def14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the
Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
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o Preliminary Proxy Statement
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o Confidential,
for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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þ Definitive Proxy Statement
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o Definitive Additional Materials
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o Soliciting Material Pursuant to §240.14a-12
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FARMERS NATIONAL BANC CORP.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if
other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act
Rules 14a-6(i)(1) and 0-11.
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(1) |
Title of each class of securities to which
transaction applies:
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(2) |
Aggregate number of securities to which
transaction applies:
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(3) |
Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule 0-11
(set forth the amount on which the filing fee is calculated and
state how it was determined):
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(4) |
Proposed maximum aggregate value of transaction:
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Fee paid previously with preliminary materials.
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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.
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(1) |
Amount Previously Paid:
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(2) |
Form, Schedule or Registration Statement No.:
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20 South Broad
Street
Canfield, Ohio
44406
March 22, 2011
To Our Shareholders:
You are cordially invited to attend the 2011 Annual Meeting of
Shareholders of Farmers National Banc Corp. (the
Company) to be held April 28, 2011, at
3:30 p.m., Eastern Time, at the St. Michael Family Life
Center, 340 North Broad Street, Canfield, Ohio 44406.
At the Annual Meeting, you will be asked to: (i) elect
three Class I directors whose terms will expire at the
Annual Meeting in 2014; (ii) ratify the Audit
Committees appointment of Crowe Horwath LLP as the
Companys independent registered public accounting firm for
the fiscal year ending December 31, 2011;
(iii) consider an advisory vote on executive compensation;
(iv) consider an advisory vote on the frequency of holding
an advisory vote on executive compensation; (v) consider
and approve an amendment to the Companys Articles of
Incorporation, as amended; and (vi) consider and approve an
amendment to the Companys Amended Code of Regulations.
Your vote on these matters is important, regardless of the
number of shares you own, and all shareholders are cordially
invited to attend the Annual Meeting in person. However, whether
or not you plan to attend the Annual Meeting, it is important
that your shares be represented. In order to ensure that your
shares are represented, I urge you to execute and return the
enclosed proxy, or that you submit your proxy by telephone or
Internet promptly.
Sincerely,
John S. Gulas
President and Chief Executive Officer
Farmers
National Banc Corp.
20 South
Broad Street
Canfield, Ohio 44406
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
To Be Held Thursday, April 28, 2011
The Annual Meeting of Shareholders of Farmers National Banc
Corp. (the Company) will be held at the St. Michael
Family Life Center, 340 North Broad Street, Canfield, Ohio
44406, Thursday, April 28, 2011, at 3:30 p.m., Eastern
Time, for the following purposes:
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1.
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To elect three Class I directors;
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2.
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To ratify the appointment of Crowe Horwath LLP as the
Companys independent registered public accounting firm for
the fiscal year ending December 31, 2011;
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3.
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To hold an advisory vote on executive compensation;
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4.
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To hold an advisory vote on the frequency of holding an advisory
vote on executive compensation;
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5.
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To consider and vote upon a proposal to amend Article XIII
of the Companys Articles of Incorporation, as amended (the
Articles), to eliminate pre-emptive rights;
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6.
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To consider and vote upon a proposal to amend Article II,
Section 6, of the Companys Amended Code of
Regulations (the Regulations), to provide that a
quorum for purposes of a shareholder meeting shall consist of
not less than one-third of the Companys common shares
entitled to vote at a meeting; and
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7.
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To transact such other business as may properly come before the
meeting or any adjournments thereof.
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The Board of Directors has fixed the close of business on
February 28, 2011 as the record date for the determination
of shareholders entitled to notice of, and to vote at, the
Annual Meeting. Your Board of Directors recommends that you
vote: (i) For the election of each of
the director nominees: (ii) For the
ratification of the appointment of Crowe Horwath LLP as the
Companys independent registered public accounting firm for
the fiscal year ending December 31, 2011;
(iii) For approval of the compensation
of the Companys named executive officers;
(iv) For a frequency of
1 Year for holding an advisory vote on
executive compensation; (v) For the
amendment of Article XIII of the Articles, and
(vi) For the amendment of
Article II, Section 6, of the Regulations.
By Order of the Board of Directors,
Frank L. Paden
Secretary
Canfield, Ohio
March 22, 2011
Farmers
National Banc Corp.
PROXY STATEMENT
March 22,
2011
This proxy statement is furnished in connection with the
solicitation by the Board of Directors of Farmers National Banc
Corp, an Ohio corporation (the Company), of the
accompanying proxy to be voted at the 2011 Annual Meeting of
Shareholders (the Annual Meeting) to be held
Thursday, April 28, 2011, at 3:30 p.m., Eastern Time,
and at any adjournment thereof. The mailing address of the
principal executive offices of the Company is 20 South Broad
Street, Canfield, Ohio 44406; telephone number
(330) 533-3341.
This proxy statement, together with the related proxy and the
Companys 2010 Annual Report to Shareholders (the
Annual Report), are being mailed to the shareholders
of the Company on or about March 22, 2011.
QUESTIONS
AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING
When and
Where will the Annual Meeting be Held?
The Annual Meeting will be held Thursday, April 28, 2011,
at 3:30 p.m., Eastern Time, at the St. Michael Family Life
Center, 340 North Broad Street, Canfield, Ohio 44406. To obtain
directions to attend the Annual Meeting, please contact
Shareholder Relations at
(330) 533-5127.
Why did I
Receive these Proxy Materials?
You have received these proxy materials because the
Companys Board of Directors is soliciting a proxy to vote
your shares at the Annual Meeting. This proxy statement contains
information that the Company is required to provide to you under
the rules of the Securities and Exchange Commission (the
Commission) and is intended to assist you in voting
your shares.
Who may
Vote at the Annual Meeting?
The Companys Board of Directors has set February 28,
2011 as the record date for the Annual Meeting. This
means that only shareholders of record at the close of business
on that date are entitled to notice of, and to vote at, the
Annual Meeting or any adjournment(s) or postponement(s) thereof.
At the close of business on February 28, 2011, 18,646,035
of the Companys common shares, no par value, were
outstanding. Each common share entitles the holder to one vote
on each item to be voted upon at the Annual Meeting, and there
is no cumulative voting.
What is
the Difference between Holding Shares as a Shareholder of
Record and as a Beneficial Owner?
If your shares are registered directly in your name, you are
considered the shareholder of record of those
shares. The Company has sent these proxy materials directly to
all shareholders of record. Alternatively, if your
shares are held in an account at a brokerage firm, bank,
broker-dealer or other similar organization, which is sometimes
called street name, then you are the
beneficial owner of those shares, and these proxy
materials were forwarded to you by that organization. The
organization holding your shares is the shareholder of record
for purposes of voting the shares at the Annual Meeting. As the
beneficial owner, you have the right to direct that organization
how to vote the common shares held in your account by following
the voting instructions the organization provides to you.
1
How do I
Vote?
Shareholders of record may vote on matters that are properly
presented at the Annual Meeting in four ways:
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By completing the accompanying proxy and returning it in the
envelope provided;
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By submitting your vote telephonically;
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By submitting your vote electronically via the Internet; or
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By attending the Annual Meeting and casting your vote in person.
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For the Annual Meeting, the Company is offering shareholders of
record the opportunity to vote their common shares
electronically through the Internet or by telephone. Instead of
submitting the enclosed proxy by mail, shareholders of record
may vote by telephone or via the Internet by following the
procedures described on the enclosed proxy. In order to vote via
telephone or the Internet, please have the enclosed proxy in
hand, and call the number or go to the website listed on the
proxy and follow the instructions. The telephone and Internet
voting procedures are designed to authenticate
shareholders identities, to allow shareholders to give
their voting instructions, and to confirm that
shareholders instructions have been recorded properly.
Shareholders voting through the Internet should understand that
they may bear certain costs associated with Internet access,
such as usage charges from their Internet service providers. The
deadline for voting through the Internet or by telephone is
3:00 a.m. Eastern Time, on April 28, 2011.
If you hold your common shares in street name, you should follow
the voting instructions provided to you by the organization that
holds your common shares. If you plan to attend the Annual
Meeting and vote in person, ballots will be available. If your
common shares are held in the name of your broker, bank or other
shareholder of record, you must bring a legal proxy from the
shareholder of record indicating that you were the beneficial
owner of the shares on February 28, 2011 in order to vote
in person.
How will
My Shares be Voted?
If you vote by mail, through the Internet, by telephone or in
person, your common shares will be voted as you direct. If you
submit a valid proxy prior to the Annual Meeting, but do not
complete the voting instructions, your common shares will be
voted:
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FOR the election of each of the three
Class I director nominees listed under PROPOSAL
ONE ELECTION OF DIRECTORS;
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FOR the ratification of the appointment of
Crowe Horwath LLP as the Companys independent registered
public accounting firm for the fiscal year ending
December 31, 2011 under
PROPOSAL TWO RATIFICATION OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM;
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FOR the approval of the compensation of the
Companys named executive officers under
PROPOSAL THREE ADVISORY VOTE ON
EXECUTIVE COMPENSATION;
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FOR a frequency of 1 YEAR
on PROPOSAL FOUR ADVISORY VOTE ON
THE FREQUENCY OF AN ADVISORY VOTE ON EXECUTIVE
COMPENSATION;
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FOR the proposal to amend Article XIII
of the Companys Articles of Incorporation, as amended (the
Articles), under
PROPOSAL FIVE APPROVAL OF AMENDMENT TO
ARTICLE XIII OF THE ARTICLES OF INCORPORATION, AS
AMENDED; and
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FOR the proposal to amend Article II,
Section 6, of the Companys Amended Code of
Regulations (the Regulations) under
PROPOSAL SIX APPROVAL OF AMENDMENT TO
ARTICLE II, SECTION 6, OF THE AMENDED CODE OF
REGULATIONS.
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2
Can Other
Matters be Decided at the Annual Meeting?
On the date that this proxy statement was printed, the Company
did not know of any matters to be raised at the Annual Meeting
other than those included in this proxy statement. If you submit
a valid proxy and other matters are properly presented for
consideration at the Annual Meeting, then the individuals
appointed as proxies will have the discretion to vote on those
matters for you.
May I
Revoke or Change My Vote?
Yes, proxies may be revoked at any time before a vote is taken
or the authority granted is otherwise exercised. Revocation may
be accomplished by:
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the execution of a later dated proxy with regard to the same
common shares;
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the execution of a later casted Internet or telephone vote with
regard to the same common shares;
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giving notice in writing to the Secretary at 20 South Broad
Street, Canfield, Ohio 44406; or
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notifying the Secretary in person at the Annual Meeting.
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If your common shares are held in street name and you wish to
revoke your proxy, you should follow the instructions provided
to you by the record holder of your shares. If you wish to
revoke your proxy in person at the Annual Meeting, you must
bring a legal proxy from the shareholder of record indicating
that you were the beneficial owner of the common shares on
February 28, 2011. Attending the Annual Meeting will not,
by itself, revoke your proxy.
Who Pays
the Cost of Proxy Solicitation?
The accompanying proxy is solicited by and on behalf of the
Board of Directors of the Company, whose notice of meeting is
attached to this proxy statement, and the entire cost of such
solicitation will be borne by the Company. In addition to the
use of the mail, proxies may be solicited by personal interview,
telephone, facsimile and electronic mail by directors, officers
and employees of the Company. Arrangements will be made with
brokerage houses and other custodians, nominees and fiduciaries
for the forwarding of solicitation material to the beneficial
owners of common shares held of record by such persons, and the
Company will reimburse them for reasonable
out-of-pocket
expenses incurred by them in connection therewith. The Company
has engaged Morrow & Company to aid in the
solicitation of proxies in order to assure a sufficient return
of votes on the proposals to be presented at the Annual Meeting.
The costs of such services are estimated at $8,000, plus
reasonable distribution and mailing costs.
How Many
Common Shares Must be Represented at the Annual Meeting in
Order to Constitute a Quorum?
The shareholders present in person or by proxy at the Annual
Meeting for the election of directors will constitute a quorum.
At least 9,323,018 common shares must be represented at the
Annual Meeting in person or by proxy in order to constitute a
quorum for the transaction of any other business. Abstentions
and broker non-votes are counted as present and
entitled to vote for purposes of determining a quorum. Street
name holders generally cannot vote their common shares directly
and must instead instruct the broker, bank or other shareholder
of record how to vote their common shares using the voting
instructions provided by it. If a street name holder does not
provide timely instructions, the broker or other nominee may
have the authority to vote on some proposals but not others. If
a broker or other nominee votes on one proposal, but does not
vote on another proposal because the nominee does not have
discretionary voting power and has not received instructions
from the beneficial owner, this results in a broker non-vote.
Broker non-votes on a matter are counted as present for purposes
of establishing a quorum for the meeting, but are not considered
entitled to vote on that particular matter.
3
What are
the Voting Requirements to Elect the Directors and to Approve
the Other Proposals Discussed in this Proxy Statement?
The vote required to approve each of the proposals that are
scheduled to be presented at the Annual Meeting is as follows:
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Proposal
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Vote Required
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PROPOSAL ONE ELECTION OF
DIRECTORS
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Election of the three Class I director nominees
requires the affirmative vote of the holders of a plurality of
the common shares present, represented and entitled to vote at
the Annual Meeting. Broker non-votes and proxies marked
WITHHOLD AUTHORITY will not be counted toward
the election of directors or toward the election of individual
nominees and, thus, will have no effect other than that they
will be counted for establishing a quorum.
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PROPOSAL TWO RATIFICATION OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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The proposal to ratify the appointment of the
Companys independent registered public accounting firm
requires the affirmative vote of the holders of a majority of
the common shares present, represented and entitled to vote at
the Annual Meeting. Shareholders may vote FOR,
AGAINST or ABSTAIN from
voting on Proposal Two. Broker non-votes will not be counted
for the purpose of determining whether Proposal Two has been
approved. Abstentions will be counted as present and entitled to
vote for purposes of Proposal Two and, thus, will have the same
effect as a vote against Proposal Two.
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PROPOSAL THREE ADVISORY VOTE ON
EXECUTIVE COMPENSATION
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The proposal to approve the resolution regarding the
compensation of the Companys named executive officers
requires the affirmative vote of the holders of a majority of
the common shares present, represented and entitled to vote at
the Annual Meeting. Shareholders may vote FOR,
AGAINST or ABSTAIN from
voting on Proposal Three. Broker non-votes will not be counted
for the purpose of determining whether Proposal Three has been
approved. Abstentions will be counted as present and entitled to
vote for purposes of Proposal Three and, thus, will have the
same effect as a vote against Proposal Three. As this is an
advisory vote, the outcome of the vote is not binding on the
Compensation Committee or the Board of Directors with respect to
future executive compensation decisions, including those
relating to the Companys named executive officers, or
otherwise. However, the Compensation Committee and the Board of
Directors expect to take into account the outcome of the vote
when considering future executive compensation decisions.
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Proposal
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Vote Required
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PROPOSAL FOUR ADVISORY VOTE ON
THE FREQUENCY OF AN ADVISORY VOTE ON EXECUTIVE COMPENSATION
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The proposal to determine the frequency of holding
an advisory vote on the Companys executive compensation
requires the affirmative vote of the holders of a plurality of
the common shares present, represented and entitled to vote at
the Annual Meeting. Shareholders may vote for
1 YEAR, 2 YEARS,
3 YEARS, or ABSTAIN.
Broker non-votes and proxies marked ABSTAIN
will not be counted toward the frequency of any specified
time period and, thus, will have no effect other than that they
will be counted for establishing a quorum. As this is an
advisory vote, it is not binding on the Compensation Committee
or the Board of Directors and the Board may decide that it is in
the best interests of the Company and its shareholders to hold
an advisory vote more or less frequently than the preference
receiving the highest number of votes. However, the Compensation
Committee and the Board of Directors expect to take into account
the outcome of the vote when considering the frequency of future
advisory votes on executive compensation.
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PROPOSAL FIVE APPROVAL OF
AMENDMENT TO ARTICLE XIII OF THE ARTICLES OF INCORPORATION,
AS AMENDED
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The proposal to amend Article XIII of the Articles
requires the affirmative vote of the holders of common shares
entitled to exercise at least two-thirds of the voting power of
the Company. Shareholders may vote FOR,
AGAINST, or ABSTAIN from
voting on Proposal Five. Abstentions and broker non-votes will
have the same effect as votes against Proposal Five.
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PROPOSAL SIX APPROVAL OF
AMENDMENT TO ARTICLE II, SECTION 6, OF THE AMENDED
CODE OF REGULATIONS
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The proposal to amend Article II, Section 6, of the
Regulations requires the affirmative vote of the holders of a
majority of the voting power of the Company. Shareholders may
vote FOR, AGAINST, or
ABSTAIN from voting on Proposal Six.
Abstentions and broker non-votes will have the same effect as
votes against Proposal Six.
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Under Ohio law, the Articles, and the Regulations, the nominees
for election as directors who receive the greatest number of
votes cast will be elected directors. Each shareholder will be
entitled to cast one vote for each common share owned, and
shareholders may not cumulate votes in the election of
directors. Common shares as to which the authority to vote is
withheld are not counted toward the election of directors;
however, in 2010, the Board of Directors adopted a
Majority Vote Withheld Policy in the event that
WITHHOLD AUTHORITY has been indicated by a
majority of the votes cast with respect to any director in an
uncontested election. A summary of this policy is set forth
under the caption CORPORATE GOVERNANCE
Policies of the Board of Directors beginning on
page 9 of this proxy statement.
IMPORTANT
NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
SHAREHOLDER MEETING TO BE HELD ON APRIL 28, 2011
The proxy statement,
Form 10-K
for the year ended December 31, 2010 and the 2010 Annual
Report to Shareholders are available at
www.farmersbankgroup.com.
5
CORPORATE
GOVERNANCE
The Board
of Directors Independence
The Board of Directors of the Company is currently comprised of
nine members, two of whom are nominees for re-election at the
Annual Meeting. Additional information regarding each director
nominee is set forth in PROPOSAL ONE
ELECTION OF DIRECTORS beginning on page 13 of
this proxy statement. In 2010, the Board of Directors
affirmatively determined that all of the directors listed below
are independent directors under the rules of The
NASDAQ Stock Market LLC (the NASDAQ):
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Anne Frederick Crawford
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Lance J. Ciroli
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Joseph D. Lane
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Ralph D. Macali
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David Z. Paull
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Earl R. Scott
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Ronald V. Wertz
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The only current directors of the Company who have not been
deemed independent by the Board of Directors are John S. Gulas,
the Companys President and Chief Executive Officer, and
Frank L. Paden, the Companys Executive Chairman and
Secretary. The Board of Directors also determined that former
directors James R. Fisher and Benjamin R. Brown, each of whom
served as a director of the Company during 2010, were
independent under current NASDAQ listing standards.
During 2010, certain current directors and executive officers of
the Company, and their associates, were customers of, and had
banking transactions with, various subsidiaries of the Company,
including the Companys subsidiary bank, The Farmers
National Bank of Canfield (Farmers Bank). All
relationships between any director or executive officer and the
Company or any of its subsidiaries are conducted in the ordinary
course of business. The Company encourages its directors and
executive officers to maintain these relationships and expects
that these transactions will continue in the future. All loans
and loan commitments included in such transactions, including
equipment leasing transactions, were made and will be made:
(i) in the ordinary course of business; (ii) on
substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable loans
with persons not related to the Company; and (iii) without
more than the normal risk of collectability or present other
unfavorable features. After reviewing the details of these
relationships, the Board of Directors has determined that such
relationships do not interfere with the exercise of a
directors independent judgment in carrying out the
responsibilities of any director.
Certain
Relationships and Related Transactions
The Companys Audit Committee is responsible for reviewing
and approving all related party transactions that are material
to the Companys consolidated financial statements or
otherwise require disclosure under Item 404 of
Regulation S-K.
Extensions of credit by the Company or any of its subsidiaries
to insiders of the Company or its subsidiaries are
also regulated by Regulation O adopted under the Federal
Reserve Act and the Federal Deposit Insurance Corporation
Improvement Act. It is the Companys policy that any
transactions with persons whom Regulation O defines as
insiders (i.e., executive officers,
directors, principal shareholders and their related interests)
are engaged in the same manner as transactions conducted with
all members of the public. Transactions are reviewed by the
Audit Committee either on a
case-by-case
basis (such as loans made by the Farmers Bank to an insider) or,
in the case of an ongoing relationship are approved at the
outset of the relationship and periodically reviewed. All loans
to insiders of the Company: (i) are made in the ordinary
course of business; (ii) are made on substantially the same
terms, including interest rates and collateral, as those
prevailing at the time for comparable loans with persons not
related to the Company; and (iii) do not involve more than
the normal risk of collectibility or present other unfavorable
features.
Attendance
at Meetings
The Board of Directors held 19 meetings during 2010. All
incumbent directors, except for Lance J. Ciroli, attended at
least 75% of the total of all meetings of the Board of Directors
and any committees thereof on which such director served during
the year. In accordance with the Companys Corporate
Governance
6
Guidelines (the Corporate Governance Guidelines),
directors are expected to attend all meetings of the Board of
Directors, although it is understood that, on occasion, a
director may not be able to attend a meeting. Directors are
encouraged to attend the Annual Meeting. All of the then current
members of the Board of Directors attended the 2010 Annual
Meeting held on April 30, 2010, except for Ralph D. Macali.
Board
Leadership and Lead Independent Director
Prior to 2010, Frank L. Paden served as the President and Chief
Executive Officer of the Company. In 2010, John S. Gulas
succeeded Mr. Paden as President and Chief Executive
Officer, with Mr. Paden continuing to serve as Executive
Chairman and Secretary. Consequently, the Company does not
currently have one individual acting as both Chairman and Chief
Executive Officer. However, as a result of Mr. Padens
non-independent status, the Board of Directors determined that
in order to appropriately balance the Boards focus on
strategic development with its management oversight
responsibilities, it was desirable for the Board to have an
independent lead director. Accordingly, the Board of
Directors created the position of Lead Independent Director in
2010, and appointed Ronald V. Wertz to serve as Lead Independent
Director. As Lead Independent Director, Mr. Wertz is
responsible for presiding at all executive sessions of the Board
and acts as an active liaison between management and the
Companys non-employee directors, maintaining frequent
contact both with Messrs. Gulas and Paden to advise them on
the progress of Board committee meetings, and with individual
non-employee directors concerning recent developments affecting
the Company. Through the role of an active, engaged Lead
Independent Director, it is the opinion of the Board of
Directors that its leadership structure is appropriately
balanced between promoting the Companys strategic
development with the Boards management oversight function.
The Board of Directors also believes that its leadership
structure has created an environment of open, efficient
communication between the Board of Directors and management,
enabling the Board to maintain an active, informed role in risk
management by being able to monitor and manage those matters
that may present significant risks to the Company.
Committees
of the Board of Directors
The Board of Directors conducts its business through meetings of
the Board and the following committees: (i) Audit
Committee; (ii) Board Loan Committee;
(iii) Compensation Committee; (iv) Corporate
Governance and Nominating Committee; and (v) Risk
Management Committee. Each committee meets on a regular basis
and reports their deliberations and actions to the full Board of
Directors. Each of the committees has the authority to engage
outside experts, advisors and counsel to the extent it considers
appropriate to assist the committee in its work.
Audit
Committee
The Audit Committee assists the Board of Directors in fulfilling
its responsibility to oversee the accounting and financial
reporting process of the Company. The Audit Committee also
reviews, evaluates and approves all related party transactions.
The Audit Committee members currently are Earl R. Scott
(Chairman), Ralph D. Macali and David Z. Paull. The Board has
determined that it has one audit committee financial
expert serving on its Audit Committee. Specifically, Earl
R. Scott has been determined to have the attributes listed in
the definition of an audit committee financial
expert set forth in the Instruction to
Item 407(d)(5)(i) of
Regulation S-K
and in the NASDAQ listing requirements. Mr. Scott acquired
these attributes through education and experience as a certified
public accountant. All of the Audit Committee members are
considered independent for purposes of NASDAQ listing
requirements. The Audit Committee operates under a written
charter, which is reviewed annually by the Audit Committee and
the Board of Directors to reflect current Commission and NASDAQ
rules, requirements and best corporate practices. A copy of the
current Audit Committee Charter is available on the
Companys website at www.farmersbankgroup.com. The
Audit Committee held five meetings during 2010.
Board
Loan Committee
The Board Loan Committee establishes, monitors and reviews the
lending policies, strategies and lending risk management
procedures of Farmers Bank and reviews the quality and
performance of Farmers Banks
7
loan portfolio. All directors are members of the Board Loan
Committee. The Board Loan Committee operates under a written
charter, which is reviewed annually by the Board Loan Committee
and the Board of Directors. A copy of the current Board Loan
Committee Charter is available on the Companys website at
www.farmersbankgroup.com. The Board Loan Committee meets
on a regular basis with three members of Farmers Banks
executive loan committee. The Board Loan Committee held 24
meetings during 2010.
Compensation
Committee
The Compensation Committee establishes policies and levels of
reasonable compensation for the executive officers of the
Company and generally administers the Companys incentive
compensation programs. The members of the Compensation Committee
are Anne Frederick Crawford (Chair), Lance J. Ciroli, David Z.
Paull and Ronald V. Wertz. All members of the Compensation
Committee are considered independent for purposes of NASDAQ
listing requirements. The Compensation Committee operates under
a written charter, which is reviewed annually by the
Compensation Committee and the Board of Directors to reflect
current Commission and NASDAQ rules, requirements and best
corporate practices. A copy of the current Compensation
Committee Charter is available on the Companys website at
www.farmersbankgroup.com. The Compensation Committee held
six meetings during 2010.
Pursuant to the terms of its charter, the Compensation Committee
may, in its discretion, delegate all or a portion of its duties
and responsibilities to a subcommittee of the Compensation
Committee. In addition, the Compensation Committee may invite
such members of management to its meetings, as it may deem
desirable or appropriate, consistent with the maintenance of the
confidentiality of compensation discussions. In addition, the
Compensation Committee may delegate to the Chief Executive
Officer, or another executive designee, the authority to approve
salary and other compensation for employees below the executive
officer level in accordance with overall pools, policy
guidelines and limits approved by the Committee. Pursuant to its
charter, the Compensation Committee has the authority to select,
retain, terminate and approve the fees and other retention terms
of special counsel or other experts or consultants, as it deems
appropriate, without seeking approval of the Board or
management. Additional information regarding the Compensation
Committees role is set forth in the COMPENSATION
DISCUSSION AND ANALYSIS section of this proxy
statement, beginning on page 19.
Corporate
Governance and Nominating Committee
The Corporate Governance and Nominating Committees purpose
is to: (i) identify and recommend individuals to the Board
of Directors for nomination as members of the Board and its
committees; (ii) promote effective corporate governance,
including developing and recommending to the Board of Directors
a set of corporate governance principles applicable to the
Company; and (iii) lead the Board of Directors in its
annual review of the Boards performance and the
performance of each of its committees. The Corporate Governance
and Nominating Committee consists of Ronald V. Wertz (Chair),
Anne Frederick Crawford and Joseph D. Lane. All members of the
Corporate Governance and Nominating Committee are independent
for purposes of NASDAQ listing requirements. The Board of
Directors has adopted a written charter for the Corporate
Governance and Nominating Committee and the Corporate Governance
Guidelines, both of which are reviewed annually by the Corporate
Governance and Nominating Committee and the Board of Directors
to reflect current Commission and NASDAQ rules, requirements and
best corporate practices. Copies of the Corporate Governance and
Nominating Committee Charter and the Corporate Governance
Guidelines are available on the Companys website at
www.farmersbankgroup.com. The Corporate Governance and
Nominating Committee held five meetings during 2010.
Risk
Management Committee
The Risk Management Committee oversees managements
implementation and enforcement of the Companys policies,
procedures and practices relating to the management of
enterprise-wide risk. The members of the Risk Management
Committee are Lance J. Ciroli (Chair), Ralph D. Macali and Earl
R. Scott. The Risk Management Committee held three meetings
during 2010. The Risk Management Committee operates under a
written charter, which is reviewed annually by the Risk
Management Committee and the
8
Board of Directors. A copy of the current Risk Management
Committee Charter is available on the Companys website at
www.farmersbankgroup.com. Additional information
regarding the Risk Management Committees role is set forth
in the COMPENSATION DISCUSSION AND ANALYSIS
section of this proxy statement, beginning on page 19.
Policies
of the Board of Directors
Majority
Withheld Vote
The Board of Directors recognizes that, under Ohio law, director
nominees who receive the greatest number of shareholder votes
are automatically elected to the Board of Directors, regardless
of whether the votes in favor of such nominees constitute a
majority of the voting power of the Company. Nevertheless, it is
the policy of the Board of Directors that, in an uncontested
election, any nominee for director who receives a greater number
of votes withheld from his or her election than
votes for such election (a Majority Withheld
Vote), should promptly tender his or her resignation to
the Chairman of the Board. Thereafter, the Corporate Governance
and Nominating Committee will consider the resignation offer and
recommend to the Board of Directors whether to accept it or
reject it. In considering whether to recommend to the Board of
Directors to accept or reject the tendered resignation, the
Corporate Governance and Nominating Committee shall consider all
information and factors deemed relevant, including, without
limitation: (i) the reasons (if any) given by shareholders
as to why they withheld their votes; and (ii) the
qualifications and performance of the tendering director(s) and
his or her contributions to the Board of Directors and the
Company. The Board of Directors will act on any tendered
resignation within 90 days following certification of the
shareholder vote. Following the Board of Directors
determination, the Company will promptly disclose the
Boards decision whether to accept or reject the
directors resignation offer (and, if applicable, the
reasons for rejecting the resignation offer) in a press release
and in a Current Report on
Form 8-K.
Any director who tenders his or her resignation pursuant to this
provision shall not participate in the Corporate Governance and
Nominating Committees consideration or action by the Board
of Directors regarding whether to accept the resignation offer.
If a majority of the Board of Directors receives a Majority
Withheld Vote at the same election, then the independent
directors who did not receive a Majority Withheld Vote will
consider the resignation offers and whether to accept or reject
them.
Director
Nominations
The Corporate Governance and Nominating Committee will consider
candidates for directors of the Company, including those
recommended by a shareholder who submits the persons name
and qualifications in writing. The Corporate Governance and
Nominating Committee has no specific minimum qualifications for
a recommended candidate, and does not consider shareholder
recommended candidates differently from other candidates. The
Corporate Governance and Nominating Committee considers:
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personal qualities and characteristics, accomplishments and
reputation in the business community, including high personal
and professional values, ethics and integrity;
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current knowledge and contacts in the communities in which the
Company does business;
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ability and willingness to commit adequate time to Board of
Director and committee matters;
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the fit of the individuals skills with those of other
directors and potential directors in building a Board that is
effective and responsive to the needs of the Company;
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ability to think and act independently yet constructively in a
mutually respectful environment;
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diversity of viewpoints, background, experience and other
demographics; and
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the ability of the nominee to satisfy the independence
requirements of NASDAQ.
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While the Board of Directors does not have a formal diversity
policy, diversity of viewpoints, background, experience and
other demographics is one criterion on which the Corporate
Governance and Nominating Committee bases its evaluation of
potential candidates for director positions. The inclusion of
diversity in the
9
listed criteria reflects the Board of Directors belief
that diversity is an important component of an effective Board
and the Corporate Governance and Nominating Committee evaluates
each potential director candidate on their specific skills,
expertise and background, as well as traditional diversity
concepts.
In addition to recommendations presented by shareholders, the
Board of Directors maintains a current list of potential
director candidates that fit the characteristics and
qualifications of the Corporate Governance and Nominating
Committee, which it uses from time to time to fill director
vacancies or for director nominations. During the course of
2010, Board of Directors identified Lance J. Ciroli and David Z.
Paull from its internal list to fill vacancies on the Board of
Directors.
Under the Corporate Governance Guidelines, a director is
required to retire from the Board no later than the next annual
meeting of shareholders following such directors
74th birthday. Additionally, directors who are also
employees of the Company must tender their resignation from the
Board of Directors upon retirement, resignation or removal from
employment with the Company or upon a demotion in their job
responsibilities. The Corporate Governance and Nominating
Committee makes its recommendation to the Board of Directors,
and nominees are selected by the Board of Directors.
Under the Regulations, a shareholder entitled to vote for the
election of directors who intends to nominate a director for
election must deliver written notice to the Secretary of the
Company no later than 90 days and no earlier than
120 days in advance of such meeting; provided, however,
that if less than 90 days notice is given to
shareholders, written notice to the Secretary of the Company
must be delivered or mailed not later than the close of business
on the seventh day following the date on which notice of such
meeting is first given to shareholders. During 2010, the Board
of Directors adopted the Corporate Governance Guidelines, which
updated and formalized certain aspects of the Companys
shareholder nomination process. Pursuant to the Regulations
and/or the
Corporate Governance Guidelines, each shareholder notice must
include the following information regarding a director candidate:
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1.
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The name, age, business address and residence address of the
candidate;
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2.
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The information required of director nominees under
Item 401(a), (d), (e), and (f) of
Regulation S-K
(relating to the nature and existence of certain business,
family,
and/or legal
relationships between the candidate and the Company, as well as
the candidates prior business and directorship experience);
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3.
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The number and class of all shares of each class of stock of the
Company owned of record and beneficially owned by the candidate,
as reported to the nominating shareholder by the candidate;
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4.
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The information required of nominees under Item 404(a) of
Regulation S-K
(relating to the nature and existence of current or potential
related party transactions between the candidate and the
Company);
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5.
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A description of why the candidate meets the director criteria
set forth in the Corporate Governance Guidelines;
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6.
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A qualitative description of the specific talents and skills
that the candidate would offer in service to the Company;
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7.
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Any written or oral agreement or understanding with the
nominating shareholder or any other person that relates in any
way to the Company or how the candidate would vote or serve as a
director;
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8.
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A completed copy of the Companys Questionnaire for New
Director Candidates;
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9.
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All financial and business relationships of the candidate, or of
any organization of which the candidate is an executive officer
or principal shareholder or otherwise controls, with the
Company, the nominating shareholder or, to the candidates
knowledge, any other shareholder of the Company that is acting
in concert with the nominating shareholder; and
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10.
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The consent of the candidate to serve as a director of the
Company if so elected.
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10
In addition, the shareholder notice must also include the
following information regarding the shareholder making the
nomination:
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A.
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The name and address of the shareholder making the nomination;
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B.
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The number and class of all shares of each class of stock of the
Company owned of record and beneficially owned by the
shareholder;
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C.
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A representation that the shareholder is a holder of record of
common shares entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to nominate the
person specified in the notice;
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D.
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A description of any arrangements between the shareholder and
the candidate pursuant to which the nominations are to be made;
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E.
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A description of any relationships, including business
relationships, between the shareholder and the candidate;
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F.
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Whether the shareholder is acting in concert with any person
with respect to the common shares;
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G.
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Whether the shareholder owns, holds or has the power to vote,
individually or in concert with any other person, 5% or more of
any class of voting stock of any other organization that
competes with the Company;
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H.
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The information required by Item 401(f) of
Regulation S-K
(relating to the nature and existence of certain legal
proceedings involving the Company and the nominating
shareholder) and whether the shareholder has been or is
currently subject to any enforcement action or penalty or, to
the shareholders knowledge, is currently under any
investigation that could lead to such an enforcement action or
penalty or criminal action;
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I.
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Whether the shareholder is acting on behalf of, or at the
request of, any other shareholder; and
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J.
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If the shareholder is other than an individual: (i) the
names of the shareholders five most senior executive
officers (or persons performing similar roles); (ii) the
names and addresses of each person that has a 10% or more
voting, ownership or economic interest in the shareholder and
the respective amounts of such interests; (iii) the names
and addresses of each person that would be deemed to control the
shareholder; and (iv) the name and address of any advisor
to the shareholder that has the principal responsibility for its
investment or voting decisions.
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In the case of any investment fund or similar organization that
is a nominating shareholder, these shareholder disclosure
obligations shall also apply to the principal advisor to the
fund. Also, if the shareholder is other than an individual,
these disclosure requirements apply to the shareholders
principal shareholders, executive officers and other controlling
parties.
If a nominating shareholder or director candidate believes that
information supplied in response to any of the above inquiries
is confidential, the shareholder or nominee may request
confidential treatment for such information. In such event, the
information shall be maintained on a confidential basis unless
the Corporate Governance and Nominating Committee is advised by
counsel that disclosure is appropriate in connection with the
solicitation of proxies relating to the director candidate.
In the event that it is subsequently determined that any of the
information provided by the candidate or nominating shareholder
is materially inaccurate, a director candidate who provided the
materially inaccurate information or whose nominating
shareholder provided the materially inaccurate information shall
be required to resign from the Board of Directors, and, in the
event of a refusal to resign, such a determination shall
constitute grounds for removal from the Board, unless it is
determined by the Corporate Governance and Nominating Committee
that the inaccuracy was inadvertent.
11
Shareholder
Proposals
Any proposals to be considered for inclusion in the proxy
materials to be provided to shareholders of the Company for its
next Annual Meeting of Shareholders to be held in 2012 may
be made only by a qualified shareholder and must be received by
the Company no later than November 23, 2011.
If a shareholder intends to submit a proposal at the
Companys 2012 Annual Meeting of Shareholders that is not
eligible for inclusion in the proxy materials relating to the
meeting, and the shareholder fails to give the Company notice in
accordance with the requirements set forth in the Securities
Exchange Act of 1934, as amended (the Exchange Act),
by February 6, 2012, then the proxy holders will be allowed
to use their discretionary authority with respect to such
proposal if the proposal is properly raised at the
Companys Annual Meeting in 2012. The submission of such a
notice does not ensure that a proposal can be raised at the
Companys Annual Meeting.
Shareholder
Communications with Directors
All written communications addressed to an individual director
at the address of the Company or one of the offices of a
subsidiary of the Company, except those clearly of a marketing
nature, will be forwarded directly to the director. All written
communications addressed to the Board of Directors at the
address of the Company or one of the offices of a subsidiary of
the Company will be presented to the full Board of Directors at
a meeting of the Board of Directors.
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the
Companys directors, officers and persons who own
beneficially more than ten percent of its common shares
(Section 16 Filers) to file reports of
ownership and transactions in the common shares with the
Commission and to furnish the Company with copies of all such
forms filed. The Company understands from the information
provided to it by Section 16 Filers that no delinquent
filings occurred during 2010.
12
PROPOSAL ONE
ELECTION OF DIRECTORS
In accordance with the provisions of the Companys
Regulations, the Board of Directors has currently fixed the
number of directors at nine. Previously, the number of directors
was fixed at eight, however, with the appointment of John S.
Gulas as a Class I director, effective July 1, 2010,
the Board was expanded to nine. The Board of Directors is
currently divided into three classes, each with three year
terms, and there are three directors currently serving in each
class.
During 2010, James R. Fisher and Benjamin R. Brown each retired
from their positions as members of the Board of Directors.
Pursuant to the provisions of the Companys Regulations,
vacancies in the Board of Directors may be filled by the
affirmative vote of the remaining members of the Board of
Directors. Consequently, during the course of 2010, the Board of
Directors appointed each of Lance J. Ciroli and David Z. Paull
to fill the Class II director positions vacated by
Messrs. Fisher and Brown. In addition, on February 8,
2011, Joseph D. Lane notified the Company that he would be
retiring from service as a director at the completion of his
current term at the Annual Meeting.
The Corporate Governance and Nominating Committee has
recommended to the Board of Directors three Class I
directors, and the Board has nominated such persons. In regards
to Mr. Bestic, who is not currently a director of the
Company, the Corporate Governance and Nominating Committee
identified Mr. Bestic upon review of its current list of
potential director candidates, and the Board of Directors
believes that Mr. Bestic has the attributes, skills and
qualifications necessary to be a successful and productive
member of the Board of Directors.
Proxies cannot be voted for a greater number of persons than the
number of nominees named in this proxy statement. If any nominee
should become unavailable to serve for any reason, it is
intended that votes will be cast for a substitute nominee
designated by the Corporate Governance and Nominating Committee
and approved by the Board. The Corporate Governance and
Nominating Committee has no reason to believe that any nominee
named will be unable to serve if elected.
Set forth below for each nominee for election as a director and
for each director whose term will continue after the Annual
Meeting is a brief statement, including age, principal
occupation and business experience during the past five years.
In addition, the following information provides the Corporate
Governance and Nominating Committees evaluation regarding
the nomination of each of the director nominees and the key
attributes, skills, and qualifications presented by each
director nominee and the continuing directors. The following
information, as of February 28, 2011, with respect to the
age, principal occupation or employment, other affiliations and
business experience during the last five years of each director
and director nominee, has been furnished to the Company by each
director nominee and director.
THE BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH
OF THE DIRECTOR NOMINEES.
13
NOMINEES
FOR ELECTION AS CLASS I DIRECTORS
(Term Expiring in 2014)
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Principal Occupation for Past Five Years
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Name
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Age
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and Other Information
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Gregory C. Bestic
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56
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Mr. Bestic is a Managing Principal of Schroedel, Scullin &
Bestic, LLC, a certified public accounting and strategic
advisory firm located in Canfield, Ohio. Mr. Bestic is a
Certified Public Accountant and a Certified Forensic Accountant,
and has practiced with Schroedel, Scullin & Bestic, LLC and
its predecessor firm since 1980. Mr. Bestic serves on a number
of community and civic boards in the Mahoning Valley, including
Salem Community Hospital and the Advisory Committee of the
Accounting and Finance Department of Youngstown State
University. The Corporate Governance and Nominating Committee
believes that the attributes, skills and qualifications Mr.
Bestic has developed through his educational background in
business and accounting, as well as his business and leadership
experiences in the Mahoning Valley, will allow him to provide
accounting, local business and corporate governance expertise to
the Board of Directors and has nominated him for election.
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John S. Gulas
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52
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Mr. Gulas is the President and Chief Executive Officer of the
Company, a position he has held since July 2010. From July 2008
to July 2010, Mr. Gulas served as the Companys Chief
Operating Officer. From 2005 to 2007, Mr. Gulas was President
and Chief Executive Officer of Sky Trust Co., N.A. Mr. Gulas has
over 26 years of banking experience, including executive
roles with Wachovia and Key Bank. Mr. Gulas is a native of the
Mahoning Valley and is on the board of the Regional Chamber as
well as other community and civic boards. Mr. Gulas was
appointed as a member of the Board of Directors in July 2010 and
serves on the Board Loan Committee. The Corporate Governance and
Nominating Committee believes that the attributes, skills and
qualifications Mr. Gulas has developed through his education and
experiences in the banking and financial services industries, as
well as his significant leadership positions with the Company,
allow him to provide continued business and leadership insight
to the Board of Directors and has nominated him for election.
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Ronald V. Wertz
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64
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Mr. Wertz has served as a director of the Company since 1989 and
has served as the Companys Lead Independent Director since
2010. Mr. Wertz is a member of the Board Loan, Corporate
Governance and Nominating and Compensation Committees. Mr. Wertz
is currently retired and is an active member of the Mahoning
Valley community. Formerly, Mr. Wertz was the President and
Chief Executive Officer of Boyer Insurance, Inc., which was
later acquired by Wells Fargo Insurance Services, as well as a
risk management consultant for Wells Fargo Insurance Services.
The Corporate Governance and Nominating Committee believes that
the attributes, skills and qualifications Mr. Wertz has
developed through his leadership and business experiences in the
Mahoning Valley business market, as well as his exemplary
service as a director of the Company, allow him to provide
continued local business and corporate governance expertise to
the Board of Directors and has nominated him for re-election.
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14
CLASS II
DIRECTORS CONTINUING IN OFFICE
(Term Expiring in 2012)
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Principal Occupation for Past Five Years
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Name
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Age
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and Other Information
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Lance J. Ciroli
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60
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Mr. Ciroli has served as a director of the Company since
September 2010 and is a member of the Board Loan and
Compensation Committees. Since 2009, Mr. Ciroli has operated
NBE Bank Consulting Services, a bank consulting services
company, which he co-founded in 2009. Prior to founding NBE Bank
Consulting Services, Mr. Ciroli was Assistant Deputy
Comptroller, Office of the Comptroller of the Currency, United
States Treasury Department, in Washington D.C., where he was
responsible for the supervision and regulation of nationally
chartered community banks in Northern and Eastern Ohio and the
Lower Peninsula of Michigan. The Corporate Governance and
Nominating Committee believes that the attributes, skills and
qualifications Mr. Ciroli has developed through his extensive
experience in the area of national bank regulation, allow him to
provide continued regulatory and local business expertise to the
Board of Directors.
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Anne Frederick Crawford
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47
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Ms. Crawford has served as a director of the Company since 2004
and is a member of the Board Loan, Compensation and Corporate
Governance and Nominating Committees. Ms. Crawford is a
self-employed/sole proprietor attorney-at-law located in
Canfield, Ohio, concentrating her law practice in the areas of
real estate, probate and estate planning. Previously, Ms.
Crawford was a partner at the law firm of Brennan, Frederick,
Vouros & Yarwood. Ms. Crawford is also actively involved
with a number of significant non-profit organizations and
community initiatives in the Mahoning Valley, including the
American Cancer Society. The Corporate Governance and Nominating
Committee believes that the attributes, skills and
qualifications Ms. Crawford has developed through her education
and extensive experiences in the legal field and in the Mahoning
Valley business market, as well as her knowledge and experience
as a director of the Company, allow her to provide continued
legal and local business expertise to the Board of Directors.
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David Z. Paull
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56
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Mr. Paull has served as a director of the Company since January
2011 and is a member of the Audit, Board Loan and Compensation
Committees. Mr. Paull is the Vice President, HR Operations and
Labor Relations for RTI International Metals, Inc., where he is
responsible for human resource activities for all domestic
manufacturing locations in the United States. Mr. Paull is a
member of the Board of Directors and Executive Committee of the
Regional Chamber and a member of the board of directors of the
Humility of Mary Center For Learning, where he serves on the
Mission and Planning Committee. The Corporate Governance and
Nominating Committee believes that the attributes, skills and
qualifications Mr. Paull has developed through his extensive
business experience in the Mahoning Valley business market, as
well as his knowledge and experience in the field of human
resources, allow him to provide continued local business and
corporate governance expertise to the Board of Directors.
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15
CLASS III
DIRECTORS CONTINUING IN OFFICE
(Term Expiring in 2013)
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Principal Occupation for Past Five Years
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Name
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Age
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and Other Information
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Ralph D. Macali
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55
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Mr. Macali has served as a director of the Company since
December 2001 and is a member of the Audit, Board Loan and Risk
Management Committees. Mr. Macali is the Vice President of
Palmer J. Macali, Inc., which owns and operates a retail grocery
supermarket, a partner in P.M.R.P. Partnership, which owns
commercial and residential real estate and a partner in Macali
Family Limited Partnership, which owns various retail stores.
The Corporate Governance and Nominating Committee believes that
the attributes, skills and qualifications Mr. Macali has
developed through his education and business leadership
experiences in the Mahoning Valley business market, as well as
his experience as a director of the Company, allow him to
provide continued regional business and leadership expertise to
the Board of Directors.
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Frank L. Paden
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60
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Mr. Paden is the Executive Chairman of the Board of Directors
and Secretary of the Company and has served as a director of the
Company since 1992. From 1995 to July 2010, Mr. Paden served as
President and Secretary of the Company, and prior thereto,
served in a variety of roles with Farmers Bank since 1974. Mr.
Paden serves as a member of the Board Loan Committee. The
Corporate Governance and Nominating Committee believes that the
attributes, skills and qualifications Mr. Paden has developed
through his extensive tenure with the Company, his experiences
in the banking and financial services industries in general, as
well as his significant leadership experiences with the Company
and the Board of Directors, allow him to provide continued
business and leadership insight to the Board of Directors.
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Earl R. Scott
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65
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Mr. Scott has served as a director of the Company since December
2003 and is a member of the Audit, Board Loan and Risk
Management Committees. Mr. Scott is a CPA and President of
Reali, Giampetro & Scott, a local accounting firm with
offices in the Mahoning Valley. The Corporate Governance and
Nominating Committee believes that the attributes, skills and
qualifications Mr. Scott has developed through his education and
leadership experiences in the field of accounting, his knowledge
and business experience in the Mahoning Valley, as well as his
experience as a director of the Company, allow him to provide
continued financial and regional business expertise to the Board
of Directors.
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16
BENEFICIAL
OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of
February 28, 2011, regarding beneficial ownership of the
common shares by each director, each director nominee, each of
the named executive officers of the Company appearing in the
Summary Compensation Table, all directors, named
executive officers and other executive officers of the Company
as a group and by each person known to the Company to own 5% or
more of its common shares. In addition, unless otherwise
indicated, all persons named below can be reached at Farmers
National Banc Corp., 20 South Broad Street, Canfield, Ohio 44406.
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Total Beneficial
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Percent of
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Name
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Ownership(1)
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Outstanding(2)
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Gregory C. Bestic
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1,146
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(3)
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*
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Lance J. Ciroli
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16,967
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|
|
|
*
|
Anne Fredrick Crawford
|
|
|
76,568
|
(4)
|
|
|
|
*
|
John S. Gulas
|
|
|
23,050
|
(5)
|
|
|
|
*
|
Joseph D. Lane
|
|
|
267,802
|
(6)
|
|
|
1.4
|
%
|
Ralph D. Macali
|
|
|
107,694
|
(7)
|
|
|
|
*
|
Frank L. Paden
|
|
|
67,561
|
|
|
|
|
*
|
David Z. Paull
|
|
|
6,364
|
|
|
|
|
*
|
Earl R. Scott
|
|
|
15,733
|
(8)
|
|
|
|
*
|
Ronald V. Wertz
|
|
|
108,844
|
(9)
|
|
|
|
*
|
Carl D. Culp
|
|
|
10,908
|
(10)
|
|
|
|
*
|
Mark L. Graham
|
|
|
279,854
|
(11)
|
|
|
1.5
|
%
|
Kevin J. Helmick
|
|
|
5,205
|
|
|
|
|
*
|
Total (12 directors and executive officers)
|
|
|
987,696
|
|
|
|
5.3
|
%
|
5% Or Greater Shareholders
|
|
|
|
|
|
|
|
|
M3 Partners, L.P.
|
|
|
1,100,000
|
(12)
|
|
|
5.9
|
%
|
215 South State Street, Suite 1170, Salt Lake City, Utah
84111
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Less than 1%. |
|
(1) |
|
The amounts shown represent the total outstanding common shares
beneficially owned by the individuals or and the common shares
issuable upon the exercise of stock options within 60 days
of February 28, 2011. Unless otherwise indicated, each
individual has sole voting and dispositive power with respect to
the common shares indicated. |
|
(2) |
|
For all directors and executive officers, the percentage of
class is based upon the sum of: (i) 18,646,035 common
shares issued and outstanding on February 28, 2011; and
(ii) the number of common shares, if any, as to which the
named individual or group has the right to acquire beneficial
ownership upon the exercise of stock options within 60 days
of February 28, 2011. |
|
(3) |
|
Mr. Bestic owns his shares jointly with his spouse, and he
has shared voting and dispositive power with respect to such
shares. |
|
(4) |
|
Ms. Crawford owns 57,216 common shares jointly with her
spouse, and she has shared voting and dispositive power with
respect to such shares. Amount includes 7,614 common shares held
by a trust, over which Ms. Crawfords spouse is
trustee with voting and dispositive power . Amount also includes
11,738 common shares held by a trust, over which
Ms. Crawford has voting and dispositive power but no
pecuniary interest therein. |
|
(5) |
|
Amount includes 2,000 common shares subject to options
exercisable within 60 days. |
|
(6) |
|
Amount includes 7,635 common shares owned by
Mr. Lanes spouse, over which he has shared voting and
dispositive power. Amount also includes 260,166 common shares
held by various trusts, over which Mr. Lane has voting and
dispositive power. |
17
|
|
|
(7) |
|
Amount includes 31,584 common shares owned by
Mr. Macalis children, over which he has voting and
dispositive power. Amount also includes 16,391 and 32,449 common
shares held by a trust and partnership, respectively, over which
Mr. Macali has voting and dispositive power. |
|
(8) |
|
Amount includes 4,838 common shares owned by
Mr. Scotts spouse, over which he has shared voting
and dispositive power. |
|
(9) |
|
Mr. Wertz owns 151 shares jointly with his spouse, and
he has shared voting and dispositive power with respect to such
shares. Amount also includes 103,213 common shares held by
various trusts, over which Mr. Wertz has shared voting and
dispositive power with his spouse. |
|
(10) |
|
Mr. Culp owns his shares jointly with his spouse, and he
has shared voting and dispositive power with respect to such
shares. |
|
(11) |
|
Amount includes 825 common shares owned by
Mr. Grahams children, over which he has voting and
dispositive power. Amount also includes 271,959 common shares
held by certain trusts and a charitable foundation, over which
Mr. Graham has voting and dispositive power.
Mr. Graham has no pecuniary interest in any shares held by
such trusts or charitable foundation. |
|
(12) |
|
As reported in a Schedule 13G filed with the Commission on
February 2, 2011, all 1,100,000 of the common shares are
owned directly by M3 Partners, L.P. (M3 Partners),
whose general partner is M3 Funds, LLC (the General
Partner) and whose investment adviser is M3F, Inc. (the
Investment Adviser). According to the
Schedule 13G, the General Partner and the Investment
Adviser could each be deemed to be indirect beneficial owners of
the common shares, and could be deemed to share such beneficial
ownership with M3 Partners. As reported in the
Schedule 13G, Jason A. Stock and William C. Waller are the
managers of the General Partner and the managing directors of
the Investment Adviser, and could be deemed to share such
indirect beneficial ownership with the General Partner, the
Investment Adviser and M3 Partners. |
18
COMPENSATION
DISCUSSION AND ANALYSIS
Introduction
The following Compensation Discussion and Analysis provides
information regarding the compensation programs for the
Companys named executive officers, including: (i) the
overall objectives of the Companys compensation program
and what it is designed to reward; (ii) each element of
compensation that is provided; and (iii) an explanation of
the Compensation Committees decisions regarding the
Companys named executive officers. For 2010, the
Companys named executive officers were:
|
|
|
Name
|
|
Title
|
|
John S. Gulas
|
|
President and Chief Executive Officer
|
Carl D. Culp
|
|
Executive Vice President and Chief Financial Officer
|
Frank L. Paden
|
|
Executive Chairman of the Board and Secretary; Former President
and Chief Executive Officer
|
Mark L. Graham
|
|
Senior Vice President and Senior Loan Officer
|
Kevin J. Helmick
|
|
Senior Vice President, Retail Services
|
The Role
of the Compensation Committee in Determining Executive
Compensation
The Compensation Committee oversees the compensation of the
Companys named executive officers and establishes the
Companys executive compensation philosophy, policy,
elements and strategy and reviews proposed executive
compensation plans and arrangements, including employment and
severance arrangements with Company executives. In addition, the
Compensation Committee evaluates the performance of the
Companys executive officers in order to determine
appropriate compensation adjustments as well as future
compensation decisions. The Compensation Committee also reviews
overall corporate policy regarding compensation and benefit
programs that are generally available to all employees and may
make recommendations concerning those programs.
Although the Compensation Committee has authority to approve
individual compensation arrangements, for example employment
contracts and individual incentive award goals, as well as
authority to engage legal advisors and compensation consultants
for advice about compensation issues, the Compensation Committee
does not act entirely autonomously on the approval and
implementation of compensation plans. For example, the
Compensation Committee recommends the terms of the
Companys annual incentive compensation program, but final
approval of such program is presented to the full Board of
Directors for approval. At the Compensation Committees
request, management may provide financial, tax, accounting, or
operational information relevant to Compensation Committee
deliberations.
Compensation
Committees Philosophy on Executive Compensation
The Companys goal is to hire and retain an executive
management team that will promote the Companys short-term
and long-term success. The Company seeks to achieve this goal by
providing a fair and competitive compensation package, which
includes performance-based, at-risk pay components aligned to
strategic and financial performance objectives that drive the
Companys annual and long-term performance and ultimately
shareholder value. In addition, the Company seeks to implement a
compensation program that appropriately balances risk and
financial results with the ultimate goal of creating and
maintaining compensation programs that promote the safety and
soundness of the Company.
The principal elements of each named executive officers
compensation currently consist of base salary and annual cash
incentive compensation. Like other employees, the named
executive officers also receive matching contributions to their
401(k) retirement plan accounts from the Company. Historically,
the Company has also awarded equity-based compensation,
including restricted share awards and stock options, to
executive officers in order to provide an additional link
between executive compensation rewards and long-term shareholder
value. However, as the result of the expiration of the
Companys 1999 Stock Option Plan in 2009 and the failure of
shareholders to adopt the Omnibus Equity Plan submitted by the
Company for shareholder approval at the 2010 Annual Meeting, the
Company does not currently have a compensation plan under which
19
additional equity awards may be made. Consequently, while the
Compensation Committee is currently unable to incorporate equity
awards into its executive compensation structure, the Committee
will continue to evaluate its current compensation structure, as
well as other potential types of compensation plans or
arrangements, in order to properly calibrate its executive
compensation plans and arrangements with market and industry
compensation trends and to align its compensation programs with
both short- and long-term performance.
Determination of Amounts of Compensation and the Role of
Benchmarking.
Historically, the Compensation Committee has not engaged in any
benchmarking of the Companys compensation
against any other institution; however, it has generally
evaluated compensation practices at similarly situated financial
institutions to help determine the levels of compensation for
financial services executives in the Companys geographic
market. In addition, the Compensation Committee does not have a
practice of adhering to a strict formula in order to determine
executive officer compensation packages and, instead, has relied
on a variety of factors including experience, responsibility,
individual performance and the overall financial performance of
the Company. However, given the competitive nature of the
financial services industry in general, and the fact that the
Company competes in its primary market with regional and
national banking organizations that are significantly larger and
that can provide more attractive compensation packages to top
executive talent, the Compensation Committee recognizes the need
to provide competitive overall compensation opportunities to
retain the Companys high-performing executives and attract
new executive talent to the Company.
During 2010, the Compensation Committee did not retain a
separate outside compensation consultant; however, for 2011, the
Compensation Committee has retained the services of
Organizational Consulting Group (OCG) to help
evaluate its executive compensation plans and programs, as well
as provide information and data relative to emerging
compensation trends, appropriate comparable financial
institutions, and various market survey data. Pursuant to the
terms of its retention, OCG will report directly to the
Compensation Committee, which retains sole authority to select,
retain, terminate and approve the fees and other retention terms
of its relationship with OCG.
2010
Named Executive Officer Compensation
Base
Salary
Base salaries are intended to reward the named executive
officers based upon their roles with the Company and for their
performance in those roles. For each named executive officer,
the Compensation Committee annually reviews base salary levels
and seeks to adjust named executive officer salaries based upon
the Companys financial performance, the individual
performance of the particular executive, as well as the
Companys overall compensation philosophy. Pursuant to the
terms of their respective employment agreements, the base salary
levels of Messrs. Gulas and Paden are reviewed annually by
the Compensation Committee and may be adjusted by the Board of
Directors at the recommendation of the Compensation Committee.
For all executive officers who directly report to the Chief
Executive Officer, Mr. Gulas (previously, Mr. Paden)
annually evaluates each executive officer to determine whether a
base salary increase or decrease is merited based upon
individual performance, and with regards to Mr. Culp,
presents his base salary adjustment recommendation to the
Compensation Committee. As part of his evaluation process,
Mr. Gulas evaluates each of the Companys named
executive officers on a variety of factors including leadership
performance, strategic planning and execution, communication
abilities, business knowledge and awareness and accountability.
In regards to Messrs. Gulas and Paden, during 2010 the
Compensation Committee undertook a separate evaluation of such
individuals to determine whether a base salary adjustment was
appropriate. In undertaking its evaluation, the Compensation
Committee evaluated Messrs. Gulas and Paden based upon the
individual performance factors described above as well as the
Companys overall financial and strategic performance in
2010.
As a result the evaluations described above, the following base
salary adjustments were implemented during 2010:
(i) Mr. Culp received a base salary increase of
approximately 15%, as a result of the Compensation
Committees determination that his salary was below the
average for a principal financial officer of a public company of
the Companys size and because the Committees and
Mr. Gulas assessment of
20
Mr. Culps performance was positive;
(ii) Mr. Graham received a base salary increase of
approximately 3%, as a reflecting a positive performance
assessment by Mr. Gulas; and (iii) Mr. Helmick
received a base salary increase of approximately 18%,
(1) as a result of the performance of the Farmers National
Investments division of Farmers Bank, (2) to reflect a
positive performance assessment by Mr. Gulas and
(3) to competitively position his base salary with
similarly situated executives at other geographically comparable
financial institutions. In regards to Mr. Gulas, the salary
of Mr. Gulas in 2009 is not directly comparable to his
salary in 2010, as a result of his promotion from Executive Vice
President and Chief Operating Officer to President and Chief
Executive Officer in July 2010, which accounted for the 27%
increase in his 2010 salary relative to his 2009 salary.
401(k)
Contributions
In May 1996, the Company adopted a 401(k) Profit Sharing
Retirement Savings Plan (the 401(k) Plan). All
employees of the Company and Farmers Bank who have completed at
least one year of service and meet certain other eligibility
requirements are eligible to participate in the 401(k) Plan.
Under the terms of the 401(k) Plan, employees may voluntarily
defer a portion of their annual compensation, subject to
applicable federal restrictions and deferral limitations. Under
the 401(k) Plan, Farmers Bank matches a percentage of each
participants voluntary contributions up to 6% of gross
wages. In addition, at the discretion of the Board of Directors,
Farmers Bank may make an additional profit sharing contribution
to the 401(k) Plan. During 2010, Farmers Bank provided 401(k)
matching contributions for each of the named executive officers;
however, the Company did not elect to make any additional profit
sharing contribution in 2010.
Incentive
Compensation Programs
The Compensation Committee believes that performance-based cash
incentives are an effective way to compensate executives for
working together as a team to achieve short-term specific
financial goals, which the Company and management believes are
the ultimate drivers of the Companys long-term success and
shareholder value. The 2010 Executive Compensation Plan (the
ECP) was adopted by the Board of Directors of the Company
on September, 14, 2010, as approved and recommended by the
Compensation Committee. The 2010 ECP authorizes the Compensation
Committee to pay plan-based cash incentive awards to
Messrs. Gulas, Culp and Paden, if the Company achieves
specific financial goals or if the individual participant
performs in certain categories to a level deemed by the
Compensation Committee to be acceptable for the receipt of a
cash incentive award. Each participant under the 2010 ECP is
eligible to receive a cash incentive bonus of up to 35% of his
yearly base salary. Payment under the 2010 ECP is contingent
upon the achievement of pre-established performance goals
relating to five performance criteria (four objective and one
subjective) established by the Compensation Committee. Each of
the criteria has an assigned weight and each of the objective
criteria has a specific target or goal for the year. In the
event that the Company or the individual does not meet the
specified goal or target for a particular metric, then no
compensation will be paid with respect to that portion of the
2010 ECP. In determining the 2010 ECP targets, the Compensation
Committee utilized the Companys budgeting model to set the
performance at levels that were achievable with strong
management performance. Accounting for 75% of the total weight,
the four objective, quantitative financial targets or goals for
2010 and their individual assigned weights were:
|
|
|
|
1.
|
Earnings per share of $0.51 or more (25% weight). Actual
earnings per share for 2010 was $0.66, a 50% improvement over
earnings per share of $0.44 in 2009.
|
|
|
2.
|
Tier 1 leverage capital of 7.20% (15% weight). Like most if
not all domestic banking organizations, the Companys
operations have been adversely affected by the economic crisis
that began at the end of 2007. The financial crisis has
highlighted the role that capital serves as protection against
loss, liquidity risk, and insolvency. Because of the continuing
growth in Farmers Banks business and the increase in its
allowance for loan losses associated with current economic
conditions, senior management and the Board of Directors
determined that increased capital levels were appropriate.
Effective February 2, 2010, Company agreed to the Office of
the Comptroller of the Currencys proposal that Farmers
Banks Tier 1 leverage capital be a minimum of 7.20%
and that its total risk-based capital ratio be a minimum of
11.00%. Farmers Banks Tier 1 leverage ratio as of
December 31,
|
21
|
|
|
|
|
2010 was 7.38%, an improvement of 86 basis points over the
6.52% Tier 1 leverage ratio as of December 31, 2009.
|
|
|
|
|
3.
|
Efficiency ratio no greater than 64% (20% weight). The
efficiency ratio is calculated by dividing non-interest expense
by the sum of net interest income and noninterest income. The
efficiency ratio is a rough measure of the amount of expense
incurred to generate an additional dollar of income: the greater
the percentage, the greater the cost. Detailed information
concerning net interest income and non-interest income and
expense is contained in the Annual Report accompanying this
proxy statement. On a tax-equivalent basis, Farmers Bank
efficiency ratio for 2010 was 61%, compared to 67% for 2009.
|
|
|
4.
|
Classified assets divided by the sum of Tier 1 capital at
the Farmers Bank level, plus allowance for loan losses
Classified Assets to Capital Ratio of no greater
than 38% (15% weight). This financial metric is generally used
to measure of a financial institutions protection against
deteriorated and deteriorating asset quality. Because of the
significant asset quality problems of financial institutions in
recent years, asset quality ratios such as the Classified Assets
to Capital Ratio have become a prominent feature of supervisory
standards for prudential operations and financial institution
analyses used by the investment community. Although federal
banking regulatory agencies do not reveal examination criteria,
the Company and Farmers Bank had reason to believe that a
Classified Assets to Capital Ratio exceeding 50% may lead to
increased supervisory attention from federal banking regulatory
authorities, but a Classified Assets to Capital Ratio below 40%
is likely to be regarded positively, particularly if the
ratios trend is declining. Farmers Banks Classified
Assets to Capital Ratio as of December 31, 2010 was 53%, or
10 percentage points higher than the 43% ratio at the end
of 2009.
|
The fifth and final criterion consists of a subjective
evaluation of the participants development and
implementation of strategic initiatives and overall performance
throughout the year (25% weight). The Compensation Committee may
increase, reduce, or waive performance targets or awards as the
committee deems appropriate based on economic conditions or
other factors. The Compensation Committee must confirm each
payment under the 2010 ECP before the payment is made.
The following table illustrates application of the 2010 ECP
goals as well as actual results for 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Criteria
|
|
Weight
|
|
|
Target
|
|
|
2010 Results
|
|
|
Payout
|
|
|
Earnings Per Share
|
|
|
25
|
%
|
|
$
|
0.51
|
|
|
$
|
0.66
|
|
|
|
100
|
%
|
Tier 1 Leverage Capital
|
|
|
15
|
%
|
|
|
7.20
|
%
|
|
|
7.38
|
%
|
|
|
100
|
%
|
Efficiency Ratio
|
|
|
20
|
%
|
|
|
64
|
%
|
|
|
61.10
|
%
|
|
|
100
|
%
|
Classified Assets to Capital Ratio
|
|
|
15
|
%
|
|
|
38
|
%
|
|
|
53
|
%
|
|
|
0
|
%
|
Individual Performance Evaluation
|
|
|
25
|
%
|
|
|
Subjective
|
|
|
|
Subjective
|
|
|
|
Variable
|
|
In regards to the individual performance component, the
Compensation Committee determined that each of Messrs. Gulas and
Culp were deserving of a full award under this component, as a
result of their leadership and individual efforts during 2010.
In addition, the Compensation Committee noted that Messrs. Gulas
and Culp had played important roles in the completion of the
Companys capital raising and expansion strategic
initiatives during the course of 2010. With regard to Mr. Paden,
the Compensation Committee determined that a payout on the
individual performance component was not warranted. Accordingly,
the total cash incentive awards were $76,979 for Mr. Gulas,
$48,195 for Mr. Culp and $52,626 for Mr. Paden.
In addition to the 2010 ECP, the Compensation Committee
authorized Farmers Banks Executive Committee (the
Executive Committee), which is comprised of certain
members of management, including Messrs. Gulas and Culp, to
establish and implement a performance-based incentive
compensation plan for certain other members of Farmers
Banks senior management, as well as other specified groups
of employees. Pursuant to this delegation, the Executive
Committee established the 2010 ICP (the ICP), which
provides a cash incentive compensation opportunity to
participants, if the Company achieves specific financial goals
or if the individual participant performs in certain categories.
Under the 2010 ICP, each of the participants right to
22
payment under the plan is contingent upon the achievement of
pre-established performance goals for the performance period.
Of the named executive officers, the Executive Committee
determined that Mr. Graham would be eligible to participate
in the 2010 ICP and established a funding formula based upon
trailing 12 month net interest margin times net loan
footings times 10 basis points. For purposes of
Mr. Grahams 2010 ICP opportunity, the target funding
pool was set at 30% of base salary with a maximum funding pool
of 40%. Under the 2010 ICP, the Executive Committee determined
five specific performance criteria for Mr. Graham and each
criteria was assigned a weight and specific threshold, target
and maximum performance goals for the year. In selecting
performance metrics for the 2010 ICP, the Executive Committee
sought to establish corporate performance metrics that are the
key drivers of the Companys short- and long-term financial
and strategic goals, as well as metrics focused on
Mr. Grahams specific areas of responsibility. In
determining the 2010 ICP targets, the Executive Committee
utilized the Companys budgeting model to set the target at
levels that were achievable with strong performance by the
Company and Mr. Graham. For performance reaching the
threshold level, the 2010 ICP provides for a payout at 80% of
the target award, while performance exceeding the target level
by 10% or more results in a payout of 110% of the targeted award
amount. For performance below the threshold level, no award
amount shall be paid for the particular performance metric.
The following table sets forth the 2010 ECP goals and weighting
for Mr. Graham, as well as the application of the funding
pool:
|
|
|
|
|
|
|
Funding Pool Calculation
|
|
|
Net Loan Footings
|
|
$
|
590,304,788
|
|
Net Interest Margin
|
|
|
4.11
|
%
|
Total Pool
|
|
$
|
24,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
Criteria
|
|
Weight
|
|
|
Target
|
|
|
2010 Results
|
|
|
Of Goal
|
|
|
Payout
|
|
|
Loan and Loan Fee Growth
|
|
|
30
|
%
|
|
$
|
635,325,794
|
|
|
$
|
590,304,788
|
|
|
|
93
|
%
|
|
|
80
|
%
|
Earnings Per Share
|
|
|
20
|
%
|
|
$
|
0.51
|
|
|
$
|
0.66
|
|
|
|
129
|
%
|
|
|
110
|
%
|
Asset Ratio
|
|
|
15
|
%
|
|
|
35
|
%
|
|
|
53
|
%
|
|
|
66
|
%
|
|
|
0
|
%
|
Asset Quality
|
|
|
15
|
%
|
|
|
0.85
|
%
|
|
|
1.51
|
%
|
|
|
56.29
|
%
|
|
|
0
|
%
|
In addition to the four performance metrics set forth above,
Executive Committee established a fifth metric (20% weighting)
for Mr. Graham based upon the achievement of certain
regulatory criteria, however, actual 2010 performance did not
warrant a payout under this metric. Ultimately, as a result of
the Companys corporate performance during 2010, the
Executive Committee awarded Mr. Graham a cash incentive
award of $11,160.
Finally, in regards to Mr. Helmick, pursuant to the terms
of his employment agreement, Mr. Helmick is entitled to
receive commissions based upon the performance of the Farmers
National Investments division of Farmers Bank. Specifically,
Mr. Helmick is entitled to a commission payment of 4% on
all Farmers National Investments gross monthly revenue up to
$60,000, and a commission of 5% on all Farmers National
Investments gross monthly revenue greater than $60,000. As a
result of commission structure established in
Mr. Helmicks employment agreement, the Executive
Committee determined that Mr. Helmick would not be a
participant in the 2010 ICP. Based upon the performance of
Farmers National Investments during 2010, Mr. Helmick
received commissions totaling $55,272.
Perquisites
and Other Compensation.
Executive officers also participate in broad-based employee
benefit plans, such as medical, dental, supplemental disability,
retiree health insurance and term life insurance programs.
Except for country club memberships provided by Farmers Bank to
the named executive officers, executive officers did not receive
any perquisites or personal benefits in 2010 that are not
available to all employees.
23
Post-Retirement
Arrangements
With the exception of the January 1, 2005 Deferred
Compensation Agreement between Farmers Bank and Mr. Paden,
post-retirement compensation other than healthcare benefits
currently is not part of the compensation offered to the named
executive officers. If structured properly, post-retirement
compensation arrangements can serve as a valuable retention
device, giving an executive incentive to remain employed with
his or her employer in order to fully realize the promised
post-retirement compensation. In its deliberations about
executive compensation in 2010, the Compensation Committee
considered the impact of shareholders failure to approve
the Omnibus Equity Plan at the April 13, 2010 Annual
Meeting, as well as shareholders failure at the
August 19, 2010 Special Meeting to approve elimination of
preemptive rights from the Companys Articles, since such
shareholder actions make it more difficult for the Compensation
Committees to fashion comprehensive and competitive
executive compensation arrangements, as a result of preventing
the Committee from making equity-based compensation a part of
the Companys compensation framework. The Compensation
Committee is currently considering whether a post-retirement
compensation arrangement for executives could compensate in
whole or in part for the lack of an equity component in
executive compensation.
According to the terms of his Deferred Compensation Agreement,
Mr. Paden is entitled to receive a monthly compensation
benefit upon retirement. Specifically, pursuant to the terms of
his Deferred Compensation Agreement, Mr. Paden is entitled
to receive a benefit of $11,160 annually for 17 years for
retirement from active and daily service on the
November 1 occurring nearest his 65th birthday. Additional
information regarding Mr. Padens Deferred
Compensation Agreement are provided in the section titled
EXECUTIVE COMPENSATION AND OTHER
INFORMATION Executive Deferred Compensation
Arrangement with Mr. Paden beginning on
page 27 of this proxy statement.
Section 162(m)
of the Internal Revenue Code
Section 162(m) of the Internal Revenue Code of 1986, as
amended (the Code) places a limit on the tax
deduction for compensation exceeding $1.0 million paid to
the chief executive officer and four most highly compensated
executive officers of a corporation in a taxable year, but
performance-based compensation such as stock-option compensation
and performance-based cash bonuses are generally exempt from the
$1.0 million limit if awarded under a stockholder-approved
plan. The Company expects that all of the compensation paid in
2010 and in 2011 to its named executive officers is and will be
deductible. The Board of Directors and the Compensation
Committee could, however, award non-deductible compensation as
they deem appropriate. Moreover, because of ambiguities in the
application and interpretation of section 162(m) and the
regulations issued under Section 162(m), there can be no
assurance that compensation intended to satisfy the requirements
for deductibility under Section 162(m) actually will be
deductible.
Oversight
and Risk Management of Compensation Programs
The Compensation Committee oversees the implementation and
enforcement of the Companys policies, procedures and
practices related to its various compensation programs as part
of its duties. This is designed to monitor the Companys
compensation policies to ensure that the compensation packages
offered to its employees and executive officers do not present
such individuals with the potential to engage in excessive or
inappropriate risk taking activities. In addition, the Risk
Management Committee works with the Compensation Committee in
order to monitor the Companys compensation policies,
procedures and practices, as part of its duties to monitor
enterprise-wide risk.
The Compensation and Risk Management Committees believe that the
Companys current compensation structure for its employees
and its executive officers does not encourage unnecessary or
excessive risk taking to the extent that it would reasonably
likely lead to a material adverse effect on the Company. It is
the opinion of the Compensation and Risk Management Committees
that the Companys current compensation programs
appropriately balance risk and the desire to focus on the
short-term and the long-term goals of the Company and does not
encourage unnecessary or excessive risk taking.
24
Compensation
Committee Interlocks and Insider Participation
During the last completed fiscal year, none of the members of
the Compensation Committee was an officer or employee of the
Company or any of its subsidiaries or formerly an officer of the
Company or any of its subsidiaries. None of such directors had
any business or financial relationship with the Company
requiring disclosure in this proxy statement.
THE
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed this
Compensation Discussion and Analysis with the Companys
management. Based upon this review and discussion, the
Compensation Committee recommends to the Board of Directors that
this Compensation Discussion and Analysis be included in the
Companys proxy statement and Annual Report on
Form 10-K.
Compensation Committee:
Anne Frederick Crawford, Chair
Lance J. Ciroli
David Z. Paull
Ronald V. Wertz
25
EXECUTIVE
COMPENSATION AND OTHER INFORMATION
Summary
of Cash and Certain Other Compensation
The following table provides certain summary information
concerning the compensation paid or accrued by the Company and
its subsidiaries to or on behalf of its named executive
officers. The table shows the compensation attributable to the
Companys named executive officers during 2010.
Summary
Compensation Table
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|
|
|
|
|
|
|
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Non-Equity
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Name and
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Stock
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Incentive Plan
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401(k)
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All Other
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Principal Position
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Year
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Salary($)(1)
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Awards($)
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Compensation($)(2)
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Contributions($)(3)
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Compensation($)
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Total ($)
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John S. Gulas
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2010
|
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$
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258,750
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|
$
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0
|
|
|
$
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76,979
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|
|
$
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6,831
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|
|
$
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146,284
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(4)
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$
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488,844
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President and Chief
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2009
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$
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204,167
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|
$
|
1,633
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|
$
|
38,973
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|
|
$
|
4,830
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|
|
$
|
1,546
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$
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251,149
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Executive Officer
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2008
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$
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84,849
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|
|
$
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2,300
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|
|
$
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15,231
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|
|
$
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0
|
|
|
$
|
0
|
|
|
$
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102,308
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|
Carl D. Culp
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2010
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$
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162,000
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|
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$
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0
|
|
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$
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48,195
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|
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$
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5,282
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|
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$
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1,882
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(5)
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$
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217,359
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Exec. V.P. and Chief
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2009
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$
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140,800
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|
|
$
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0
|
|
|
$
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13,375
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|
|
$
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4,941
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|
|
$
|
558
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|
|
$
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159,674
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|
Financial Officer
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|
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2008
|
|
|
$
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136,196
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|
|
$
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0
|
|
|
$
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23,439
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|
|
$
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4,086
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|
|
$
|
652
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|
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$
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164,373
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Frank L. Paden
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2010
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$
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250,600
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|
|
$
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0
|
|
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$
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52,626
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|
|
$
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6,654
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|
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$
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5,220
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(5)
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$
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315,100
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Executive Chairman of the
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2009
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|
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$
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250,600
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|
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$
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0
|
|
|
$
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18,200
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|
|
$
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6,640
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|
|
$
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7,499
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|
|
$
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282,939
|
|
Board and Secretary and
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|
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2008
|
|
|
$
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233,088
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|
|
$
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0
|
|
|
$
|
39,043
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|
|
$
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6,188
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|
|
$
|
9,631
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|
|
$
|
287,950
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|
Former President and Chief
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|
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|
Executive Officer
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|
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|
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|
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Mark L. Graham
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|
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2010
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$
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121,243
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|
|
$
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0
|
|
|
$
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11,160
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|
|
$
|
5,198
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|
|
$
|
4,995
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(5)
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$
|
142,596
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|
Senior Vice President and
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2009
|
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$
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117,861
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|
|
$
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0
|
|
|
$
|
46,800
|
|
|
$
|
3,659
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|
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$
|
904
|
|
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$
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169,224
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|
Senior Loan Officer
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2008
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$
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110,423
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|
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$
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0
|
|
|
$
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18,752
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|
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$
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3,763
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|
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$
|
859
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|
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$
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133,797
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Kevin J. Helmick
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2010
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$
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167,481
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|
$
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0
|
|
|
$
|
0
|
|
|
$
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4,542
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|
|
$
|
5,039
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(5)
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$
|
177,062
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Senior Vice President, Retail
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2009
|
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$
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132,806
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|
$
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0
|
|
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$
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0
|
|
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$
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3,303
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$
|
420
|
|
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$
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136,529
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Services
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2008
|
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$
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106,199
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$
|
0
|
|
|
$
|
13,543
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|
|
$
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3,426
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|
$
|
341
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|
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$
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123,509
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(1) |
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Pursuant to the terms of his
employment contract, Mr. Helmicks annual salary is
comprised of a base salary and a monthly commission which is
based on the amount of production generated from the Farmers
National Investments (Farmers Investments) division
of Farmers Bank. Mr. Helmick is paid a commission of 4% on
all Farmers Investments gross monthly revenue up to $60,000, and
a commission of 5% on all Farmers Investments gross monthly
revenue which exceeds $60,000. Based upon the results of Farmers
National Investments, Mr. Helmick received a commission of
$55,272 in 2010.
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(2) |
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The non-equity incentive plan
compensation includes amounts earned under the 2010 ECP or 2010
ICP, as a result of achieving the goals specified for the
designated year.
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(3) |
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See page 21 of the
Compensation Discussion and Analysis for
additional information regarding the Companys 401(k) Plan
and matching contributions.
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(4) |
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For Mr. Gulas, amount includes
$140,710 in relocation expenses, $1,008 in Company paid life
insurance premiums and $4,556 for country club dues.
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(5) |
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For each executive, amounts consist
of the cost of group term life insurance and other perquisite
benefits.
|
Grants of
Plan Based Awards
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Estimated Possible Payouts Under
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Non-Equity Incentive Plan Awards
|
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Name
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Grant Date
|
|
|
Threshold($)
|
|
|
Target($)
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Maximum($)
|
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John S.
Gulas(1)
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|
|
09/14/2010
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|
|
|
|
|
|
$
|
90,563
|
|
|
|
|
|
Carl D.
Culp(1)
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|
|
09/14/2010
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|
|
|
|
|
|
$
|
56,700
|
|
|
|
|
|
Frank L.
Paden(1)
|
|
|
09/14/2010
|
|
|
|
|
|
|
$
|
87,710
|
|
|
|
|
|
Mark L.
Graham(2)
|
|
|
03/09/2010
|
|
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$
|
0
|
|
|
$
|
36,373
|
|
|
$
|
48,497
|
|
|
|
|
(1) |
|
As discussed in the Compensation
Discussion and Analysis on page 21, the 2010 ECP
provided participants the opportunity to earn an incentive
compensation bonus of up to 35% of their base salary upon the
achievement of specified performance metrics.
|
|
(2) |
|
As discussed in the Compensation
Discussion and Analysis on page 22, the 2010 ICP
provided Mr. Graham the opportunity to earn a target
incentive compensation bonus of 30%, with a maximum opportunity
of 40%,; however, Mr. Graham award opportunity was subject
to variation based upon the funding pool formula.
|
26
2010
Named Executive Officer Compensation Components
The primary elements of each executive officers total
compensation reported in the Summary Compensation Table
are the executive officers base salary and annual
incentive bonus. Each executive officer also received other
benefits as listed in the All Other Compensation
Column. Each of the executive officers is under an
employment agreement, as described in the section entitled
Employment Agreements below.
Outstanding
Equity Awards at Fiscal Year-End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Option
|
|
|
Option
|
|
|
|
Options
|
|
|
Options
|
|
|
Exercise
|
|
|
Expiration
|
|
Name
|
|
(#) Exercisable
|
|
|
(#) Unexercisable
|
|
|
Price ($)
|
|
|
Date
|
|
|
John S. Gulas
|
|
|
2,000
|
|
|
|
3,000
|
(1)
|
|
|
6.50
|
|
|
|
07/22/2018
|
|
|
|
|
(1) |
|
Award of stock options, one third
of which vest on each of July 22, 2011, 2012, and 2013.
|
Pension
Benefits
|
|
|
|
|
|
|
|
|
|
|
Present Value of
|
|
|
|
|
|
Accumulated
|
|
Name
|
|
Plan Name
|
|
Benefits
($)(1)
|
|
|
Frank L. Paden
|
|
Executive Deferred
|
|
$
|
95,302
|
|
|
|
Compensation Arrangement
|
|
|
|
|
|
|
|
(1) |
|
Present Value of Accumulated
Benefit is determined using a 6% discount rate.
|
Executive
Deferred Compensation Arrangement with Mr. Paden
In 2005, Farmers Bank has entered into a Deferred Compensation
Agreement with Mr. Paden. Under the terms of the Deferred
Compensation Agreement, upon retirement, Mr. Paden is
entitled to receive monthly payments of $930.00 each month for a
period of 204 consecutive months. In the event that any payments
remain payable to the executive officer at the time of his
death, the remaining payments will be discounted to present
value (at the rate of 6% compounded annually) and paid to his
surviving spouse in a lump sum. If there is no surviving spouse,
the lump sum payment will be made to the estate of
Mr. Paden. Payments will be prorated in the event that
Mr. Paden retires before the age of 65. In the event that
Mr. Paden is terminated For Cause (as such term
is defined under the Deferred Compensation Agreement), all
benefits under the Deferred Compensation Agreement will be
forfeited, and Mr. Paden will not be entitled to any
benefit. The Deferred Compensation Agreement also provides that
Mr. Paden will be available to perform consulting services
for Farmers Bank during the period in which he is receiving
payments, and prohibits him from entering into competition with
Farmers Bank during that same period.
Employment
Agreements
The Company, through Farmers Bank, has entered into employment
agreements with each of the named executive officers, the
material terms of which are discussed below.
Employment
Agreement with John S. Gulas
On January 27, 2009, Farmers Bank entered into an
employment agreement with John S. Gulas (the Gulas
Agreement), which replaced Mr. Gulas prior
employment agreement with Farmers Bank dated as of July 22,
2008. The Gulas Agreement has an initial term of thirty-six
36 months from January 31, 2009, with successive
36 month renewals unless written notice of termination is
provided by either party 90 days prior to the expiration of
the applicable term. The Gulas Agreement provides for an initial
base salary of $175,000, which is subject to review on an annual
basis. Mr. Gulas is also eligible to participate in the
Companys
27
annual incentive compensation program according to terms and
conditions applicable to all other executives and is eligible to
receive equity awards.
Under the Gulas Agreement, if Mr. Gulas employment is
terminated by the Company Without Cause, or by
Mr. Gulas for Good Reason or due to a
Change in Control (as such terms are defined in the
Gulas Agreement), Mr. Gulas is entitled to receive:
(i) a lump sum payment equal to unused vacation time;
(ii) 72 bi-monthly severance payments, each of which shall
be equal to the greater of $7,292 or
1/24
of Mr. Gulas highest annual salary in effect within
the 12 months prior to his termination; and (iii) a
pro-rata participation in annual incentive program then in
effect. If Mr. Gulas is terminated For Cause,
he voluntarily terminates Without Cause or is
terminated due to Disability or Death
(as such terms are defined in the Gulas Agreement),
Mr. Gulas is not entitled to severance payments. However,
Mr. Gulas is terminated for Death or Disability,
Mr. Gulas or his estate is entitled to receive a lump sum
payment for unused vacation time and a pro-rata participation in
the aforementioned incentive program. The Gulas Agreement also
contains customary provisions regarding post-employment
competition and anti-solicitation, vacations, insurance and
expense reimbursements.
Employment
Agreement with Carl D. Culp
On December 23, 2008, Farmers Bank entered into an
employment agreement with Carl D. Culp (the Culp
Agreement), which has an initial term of 36 months
from October 1, 2008, with successive 36 month
renewals unless earlier terminated by either party in accordance
with the termination provisions of the Culp Agreement. The Culp
Agreement provides for an initial base salary of $140,800, which
is subject to review on an annual basis. Mr. Culp is also
be eligible to participate in the Companys annual
incentive compensation program according to terms and conditions
applicable to all other executives and is eligible to receive
equity awards.
Under the Culp Agreement, if Mr. Culps employment is
terminated by the Company Without Cause, or by
Mr. Culp for Good Reason or due to a
Change in Control (as such terms are defined in the
Culp Agreement), Mr. Culp is entitled to receive:
(i) a lump sum payment equal to unused vacation time;
(ii) 72 bi-monthly severance payments, each of which shall
be equal to the greater of $5,867 or
1/24
of Mr. Culps highest annual salary in effect within
the 12 months prior to his termination; and (iii) a
pro-rata participation in annual incentive program then in
effect. If Mr. Culp is terminated For Cause, he
voluntarily terminates Without Cause or is
terminated due to Disability or Death
(as such terms are defined in the Culp Agreement), Mr. Culp
is not entitled to severance payments. However, Mr. Culp is
terminated for Death or Disability, Mr. Culp or his estate
is entitled to receive a lump sum payment for unused vacation
time and a pro-rata participation in the aforementioned
incentive program. The Culp Agreement also contains customary
provisions regarding post-employment competition and
anti-solicitation, vacations, insurance and expense
reimbursements.
Employment
Agreement with Frank L. Paden
On December 23, 2008, Farmers Bank entered into an
employment agreement with Frank L. Paden (the Paden
Agreement), which has an initial term of 36 months
from October 1, 2008, with successive 36 month
renewals unless earlier terminated by either party in accordance
with the termination provisions of the Paden Agreement. The
Paden Agreement provides for an initial base salary of
$238,600.00, which is subject to review on an annual basis, as
well as a $12,000.00 per annum payment, less applicable
withholding, for Mr. Padens services as a director of
the Company. Mr. Paden is also be eligible to participate
in the Companys annual incentive compensation program
according to terms and conditions applicable to all other
executives and is eligible to receive equity awards.
Under the Paden Agreement, if Mr. Padens employment
is terminated by the Company Without Cause, or by
Mr. Paden for Good Reason or due to a
Change in Control (as such terms are defined in the
Paden Agreement), Mr. Paden is entitled to receive:
(i) a lump sum payment equal to unused vacation time;
(ii) 72 bi-monthly severance payments, each of which shall
be equal to the greater of $9,942 or
1/24
of Mr. Padens highest annual salary in effect within
the 12 months prior to his termination; and (iii) a
pro-rata participation
28
in annual incentive program then in effect. If Mr. Paden is
terminated For Cause, he voluntarily terminates
Without Cause or is terminated due to
Disability or Death (as such terms are
defined in the Paden Agreement), Mr. Paden is not entitled
to severance payments. However, Mr. Paden is terminated for
Death or Disability, Mr. Paden or his estate is entitled to
receive a lump sum payment for unused vacation time and a
pro-rata participation in the aforementioned incentive program.
The Paden Agreement also contains customary provisions regarding
post-employment competition and anti-solicitation, vacations,
insurance and expense reimbursements.
Employment
Agreement with Mark L. Graham
On December 23, 2008, Farmers Bank entered into an
employment agreement with Mark L. Graham (the Graham
Agreement), which has an initial term of 36 months
from October 1, 2008, with successive 36 month
renewals unless earlier terminated by either party in accordance
with the termination provisions of the Graham Agreement. The
Graham Agreement provides for an initial base salary of
$115,692, which is subject to review on an annual basis.
Mr. Graham is also be eligible to participate in the
Companys annual incentive compensation program according
to terms and conditions applicable to all other executives and
is eligible to receive equity awards.
Under the Graham Agreement, if Mr. Grahams employment
is terminated by the Company Without Cause, or by
Mr. Graham for Good Reason or due to a
Change in Control (as such terms are defined in the
Graham Agreement), Mr. Graham is entitled to receive:
(i) a lump sum payment equal to unused vacation time;
(ii) 72 bi-monthly severance payments, each of which shall
be equal to the greater of $4,820 or
1/24
of Mr. Grahams highest annual salary in effect within
the 12 months prior to his termination; and (iii) a
pro-rata participation in annual incentive program then in
effect. If Mr. Graham is terminated For Cause,
he voluntarily terminates Without Cause or is
terminated due to Disability or Death
(as such terms are defined in the Graham Agreement),
Mr. Graham is not entitled to severance payments. However,
Mr. Graham is terminated for Death or Disability,
Mr. Graham or his estate is entitled to receive a lump sum
payment for unused vacation time and a pro-rata participation in
the aforementioned incentive program. The Graham Agreement also
contains customary provisions regarding post-employment
competition and anti-solicitation, vacations, insurance and
expense reimbursements.
Employment
Agreement with Kevin J. Helmick
On December 23, 2008, Farmers Bank entered into an
employment agreement with Kevin J. Helmick (the Helmick
Agreement), which has an initial term of 36 months
from October 1, 2008, with successive 36 month
renewals unless earlier terminated by either party in accordance
with the termination provisions of the Helmick Agreement. The
Helmick Agreement provides for an initial base salary of
$75,000, which is subject to review on an annual basis.
Mr. Helmick is also to be paid certain monthly commissions
of between five percent and seven and one-half percent of gross
monthly revenue generated from Farmers Banks Farmers
National Investments division on certain financial services
products. Mr. Helmick is also be eligible to receive equity
awards and to participate in the Companys annual incentive
compensation program according to terms and conditions
applicable to all other executives; however, Mr. Helmick
has not historically participated in such annual incentive plan
as a result of his commission compensation structure.
Under the Helmick Agreement, if Mr. Helmicks
employment is terminated by Company Without Cause,
or by Mr. Helmick for Good Reason or due to a
Change in Control (as such terms are defined in the
Helmick Agreement), Mr. Helmick is entitled to receive:
(i) a lump sum payment equal to unused vacation time;
(ii) 72 bi-monthly severance payments, each of which shall
be equal to
1/24
of Mr. Helmick annual salary in effect prior to his
termination; and (iii) a pro-rata participation in annual
incentive program then in effect. If Mr. Helmick is
terminated For Cause, he voluntarily terminates
Without Cause or is terminated due to
Disability or Death (as such terms are
defined in the Helmick Agreement), Mr. Helmick is not
entitled to severance payments. However, Mr. Helmick is
terminated for Death or Disability, Mr. Helmick or his
estate is entitled to receive a lump sum payment for unused
vacation time and a pro-rata participation in the aforementioned
incentive program. The Helmick Agreement also contains customary
provisions regarding post-employment competition and
anti-solicitation, vacations, insurance and expense
reimbursements.
29
Potential
Payments Upon Termination or Change in Control
The table below sets forth a summary of the potential amounts
payable to each named executive officer, under various
termination scenarios, including those provided pursuant to the
terms of the employment agreements described in the section
titled EXECUTIVE COMPENSATION AND OTHER INFORMATION
Employment Agreements beginning on
page 27 of this proxy statement. The figures in the table
are based on an assumed termination occurring on
December 31, 2010.
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Severance Benefit as December 31, 2010
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Voluntary
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Termination
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Involuntary
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Without
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Termination
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|
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Good
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Without
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Voluntary
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Reason
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Cause or
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Termination as a
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or Involuntary
|
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|
Voluntary
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Result of a Demotion
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Termination for
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for Good
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|
after a Change in
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Name
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Cause(1)
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Reason(2)
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Disability or
Death(3)
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Control(2)
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John S.
Gulas(4)
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$
|
0
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|
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$
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775,800
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|
|
$
|
0
|
|
|
$
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775,800
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Carl D. Culp
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$
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0
|
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$
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486,000
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|
$
|
0
|
|
|
$
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486,000
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Frank L.
Paden(5)
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$
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0
|
|
|
$
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751,800
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|
|
$
|
0
|
|
|
$
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751,800
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Mark L. Graham
|
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$
|
0
|
|
|
$
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363,699
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|
|
$
|
0
|
|
|
$
|
363,699
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|
Kevin J. Helmick
|
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$
|
0
|
|
|
$
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475,191
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|
|
$
|
0
|
|
|
$
|
475,191
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|
|
|
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(1) |
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Pursuant to the terms of each named
executive officers employment agreement, executives do not
receive any benefits as a result of voluntary termination
without Good Reason or involuntary termination by
Farmers Bank with Cause Each of the employment
agreements provide that the term Good Reason is
defined to mean an adverse change in the executives
employment arrangement, such as: (i) a material diminution
of the executives duties or responsibilities; (ii) a
reduction in base salary of more than 20%; (iii) a change
in work location increasing the executives commute by
50 miles or more, or (iv) a material breach by Farmers
Bank of the executives employment agreement.
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(2) |
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The severance benefit for each of
the named executive officers, other than Mr. Helmick, is
continuation for three years of the executives highest
salary at or within 12 months before termination, or if
higher the salary stated in the executives respective
employment agreement. In the case of each named executive
officer, the base salary provided in 2010 exceeded the salary
stated in their respective employment agreement. Consequently,
the salaries are derived from the Summary Compensation
Table. For Mr. Helmick, his employment agreement
provides for a salary continuation benefit of three years of his
taxable compensation at the time of termination, which includes
not only Mr. Helmicks salary but also any
commissions, bonus, incentive compensation, or other
W-2
reportable compensation. Each of the employment agreements also
provides that the named executive officers would be entitled to
a lump-sum payment for the value of unused vacation time, along
with a payment for the portion of the annual incentive benefit
earned by the executive before termination. But because
termination is assumed for purposes of the table to have
occurred on December 31, 2010, there would be no
partial-year annual incentive benefit payable to the executives.
Instead the annual incentive benefit payable to the executives
had their employment terminated on December 31, 2010 is the
annual incentive benefit included in the Summary Compensation
Table. The table likewise assumes that the executives would
receive no benefit for the value of unused vacation time. The
employment agreements provide that unused vacation time cannot
be carried over from one year to the next.
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(3) |
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The named executive officers
employment agreements generally provide no benefit for
termination occurring as the result of Death or
Disability (as such terms are defined), except that
the named executive officer or his estate would be entitled to a
lump-sum payment for the value of unused vacation time and a
payment for the portion of the annual incentive benefit earned
by the executive before termination. However, because
termination is assumed for purposes of the table to have
occurred on December 31, 2010, there would be no
partial-year annual incentive benefit payable to the named
executive officers. Instead the annual incentive benefit payable
to each named executive officer had their employment terminated
on December 31, 2010 is the annual incentive benefit
included in the Summary Compensation Table. The table
likewise assumes that the executives would receive no benefit
for the value of unused vacation time, as vacation unused
vacation time cannot be carried over from one year to the next.
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(4) |
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Unvested, unexercisable stock
options granted under the 1999 Stock Option Plan become fully
vested and exercisable when a merger or asset sale occurs,
unless the acquiring entity assumes the obligations of the
outstanding options. Of the named executive officers,
Mr. Gulas is the only one who held unvested stock options
on December 31, 2010. On July 22, 2008, Mr. Gulas
was granted options to acquire 5,000 common shares, which vest
in five equal installments on the first five anniversaries of
the award grant date. Accordingly, options to acquire
2,000 shares were vested and exercisable as of
December 31, 2010 and options to acquire the remaining
3,000 shares were unvested and unexercisable on that date.
The exercise price of the options held by Mr. Gulas is
$6.55. As reported on the
Over-The-Counter
Bulletin Board (the OTCBB), the per share
closing price of the Companys common shares on
December 31, 2010
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30
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was $3.62. Consequently, the per
share exercise price of the options held by Mr. Gulas was
approximately 181% of the per share market price of the common
shares on December 31, 2010 and, therefore, the table
reflects no value for the accelerated stock option vesting that
would have occurred because of a hypothetical December 31,
2010 change in control.
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(5) |
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In addition to the amounts
provided, Mr. Paden is also entitled to a retirement
benefit under his Deferred Compensation Agreement, which is
described in the section titled EXECUTIVE COMPENSATION
AND OTHER INFORMATION Executive Deferred
Compensation Arrangement with Mr. Paden beginning
on page 27 of this proxy statement. For voluntary
termination by Mr. Paden for any reason or involuntary
termination of Mr. Paden by Famers Bank without
Cause (as such term is defined in the Deferred
Compensation Agreement) before Mr. Paden attains
age 65, Mr. Padens annual benefit would be
payable monthly beginning seven months after termination and
would continue for 17 years, but the $11,160 annual benefit
amount would be reduced by one-seventeenth for each year between
the November 1 after termination to the November 1 after
attaining age 65. In the event that Mr. Padens
employment is terminated on December 31, 2010, his annual
benefit payable for 17 years would have therefore been
$7,878. In addition, in the event that Mr. Padens
employment terminated on December 31, 2010 because of
disability, his annual benefit under the Deferred Compensation
Agreement would have been $11,160 multiplied by a fraction equal
to (1) Mr. Padens total years of service divided
by (2) the total number of years from the date
Mr. Paden was hired to the date he attains age 65. The
disability benefit would likewise be payable monthly for
17 years, beginning in the month after termination.
Mr. Padens service with Famers Bank began in 1974,
when he was age 23. Consequently, in the event
Mr. Paden terminated because of disability on
December 31, 2010, he would have served for 36 years,
with a total of 42 years from the date service began to the
date when he would attain age 65, resulting in an annual
benefit of approximately 86% of the full $11,160 annual benefit,
or approximately $9,598. In the event that Mr. Paden is
terminated by Farmers Bank for Cause, he is not
entitled to any benefit under his Deferred Compensation
Agreement.
|
Director
Compensation
The following table sets forth compensation information on each
of the non-employee directors of the Company. Directors who are
also employees of the Company receive no additional compensation
for their services as a director.
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Fees Earned
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or Paid in
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Name
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Cash
($)(1)
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Total ($)
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Benjamin R. Brown
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$
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24,000
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|
$
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24,000
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Lance J. Ciroli
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$
|
6,000
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$
|
6,000
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Anne Fredrick Crawford
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|
$
|
28,500
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|
$
|
28,500
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James R. Fisher
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|
$
|
20,500
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|
|
$
|
19,000
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Joseph D. Lane
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$
|
25,000
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|
|
$
|
25,000
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Ralph D. Macali
|
|
$
|
26,000
|
|
|
$
|
26,000
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|
David Z. Paull
|
|
$
|
0
|
|
|
$
|
0
|
|
Earl R. Scott
|
|
$
|
31,000
|
|
|
$
|
28,000
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|
Ronald V. Wertz
|
|
$
|
28,000
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|
|
$
|
28,000
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|
|
|
|
(1) |
|
Directors received a monthly
retainer of $1,000 for serving on the Companys Board of
Directors and receive a $500 fee for each committee meeting
attended. For Messrs. Fisher and Scott, amount also
includes fees earned for services as a director of Farmers
Trust Company, which totaled $1,500 and $3,000,
respectively.
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31
REPORT OF
THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Management is responsible for the Companys internal
controls and the financial reporting process. The independent
registered public accounting firm is responsible for performing
an independent audit of the Companys consolidated
financial statements in accordance with auditing standards
generally accepted in the United States and to issue a report
thereon. The Audit Committees responsibility is to monitor
and oversee these processes, and the Committee Chair, as
representative of the Committee, discusses the interim financial
information contained in quarterly earnings announcements with
both management and the independent registered public accounting
firm prior to public release. The Audit Committee also
recommends to the Board of Directors the selection of the
Companys independent registered public accounting firm and
must pre-approve all services provided.
NASDAQ rules require each member of the Audit Committee to be
able to read and understand financial statements. The Company
believes that each member of the Audit Committee as constituted
satisfies this requirement. Members of the Audit Committee rely
without independent verification on the information provided to
them and on the representations made by management and the
independent registered public accounting firm, although each
member of the Audit Committee has the authority to engage and
determine funding for independent advisors as deemed necessary.
Furthermore, the Audit Committees considerations and
discussions referred to above do not assure that the audit of
the Companys financial statements has been carried out in
accordance with generally accepted auditing standards, that the
financial statements are presented in accordance with generally
accepted accounting principles or that the Companys
independent registered public accounting firm is in fact
independent.
In this context, the Audit Committee met and held discussions
with management of the Company, who represented to the Audit
Committee that the Companys consolidated financial
statements were prepared in accordance with accounting
principles generally accepted in the United States. The Audit
Committee reviewed and discussed the consolidated financial
statements with both management and the Companys
independent registered public accounting firm for the year ended
December 31, 2010, Crowe Horwath LLP (Crowe
Horwath). The Audit Committee also discussed with Crowe
Horwath matters required to be discussed by Statement on
Auditing Standards No. 61 (Communication with Audit
Committees), as amended by SAS No. 90 (Audit Committee
Communications). Crowe Horwath provided to the Audit Committee
written disclosures pursuant to Rule 3526 of the Public
Company Oversight Board (Communications with Audit Committees
Concerning Independence). The Audit Committee has discussed with
Crowe Horwath any relationships with or services to the Company
or its subsidiaries that may impact the objectivity and
independence of Crowe Horwath, and the Audit Committee has
satisfied itself as to Crowe Horwaths independence.
Based upon the Audit Committees discussion with management
and Crowe Horwath, and the Committees review of the
representation of management and the report of Crowe Horwath to
the Audit Committee, the Audit Committee recommended to the
Board of Directors that the audited consolidated financial
statements for the year ended December 31, 2010 be included
in the Companys Annual Report on
Form 10-K
filed with the Commission. The Audit Committee also recommended
that Crowe Horwath be retained as the Companys independent
registered public accounting firm for the 2011 fiscal year.
The Audit Committee:
Earl R. Scott, Chair
Ralph D. Macali
David Z. Paull
32
PROPOSAL TWO
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board of Directors has selected Crowe
Horwath to act as the independent registered public accounting
firm to examine the books, records and accounts of the Company
and its subsidiaries for the fiscal year ending
December 31, 2011. This appointment is being presented to
shareholders for ratification or rejection at the Annual Meeting.
Crowe Horwath was the independent registered public accounting
firm of the Company for the fiscal year ended December 31,
2010, and is considered by the Audit Committee and the Board of
Directors to be well qualified. By NASDAQ and Commission rules
and regulations, selection of the Companys independent
registered public accounting firm is the direct responsibility
of the Audit Committee. The Board of Directors has determined,
however, to seek shareholder ratification of this selection as
both a good corporate practice and to provide shareholders an
avenue to express their views on this important matter.
The proposal to ratify the appointment of the Companys
independent registered public accounting firm requires the
affirmative vote of the holders of a majority of the common
shares present, represented and entitled to vote at the Annual
Meeting. Shareholders may vote FOR,
AGAINST or ABSTAIN from
voting on Proposal Two. Broker non-votes will not be
counted for the purpose of determining whether Proposal Two
has been approved. Abstentions will be counted as present and
entitled to vote for purposes of Proposal Two and thus,
will have the same effect as a vote against Proposal Two.
If shareholders fail to ratify the appointment, the Audit
Committee will seek to understand the reasons for such failure
and will take those views into account in this and future
appointments of the Companys independent registered public
accounting firm. Even if the current selection is ratified by
shareholders, the Audit Committee reserves the right to
terminate the engagement of Crowe Horwath and appoint a
different independent accounting firm at any time during the
year if the Audit Committee determines that such change would be
in the best interests of the Company and its shareholders.
Representatives of Crowe Horwath will be present at the Annual
Meeting to make a statement if they desire to do so and will be
available to respond to appropriate questions.
THE AUDIT COMMITTEE AND THE BOARD OF DIRECTORS EACH RECOMMEND
A VOTE FOR RATIFICATION OF THE SELECTION OF CROWE
HORWATH LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
OF THE COMPANY FOR THE CURRENT YEAR.
Independent
Registered Public Accounting Firm Fees
Fees for professional services rendered by Crowe Horwath for
fiscal 2010 and 2009 were as follows:
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|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Audit Fees
|
|
$
|
212,500
|
|
|
$
|
205,000
|
|
Audit-Related Fees
|
|
$
|
120,770
|
|
|
$
|
26,881
|
|
Tax Fees
|
|
$
|
25,400
|
|
|
$
|
13,300
|
|
All Other Fees
|
|
$
|
0
|
|
|
$
|
0
|
|
Audit Fees consist of fees billed in the last two fiscal
years for the audit of the Companys annual financial
statements, the review of financial statements included in the
Companys quarterly reports on
Form 10-Q,
statutory and subsidiary audits and services provided in
connection with regulatory filings during those two years.
Audit-Related Fees consist of fees billed in the last two
fiscal years for accounting consultations and assurance services
reasonably related to the audit and review of the Companys
financial statements and the audit of the Companys 401(k)
plan. The fees billed in 2010 also include services related to
performing accounting due diligence and providing required
consents and comfort letters in connection with a shareholder
rights offering during the fiscal year.
Tax Fees represent fees for professional services for tax
compliance, tax advice and tax planning.
33
The Audit Committee has considered whether the provision of
non-audit services is compatible with maintaining the
independence of Crowe Horwath and has concluded that it is.
Pre-Approval
of Fees
Under applicable Commission rules, the Audit Committee
pre-approves the audit and non-audit services performed by the
independent registered public accounting firm to assure that the
provision of the services does not impair the firms
independence. Unless a type of service to be provided by the
independent registered public accounting firm has received
general pre-approval, it requires specific pre-approval by the
Committee. In addition, any proposed services exceeding
pre-approved cost levels require specific Audit Committee
pre-approval. The Audit Committee also reviews, generally on a
quarterly basis, reports summarizing the services provided by
the independent registered public accounting firm. All of the
services related to Audit-Related Fees or All Other
Fees described above were pre-approved by the Audit
Committee. The Audit Committees pre-approval policy is
contained in the Audit Committee Charter, a current copy of
which is available at www.farmersbankgroup.com.
PROPOSAL THREE
ADVISORY VOTE ON EXECUTIVE COMPENSATION
The recently enacted Dodd-Frank Act and corresponding Commission
rules enable the Companys shareholders to vote to approve,
on an advisory and non-binding basis, the compensation of the
Companys named executive officers as disclosed in this
proxy statement in accordance with Commission rules.
Accordingly, the following resolution will be submitted for
shareholder approval at the Annual Meeting:
RESOLVED, that the Companys shareholders approve, on an
advisory basis, the compensation of named executive officers, as
disclosed in the Companys proxy statement for the 2011
Annual Meeting of Shareholders pursuant to the compensation
disclosure rules of the Securities and Exchange Commission,
including the Compensation Discussion and Analysis, the 2010
Summary Compensation Table and the other related tables and
disclosure.
The Board of Directors believes that the Companys
compensation policies and procedures, which are reviewed and
approved by the Compensation Committee, are imperative to align
the compensation of the Companys named executive officers
with the Companys short-term goals and long-term success
and that such compensation and incentives are designed to
attract, retain and motivate the Companys key executives
who are directly responsible for the Companys continued
success. In addition, the Board of Directors believes that its
pay-for-performance
philosophy and incentive-based compensation opportunities are
designed to be competitive with the opportunities offered by
similarly situated financial institutions. This compensation
philosophy, and the programs and policies adopted and approved
by the Compensation Committee thereunder, has allowed the
Company to attract and retain talented financial services
executives necessary to successfully lead the Company during the
recent period of economic turbulence.
Shareholders are encouraged to carefully review the information
provided in this proxy statement regarding the compensation of
the Companys named executive officers in the section
captioned Compensation Discussion and Analysis
beginning on page 19 of this proxy statement.
The proposal to approve the resolution regarding the
compensation of the Companys named executive officers
requires the affirmative vote of the holders of a majority of
the common shares present, represented and entitled to vote at
the Annual Meeting. Shareholders may vote FOR,
AGAINST or ABSTAIN from
voting on Proposal Three. Broker non-votes will not be
counted for the purpose of determining whether
Proposal Three has been approved. Abstentions will be
counted as present and entitled to vote for purposes of
Proposal Three and, thus, will have the same effect as a
vote against Proposal Three. As this is an advisory vote,
the outcome of the vote is not binding on the Compensation
Committee or the Board of Directors with respect to future
executive compensation decisions, including those relating to
the Companys named executive officers, or otherwise.
However, the Compensation Committee and the Board of Directors
expect to take into account the outcome of the vote when
considering future executive compensation decisions.
THE BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
APPROVAL OF
THE ADVISORY VOTE ON EXECUTIVE COMPENSATION.
34
PROPOSAL FOUR
ADVISORY VOTE ON THE FREQUENCY OF AN ADVISORY VOTE ON EXECUTIVE
COMPENSATION
The Dodd-Frank Act and corresponding Commission rules also
enable the Companys shareholders to vote, on an advisory
and non-binding basis, on how frequently they would like to cast
an advisory vote on the compensation of the Companys named
executive officers. By voting on this proposal, shareholders may
indicate whether they would prefer an advisory vote on named
executive officer compensation once every one, two, or three
years. Accordingly, the following resolution is submitted for an
advisory shareholder vote at the Annual Meeting:
RESOLVED, that the Companys shareholders approve, on an
advisory basis, that the frequency with which they prefer to
have an advisory vote on executive compensation is:
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every three years;
|
|
|
|
every two years;
|
|
|
|
every year; or
|
|
|
|
abstain from voting.
|
After careful consideration, the Board of Directors has
determined that an advisory vote on executive compensation that
occurs every year is the most appropriate alternative for the
Company, and recommends that shareholder vote for a frequency of
1 Year for future advisory votes on
executive compensation. The Board of Directors believes that an
annual advisory vote will enable the Companys shareholders
to provide timely, direct input on the Companys executive
compensation program as disclosed in the proxy statement each
year, and is consistent with the Companys efforts to
engage in an ongoing dialogue with its shareholders.
The proposal to determine the frequency of holding an advisory
vote on the Companys executive compensation requires the
affirmative vote of the holders of a plurality of the common
shares present, represented and entitled to vote at the Annual
Meeting. Shareholders may vote for 1 Year,
2 Years, 3 Years, or
Abstain. Broker non-votes and proxies marked
Abstain will not be counted toward the
frequency of any specified time period and, thus, will have no
effect other than that they will be counted for establishing a
quorum. As this is an advisory vote, it is not binding on the
Compensation Committee or the Board of Directors and the Board
may decide that it is in the best interests of the Company and
its shareholders to hold an advisory vote more or less
frequently than the preference receiving the highest number of
votes. However, the Compensation Committee and the Board of
Directors expect to take into account the outcome of the vote
when considering the frequency of future advisory votes on
executive compensation.
THE BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR A FREQUENCY
OF 1 YEAR ON THE ADVISORY VOTE ON THE FREQUENCY OF
AN
ADVISORY VOTE ON EXECUTIVE COMPENSATION.
35
PROPOSAL FIVE
APPROVAL OF AMENDMENT TO ARTICLE XIII OF THE
ARTICLES OF INCORPORATION, AS AMENDED
General
On February 8, 2011, the Board of Directors adopted resolutions
declaring it advisable and in the best interests of the Company
and its shareholders that Article XIII be amended in order
to eliminate preemptive rights, and unanimously proposing and
recommending to the Companys shareholders that the
proposed amendment be adopted.
Description
of Preemptive Rights and Purpose of the Proposed
Amendment
The Board of Directors is recommending that shareholders vote
FOR the adoption of the proposed amendment
because the Board believes that eliminating preemptive rights
will enable the Company to raise capital more efficiently and
with fewer costs. At the same time, the Board of Directors
believes that the historical protection that preemptive rights
offered to shareholders is no longer critical to protect the
shareholders of a public company, such as the Company, against
dilution of their voting power.
Under Article XIII, as currently in effect, the holders of
common shares have the preemptive right, upon the offering or
sale of any common shares for cash, to purchase such shares in
proportion to their respective holdings at the price fixed for
the sale of the shares, with limited exemptions. However,
holders of the Companys common shares do not have
preemptive rights with respect to common shares that are offered
or sold that are:
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treasury shares,
|
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|
issued as a share dividend,
|
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|
|
for consideration other than money,
|
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|
|
issued upon exercise of stock options,
|
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|
|
issued upon the conversion of convertible shares,
|
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|
|
issued as satisfaction of pre-emptive rights, or
|
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|
|
released from pre-emptive rights.
|
In addition, no pre-emptive rights are provided if shares are
issued in exchange for the outstanding securities of another
corporation or if securities are issued pursuant to the terms of
a dividend reinvestment plan.
The Board of Directors believes it is important to maintain
maximum flexibility to raise capital from appropriate sources.
The primary effect of current Article XIII is to restrict
the Companys ability to utilize the most effective means
to raise equity capital in a timely and efficient manner. During
January 2011, the Company conducted a rights offering in order
to satisfy the shareholders pre-emptive rights, with a
subsequent public re-offer of the shares not purchased by
current shareholders along with a sale of treasury shares to
certain standby investors, which are excepted from pre-emptive
rights. As of February 28, 2011, the Company has no
remaining treasury shares with which to conduct a capital raise
that would be excepted from satisfaction of shareholders
preemptive rights.
The elimination of preemptive rights will give the Company
greater flexibility in raising additional capital if necessary
and an enhanced ability to negotiate the most favorable terms in
light of then prevailing circumstances and market conditions.
The Companys Board of Directors must approve the terms and
conditions under which any common shares are sold by the
Company. However, as demonstrate by the Companys recent
rights offering, it can be time consuming to notify each
shareholder of the shareholders preemptive rights, and
that process can cause delays, increase the costs of raising
capital and negatively impact pricing of capital to be issued.
Similarly, there would be costs and delays associated with
holding a meeting of the shareholders for the purpose of
releasing preemptive rights in respect of a proposed share
issuance. Given the size of the Companys shareholder base
and the fact that its common shares are publicly traded, the
Board of Directors believes that having pre-emptive rights in
the Articles prevents the Company from taking full advantage of
the public trading markets and restricts the Companys
ability to raise capital in an efficient manner.
36
The original purpose of preemptive rights was to prevent a
corporation or a majority of shareholders of the corporation
from diluting a minority shareholders interest. Although
these rights may be beneficial in the context of a smaller,
privately-held, companies, they present a cumbersome restriction
on the ability of a public company to issue and sell shares for
appropriate corporate purposes. Moreover, unlike a minority
shareholder in a private company, a shareholder of a public
company can prevent dilution of the shareholders voting
power simply by purchasing more shares on the open market.
Preemptive rights were originally developed in the United States
during the 19th century. However, during the
20th century, most public companies abandoned these rights.
In fact, in 2000, Section 1701.15 of the Ohio General
Corporation Law was amended to provide that shareholders of an
Ohio corporation do not have pre-emptive rights unless such
rights are expressly granted in the companys articles of
incorporation. However, Ohio corporations formed prior to
March 16, 2000, such as the Company, would continue to have
pre-emptive rights, unless the shareholders amend (or had
previously amended) the articles of incorporation to eliminate
preemptive rights.
Few public companies which have a shareholder base the size of
Companys still provide preemptive rights to their
shareholders. The Board of Directors has been advised that
preemptive rights are rare among similarly-sized public
companies because the related loss of flexibility in raising
capital is widely recognized as undesirable. In order to obtain
capital on the most advantageous terms, it is important for the
Company to have a wide variety of financing alternatives. By
eliminating the pre-emptive rights provisions from the Articles,
the Board believes that the Company will be strengthened by an
enhanced ability to negotiate favorable financing terms at
potentially critical times in light of the then prevailing
circumstances and market conditions. Consequently, the Board has
determined that it would be in the best interests of the Company
and its shareholders to eliminate these preemptive rights, and
the Board adopted, subject to shareholders approval, an
amendment to the Articles as set forth under Proposal Five
to amend Article XIII to eliminate pre-emptive rights.
Failure by the shareholders to approve the proposed amendment
will prevent the Company from accessing the most cost-effective
source of equity capital and will diminish the Companys
ability to timely and efficiently respond to changing economic
and financial conditions.
Proposal
It is proposed that Article XIII of the Articles be amended
to eliminate pre-emptive rights. If the proposal is approved by
shareholders, new Article XIII would read in its entirety
as follows:
ARTICLE XIII:
Except as may be specifically designated by the Board of
Directors pursuant to Article IV, no holder of shares of the
corporation of any class, as such, shall have the pre-emptive
right to subscribe for or to purchase any shares of any class of
the corporation or any other securities of the corporation,
including any warrant, right or option to any share or other
security, whether such share or security of such class are now
or hereafter authorized.
Vote
Required
The proposal to amend Article XIII of the Articles requires
the affirmative vote of the holders of common shares entitled to
exercise at least two-thirds of the voting power of the Company.
Shareholders may vote For, Against,
or Abstain from voting on
Proposal Five. Abstentions and broker non-votes will have
the same effect as votes against Proposal Five.
THE BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF THE
COMPANY VOTE FOR ADOPTION OF THE AMENDMENT TO
ARTICLE XIII OF THE ARTICLES TO ELIMINATE PREEMPTIVE
RIGHTS AND APPROVAL OF PROPOSAL FIVE.
37
PROPOSAL SIX
APPROVAL OF AMENDMENT TO ARTICLE II, SECTION 6 OF THE
AMENDED CODE OF REGULATIONS
General
The Board recommends that Article II, Section 6 of the
Regulations be amended to conform to the minimum standard for
compliance with NASDAQ listing requirements.
Currently, the Regulations provides that the shareholders
present in person or by proxy at any meeting for the
determination of the number of directors or the election of
directors, or for the consideration or action upon reports
required to be laid before such meeting, constitutes a quorum.
At any meeting called for any other purpose, however, the
holders of shares entitling them to exercise a majority of the
voting power of the Company, present in person or represented by
proxy, shall constitute a quorum. NASDAQ listing requirements
provide that the quorum requirement for a shareholder meeting be
not less than one third of the outstanding shares of the
applicable companys common voting shares. The Regulations
currently provide a quorum requirement for shareholder meetings,
under certain circumstances, that is less than the minimum
standard required by the NASDAQ. Consequently, on February 8,
2011, the Board of Directors adopted, subject to
shareholders approval, an amendment to Article II,
Section 6 of the Regulations to provide that a quorum for
purposes of shareholder meetings shall consist of not less than
one-third of the common shares entitled to vote at the meeting.
The common shares are currently quoted on the OTCBB under the
symbol FMNB.OB. Due to the continued growth of
Farmers Bank, it is the opinion of the Board of Directors that
the best interests of its shareholders will be served by seeking
to list the common shares on the NASDAQ. A listing on the NASDAQ
will provide the opportunity for increased trading volume in the
common shares and increased institutional and market analyst
coverage.
The Company previously sought to list the common shares on the
NASDAQ by requesting a waiver of the minimum quorum provision in
the NASDAQ listing requirements. The NASDAQ refused to waive the
minimum quorum requirements, so the Company did not pursue
listing of the common shares on the NASDAQ at that time.
Accordingly, failure by the shareholders to approve the proposed
amendment set forth in Proposal Six will prevent the
Company from listing the common shares on the NASDAQ.
Proposal
It is proposed that that Article II, Section 6 of the
Regulations be amended to provide that for purposes of
shareholder meetings a quorum shall consist of not less than
one-third of the common shares entitled to vote at the meeting.
If the proposal is approved by shareholders, new
Article II, Section 6 of the Regulations would read in
its entirety as follows:
Section 6. QUORUM.
The shareholders present in person, by proxy, or by the use of
communications equipment representing not less than one third of
the outstanding voting stock shall constitute a quorum for such
meeting, except when a greater proportion is required by law or
the Articles of Incorporation.
At any meeting at which a quorum is present, all questions and
business which shall come before the meeting shall be determined
by the vote of the holders of a majority of such voting shares
as are represented in person or by proxy, except when a greater
proportion is required by law or the Articles of Incorporation.
The holders of a majority of the voting shares represented at
any meeting, whether or not a quorum is present, may adjourn
such meeting from time to time and from place to place without
notice other than by announcement at the meeting, except when a
greater proportion is required by law or the Articles of
Incorporation.
38
Vote
Required
The proposal to amend Article II, Section 6, of the
Regulations requires the affirmative vote of the holders of a
majority of the voting power of the Company. Shareholders may
vote FOR, AGAINST, or
ABSTAIN from voting on Proposal Six.
Abstentions and broker non-votes will have the same effect as
votes against Proposal Six.
THE BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
APPROVAL OF PROPOSAL SIX.
INCORPORATION
BY REFERENCE
The Audit Committee Report and the Compensation Committee Report
in this proxy statement are not deemed filed with the Commission
and shall not be deemed incorporated by reference into any prior
or future filings made by the Company under the Securities Act
of 1933, as amended, or the Exchange Act, except to the extent
that the Company specifically incorporates such information by
reference.
Frank L. Paden
Secretary
Canfield, Ohio
March 22, 2011
39
REVOCABLE PROXY Farmers National Banc Corp. ANNUAL MEETING OF SHAREHOLDERS April 28, 2011 THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints JOHN S.
GULAS, CARL D. CULP AND FRANK L. PADEN, and each of them, proxies with full power of substitution
to vote on behalf of the shareholders of Farmers National Banc Corp. on Thursday, April 28, 2011,
at 3:30 p.m., Eastern Time, and any adjournment(s) and postponement(s) thereof, with all powers
that the undersigned would possess if personally present, with respect to the proposal(s) set forth
on the reverse side hereof. The affirmative vote of a majority of the shares represented at the
meeting may authorize the adjournment of the meeting; provided, however, that no proxy which is
voted against a proposal will be voted in favor of adjournment to solicit further proxies for such
proposal. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED. IF THIS
PROXY IS SIGNED AND RETURNED AND DOES NOT SPECIFY A VOTE ON ANY PROPOSAL, THE PROXY WILL BE VOTED
FOR THE ELECTION OF EACH OF THE DIRECTOR NOMINEES, FOR THE APPROVAL OF PROPOSALS TWO, THREE,
FIVE AND SIX AND FOR 1 YEAR ON PROPOSAL FOUR. THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO
OTHER MATTERS THAT PROPERLY COME BEFORE THE MEETING. PLEASE COMPLETE, DATE, SIGN, AND MAIL THIS
PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE OR PROVIDE YOUR INSTRUCTIONS TO VOTE VIA
THE INTERNET OR BY TELEPHONE. (Continued, and to be marked, dated and signed, on the other side)
FOLD AND DETACH HERE FARMERS NATIONAL BANC CORP. ANNUAL MEETING, APRIL 28, 2011 YOUR VOTE IS
IMPORTANT! IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER
MEETING TO BE HELD ON APRIL 28, 2011 The proxy statement, Form 10-K for the year ended December 31,
2010 and the 2010 Annual Report to Shareholders are available at http://www.farmersbankgroup.com.
You can vote in one of three ways: 1. Call toll free 1-866-849-9670 on a Touch-Tone Phone. There is
NO CHARGE to you for this call. or 2. Via the Internet at https://www.proxyvotenow.com/fmnb.ob and
follow the instructions. or 3. Mark, sign and date your proxy card and return it promptly in the
enclosed envelope. PLEASE SEE REVERSE SIDE FOR VOTING INSTRUCTIONS 6896 |
REVOCABLE PROXY PLEASE MARK VOTES Farmers National Banc Corp. Annual Meeting of Shareholders X
AS IN THIS EXAMPLE With- For All 2. To ratify the appointment of Crowe Horwath LLP as the For
Against Abstain For hold Except 1. The election of three Class I Directors Companys independent
registered public accounting firm for the year ending December 31, 2011. For Against Abstain
Nominees: 3. To approve the advisory proposal regarding the Companys executive compensation. (01)
Gregory C. Bestic (02) John S. Gulas 1 Year 2 Years 3 Years Abstain (03) Ronald V. Wertz 4. To
recommend the frequency of a vote on executive compensation. INSTRUCTION: To withhold authority to
vote for any nominee(s), mark For All Except For Against Abstain 5. To consider and vote upon a
proposal to amend Article and write that nominee(s) name(s) or number(s) in the space provided
below. XIII of the Companys Articles of Incorporation, as amended, to eliminate pre-emptive
rights. 6. To consider and vote upon a proposal to amend Article II, For Against Abstain Section 6,
of the Companys Amended Code of Regulations, to provide that a quorum for purposes of a
shareholder meeting consists of not less than one-third of the Companys common shares entitled to
vote at a meeting. 7. Such other business which is properly brought before said meeting and any
adjournments thereof. The Board of Directors Recommends a Vote FOR All Nominees and FOR Proposals
2, 3, 5 and 6 and 1 YEAR for Proposal 4. The undersigned acknowledges receipt from the Company
prior to the execution of this proxy of the Notice of Meeting and a proxy statement. Please be sure
to date and sign Date this proxy card in the box below. Sign above Co-holder (if any) sign above IF
YOU WISH TO PROVIDE YOUR INSTRUCTIONS TO VOTE BY TELEPHONE OR INTERNET, PLEASE READ THE
INSTRUCTIONS BELOW. FOLD AND DETACH HERE IF YOU ARE VOTING BY MAIL PROXY VOTING INSTRUCTIONS S
Shareholders of record have three ways to vote: 1. By Mail; or 2. By Telephone (using a Touch-Tone
Phone); or 3. By Internet. A telephone or Internet vote authorizes the named proxies to vote your
shares in the same manner as if you marked, signed, dated and returned this proxy. Please note
telephone and Internet votes must be cast prior to 3 a.m., April 28, 2011. It is not necessary to
return this proxy if you vote by telephone or Internet. Vote by Internet Vote by Telephone anytime
prior to Call Toll-Free on a Touch-Tone Phone anytime prior to 3 a.m., April 28, 2011 go to 3 a.m.,
April 28, 2011 https://www.proxyvotenow.com/fmnb.ob 1-866-849-9670 Please note that the last vote
received, whether by telephone, Internet or by mail, will be the vote counted. ON-LINE ANNUAL
MEETING MATERIALS: http://www.farmersbankgroup.com Your vote is important! |