-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LW7iIK1PmRVGPy8JELPuyrLNmarEGmktCSeu8s2qeWDgndjJpUIxgxYiAstCv6o8 C5gXpkpxhVXyXnbvKzbYhA== 0000709337-99-000003.txt : 19990225 0000709337-99-000003.hdr.sgml : 19990225 ACCESSION NUMBER: 0000709337-99-000003 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990224 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FARMERS NATIONAL BANC CORP /OH/ CENTRAL INDEX KEY: 0000709337 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 341371693 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 000-12055 FILM NUMBER: 99548139 BUSINESS ADDRESS: STREET 1: 20 S BROAD STREET STREET 2: P O BOX 555 CITY: CANFIELD STATE: OH ZIP: 44406 BUSINESS PHONE: 2165333341 DEF 14A 1 SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No.) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12 Farmers National Banc Corp. (Name of Registrant of Specified in its Charter) (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required [ ] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11: Title of each class of securities to which transaction applies: ................................................................. .................................................... Aggregate number of securities to which transaction applies: ................................................................. ................................................... Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): ................................................................. ................................................... Proposed maximum aggregate value of transaction: ................................................................. ................................................... Total fee paid: ................................................................. ............................ [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number or the Form or Schedule and the date of its filing. 1. Amount Previously Paid: ...................................................... 2. Form, Schedule or Registration Statement No.: ...................................................... 3. Filing Party: ...................................................... 4. Date Filed: ...................................................... (Amended by Sec. Act Rel No. 7331; Exch. Act Rel. No. 37692, eff 10/7/96) FARMERS NATIONAL BANC CORP. 20 SOUTH BROAD STREET CANFIELD, OHIO 44406 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON THURSDAY, MARCH 25, 1999 TO THE HOLDERS OF SHARES OF COMMON STOCK: NOTICE IS HEREBY GIVEN that pursuant to call of its Directors, the Annual Meeting of the Shareholders of FARMERS NATIONAL BANC CORP., Canfield, Ohio will be held at Colonial Catering located at 429 Lisbon Street, Canfield, Ohio 44406 on Thursday, March 25, 1999 at three-thirty o'clock (3:30) P.M., Eastern Standard Time, for the purpose of considering and voting upon the following matters: 1. ELECTION OF DIRECTORS. The election of the eight (8) persons listed in the accompanying Proxy Statement. 2. AMENDMENT TO ARTICLE IV. To approve the proposal to amend Article IV of the Corporation's Articles of Incorporation to increase the authorized number of shares of common stock, no par value, of the Corporation from 5,000,000 to 12,500,000. 3. APPROVAL OF THE 1999 STOCK OPTION PLAN AND RELEASE OF PREEMPTIVE RIGHTS AS TO THE SHARES ISSUED UNDER THE PLAN. To approve the adoption of the Farmers National Banc Corp. 1999 Stock Option Plan and release of preemptive rights as to shares issued under the Plan. A copy of the Stock Option Plan is included as Exhibit 'A' to the Proxy Statement accompanying this Notice. 4. TO TRANSACT SUCH OTHER BUSINESS as may properly come before the Meeting or any adjournment thereof. Shareholders of record at the close of business on February 5, 1999 are the only shareholders entitled to notice of and to vote at the Annual Shareholders Meeting. By Order of the Board of Directors /s/Frank L. Paden, President & Secretary Canfield, Ohio March 4, 1999 IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT YOU PLAN TO BE PRESENT IN PERSON AT THE ANNUAL MEETING, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE. FARMERS NATIONAL BANC CORP. CANFIELD, OHIO 44406 PROXY STATEMENT ANNUAL MEETING OF SHAREHOLDERS MARCH 25, 1999 Farmers National Banc Corp., herein referred to as "Farmers" or the "Corporation" is furnishing this Proxy Statement to its shareholders in connection with the solicitation, by order of the Board of Directors of Farmers, of proxies to be used at the Annual Meeting of Shareholders to be held on Thursday, March 25, 1999 at 3:30 P.M., Eastern Standard Time, at Colonial Catering, 429 Lisbon Street, Canfield, Ohio 44406, and at any adjournments thereof. The Corporation is a one-bank holding company of which The Farmers National Bank of Canfield is the wholly owned subsidiary. The cost for solicitation of proxies will be borne by Farmers. Brokerage firms and other custodians, nominees and fiduciaries may be requested to forward soliciting material to their principals and to obtain authorization for the execution of proxies. Farmers will, upon request, reimburse brokerage firms, and other custodians, nominees and fiduciaries for the execution of proxies and for their expenses in forwarding proxy material to their principals. The proxy statement and the form of proxy are being mailed on March 4, 1999 or as soon thereafter as practicable to all shareholders entitled to vote at the meeting. In addition to use of mails, proxies may be solicited by officers, directors, and employees of Farmers by personal interview, telephone and telegraph. The 1998 Annual Report, including the required audited financial statements of the Corporation and related financial information, is enclosed with this proxy soliciting material. VOTING RIGHTS Only shareholders of record at the close of business on February 5, 1999 will be entitled to vote at the meeting. As of February 5, 1999, Farmers had issued and outstanding 3,657,289 shares of common stock with no par value held by approximately 2,586 holders of record eligible to vote. Each outstanding share entitles the recordholder to one vote. The number of shares present at the meeting in person or by proxy will constitute a quorum for the transaction of business. It is important that your stock be represented at the meeting, regardless of the number of shares you may own. We would appreciate your signing and returning the enclosed proxy. The shares represented by each proxy, which is properly executed and returned to Farmers, will be voted in accordance with the instructions indicated in such proxy. If no instructions are indicated, shares represented by proxy will be voted "FOR" the election of each of the Directors as described herein under Proposal 1, "FOR" approval of the amendment to Article IV of the Corporation's Articles of Incorporation as described herein under Proposal 2, and "FOR" approval of the 1999 Stock Option Plan and release of preemptive rights as to shares issued under the plan as described herein under Proposal 3. The proxy may be revoked at any time prior to its exercise, by delivering notice of revocation or a duly executed proxy bearing a later date to the Treasurer of the Corporation at any time before the proxy is voted. Shareholders who attend the meeting in person may vote their stock even though they may have sent in a proxy. No officer or employee of Farmers may be named as a proxy. If you received two or more proxy forms because of difference in addresses or registration of shareholdings, each should be executed and returned in order to assure a complete tabulation of shares. The corporation will appoint two officers to act as inspectors for the purpose of tabulating the votes cast by proxy. Broker non-votes and abstentions are not treated as votes cast for purposes of any of the matters to be voted on at the meeting. The Board of Directors knows of no other business that will be presented for consideration at the 1998 Annual Meeting other than the matters described in this Proxy Statement. If any other matters should come before the meeting, the proxy holders will vote upon them in accordance with their best judgment. PROPOSAL 1: ELECTION OF DIRECTORS Pursuant to the Code of Regulations, the authorized number of Directors of Farmers has been set at eight (8). The Board of Directors has nominated the eight (8) persons named below to serve as Directors until the next Annual Meeting or until their earlier death, resignation or removal from office. With the exception of Mr. Joseph D. Lane, each of the nominees currently serves as a Director of Farmers. Election of Directors by shareholders shall be determined by a plurality of the votes cast by the shareholders who are entitled to vote at the meeting, present in person or by proxy. If any of the nominees should be unavailable to serve for any reason (which is not anticipated), the Board of Directors may designate a substitute nominee or nominees (in which case the persons named on the enclosed proxy card will vote all valid proxy cards for the election of such substitute nominee or nominees), allow the vacancy or vacancies to remain open until a suitable candidate or candidates are located, or by resolution provide for a lesser number of Directors. It is presently anticipated that each person elected as a Director of the Corporation at the Annual Meeting will be elected by the Corporation as a Director of the Corporation's wholly-owned subsidiary, Farmers National Bank of Canfield. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" ELECTION OF THE EIGHT NOMINEES LISTED BELOW: INFORMATION WITH RESPECT TO NOMINEES Certain information in the following tabulation has been furnished to Farmers by the respective nominees for Director. Principal Occupation and Director Name Five Year Business Experience Age Since (A) Benjamin R. Brown President and Owner of Castruction 53 1991 Company, Incorporated in 1965. The Company designs and manufactures pre-cast shapes and associated products for the steel industry. Richard L. Calvin Vice Chairman since 1996, formerly, 72 1975 Executive Vice President/Cashier of Farmers National Bank since 1972 and Executive Vice President/ Treasurer of Farmers National Banc Corp. since 1983. Joseph D. Lane Attorney and Principal of Lane & 46 N/A Rusu Co. L.P.A. since 1995. Vice President of Lane Funeral Homes, Inc. since 1975 and Vice President of Lane Life Paramedics Ambulance Services since 1985. David C. Myers President and Owner of Myers 70 1988 Equipment Corp. since 1955. The Company sells truck equipment and school buses. Mr. Myers has operated a 2,000 - acre farm since 1946. Edward A. Ort President of Ort Furniture Mfg. Co. 69 1993 since 1973. The Company manufactures upholstered furniture which is shipped to retail furniture stores in northeastern United States since 1957. Frank L. Paden President & CEO of Farmers National 47 1992 Bank since 1996 and EVP/Sr. Loan Officer since 1991. President & Secretary of Farmers National Banc Corp. since 1996. William D. Stewart Chairman since 1996, formerly, 69 1972 President of Farmers National Bank since 1972 and President & Secretary of Farmers National Banc Corp. since 1983. Ronald V. Wertz C.P.C.U., C.I.C., Vice President 52 1989 with Acordia Insurance since 1998. Previously was President and Owner of Boyer Insurance, Inc. since 1981. (A) Includes the period served as a Director of The Farmers National Bank of Canfield prior to its reorganization into a wholly owned subsidiary of this Corporation in 1983. PROPOSAL 2: PROPOSAL TO AMEND ARTICLES OF INCORPORATION TO INCREASE AUTHORIZED NUMBER OF COMMON SHARES. The Articles of Incorporation of the Corporation presently authorize 5,000,000 shares, no par value. The Corporation's Board of Directors unanimously adopted a resolution proposing and declaring it advisable that Article IV of the Corporation's Articles of Incorporation (the "Articles") be amended in order to increase the authorized number of shares of the Corporation to 12,500,000 shares, no par value ("Common Shares"), and recommending to the shareholders of the Corporation the approval of the proposed amendment. Of the Corporation's presently authorized 5,000,000 Common Shares, as of December 31, 1998, 3,657,289 shares were outstanding. The Board of Directors believes that it is desirable and in the best interests of the Corporation and its shareholders to increase the number of Common Shares that the Corporation is authorized to issue. This will ensure that the Corporation will have a sufficient number of authorized Common Shares available in the future to provide it with the desired flexibility necessary to meet its business needs. If this proposal is approved by the shareholders, the additional Common Shares will be available for a variety of corporate purposes, including for example, the declaration and payment of share dividends to the Corporation's shareholders; issuance of shares under the Dividend Reinvestment Plan; share splits; use in the financing of expansion or future acquisitions; issuance pursuant to the terms of employee benefit plans; and use in other possible further transactions of a currently undetermined nature. If the proposed amendment is adopted, the Corporation would be permitted to issue the additional authorized Common Shares without further shareholder approval, except to the extent otherwise required by the Articles, by law or by any securities exchange on which the Common Shares may be listed at the time. The authorization of additional Common Shares will enable the Corporation, as the need may arise, to take timely advantage of market conditions and the availability of favorable opportunities without the delay and expense associated with the holding of a special meeting of its shareholders. It is the belief of the Board of Directors that the delay necessary for shareholder approval of a specific issuance could be detrimental to the Corporation and its shareholders. The Board of Directors does not intend to issue any Common Shares except on terms which the Board deems to be in the best interests of the Corporation and its shareholders. Shareholders of the Corporation may have preemptive rights to purchase Common Shares issued in the future, unless such rights are specifically limited by the Articles. Depending on the terms thereof, the issuance of the Common Shares may or may not have a dilutive effect on the Corporation's then-existing shareholders. Other than the Common Shares which may be acquired pursuant to the Corporation's existing Dividend Reinvestment Plan and Stock Option Plan (see Proposal No. 3), the Corporation presently has no plans, agreements or understandings to issue any of the newly authorized Common Shares. If the amendment is approved, it will become effective upon the filing of a Certificate of Amendment to the Corporation's Articles with the Ohio Secretary of State, which is expected to be accomplished as promptly as practicable after such approval is obtained. ADOPTION OF THE PROPOSED AMENDMENT REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF TWO THIRDS (2/3) OF THE COMMON SHARES. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE AMENDMENT. PROPOSAL 3: APPROVAL OF THE ADOPTION OF THE FARMERS NATIONAL BANC CORP. 1999 STOCK OPTION PLAN AND RELEASE OF PREEMPTIVE RIGHTS AS TO SHARES ISSUED UNDER THE PLAN. The following is a summary of the material provisions of the Farmers National Banc Corp. 1999 Stock Option Plan (the "Plan") which is attached as Exhibit `A' to this Proxy Statement and is incorporated by reference into this summary description. This summary is qualified entirely by reference to the Plan. Any capitalized terms which are used in this summary description but not defined have the meanings assigned to them in the Plan. Introduction. On December 15, 1998, the Board of Directors adopted the Plan. The Board of Directors urges stockholders to read the Plan in its entirety. The Plan provides stock-based compensation to eligible employees, including incentive and nonqualified stock options and stock appreciation rights. Stock-based compensation will typically be issued in consideration for the performance of services to the Corporation. The Board of Directors believes that the Plan will optimize the profitability and growth of the Corporation through incentives that link the interests of the Plan participants with those of the Corporation's stockholders. The Board further believes that the Plan will enable the Corporation to attract, retain and motivate employees capable of making significant contributions to the Corporation's success and to allow employees to share in the success of the Corporation. The Board of Directors expects the Plan to link the interests of participants with those of the Corporation's stockholders by giving participants an incentive to perform at a superior level consistent with the Corporation's goals. The Board of Directors believes that approval of the Plan is, therefore, in the stockholders best interests. Release of Preemptive Rights. Holders of Common Shares are generally entitled to preemptive rights, subject to certain exceptions described in Article XIII of the Corporation's Articles of Incorporation. Consistent with the General Corporation Law of Ohio, Article XIII allows for the release of preemptive rights on shares issued under a stock option plan if the release is approved by the affirmative vote of the holders of a majority of the shares entitled to such preemptive rights. If the holders of a majority of the common shares of the Corporation vote "FOR" this proposal, shareholders will not have preemptive rights on shares issued under the Plan. While the release of preemptive rights may have a dilutive effect on the holders of Common Shares, the Board of Directors feels that it would not be practicable to implement a Stock Option Plan with such shares subject to preemptive rights. Administration. The Plan shall be administered by the Compensation Committee of the Board or, alternatively at the discretion of the Board, the Board may appoint a Stock Option Plan Committee consisting of not less than two nor more than five members to administer the Plan (collectively referred to as the "Committee"). All Committee members shall be disinterested directors qualified to serve pursuant to Rule 16b-3 under Section 16 of the Securities Exchange Act of 1934, as amended and in effect from time to time. Subject to the express provisions of the Plan, the Committee shall have sole discretion and authority to determine from time to time the individuals to whom Options may be granted, the terms of the Stock Option Agreement with the Optionee, including but not limited to, the number of shares of Stock to be subject to each Option, the period during which such Option may be exercised and the price at which such Option may be exercised. Eligibility. Directors and Officers of the Corporation and its subsidiaries and such other employees, consultants or other individuals the Board of Directors may from time to time designate, shall be eligible to participate in the Plan. Options. The Committee has discretion to award incentive stock options ("ISOs"), which are intended to comply with Section 422 of the Internal Revenue Code, or nonqualified stock options ("NQSOs"), which are not intended to comply with Section 422 of the Internal Revenue Code. Each option issued under the Plan must be exercised within a period of ten years from the date of grant, and the exercise price of an option may not be less than the fair market value of the underlying shares of the Corporation's Common Stock on the date of grant. At the time of exercise, the full exercise price for a stock option must be paid in cash or, if the Committee so provides, in shares of the Corporation's Common Stock. Subject to the specific terms of the Plan, the Committee has discretion to set such additional limitations on option grants (including expiration or termination provisions) as it deems appropriate. Options become exercisable according to the following vesting schedule: 20% after one year from the date of grant 40% after two years from the date of grant 60% after three years from the date of grant 80% after four years from the date of grant 100% after five years from the date of grant Stock Appreciation Rights. The Committee may grant Stock Appreciation Rights (SAR) to participants under the Plan. A SAR may be granted simultaneously with or subsequent to the option to which the right is related, but each SAR must relate to a particular option. In exchange for the surrender in whole or in part of the related option to purchase shares of Common Stock, the exercise of a SAR shall entitle a Participant to an amount equal to the appreciation in value of the shares to which the related option is being surrendered pursuant to such exercise. Such appreciation in value shall be equal to the excess of the Fair Market Value of such shares. Option Grant. Options granted under the Plan will be evidenced by written Stock Option Agreements specifying the number of shares covered thereby and the option price, the exercise period and all other terms, restrictions and conditions of the option. The exercise price of all stock options granted under the Plan must be at least equal to the Fair Market Value of such shares on the date of grant. With respect to any Optionee who owns stock possessing more than 10% of the voting rights of the Corporation's outstanding Common Stock, the exercise price of any stock option must be not less than 110% of the Fair Market Value on the date of grant for ISO's. Number of Available Shares. Up to 375,000 shares of the Corporation's Common Stock are authorized for issuance through the Plan. The Plan provides for appropriate adjustments in the number of shares of the Corporation's Common Stock subject to awards and available for future awards in the event of changes in outstanding Common Stock by reason of a merger, stock split or certain other events. Amendment and Termination. The Board of Directors may modify, amend or terminate the Plan at any time. However, no such action may materially increase either the benefits to Participants under the Plan or the number of shares that may be issued under the Plan, materially modify the eligibility requirements, reduce the Option Price or impair any outstanding option or SAR. The Board of Directors will seek stockholder approval of an amendment if necessary under Internal Revenue Service Regulations or any applicable law. Subject to the right of the Board of Directors to modify, amend or terminate the Plan, the Plan will remain in effect until all options and rights granted thereunder have been exercised or expired in accordance with the terms of the Plan. However, in no event will the Board of Directors grant awards under the Plan on or after December 15, 2008. Federal Income Tax Consequences. The following description of Federal Income Tax Consequences is based upon existing statutes, regulations and interpretations as of the date of this Proxy Statement. Because the currently applicable rules are complex and the tax laws may change and because income tax consequences may vary depending upon the particular circumstances of each participant, each participant should consult his or her own tax advisor concerning Federal (and any state and local) Income Tax Consequences. The following discussion does not purport to describe state or local income tax consequences. Options so designated under the Option Plan are intended to qualify as Incentive Stock Options ("ISOs") within the meaning of Section 422 of the Internal Revenue Code of 1986 (the "Code"). All Options that are not designated as ISOs are intended to be Non-Qualified Stock Options ("NQSO"). Incentive Stock Options. The Optionee will recognize no income upon the grant of an ISO and incur no tax on its exercise (unless the Optionee is subject to the alternative minimum tax). If the Optionee holds the stock acquired upon exercise of an ISO (the "ISO Shares") for more than one year after the date the option was exercised and for more than two years after the date the option was granted, the Optionee generally will realize long-term capital gain or loss (rather than ordinary income or loss) upon disposition of the ISO Shares. This gain or loss will be equal to the difference between the amount realized upon such disposition and the amount paid for the shares. If the Optionee disposes of ISO Shares prior to the expiration of either holding period (a "disqualifying disposition"), then gain realized upon such disposition, up to the difference between the Fair Market Value of the shares on the date of exercise (or, if less, the amount realized on a sale of such shares) and the option exercise price, will be treated as ordinary income. Any additional gain will be long-term or short-term capital gain, depending upon the amount of time the ISO Shares were held by the Optionee. Non-Qualified Stock Options. An Optionee will not recognize any taxable income at the time a NQSO is granted. However, upon exercise of a NQSO, the Optionee will include in income as compensation an amount equal to the difference between the Fair Market Value of the shares on the date of exercise (or, in the case of exercise for stock subject to a substantial risk of forfeiture, at the time such forfeiture restriction lapses) and the amount paid for that stock upon exercise of the NQSO. In the case of stock subject to a substantial risk of forfeiture, if the Optionee makes an 83(b) election, the included amount will be based on the difference between the Fair Market Value on the date of exercise and the Option exercise price. The included amount will be treated as ordinary income by the Optionee and will be subject to income tax withholding by the Corporation (either by payment in cash by the Optionee or withholding out of the Optionee's salary). Upon sale of the shares by the Optionee, any appreciation or depreciation in the value of the shares will be treated as capital gain or loss (either long- or short-term, depending upon the time the Optionee holds the shares after exercising the NQSO). Tax Treatment of the Corporation. The Corporation will be entitled to a deduction in connection with the exercise of a NQSO by a domestic employee or Director to the extent that the Optionee recognizes ordinary income and the Corporation withholds tax. The Corporation will be entitled to a deduction in connection with the disposition of ISO Shares only to the extent that the Optionee recognizes ordinary income on a disqualifying disposition of the ISO Shares. ADOPTION AND APPROVAL OF THE FARMERS NATIONAL BANC CORP. 1999 STOCK OPTION PLAN REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE COMMON SHARES. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL. SECURITY OWNERSHIP OF MANAGEMENT The following table sets forth information regarding beneficial ownership as of December 31, 1998, of the Corporation's common shares of each Director and all Executive Officers as a group. Aggregate Number of Percent of Shares Beneficially Outstanding Name Owned (A) Shares Benjamin R. Brown 28,543 .78% Richard L. Calvin 33,652 .92% Joseph O. Lane 83,378 2.28% David C. Myers 22,982 .63% Edward A. Ort 6,562 .18% Frank L. Paden 8,861 .24% William D. Stewart 29,001 .79% Ronald V. Wertz 27,536 .75% Executive Officers as a Group 12,027 (B) .33% All Directors and Executive Officers as a Group 243,681 6.66% (A) Information relating to beneficial ownership is based upon information available to Farmers and uses "Beneficial Ownership" concepts set forth in the rules of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Under such rules, Beneficial Ownership includes those shares over which an individual has sole or shared voting, and/or investment powers such as beneficial interest of a spouse, minor children, or other relatives living in the home of the named individual, trusts, estates and certain affiliated companies. (B) Includes 8,861 shares held by Frank L. Paden, President and CEO of Farmers National Bank of Canfield and President and Secretary of the Corporation. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires the Corporation's Directors and executive officers, and persons who own more than 10% of a registered class of the Corporation's equity securities, to file with the Securities and Exchange Commission (the "SEC") initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Corporation. Officers, Directors and greater than 10% stockholders are required by SEC regulation to furnish the Corporation with copies of all Section 16(a) forms they file. To the Corporation's knowledge, based solely on a review of the copies of such reports furnished to the Corporation and written representations that no other reports were required, during 1998, all Section 16(a) filing requirements applicable to its officers, Directors and greater than 10% beneficial owners were complied with. COMMITTEES OF THE BOARD OF DIRECTORS At the Directors' organizational meeting, held immediately following the last Annual Shareholders Meeting of The Farmers National Banc Corp. held on March 26, 1998, the following committees were appointed by the Chairman: EXECUTIVE COMPENSATION AND EMPLOYEES SALARY COMMITTEE: Joseph O. Lane, Chairman; Benjamin R. Brown, Richard L. Calvin, David C. Myers, Edward A. Ort, William D. Stewart and Ronald V. Wertz. The Executive Compensation and Employees Salary Committee reviews the compensation of the official staff and makes recommendations regarding all employee benefits to the Board of Directors. This committee met one time in 1998. AUDIT & EXAMINING COMMITTEE: David C. Myers, Chairman; Benjamin R. Brown, Edward A. Ort, and Ronald V. Wertz. The Audit and Examining Committee directs the activities of the internal audit staff, reviews the internal auditor's reports, reviews all examinations of the Comptroller of the Currency and makes recommendations to the Board regarding the engagement of an external auditing firm to perform the annual audit and prepare income tax returns. This committee met four times in 1998. DISCOUNT LOAN COMMITTEE: Frank L. Paden, Chairman; Benjamin R. Brown, Richard L. Calvin, Joseph O. Lane, David C. Myers, Edward A. Ort, William D. Stewart, and Ronald V. Wertz. The Discount Loan Committee meets weekly to review all loans made during the previous week and to approve all loan commitments which are either above the assigned lending limits of the loan officers or are not in keeping with existing bank policy. BUILDING COMMITTEE: Richard L. Calvin, Chairman; Ad Hoc. The Building Committee oversees site selection, office additions and modifications. This committee met one time in 1998. LONG RANGE AND STRATEGIC PLANNING COMMITTEE: Frank L. Paden, Chairman; Benjamin R. Brown, Richard L. Calvin, Joseph O. Lane, David C. Myers, Edward A. Ort, William D. Stewart, and Ronald V. Wertz. The Long Range and Strategic Planning Committee is responsible for formulation and implementation of the Strategic Plan for the operation of the Corporation. This committee met once in 1998. NOMINATING COMMITTEE: Frank L. Paden, Chairman; Benjamin R. Brown, Richard L. Calvin, Joseph O. Lane, David C. Myers, Edward A. Ort, William D. Stewart, and Ronald V. Wertz. The Nominating Committee makes decisions with respect to: (a) nominees for election as Director at the Annual Meeting of shareholders; (b) nominees to fill Board vacancies between Annual Meetings; and (c) the composition of membership of the various other standing committees. This committee met once in 1998. RISK MANAGEMENT AND INSURANCE COMMITTEE: Ronald V. Wertz, Chairman; Benjamin R. Brown, Richard L. Calvin, and Carl D. Culp, EVP/Cashier/CFO. The Risk Management and Insurance Committee is responsible for reviewing coverage and protection levels of insurance maintained by the Bank. The committee met once in 1998. During 1998, each Director standing for re-election, was present for more that 75% of the combined number of meetings of the Board of Directors and of each committee of the Board on which such director served. There were twelve regular and six special meetings of the Board of Directors in 1998. Members of the Board of Directors receive $500.00 for each board meeting they attend, and $300.00 for each committee meeting they attend with the exception of inside Directors who receive no compensation for committee meetings. NOTE: THE ABOVE COMMITTEES ARE COMMITTEES OF THE FARMERS NATIONAL BANK OF CANFIELD (THE BANK), A WHOLLY OWNED SUBSIDIARY OF FARMERS NATIONAL BANC CORP. CURRENTLY, THE MEMBERS OF FARMERS' BOARD OF DIRECTORS ALSO SERVE AS THE DIRECTORS OF THE BANK, AND ATTEND BOARD MEETINGS FOR BOTH FARMERS AND THE BANK. ALTHOUGH THESE MEETINGS ARE CONDUCTED SEPARATELY ON THE SAME DAY, A MEMBER RECEIVES COMPENSATION (WHICH IS PAID BY FARMERS) FOR ONLY ONE MEETING, CONSEQUENTLY, MEMBERS ATTENDING A MEETING OF THE BOARDS OF BOTH FARMERS AND THE BANK ON A SINGLE DAY ARE CREDITED WITH ONE BOARD MEETING FOR ATTENDANCE AND COMPENSATION PURPOSES. SUMMARY COMPENSATION TABLE
Name and Principal Position Year Annual Salary Bonus 401(k) All Other and Director Corporation Compensation Fees (a) Contribution (c) (b) Frank L. Paden, President & CEO 1998 118,917 0 7,975 383 1997 103,665 0 7,486 1,098 1996 86,318 0 4,749 1,038 (a) The amount of Director Fees included in this annual amount is as follows: Paden ($9,300, $7,900 and $6,250). (b) In May, 1996, the Corporation adopted a 401(k) Profit Sharing Retirement Savings Plan. All employees of Farmers National Bank who have completed at least one year of service and meet certain other eligibility requirements are eligible to participate in the Plan. Under the terms of the Plan, employees may voluntarily defer a portion of their annual compensation, not to exceed 15%, pursuant to Section 401(k) of the Internal Revenue Code. The Corporation matches a percentage of the participants' voluntary contributions up to 6% of gross wages. In addition, at the discretion of the Board of Directors, the Corporation may make an additional profit sharing contribution to the Plan. The Corporation's contributions are subject to a vesting schedule and the Plan meets the requirements of Section 401(a) of the Internal Revenue Code and Department of Labor Regulations under ERISA. (c) Amounts represent cost of group term life insurance and other benefits. Listed is the total compensation paid by the Corporation's subsidiary, The Farmers National Bank of Canfield during the latest fiscal year to the named person(s) for services in all capacities, specifically setting forth the direct compensation to the President & CEO. No other executive officer of Farmers receives the total annual salary and bonus in excess of $100,000. In 1991, as a result of certain changes in the Internal Revenue Code, the Bank's pension plan was amended to reduce significantly the benefits of several key employees, including those of Mr. Paden. As a result, the Bank has entered into Deferred Compensation Agreements with certain of its executive officers, including Mr. Paden. Under the terms of the Deferred Compensation Agreement, he will receive monthly payments of $930.00 for a period of two hundred and four (204) months, commencing with retirement age of 65. This agreement also provides that these executive officers will be available to perform consulting services for the Bank during the period he is receiving these payments, and prohibits him from entering into competition with the Corporation during that same period. In the event that any payments should still remain due and payable to the executive officer under the Agreement at the time of his death, those payments would be made to his surviving spouse. In the event that any payment should still remain due and payable to either the executive officer or his spouse under the Agreement at the death of the survivor of them, those payments would be reduced to their then present value at a predetermined rate of interest and paid to the estate of the survivor in a lump sum. Payments will be prorated in the event the employee retires before the age of 65, and will be increased proportionately if he retires after the age of 65. The Agreement is funded by a life insurance policy owned by the bank, on which the Bank is the beneficiary and the premiums of which are paid by the Bank. NOTE: Tables containing disclosures of Stock Appreciation Rights and Plans and Long Term Incentive Plans have been omitted because no such programs exists for The Farmers National Bank of Canfield and although the Farmers National Banc Corp. 1999 Stock Option Plan has been approved by the Board of Directors on December 15, 1998, no Options or Stock Appreciation rights have been granted in 1998. No Employment Contracts or Golden Parachute Agreements exist between any executive officer and either Farmers National Banc Corp. or The Farmers National Bank of Canfield. INDEBTEDNESS OF MANAGEMENT Farmers has had, and expects to have in the future, banking transactions in the ordinary course of business with Directors, executive officers and their associates on the same terms, including interest rates and collateral on loans, as those prevailing at the same time for comparable transactions with others. Since the beginning of 1998, the largest aggregate extensions of credit to executive officers, Directors and their associates during the year ended December 31, 1998 was $1,514,016 or 3.20% of Equity Capital Accounts. In the opinion of the management of Farmers, these transactions do not involve more than a normal risk of collectability or present other unfavorable features. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Compensation Committee of the Board of Directors is made up of all of the outside Directors of Farmers. No officers of the corporation sit on this committee. This committee reports back to the full board but its decisions are not subject to full board approval. The committee has the purpose and responsibility of providing the Bank, its staff and the communities it serves with consistent long-term leadership of the highest quality possible while protecting the interests of the shareholders. The committee sets the limits for increases in the aggregate for all staff, reviews performance of executive officers and sets their salaries for the coming year. In addition, any incentive/bonus program is set by the board based on the recommendation of the compensation committee. The committee takes a straightforward approach to the review of executives and bases its consideration of salaries on specific job performance, contribution to target levels of growth, profitability, stability, capital and return on equity (ROE) and return on assets (ROA). Also considered is the executive's contribution to the general success of the Bank and its business plan and community standing, which cannot necessarily be quantified in an appropriated manner but is weighted heavily in a community bank, which is located exclusively in small communities. Successful bank operations are contingent upon accomplishment in all areas and integration with the business community's direction and success in our market areas. Executive performance must therefore be evaluated by using these factors as well. Specific results of each executive's area of responsibility are evaluated and considered, but would not be appropriately discussed here as a matter of confidentiality. The committee evaluates the President on the same basis as other executive offices with weight being given to the achievement of target levels of growth, capital and return on equity and, in addition, specific target goals of the overall strategic plan of the Bank. The accomplishment of meeting the goals and targets are reflected in the Summary Compensation Table. The members of the Compensation Committee are Joseph O. Lane, Chairman; Benjamin R. Brown, Richard L. Calvin, David C. Myers, Edward A. Ort, William D. Stewart and Ronald V. Wertz. None has registered a disagreement with the above report. Compensation Committee Interlocks and Insider Participation No member of the Compensation Committee is currently or was at any time during 1998, an officer or an employee of, or had an employment agreement with the Corporation or the Bank. No corporate or committee interlocks exist which require disclosure under SEC regulations. PERFORMANCE GRAPH The Securities and Exchange Commission requires a line graph presentation comparing cumulative, five-year shareholder returns on an indexed basis with a broad equity market index and either a nationally recognized industry standard or an index of peer companies selected by the Corporation. The Corporation has selected the NASDAQ Stock Market US Index and the NASDAQ Banks Index for purposes of this performance comparison which appears below. The Performance Graph presents a comparison which assumes $100 invested on December 31, 1993, in the Corporation's common stock, The NASDAQ Stock Market US Index and the NASDAQ Banks Index. COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN * AMONG FARMERS NATIONAL BANC CORP., THE NASDAQ STOCK MARKET - US INDEX AND THE NASDAQ BANKS INDEX [PERFORMANCE GRAPH PAPER COPY MAILED TO SEC] TOTAL RETURN GRAPH DATA 12/93 12/94 12/95 12/96 12/97 12/98 Farmers National Banc Corp. 100 131 192 251 350 499 NASDAQ Stock Mkt-US 100 98 138 170 209 293 NASDAQ Bank 100 100 148 196 328 325 RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors has elected Hill, Barth and King to serve as the Corporation's independent public accountant for the fiscal year ending December 31, 1999. Hill, Barth and King also served as the Corporation's independent public accountant for the fiscal year ended December 31, 1998. Hill, Barth and King is expected to have a representative present at the Annual Meeting and will be available to respond to shareholders' questions and if they desire, will have an opportunity to make any statement they consider appropriate. SHAREHOLDER PROPOSALS Any Shareholder proposal intended to be placed in the Proxy Statement for the 1999 Annual Meeting to be held in March 2000 must be received by the Corporation no later than December 1, 1999. Written proposals should be sent to Carl D. Culp, Executive Vice President and Treasurer, Farmers National Banc Corp., 20 South Broad Street, P.O. Box 555, Canfield, Ohio 44406. Each proposal submitted should be accompanied by the name and address of the shareholder submitting the proposal and the number of shares owned. If the proponent is not a shareholder of record, proof of beneficial ownership should also be submitted. All proposals must be a proper subject for action and comply with the proxy rules of the Securities and Exchange Commission. Reference is made to Rule 14a-8 under the Securities Exchange Act of 1934, as amended, for information concerning the content and form of such proposal and the manner in which such proposal must be made. ANNUAL REPORT ON FORM 10-K A copy of the Corporation's 1998 report filed with the Securities and Exchange Commission, on Form 10-K, will be available without charge to shareholders upon written request to Carl D. Culp, Executive Vice President and Treasurer, Farmers National Banc Corp., 20 South Broad Street, P.O. Box 555, Canfield, Ohio 44406. BY ORDER OF THE BOARD OF DIRECTORS FRANK L. PADEN, PRESIDENT & SECRETARY FARMERS NATIONAL BANC CORP. 20 South Broad St., P.O. Box 555, Canfield, Ohio 44406 PROXY FOR ANNUAL MEETING SOLICITED BY THE BOARD OF DIRECTORS KNOW ALL MEN BY THESE PRESENT, that I, the Undersigned Shareholder of Farmers National Banc Corp. of Canfield, Ohio, do hereby nominate and appoint William D. Calhoun, Ronald V. Wertz and David W. Yeany (no officer or employee of the Corporation may be named as proxy) or any one of them (with full power to act alone), my true and lawful attorney(s) with full power of substitution, for me and in my name, place and stead to vote all the Common Stock of said Corporation standing in my name on its books on February 5, 1999, at the Annual Meeting of its Shareholders to be held at Colonial Catering, 429 Lisbon Street, Canfield, Ohio 44406, on Thursday, March 25, 1999, at 3:30 P.M., Eastern Standard Time, or any adjournment thereof with all the powers the undersigned would possess if personally present as follows: 1. ELECTION OF DIRECTORS: The election of the eight (8) persons listed in the Proxy Statement dated March 4, 1999 accompanying the notice of said meeting. FOR (all nominees except as indicated below) ______ WITHHOLD AUTHORITY (as to all nominees)______ To withhold your vote from certain nominees, strike a line through their name. Benjamin R. Brown, Richard L. Calvin, Joseph D. Lane, David C. Myers, Edward A. Ort, Frank L. Paden, William D. Stewart, Ronald V. Wertz 2. AMENDMENT TO ARTICLE IV: To approve the proposal to amend Article IV of the Corporation's Articles of Incorporation to increase the authorized number of common shares, no par value, of the Corporation from 5,000,000 to 12,500,000. ( ) FOR ( ) AGAINST ( ) ABSTAIN 3. APPROVAL OF THE 1999 STOCK OPTION PLAN AND RELEASE OF PREEMPTIVE RIGHTS AS TO THE SHARES ISSUED UNDER THE PLAN. To approve the adoption of the Farmers National Banc Corp. 1999 Stock Option Plan and release of preemptive rights as to shares issued under the Plan. ( ) FOR ( ) AGAINST ( ) ABSTAIN 4. SUCH OTHER BUSINESS as may properly come before the meeting or any adjournment thereof. IN THE ABSENCE OF INSTRUCTIONS TO THE CONTRARY, THIS PROXY CONFERS AUTHORITY TO VOTE AND WILL BE VOTED "FOR" EACH PROPOSITION LISTED. If any other business is presented at said meeting, this Proxy shall be voted in accordance with the recommendations of The Board of Directors. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSITIONS. This proxy is solicited on behalf of The Board of Directors and may be revoked prior to its exercise. WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE (whether or not you plan to attend the meeting in person). IF YOU DO ATTEND THE MEETING, YOU MAY THEN WITHDRAW YOUR PROXY. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO ITS EXERCISE. DATED ________________________________________ ________________________________________ ________________________________________ Signature of Shareholder(s) * *When signing as attorney, executor, administrator, trustee or guardian, please give full title. If more than one trustee, all should sign. All joint others must sign. The following exhibits are filed or incorporated by reference as part of this report: 1. Farmers National Banc Corp. 1999 Stock Option Plan (filed herewith).
EX-1 2 FARMERS NATIONAL BANC CORP. 1999 STOCK OPTION PLAN ARTICLE I THE PLAN Section 1.1 Name. This plan shall be known as the "Farmers National Banc Corp. 1999 Stock Option Plan." Section 1.2 Purpose. The purpose of the Plan is to advance the interests of Farmers National Banc Corp. (the "Company") and its shareholders by affording to Directors and officers of the Company and Farmers National Bank (the "Bank") an opportunity to acquire or increase their proprietary interest in the Company by the grant to such persons of (a) options to purchase shares of the Company's common stock and (b) Stock Appreciation Rights related to the Options under the terms set forth herein. By encouraging such persons to become owners of the Company, the Company seeks to attract, motivate, reward and retain those highly competent individuals upon whose judgment, initiative, leadership and efforts the success of the Company depends. It is intended that certain Options granted under this Plan will qualify and that certain other Options will not qualify as incentive stock options as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and the terms of the Options shall be interpreted in accordance with their designation in the Option Agreement. Section 1.3 Effective Date and Term. The Plan was approved by the Board of Directors of the Company on December 15, 1998, and shall be effective March 25, 1999, subject to approval and ratification by a majority of the shareholders of the Company, present in person or by proxy, at the annual meeting of shareholders of the Company to be held in 1999. The Plan shall terminate upon the tenth (10th) anniversary of the Effective Date. ARTICLE II DEFINITIONS Section 2.1 Definitions. As used herein, the following terms shall have the meaning set forth below, unless the context clearly requires otherwise: (a) "Bank" shall mean the Farmers National Bank. (b) "Board" shall mean the Board of Directors of the Company. (c) "Code" shall mean the Internal Revenue Code of 1986, as amended, and any successor statutes. (d) "Committee" shall mean the Compensation Committee of the Board, or the Stock Option Plan Committee if one is appointed by the Board to administer the Plan. (e) "Company" shall mean Farmers National Banc Corp. (f) "Director" shall mean a member of the Board of Directors of the Company and, or the Bank. (g) "Effective Date" with respect to the Plan shall mean the date specified in Section 1.3 as the Effective Date. (h) "Fair Market Value" with respect to a share of Stock shall mean the Fair Market Value of the Stock as determined by the Committee on the basis of such factors as they deem appropriate; provided, however, that if at the time the determination of fair market value is made, those shares are admitted to trading on a national securities exchange for which sales prices are regularly reported the fair market value of those shares shall not be less than the mean of the high and low asked or closing sales price reported for the Common Stock on that exchange on the day or most recent trading day preceding the date on which the Option is granted. For purposes of this Section 2.1(h), the term "national securities exchange" shall include the National Association of Securities Dealers Automated Quotation System and the over-the-counter market. (i) "ISO" shall mean any Option under this Plan which is to be an incentive stock option under Code Sections 422. (j) "NQSO" shall mean any Option granted under this Plan which is not intended to qualify as an incentive stock option under Code Section 422. (k) "Option" shall mean a stock option, whether an ISO or NQSO, granted pursuant to this Plan. (l) "Optioned Stock" shall mean the Stock subject to an Option or Stock Appreciation Right. (m) "Optionee" or "Participant" shall mean a Director, officer or employee of the Bank or the Company to whom an Option has been granted. (n) "Plan" shall mean the Farmers National Banc Corp. 1999 Stock Option Plan, the terms of which are set forth herein. (o) "SEC" shall mean the Securities and Exchange Commission. (p) "Plan Year" shall mean the twelve-month period beginning on the Effective Date, and each twelve-month period thereafter beginning on the anniversary date of the Effective Date. (q) "Stock" shall mean the Common Stock of the Company or, in the event that the outstanding shares of Stock are changed into or exchanged for shares of a different stock or securities of the Company or some other entity, such other stock or securities. (r) "SAR" or "Stock Appreciation Right" shall mean a right to receive cash in an amount equal to the excess of the fair market value of a share of Stock on the exercise date over the fair market value of a share of Stock on the date the Stock Appreciation Right is granted pursuant to the provisions of the Plan. (s) "Stock Option Agreement" shall mean the agreement between the Company and the Optionee under which the Optionee may purchase Stock pursuant to the terms of the Plan. ARTICLE III CHARACTERIZATION OF OPTIONS Section 3.1 Characterization of Options. Options granted in accordance with the terms hereof within the limits prescribed by Article VII hereof and which are specified in the Option Agreement as intended to be incentive stock options, are to be incentive stock options as provided in Code Section 422. All other Options granted hereunder shall be nonqualified options. ARTICLE IV ADMINISTRATION Section 4.1 Administration. (a) The Plan shall be administered by the Compensation Committee of the Board or, alternatively at the discretion of the Board, the Board may appoint a Stock Option Plan Committee consisting of not less that two nor more than five members to administer the Plan. All Committee members shall be disinterested directors qualified to serve pursuant to Rule 16b-3 under Section 16 of the Securities Exchange Act of 1934, as amended and in effect from time to time. (b) Subject to the express provisions of the Plan, the Committee shall have sole discretion and authority to determine from time to time the individuals to whom Options may be granted, the terms of the Stock Option Agreement with the Optionee, including but not limited to, the number of shares of Stock to be subject to each Option, the period during which such Option may be exercised and the price at which such Option may be exercised. (c) Meetings of the Committee shall be held at such times and places as shall be determined from time to time by the Committee. A majority of the members of the Committee shall constitute a quorum for the transaction of business and the vote of a majority of those members present at any meeting shall decide any question brought before the meeting. In addition, the Committee may take any action otherwise proper under the Plan by the affirmative vote, taken without a meeting, of a majority of the members. (d) No member of the Committee shall be liable for any act or omission of any other member of the Committee or for any act or omission on his own part, including, but not limited to, the exercise of any power or discretion given to him under the Plan, except those resulting from his own gross negligence or willful misconduct. All questions of interpretations and application with respect to the Plan or Options granted thereunder shall be subject to the determination, which shall be final and binding, of a majority of the whole Committee. (e) In addition, the Committee shall have the sole discretion and authority to determine whether an Option shall be an Incentive Stock Option or a Non-qualified Stock Option, or both types of options, provided that Incentive Stock Options may be granted only to persons who are employees of the Company or the Bank. Section 4.2 Company Assistance. The Company and the Bank shall supply full and timely information to the Committee on all matters relating to eligible employees, their employment, death, retirement, disability or other termination of employment and such other pertinent facts as the Committee may require. The Company and the Bank shall furnish the Committee with such clerical and other assistance as is necessary in the performance of its duties. ARTICLE V OPTIONEES Section 5.1 Eligibility. Directors and officers of the Company and the Bank and such other employees, consultants, or other individuals as the Board of Directors may from time to time designate shall be eligible to participate in the Plan. The Committee may grant Options to any eligible individual subject to the provisions of Section 6.1. ARTICLE VI SHARES SUBJECT TO PLAN Section 6.1 Stock Available for Options. Subject to adjustment pursuant to the provisions of Section 9.2 hereof, the number of shares with respect to which Options may be granted during the term of the Plan shall not exceed 375,000 shares of Company Stock provided, however, that the number of shares which may be designated as Incentive Stock Options shall be limited to 375,000, subject to adjustment in accordance with paragraph 9.2 hereof. Shares with respect to which Options may be granted may be either authorized and unissued shares or shares issued and thereafter acquired by the Company. Section 6.2 Options Under the Plan. Shares of Stock with respect to which an Option granted hereunder shall have been exercised shall not again be available for grant hereunder. If Options granted hereunder shall expire, terminate or be canceled for any reason without being wholly exercised, new Options may be granted hereunder covering the number of shares to which such Option expiration, termination or cancellation relates. Section 6.3 Adjustments in Authorized Shares. In the event of any change in corporate capitalization, such as a stock split, or a corporate transaction, such as any merger, consolidation, separation, including a spin-off, or other distribution of stock or property of the Company, any reorganization (whether or not such reorganization comes within the definition of such term in Code Section 368) or any partial or complete liquidation of the Company, such adjustment shall be made in the number of Shares which may be delivered under Section 6.1, as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights; provided, however, that the number of Shares subject to any Option shall always be a whole number. ARTICLE VII OPTIONS Section 7.1 Terms and Conditions of Options. Each Option shall be evidenced by a Stock Option Agreement which shall contain such terms and conditions consistent with the provisions of the Plan as may be approved by the Committee and shall be signed by an officer of the Company and the Optionee. The Stock Option Agreement shall specify the Option Price, the duration of the option, the number of shares to which the option pertains, and such other provisions as the Committee shall determine. The Stock Option Agreement shall specify whether the Option is intended to be an ISO or a NQSO. Each Option granted under the Plan shall be subject to such terms and conditions as follows: (a) Terms of ISO's. ISO's granted hereunder shall be subject to the terms and conditions contained in subparagraphs (i)-(v) below of this Plan and to such other terms and conditions as the Committee may deem appropriate contained in the Stock Option Agreement with the Optionee; provided, however, that no Option that is intended to qualify as an ISO shall be subject to any condition that is inconsistent with the provisions of Code Section 422(b). In the event that any condition imposed hereunder on an Option intended to qualify as an ISO is at any time determined by the Internal Revenue Service or a court of competent jurisdiction to be inconsistent with Code Section 422, then such Option shall be deemed to have been granted without such conditions as may be applicable as if the invalid condition had not been included. (i) Option Period. Each Stock Option Agreement shall specify the period during which the ISO thereunder is exercisable (which shall not exceed ten years from the date of grant) and shall provide that the ISO shall expire at the end of such period. (ii) Option Price. The Option Price per share shall be determined by the Committee at the time any ISO is granted and shall not be less than one hundred percent (100%) of the Fair Market Value of a share of Stock on the day that the ISO is granted. Such price shall be subject to adjustment as provided in Section 9.2. (iii) Ten Percent Stockholders. ISO's shall not be granted to any person who, immediately before the ISO is granted, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of Stock of the Company; provided, however, that this prohibition shall not apply if at the time such ISO is granted the Option Price is at least one hundred ten percent (110%) of the Fair Market Value of the stock and such ISO is not exercisable after the expiration of five (5) years from the date such ISO is granted. (iv) Limit on Incentive Stock Options. To the extent the aggregate Fair Market Value of the shares (valued at the time of grant in accordance with subparagraph (ii) above) with respect to which ISO's (determined without regard to this subparagraph (iv) are exercisable for the first time by any individual during any calendar year (under all stock option plans of the Company) exceeds $100,000.00, such ISO's in excess of $100,000.00 shall be treated as Options which are NQSO's. This subparagraph (iv) shall be applied by taking ISO's into account in the order in which they were granted. (v) Period to Exercise Option. Any ISO granted hereunder may, prior to its expiration or termination, be exercised from time to time, in whole or in part, up to the total number of shares with respect to which it shall have then become exercisable. An ISO granted hereunder may become exercisable in installments as determined by the Committee; provided, however, that if the Committee grants an ISO or ISO's exercisable in more than one installment, and if the employment of an Optionee holding such ISO is terminated, the ISO shall be exercisable in accordance with the terms of the Option Agreement only as to such number of shares as to which the Participant had the right to exercise the ISO on the date of termination of employment. (b) Terms of NQSO's. NQSO's granted hereunder shall be subject to the terms and conditions contained in subparagraphs (i)-(iii) below and to such other terms and conditions as the Committee may deem appropriate which shall be contained in the Stock Option Agreement. (i) Option Period. Each Stock Option Agreement shall specify the period during which the Option thereunder is exercisable, (which shall not exceed ten years from the date of grant) and shall provide that the NQSO shall expire at the end of such period. (ii) Option Price. The Committee shall determine the Option Price per Share at the time any NQSO is granted. Such price shall be subject to adjustment as provided in Section 9.2. (iii) Period to Exercise Option. Any NQSO granted hereunder may, prior to its expiration or termination, be exercised from time to time, in whole or in part, up to the total number of Shares with respect to which it shall have then become exercisable. A NQSO granted hereunder may become exercisable in installments as determined by the Committee; provided, however, that if the Committee grants an Option exercisable in more than one installment, and if the employment of an Optionee holding such Option is terminated, the Option shall be exercisable in accordance with the terms of the Option Agreement only as to such number of shares as to which the Optionee had the right to exercise the Option on the date of termination of Employment. Section 7.2 Option Exercise. (a) The Company shall not be required to sell or issue shares under any Option if the issuance of such shares shall constitute or result in a violation by the Optionee or the Company of any provisions of any law, statute or regulation of any governmental authority. Specifically, in connection with the Securities Act of 1933, (the "Act"), upon exercise of any Option, the Company shall not be required to issue such shares unless the Committee has received evidence satisfactory to it to the effect that registration under the Act and applicable state securities laws is not required, unless the offer and sale of securities under the Plan is registered or qualified under the Act and applicable state laws. Any determination in this connection by the Committee shall be final, binding and conclusive. If shares are issued under any Option without registrations under the Act or applicable state securities laws, the Optionee may be required to accept the shares subject to such restrictions on transferability as may in the reasonable judgment of the Committee be required to comply with exemptions from registrations under such laws. The Company may, but shall in no event be obligated to, register any securities covered hereby pursuant to the Act of applicable state securities laws. The Company shall not be obligated to take any other affirmative action in order to cause the exercise of an Option or the issuance of shares pursuant thereto to comply with any law or regulation of any governmental authority. (b) Subject to Section 7.2(c) and such terms and conditions as may be determined by the Committee in its sole discretion upon the grant of an Option, an Option may be exercised in whole or in part and from time to time by delivering to the Company at its principal office written notice of intent to exercise the Option with respect to a specified number of shares. In the case of an ISO, the aggregate Fair Market Value of the Stock (under all plans of the Company), with respect to which such options are exercisable for the first time by an Optionee during any calendar year may not exceed $100,000.00. The aggregate fair market value of the shares is determined at the date of grant. (c) Options shall be exercisable according to the following vesting schedule: 20% after one year from the date of grant 40% after two years from the date of grant 60% after three years from the date of grant 80% after four years from the date of grant 100% after five years from the date of grant (d) Subject to such terms and conditions as may be determined by the Committee in its sole discretion upon grant of any Option, payment for the shares to be acquired pursuant to exercise of the Option shall be made as follows: 1. by delivering to the Company at its principal office a check payable to the order of the Company, in the amount of the Option price for the number of shares of Stock with respect to which the Option in then being exercised; or 2. by delivering to the Company at its principal office certificates representing Stock, duly endorsed for transfer to the Company, having an aggregate Fair Market Value as of the date of exercise equal to the amount of the Option price, for the number of shares of Stock with respect to which the Option is then being exercised; or 3. by any combination of payments delivered pursuant to paragraphs (d)(1) and (d)(2) above. Section 7.3 Rights as Shareholder. An Optionee shall have no SAR as a Shareholder with respect to any share subject to such Option prior to the exercise of the Option and the purchase of such shares. Section 7.4 Termination of Employment. Each Participant's Stock Option Agreement shall set forth the extent to which the Participant shall have the right to exercise the Option following the termination of the Participant's employment with the Company. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Stock Option Agreement entered into with each Participant, need not be uniform among all Options issued pursuant to this Article 6, and may reflect distinctions based on the reasons for termination of employment. Section 7.5 Committee Discretion. Option Agreements need not contain provisions identical to or similar to other Option Agreements. The Committee may, in its discretion, vary among Participants and among Options granted to the same Participant any and all of the terms and conditions of Options granted under the Plan, including the term during which and the amounts in which and dates at or after which such Options may be exercised. ARTICLE VIII STOCK APPRECIATION RIGHTS Section 8.1 Stock Appreciation Rights. The Committee may grant Stock Appreciation Rights to individuals granted related Options under the Plan. A SAR may be granted simultaneously with or subsequent to the Option to which the right is related, but each SAR must relate to a particular Option. In exchange for the surrender in whole or in part of the related Option to purchase shares of Common Stock, the exercise of a SAR shall entitle a Participant to an amount equal to the appreciation in value of the shares to which the related Option is being surrendered pursuant to such exercise. Such appreciation in value shall be equal to the excess of the Market Value of such shares. Upon the exercise of a SAR, payment by the Company may be made in cash and partly in share of Common Stock as determined by the Committee. If payment is made in shares of Common Stock, such shares shall be valued at their Market Value as of the date of surrender of the Option. Section 8.2 Terms and Conditions of Stock Appreciation Rights. The grant of SARs shall be evidenced by written agreements (which may also be Option Agreements) containing such terms and conditions, consistent with the provisions of this Plan, as the Committee shall from time to time determine. SARs shall be exercisable in whole or in part in such amounts and at or after such dates as may be specified in the agreement; provided, however, that SARs may be exercised only when the related Option could be exercised and only when the Market Value of the Common Stock subject to the Option exceeds the Option Price. In no event, however, shall any SAR be exercisable after the expiration of ten years from the date of grant. The Committee may in its discretion require a Participant to continue his service with the Company and its Subsidiaries for a certain length of time prior to the SARs becoming exercisable. Unless otherwise provided in the written agreement, a SAR shall be deemed outstanding until it either expires, is canceled by mutual consent, or is exercised in full. As described above in Section 7.5 with respect to Options, the Committee may also vary, among the Participants and among SAR granted to the same Participants, any and all of the terms and conditions of SAR granted under the Plan. Neither SARs nor any related Option issued to Directors and officers subject to Section 16 of the Securities and Exchange Act of 1934 shall be exercisable during the first six months of their respective terms. ARTICLE IX TERMINATION, AMENDMENT AND MODIFICATION OF PLAN Section 9.1 Termination and Amendment. The Board may terminate or suspend the Plan at any time, or may from time to time amend the Plan as it deems proper and in the best interests of the Company, provided that no such amendment may materially increase either the benefits to Participants under the Plan or the number of shares that may be issued under the Plan, materially modify the eligibility requirements, reduce the Option Price (except pursuant to adjustments under Section 9.2) or impair any outstanding Option or SAR. 9.2 Adjustment of Options Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Committee may make adjustments in the terms and conditions of, and the criteria included in, Options in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 6.3 hereof) affecting the Company or the financial statements of the Company or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan. ARTICLE X MISCELLANEOUS Section 10.1 Transferability During the Grantee's Lifetime. Any Option or Stock Appreciation SAR may be exercised only by the Grantee or any guardian or legal representative of the Grantee, and the Option shall not be transferable except, with respect to both NQSOs and ISOs, in case of the death of the Grantee, by will or the laws of descent and distribution, and with respect to NQSO; (i) as specifically permitted by and solely to the extent permitted in the Stock Option Agreement, or (ii) to an immediate family member, a partnership consisting solely of immediate family members or trusts for the benefit of immediate family members. Section 10.2 Designation of Beneficiary. A participant may file a written designation of a beneficiary who is to receive any stock and/or cash. Such designation of beneficiary may be changed by the participant at any time by written notice to the Treasurer of the Company. Upon the death of a participant and upon receipt by the Company of proof of identity and existence at the participant's death of a beneficiary validly designated by him under the Plan, the Company shall deliver such stock and/or cash to such beneficiary. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such stock and/or cash to the executor or administrator of the estate of the participant or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such stock and/or cash to the spouse or to any one or more dependents of the participant as the Company may designate. No beneficiary shall, prior to the death of the participant by whom he has been designated, acquire any interest in the stock or cash credited to the participant under the Plan. Section 10.3 Application of Funds. The proceeds received by the Company from the sale of Stock pursuant to Options shall be used for general corporate purposes. Section 10.4 Tenure. Nothing in the Plan or in any Option or SAR granted hereunder or in any Stock Option Agreement or SAR Agreement relating thereto shall confer upon any Director, or upon any officer or employee, the right to continue in such position with the Company or the Bank. Section 10.5 Other Compensation Plans. The adoption of the Plan shall not affect any other stock option or incentive or other compensation plans in effect for the Company or the Bank, nor shall the Plan preclude the Company or the Bank from establishing any other forms of incentive or other compensation for Directors, officers or employees of the Company or the Bank. Section 10.6 Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy Federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld or deducted with respect to any taxable event arising as a result of this Plan. Section 10.7 Share Withholding. With respect to withholding required upon the exercise of Options or SARs or upon any other taxable event arising as a result of Awards granted hereunder, Participants may elect, subject to the approval of the Committee, to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax which could be imposed on the transaction. All such elections shall be irrevocable, made in writing, signed by the Participant, and shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate. Section 10.8 Indemnification. Each person who is or shall have been a member of the Committee, or of the Board, shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any actions taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company's approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other right of indemnification to which such persons may be entitled under the Company's Articles of Incorporation or Bylaws. Section 10.9 Merger or Asset Sale. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option and SAR will be assumed or an equivalent Option and SAR substituted by the successor corporation or a Parent or Subsidiary of the successor corporation (the "Successor Corporation"), unless the Successor Corporation refuses to assume or substitute for the Option and SAR, in which case the Optionee shall have the right to exercise the Option and SAR as to all of the Optioned Stock, including Shares as to which it would not otherwise be exercisable. If an Option or SAR is exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Committee shall notify the Optionee that the Option shall be fully exercisable for a period of thirty (30) days from the date of such notice, and the Option shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option and SAR shall be considered assumed if, following the merger or sale of assets, the option and SAR confers the right to purchase or receive, for each share of Optioned Stock subject to the Option or SAR immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets was not solely common stock of the Successor Corporation, the Committee may, with the consent of the Successor Corporation, provide for the consideration to be received upon the exercise of the Option or SAR, for each Share of Optioned Stock subject to the Option or SAR, to be solely common stock of the Successor Corporation equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. Section 10.10 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural. Section 10.11 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. Section 10.12 Requirements of the Law. The granting of awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. Section 10.13 Governing Law. To the extent not preempted by Federal Law, the Plan, an all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Ohio. BY ORDER OF THE BOARD OF DIRECTORS FRANK L. PADEN, PRESIDENT & SECRETARY -----END PRIVACY-ENHANCED MESSAGE-----