Item 1.01 Entry into a Material Definitive Agreement.
On June 22, 2021, Cortland Bancorp (the "Company"), Farmers National Banc Corp.
(the "Farmers National"), and FMNB Merger Subsidiary IV, LLC, a wholly-owned
subsidiary of the Company ("Merger Sub"), entered into an Agreement and Plan of
Merger (the "Merger Agreement"), pursuant to which the Company will merge with
and into Merger Sub (the "Merger"), with Merger Sub as the surviving entity in
the Merger. Promptly following the consummation of the Merger, it is expected
that Merger Sub will be dissolved and liquidated and The Cortland Savings and
Banking Company, the banking subsidiary of the Company ("Cortland Bank") will
merge with and into The Farmers National Bank of Canfield, the national banking
subsidiary of Farmers National ("Farmers Bank") (the "Bank Merger"). Farmers
Bank will be the surviving bank in the Bank Merger (the "Surviving Bank").
Pursuant to the terms of the Merger Agreement, at the effective time of the
Merger (the "Effective Time"), each common share, without par value, of the
Company ("Cortland Common Shares") issued and outstanding immediately prior to
the Effective Time (except for certain Cortland Common Shares held directly by
the Company or Farmers National and Cortland Common Shares held by shareholders
of the Company dissenting from the Merger (collectively, the "Excluded Cortland
Common Shares")) will be converted into the right to receive, without interest,
$28.00 in cash (the "Cash Consideration") or 1.75 common shares, without par
value, of Farmers National ("Farmers National Common Shares") (the "Stock
Consideration" and with the Cash Consideration, collectively, the "Merger
Consideration"), provided, however, that the Merger Consideration is subject to
the provisions of the Merger Agreement limiting the total Farmers National
Common Shares to be provided for converted Cortland Common Shares to the product
of 0.75 and the number of Cortland Common Shares outstanding immediately prior
to the Effective Time, excluding the Excluded Cortland Common Shares. All other
Cortland Common Shares eligible to receive the Cash Consideration shall be
converted into the Cash Consideration. Additionally (i) in the event that the
Effective Time Book Value (as defined in, and calculated pursuant to, the Merger
Agreement) of the Company falls below a specified threshold in the Merger
Agreement at the Effective Time (the dollar amount of such shortfall, the
"Shortfall"), the Cash Consideration payable with respect to each Cortland
Common Share will be reduced by a per share amount determined by dividing the
dollar amount of the Shortfall by the number of Cortland Common Shares
outstanding immediately prior to the Effective Time that are eligible to receive
the Cash Consideration; (ii) in the event that the Effective Time Book Value of
the Company exceeds a specified threshold in the Merger Agreement at the
Effective Time (the dollar amount of such excess, the "Excess Amount"), the Cash
Consideration payable with respect to each Cortland Common Share will be
increased by a per share amount determined by dividing the dollar amount of the
Excess Amount by the number of Cortland Common Shares outstanding immediately
prior to the Effective Time that are eligible to receive the Cash Consideration.
No fractional Farmers National Common Shares will be issued in the Merger, and
the Company's shareholders will be entitled to receive cash in lieu of such
fractional Farmers National Common Shares. At the Effective Time, each
outstanding restricted Cortland Common Share underlying a restricted stock award
granted pursuant to the Company's 2015 Omnibus Equity Plan will vest in full and
be converted automatically into the right to receive the Merger Consideration.
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The Merger Agreement provides that Farmers National has agreed to employ,
immediately after the Effective Time, (i) James M. Gasior, the current President
and Chief Executive Officer and a director of the Company and Cortland Bank, as
the Senior Executive Vice President, Corporate Development Officer of Farmers
National and the Surviving Bank, and (ii) Timothy Carney, the current Executive
Vice President, Chief Operating Officer and Corporate Secretary of the Company
and Cortland Bank, as the Senior Executive Vice President, Chief Banking Officer
of Farmers National and the Surviving Bank, in each case, on the terms and
conditions set forth in the respective term sheets that are included as Exhibit
B to the Merger Agreement.
In addition, the Merger Agreement provides that the Company shall take such
action necessary to, effective no later than promptly following the Effective
Time, increase the number of directors of the Company's board of directors by
two and, promptly following the Effective Time, appoint one person who serves as
a director of Bancorp immediately prior to the Effective Time as a Class III
director of the Company, with a term expiring at the 2022 annual meeting of the
Company's shareholders, and appoint one person who serves as a director of
Bancorp immediately prior to the Effective Time as a Class I director of the
Company, with a term expiring at the 2023 annual meeting of the Company's
shareholders.
The Merger Agreement contains customary (a) representations and warranties of
the Company, Farmers National and Merger Sub, including, among others, with
respect to corporate organization, capitalization, corporate authority, third
party and governmental consents and approvals, financial statements and
compliance with applicable laws, (b) covenants of the Company and Farmers
National to conduct their respective businesses in the ordinary course until the
Effective Time and (c) covenants of the Company and Farmers National not to take
certain actions prior to the Effective Time. The Company also has agreed that
neither it nor its representatives will (i) solicit proposals relating to
alternative business combination transactions or, (ii) subject to certain
exceptions, enter into discussions concerning, or furnish information in
connection with, any proposals for alternative business combination
transactions, or approve, endorse or recommend, or take other actions relating
to, an alternative business combination transaction.
Consummation of the Merger is subject to certain conditions, including, among
others: (a) the approval of the Merger by the shareholders of the Company; (b)
the approval for listing on The NASDAQ Stock Market, subject to official notice
of issuance, of the Farmers National Common Shares to be issued in the Merger;
(c) the effectiveness of the Registration Statement on Form S-4 to be filed by
Farmers National with the Securities and Exchange Commission (the "SEC") to
register the Farmers National Common Shares to be issued to the shareholders of
the Company in the Merger; (d) the absence of any injunctions or other legal
restraints preventing or rendering illegal the transactions contemplated by the
Merger Agreement; (e) the receipt of regulatory and other governmental approvals
required to consummate the Merger and the Bank Merger and the expiration of
applicable waiting periods; (f) the accuracy of specified representations and
warranties of each party; (g) the receipt by each party of an opinion from its
legal counsel to the effect that the Merger will qualify as a "reorganization"
for U.S. federal income tax purposes; and (h) the agreement of Mr. Gasior to
serve as Senior Executive Vice President, Corporate Development Officer of
Farmers National and of Mr. Carney to serve as Senior Executive Vice President,
Chief Banking Officer of Farmers National, in each case, as of immediately
following the Effective Time. Subject to these conditions and the other
conditions set forth in the Merger Agreement, the Merger is expected to close in
the fourth quarter of 2021.
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The Merger Agreement contains certain termination rights for each of the Company
and Farmers National, as the case may be, applicable upon the occurrence or
non-occurrence of certain events, including: (a) the mutual written consent of
Farmers National and the Company authorized by the boards of directors of
Farmers National and the Company; (b) a final, non-appealable denial of required
regulatory approvals; (c) the Merger has not been completed on or before June
22, 2022 (the first anniversary of the date of the Merger Agreement); (d) a
breach by the other party that is not or cannot be cured within 30 days if such
breach would result in a failure of the conditions to closing set forth in the
Merger Agreement; (e) the failure of the board of directors of the Company to
recommend the Merger to its shareholders or a change in the recommendation by
the board of directors of the Company; (f) a material breach of certain of
Farmers National's covenants; (g) the recommendation by the board of directors
of the Company to the Company's shareholders to tender (or the failure to
recommend rejection of a tender or exchange offer) Cortland Common Shares in
certain tender or exchange offers; or (h) the failure of the shareholders of the
Company to approve the Merger by the requisite vote. If the Merger Agreement is
terminated under certain conditions, the Company has agreed to pay to Farmers
National a termination fee of $5,000,000.00.
In connection with the execution of the Merger Agreement, the directors and
certain executive officers of the Company have entered into substantially
identical voting agreements with Farmers National pursuant to which such
directors and executive officers have agreed, among other things, to vote their
. . .
Item 5.02 Departures of Directors or Certain Officers; Election of
Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain
Officers.
Revision of Severance Arrangements with Officers of the Company
On June 22, 2021, the Company and Cortland Bank entered into Settlement
Agreements with Mr. Gasior and Mr. Carney (the "Settlement Agreements"),
effective immediately prior to the Effective Time, that amend the Severance
Agreements between the Company and Cortland Bank and each of Mr. Gasior and Mr.
Carney dated as of November 24, 2015 (the "Prior Agreements"). The Settlement
Agreements provide for reduced change-in-control payments to Mr. Gasior and Mr.
Carney (each, a "Settlement Award") to avoid the negative tax consequences
associated with such change-in-control payments. The Settlement Agreements also
relieve the Company from making certain "gross-up" payments to Messrs. Gasior
and Carney to reimburse Messrs. Gasior and Carney for applicable excise taxes
under Internal Revenue Code sections 280G and 4999.
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Cortland Bank will exercise commercially reasonable efforts to pay the
Settlement Awards on the business day immediately preceding the closing date of
the Merger. In any event, the payment of the Settlement Award, and each
executive's right to receive the Settlement Award, is conditioned on the
executive's execution and delivery to the Company and Cortland Bank of a general
release on the closing date of the Merger. In the event that the Merger
Agreement is terminated or otherwise cancelled, the Settlement Agreements will
be null and void, and the Prior Agreements will remain in full force and effect
in accordance with their respective terms. The Settlement Agreements are
included as Exhibit B to the Merger Agreement, which is filed as Exhibit 2.1
hereto and is incorporated herein by reference.
On June 23, 2021, the Company issued a press release announcing the execution of
the Merger Agreement. The full text of the press release issued in connection
with the announcement is attached as Exhibit 99.1 to this Current Report on Form
8-K. Pursuant to General Instruction B.2 of Current Report on Form 8-K, Exhibit
99.1 shall not be deemed to be "filed" for purposes of Section 18 of the
Exchange Act, or otherwise subject to the liability of that section.
Furthermore, the information in Exhibit 99.1 shall not be deemed to be
incorporated by reference into the filings of the Company under the Securities
Act, except as may be expressly set forth by specific reference in such filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit
Number Description
2.1 Agreement and Plan of Merger by and among Farmers National Banc Corp.,
Cortland Bancorp, and FMNB Merger Subsidiary IV, LLC, dated as of June
22, 2021*
99.1 Joint Press Release, dated June 23, 2021
104 Cover Page Interactive Data File (embedded within the Inline XBRL
document)
* Pursuant to Item 601(b)(2) of Regulation S-K, schedules and exhibits
have been omitted from this filing. The registrant agrees to furnish the
SEC on a supplemental basis a copy of any omitted schedule or exhibit.
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CORTLAND BANCORP 
