EXHIBIT 10.3
 

AMENDMENT TO THE CHANGE IN CONTROL AGREEMENT
BY AND BETWEEN TERRY B. OSBORNE, CITIZENS FINANCIAL SERVICES, INC.
AND FIRST CITIZENS NATIONAL BANK
 
WHEREAS, Terry B. Osborne entered into a change in control agreement with First
Citizens National Bank (the “Bank”) and Citizens Financial Service, Inc.(the
“Company”); and
 
WHEREAS, the Boards of Directors of the Bank and Company resolved to amend the
change in control agreement effective June 29, 2012 to reflect the Bank’s new
name.

NOW, THEREFORE, the change in control agreement is amended as follows:
 
Effective as of June 29, 2012, all references in the change in control agreement
to First Citizens National Bank shall be replaced with First Citizens Community
Bank.

IN WITNESS WHEREOF, this Amendment is executed by the parties to the change in
control agreement on June 19, 2012.
 

  FIRST CITIZENS NATIONAL BANK          
 
By:
/s/ R. Lowell Coolidge       R. Lowell Coolidge       Chairman of the Board of
Directors          

  CITIZENS FINANCIAL SERVICES, iNC.          
 
By:
/s/ R. Lowell Coolidge       R. Lowell Coolidge       Chairman of the Board of
Directors          

        EXECUTIVE  
 
By:
/s/ Terry B. Osborne       Terry B. Osborne       Executive          

      ATTEST:    
By: /s/ Gina Marie Boor
 
    By: Gina Marie Boor                      

 
 

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FORM OF
CHANGE IN CONTROL AGREEMENT
 
This AGREEMENT (“Agreement”) is hereby entered into as of January 19, 2010, by
and between FIRST CITIZENS NATIONAL BANK (the “Bank”), Terry B.
Osborne (“Executive”), and CITIZENS FINANCIAL SERVICES, INC. (the “Company”),
the holding company of the Bank, as guarantor.
 
WHEREAS, the Bank recognizes the importance of Executive to the Bank’s
operations and wishes to protect Executive’s position with the Bank in the event
of a change in control of the Bank or the Company for the period provided for in
this Agreement; and
 
WHEREAS, Executive and the Board of Directors of the Bank (the “Board of
Directors”) desire to enter into an agreement setting forth the terms and
conditions of payments due to Executive in the event of a Change in Control and
the related rights and obligations of each of the parties.
 
NOW, THEREFORE, in consideration of the promises and mutual covenants herein
contained, it is hereby agreed as follows:
 
1.  Term of Agreement.

The initial term of this Agreement shall commence on the Effective Date and
continue through January 19, 2013. This Agreement shall renew automatically on
January 19 of each year for successive terms of three years each, unless either
party notifies the other party at least 90 (ninety) days prior to such date of
such party’s determination not to renew this Agreement beyond the then existing
term. It is the intention of the parties that this Agreement be “Evergreen”
unless (i) either party gives written notice to the other party of his or its
intention not to renew this Agreement as provided above or (ii) this Agreement
is terminated by the Company for Cause or due to the Executive’s death,
termination of employment due to disability, or executive’s voluntary
termination of employment prior to a Change in Control. Each reference herein to
“the term of this Agreement” shall include the initial term and any renewal
term.

2.  Change in Control.
 
(a) If a Change in Control (as defined herein) shall occur and if, between the
Date of the Change in Control (as defined herein) and one (1) year after the
Date of Change in Control (as defined herein), there shall be:

(i) any involuntary termination of Executive’s employment (other than for death,
disability or Cause (as defined herein)); or

(ii) any failure by the acquiring person or entity to offer employment to
Executive as of the Date of Change in Control (as defined herein), in a position
having equivalent responsibilities, title, authority, except reporting
authority, compensation and benefits as Executive received immediately prior to
the Change in Control (as defined herein); or

(iii) any reduction in Executive’s title, responsibilities, except reporting
responsibilities, or authority, including such title, responsibilities or
authority as such may be increased from time to time during the term of this
Agreement; or

 
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(iv) the assignment to Executive of duties inconsistent with Executive’s office
on the date of the Change in Control or as the same may be increased from time
to time after the Change in Control; or

(v) any reassignment of Executive to a location greater than fifty (50) miles
from the location of Executive’s office on the date of the Change in Control; or

(vi) any reduction in Executive’s annual direct salary in effect on the date of
the Change in Control or as the same may be increased from time to time after
the Change in Control; or

(vii) any failure to provide Executive with benefits at least as favorable as
those enjoyed by Executive under any of Company or Bank’s retirement or pension,
life insurance plans, medical, health and accident, disability or other employee
benefit plans in which Executive participated at the time of the Change in
Control, or the taking of any action that would materially reduce any of such
benefits in effect at the time of the Change in Control, then at the option of
Executive, exercisable by Executive within sixty (60) days of the occurrence of
any of the foregoing events, Executive may resign from employment with Company
and Bank (or, if involuntarily terminated, give notice of intention to collect
benefits under this Agreement) by delivering a notice in writing (the “Notice of
Termination”) to Company and Bank and the provisions of Section 2(c) of this
Agreement shall apply.

(b) During the period of time between the execution of an agreement to effect a
Change in Control (as defined herein) and the Date of the Change in Control (as
defined herein), Executive’s employment may only be terminated for Cause (as
defined herein). If, during that period of time, Executive’s employment is
terminated for Cause (as defined herein), then all rights of Executive under
this Agreement shall cease as of the effective date of such termination. If,
during that period of time, Executive’s employment is terminated other than for
Cause (as defined herein), then Executive may give notice of intention to
collect benefits under this Agreement by delivering a notice in writing (“Notice
of Termination”) to Company and Bank and the provisions of Section 2(c) of this
Agreement shall apply.

(c) In the event that Executive delivers a Notice of Termination (as defined in
Section 2(a) of this Agreement) to Company and Bank, following the Change in
Control, Executive shall be entitled to receive a lump sum amount equal to one
time the Executive’s then current base salary.
 
In addition, for a period of eighteen (18) months from the date of termination
of employment, or until Executive secures substantially similar benefits through
other employment, whichever shall first occur, Executive shall receive a
continuation of health care insurance under the same terms and conditions the
Executive received coverage prior to his termination of employment. In addition
the Company shall continue for a period of eighteen (18) months from the date of
termination of employment, or until Executive secures substantially similar
benefits through other employment, whichever shall first occur Executive’s long
term disability coverage to the extent Executive remains eligible under the
Company’s long term disability plan. In the event of a break in service and
Executive becomes employed within eighteen (18) months of termination of
employment without his new employer offering substantially similar long term
disability coverage and Executive would be eligible for the Company’s long term
disability coverage but for not being an employee of the Company, the Company
shall pay Executive a dollar amount equal to the cost to the Executive of
obtaining such benefits in effect with respect to Executive during one (1) year
prior to his termination of employment, (or substantially similar benefits) for
the remainder of the one year period, not to exceed 125% of the cost to the
Company of providing long term disability coverage under its group long term
policy. If Company cannot provide such benefits under the terms of the plans or
contracts, Company shall pay to Executive, a dollar amount equal to the cost to
the Executive of obtaining such benefits (or substantially similar benefits),
not to exceed 125% of the cost to the Company of obtaining such benefits (or
substantially similar benefits). However, in the event the payment described
herein, when added to all other amounts or benefits provided to or on behalf of
the Executive in connection with his termination of employment, would result in
the imposition of an excise tax under Code Section 4999, such payments shall be
retroactively (if necessary) reduced to the extent necessary to avoid such
excise tax imposition. Upon written notice to Executive, together with
calculations of Company’s independent auditors, Executive shall remit to Company
the amount of the reduction, plus such interest, as may be necessary to avoid
the imposition of such excise tax. Notwithstanding the foregoing or any other
provision of this contract to the contrary, if any portion of the amount herein
payable to the Executive is determined to be non-deductible pursuant to the
regulations promulgated under Section 280G of the Internal Revenue Code of 1986,
as amended (the “Code”), the Company shall be required only to pay to Executive
the amount determined to be deductible under Section 280G.

 
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(d) The parties to this Agreement intend for the payments hereunder to satisfy
the short-term deferral exception under Section 409A of the Code or, in the case
of continued insurance coverage, not constitute deferred compensation (since
such amounts are not taxable to Executive). However, notwithstanding anything to
the contrary in this Agreement, to the extent payments do not meet the
short-term deferral exception of Section 409A of the Code and, in the event
Executive is a “Specified Employee” (as defined herein) no payment shall be made
to Executive under this Agreement prior to the first day of the seventh month
following the event of termination in excess of the “permitted amount” under
Section 409A of the Code. For these purposes the “permitted amount” shall be an
amount that does not exceed two times the lesser of: (A) the sum of Executive’s
annualized compensation based upon the annual rate of pay for services provided
to the Company for the calendar year preceding the year in which Executive has
an event of termination, or (B) the maximum amount that may be taken into
account under a tax-qualified plan pursuant to Section 401(a)(17) of the Code
for the calendar year in which occurs the Event of Termination. The payment of
the “permitted amount” shall be made within sixty (60) days of the occurrence of
the event of termination. Any payment in excess of the permitted amount shall be
made to Executive on the first day of the seventh month following the event of
termination. “Specified Employee” shall be interpreted to comply with Section
409A of the Code and shall mean a key employee within the meaning of Section
416(i) of the Code (without regard to Section 5 thereof), but an individual
shall be a “Specified Employee” only if the Company is a publicly-traded
institution or the subsidiary of a publicly-traded holding company.
 
3.  Definition of Cause.

For purposes of this Agreement, “Cause” shall mean: (i) the willful failure by
the Executive to substantially perform his duties hereunder (other than a
failure resulting from the Executive’s incapacity because of physical or mental
illness), after notice from the Company or Bank and a failure to cure such
violation within thirty (30) days of said notice; (ii) the willful engaging by
the Executive in misconduct injurious to the Company or Bank; (iii) the
dishonesty or gross negligence of the Executive in the performance of his
duties; (iv) the breach of Executive’s fiduciary duty involving personal profit;
(v) the material violation of any law, rule or regulation governing banks or
bank officers or any final cease and desist order issued by a bank regulatory
authority; (vi) conduct on the part of Executive which brings public discredit
to the Company or Bank; (vii) unlawful discrimination by the Executive,
including harassment against Company or Bank’s employees, customers, business
associates, contractors, or visitors; (viii) theft or abuse by Executive of the
Company or Bank’s property or the property of Company or Bank’s customers,
employees, contractors, vendors, or business associates; (ix) failure of the
Executive to follow the good faith lawful instructions of the Board of Directors
of Company or Bank with respect to its operations, after notice from the Company
or Bank and a failure to cure such violation within thirty (30) days of said
notice; (x) the direction or recommendation of a state or federal bank
regulatory authority to remove the Executive’s position with Company and/or Bank
as identified herein; (xi) any final removal or prohibition order to which the
Executive is subject, by a federal banking agency pursuant to Sections 8(e) and
8(g) of the Federal Deposit Insurance Act; (xii) the Executive’s conviction of
or plea of guilty or nolo contendere to a felony, crime of falsehood or a crime
involving moral turpitude, or the actual incarceration of Executive; (xiii) any
act of fraud, misappropriation or personal dishonesty; (xiv) insubordination;
(xv) misrepresentation of a material fact, or omission of information necessary
to make the information supplied not materially misleading, in an application or
other information provided by the Executive to the Company or any representative
of the Company in connection with the Executive’s employment with Company; (xvi)
the existence of any material conflict between the interests of Company and the
Executive that is not disclosed in writing by the Executive to the Company and
approved in writing by the Board of Directors of Company; or (xvii) the
Executive takes action that is clearly contrary to the best interest of the
Company.
 
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4.  Change in Control Definitions.
 
(a) For purposes of this Agreement, the term Change in Control shall mean: A
change in control (other than one occurring by reason of an acquisition of the
Company or Bank by Executive) of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation 14A and any successor
rule or regulation promulgated under the Securities Exchange Act of 1934 (the
“Exchange Act”) if Company or Bank were subject to the Exchange Act reporting
requirements; provided that, without limiting the foregoing, such a change in
control shall be deemed to have occurred if the Board of Directors certifies
that one of the following has occurred:

(i) any “person” (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than the Company or Bank or any “person” who on the date
hereof is a director or officer of the Company or Bank is or becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company or Bank representing fifty percent
(50%) or more of the combined voting power of the Company’s or Bank’s then
outstanding securities, or

(ii) during any period of one (1) year during the term of Executive’s employment
under this Agreement, individuals who at the beginning of such period constitute
the Board of Directors of the Company or Bank cease for any reason to constitute
at least a majority thereof, unless the election of each director who was not a
director at the beginning of such period has been approved in advance by
directors representing at least two-thirds of the directors then in office who
were directors at the beginning of the period;

(iii) a merger, consolidation or business combination with the Company and/or
Bank occurs.

(iv) Notwithstanding any other provision in this section, in the event that
Executive is determined to be a key employee as that term is defined by Section
409A of the IRC no payment shall be made until one day following six months from
the date of separation from service as that term is defined by Section 409A of
the IRC.

(b) For purposes of this Agreement, the Date of Change in Control shall mean:

(i) the first date on which a single person and/or entity, or group of
affiliated persons and/or entities, acquire the beneficial ownership of fifty
percent (50%) or more of the Company’s voting securities, or more than fifty
percent (50%) of the total fair market value of the Company, or

(ii) the date of the closing of an Agreement, transferring all or substantially
all of the Bank or Company’s assets, or

 
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(iii) the date on which a merger, consolidation or business combination is
consummated, as applicable, or

(iv) the date on which individuals who formerly constituted a majority of the
Board of Directors of the Bank or Company under Section 4(a)(ii) hereof and the
replacement Directors otherwise approved under Section 4(a)(ii), ceased to be a
majority within a one year period.

5.  Source of Payments.

 
The Bank shall make all payments provided for under this Agreement. The Company,
however, unconditionally guarantees all amounts and benefits due to Executive
and, if the Bank does not timely pay or provide such amounts and benefits, the
Company shall pay or provide such amounts and benefits.
 
6.  Effect on Prior Agreements and Existing Benefit Plans.
 
 
This Agreement contains the entire understanding between the parties hereto and
supersedes any prior agreement between the Bank and Executive, except that this
Agreement shall not affect or operate to reduce any benefit or compensation
inuring to Executive of a kind elsewhere provided. No provision of this
Agreement shall be interpreted to mean that Executive is subject to receiving
fewer benefits than those available to Executive without reference to this
Agreement. Nothing in this Agreement shall confer upon Executive the right to
continue in the employ of the Bank or shall impose on the Bank any obligation to
employ or retain Executive in its employ for any period.
 
7.  No Attachment.

(a) Except as required by law, no right to receive payments under this Agreement
shall be subject to anticipation, commutation, alienation, sale, assignment,
encumbrance, charge, pledge, or hypothecation or to execution, attachment, levy
or similar process or assignment by operation of law, and any attempt, voluntary
or involuntary, to affect any such action shall be null, void and of no effect.

(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Bank and their respective successors and assigns.

8.  Modification and Waiver.

 
(a) This Agreement may not be modified or amended except by an instrument in
writing signed by the parties hereto.

(b) No term or condition of this Agreement shall be deemed to have been waived,
nor shall there be any estoppel against the enforcement of any provision of this
Agreement, except by written instrument of the party charged with such waiver or
estoppel. No such written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each such waiver shall operate only as to the
specific term or condition waived and shall not constitute a waiver of such term
or condition for the future or as to any act other than that specifically
waived.
 
9.  Severability.

If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
 
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10.  Headings for Reference Only.

 
The headings of sections and paragraphs are included in this Agreement solely
for convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement. In addition, references to the
masculine in this Agreement shall apply to both the masculine and the feminine.
 
11.  Governing Law.

Except to the extent preempted by federal law, the validity, interpretation,
performance, and enforcement of this Agreement shall be governed by the laws of
the Commonwealth of Pennsylvania, without regard to principles of conflicts of
law of that state.
 
12.  Arbitration.

Company, Bank and Executive recognize that in the event a dispute should arise
between them concerning the interpretation or implementation of this Agreement,
lengthy and expensive litigation will not afford a practical resolution of the
issues within a reasonable period of time. Therefore, each party agrees that all
disputes, disagreements and questions of interpretation concerning this
Agreement are to be submitted for resolution, in Williamsport, Pennsylvania, to
the American Arbitration Association (the “Association”) in accordance with the
Association’s National Rules for the Resolution of Employment Disputes or other
applicable rules then in effect (“Rules”). Company, Bank or Executive may
initiate an arbitration proceeding at any time by giving notice to the other in
accordance with the Rules. Company, Bank and Executive may, as a matter or
right, mutually agree on the appointment of a particular arbitrator from the
Association’s pool. The arbitrator shall not be bound by the rules of evidence
and procedure of the courts of the Commonwealth of Pennsylvania but shall be
bound by the substantive law applicable to this Agreement. The arbitration
proceeding and all filing, testimony, documents, and information, relating to or
presented during the evaluation proceeding, shall be disclosed exclusively for
the purpose of facilitating the arbitration process and for no other purpose and
shall be deemed to be information subject to the confidentiality provisions of
this Agreement. The decision of the arbitrator, absent fraud, duress,
incompetence or gross and obvious error of fact, shall be final and binding upon
the parties and shall be enforceable in courts of proper jurisdiction. Following
written notice of a request for arbitration, Company, Bank and Executive shall
be entitled to an injunction restraining all further proceedings in any pending
or subsequently filed litigation concerning this Agreement, except as otherwise
provided herein. The Arbitrator or the Court, (which ever is applicable) may
award the prevailing party in a dispute reasonable counsel fees not to exceed
$25,000.
 
13.  Payment of Legal Fees.

All reasonable legal fees and expenses paid or incurred by Executive pursuant to
any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Bank, only if Executive is successful in arbitration.
 
14.  Indemnification.

The Company or the Bank shall provide Executive (and Executive’s heirs,
executors and administrators) with coverage under a standard directors’ and
officers’ liability insurance policy at its expense and shall indemnify
Executive (and Executive’s heirs, executors and administrators) to the fullest
extent permitted under applicable law against all expenses and liabilities
reasonably incurred in connection with or arising out of any action, suit or
proceeding in which Executive may be involved by reason of having been a
director or officer of the Company or the Bank (whether or not Executive
continues to be a director or officer at the time of incurring such expenses or
liabilities), such expenses and liabilities to include, but not be limited to,
judgments, court costs, attorneys’ fees and the costs of reasonable settlements.

 
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15.  Successors to the Bank and the Company.

 
The Bank and the Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all of the business or assets of the Bank or the Company,
expressly and unconditionally to assume and agree to perform the Bank’s and the
Company’s obligations under this Agreement, in the same manner and to the same
extent that the Bank and the Company would be required to perform if no such
succession or assignment had taken place.
 
16.  Miscellaneous.

In the event any of the foregoing provisions of this Section 16 are in conflict
with the terms of this Agreement, this Section 16 shall prevail.

(a) Any payments made to Executive pursuant to this Agreement, or otherwise, are
subject to and conditioned upon their compliance with 12 U.S.C. §1828(k) and
FDIC regulation 12 C.F.R. Part 359, Golden Parachute and Indemnification
Payments.

(d) The parties to this Agreement intend for the payments hereunder to satisfy
the short-term deferral exception under Section 409A of the Code or, in the case
of continued insurance coverage, not constitute deferred compensation (since
such amounts are not taxable to Executive). However, notwithstanding anything to
the contrary in this Agreement, to the extent payments do not meet the
short-term deferral exception of Section 409A of the Code and, in the event
Executive is a “Specified Employee” (as defined herein) no payment shall be made
to Executive under this Agreement prior to the first day of the seventh month
following the event of termination in excess of the “permitted amount” under
Section 409A of the Code. For these purposes the “permitted amount” shall be an
amount that does not exceed two times the lesser of: (A) the sum of Executive’s
annualized compensation based upon the annual rate of pay for services provided
to the Company for the calendar year preceding the year in which Executive has
an event of termination, or (B) the maximum amount that may be taken into
account under a tax-qualified plan pursuant to Section 401(a)(17) of the Code
for the calendar year in which occurs the Event of Termination. The payment of
the “permitted amount” shall be made within sixty (60) days of the occurrence of
the event of termination. Any payment in excess of the permitted amount shall be
made to Executive on the first day of the seventh month following the event of
termination. “Specified Employee” shall be interpreted to comply with Section
409A of the Code and shall mean a key employee within the meaning of Section
416(i) of the Code, but an individual shall be a “Specified Employee” only if
the Company is a publicly-traded institution or the subsidiary of a
publicly-traded holding company.

 
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SIGNATURES
 
IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as
of the date first set forth above.

  FIRST CITIZENS NATIONAL BANK          
ATTEST:
By:
/s/ Randall E. Black   By: /s/ Robert W. Chappell   Randall E. Black   By:
Robert W. Chappell   For the Entire Board of Directors   Corporate Secretary    
 

 
CITIZENS FINANCIAL SERVICES, iNC.
(Guarantor)
         
ATTEST:
By:
/s/ Randall E. Blacl   By: /s/ Robert W. Chappell   Randall E. Black   By:
Robert W. Chappell   For the Entire Board of Directors   Corporate Secretary    
 

  EXECUTIVE          
WITNESS:
By:
/s/ Terry B. Osborne   By: /s/ Robert W. Chappell   Terry B. Osborne   By:
Robert W. Chappell   Executive   Corporate Secretary      

 
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