or former spouse.
o any offset to your benefit per a judgment, order, decree, or settlement agreement because of a conviction of a crime against the plan or a violation of ERISA.
YOUR SOCIAL SECURITY BENEFITS
Your benefits from this plan are in addition to your benefits from Social Security. You should make your application for Social Security (and Medicare) benefits 3 months before you wish Social Security payments to begin.
CLAIMING BENEFITS UNDER THE PLAN
Apply for benefits to your plan administrator. You'll need to complete all necessary forms and supply needed information, such as the address where you will get your checks.
Your claim will be reviewed and a decision made within 90 days. In some cases the decision may be delayed for an additional 90 days. If so, you will be notified in writing.
If you make a claim and all or part of it is refused, you'll be notified in writing. You'll be told:
o why your claim was refused,
o the specific provisions of the plan governing the decision,
o what additional information is needed, if any, and
o what steps you should take to have your claim reviewed.
You have 60 days after you receive written notice your claim is refused to make a written appeal to your plan administrator. You or your representative may also review plan documents and submit issues and comments in writing.
A decision will be made on your appeal within 60 days. In some cases the decision may be delayed for an additional 60 days. If so, you will be notified in writing.
You will be notified in writing if your appeal is refused and given exact reasons for the decision.
CHANGING OR STOPPING THE PLAN
The plan can be changed at any time. We will notify you of any changes that affect your benefits.
Benefits you have earned as of the date the plan is changed may not be reduced except as required by law. If the plan is changed, the plan administrator can tell you which benefits and forms of payment are preserved for you.
An earlier version of the plan may continue to apply in certain situations. For example, participants who stop working for us have their eligibility for benefits determined under the version in effect when they stopped working.
The plan can be terminated (stopped). If the plan is terminated, your account will be 100% vested and nonforfeitable. Your account will be held under the plan and continue to be credited with investment earnings until it is used to provide benefits according to the terms of the plan.
OUR PLAN AND THE PENSION BENEFIT GUARANTY
CORPORATION (PBGC)
Because our plan is a defined contribution plan, we keep individual accounts for all participants. The Employee Retirement Income Security Act of 1974 (ERISA) excludes plans like this one from insurance provided through the PBGC.
PART 7 FACTS ABOUT THE PLAN
PLAN SPONSOR AND IDENTIFICATION NUMBER
ADAMS COUNTY NATIONAL BANK
P0 BOX 3129
675 OLD HARRISBURG RD
GETTYSBURG, PA 17325-0129
EIN: 23-0581360
PLAN NAME AND PLAN NUMBER
ADAMS COUNTY NATIONAL BANK SALARY SAVINGS PLAN
PN: 002
TYPE OF PLAN
DEFINED CONTRIBUTION 401(K) PROFIT SHARING PLAN ERISA 404(c) COMPLIANT
PLAN ADMINISTRATOR
ADAMS COUNTY NATIONAL BANK
P0 BOX 3129
675 OLD HARRISBURG RD
GETTYSBURG, PA 17325-0129
TELEPHONE: (717) 334-3161
TYPE OF ADMINISTRATION
TRUSTEE
LOAN ADMINISTRATOR
JOHN W. KRICHTEN
PLAN YEAR
January 1 through December 31
FUNDING MEDIUM(S)
Principal Life Insurance Company
711 High Street
Des Moines, IA 50392-0001
TRUSTEE(S) OF THE PLAN
THOMAS A RITTER
PRESIDENT
ADAMS COUNTY NATIONAL BANK
P0 BOX 3129
675 OLD HARRISBURG RD
GETTYSBURG, PA 17325-0129
JOHN W KRICHTEN
CHIEF FINANCIAL OFFICER
ADAMS COUNTY NATIONAL BANK
P0 BOX 3129
675 OLD HARRISBURG RD
GETTYSBURG, PA 17325-0129
AGENT FOR LEGAL PROCESS OF THE PLAN
RONALD L. HANKEY, PRES.
ADAMS COUNTY NATIONAL BANK
P0 BOX 3129
675 OLD HARRISBURG RD
GETTYSBURG, PA 17325-0129
Service of legal process may also be made on your plan administrator or a plan trustee.
ADDITIONAL INFORMATION
For more information about Principal Financial Group(R) or your plan, you may access the Principal website at www.principal.com or call TeleTouch(R) at 1-800-547-7754. TeleTouch is a special service from Principal Financial Group.
EXHIBIT 10.8
GROUP PENSION PLAN FOR EMPLOYEES OF
ADAMS COUNTY NATIONAL BANK
PLAN HIGHLIGHTS
GA 4-35568
(8.0)
Plan Highlights briefly describes your plan. The rest of this booklet explains in greater detail how the plan works.
We started your retirement plan on November 1, 1974. Farmers National Rank of Newville started a retirement plan for their employees on October 15, 1960. These two plans were merged on January 1, 2002.
Your retirement plan:
o Gives you a dependable source of income when you retire. Knowing how much you'll receive from the plan makes planning for your retirement easier.
o Bases the ownership of your retirement benefit on your service.
o May provide a death benefit for your spouse or another person you name as beneficiary if you die before retirement.
o Is funded entirely by our contributions.
o Offers several different ways to receive your benefits. You choose the right way for you.
ABOUT THIS BOOKLET
This booklet is the summary plan description. It explains how your plan currently works, when you qualify for benefits, and other information.
The plan is much more detailed and It governs your benefits.
Ask your plan administrator if you have questions. Part 8 of this booklet lists your plan administrator's name and address.
TABLE OF CONTENTS
JOINING THE PLAN PART I
o When You Join
o Changes in Your Participation
YOUR EARNED BENEFIT PART 2
o Figuring Your Earned Benefit
o Helpful Terms
o Who Provides Your Earned Benefit
RETIREMENT BENEFITS PART 3
o Al Normal Retirement Date
o At Early Retirement Date
o At Late Retirement Date
o Required Beginning Date
o Adjustments to Your Bone Fits
BENEFITS FOR INACTIVE PARTICIPANTS PART 4
o Your Vested Benefit
o When Your Vested Benefit Starts
o Before Your Vesting Percentage is 100%
DEATH BENEFITS BEFORE RETIREMENT PART 5
o A Spouse's Benefit
o Benefits Between Normal and Late Retirement
HOW THE PLAN PAYS BENEFITS PART 6
o Forms to Choose
o Choosing at Retirement
o Choosing Pro-retirement Death Benefits
o Tax Considerations
|
IMPORTANT INFORMATION FOR YOU PART 7 o Your Rights o A Spouse's Rights o Qualified Domestic Relations Order (ODRO) o The Plan Administrator o Direct Rollovers o Top-heavy Plans o Assigning Your Benefits o Your Social Security Benefits o Claiming Benefits Under the Plan o Changing the Plan o Stopping the Plan o Our Plan and the Pension Benefit Guaranty Corporation (PBGC) FACTS ABOUT THE PLAN PART 8 |
PART 1 JOINING THE PLAN
WHEN YOU JOIN
You join the plan as an active participant on the January 1 or July I on or after you meet these requirements:
o You are an eligible employee.
o You have ONE YEAR of entry SERVICE.
o You are age 20 1/2 or older.
However, if you were a participant under the Group Pension Plan for Employees of Farmers National Bank of Newville (the merged plan), you join the plan as an active participant on January 1, 2002.
ELIGIBLE EMPLOYEE MEANS:
o You are each of the following;
Not represented by a bargaining unit which has bargained with us in good faith on the subject of retirement benefits.
Not a leased employee.
You earn a year of entry service at the end of a service period in which you have 1,000 or more hours of service.
Service periods are one-year long. Your first one starts on the date you are hired and ends on the day before your first anniversary date. Following ones begin on January 1 and end on December 31, beginning with the January 1 following the date you are hired.
An hour of service is each hour of paid working time. In addition, it includes up to 501 hours during any one period of paid non-working time, such as paid vacation.
CHANGES IN YOUR PARTICIPATION
You become an inactive participant on the date you:
o Are no longer an eligible employee.
o Have a break in service (see Part 2).
You stop being a participant on:
o The date you get a single sum payment in place of all other benefits.
o The date of your death.
o The date you stop working for us if your vesting percentage is zero (see
Part 4),
You rejoin the plan as an active participant when you work another hour for us as an eligible employee.
PART 2 YOUR EARNED BENEFIT
As you work for us, you earn your retirement benefit. This earned benefit grows with your service and pay.
FIGURING YOUR EARNED BENEFIT
This formula is used to figure your earned benefit:
(1) 1.00% of your average monthly pay not over your Social Security base plus 1.3% of your average monthly pay over your Social Security base
multiplied by
(2) your benefit service but not more than 45 years
plus
(3) your benefit under the merged plan (see Part 1) on the day before January 1, 2002, which was frozen as of April 30, 1993
If you were ever a participant in another plan of ours, your earned benefit may be increased if total service taken into account under all plans of ours will be mote than 35 years. Ask the plan administrator if you want to know if the adjustment applies to you.
HELPFUL TERMS
Average monthly pay is the average of your monthly pay for the 5 consecutive pay years out of the 10 latest pay years which give the highest average.
Pay years in which you stop working for us are excluded. Pay years in which you have not earned an hour of service are excluded.
If you were an employee of Farmers National Bank of Newville on December 31. 2001, your average monthly pay will exclude pay years before January 1, 2002.
Benefit service means the sum of your years of service. You have one year of service for each service period in which you have 1.000 or more hours of service. You have a partial year of service in the year you start working for us or the year you stop working for us if you have fewer than 1,000 hours of service. Your partial year of service is figured by dividing your hours of service for the period (rounded to the next 100 hours) by 1,000. However, for the two-month service period ending December 31. 1995, you have .20 of a year if you have 166 or more hours of service.
Service before January 1, 2002, is not counted if you were an employee of Farmers National Bank of Newville on December 31, 2001.
Hour of service means each hour of paid working time. In addition, we will count up to 501 hours during any one period of paid non-working time, such as paid vacation.
Monthly pay for any pay year is 1/12th of your total pay for such year.
Pay year means a one-year period ending on December 31 (October 31 before November 1, 1995).
Service period means a one-year period ending on October 31 before November 1, 1995; a two-month period beginning on November 1, 1995, and ending on December 31, 1995: and a one-year period ending on December 31 thereafter.
Social Security base means 1/12th of the average of the Social Security taxable wage bases that have applied for the 35-year period ending on the last day of the calendar year in which you reach Social Security retirement age. You reach Social Security retirement age on (i) your 65th birthday, if you were born before January 1, 1938; (ii) your 66th birthday, if you were born after December 31, 1937 and before January 1, 1955; and (iii) your 67th birthday, if you were born after December 31, 1954.
In calculating your Social Security base for any plan year, the taxable wage base in effect for the current and any later plan year is assumed to be the same as the taxable wage base in effect at the beginning of the plan year in which the calculation is being made.
Your Social Security base for any plan year before the 35-year period is the taxable wage base in effect at the beginning of that plan year. Your Social Security base for any plan year after the 35-year period is your Social Security base determined for the plan year in which the 35-year period ends.
The average varies based on your age. The younger you are, the higher the average. Ask your plan administrator if you want to know your current amount.
WHO PROVIDES YOUR EARNED BENEFIT
Your earned benefit is provided entirely by our contributions to the plan.
The contributions are invested and accumulate to provide benefits under the plan. The plan funds are for the exclusive benefit of participants and their beneficiaries.
PART 3 RETIREMENT BENEFITS
Your plan is designed to provide a retirement income for you. The amount you receive each month when you retire is based on your earned benefit.
AT NORMAL RETIREMENT DATE
UNLESS YOU CHOOSE OTHERWISE, YOUR RETIREMENT BENEFIT BEGINS ON YOUR NORMAL RETIREMENT DATE IF YOU have an earned benefit (see Part 2) and you stop working for us. Even if you continue to work for us, you may choose to begin your retirement benefit on your normal retirement date.
Normal retirement data means the FIRST day of the month on or alter the date you reach your normal retirement age.
Your normal retirement age is the earlier of:
o The older of (1) age 62 or (ii) your age on the date you have 30 years of vesting service (see Part 4).
o The older of (i) age 65, or (ii) your age on the date 5 years after the January 1 on or before the date you entered the plan.
AT EARLY RETIREMENT DATE
If you choose to retire early, your earned benefit will be less than the amount you could have earned by working until normal retirement date.
You receive a percentage of your earned benefit because payments begin at a younger age and are expected to continue longer. The percentage is based on the number of years you retire early and is shown in the following table:
Approximate
Years You Percentage of
Retire Early Earned Benefit
1 93
2 86
3 80
4 73
5 66
6 63
7 60
8 56
9 53
10 50
|
The percentage is adjusted for parts of a year.
However, if you have 30 or more years of service, you may elect to retire at age 62 with no reduction in benefits. fn addition, if you have 30 or more years of service and elect to retire before ago 62, your earned benefit will be reduced based upon the years you retire early before age 62.
EARLY RETIREMENT DATE MEANS THE first day OF any MONTH YOU CHOOSE WHICH IS ON OR after the later of the date you stop working for us or the date you reach early retirement age.
Your early retirement age is your age on the later of:
o The dale you reach age 55.
o The date you have 15 years OF vesting service (SEE Part 4).
AT LATE RETIREMENT DATE
You may choose to start benefits on your late retirement date. When you retire late, your earned benefit as of your normal retirement date is increased by a percentage because payments begin at an older age and are expected to continue for a shorter time. The percentage is based on the number of years you retire tare and is shown in the following table:
Percentage
Years You Increase to Your
Retire Late Earned Benefit
1 9
2 20
3 32
4 45
5 59
6 75
7 93
8 113
9 134
10 159
|
The percentage is adjusted for parts of a year. Your plan administrator can give you the percentages for other years.
Your income won't be less than your earned benefit as of your late retirement date.
If you retire after age 70 1/2 your benefit will be increased to take into account the period between the April 1 following the calendar year in which you reach age 70 1/2 and the date your retirement benefits begin.
LATE RETIREMENT DATE MEANS, if you continue working for us after your normal retirement date, the first day of the month after the date you stop working for us.
You may choose to have your benefits start on the first day of any month after your normal retirement date and before you stop working. If you do, that date becomes your fate retirement date.
It's possible to have your benefits begin after your late retirement date. If you think you would like to delay your benefits, talk to the plan administrator before your late retirement date.
REQUIRED BEGINNING DATE
Under the law you must begin receiving benefits by your required beginning date. Your required BEGINNING DATE IS THE APRIL 1 FOLLOWING the LATER of the calendar year in which you reach age 70 1/2 or stop working for us. However, if you are a 5% owner, your benefits must begin by the April 1 following the calendar year in which you reach age 70 1/2.
ADJUSTMENTS TO YOUR BENEFITS
The amount you receive will be adjusted if your: retirement benefit is not paid under the normal form of income. Normal form of income means a form which pays you monthly income for life. If you die before monthly payments have been made for 5 years, your beneficiary gets the payments that are left.
Part 6 explains the other forms you may choose.
The law limits the amount of pay that may be used in any plan year to determine benefits. The 2002 limit is $200,000. This limit is subject to change each year for cost of living changes.
The law also limits the dollar amour-it of annual benefits that may be paid to you in any year to the lesser of 100% of your average pay for the highest three years or a dollar limit. These limits are based on a monthly income payable to you for life and no benefits payable after your death. Benefits under OTHER forms will ALSO BE limited. THE dollar amount is decreased if you retire before age 62 and increased if you retire after age 65. The dollar limit in 2002 is $160,000. This limit is subject to change each year for cost of living changes.
Ask your plan administrator if you want to know more about either of these limits.
PART 4 BENEFITS FOR INACTIVE PARTICIPANTS
YOUR VESTED BENEFIT
Each year as you work for us, you earn a right to a benefit if you stop working for us before retirement. This benefit is called your vested benefit.
Your vested benefit is equal to:
(1) your earned benefit
multiplied by
(2) your vesting percentage
If you become an inactive participant because you are no longer an eligible employee (see Part 1), but you are still working for us, your service after you become an inactive participant is used to figure your vesting percentage but not your earned benefit.
Your vesting percentage will be 100% if you are working for us:
o On or after the date you reach normal retirement age (see Part 3).
o On or after the date you reach early retirement age (see Part 3).
Before that date, the following schedule determines your vesting percentage:
Years of Vesting Vesting Service Percentage Less than 5 0 5 or more 100 |
Vesting service means the sum of your years of service. You have one year of service for each service period in which you have 1,000 or more hours of service. A service period is a one-year period ending on December 31 (October 31 before November 1, 1996). An hour of service is each hour of paid working time. In addition, it includes up to 501 hours during any one period of paid non-working time, such as paid vacation.
Your vesting service before a period of breaks in service is not counted if your vesting percentage is zero and your consecutive breaks in service equal or are more than the greater of 5 years (one year before November 1, 1985) or your earlier vesting service.
Break in service means you have 500 or fewer hours of service in a service period.
Federal law delays a break in service for your pregnancy, birth of your child, placement of a child with you by reason of your adoption of such child, or your caring for such child following such birth or placement.
WHEN YOUR VESTED BENEFIT STARTS
If you become an inactive participant, you will start receiving your vested benefit on your retirement date. Part 3 explains when you may retire and how your vested benefit is adjusted if you retire early or late.
Your vested benefit is the amount you will receive under the normal form of income. Normal form of income means a form which pays you monthly income for life. If you die before monthly payments have been made for 5 years, your beneficiary gets the payments that are left.
Part 6 explains other forms of benefit you may choose when you retire and tax considerations. If the value of your vested benefit is not more than $5,000, it will be paid to you in a single sum when you stop working for us. There is no choice to make.
You need to tell us your current address when you wish payments to begin. Federal law may require you to have your spouse's consent (see Part 7).
BEFORE YOUR VESTING PERCENTAGE IS 100%
You forfeit (lose the right to) your earned benefit if you stop working for us when your vesting percentage is zero. We will restore this forfeited amount if you come back to work as an eligible employee (see Part 1) before the end of the first period of five consecutive one-year breaks in service beginning after you stop working for us.
PART 5 DEATH BENEFITS BEFORE RETIREMENT
The primary put pose of your plan is to provide income for you during your retirement years. However, if you die before you retire, a death benefit may be payable to your beneficiary or spouse.
A SPOUSE'S BENEFITS
A death benefit is paid to your spouse if these requirements are met:
o You die before retirement benefits start and before your normal retirement date.
o You were married for the full year before your death.
o Your vesting percentage is greater than zero (see Part 4).
The death benefit equals the survivor's benefit under a 100% survivor form. The benefit is payable to your spouse as of the earliest date you could have retired on or after the date of your death. (This will be your normal retirement date if you had not met the service requirement for early retirement.) Your spouse may choose to begin benefits on a finer date. Benefits must begin by the date you would have been age 70 1/2.
The amount of the benefit is based on your vested benefit when you die. If you are not working for us then, it is based on your vested benefit when you stopped working for us. II your spouse starts receiving this death benefit before or after what would have been your normal retirement date, your vested benefit is adjusted for early or late retirement as explained in Part 3. Your vested benefit is also adjusted for the 100% survivor form. This reduced amount is payable to your spouse monthly for life. (If, during the election period for retirement forms, you choose a survivor form with a different survivor percentage for your spouse, that percentage applies instead.)
If the value of the spouse's death benefit is not more than $5,000, it will be paid to your spouse in e single sum in place of the monthly income.
BENEFITS BETWEEN NORMAL AND LATE RETIREMENT
If you die after your normal retirement date and before retirement benefits begin, death benefits are paid in this way:
o If you are married for the full year before your death, death benefits are the same as if you had died before your normal retirement date.
o If you are not married for the full year before your death, a death benefit may be payable depending on the optional form of retirement payments you chose before your death. lf you chose a form with a death benefit, your beneficiary or survivor will receive that benefit as if you had retired on the date of your death.
Federal law limits how death benefits may be paid. Your plan administrator can tell you what forms you may choose. You should choose before your normal retirement date to be sure of the death benefit of your choice.
PART 6 HOW THE PLAN PAYS BENEFITS
You make an important choice when you decide how to receive your benefit. Things to consider include the money you will need every month, any death benefits you want to provide, and your tax situation.
You may choose to have your retirement benefit paid under any one of the optional forms available under the plan. Your plan administrator or tax advisor can help you make your choice.
If the value of your earned benefit is not more than $5,000, it will be paid to you in a single sum. There is no choice to be made.
The amount of the payments will depend on the amount of your earned benefit, your age, the age of your survivor and the optional form chosen.
FORMS TO CHOOSE
The plan offers the following ways for you to receive your benefit:
o A monthly income to you for life. No benefits are payable after your death.
o A monthly income to you for life. If you die before the and of a certain number of years (you may choose 5, 10 or 15 years), payments continue to your beneficiary until that period ends.
o A monthly income to you for life, You choose a percentage (50%, 66 2/3%, or 100%) of your monthly income to continue for the lifetime of a survivor you name.
CHOOSING AT RETIREMENT
You may choose any of the optional forms of benefit. Your choice must be made within 90 days of the date benefits begin. (Federal rules may limit the forms available to you.) You may change or cancel your choice at any time before benefits start. Part 7 explains your spouse's rights.
It you don't have a choice in effect or your spouse revokes consent, your retirement benefits are paid in this way:
o If you are married, retirement benefits are paid to you monthly for life. After your death, your monthly income is paid to your spouse for as long as your spouse fives.
o If you are single, retirement benefits are paid to you monthly for life. If you die before monthly payments have been made for & years, your beneficiary gets the payments that are left.
CHOOSING PRE-RETIREMENT DEATH BENEFITS
Your spouse may choose to have the spouse's benefit described in Part 5 paid in another form. If the value of the spouse's benefit is not more than $5,000, it will be paid to your spouse in a single sum. There is no choice to be made.
The optional forms of death benefit are any of the monthly income forms.
Any choice by your spouse or beneficiary must be made before benefits begin.
TAX CONSIDERATIONS
Benefits you receive are normally subject to income taxes. You may be able to postpone or reduce the taxes that would otherwise be due. In addition, benefits you receive before age 59 1/2 may be subject to a 10% penalty tax.
Each person's tax situation differs. Your financial advisor can help you decide the best way for you to receive benefits.
PART 7 IMPORTANT INFORMATION FOR YOU
YOUR RIGHTS
As a participant in the plan you have certain rights and protections under the Employee Retirement INCOME SECURITY Act OF 1974 (ER1SA). As a plan participant, you are entitled to:
Receive Information About Your Plan and Benefits
o You can examine all plan documents, without change, at your plan
administrator's office and at other specified locations, such as worksites.
This includes insurance contracts and a copy of the latest annual report
(Form 5500 series) filed by the plan with the U.S. Department of Labor and
available at the Public Disclosure Room of the Pension and Welfare Benefit
Administration.
o You can get copies of all plan documents and other plan information noted above upon written request to your plan administrator. Your administrator may make a reasonable charge for the copies.
o You will get a summary of the plan's annual financial report.
o You can get, once a year, a statement OF your earned BENEFIT AND WHAT PART OF THIS BENEFIT YOU would get at normal retirement date (see Pan 3) if you stop working under the plan now. If you don't have a right to a benefit, the statement will tell you how many more years you have to work to get a right to all or a part of a benefit. If you don't automatically get this statement, you can request it. The plan must provide the statement free of charge.
Prudent Actions by Plan Fiduciaries
In addition to creating rights for plan participants, ERISA defines the duties
of the people who operate the plan. These people are called "fiduciaries," from
the Latin word meaning "trust" or "confidence". Fiduciaries must perform their
duties prudently and in the interest of plan participants and beneficiaries.
You can't be fired or discriminated against to prevent you from obtaining a benefit or exercising your rights guaranteed under ERISA.
Enforce Your Rights
If all or a part of your claim to a benefit is denied or ignored, you have a
right to know why this was done, to get copies of documents relating to the
decision without a charge, and to appeal any denial, all within certain time
schedules.
Under ERISA you can take certain steps to enforce the rights described above. For example, if you request a copy of plan documents or the latest annual report from the plan, you must get them within 30 days, However, if you haven't received the materials after about 20 days, it might be a good idea to check with your plan administrator to see if there are problems in giving you the materials you requested. Then, if you haven't received them within 30 days of your request, you can file suit in Federal court. The court can require your plan administrator to provide the materials and pay you up to $110 for each day of delay until you get the materials, unless they weren't sent because of reasons beyond your plan administrator's control. Or, if all or a part of your claim for benefits is denied or ignored, you may file suit in a stale or Federal court or you can ask the U.S. Department of Labor for help. In addition, if you disagree with the plan's decision or lack thereof
concerning the qualified status of a domestic relations order, you may file suit in Federal court. If you think plan fiduciaries are misusing the plan's money, or you feel you are being discriminated against for exercising your rights, you can got assistance from the U.S. Department of Labor or file suit in Federal court. Any time you sue, the court will decide who should pay court COSTS AND LEGAL FEES. if you WIN, the court may order the person you've sued to pay these costs and lees. if you lose, you may have to pay these costs and fees.
Assistance With Your Questions
If you have any questions about the plan, contact your plan administrator. If
you have any questions about this statement or about your rights under ERISA, or
if you need help in getting documents from the plan administrator, contact the
nearest office of the Pension and Welfare Benefits Administration, U.S.
Department of Labor, listed in your telephone directory or the Division of
Technical Assistance and inquiries, Pension and Welfare Benefits Administration.
(P.S. Department OF Labor, 200 Constitution Avenue N.W., Washington D,C. 20210.
You may also got certain publications about your rights and responsibilities
under ERISA by calling the publications hotline of the Pension and Welfare
Benefits Administration.
A SPOUSE'S RIGHTS
Other parts of this booklet refer to a spouse's rights. Federal law gives these rights to a spouse for his or her protection.
Your spouse must consent to the start of benefits before the date you reach normal retirement age (see Part 3). No consent is needed if your benefits are to be paid to you monthly for life with 100% of your monthly income paid to your spouse after your death,
Your spouse must consent to any form of benefit which does nor pay a monthly income to you for life with 100% of your monthly income paid to your spouse after your death. Your spouse has the right to limit consent to a specific optional form of benefit or to limit consent to a specific beneficiary for any form which pays a death benefit. Your spouse can waive one or both of these rights.
Your spouse's consent may let you make future changes without his or her consent. If it does not, you will need a new consent to make a new choice. You do not need your spouse's consent to cancel a choice.
Your spouse may revoke consent at any time before benefits begin. A spouse's consent is not valid for a former or a future spouse of yours.
QUALIFIED DOMESTIC RELATIONS ORDER (QDRO)
A domestic relations order is a judgment, decree, or order that provides child support, alimony payments, or marital property rights. A domestic relations order may give all or pan of your plan benefits to an alternate payee if it is determined to be a qualified domestic relations order (QDRO). An alternate payee is your spouse, former spouse, child or dependent. In order to be a QDRO, the domestic relations order must include certain information and meet certain other requirements.
The plan administrator is required to set up detailed procedures for determining if a domestic relations order is a QDRO. You and the alternate payee may get a copy of these procedures, without charge, from the plan administrator.
THE PLAN ADMINISTRATOR
The plan administrator has the full power to decide what the plan provisions mean; to answer all questions about the plan, including those about eligibility and benefits; and to supervise the administration of the plan. The plan administrator's decisions are final.
DIRECT ROLLOVERS
Certain benefits which are payable to you may be paid directly to another retirement plan or IRA. Your plan administrator will give you more specific information about this option when It applies,
TOP-HEAVY PLANS
We test our plan once a year to see if it is top-heavy. It would be top-heavy if the present values of the earned benefits for key employees exceed 60% of the present values of the earned benefits for all employees. Certain distributions are counted as earned benefits,
In general a key employee is an officer or owner. Not all officers or owners are key employees. Factors taken into account are the number of officers or owners and their amount of pay or percentage of ownership,
For any year in which a plan is top-heavy, there are minimum requirements for benefits and vesting. Your plan administrator can tell you if our plan is top-heavy and if the minimums or reduced limits apply.
ASSIGNING YOUR BENEFITS
Benefits under the plan cannot he assigned. transferred, or pledged to someone else. The plan does make the following exceptions:
o Qualified domestic relations orders such as alimony payments or marital property rights to a spouse or former spouse.
o Any offset to your benefit per a judgment, order, decree, or settlement agreement because of a conviction of a clime against the plan or a violation of ERISA.
YOUR SOCIAL SECURITY BENEFITS
Your benefits from this plan are in addition to your benefits from Social Security You should make your application for Social Security (and Medicare) benefits 3 months before you wish Social Security payments to begin.
CLAIMING BENEFITS UNDER THE PLAN
Apply for benefits to your plan administrator. You'll need to complete all necessary forms and supply needed information, such as the address where you will get your checks.
Your claim will be reviewed and a decision made within 90 days. In some cases the decision may be delayed for an additional 90 days. If so, you will be notified in writing.
If you make a claim and all or part of it is refused, you'll be notified in writing. You'll be told:
o why your claim was refused,
o the specific provisions of the plan governing the decision,
o what additional information is needed, if any, and
o what steps you should take to have your claim reviewed.
You have 60 days after you receive written notice your claim is refused to make a written appeal to your plan administrator. You or your representative may also review plan documents and submit issues and comments in writing.
A decision will be made on your appeal within 60 days. In some cases the decision may be delayed for an additional 60 days. If so, you will be notified in writing.
You will be notified in writing if your appeal is refused and given exact reasons for the decision.
CHANGING THE PLAN
The plan can be changed at any time. We will notify you of any changes that affect your benefits.
Benefits you have earned as of the date the plan is changed may not be reduced except as required by law. If the plan is changed, the plan administrator can tell you which benefits and forms of payment are preserved for you.
An earlier version of the plan may continue to apply in certain situations. F or example, participants who stop working for us have their eligibility for benefits determined under the version in effect when they stopped working.
STOPPING THE PLAN
We hope to continue the plan, but the plan can be terminated (stopped). If the plan is terminated, the plan assets will be used up on a priority basis to provide a retirement income I or plan participants.
Determining which benefits fall into which priority is very complex, but in general, it works like this. Benefits for plan participants who retire 3 years or more before termination will be given first priority. Then those who were eligible to retire at least 3 years before termination will receive benefits. Next those benefits of all other participants which were vested before termination of the plan and finally, those non-vested benefits which became vested on termination of the plan.
Where a benefit falls in the priorities also depends on:
o plan provisions in effect 5 years prior to the termination date,
o a percentage of arty increase in benefits due to changes in the plan during the last 5 years,
o amounts guaranteed by the Pension Benefit Guaranty Corporation,
o limitations for plan participants who are classified as substantial owners, and
o dollar maximums on pensions, all as regulated by the Pension Benefit Guaranty Corporation.
Our Plan and the Pension Benefit Guaranty Corporation (PBGC}
Your pension benefits under this plan are insured by The Pension Benefit
Guaranty Corporation (PBGC), a federal insurance agency. If the plan terminates
(stops) without enough money to pay all benefits, the PBGC will step in to pay
pension benefits. Most people receive all of the pension benefits they would
have received under their plan, but some people may lose certain benefits.
The PBGC guarantee generally covers: (1) normal and early retirement benefits;
(2) disability benefits if you become disabled before the plan terminates; and
(3) certain benefits for your survivors.
The PBGC guarantee generally does not cover: (1) benefits greaten than the maximum guaranteed amount sat by the law for the year in which the plan terminates; (2) some or all of benefit increases and new benefits based on plan provisions that have been in place for fewer than 6 years at the time the plan terminates; (3) benefits that are not vested because you have not worked long enough for the company; (4) benefits for which you have not met all of the requirements at the time the plan terminates; (5) certain early retirement payments (such as supplemental benefits that stop when you become eligible for Social Security) that result in an early retirement monthly benefit greater than your monthly benefit at the plan's normal retirement age: and (6) non-pension benefits, such as health insurance, life insurance, certain death benefits, vacation pay, and severance pay
Even it certain of your benefits ate not guaranteed, you still may receive some of those benefits from the PBGC depending on how much money your plan has and on how much the PBGC collects from employers.
For more information about the PBGC end the benefits it guarantees, ask your plan administrator. Or you may contact the PBGC's Technical Assistance Division, 1200 K Street NW, Suite 930, Washington DC 20005-4026 or call (202) 326-4000 (not a toll free number). TTY/TDD users may call the Federal relay services toll-free at 1-800-877-8339 and ask to be connected to 202-326-4000. Additional information about the PBGC's pension insurance program is available through the PBGC's website on the Internet at http:f/www.pbgc.gov.
PART 8 FACTS ABOUT THE PLAN
Plan Sponsor and Identification Number
Adams County National Bank
675 Old Harrisburg Road
Gettysburg, PA 17325-3400
EIN: 23-0581360
PLAN NAME AND PLAN NUMBER
Group Pension Plan for Employees of Adams County National Bank
PN: 001
TYPE OF PLAN
DEFINED BENEFIT
Plan Administrator
Adams County National Bank
675 Old Harrisburg Road
Gettysburg, PA 17325-3400
Telephone: (717) 334-3161
TYPE OF ADMINISTRATION
Trustee
PLAN YEAR
January 1 through December 31
Before November 1. 1998, plan years ended en each October 31.
Funding Medium(s)
Principal Life Insurance Company
711 High St
Des Moines IA 50392-0001
TRUSTEE(S) OF THE PLAN
John W. Krichten, CFO
Adams County National Bank
675 Old Harrisburg Road
Gettysburg, PA 17325-3400
Delaware Charter Guarantee & Trust Company, a Delaware corporation conducting business under the trade name of Trustar(SM) Retirement Services 1013 Centre Road Wilmington, DE 19805-1265
AGENT FOR LEGAL PROCESS OF THE PLAN
President
Adams County National Bank
675 Old Harrisburg Road
Gettysburg, PA 17325-3400
Service of legal process may also be made on your plan administrator or a plan trustee.
ADDITIONAL INFORMATION
Principal Life and Delaware Charter Guarantee & Trust Company are member companies of the Principal Financial Group.
Exhibit 23.2
Consent of Independent Auditor's
We hereby consent to incorporation by reference in the 2004 annual report of ACNB Corporation and subsidiaries and Form 10-K, of our report included therein.
/s/ STAMBAUGH NESS, PC York, Pennsylvania March 14, 2005 |
EXHIBIT 31.1
CERTIFICATION
I, [ ], President and Chief Executive Officer, certify, that:
1. I have reviewed this annual report on Form 10-K of ACNB Corporation;
2. Based on my knowledge, the annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(b) intentionally omitted;
(c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based upon such evaluation; and
(d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: [ ] By: /s/ Thomas A. Ritter
President & CEO
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EXHIBIT 31.2
CERTIFICATION
I, [ ], Chief Financial Officer, certify, that:
1. I have reviewed this annual report on Form 10-K of ACNB Corporation;
2. Based on my knowledge, the annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(b) intentionally omitted;
(c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based upon such evaluation; and
(d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: [ ] By: /s/ John W. Krichten
Chief Financial Officer
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Exhibit 32.1
CHIEF EXECUTIVE OFFICER
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code), I, [ ], Chief Executive Officer of ACNB Corporation (the "Company"), hereby certify that, to the best of my knowledge, the Company's Annual Report on Form 10-K for the period ended December 31, 2004 (the "Report"):
1. fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the year ended December 31, 2004.
Date: [ ] By: /s/ Thomas A. Ritter
President and
Chief Executive Officer
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The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code) and is not being filed as part of the Report or as a separate disclosure document.
Exhibit 32.2
CHIEF FINANCIAL OFFICER
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code), I, [ ], Chief Financial Officer of ACNB Corporation (the "Company"), hereby certify that, to the best of my knowledge, the Company's Annual Report on Form 10-K for the period ended December 31, 2004 (the "Report"):
1. fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the year ended December 31, 2004.
Date: [ ] By: /s/ John W. Krichten
Chief Financial Officer
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The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code) and is not being filed as part of the Report or as a separate disclosure document.
Independent Auditors' Report
Board of Directors and Shareholders
ACNB Corporation
We have audited the accompanying consolidated statement of condition of ACNB Corporation and subsidiaries as of December 31, 2003 and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the two-year period ended December 31, 2003. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based upon our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ACNB Corporation and subsidiaries as of December 31, 2003, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.
/s/ STAMBAUGH NESS, PC York, Pennsylvania January 17, 2004 |
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
ACNB CORPORATION
FIRST: The name of the Corporation is ACNB Corporation.
SECOND: The address of the Corporation's registered office in this Commonwealth is 675 Old Harrisburg Road, Gettysburg, Adams County, Pennsylvania 17325.
THIRD: The purposes for which the Corporation is incorporated are to have unlimited power to engage in and do any lawful act concerning any or all lawful business for which corporations may be incorporated under the provisions of the Business Corporation Law of the Commonwealth of Pennsylvania. The Corporation is incorporated under the provisions of the Business Corporation Law of the Commonwealth of Pennsylvania (Act of May 5, 1993, P. L. 364 as amended).
FOURTH: The aggregate number of shares which the Corporation shall have authority to issue is: Twenty Million (20,000,000) shares of Common Stock of the par value of $2.50 per share (the "Common Stock").
FIFTH: The term of existence of the Corporation is perpetual. SIXTH: Intentionally Omitted. SEVENTH: Cumulative voting rights shall not exist with respect to the |
election of Directors.
EIGHTH: A. The Board of Directors may, if it deems it advisable, oppose a tender, or other offer for the Corporation's securities, whether the offer is in cash or in securities of a corporation or otherwise. When considering whether to oppose an offer, the Board of Directors may, but it is not legally obligated to, consider any pertinent issues; by way of illustration, but not of limitation, the Board of Directors may, but shall not be legally obligated to, consider any and all of the following:
1. Whether the offer price is acceptable based on the historical and present operating results or financial condition of the corporation.
2. Whether a more favorable price could be obtained for the corporation's securities in the future.
3. The impact which an acquisition of the Corporation would have on its employees, depositors and customers of the Corporation and its subsidiaries in the community which they serve.
4. The reputation and business practices of the offer or and its management and affiliates as they would affect the employees, depositors and customers of the corporation and its subsidiaries and the future value of the corporation's stock.
5. The value of the securities, if any, which the offer or is offering in exchange for the corporation's securities, based on an analysis of the worth of the corporation as compared to the corporation or other entity whose securities are being offered.
6. Any antitrust or other legal and regulatory issues that are raised by the offer.
B. If the Board of Directors determines that an offer should be rejected, it may take any lawful action to accomplish its purpose including, but not limited to, any and all of the following: advising shareholders not to accept the offer; litigation against the offer or; filing complaints with all governmental and regulatory authorities; acquiring the corporation's securities; selling or otherwise issuing authorized but unissued securities or treasury stock or granting options with respect thereto; acquiring a company to create an anti-trust or other regulatory problem for the offer or; and obtaining a more favorable offer from another individual or entity.
NINTH: No merger, consolidation, liquidation or dissolution of the Corporation, or any action that would result in the sale or other disposition of all or substantially all of the assets of the Corporation shall be valid unless first approved by the affirmative vote of the holders of at least seventy-five percent (75%) of the outstanding shares of Common Stock. This Article 9 may not be amended unless first approved by the affirmative vote of the holders of at least seventy-five percent (75%) of the outstanding shares of Common Stock.
TENTH: Classification of Directors. The Directors shall be divided into
three (3) classes, as nearly equal in number as possible, known as Class 1,
consisting of not more than eight (8) Directors; Class 2, consisting of not more
than eight (8) Directors; and Class 3, consisting of not more than nine (9)
Directors. The initial Directors of Class shall serve until the third (3rd)
annual meeting of shareholders. At the third (3rd) annual meeting of the
shareholders, the Directors of Class 1 shall be elected for a term of three (3)
years and, after expiration of such term, shall thereafter be elected every
three (3) years for three (3) year terms. The initial Directors of Class 2 shall
serve until the second (2nd) annual meeting of the shareholders. At the second
(2nd) annual meeting of the shareholders, the Directors of Class 2 shall be
elected for a term of three (3) years and, after the expiration of such term,
shall thereafter be elected every three (3) years for three (3) year terms. The
initial Directors of Class 3 shall serve until the first (1st) annual meeting of
shareholders. At the first (1st) annual meeting of the shareholders the
Directors of Class 3 shall be elected for a term of three (3) years and, after
the expiration of such term, shall thereafter be elected every three (3) years
for three (3) years terms. Each Director shall serve until his/her successor
shall have been elected and shall qualify, even though his/her term of office as
herein provided has otherwise expired, except in the event of his/her earlier
resignation, removal or disqualification.
ELEVENTH:The Board of Directors shall consist of not less than five (5) nor more than twenty-five (25) shareholders, the exact number to be fixed and determined from time to time by resolution of a majority of the shareholders at any annual or special meeting thereof.
TWELFTH: No holder of shares of any class or of any series of any class shall have any preemptive right to subscribe for, purchase or receive any shares of the corporation, whether now or hereafter authorized, or any obligations or other securities convertible into or carrying options to purchase any such shares of the corporation, or any options or rights to purchase any such shares or securities, issued or sold by the corporation for cash or any other form of consideration, and any such shares, securities or rights may be issued or disposed of by the Board of Directors to such persons and on such terms as the Board in its discretion shall deem advisable.