<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 11, 1998.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------------
CNBC BANCORP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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Ohio 6021 31-1478140
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<S> <C> <C>
(State or other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
100 EAST WILSON BRIDGE ROAD
SUITE 100
WORTHINGTON, OHIO 43085
(614) 848-8700
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------
JOHN ROMELFANGER
VICE PRESIDENT, TREASURER
AND SECRETARY
CNBC BANCORP
100 EAST WILSON BRIDGE ROAD
SUITE 100
WORTHINGTON, OHIO 43085
(614) 848-8700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------
Copies to:
M. PATRICIA OLIVER, ESQ.
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower, 127 Public Square
Cleveland, Ohio 44114-1304
(216) 479-8500
-----------------------
Approximate date of proposed sale to public:
As soon as practicable after the effective date of this Registration Statement.
-----------------------
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.|_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.|_|
If the delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. |_|
<PAGE> 2
CALCULATION OF REGISTRATION FEE
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============================================= ================= ==================== ======================= ==================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
CLASS OF SECURITIES TO BE REGISTERED REGISTERED SECURITY (1) PRICE (1) REGISTRATION FEE
- --------------------------------------------- ----------------- -------------------- ----------------------- ------------------
<S> <C> <C> <C> <C>
Common Shares (without par value)........... 125,000 $ 30.00 $3,750,000 $1,042.50
- --------------------------------------------- ----------------- -------------------- ----------------------- ------------------
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee in accordance with Rule 457(a) under the Securities
Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 3
[LOGO]
CNBC BANCORP
125,000 SHARES OF COMMON STOCK
$28.00 PER SHARE
CNBC Bancorp is a one bank holding company which owns all of the stock
of Commerce National Bank. The Bank offers traditional commercial banking
products to its customers, including checking and savings accounts, certificates
of deposit, NOW accounts and money market accounts. In addition, the Bank offers
business lines of credit and term loans, primarily on a secured basis, and real
estate loans.
We are offering for sale 125,000 shares of common stock with this
Prospectus. We expect the initial public offering price for the shares to be
between $26.00 and $30.00 per share. The Company's shares are currently listed
on the NASDAQ electronic bulletin board under the symbol "CNBD." This is our
initial public offering, and no public market currently exists for our shares.
The market price of the shares after the offering may be higher or lower than
the public offering price. For information on how to subscribe, please see page
8 of this Prospectus.
TERMS OF THE OFFERING
---------------------
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Per Share Total
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<S> <C> <C>
Public Price................................ $28.00 $3,500,000
Underwriting Discounts...................... -- --
Estimated Offering Expenses................. .35 44,000
Proceeds to the Company..................... 27.65 3,456,000
</TABLE>
This investment involves a high degree of risk. See "Risk Factors"
beginning on page 4.
These securities are not deposits or accounts and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved these securities or determined if this
Prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
The information in this Prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
This Prospectus is dated December __, 1998.
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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Prospectus Summary........................................................................................ 1
The Company and Bank............................................................................. 1
Our Strategy..................................................................................... 1
The Offering..................................................................................... 2
Questions and Answers about the Offering......................................................... 2
Selected Financial and Other Data................................................................ 3
Risk Factors.............................................................................................. 4
Lack of Active Market for Common Shares.......................................................... 4
Competitive Banking Environment.................................................................. 4
Additional Financing; Discretion in Use of Proceeds.............................................. 4
Dilution; Disparity in Common Share Purchase Price............................................... 4
Offering Price................................................................................... 4
Regulatory Considerations........................................................................ 5
Dependence on Key Personnel...................................................................... 5
Loan Quality and Allowance for Loan Losses....................................................... 5
Interest Rate Changes............................................................................ 5
Anti-Takeover Provisions......................................................................... 5
Shares Eligible for Future Sale.................................................................. 6
Year 2000........................................................................................ 6
Use of Proceeds........................................................................................... 7
Determination of Offering Price........................................................................... 7
Dilution ................................................................................................. 7
Plan of Distribution...................................................................................... 8
General.......................................................................................... 8
Subscribing for Common Shares.................................................................... 8
Dividend Policy........................................................................................... 9
Capitalization............................................................................................ 10
Unaudited Pro Forma Condensed Consolidated Financial Statements........................................... 10
Management's Discussion and Analysis...................................................................... 12
Comparison of Financial Condition at September 30, 1998
and December 31, 1997.......................................................................... 12
Comparison of Financial Condition at December 31, 1997
and December 31, 1996.......................................................................... 12
Results of Operations for Nine Months Ended September 30, 1998
Compared to Nine Months Ended September 30, 1997.............................................. 13
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996............................ 13
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995............................ 14
Liquidity........................................................................................ 15
Capital Resources................................................................................ 15
Distribution of Balance Sheet Items; Interest Rates and Interest Differential.................... 15
Description of Business................................................................................... 19
History.......................................................................................... 19
Market Area...................................................................................... 19
Competition...................................................................................... 19
Current Services................................................................................. 20
Lending.......................................................................................... 21
Nonperforming Assets............................................................................. 24
Investment Portfolio............................................................................. 25
Deposits......................................................................................... 26
Pending Legal Proceedings........................................................................ 27
Personnel........................................................................................ 27
Available Information............................................................................ 27
Description of Property................................................................................... 28
Market for Common Equity and Related Stockholder Matters.................................................. 28
Supervision and Regulation................................................................................ 29
</TABLE>
i
<PAGE> 5
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PAGE
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Directors, Executive Officers, Promoters and Control Persons.............................................. 30
Executive Compensation.................................................................................... 33
Annual Compensation.............................................................................. 33
Employment Agreement............................................................................. 34
Employee Stock Option Plans...................................................................... 34
Option Grants in Last Fiscal Year................................................................ 35
Commerce National Bank Deferred Compensation Plans............................................... 35
401(k) Plan...................................................................................... 35
Committees of Board of Directors................................................................. 36
Certain Relationships and Related Transactions............................................................ 36
Security Ownership of Certain Beneficial Owners and Management............................................ 37
Description of Securities................................................................................. 38
General.......................................................................................... 38
Voting Rights.................................................................................... 38
Common Shares Fully Paid and Nonassessable....................................................... 38
Preemptive Rights; Repurchase and Redemption..................................................... 38
Special Vote for Control Share Acquisitions...................................................... 38
Transfer Agent and Registrar..................................................................... 38
Certain Provisions of the Company's Articles of Incorporation
and Code of Regulations....................................................................... 38
Disclosure of Commission Position on Indemnification for Securities Act Liabilities....................... 40
Shares Eligible for Future Sale........................................................................... 40
Legal Proceedings......................................................................................... 40
Experts ................................................................................................. 40
Financial Statements...................................................................................... 41
APPENDIX A
APPENDIX B
Form W-9
</TABLE>
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As used in this Prospectus, (a) the "Company" means CNBC Bancorp, (b) the "Bank"
means Commerce National Bank and (c) "Common Shares" means the common stock of
CNBC Bancorp.
-----------------------------------
Until January __, 1999, all dealers that effect transactions in these
securities, whether or not participating in this Offering, may be required to
deliver a Prospectus. This is in addition to the dealers' obligation to deliver
a Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
ii
<PAGE> 6
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
Prospectus. This summary is not complete and may not contain all of the
information that you should consider before investing in the Common Shares. You
should read this entire Prospectus carefully, including the "Risk Factors"
section and the financial statements and the notes to those statements.
THE COMPANY AND BANK
CNBC BANCORP
100 East Wilson Bridge Road
Suite 100
Worthington, Ohio 43085
(614) 848-8700
CNBC Bancorp is not currently engaged in any significant business
activity. The Company's assets primarily consist of its investment in the common
stock and subordinated notes of Commerce National Bank. CNBC Bancorp was formed
in August 1996 as an Ohio corporation to be the holding company for Commerce
National Bank. The holding company structure provides greater flexibility in
terms of operations, expansion and diversification.
COMMERCE NATIONAL BANK
100 East Wilson Bridge Road
Suite 100
Worthington, Ohio 43085
(614) 848-8700
Commerce National Bank is a full service commercial bank organized to
primarily serve the financing and cash management needs of small to medium size
businesses in central Ohio. At September 30, 1998, the Company had total
consolidated assets of $167 million, consolidated deposits of $144 million and
total consolidated equity of $11.7 million.
OUR STRATEGY
Listed below are certain aspects of the Company's strategic plan that
illustrate some of the corporate objectives and beliefs of Company management.
- - Specialize in serving small business customers with experienced personnel
which larger competitors are unwilling or unable to offer quality service
to.
- - Achieve financial results for shareholders equal to or better than those of
other financial companies.
- - Offer ownership of the Company to our customers and employees.
- - Establish personnel policies and practices that minimize employee turnover.
- - Provide a level of service quality significantly higher than our
competitors.
- - Utilize technology to improve service and increase productivity.
- - Control overhead costs.
<PAGE> 7
THE OFFERING
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<S> <C>
Shares offered ........................................ 125,000
Shares outstanding at September 30, 1998 prior to
the Offering........................................... 1,114,636
Shares to be outstanding after the Offering............ 1,239,636
Warrants outstanding at September 30, 1998............. 61,754
Total public price..................................... $3,500,000
Estimated offering expenses............................ $44,000
Net Proceeds........................................... $3,456,000
Use of Proceeds........................................ We intend to use the proceeds to purchase
additional Bank subordinated debentures and
Bank common stock to increase the Bank's
capital.
Risk Factors........................................... Investing in our shares is very risky. See
"Risk Factors" beginning on page 4.
</TABLE>
QUESTIONS AND ANSWERS ABOUT THE OFFERING
Q: Once I have read the information contained in this Prospectus and
determined I would like to buy some stock, how do I subscribe?
A: You must complete and return both the subscription application and
subscription agreement and enclose a check or money order payable to "CNBC
Bancorp" for your entire subscription.
Q: When will the offering close and how soon should I send in my
subscription?
A: Send in your subscription as soon as possible. Management anticipates
closing the Offering as soon as possible, but no later than 90 days from
the date of this Prospectus (subject, however, to up to a 30 day extension
in management's discretion). Management reserves the right to close the
Offering at an amount which is less than 125,000 shares.
Q: How much stock may I purchase?
A: The minimum purchase is 100 shares. Management has not established a
maximum amount; however, management has the right to return part or all of
your subscription, with interest.
Q: Who can I call if I have further questions?
A: Call John Romelfanger or Tom McAuliffe at (614) 848-8700.
Q: Can I purchase shares through an IRA or other qualified retirement plan?
A: Yes. The administrator or trustee would still need to fill out all
appropriate forms and return them on a timely basis.
Q: Is this offering valid in all 50 states?
A: No. At this time we have only filed to register in the State of Ohio. If
you are not a resident of Ohio, please call John Romelfanger or Tom
McAuliffe before subscribing for shares.
Q: If my subscription is accepted, when will I receive my shares?
A: We will mail stock certificates to subscribers 30 days after we close the
Offering.
Q: Can I change my mind after I have mailed my subscription?
A: No. Once we have received and processed your subscription and payment,
you cannot ask for a refund.
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<PAGE> 8
SELECTED FINANCIAL AND OTHER DATA
We are providing the following summary financial information about us
for your benefit. This information is derived from our audited financial
statements for each of the fiscal years shown below. The following information
is only a summary and you should read it in conjunction with our consolidated
financial statements and notes beginning on page 41.
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UNAUDITED SUMMARY FINANCIAL DATA
(dollars in thousands, except per share amounts)
Nine Months Year Ended
Ended September 30, December 31,
-------------------- ---------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
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SELECTED OPERATING DATA:
Interest income................. $ 9,381 $6,941 $9,730 $7,679 $6,439 $4,183 $2,917
Interest expense................ 4,643 3,284 4,624 3,704 3,113 1,595 1,040
------- ------ ------ ----- ----- ----- -----
Net interest income............. 4,738 3,657 5,106 3,975 3,326 2,588 1,877
Provision for loan losses....... (385) (258) (386) (254) (288) (252) (183)
Other income.................... 170 138 189 161 113 60 70
Operating expenses.............. (2,494) (1,999) (2,769) (2,246) (1,887) (1,625) (1,358)
Income tax expense.............. (702) (536) (745) (573) (440) (167) 0
------- ------ ------ ----- ----- ----- -----
Net income...................... $ 1,327 $1,002 $1,395 $1,063 $824 $604 $ 406
======= ====== ====== ======= ===== ===== =====
SELECTED PER SHARE DATA:
Basic earnings per common share. $ 1.19 $ .95 $ 1.31 $ 1.02 $ .79 $ .59 $ .46
Diluted earnings per common share $ 1.08 $ .86 $ 1.21 $ .95 $ .76 $ .58 $ .46
Dividends declared per common
share......................... $ .17 $ .125 $ .25 $ .175 $ .125 (1) (1)
Book value per share............ $ 10.46 $ 8.70 $ 9.43 $ 7.88 $ 7.08 $ 6.39 $ 5.44
Shares outstanding (2) ........ 1,114,636 1,060,606 1,111,780 1,053,654 1,046,192 1,046,140 894,252
SELECTED OPERATING RATIOS:
Return on average assets........ 1.16% 1.20% 1.20% 1.14% 1.09% 1.08% .95%
Return on average shareholders
equity.......................... 16.03% 15.28% 15.18% 13.38% 11.52% 9.96% 8.69%
Dividend payout................. 15.74% 14.53% 20.66% 18.42% 16.45% (1) (1)
Average equity to average assets 7.22% 7.87% 7.73% 8.50% 9.47% 11.07% 10.89%
At.
SELECTED FINANCIAL CONDITION DATA: Sept. 30,
1998 1997 1996 1995 1994 1993
--------- -------- -------- ------- ------- -------
Total assets........................ $ 167,324 $139,325 $104,207 $82,224 $67,947 $49,035
Loans, net.......................... 134,559 117,078 85,087 67,907 54,981 39,742
Securities available-for-sale....... 4,921 4,051 3,130 3,364 3,711 2,705
Deposits............................ 143,997 119,105 90,377 69,048 58,246 41,450
Borrowed funds...................... 10,824 8,860 4,884 5,149 2,659 2,540
Shareholders' equity................ 11,660 10,482 8,297 7,404 6,681 4,864
</TABLE>
(1) Cash dividends were not declared prior to 1995.
(2) As adjusted for stock splits and dividends.
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<PAGE> 9
RISK FACTORS
Before you invest in our Common Shares, you should be aware that there
are various risks, including those described below. You should consider these
risk factors together with all of the other information included in this
Prospectus before you decide to purchase our Common Shares.
Some of the information in this Prospectus may contain forward-looking
statements. Such statements can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate,"
"continue" or other similar words. These statements discuss future expectations,
contain projections of results of operations or of financial condition or state
other "forward-looking" information. When considering such forward-looking
statements, you should keep in mind the risk factors and other cautionary
statements in this Prospectus. The risk factors noted in this section and other
factors noted throughout this Prospectus, including certain risks and
uncertainties, could cause our actual results to differ materially from those
contained in any forward-looking statement.
LACK OF ACTIVE MARKET FOR THE COMMON SHARES
Prior to the offering, there has been no public market for the
Company's Common Shares. Due to the small size of this offering, it is highly
unlikely that an active trading market will develop and be maintained. If an
active market does not develop, you may not be able to sell your Common Shares
as quickly as you desire, or perhaps at all, or sell your Common Shares at a
price equal to or above the price you paid for them.
COMPETITIVE BANKING ENVIRONMENT
The banking business is highly competitive. The Bank competes for loans
and deposits in the central Ohio market with other commercial banks, savings
banks, savings and loan associations, finance companies, money market funds,
brokerage firms, insurance companies, credit unions and nonfinancial
institutions. Many of these competitors have substantially greater resources and
lending limits than the Bank, offer certain services that the Bank does not
currently provide and may offer more favorable pricing than the Bank. In
addition, nondepository institution competitors are generally not subject to the
extensive laws and regulations applicable to the Company and the Bank. See
"Description of Business -- Competition" and "Supervision and Regulation."
ADDITIONAL FINANCING; DISCRETION IN USE OF PROCEEDS
We anticipate using the proceeds of this offering to purchase
subordinated debentures and common stock of the Bank to increase the Bank's
capital. However, management reserves the right to utilize the proceeds in a
different manner should circumstances change. Additional financing may be
required by the Company in the future if the growth of the Bank exceeds
management's expectations. There can be no assurance that additional financing
can be found or, if located, would be available on terms advantageous to the
Company or its shareholders. See "Use of Proceeds."
DILUTION; DISPARITY IN COMMON SHARE PURCHASE PRICE
Purchasers of shares will experience immediate and substantial dilution
of $15.81 in net tangible book value per share, or approximately 56% of the
offering price of $28.00 per share. As of September 30, 1998 there were 61,754
warrants outstanding to purchase common shares outstanding at a price of $5.68
per share. In addition, as of September 30, 1998 there were 157,930 stock
options outstanding to employees and directors. Exercise of the warrants and
options could further dilute the value of any purchased Common Shares.
The significant majority of existing shareholders of the Company
purchased their shares from 1991 through 1994 at prices ranging from $5.68 to
$8.18 per share. See "Market for Common Equity and Related Stockholder Matters"
and "Determination of Offering Price."
OFFERING PRICE
There has been no active market for the Common Shares and the offering
price was determined by the Board of Directors of the Company. The offering
price may not be indicative of the price at which the Common Shares would trade
if an active trading market existed. See "Market for Common Equity and Related
Stockholder Matters" and "Determination of Offering Price."
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<PAGE> 10
REGULATORY CONSIDERATIONS
The Company and the Bank are subject to extensive supervision and
regulation by the Federal Reserve Board, the Federal Deposit Insurance
Corporation and the Office of the Comptroller of the Currency. The regulatory
requirements imposed upon the Company and the Bank may change in the future, and
such changes could adversely affect the banking industry in general or the
Company's or Bank's operations in particular. See "Supervision and Regulation."
DEPENDENCE ON KEY PERSONNEL
While the Bank has successfully built a diverse management team, its
future success is still heavily dependent on the continued involvement of both
Mr. Thomas D. McAuliffe and Mr. John A. Romelfanger. Mr. McAuliffe continues to
be significantly involved in business development and client service in addition
to his administrative duties as Chairman of the Board, President and Chief
Executive Officer of both the Company and the Bank. Mr. Romelfanger is
responsible for many of the administrative, financial and operational aspects of
both the Company and the Bank and serves as Vice President, Secretary and
Treasurer of the Company and Chief Operating Officer and Chief Financial Officer
of the Bank.
Although the Bank has structured certain aspects of both of these
individuals' compensation to provide incentives for them to remain in the
employment of the Bank, there are no assurances that they will continue to do
so. On March 1, 1998, the Board of Directors executed an employment contract
with Mr. McAuliffe, which is more fully described under "Executive Compensation
- -- Employment Agreement." Should either or both of these individuals leave the
employ of the Company and the Bank, it could have a significant adverse effect
on the Company's and the Bank's profitability, service quality and growth. The
Bank has purchased key person life insurance on both these individuals, as well
as certain other senior officers.
LOAN QUALITY AND THE ALLOWANCE FOR LOAN LOSSES
A significant factor to any financial institution's profitability and
financial stability is the quality of its loan portfolio. The allowance for loan
losses is established to absorb loan charge-offs when management determines a
loan will not be repaid. Management evaluates the balance in the allowance for
loan losses on a quarterly basis. This evaluation is based on known and inherent
risks in the loan portfolio, assessment of individual borrower's ability to
repay their loans, including the value of any collateral, current economic
conditions and past loan loss experience. Many of the factors management
evaluates are subjective and may change over time. Substantially all of the
Bank's loans are to businesses and individuals located in central Ohio and any
recessionary trends in local economic conditions could have a material adverse
impact on the quality of the Bank's loan portfolio. See "Description of Business
- -- Lending" and see Note 4 to the consolidated financial statements attached
hereto.
INTEREST RATES CHANGES
An important factor to any financial institution's profitability is
maintaining and improving its net interest income, or the difference between the
income earned on loans and other interest bearing assets and interest paid on
deposits and borrowings. Depending on the contractual maturity and frequency of
interest rate changes for assets and liabilities, a change in market interest
rates may increase or decrease the Bank's net interest income. A change in
market interest rates can also have a significant impact on the Bank's ability
to grow. Changes in rates may encourage depositors to withdraw deposit account
funds to invest in other alternatives, which may result in limited funds to
utilize in making loans. Additionally, changes in rates could discourage
businesses and customers from seeking new loans or could encourage them to pay
off existing loans with the Bank through a refinancing with another financial
institution. While management monitors and evaluates this interest rate risk on
a continuous basis, no assurance can be given that its current level of net
interest income could be maintained if significant changes occur in market
interest rates. Additionally, it is not feasible to predict what, if any, impact
a change in market rates would have on the Bank's ability to continue to grow.
See "Management's Discussion and Analysis."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Articles and Regulations, the
general corporation law of the State of Ohio and certain federal regulations may
make it difficult and expensive to pursue a tender offer, change in control or
takeover attempt which the Board of Directors opposes. As a result, shareholders
who might desire to participate in such a transaction may not have an
opportunity to do so. Such provisions will also render the removal of the
current Board of Directors or management more difficult. In addition, these
provisions may reduce the trading price of the Common Shares. These provisions
include: restrictions on the acquisition of the Company's equity securities; the
classification of
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<PAGE> 11
the terms of the members of the Board of Directors; certain provisions relating
to the meeting of shareholders; the issuance of serial preferred stock and
additional shares of common stock without shareholder approval; and
supermajority provisions for the approval of certain business combinations. See
"Description of Securities."
SHARES ELIGIBLE FOR FUTURE SALE
The market price of the Common Shares could drop as a result of sales
of a large number of Common Shares in the market after the Offering, or the
perception that such sales could occur. These factors could also make it more
difficult for the Company to raise funds through future offerings. As a result
of the Offering, there will be up to an additional 125,000 Company common shares
outstanding. All of these shares will be freely transferable without restriction
or future registration, except for any Common Shares purchased by "affiliates"
of the Company, as defined in Rule 144 under the Securities Act. The remaining
1,114,636 outstanding common shares of the Company, which have been issued in
private offerings or are issuable upon the exercise of warrants, are "restricted
securities" as defined in Rule 144 and may be resold without restriction to the
extent permitted by Rule 144 or an exemption under the Securities Act. You
should note, however, that the holding period restrictions on the majority of
these 1,114,636 shares have lapsed. Assuming the offering is fully subscribed
for, the Company will have 522,415 authorized but unissued shares which may be
issued without further approval of its shareholders.
YEAR 2000
The Company's business is heavily dependent on the use of computers for
two reasons. First, the Bank's ability to process and record virtually all
customer transactions is dependent on the utilization of several different
computer programs. Second, the business of many of its customers is also highly
dependent on computer programs. If these programs fail to properly operate or
process data after December 31, 1999, this could result in the customer's
inability to repay its loans to the Bank or may necessitate unexpected
withdrawals from deposit accounts. Management has developed and is in the
process of implementing formal plans to evaluate and minimize the risks created
by these issues. Contingency plans have also been developed to provide alternate
solutions should systems used internally by the Bank fail to process
consistently before and after the century date change. The Bank's primary
regulator, the Office of the Comptroller of the Currency, is responsible for
reviewing the Bank's progress in assessing and addressing its Year 2000 risk.
Management's plan to address internal Year 2000 risk is currently in
the testing stage, including specific testing of mission critical and other
systems to gain assurance that they will operate properly after December 31,
1999. It is management's goal to complete the testing stage by March 31, 1999
and to complete and test any corrections to problems noted by June 30, 1999. In
November, 1998, the Bank completed the first phase of its testing of its main
core processing system. The testing, completed at a computer hot site, included
scripts to test all major functions of the system which are date sensitive. The
results of this testing indicated no significant problems with the system's
ability to perform properly in the Year 2000. To date, management's testing of
its other mission critical and other significant systems has not detected any
significant problems with these systems. Management estimates that the total
cost for testing and repairing or replacing systems will not exceed $50,000.
Currently, management is evaluating certain loan and deposit customers
to assess the potential risk that Year 2000 issues may pose to their respective
businesses. The process includes requesting each selected customer to complete a
questionnaire. Bank personnel then complete an internal analysis using the
questionnaire, financial statements and other information about the customer. An
overall Year 2000 risk is assigned, which combined with the credit risk grade
(applicable for loan customers), is used to define what actions, if any, the
Bank may require to extend additional credit to its customers. This risk grading
is also used in assessing the credit risk with individual borrowers utilized for
the assessment of the adequacy of its allowance for loan losses. The overall
risk assessed with deposit customers may impact the amount and types of
liquidity the Bank maintains for deposit withdrawals. To date, management's
evaluation has not indicated that any significant changes to its profitability,
growth or liquidity will be required as a result of the century date change.
-6-
<PAGE> 12
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 125,000 Common
Shares offered hereby, assuming a public offering price of $28.00 per share, and
after deducting sales commissions and the estimated offering expenses, are
estimated to be approximately $3.46 million. The Company currently intends to
utilize all of the net proceeds it receives to purchase subordinated debentures
and common stock of the Bank to increase the Bank's capital ratios.
The allocation of the use of net proceeds represents management's
estimates based upon current business and economic conditions. Although the
Company does not contemplate material changes in the proposed allocation of the
use of proceeds, to the extent the Company finds that adjustment is required by
reason of existing business conditions the amounts shown may be reallocated or
put to different uses.
DETERMINATION OF OFFERING PRICE
The offering price of the shares was set by the Board of Directors of
the Company based on several factors. The factors given the most weight by the
Board were price to earnings ratios ("PE ratio") and book value to market value
multiples ("BV multiple") of other publicly traded bank stocks. Two different
groups of publicly traded banks were reviewed, one comprising banks located in
Ohio but of larger size than the Company and another comprising banks of similar
asset size located throughout the Midwest. The average PE ratio and BV multiple
of these groups were reviewed as well as a comparison of the Company's financial
performance measures (such as return on equity, assets growth and operating
efficiency) compared to the group's financial performance. Other factors
considered included recent trades of the Company's stock, which are limited, the
Company's geographic location and the stability of its management. Based on this
information, the Board established what it felt was a fair PE ratio and BV
multiple for the Company's Common Shares to be sold in this Offering.
DILUTION
At September 30, 1998, the book value of the Company was $11.7 million,
or $10.46 per share. After taking into consideration the changes in book value
resulting from the sale by the Company of the Common Shares offered hereby at an
assumed public offering price of $28.00 per share, and after taking into
consideration application of the net proceeds from this Offering as well, the
pro forma book value of the Company at September 30, 1998 would have been $15.1
million, or $12.19 per share. This represents an immediate increase in net book
value of $1.73 per share to existing shareholders and dilution in net book value
of $15.81 per share to purchasers of Common Shares in this Offering. Book value
is determined by dividing shareholders' equity by the number of shares
outstanding. Book value is not necessarily indicative of the fair market value
of shares outstanding. The following table illustrates the book value dilution
to purchasers of Common Shares in this Offering:
<TABLE>
<S> <C>
Assumed public offering price per share......................................... $ 28.00
Book value per share at September 30, 1998...................................... $ 10.46
Increase per share attributable to existing shareholders........................ $ 1.73
Pro forma book value per share after the Offering(1)............................ $ 12.19
Dilution of book value to investors(2).......................................... $ 15.81
</TABLE>
(1) Pro forma fully diluted book value equals the $11.7 million of adjusted
shareholders' equity, plus net proceeds of $3.46 million from this
Offering, divided by 1,239,636 pro forma shares outstanding.
(2) Dilution is determined by subtracting the pro forma book value after this
Offering from the public offering price paid by investors in this Offering.
The pro forma fully diluted book value per share would be $12.19 and the
dilution to investors would be $15.81.
The directors and executive officers have purchased their shares at
various times throughout the Bank's history and at prices significantly lower
that the current offering price. Of the total shares currently owned by
directors and executive officers, which are detailed under "Security Ownership
of Certain Beneficial Owners and Management" on page 36, approximately 73% were
purchased in the Bank's initial offering in 1991 at an adjusted price of $5.68.
In the next two offerings, closed in 1992 and 1994, directors' purchases of
common stock comprised 8% and 6% of shares currently held at prices equal to
$6.82 and $8.18, respectively. Directors and officers have acquired additional
shares through the exercise of warrants and stock options, purchases of common
stock in the secondary market and in the Company's privately placed stock
offering closed in 1997. Additionally, directors and officers currently own
approximately 70% of the Company's outstanding warrants, which entitle the
holder to purchase a share of common stock for $5.68 per share and expire on
October 10, 2000.
-7-
<PAGE> 13
The following table sets forth, as of September 30, 1998, the number of
Common Shares purchased from the Company and the total consideration paid to the
Company by existing shareholders and the new investors purchasing Common Shares
in the Offering at an assumed public offering price of $28.00 per share (before
deducting estimated Offering expenses):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
---------------- -------------------
Number Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Existing shareholders............. 1,114,636 90% $7,518,681 68%
New investors..................... 125,000 10% $3,500,000 32%
</TABLE>
PLAN OF DISTRIBUTION
GENERAL
The Prospectus is dated December ___, 1998. The Offering commences this
date and shall remain open for up to 90 days thereafter, except as follows: this
Offering may be terminated early or may be extended by up to 30 days. Any
extension and early termination of this Offering is at the discretion of the
Company.
The Company is offering up to 125,000 Common Shares for a cash price of
$28 per share. A minimum purchase of 100 shares ($2,800) is required. The
Company reserves the right to accept individual subscriptions for fewer than 100
shares, or to reject or cancel any subscription, in whole or in part, for any
reason whatsoever. Under this Offering, except with the express consent of the
Company, the FRB, and the Commissioner, no investor will be allowed to purchase,
directly or indirectly, shares which together with any shares previously held by
the investor, equal or exceed 10% of the Common Shares of the Company to be
outstanding immediately following completion of this Offering. In addition,
under this Offering, except with the express consent of the Company, no investor
will be allowed to purchase in this Offering, directly or indirectly, shares
which together with any shares previously held by the investor, equal or exceed
5% of the Common Shares of the Company to be outstanding immediately following
completion of this Offering.
This Offering is not underwritten and is not conditioned on the sale of
any minimum number of shares. Only the directors and officers of the Company and
authorized selling agents are authorized to solicit subscriptions for shares.
The directors and officers of the Company intend to solicit by means of personal
and telephone contact with prospective subscribers, and by direct mailing of the
Prospectus. Offers for shares must be preceded or accompanied by this
Prospectus. The persons authorized to solicit subscriptions may be reimbursed
for reasonable expenses, if any, incurred in connection with the selling of the
Common Shares.
The Prospectus includes two appendices: Appendix A, the Subscription
Application ("Application") and Appendix B, the Subscription Agreement
("Agreement"). Triplicate executable copies of the Application, together with
IRS Form W-9 accompany the Prospectus. The Prospectus and Subscription Agreement
are incorporated by reference in the Application. By signing the latter, the
Subscriber attests to having read the Prospectus in its entirety, including the
appendices and agrees to be bound by the terms contained in the Application and
the Agreement. The Agreement does not require separate execution.
SUBSCRIBING FOR COMMON SHARES
You may subscribe to purchase Common Shares offered hereunder by
executing and delivering an Application to the Company, together with a check
payable to "CNBC Bancorp" in the amount of the purchase price and a completed
IRS Form W-9 Request for Taxpayer Identification Number and Certification.
The Company will notify you in writing as to the extent to which your
offer is accepted, not later than thirty days after the closing date of the
Offering. To the extent your offer is not accepted by the Company, and
concurrently with such rejection, Commerce National Bank as Impound Agent will
return your unaccepted funds together with interest actually earned thereon.
All funds received from Subscribers for the Company's Common Shares,
which meet the conditions of the Application and of the Agreement, will be
deposited in an interest-bearing account at Commerce National Bank (the "Impound
Account"). The Impound Account will be maintained in a savings account at
Commerce National Bank by Commerce National Bank as Impound Agent, in the manner
provided in the Agreement ("Bank as Impound Agent"). The Impound Account will
bear simple interest at a rate of 3% per annum. Any funds accepted into the
Impound Account are eligible for FDIC insurance up to a maximum of $100,000;
however, the Common Shares are not subject to or eligible for FDIC insurance.
-8-
<PAGE> 14
On the last day of the Offering, the Company will conduct a closing at
its offices. Upon the closing, subscription purchase moneys in the Impound
Account (including any interest earned thereon) relating to Applications
accepted by the Company, shall be released to the Company in the amount
corresponding to the shares closed. Applications shall be closed at the earliest
date after the Company, in its discretion, has determined that all of the
requirements of the related Application and Agreement have been met, the
subscription has been accepted and the requisite good funds deposited in the
Impound Account.
The Company will mail to Purchaser, within 30 business days after the
applicable closing date, a stock certificate, registered in Purchaser's name or
as directed by Purchaser, representing the respective Common Shares subscribed,
against delivery of the purchase price and any interest thereon.
If the Company does not accept an Application for any reason then the
funds submitted on account of the purchase price shall be returned to each
Subscriber within thirty days after the closing in the amount of his/her/its
subscription, plus any interest actually earned by the respective subscription
amount.
If for any reason whatsoever, the Offering does not close by 90 days
from the date of the Offering (or by 30 days thereafter, if the Company elects
to extend the Offering), the Company will deliver written notice of such to
Purchaser, and will return to Purchaser the amount of his/her/its deposit, plus
any interest actually earned thereon.
DIVIDEND POLICY
As a one bank holding company, the ability of the Company to pay
dividends to its shareholders is primarily dependent upon the receipt of
dividends and interest payments from the Bank. Without the approval of the
Comptroller of the Currency, the Bank may not pay a dividend to the Company if
the total of all dividends declared by the Bank in any calendar year exceeds the
total of net profits for that year combined with its retained net profits for
the preceding two calendar years, less any required transfers to surplus or fund
for the retirement of any preferred stock. The Bank's ability to pay dividends
is also dependent upon its ability to continue to meet regulatory capital
requirements. See "Supervision and Regulation."
In December 1995, the Bank declared its first annual cash dividend to
shareholders. The Company's current policy is to declare dividends semi-annually
in June and December. Noted below are dividends declared for the years ended
1995, 1996 and 1997 and for the nine months ended September 30, 1998.
<TABLE>
<CAPTION>
Dividends Declared
Per Share
-------------------
<S> <C>
Nine months ended September 30, 1998 $ .17
Year ended December 31, 1997 $ .25
Year ended December 31, 1996 $ .175
Year ended December 31, 1995 $ .125
</TABLE>
Although the Company intends to continue to pay cash dividends on its
Common Shares in the future based upon its net income and available cash flow,
there can be no assurance that the Company will have earnings sufficient to pay
a dividend on its Common Shares or that, even if there are sufficient earnings,
dividends will be permitted under applicable laws or regulatory requirements.
Declaration of dividends will be considered by the Board of Directors
semi-annually and will be determined, at the discretion of the Board of
Directors, in light of the Company's results of operation, financial condition,
capital requirements, contractual restrictions and other factors deemed relevant
by the Board of Directors. The Board of Directors will also periodically
consider stock dividends as a means of enhancing the liquidity and marketability
of the Company's stock.
-9-
<PAGE> 15
CAPITALIZATION
The following table presents the capitalization of the Company at
September 30, 1998 (i) on an actual basis and (ii) giving effect to the sale of
125,000 shares of Common Shares offered hereby at an assumed public offering
price of $28.00 per share and the initial application of the estimated net
proceeds therefrom. The table should be read in conjunction with "Use of
Proceeds," "Management's Discussion and Analysis," and the Financial Statements
and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
September 30, 1998
------------------
SHAREHOLDERS' EQUITY Actual As Adjusted
<S> <C> <C>
Common Stock: No Par Value; ------ -----------
Authorized Shares - 2,000,000;
Issued and Outstanding, 1,114,636 Actual and
1,239,636 as adjusted............................... $ 8,365,273 $ 11,821,273
Retained Earnings...................................... 3,271,487 3,271,487
Unrealized Gain on Investments Held for Sale........... 23,000 23,000
------------- -------------
Total Shareholders' Equity............................. $ 11,659,760 $ 15,115,760
============= =============
</TABLE>
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SELECTED FINANCIAL DATA
The following table contains selected financial data derived from the
Company's unaudited consolidated financial statements as of and for the nine
months ended September 30, 1998 and 1997 and the Company's audited consolidated
financial statements for the fiscal years ended December 31, 1997, 1996, 1995,
1994 and 1993. In the opinion of management, the Company's unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary for a fair presentation of the consolidated statements of
financial condition and results of operations as of and for the periods
presented. Operating results for the nine months ended September 30, 1998 are
not necessarily indicative of the results that may be expected for the fiscal
year ended December 31, 1998. The summary below should be read in conjunction
with the financial statements of the Company and Management's Discussion and
Analysis set forth herein. All per share data presented have been adjusted to
reflect all stock splits and stock dividends.
-10-
<PAGE> 16
<TABLE>
<CAPTION>
UNAUDITED SUMMARY FINANCIAL DATA
(dollars in thousands, except per share amounts)
Nine Months Year Ended
Ended September 30, December 31,
------------------- -------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income................. $9,381 $6,941 $9,730 $7,679 $6,439 $4,183 $ 2,917
Interest expense................ 4,643 3,284 4,624 3,704 3,113 1,595 1,040
------- ----- ----- ----- ----- ----- -----
Net interest income............. 4,738 3,657 5,106 3,975 3,326 2,588 1,877
Provision for loan losses....... (385) (258) (386) (254) (288) (252) (183)
Other income.................... 170 138 189 161 113 60 70
Operating expenses.............. (2,494) (1,999) (2,769) (2,246) (1,887) (1,625) (1,358)
Income tax expense.............. (702) (536) (745) (573) (440) (167) 0
------- ----- ----- ----- ----- ----- -----
Net income...................... $1,327 $1,002 $1,395 $1,063 $ 824 $ 604 $ 406
====== ======= ======= ======= ======= ====== =====
SELECTED PER SHARE DATA:
Basic earnings per common share. $ 1.19 $ .95 $ 1.31 $ 1.02 $ .79 $ .59 $ .46
Diluted earnings per common $ 1.08 $ .86 $ 1.21 $ .95 $ .76 $ .58 $ .46
share...........................
Dividends declared per common
share......................... $ .17 $ .125 $ .25 $ .175 $ .125 (1) (1)
Book value per share............ $10.46 $ 8.70 $ 9.43 $ 7.88 $ 7.08 $ 6.39 $ 5.44
Shares outstanding (2).......... 1,114,636 1,060,606 1,111,780 1,053,654 1,046,192 1,046,140 894,252
SELECTED OPERATING RATIOS:
Return on average assets........ 1.16% 1.20% 1.20% 1.14% 1.09% 1.08% .95%
Return on average shareholders
equity.......................... 16.03% 15.28% 15.18% 13.38% 11.52% 9.96% 8.69%
Dividend payout................. 15.74% 14.53% 20.66% 18.42% 16.45% (1) (1)
Average equity to average assets 7.22% 7.87% 7.73% 8.50% 9.47% 11.07% 10.89%
At
Sept. 30,
SELECTED FINANCIAL CONDITION DATA: 1998 1997 1996 1995 1994 1993
-------- -------- -------- ------- ------- -------
Total assets........................ $167,324 $139,325 $104,207 $82,224 $67,947 $49,035
Loans, net.......................... 134,559 117,078 85,087 67,907 54,981 39,742
Securities available-for-sale....... 4,921 4,051 3,130 3,364 3,711 2,705
Deposits............................ 143,997 119,105 90,377 69,048 58,246 41,450
Borrowed funds...................... 10,824 8,860 4,884 5,149 2,659 2,540
Shareholders' equity................ 11,660 10,482 8,297 7,404 6,681 4,864
</TABLE>
(1) Cash dividends were not declared prior to 1995.
(2) As adjusted for stock splits and dividends.
-11-
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion presents an analysis of the Company's
financial condition and results of operation as of September 30, 1998 compared
to September 30, 1997, and with respect to the year ended December 31, 1997
compared to the year ended December 31, 1996 and the year ended December 31,
1996 as compared to the year ended December 31, 1995. This discussion is
designed to provide the reader with a more comprehensive review of the operating
results and financial position than could be obtained from reading the financial
statements alone. Forward-looking statements contained in this discussion
involve risks and uncertainties and are subject to change based on various
important factors. Actual results could differ from those expressed or implied.
This analysis should be read in conjunction with the financial statements and
related footnotes and the selected financial data included elsewhere in this
Prospectus.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
Total assets increased $27 million, or 20%, to $167 million at
September 30, 1998. The two largest components of this increase are an increase
of $18 million and an increase in cash and cash equivalents of $9 million.
The increase in loans is comprised primarily of a $10 million increase
in real estate investment loans and a $6 million increase in business loans.
This increase is in line with the Bank's budgeted growth for the year and is
comparable to the growth experienced by the Bank during the last several years.
In 1998, the sale of a locally owned savings bank to a regional bank holding
company resulted in the Bank receiving more opportunities for new customers,
especially those with investment real estate loans.
The increase in cash and cash equivalents is primarily caused by 2
factors. The Bank has increased the number of title companies with which it does
business due to the superior service it provides. Due to the nature of these
deposits, balances can fluctuate widely during any given month. At September 30,
1998, these balances were approximately $4 million higher than their average
balance for the month which results in higher cash balances maintained by the
Bank. Additionally, management has maintained a slightly higher average
liquidity position in 1998 due to an increased reliance on savings account
deposits which require a higher liquidity position than certificates of deposit.
The primary increase in liabilities was a $25 million increase in
deposit accounts. Of this increase $5 million was in interest bearing demand and
a result of the increased title company business previously mentioned. Savings
balances grew $10 million and are a result of the Bank's small business focus
and available cash management products for its customers. Certificates of
deposit grew $7.5 million, with $4.4 million of this growth achieved through
solicitation of deposits on the national rate-listing network to which the Bank
subscribes.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1997 AND DECEMBER 31, 1996
The Bank experienced its highest growth in its history during 1997.
Total assets grew $35 million, an increase of 34% over year end 1996.
Loans increased substantially in 1997, increasing $32 million for the
year. Real estate investment loans grew $16 million and business loans grew $12
million, both reflecting the focus of the Bank on small business and
entrepreneurs.
Premises and equipment increased $1.6 million, reflecting management's
decision to purchase its existing main office building.
The primary increase in liabilities was a $29 million increase in
deposits. Of this amount $15 million was in savings and $12 million in
certificates of deposit. As previously stated, the Bank's focus on small
business and innovative cash management products have resulted in increases in
savings balances of corporate customers. A total of $10 million of the $12
million increase in certificates of deposit is due to deposits raised through
the national rate-listing network.
Additionally, borrowings increased $4 million, with $2 million of the
increase representing a long term loan payable used by the Company to supplement
the capital of the Bank. The Company also issued $1 million in new common stock
in a stock offering exempt from registration due to its size.
-12-
<PAGE> 18
RESULTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1997
Net income for the nine months ended September 30, 1998 was $1,327,000,
a 32.4% increase over the $1,002,000 reported for the first nine months of 1997.
The increase in net income was primarily driven by a $1,082,000 increase in net
interest income, offset by a $495,000 increase in operating expenses, a $127,000
increase in the provision for loan losses and a $166,000 increase in federal
income tax expense.
The 29.6% increase in net interest income is primarily the result of an
increase in average loans outstanding of 34% for 1998 compared with 1997.
Similar to 1997, loan growth was most significant in the business and real
estate investment loan categories, which reflects the Bank's business focus and
an expanding local economy. At September 30, 1998, approximately 33% of business
real estate loans were for the purpose of financing business customers'
operating facilities. The remaining 67% of business real estate loans were for
the purpose of financing residential and commercial investment properties.
Management attributes the Bank's loan growth to a number of factors, including:
- Referrals from existing customers who are pleased
with the service quality they receive from the Bank;
- Primary focus of 13 of the Bank's 34 full-time
employees on business development and existing
customer relationship satisfaction, which helps to
insure the quality and responsiveness of service the
Bank's customers expect;
- Continued involvement of the Company's outside
directors in business development efforts;
- A vibrant, diverse, local economy; and
- Continuing consolidation of local competitors which
results in a lesser focus on providing quality
customer service by the Bank's competitors.
The Bank's net interest margin declined slightly during this period due
to a slightly lower percentage of its earning assets invested in loans and a
small decrease in the average yield on interest earning assets.
The increase in the provision for loan losses is due to the growth of
the overall loan portfolio.
The 24.8% increase in operating expenses is broken down as follows:
<TABLE>
<S> <C>
Salaries and Benefits $375,000
Occupancy and Equipment, net (65,000)
Data Processing 21,000
Legal and Professional 55,000
Customer Courier 26,000
State Franchise Tax and
Other Expenses 83,000
</TABLE>
The increase in salaries and benefits is due to personnel additions to
generate and support the Bank's growth. During 1998 and 1997, the Bank hired 5
and 7 full-time employees, respectively, with no employee turnover. One of the
key measures utilized by management to track personnel efficiency is the dollar
amount of revenues generated per dollar amount of personnel expense. For the
nine months ended September 30, 1998 and 1997, these figures were $3.33 and
$43.45, respectively. The decrease in Occupancy and Equipment expense is due to
the impact of the purchase of the Bank's main office in June, 1997 compared to
leasing the facility. The building is fully leased with the Bank occupying
approximately 40% of the building. Rental income received is offset against the
operating cost for the office. The increase in legal and professional fees are
related to loan workout situations and other corporate matters. The remaining
increases in expenses are due to the Bank's continued growth. The increase in
federal income tax expense is the result of the Company's increased
profitability.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net income for 1997 was $1,395,000, a $332,000, or 31% increase over
1996. This increase is the result of an increase of $1,131,000 in net interest
income and $27,000 in other income offset by increases of $131,000 in the
provision for loan losses, $523,000 in operating expenses and $172,000 in
federal income tax expense.
-13-
<PAGE> 19
The increase in net interest income of 28% was the result of a 30%
increase in average loans outstanding. The Company's net interest margin
increased slightly to 4.62% from 4.47% in 1996, primarily a result of a higher
percentage of average earning assets in loans. For the second year in a row,
growth in the real estate investment loan category was strong at $16.2 million
for 1997. Loans to businesses for operating purposes, equipment and other needs
also increased significantly, growing $12.6 million. The growth in these areas
is the result of a strong local economy, the Company's small business focus and
the addition of several business development personnel during the past 18
months. Growth in other income is primarily the result of increased service
charge income on deposit accounts. Deposits increased $28.7 million in 1997, the
largest annual increase the Company has experienced. Of this amount, $15.4
million was in savings deposits, which includes excess savings funds of business
customers utilizing the Bank's automated funds management systems. Additionally,
certificate of deposit growth was primarily the result of an increase of $10.2
million in funds solicited through the national rate listing network to which
the Bank subscribes.
The increase in the provision for loan losses of $131,000 reflects
amounts determined necessary to support the growth in the loan portfolio and
partially offset loan charge-offs experienced in 1997 of $50,000.
Changes in operating expenses are summarized as follows:
<TABLE>
<S> <C>
Salaries and benefits $324,000
Occupancy and equipment (14,000)
Data Processing 30,000
Other 183,000
</TABLE>
Most of these changes in operating expenses were a result of the Bank's
asset and deposit growth. The personnel efficiency ratio (total net revenues
divided by salaries and benefits) increased slightly to $3.46 for 1997 compared
to $3.43 for 1996. The decrease in occupancy and equipment reflects the decision
by the Bank to purchase its main office building on June 1, 1997. The rent
income received from tenants offsets the operating costs of the building and has
resulted in a net decrease in its operating costs compared to the rent expense
paid in 1996 when the Bank was a tenant in the building. The largest increases
in other expenses are legal fees of $54,000, courier fees of $31,000 and check
fraud losses of $35,000. The legal fees related primarily to an increase in
litigation related to certain loan customers. The increase in courier fees
represents a 27% increase over the prior year, which is in line with the Bank's
growth. The check fraud losses were the first ever experienced by the Bank.
Management has implemented new procedures to attempt to minimize the future risk
of these types of losses. The increase in federal income tax expense is the
result of the Company's increased profitability.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net income for 1996 was $1,063,000, a 29% increase over 1995. This
increase is the result of an increase in net interest income of $648,000, a
slight decrease in the provision for loan losses and an increase in other income
of $48,000, offset by increases in operating expenses of $359,000 and federal
income taxes of $133,000.
The increase in net interest income of 19.4% was the result of a 23.4%
increase in average loans outstanding, offset by a slight decrease in the Bank's
net interest margin from 4.64% to 4.47%. Over 50% of the Bank's loan growth was
in the real estate investment loan category. The increase in other income was
primarily the result of increased service fees collected on deposit accounts,
which resulted from a 27% growth in average deposit balances and improved
procedures for calculation and assessment of fees.
Increases in operating expenses are summarized as follows:
<TABLE>
<S> <C>
Salaries and benefits $260,000
Occupancy and equipment 31,000
Data Processing 25,000
FDIC Insurance (63,000)
State Franchise Tax and
Other Expenses 105,000
</TABLE>
Due to the significant growth of the Bank, 4 full-time positions were
added during 1996 and 2 in late 1995. For 1996, the personnel efficiency was
$3.43, compared to $3.64 for 1995. Although this figure did decrease slightly,
management anticipated this due to several of the recent additions to staff
being in the business development area, which takes some time to produce
positive income results. The decrease in FDIC insurance expense was the result
of a substantial decrease in the
-14-
<PAGE> 20
assessment rate paid by the Bank due to the FDIC fund obtaining a fully funded
status. Increases in the remaining expense categories were primarily a result of
the Bank's growth.
LIQUIDITY
The Company's objective in managing liquidity is to maintain the
ability to continue to meet the cash flow needs of its customers, such as new
loans or deposit withdrawals, as well as its own financial commitments. The
principal sources of liquidity are new deposit accounts, loan principal
payments, money market mutual funds, securities available for sale, federal
funds sold and cash and deposits with banks. Along with its liquid assets, the
Company has additional sources of liquidity available to ensure that adequate
funds are available as needed which include, but are not limited to, the sale of
loan participations to other financial institutions, the purchase of federal
funds and borrowing from the Federal Home Loan Bank. Management believes that it
has the capital adequacy, profitability and reputation to meet its current and
foreseeable liquidity needs.
CAPITAL RESOURCES
The Company and the Bank are both subject to regulatory capital
requirements. These requirements measure capital levels utilizing three
different calculations. Based on these calculations, the Company and the Bank
are assigned to a capital category which, among other things, dictates certain
business practices of the organization, the level of the Bank's FDIC insurance
premium and which process is followed in obtaining regulatory approvals
necessary for branch applications, mergers and similar transactions. The
Company's capital requirements are measured on a combined basis with the Bank,
using consolidated totals. The Bank is measured independently. As of September
30, 1998, the Company was considered in the "adequately capitalized" category
and the Bank was classified in the "well capitalized" category. It is
management's policy to manage the growth of the Bank and provide for the
appropriate capital resources that will result in the Bank maintaining its
classification as a "well capitalized" institution. Similarly, it is
management's policy to maintain the classification of the Company as either
"adequately capitalized" or "well capitalized." For further information on
capital requirements, see Note 14 to the Consolidated Financial Statements.
DISTRIBUTION OF BALANCE SHEET ITEMS; INTEREST RATES AND INTEREST DIFFERENTIAL
The following tables set forth certain information relating to the
Company's average balance sheet and the statements of earnings for the years
ended December 31, 1997, 1996, and 1995 and the nine months ended September 30,
1998 and 1997, and reflects the average yield on assets and average cost of
liabilities for the periods indicated . Such yields and costs are derived by
dividing income or expense by the average balance of assets or liabilities,
respectively, for the periods shown. Average balances are derived from average
daily balances. The yields and costs include fees which are considered
adjustments to yields.
-15-
<PAGE> 21
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------------------
1998 1997
-------------------------------------------- --------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
------- -------- ---------- ------- -------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning
assets:
Money market
funds, federal
funds sold and
interest earning
deposits............... $ 12,964 $ 529 5.44% $ 7,072 $ 283 5.33%
Securities
available for
sale, net.............. 5,135 227 5.89 3,382 151 5.95
Loans receivable,
net (1)................ 127,607 8,625 9.01 95,168 6,507 9.12
--------- ------ ------- -------- ----- -----
Total
interest-earning
assets ............... 145,706 9,381 8.58 105,622 6,941 8.76
------ ------- ----- -----
Non-interest
earning assets ......... 7,581 5,670
---------- --------
Total assets ......... $ 153,287 $111,292
========== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Interest-bearing
liabilities:
NOW deposits........... $ 10,292 $ 151 1.96% $ 6,983 $ 107 2.04%
Savings deposits....... 47,480 1,608 4.52 27,850 873 4.18
Certificates of
deposit................ 56,346 2,443 5.78 44,946 1,965 5.83
--------- ------ ------- -------- ----- -----
Total
interest-bearing
deposits.................. 114,118 4,202 4.91 79,779 2,945 4.92
Borrowed funds ........ 8,868 441 6.63 6,903 340 6.57
--------- ------ ------- -------- ----- -----
Total
interest-bearing
liabilities .............. 122,986 4,643 5.03 86,682 3,285 5.05
------ ------- ----- -----
Other non-interest
bearing
liabilities ............ 19,230 15,846
--------- --------
Total
liabilities .......... 142,216 102,528
Shareholders' equity...... 11,071 8,764
--------- --------
Total
liabilities and
shareholders'
equity................. $153,287 $111,292
======== ========
Net interest
income/interest rate
spread(2).................. $4,738 3.55% $3,656 3.71%
====== ==== ====== ====
Net interest margin (3).... 4.33% 4.61%
==== ====
Ratio of
interest-earning assets to
interest-bearing liabilities 118.5% 121.8%
===== =====
</TABLE>
(1) Amount is net of deferred loan fees and includes non-performing loans.
(2) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest bearing liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
-16-
<PAGE> 22
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------------------
1997 1996 1995
-------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
------- -------- ---------- ------- -------- ---------- ------- -------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Money market
funds, federal
funds sold and
interest earning
deposits........... $ 6,723 $ 357 5.31% $ 8,123 $ 415 5.11% $ 5,246 $ 302 5.76%
Securities
available for
sale, net.......... 3,543 213 6.01 3,511 223 6.35 3,738 257 6.88
Loans receivable,
net (1) 100,237 9,160 9.14 77,369 7,041 9.10 62,674 5,880 9.38
--------- ----- ---- ------ ----- ---- ------ ----- ---
Total
interest-earning
assets ........... 110,503 9,730 8.81 89,003 7,679 8.63 71,658 6,439 8.99
----- ---- ----- ---- ----- ---
Non-interest
earning assets...... 6,148 4,143 3,825
--------- ------- -------
Total assets...... $ 116,651 $93,146 $75,483
========= ======= =======
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Interest-bearing
liabilities:
NOW deposits....... $ 7,130 $ 147 2.06% $ 4,986 $ 103 2.07% $ 2,769 $ 81 2.93%
Savings deposits... 29,907 1,270 4.25 23,437 985 4.20 21,483 1,013 4.72
Certificates of
deposit............ 46,410 2,720 5.86 38,838 2,302 5.93 28,574 1,760 6.16
------ ----- ---- ------ ----- ---- ------ ----- ----
Total deposits........ 83,447 4,137 4.96 67,261 3,390 5.04 52,826 2,854 5.40
Borrowed funds..... 7,473 487 6.52 5,012 314 6.26 4,123 259 6.28
----- ----- ---- ------ ------ ---- ------- ----- ----
Total
interest-bearing
liabilities........... 90,920 4,624 5.09 72,273 3,704 5.13 56,949 3,113 5.47
----- ---- ------ ---- ----- ----
Other non-interest
bearing liabilities. 16,592 12,955 11,385
-------- ------- -------
Total
liabilities ...... 107,572 85,228 68,334
Shareholders' equity.. 9,139 7,918 7,149
-------- ------- -------
Total
liabilities and
shareholders'
equity............ $116,651 $93,146 $75,483
======== ======= =======
Net interest
income/interest rate
spread(2)............. $5,106 3.72% $3,975 3.50% $3,326 3.52%
====== ==== ====== ==== ====== ====
Net interest margin
(3)................... 4.62% 4.47% 4.64%
==== ==== ====
Ratio of
interest-earning
assets to
interest-bearing
liabilities........... 121.5% 123.1% 125.8%
===== ===== =====
</TABLE>
- ------------------
(1) Amount is net of deferred loan fees and includes non-performing loans.
(2) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest bearing liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
-17-
<PAGE> 23
RATE/VOLUME ANALYSIS
The following table represents the extent to which changes in interest
rates and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (change in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume) and (iii) the net change. Changes
attributable to the combined impact of volume and rate have been allocated
proportionately to separately reflect the changes due to the volume and the
changes due to rate.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1998 DECEMBER 31, 1997
COMPARED TO COMPARED TO
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
----------------------------------- ---------------------------------------------
INCREASE/(DECREASE) DUE TO INCREASE/(DECREASE) DUE TO
----------------------------------- ---------------------------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Money market funds,
federal funds sold and
interest earning deposits... $ 238 $ 8 $ 246 $ (74) $ 16 $ (58)
Securities available for
sale, net................... 78 (2) 76 2 (12) (10)
Loans receivable, net (1)... 2,193 (75) 2,118 2,090 29 2,119
------ -- ------ ------- ------- -----
Total interest-earning
assets.................... 2,509 (69) 2,440 2,018 33 2,051
------ -- ------ ------- ------- -----
INTEREST-BEARING
LIABILITIES:
Deposits:
NOW deposits................ 49 (5) 44 44 --- 44
Savings deposits............ 660 75 735 275 10 285
Certificates of deposit..... 494 (16) 478 444 (26) 418
------ -- ------ ------- ------- ---
Total deposits............ 1,203 54 1,257 763 (16) 747
Borrowed funds.............. 98 3 101 160 13 173
------ -- ------ ------- ------- ---
Total interest-bearing
liabilities............... 1,301 57 1,358 923 (3) 920
------ -- ------ ------- ------- ---
Net Interest Income $1,208 $ (126) $1,082 $1,095 $ 36 $1,131
====== ======= ====== ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
COMPARED TO
YEAR ENDED
DECEMBER 31, 1995
----------------------------------------
INCREASE/(DECREASE) DUE TO
----------------------------------------
Volume Rate Net
------ ---- ---
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Money market funds,
federal funds sold and
interest earning deposits... $ 150 $ (37) $ 113
Securities available for
sale, net................... (15) (19) (34)
Loans receivable, net (1)... 1,342 (181) 1,161
------ ------- ------
Total interest-earning
assets.................... 1,477 (237) 1,240
------ ------- ------
INTEREST-BEARING
LIABILITIES:
Deposits:
NOW deposits................ 51 (29) 22
Savings deposits............ 88 (116) (28)
Certificates of deposit..... 611 (69) 542
------ ------- ------
Total deposits............ 750 (214) 536
Borrowed funds.............. 56 (1) 55
------ ------- ------
Total interest-bearing
liabilities............... 806 (215) 591
------ ------- ------
Net Interest Income $ 671 $ (22) $ 649
====== ======= ======
</TABLE>
- -----------------
(1) Amount is net of deferred loan fees and includes non-performing loans.
-18-
<PAGE> 24
DESCRIPTION OF BUSINESS
HISTORY
The Company was incorporated in Ohio on August 23, 1996 for the purpose
of effecting a reorganization whereby Commerce National Bank, a national bank
established in 1991 and more fully described below, would become a wholly-owned
subsidiary of the Company and the Company would become a bank holding company as
defined in the Bank Holding Company Act of 1956, as amended. This reorganization
was completed effective November 30, 1996.
The bank holding company structure enables the Company, in addition to
owning and operating the Bank, to engage in business opportunities that are
determined by the Federal Reserve Board in its regulatory and supervisory
capacity to be so closely related to banking or managing a bank to be
permissible activities for a bank holding company. See "Supervision and
Regulation." As a result, the Company will be able to offer a broader range of
services to its customers and to effectively compete with the commercial banks
in its market area that have also reorganized into bank holding companies.
The concept for the formation of the Bank arose from the experience of
Thomas D. McAuliffe, Chairman of the Board, President and Chief Executive
Officer, as a banker servicing the needs of small and medium-sized business
owners and the experience of the initial organizers and directors, who were
founders or top level executives in such businesses. Together, the Bank's
organizers concluded that a community business bank would fill a need in the
market in that it would better serve such businesses and their owners, along
with self-employed professionals. The concept was developed into an operating
plan emphasizing a low overhead and expense structure, a staff of experienced
bankers, and the efforts of the officers and directors in the community.
On March 30, 1990, the organizers filed with the Office of the
Comptroller of the Currency an application to charter the Bank (the
"Application"). The Comptroller granted preliminary approval of the Application
on August 22, 1990. On October 11, 1990, the Comptroller approved the offering
circular for the Bank's initial stock offering. The Bank closed the initial
offering on April 12, 1991 after receiving and accepting subscriptions for
777,040 shares of common stock at an adjusted per share price of $5.68,
totalling $4,415,000. The Bank received its charter and commenced operations on
June 7, 1991.
The Bank offers customary commercial banking services to its customers,
including checking and savings accounts, electronic banking, certificates of
deposit, NOW accounts, and money market savings accounts. The Bank also offers
business lines of credit and term loans, primarily on a secured basis, and real
estate loans. For consumers, many of whom are the owners of the businesses
serviced by the Bank, the Bank offers residential real estate loans, home equity
loans and personal loans. The deposits of the Bank are insured by the FDIC up to
applicable limits. The Bank is a member of the Federal Reserve System.
MARKET AREA
The Bank's only office is located in a general purpose office building
at 100 East Wilson Bridge Road, Worthington, Ohio 43085, which was purchased by
the Bank on June 1, 1997. The Bank serves customers primarily within and up to
ten miles outside the Columbus outerbelt (I-270). For purposes of The Community
Reinvestment Act, the Bank's market area is defined as Franklin and southern
Delaware counties. In excess of 90% of the Bank's loan business and in excess of
75% of the Bank's deposits have been generated from customers in this market
area.
COMPETITION
All phases of the Bank's business are highly competitive. The Bank
competes with local commercial banks, many of which have assets, capital and
lending limits substantially larger than the Bank. The Bank also competes with
savings banks, savings and loan associations, money market funds, insurance
companies, stock brokerage firms, regulated small loan companies, credit unions
and issuers of commercial paper and other securities. Recent Ohio and other
legislation has had the effect of facilitating the ability of financial
institutions located outside Ohio to enter Ohio markets, thereby increasing
competition.
There are currently more than 20 FDIC insured financial institutions
with operations in the Franklin County market, ranging in asset size from $3.9
billion to less than $5 million. The three largest financial institutions
control approximately 66% of the deposits in Franklin County. As of June 30,
1996, the most recent date for which figures are available, total deposits in
Franklin County were approximately $13.8 billion.
-19-
<PAGE> 25
Bank One Columbus, N.A. had total deposits of approximately $3.9
billion as of June 30, 1996 in Franklin County, for a 28% market share. Bank One
Columbus, N.A. is a subsidiary bank of a super regional bank holding company,
Banc One Corporation, headquartered in Chicago, Illinois.
The Huntington National Bank ("HNB") is the lead affiliate bank of
Huntington Bancshares, Inc., a regional multi-bank holding company,
headquartered in Columbus. HNB had deposits of approximately $2.6 billion as of
June 30, 1996 in Franklin County, for a 19% deposit market share.
National City Bank, the third largest commercial bank operating in
Franklin County, had total deposits of approximately $2.6 billion as of June 30,
1996, for a 19% market share. National City Bank is an affiliate of National
City Corporation, headquartered in Cleveland, Ohio.
In competing for money market and time deposits, the Bank generally
offers interest rates comparable to its competitors. Borrowers are actively
encouraged to use the Bank as their primary depository institution.
The primary means of introducing and promoting the Bank's loan products
is through the business and personal contacts of the directors and officers in
the Bank's market area and referrals from existing customers.
Following are several of the Company's and the Bank's organizational
philosophies that management believes have made the Bank effective in competing
for and obtaining new business:
- SERVING THE SMALL BUSINESS OWNER WITH AN EXPERIENCED BANKER.
The eight individual account officers at the Bank average 20
years of banking experience. Typical problems that small
business owners encounter with larger banks include
inexperienced account officers and turnover in the account
officer relationship. The Bank offers the small business owner
an opportunity to work with an experienced professional on a
long term basis.
- RESPONSIVENESS TO CUSTOMER NEEDS. The lending approval
"hierarchy" in a large bank often dictates a time frame that
is too long before a decision can be made on a borrowing
request. The Bank has developed lending authorities and
committee schedules to permit prompt decisions on borrowing
requests. All lending decisions are made by the Bank at a
local level.
- COST CONTROL. The Bank has adopted a philosophy of only
providing the banking services which are needed by small
businesses and their owners. The Bank currently has only one
office, without a drive-through facility. A third party
courier service is utilized to pick up customer deposits in
lieu of an extensive branch network. This strategy allows the
Bank to allocate much of its resources to quality people and
offer very competitive rates for both loans and deposits. The
Bank is also a member of the MAC and Money Station ATM
networks. This membership provides the Bank's customers with
the ability to withdraw or deposit funds at over 70 ATM
machines in the Columbus, Ohio metropolitan area.
CURRENT SERVICES
The Bank is a full service bank serving primarily the financing and
cash management needs of small to medium-sized business customers in the central
Ohio region. The Bank does not currently offer trust services. Banking deposit
products include checking and savings accounts, certificates of deposit, money
market savings accounts, and NOW accounts. The certificates of deposit offered
have various maturities ranging from seven days to five years.
The Bank offers business lines of credit and term loans, primarily on a
secured basis, and real estate loans. For consumers, many of whom are the owners
of the businesses serviced by the Bank, the Bank offers residential real estate
loans, home equity loans and personal loans.
The Bank also offers credit cards to businesses and consumers, merchant
processing services to businesses and international wire and check clearing
services.
The Bank endeavors to build relationships with select small and
medium-sized businesses in its market area. Loan customers are encouraged to
bring their deposit business to the Bank. This focus has further increased the
deposit base for the Bank and assists in controlling overall marketing costs
related to deposit acquisition.
-20-
<PAGE> 26
Under the National Bank Act, the Bank is generally prohibited from
lending and/or extending credit to any one person (as such term is defined under
the National Bank Act) at any one time in excess of 15% of the unimpaired
capital and unimpaired surplus of the Bank, plus an additional 10% where the
loan is fully secured by readily marketable collateral. If the needs of a loan
customer exceed the Bank's lending limit, the Bank may sell loan participations
to other banks. In all cases where participation of a loan is required by the
Bank's underwriting policies or applicable law, participation commitments are
obtained before a loan commitment is made to a borrower. The participation of
loans serves to limit concentrations in the loan portfolio while enabling the
Bank to meet customer needs.
LENDING
The Bank has experienced high loan demand since its inception. This
demand has primarily been the result of the contacts of the officers and
directors in the community and an expanding local economy.
The following table presents a summary of the Company's loan portfolio
by category for each of the last five years. Other than the categories noted,
there is no concentration of loans in any industry greater than 5% in the
portfolio. The Company has no foreign loans in its portfolio.
-21-
<PAGE> 27
LOAN PORTFOLIO
COMPOSITION
(dollars in thousands)
<TABLE>
<CAPTION>
At September 30, At December 31,
---------------- -----------------------------------------------------------
1998 1997 1996 1995
------------------ ----------------- ------------------ -----------------
Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real estate
loans............. $20,156 14.74% $19,931 16.77% $18,257 21.10% $16,812 24.33%
Real estate investment
loans............. 57,610 42.13% 46,697 39.29% 30,496 35.24% 19,897 28.79%
Business loans....... 48,536 35.50% 42,457 35.72% 29,895 34.55% 25,377 36.72%
Personal loans....... 10,439 7.63% 9,771 8.22% 7,881 9.11% 7,019 10.16%
---------- ------ -------- ------ ------- ------ ------- ------
Gross loans.......... 136,741 100% 118,856 100% 86,529 100% 69,105 100%
=== === === ===
Less:
Deferred fees, net. 197 178 178 188
Allowance for
loan losses........ 1,985 1,600 1,264 1,010
---------- -------- ------- -------
Total loans, net..... $ 134,559 $117,078 $85,087 $67,907
========== ======== ======= =======
<CAPTION>
At December 31,
---------------------------------------
1994 1993
----------------- ------------------
Percent Percent
Amount of Total Amount of Total
------ -------- ------ --------
<S> <C> <C> <C> <C>
Residential real estate
loans............. $12,009 21.48% $10,470 25.91%
Real estate investment
loans............. 14,300 25.58% 7,910 19.57%
Business loans....... 22,684 40.57% 15,861 39.25%
Personal loans....... 6,912 12.37% 6,173 15.27%
------- ------ ------- -------
Gross loans.......... 55,905 100% 40,414 100%
=== ===
Less:
Deferred fees, net. 199 169
Allowance for
loan losses........ 725 503
------- -------
Total loans, net..... $54,981 $39,742
======= =======
</TABLE>
-22-
<PAGE> 28
Management performs an analysis of the Bank's loan portfolio on a
quarterly basis to assess the adequacy of the allowance for loan losses. The
allowance for loan losses represents that amount which management estimates is
adequate to provide for inherent losses in its loan portfolio. The allowance
balance and the provision charged to expense are determined by management based
upon past loan loss experience, economic conditions and various other
circumstances that are subject to change over time. The collectibility of
certain specific loans is evaluated based upon factors including the financial
position of the borrower, the estimated market value of the collateral at the
current time, guarantees, and the Bank's collateral position versus other
creditors. Historical loss information and local economic conditions are
considered in establishing allowances on the remaining portfolio. The allowance
is reduced by charging off loans deemed uncollectible by management. The
allowance is increased by provisions charged to expense and recoveries of
previous charge-offs. After a loan is charged off, collection efforts continue.
While management of the Bank places a strong emphasis on proper loan
underwriting and loan review procedures and has, to date, experienced low levels
of loan charge-offs, management has made the decision to continue to add
conservatively to its allowance for loan losses. This decision is based on three
main factors:
- The overall age of the Bank is still only 7 years, during
which time the local economy has not experienced any
significant recessionary periods;
- The Bank has grown substantially during all 7 years of its
operations and, typically, loan quality problems take at least
several years to materialize; and
- The Bank's short history does not enable management to project
loan losses based on historical experience, which is one of
the measurement techniques utilized by the industry in
assessing allowance for loan loss levels.
SUMMARY OF LOAN LOSS EXPERIENCE
(dollars in thousands)
The following table sets forth activity in the Bank's allowance for
loan losses for the periods indicated:
<TABLE>
<CAPTION>
For the Nine
Months Ended
September 30, For the Year Ended December 31,
--------------------- ----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period. $1,600 $1,264 $1,264 $1,010 $725 $503 $320
Provision for loan losses...... 385 258 386 254 288 252 183
Charge-offs:
Residential real estate loans..
Real estate investment loans...
Business loans................. 50 4 30
Personal loans.................
------ ------ ------ ------ ----- ----- -----
Total charge-offs........... --- --- 50 --- 4 30 ---
Recoveries:
Real estate investment loans...
Business real estate loans.....
Business loans................. 1
Personal loans.................
------ ------ ------ ------ ----- ----- -----
Total recoveries............. --- --- --- --- 1 --- ---
------ ------ ------ ------ ------ ----- -----
Net charge-offs................ --- --- 50 --- 3 30 ---
------ ------ ------ ------ ------ ----- -----
Balance at end of period....... $1,985 $1,522 $1,600 $1,264 $1,010 $725 $503
====== ====== ====== ====== ====== ==== ====
</TABLE>
-23-
<PAGE> 29
The following tables set forth an allocation for the allowance for loan
losses by category of loan and the percentage of total loans configured by that
category. In making the allocation, consideration was given to such factors as
management's evaluation of risk in each category, current economic conditions
and charge-off experience. An allocation for the allowance for loan losses is an
estimate of the portion of the allowance that will be used to cover future
charge-offs in each major loan category, but it does not preclude any portion of
the allowance allocated to one type of loan being used to absorb losses of
another loan type.
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(dollars in thousands)
<TABLE>
<CAPTION>
September 30 At December 31
---------------- ------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
% of % of % of % of % of % of
Total Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Business....... $1,323 77.6% $1,111 75.0% $ 753 69.8% $ 568 65.5% $439 66.1% $296 58.8%
Real estate
mortgage....... 52 14.8 51 16.8 45 21.1 41 24.3 29 21.5 26 25.9
Consumer....... 75 7.6 70 8.2 59 9.1 52 10.2 55 12.4 47 15.3
Unallocated.... 535 368 407 349 202 134
------ ----- ------ ----- ------ ----- ------ ----- ---- ----- ---- -----
Total......... $1,985 100.0% $1,600 100.0% $1,264 100.0% $1,010 100.0% $725 100.0% $503 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ==== ===== ==== =====
</TABLE>
The following table sets forth the maturity distribution and interest
sensitivity of selected loan categories at December 31, 1997. Maturities are
based upon contractual terms. The Company's policy is to specifically review and
approve any loan renewed; no loans are automatically rolled over.
LOAN MATURITIES AND INTEREST SENSITIVITY
DECEMBER 31, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
One Year One Through Over Total
or Less Five Years Five Years Loans
------- ----------- ---------- -------
<S> <C> <C> <C> <C>
Business.................... $41,187 $43,438 $ 2,322 $86,947
Real estate construction.... 3,217 -- -- 3,217
------- ------- ------ -------
Total.................... $44,404 $43,438 $2,322 $90,164
======= ======= ====== =======
Fixed rate loans .......... $ 2,639 $12,085 $2,322 $17,046
Floating rate loans......... 41,765 31,353 -- 73,118
------- ------- ------ -------
Total.................... $44,404 $43,438 $2,322 $90,164
======= ======= ====== =======
</TABLE>
NONPERFORMING ASSETS
Nonperforming assets consist of loans on which interest is no longer
accrued, certain restructured loans where interest rate or other terms have been
renegotiated, accruing loans past due 90 days or more and real estate acquired
through foreclosure.
The Company discontinues the accrual of interest on loans that become
90 days past due as to principal or interest unless they are adequately secured
and in the process of collection. A loan remains in a nonaccrual status until
doubts concerning collectibility no longer exist. A loan is classified as a
restructured loan when the interest rate is materially reduced or the term is
extended beyond the original maturity date because of the inability of the
borrower to service the loan under the original terms. Other real estate is
recorded at the lower of cost or fair value less estimated costs to sell.
-24-
<PAGE> 30
The following table sets forth information regarding non-accrual loans
and other nonperforming assets.
NONPERFORMING ASSETS
(dollars in thousands)
<TABLE>
<CAPTION>
At
September
30, At December 31,
---------- ------------------------------------------------
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans:
Residential real estate loans....................
Real estate investment loans.....................
Business loans................................... $100 $100 $51
Personal loans...................................
Total non-accrual loans..........................
Loans contractually past due 90 days or more, other
than non-accruing.....................................
---- ---- ---- ---- ---- ----
Total non-performing loans............................ $100 $100 $0 $0 $0 $51
==== ==== ==== ==== ==== ====
Allowance for loan losses as a percentage of loans.... 1.45% 1.35% 1.46% 1.46% 1.30% 1.25%
==== ==== ==== ==== ==== ====
Allowance for loan losses as a percentage of total
non-performing loans.................................. 1985% 1600% (1) (1) (1) 988%
==== ==== ===
Non-performing loans as a percentage of loans......... .07% .08% .00% .00% .00% .13%
=== === === === === ===
</TABLE>
(1) Not applicable.
INVESTMENT PORTFOLIO
The Bank has maintained a loan to deposit ratio of approximately 97%
since its inception. As a result, the Bank's reliance on its investment
portfolio as a primary income source is lower relative to other banks.
Management stresses safety and liquidity with respect to its investment
decisions. The Bank has maintained its portfolio in federal funds sold, money
market mutual funds, short term deposits with the Federal Home Loan Bank and
U.S. Treasury securities with maturities of less than two years. Management
foresees no significant change in its philosophy of safety and liquidity to
foster adequate liquidity for loan demand and unforeseen deposit withdrawal
needs.
-25-
<PAGE> 31
The following table sets forth certain information regarding the
amortized cost and carrying values of the Bank's debt and equity and securities
at the dates indicated.
CARRYING VALUE OF SECURITIES
(dollars in thousands)
<TABLE>
<CAPTION>
At September 30 At December 31,
--------------- ---------------
1998 1997 1996 1995
--------------------- ------------------- -------------------- -----------------------
Amortized Carrying Amortized Carrying Amortized Carrying Amortized Carrying
Cost Value Cost Value Cost Value Cost Value
--------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for sale
Debt securities:
U.S. Government obligations $ 3,520 $3,555 $2,746 $2,744 $2,248 $2,231 $2,485 $2,510
Equity securities:
Federal Reserve
Bank stock................. 218 218 218 218 218 218 218 218
FHLB stock................. 1,148 1,148 1,089 1,089 681 681 636 636
------- ------ ------ ------ ------ ------ ------ ------
Total equity securities.... 1,366 1,366 1,307 1,307 899 899 854 854
------- ------ ------ ------ ------ ------ ------ ------
Total securities, available
for-sale................ $ 4,886 $4,921 $4,053 $4,051 $3,147 $3,130 $3,339 $3,364
======= ====== ====== ====== ====== ====== ====== ======
</TABLE>
MATURITY DISTRIBUTION OF AVAILABLE FOR SALE SECURITIES
AT SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
One One
Year Through
or Five Equity
September 30, 1998 Less Years Securities Total
- ------------------ ---- ----- ---------- -----
<S> <C> <C> <C> <C>
U.S. Treasury and federal agencies....... $1,504 $2,051 $0 $3,555
Other securities......................... 0 0 1,366 1,366
------ ------ ------ ------
Total securities......................... $1,504 $2,051 $1,366 $4,921
====== ====== ====== ======
Percent of total......................... 30.6% 41.7% 27.7% 100%
Weighted average yield................... 5.65% 5.45% 6.84% 5.90%
</TABLE>
<TABLE>
<CAPTION>
One One
Year Through
or Five Equity
December 31, 1997 Less Years Securities Total
- ----------------- ---- ----- ---------- -----
<S> <C> <C> <C> <C>
U.S. Treasury and federal agencies....... $1,992 $752 $0 $ 2,744
Other securities......................... 0 0 1,307 1,307
------ ------ ------ ------
Total securities......................... $1,992 $752 $1,307 $ 4,051
====== ==== ====== =======
Percent of total......................... 49.2% 18.6% 32.2% 100%
Weighted average yield................... 5.34% 6.14% 7.04% 6.04%
</TABLE>
-26-
<PAGE> 32
Since its inception, Bank management has followed a growth strategy
which was primarily driven by the amount of good quality loans which it could
responsibly fund. This strategy has resulted in loan growth which has outpaced
deposit growth from its primary customer base. Additionally, the Bank's primary
customer base has a strong preference for liquidity, which results in a
preference for short term Certificate of Deposit maturities and money market
savings accounts versus longer term Certificates of Deposit. As a result of
these factors, the Bank has accepted Certificates of Deposit from customers
outside its designated market area which are solicited through a national rate
listing network. While only some of these deposits are placed through a deposit
broker, the Company has elected to list all such funds as "Brokered certificates
of deposit" in the following table. Any brokerage fees or commissions for such
deposits are paid for by the depositor, not the Bank.
Utilization of these deposits has the following benefits to the Bank:
- Generates longer term funding for the Bank not generally
available from its primary customers;
- Maintains the Bank's efficiency due to accepting only deposits of
$99,000 or greater; and
- Permits the Bank to fund loans at a higher growth rate than would
otherwise have been feasible based on the deposit growth from its
targeted customer base.
The following table sets forth the distribution of the Company's
average deposit accounts and the related weighted average interest rates on each
category of deposit presented at the dates indicated. The Company has no
deposits in foreign banking offices.
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30, For the Year Ended December 31,
------------------- ----------------------------------------------------------------------
1998 1997 1996 1995
---- ---- ---- ----
Weighted Weighted Weighted Weighted
Average Average Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate Balance Rate
------- ---- ------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing accounts. $18,594 -- $16,254 -- $12,463 -- $10,981 --
NOW accounts............... 10,292 1.96% 7,130 2.06% 4,986 2.07% 2,769 2.93%
Savings and money market
accounts................. 47,480 4.52 29,907 4.25 23,437 4.20 21,483 4.72
Certificates of deposit.... 25,907 5.49 24,959 5.66 20,780 5.76 17,343 6.08
Brokered certificates of
deposit.................. 30,439 6.10 21,451 6.09 18,058 6.12 11,231 6.28
-------- ---- ------- ---- ------- ---- ------- ----
Total...................... $132,712 4.23% $99,701 4.15% $79,723 4.25% $63,807 4.47%
======== ==== ======= ==== ======= ==== ======= ====
</TABLE>
PENDING LEGAL PROCEEDINGS
Neither the Company nor the Bank is a party to any material pending
legal proceedings.
PERSONNEL
As of September 30, 1998 the Company had 39 full-time equivalent
employees. None of the Company's employees is represented by a collective
bargaining agreement. Management considers its relations with its employees to
be excellent.
AVAILABLE INFORMATION
The Company is not currently a reporting company pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), but will be
required to file reports pursuant to the Exchange Act following the completion
of the Offering. The Company, which has a December 31 fiscal year end, intends
to furnish its shareholders with annual reports containing audited financial
information and, for the first three quarters of each year, quarterly reports
containing unaudited financial information.
Requests for such documents should be directed to John Romelfanger,
Vice President, CNBC Bancorp, 100 East Wilson Bridge Road, Suite 100,
Worthington, Ohio 43085.
-27-
<PAGE> 33
DESCRIPTION OF PROPERTY
The Company and the Bank are located at the Company's only current
facility at 100 East Wilson Bridge Road, Worthington, Ohio. Management has
determined that the Bank is able to provide quality service to its customers
from its current location.
The Bank's main office is located in a 24,250 square foot general
purpose office building. The Bank currently utilizes approximately 40% of the
building, with the remaining space leased by companies independent of the Bank.
During early 1996, the previous owner of the building, in accordance with a
provision in the Bank's lease, notified the Bank that the building was for sale
and that the Bank had the right to make the first offer to buy the building. It
was the consensus of the Board of Directors and management of the Bank that an
offer should be made to purchase the building. The purchase of the building was
effective June 1, 1997. The Bank leased its space in the building from October
15, 1995 to June 1, 1997. Prior to October 15, 1995, the Bank leased office
space in another building approximately 3 miles from its current location.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At September 30, 1998, there were 1,114,636 Common Shares outstanding,
held by approximately 400 shareholders. In addition, at such date, there were
61,754 warrants outstanding and 157,930 stock options outstanding. See "Dividend
Policy" for a discussion of cash dividends declared for the 9 months ended
September 30, 1998 and each of the last 3 fiscal years.
The following is a brief history of the stock sales of the Bank and the
Company. All per share amounts and number of shares sold have been adjusted to
reflect 2-for-1 stock splits paid in January, 1998 and April, 1993 and a 10%
stock dividend paid in January, 1995.
The Bank received and accepted during its initial stock offering,
subscriptions for 777,040 shares of common stock at an adjusted per share price
of $5.68, totalling $4,415,000. In connection with the Bank's initial stock
offering in 1990, 77,520 warrants were issued to all shareholders. Each warrant
is fully transferable and entitles the holder to purchase a Common Share at
$5.68 per share. The warrants will expire on October 10, 2000, and are subject
to adjustments for stock splits, stock dividends and similar transactions. In
connection with the bank holding company formation, all Bank warrants were
exchanged for identical Company warrants. Through September 30, 1998, 15,766
warrants have been exercised.
In December, 1991, the Bank completed a private placement of 5,280
shares at an adjusted price of $6.82 per share.
The Bank initiated a second stock offering in December, 1991 to
supplement its capital at an adjusted price of $6.82 per share. This offering
was closed in June, 1992 after subscriptions for 111,030.4 shares had been
submitted and accepted, totalling $757,020.
The Bank initiated a third stock offering in December, 1993 at an
adjusted price of $8.18 per share. This offering was closed in early 1994 after
subscriptions for 151,800 shares were accepted, totalling $1,242,000.
The Company initiated a stock offering in October, 1997 at an adjusted
price of $20 per share. This offering was closed in November, 1997 after
subscriptions for 50,000 shares were accepted, totaling $1,000,000.
Additionally, 3,740 shares have been issued pursuant to the exercise of
stock options at various prices and 18.4 shares of stock were redeemed in
November, 1996 due to the holding company reorganization, at $15.00 per share.
A Columbus, Ohio broker, Sweney, Cartwright & Co., currently makes a
market in the Common Shares, but does not maintain information concerning high
and low bids on a quarterly basis. The following table shows the average per
share price and total number of Common Shares sold by Sweney, Cartwright & Co.
to individual investors. These sales do not include transactions that may have
been completed directly between a buyer and seller, as to which the Company has
no information. All information was provided by Sweney, Cartwright & Co.
-28-
<PAGE> 34
<TABLE>
<CAPTION>
Known Price Number of
Range(2)(3) Shares Transferred(1)(2)
------------- -------------------------
<S> <C> <C>
Calendar year 1998 (4) $25.00-$29.50 6,450
Calendar year 1997 $15.50-$20.00 4,962
Calendar year 1996 $15.00-$15.37 4,400
Calendar year 1995 $ 8.92-$10.68 27,770
Calendar year 1994 $ 8.41-$ 8.86 42,834
Calendar year 1993 $ 7.73-$ 7.84 11,000
</TABLE>
(1) Reflects shares transferred where Sweney, Cartwright & Co. has
knowledge of the price in the transaction.
(2) As adjusted for stock dividends paid in January, 1995, and 2-for-1
stock splits effective in January, 1998 and April, 1993.
(3) Price includes broker's fees charged by Sweney, Cartwright & Co.
(4) Trades through October 31, 1998.
SUPERVISION AND REGULATION
The Company is a bank holding company subject to the supervision of and
examination by the Board of Governors of the Federal Reserve System under the
Bank Holding Company Act of 1956, as amended. As a bank holding company, the
Company is required to file with the Board of Governors an annual report and
such additional information as the Board of Governors may require pursuant to
the Act. The Board of Governors expects every bank holding company to serve as a
source of strength for its subsidiary banks.
As a bank holding company subject to regulation by the Federal Reserve,
the Company must comply with policy statements issued by the Federal Reserve.
The Federal Reserve policy statement governing payment of cash dividends
provides that a bank holding company should not pay cash dividends on common
stock unless (i) the organization's net income for the past year is sufficient
to fully fund the dividends and (ii) the prospective rate of earnings retention
appears consistent with the organization's capital needs, asset quality and
overall financial condition.
Moreover, regulatory authorities are authorized to prohibit banks and
bank holding companies from paying dividends if payment of dividends would
constitute an unsafe and unsound banking practice.
The Bank Holding Company Act requires every bank holding company to
obtain the prior approval of the Board of Governors before it may acquire
substantially all the assets of any bank, or ownership or control of any voting
shares of any bank, if, after such acquisition, it would own or control,
directly or indirectly, more than 5% of the voting shares of such bank.
In addition, a bank holding company is generally prohibited from itself
engaging in, or acquiring direct or indirect control of voting shares of any
company engaged in nonbanking activities. One of the principal exceptions to
this prohibition is for activities found by the Board of Governors, by order or
regulation, to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto.
The Company is an "affiliate" of the Bank within the meaning of the
Federal Reserve Bank, which imposes restrictions upon (1) loans by the Bank to
the Company; (2) investments by the Bank in the stock or the securities of the
Company; and (3) the use of the Company common stock or securities of the
Company as collateral for loans by the Bank to any borrower.
Under current Federal Reserve guidelines, the Company will be required
to maintain adequate capital at the Bank level. The Bank's allowance for loan
losses will be included and intangible assets will be deducted in computing the
level of the Bank's capital. The Bank is also subject to the capital adequacy
regulations of the Federal Reserve. To be considered "adequately capitalized,"
the required "leverage capital ratio" is 4%, the "tier 1 risk-based capital
ratio" is 4%, and the "total risk-based capital ratio" is 8%. To be "well
capitalized," the foregoing requirements are 5%, 6%, and 10%, respectively. The
Bank is considered to be "well capitalized" under the foregoing standards. See
Note 14 to the consolidated financial statements attached hereto as Exhibit B.
-29-
<PAGE> 35
The commercial banking business is affected not only by general
economic conditions, but also by the monetary policies of the Federal Reserve.
Changes in the discount rate on member bank borrowing, availability of borrowing
at the "discount window," open market operations, the imposition of and changes
in reserve requirements against member banks' deposits and assets of foreign
branches, and the changes in reserve requirements against certain borrowings by
banks and their affiliates are some of the instruments of monetary policy
available to the Federal Reserve. These monetary policies influence to a
significant extent the overall growth of bank loans, investments, and deposits
and the interest rates charged on loans or paid on time and savings deposits.
The Bank is also subject to federal regulation as to such matters as
limitation as to the nature and amount of its loans and investments, regulatory
approval of any merger or consolidation, issuance or retirement by the Bank of
its own securities and other aspects of banking operations. In addition, the
activities and operations of the Bank are subject to a number of additional
detailed, complex and sometimes overlapping laws and regulations. These include
state usury and consumer credit laws, state laws relating to fiduciaries, the
Federal Truth in Lending Act and Regulation Z, the Federal Equal Credit
Opportunity Act and Regulation B, the Fair Credit Reporting Act, the Truth in
Savings Act, the Community Reinvestment Act, anti-redlining legislation and
antitrust laws.
The Bank is a nationally chartered bank and is subject to the direct
supervision and regulation and is regularly examined by the Office of the
Comptroller of the Currency. Additionally, the Bank is a member of the Federal
Reserve System and its deposits are insured by the FDIC to applicable limits.
Areas of operation subject to regulation by federal laws, regulations and
regulatory agencies include terms on deposits, investments, loans, fiduciary
activities, mergers, issuance of securities, payment of dividends, establishment
of branches and other aspects of operations. The Bank is also subject to a
variety of other laws that impose limitations on loans to a single borrower, to
insiders, and to others, and to other laws which impose various requirements for
certain types and classes of loans.
The earnings of the Bank, as a lender of money, is affected by
legislative changes and by policies of various regulatory authorities which are
periodically reviewed and updated.
Under Ohio law, the Merger Moratorium Act, enacted in 1990, prohibits
certain Ohio corporations from engaging in specified types of transactions with
an "interested shareholder" for a period of three years after the shareholder
becomes an "interested shareholder" unless the shareholder receives the approval
of the corporation's Board of Directors prior to the acquisition of shares or
the consummation of the specified type of transaction. The anticipated effect of
the Merger Moratorium Act is to encourage a potential acquiror to negotiate with
a target corporation's Board of Directors prior to obtaining a 10 percent or
greater block of shares in the corporation.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
DIRECTORS
The Board of Directors for the Company presently consists of seventeen
elected members. The maximum number of directors of the Company has been fixed
at twenty-five. The directors of the Company are divided into three classes with
each class elected for terms of three years so that at each Annual Meeting of
the Shareholders of the Company the term of office of one class of directors
expires. The members of the Board of Directors of the Bank are chosen by the
Company as the Bank's sole shareholder on an annual basis. All directors listed
serve on the boards of the Company and the Bank, except as noted. The following
information provides a summary of the composition of the Boards of Directors of
the Company and the Bank as of September 30, 1998. The following table sets
forth the names, ages (as of September 30, 1998) and positions with the Company
and the Bank, the year they first became a director and the year their current
term expires. A summary of the background and experience of each of these
individuals is set forth after the table.
-30-
<PAGE> 36
<TABLE>
<CAPTION>
- --------------------------- ---------- -------------------------------- ------------------- -------------------
CURRENT
NAME AGE POSITION DIRECTOR SINCE TERM TO EXPIRE
- ---- --- -------- -------------- --------------
- --------------------------- ---------- -------------------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Thomas D. McAuliffe 49 Chairman of the Board, 1990 1999
President and Chief Executive
Officer, Director
- --------------------------- ---------- -------------------------------- ------------------- -------------------
Loreto (Larry) V. Canini 35 Director 1996 1999
- --------------------------- ---------- -------------------------------- ------------------- -------------------
Mark S. Corna 49 Director 1990 2001
- --------------------------- ---------- -------------------------------- ------------------- -------------------
Jameson Crane, Jr. 49 Director 1991 1999
- --------------------------- ---------- -------------------------------- ------------------- -------------------
Judith A. DeVillers 62 Director 1991 2001
- --------------------------- ---------- -------------------------------- ------------------- -------------------
George A. Gummer 56 Director 1990 1999
- --------------------------- ---------- -------------------------------- ------------------- -------------------
William L. Hoy 49 Director 1990 1999
- --------------------------- ---------- -------------------------------- ------------------- -------------------
Douglas W. James (1) 56 Director 1990 2001
- --------------------------- ---------- -------------------------------- ------------------- -------------------
Donald R. Kenney 55 Director 1991 2001
- --------------------------- ---------- -------------------------------- ------------------- -------------------
Daniel M. Mahoney 45 Vice President, Senior Lending 1996 2001
Officer, Director
- --------------------------- ---------- -------------------------------- ------------------- -------------------
Samuel E. McDaniel 53 Director 1990 1999
- --------------------------- ---------- -------------------------------- ------------------- -------------------
Kent K. Rinker (2) 50 Non-elected Advisory Director 1990 N/A
- --------------------------- ---------- -------------------------------- ------------------- -------------------
Richard F. Ruhl 61 Director 1991 2000
- --------------------------- ---------- -------------------------------- ------------------- -------------------
David J. Ryan 56 Director 1990 2001
- --------------------------- ---------- -------------------------------- ------------------- -------------------
Peter C. Taub (1) 55 Director 1990 2000
- --------------------------- ---------- -------------------------------- ------------------- -------------------
John A. Tonti 53 Director 1990 2000
- --------------------------- ---------- -------------------------------- ------------------- -------------------
Alan R. Weiler 65 Director 1990 2000
- --------------------------- ---------- -------------------------------- ------------------- -------------------
Michael Wren (1) 56 Director 1990 2000
- --------------------------- ---------- -------------------------------- ------------------- -------------------
</TABLE>
(1) Serve as Company directors only.
(2) Serves as a non-elected advisory director of Company only.
-31-
<PAGE> 37
THOMAS D. MCAULIFFE (49), Director (1990), is the chairman, president
and chief executive officer of the Bank. Mr. McAuliffe has significant
involvement in lending and client development in addition to his administrative
duties. Mr. McAuliffe began organizing Commerce National Bank in January, 1990.
Mr. McAuliffe has over 20 years of banking experience and is a founding
organizer of the Bank.
LORETO (LARRY) V. CANINI (35), Director (1996), is president of Canini
and Pellecchia, Inc., a residential construction and development company.
MARK S. CORNA (49), Director (1990), is president of Corna/Kokosing
Construction Company, a commercial construction company. Mr. Corna is chairman
of the Bank's compensation committee and is a founding organizer of the Bank.
JAMESON CRANE, JR. (49), Director (1991), is vice president of
investments for Fairwood Investments Co., an affiliate of Crane Plastics Co., a
manufacturer of thermo plastic extrusions, where he has been employed since
1974.
JUDITH A. DEVILLERS (62), Director (1991), is the chief executive
officer of the EXCO Company, a site development and excavating contractor
founded in 1981. Ms. DeVillers is also president of INDEC, Inc., an interior
design firm.
GEORGE A. GUMMER (56), Director (1990), is the owner of G. A. Gummer
& Assoc., a registered investment advisor to banks, savings and loan
associations and other businesses, which he founded in 1981. Mr. Gummer is
chairman of the Bank's funds management committee and is a founding organizer of
the Bank.
WILLIAM L. HOY (49), Director (1990), is the chief executive officer of
Columbus Sign Company, a business now in its third generation of operation by
the Hoy family and Treasurer of Innocom Corp., a marketing graphics servicer.
Mr. Hoy is chairman of the Bank's Audit Committee and a founding organizer of
the Bank.
DOUGLAS W. JAMES (56), Director (1990), retired from Danka Industries,
Inc., a business equipment sales company in 1996. Previously, Mr. James was
owner and President of American Business Equipment, Inc., which was sold to
Danka in 1995. Mr. James is a founding organizer of the Bank.
DONALD R. KENNEY (55), Director (1991), is chairman of Triangle Real
Estate Services, Inc. and the owner of Cross Country Inn Motels, Concourse
Hotel, The Sawmill and Westerville Athletic Clubs, Donald R. Kenney & Co.
Realtors and Millennium, Inc.
DANIEL M. MAHONEY (45), Director (1996), is a senior lending officer
with the Bank. Mr. Mahoney joined the Bank in September, 1990, and has primary
responsibility for lending and client development. Mr. Mahoney has over 20 years
of banking experience.
SAMUEL E. MCDANIEL (53), Director (1990), is president of McDaniel's
Painting and Construction, Inc., a general contractor, and owner of Redwood
Development Center, a small business incubator, and McDaniel's Property
Management. Mr. McDaniel is a founding organizer of the Bank.
KENT K. RINKER (50), Non-elected Advisory Director (1990), is an
investment broker of Financial Assets Corp., an investment management firm. From
1981 through 1989, Mr. Rinker was a partner with the regional investment firm
Meuse, Rinker, Chapman, Endres & Brooks, of which he was a founder. Mr. Rinker
is a founding organizer of the Bank.
RICHARD F. RUHL (61), Director (1991), is the owner of Dick Ruhl Ford
Sales, Inc. Mr. Ruhl is currently the national president of the Ford Dealers
Alumni Association and the current chairman of the Ford Dealers Advertising
Association for Ohio.
DAVID J. RYAN (56), Director (1990), is president of Rimrock
Corporation, a manufacturer of industrial automation equipment. Mr. Ryan is a
founding organizer of the Bank.
PETER C. TAUB (55), Director (1990), is president of Atlas Industrial
Contractors, Inc., an industrial construction company. Mr. Taub is a founding
organizer of the Bank.
JOHN A. TONTI (53), Director (1990), is president of West Penn Foods,
Inc., a Wendy's restaurant franchisee. Mr. Tonti is a founding organizer of the
Bank.
ALAN R. WEILER (65), Director (1990), is chief executive officer of
Archer-Meek-Weiler Agency, Inc., an insurance agency. Mr. Weiler is a founding
organizer of the Bank.
-32-
<PAGE> 38
MICHAEL WREN (56), Director (1990), is a professional engineer and
owner of Michael Wren and Associates, an engineering consulting firm. Mr. Wren
is a founding organizer of the Bank.
OFFICERS AND SIGNIFICANT EMPLOYEES
Set forth below is information about the executive officers and
significant employees of the Company and Bank who do not serve on the Boards of
Directors of the Company or Bank.
JOHN A. ROMELFANGER (38), Vice President, Secretary and Treasurer of
the Company and Chief Financial Officer and Chief Operating Officer of the Bank,
is a certified public accountant. Mr. Romelfanger was employed by Crowe, Chizek
& Company, a public accounting firm, from 1982 until he joined the Bank in June,
1990.
PAMELA S. MILLER (36), Principal Loan Review Officer and Controller, is
a certified public accountant. Ms. Miller's responsibilities include supervision
of the Bank's credit and loan operations department and significant involvement
in the Bank's accounting, regulatory reporting, tax and audit functions. Ms.
Miller was employed by Crowe, Chizek & Company, a public accounting firm, from
1984 until she joined the Bank in June, 1991.
WILLIAM G. HUDDLE (42), Principal and Senior Lending Officer, is an
attorney and supervises the Bank's real estate lending department. Mr. Huddle
joined the Bank in September, 1990 and has 12 years of banking experience. Prior
to working in the banking industry, Mr. Huddle was a practicing attorney for
several law firms in Columbus.
EXECUTIVE COMPENSATION
The following table summarizes all annual and long-term compensation
paid during the fiscal years ended December 31, 1997, 1996 and 1995 to the
Company's Chief Executive Officer and the other most highly compensated
executive officers of the Company whose total annual salary and bonus exceeded
$100,000 during the fiscal year ended December 31, 1997 (collectively, the
"Named Executive Officers") for services rendered in all capacities to the
Company and the Bank.
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
Common
Other Annual Shares
Name and Year Ended Salary Bonus Compensation Underlying
Principal Position December 31, ($) ($) ($)(1) Options
- ------------------------ ---------- ------ ----- ------------ ----------
<S> <C> <C> <C> <C> <C>
Thomas D. McAuliffe, 1997 $125,000 $37,500 $9,500 1,720
Chairman and President of
the Company and Chairman, 1996 $120,000 $30,000 $9,023 1,920
President and Chief
Executive Officer of the 1995 $110,000 $25,000 $8,123 4,400
Bank
John Romelfanger, Vice 1997 $83,250 $25,000 $11,080 580
President, Secretary and
Treasurer of the Company; 1996 $80,000 $20,000 $9,514 1,060
Chief Financial Officer and
Chief Operating Officer of 1995 $75,000 $20,000 $7,959 3,300
the Bank
Daniel M. Mahoney, Vice 1997 $76,500 $20,000 $5,808 520
President of the Company
and Senior Lending Officer 1996 $73,500 $17,500 $5,477 980
of the Bank
1995 $70,000 $15,000 $5,116 3,300
</TABLE>
(1) Amounts contributed to the 401(k) savings plan by the Bank and amounts
accrued under deferred compensation plans.
-33-
<PAGE> 39
EMPLOYMENT AGREEMENT
Thomas D. McAuliffe, the Company and the Bank entered into an
employment agreement ("Employment Agreement") on March 1, 1998 pursuant to which
Mr. McAuliffe serves as the President and CEO of the Company and of the Bank.
The Employment Agreement expires on February 28, 2003, subject to extension by
mutual agreement of the parties. The Employment Agreement provides for an annual
base salary of $140,000 per annum, subject to annual percentage increases based
upon increases in the diluted earnings per common share of the Company, and
bonuses, which may be awarded in the sole discretion of the Boards of Directors
of the Company and the Bank. In addition, the Bank contributes $25,000 per year
to a certain trust (the "Trust") established by the Bank as a supplemental
retirement benefit for Mr. McAuliffe's benefit. The Employment Agreement also
grants Mr. McAuliffe options to purchase Company common shares, on an annual
basis, in an amount equal to 20% of his annual base salary for the immediately
preceding year, subject to certain adjustments.
Mr. McAuliffe is eligible to participate in all retirement, welfare and
other benefit plans or programs of the Bank to the same extent as other Bank
executive officers. In addition to any group life coverage, the Employment
Agreement provides for the Bank to keep in place and pay premiums on a life
insurance policy on Mr. McAuliffe's life in the face amount of $2,000,000, with
respect to which Mr. McAuliffe may designate the beneficiary. The Bank also
agrees to reimburse Mr. McAuliffe annually for any premiums paid by him to
maintain in force an individual disability income policy.
The Employment Agreement terminates automatically upon Mr. McAuliffe's
death and at the Bank's option, in the event of his disability (as defined in
the Employment Agreement). The Employment Agreement is also terminable by the
Bank "with" or "without cause" and Mr. McAuliffe may terminate the Employment
Agreement "for good reason" or "without good reason" or upon a "change in
control" (as such terms are defined in the Employment Agreement). If Mr.
McAuliffe elects to terminate his employment following a "change in control," he
is entitled to his unpaid cash compensation through the date of termination, any
previously deferred compensation, accrued but unpaid vacation pay and severance
payments and benefit continuation over a one-hundred twenty (120) month period
based upon an agreed-upon formula. In addition, for five (5) years from his
termination date, Mr. McAuliffe may elect to sell all or some of his Company
common shares back to the Company based upon an agreed-upon price or if no
agreement can be reached, a purchase price based upon the average of two (2)
appraisals (the "Purchase Option"). In the event Mr. McAuliffe's employment is
terminated by the Bank "without cause" or by Mr. McAuliffe for "good reason," he
will be entitled to receive, in addition to accrued but unpaid compensation and
vacation pay, one year's worth of base salary and benefits plus the amount then
held in the Trust. In addition, in the case of a termination by the Bank
"without cause," the Purchase Option will be available to Mr. McAuliffe. If Mr.
McAuliffe's employment is terminated by the Bank "for cause" or by Mr. McAuliffe
"without good reason," he will only be entitled to receive his accrued (but
unpaid) compensation and vacation pay, along with any compensation previously
deferred by him.
The Employment Agreement provides that during a two (2) year period
following the termination of his employment with the Bank (except by reason of a
termination by the Bank in the event of a disability), Mr. McAuliffe may not
compete or become associated with any entity that competes with the business of
the Company or any of its subsidiaries in any geographic area where the Company
or any of its subsidiaries operates an office. In addition, during the two (2)
year period referred to above (except by reason of a termination by the Bank in
the event of a disability), Mr. McAuliffe may not directly or indirectly,
encourage or solicit, or assist any other person or firm in encouraging or
soliciting anyone having a business relationship with the Bank or any of its
subsidiaries within the two (2) years preceding his termination of employment to
terminate a business relationship with the Bank or engage in a business
relationship with a competitor.
EMPLOYEE STOCK OPTION PLANS
In April, 1996, the shareholders of the Bank adopted the 1996
Non-Qualified Stock Option Plan (the "Plan") providing for the grant of
non-qualified stock options to certain directors and key employees of the Bank
and consolidating prior stock option plans. The exercise price of the options
granted under the Plan will not be less than the fair market value per share of
the common stock on the date of the grant.
The options will be exercisable in whole or in part upon such terms and
conditions as may be determined by the Board of Directors but, in no event, will
options be exercisable later than 20 years after the date of grant. A total of
180,000 shares are approved for grant under the Plan.
-34-
<PAGE> 40
During 1997, the Bank granted 10,120 stock options to employees. Of
this amount, executive officers received the following grants, all subject to a
3-year vesting period: Thomas D. McAuliffe-1,720; John A. Romelfanger-580 and
Daniel M. Mahoney-520. All options granted to executive officers had an exercise
price of $20.00 per share and a 10-year expiration.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realized Value at
Assumed Annual Rates of
Stock Price Appreciation
Individual Grants(1) for Option Term
- ----------------------------------------------------------------------------------------- -----------------------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees in Exercise Expiration
Name Granted Fiscal Year Price ($/Sh) Date 5% ($) 10% ($)
- --------------------------- --------------- ---------------- -------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas D. McAuliffe 1,720 17.0% $20.00 12/31/07 $21,638 $54,834
John A. Romelfanger 580 5.7% $20.00 12/31/07 $7,296 $18,490
Daniel M. Mahoney 520 5.1% $20.00 12/31/07 $6,542 $16,578
</TABLE>
(1) Grants vest 33-1/3% per year, beginning on December 31, 1998.
The following table summarizes the total outstanding options to
executive officers at December 31, 1997. No options were exercised by executive
officers in 1997.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised Options at In-the-Money Options at
December 31, 1997 December 31, 1997
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
- ----------------------------------------- ---------------------------------------------- ----------------------------
<S> <C> <C>
Thomas D. McAuliffe 30,780/3,000 $395,160/$2,957
John A. Romelfanger 20,923/1,287 $265,262/$1,632
Daniel M. Mahoney 20,897/1,173 $265,015/$1,509
</TABLE>
COMMERCE NATIONAL BANK DEFERRED COMPENSATION PLANS
The Bank has a non-qualified deferred compensation plan for directors.
This plan permits the deferral of compensation earned until the participant's
retirement. The participant's election to defer compensation must be made prior
to the date the compensation is earned and all amounts deferred earn interest.
In addition to the plan for Mr. McAuliffe, described under "Employment
Agreement," the Bank has non-qualified compensation plans for three of its
senior officers. A plan for Mr. Romelfanger was effective on December 31, 1994.
Plans for Mr. Mahoney and Ms. Miller were effective December 31, 1997. All plans
require the officers to remain in the employ of the Bank for 10 years from the
effective date to receive any benefits and are funded by life insurance
policies. Deferred compensation expense under Mr. Romelfanger's plan in 1997
was $4,500.
401(K) PLAN
The Bank has a trusteed 401(k) savings plan covering all employees who
have attained the age of 20 1/2 and work a minimum of 1,000 hours per calendar
year. Salary redirection or "401(k)" contributions are made to the plan pursuant
to a salary redirection agreement between each participant and the Bank. The
Bank makes a contribution for each participant equal to three percent of the
participant's compensation. In addition, a fifty (50) percent match, on
contributions up to a maximum of six (6) percent of the participant's
compensation, is made by the Bank for those participants who elect to make
salary redirection contributions.
-35-
<PAGE> 41
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Bank has established four committees.
These committees meet with management on a regularly scheduled basis to review
the Bank's policies, procedures and operating performance on particular
functional areas. The activities of all committees are reviewed by the Board of
Directors. These committees are established in accordance with the Bylaws of the
Bank, which may be changed from time to time by a majority vote of the Board of
Directors.
The Loan Committee is comprised of three directors, none of whom are
officers of the Bank, and Mr. McAuliffe. The primary responsibilities of the
Committee are to review and approve loans over particular limits and review and
approve changes to the Bank's lending policies and procedures. All board members
serve on the loan committee on a rotating basis. The Committee met 27 times in
1997.
The Funds Management Committee is comprised of not less than four
outside directors, Mr. McAuliffe, Mr. Romelfanger and Ms. Miller. The directors
currently serving on this committee include Mr. Gummer, Mr. Weiler, Mr. Ryan and
Mr. Canini. The Committee meets at least quarterly, and its primary
responsibilities include reviewing the Bank's asset/liability interest rate
sensitivity, reviewing and approving investment policies and practices and
reviewing the operating performance of the Bank. In 1997, the Committee met 6
times.
The Compensation Committee is comprised of at least five directors and
Mr. McAuliffe, who is a non-voting member, with its primary responsibility being
the review of personnel policies and practices and evaluation of senior
management. The directors currently serving on the committee include Mr. Corna,
Mr. Ryan, Mr. Tonti, Mr. Ruhl, Mr. Crane and Mr. McDaniel. The Committee met 4
times in 1997.
The Audit Committee is comprised of at least four directors, none of
whom are officers of the Bank. The Committee's primary responsibilities are the
review of internal and external auditors' reports, the review of internal loan
review reports, evaluation of the internal auditor and external audit firm, and
the review of regulatory examination results. The directors currently serving on
this committee include Mr. Canini, Mr. Hoy, Mr. Kenney and Ms. DeVillers. The
Committee met 3 times in 1997.
Each outside director is paid an attendance fee of $250 per Board of
Directors meeting and $100 per committee meeting.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Directors and officers of the Company and their associates are
customers of, and have had transactions with, the Bank in the ordinary course of
business. All outstanding loans and commitments included in such transactions
were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons and, in the opinion of management, did not involve more than the
normal risk of collectibility or present other unfavorable features.
At September 30, 1998, the aggregate amount of extensions of credit
from the Bank to directors and executive officers of the Company and their
respective associates is as follows:
<TABLE>
<CAPTION>
Percent of
Bank Capital
--------------
<S> <C> <C>
Amounts outstanding at September 30......... $5,613,000 57%
Unadvanced commitments and lines of credit.. 3,484,000 36%
---------- ----
Total.............................. $9,097,000 93%
</TABLE>
Additionally, the directors and executive officers maintained deposit account
relationships totaling $4,242,000 with the Bank. The loan and deposit balances
are more substantial than other financial institutions of similar size due to
the fact that many of the directors are founding organizers of the Bank and the
Company's board is approximately twice the size of most similar sized financial
institutions. See Note 5 to the Consolidated Financial Statements attached
hereto.
-36-
<PAGE> 42
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The table on the following page sets forth, as of September 30, 1998,
information concerning the number of Common Shares beneficially owned, including
warrants and options, directly or indirectly, by each director individually, and
by all executive officers and directors of the Company as a group. No executive
officer or director owns more than ten percent (10%) of the outstanding Common
Shares.
<TABLE>
<CAPTION>
- ------------------------------------ -------------------------- -------------------------- ==============================
Amount and Nature of Amount of Percent of Class as of
-------------------- --------- ----------------------
Name of Beneficial Owner Beneficial Ownership(a) Common Stock Only September 30, 1998(a)
- ------------------------ ----------------------- ----------------- ---------------------
- ------------------------------------ -------------------------- -------------------------- ==============================
<S> <C> <C> <C>
Thomas D. McAuliffe 88,912 54,612 7.74%
Loreto V. Canini 1,840 1,840 .17%
Mark S. Corna 7,638 5,020 .68%
Jameson Crane, Jr. (b) 57,640 54,780 5.16%
Judith A. DeVillers 10,124 7,880 0.91%
George A. Gummer 28,842 23,788 2.58%
William L. Hoy 12,132 8,514 1.09%
Douglas W. James (e) 33,660 26,400 3.00%
Donald R. Kenney 71,060 63,800 6.34%
Daniel M. Mahoney 30,136 9,240 2.65%
Samuel E. McDaniel 7,260 4,400 .65%
Kent K. Rinker 50,038 48,960 4.49%
Richard F. Ruhl 17,275 15,075 1.55%
David J. Ryan 34,324 30,232 3.07%
Peter C. Taub 24,334 18,482 2.17%
John A. Tonti (c) 18,712 15,840 1.67%
Alan R. Weiler 40,648 35,624 3.63%
Michael Wren (d) 66,500 54,620 5.90%
- ------------------------------------ -------------------------- ---------------------------------------------------------
All directors and executive 623,113 480,177 51.30%
officers as a group (19 persons)
- ------------------------------------ -------------------------- ---------------------------------------------------------
</TABLE>
(a) Reflects all Common Shares (including warrants and vested stock
options) "beneficially owned" as of September 30, 1998, by each
individual and group, determined in accordance with the definition of
"beneficial ownership" set forth in the regulations of the Securities
and Exchange Commission. Accordingly, the shares shown may include
securities owned by or for, among others, the spouse and/or minor
children of the individual and any other relative who has the same name
as such individual, as well as other shares as to which the individual
has voting or investment power. An individual is deemed to be the
beneficial owner of shares registered in his name or as to which he
exercises sole or shared voting or investment power. Beneficial
ownership may be disclaimed as to certain of the shares.
(b) Includes 31,900 shares owned by Fairwood Investment Company and 18,480
shares and warrants owned by Crane Plastics Company Pension Plan, as to
which Mr. Crane exercises shared voting and investment power.
(c) Includes 3,970 shares owned by West Penn Foods, Inc. and 1,100 shares
owned by Cambridge Leasing Company, as to which Mr. Tonti exercises
voting and investment power.
(d) Includes 660 shares owned by M-E Engineering, Inc., as to which Mr.
Wren exercises voting and investment power.
(e) Includes 1,692 warrants owned by American Business Equipment Pension
Plan, to which Mr. James exercises investment power.
-37-
<PAGE> 43
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of 2,000,000
Common Shares, no par value, of which 1,114,636 shares were outstanding as of
September 30, 1998 and beneficially owned by approximately 400 shareholders.
Upon completion of this Offering, the Company will have up to 1,239,636 Common
Shares outstanding. The authorized capital stock of the Company also consists of
200,000 shares of Serial Preferred Stock, par value $10.00. No shares of Serial
Preferred Stock are issued and outstanding.
VOTING RIGHTS
The holders of Common Shares are entitled to one vote per share on all
matters submitted to a vote of shareholders, except in the election of
directors, for which the Common Shares have cumulative voting rights.
DIVIDENDS
The Company's current policy is to declare dividends semi-annually in
June and December. Although the Company intends to continue to pay cash
dividends on its Common Shares in the future based upon its net income and
available cash flow, there can be no assurance that the Company will have
earnings sufficient to pay a dividend on its Common Shares or that, even if
there are sufficient earnings, dividends will be permitted under applicable laws
or regulatory requirements.
COMMON SHARES FULLY PAID AND NONASSESSABLE
All of the outstanding Common Shares of the Company are, and the Common
Shares to be sold by the Company pursuant to this offering when issued will be,
fully paid and nonassessable.
PREEMPTIVE RIGHTS/REPURCHASE AND REDEMPTION
Shareholders of the Company do not have preemptive rights to purchase
or subscribe to any shares or other securities of the Company. The Board of
Directors may authorize the Company at any time to purchase or redeem shares
issued by the Company to the extent of available surplus.
SPECIAL VOTE FOR CONTROL SHARE ACQUISITIONS
The Company is an Ohio corporation. Currently, the Company has
approximately 400 shareholders. Since the Company has in excess of 50
shareholders, it is deemed to be an "issuing public corporation" under the law
of the State of Ohio and is subject to the provisions of the Ohio Control Share
Acquisition Statute (the "Statute"). As an alternative, the Statute provides
that an Ohio corporation may include in its articles of incorporation or
regulations restrictions on the transfer of its shares in connection with a
"control share acquisition," including procedures for obtaining the consent of
shareholders and for the screening by directors of proposals for such
acquisitions. As drafted, the Amended and Restated Articles of Incorporation of
the Company provide that the Statute does not apply to the Company.
Specifically, Article Sixth sets forth a procedure for obtaining shareholder
consent that is consistent with the Statute, subject to the right of the
directors to screen out proposals that do not meet certain standards set forth
in Article Sixth. The right of the Board of Directors to screen control share
acquisitions is the principal difference between Article Sixth and the
requirements of Ohio law that would otherwise be applicable to the Company.
TRANSFER AGENT AND REGISTRAR
The Company acts as its own transfer agent and registrar.
CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION AND CODE OF
REGULATIONS
The Company's Articles of Incorporation provide for a classified Board
of Directors. The directors are divided into three classes as nearly equal in
number as possible, and each class is elected for a staggered three-year term of
office at each annual shareholders meeting. If the number of directors is
changed, any increase or decrease shall be apportioned among the classes so as
to maintain the number of directors in each class as nearly equal as possible,
and any additional director of any class elected to fill a vacancy resulting
from an increase in such class, but in no case will a decrease in the number of
directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting for the year in which his term expires and his
successor shall be elected and shall qualify; subject, however, to prior death,
resignation, or removal from office.
-38-
<PAGE> 44
Article Fourth of the Company's Articles authorizes 200,000 Serial
Preferred Shares ("Serial Shares"), all with a par value of Ten Dollars
($10.00), which may be issued in one or more series by the Board of Directors.
The Board of Directors is authorized by the Articles to establish, among other
things, dividend rates, cumulative rights, redemption rights or prices, sinking
fund provisions, and conversion rights of the Serial Shares. The holders of
Serial Shares are entitled to be paid dividends when and as declared in
preference to the holders of the Common Shares. In liquidation or dissolution,
the holders of Serial Shares are entitled to be paid for their shares, plus the
amount of any dividends in arrears, before any amounts are paid to the holders
of the Common Shares in respect of such Shares. The holders of the Serial Shares
are entitled to one vote per share on all matters presented to the shareholders.
Except as indicated below, the holders of Serial Shares vote with the holders of
the Common Shares on matters presented to the shareholders. If there is a
default in respect of six quarterly dividends, the holders of the Serial Shares
are entitled to elect two directors to the Board of Directors until such default
is cured. The affirmative vote of the holders of two-thirds of the outstanding
Serial Shares, voting separately as a class, is required to adopt any amendment
to the Articles or Regulations (i) to authorize any class of stock ranking on a
parity with outstanding Serial Shares or to increase the authorized number of
Serial Shares or (ii) to authorize the sale of substantially all of the assets
of the Company or certain mergers.
In the event of a tender offer or other attempt to gain control of the
Company that the Board of Directors does not approve, it would be possible for
the Board of Directors to authorize the issuance of a series of Serial Shares
with rights and preferences that could impede the completion of such a
transaction. The flexibility of the Board of Directors to take such action will
be increased by virtue of the denial of preemptive rights. However, the Company
does not at present have any plans, arrangements, commitments or understandings
to issue any Serial Shares. Any Serial Shares issued in the future will be on
terms which the Board of Directors deems to be in the best interests of the
Company and its shareholders.
Under the Company's Regulations, a special meeting of shareholders may
be called by the President, a Vice President or a majority of the Board of
Directors, and by shareholders holding a requisite percentage of the shares
entitled to vote. With respect to special meetings called by shareholders, the
Regulations provide that the requisite percentage for calling such meetings is
fifty percent (50%). This provision is consistent with the maximum permissible
requirement under Ohio law.
The Regulations establish a requirement that advance notification of
nominations of directors by shareholders be given to the Secretary of the
Company, as a general rule, not less than sixty (60) nor more than ninety (90)
days prior to the date of any shareholders' meeting (as initially called, in the
case of adjourned meetings) held for the purpose of electing directors. If less
than seventy-five (75) days notice or prior public disclosure of a meeting date
is given or made to the shareholders, in order to be timely, the shareholders'
notice must be received by the close of business on the fifteenth day following
the earlier of the day the meeting notice was mailed or public disclosure of the
meeting was made. The notice of nomination must set forth certain information
regarding each nominee who is not an incumbent director and must be accompanied
by the written consent of the proposed nominee to serve as a director if
elected. Nominations which the chairman of the meeting determines not to have
been made in accordance with the Regulations are to be disregarded.
A similar provision applies to business that may be brought before a
meeting of shareholders by a shareholder. The Company Regulations provide that a
shareholder must give the Secretary written notice that a matter is to be
brought before such a meeting, as a general rule, not less than sixty (60) nor
more than ninety (90) days prior to the date of the meeting (as initially
called, in the case of adjourned meetings). If less than seventy-five (75) days
notice or prior public disclosure of a meeting date is given or made to the
shareholders, in order to be timely, the shareholders' notice must be received
by the close of business on the fifteenth day following the earlier of the day
the meeting notice was mailed or public disclosure of the meeting was made. The
notice must contain, among other things, a brief description of the business the
shareholder desires to bring before the meeting, the reasons thereof and any
material interest of such shareholder in such business.
The purpose of these nomination and shareholder proposal procedures is
to avoid the possibility of nominations or proposals being made in a way that
would preclude the Board from investigating and the shareholders from adequately
assessing the competence, experience, integrity and other relevant factors
concerning the qualifications of a proposed nominee or any relevant factors
concerning shareholder proposals. The Board of Directors believes that matters
should be brought before a meeting in an orderly fashion and in sufficient time
before a meeting so that shareholders may be provided adequate information in
order to vote on a fully-informed basis.
The provisions described above could deter a shareholder from gaining
control of the Company by means of making nominations for directors or proposing
shareholder actions from the floor of a meeting or by means of a proxy contest
instituted so close to the date of a shareholders' meeting that adequate
information might not be available to shareholders.
-39-
<PAGE> 45
A possible adverse effect of the nomination and shareholder proposal
provisions may be that persons otherwise qualified to serve as directors and who
are proposed for nomination and election by holders of a majority of the
outstanding voting shares may not be nominated or elected due to inadvertence or
otherwise. Also, this provision may make it easier for incumbent directors to
solicit proxies to resist a dissident slate of directors and thus retain their
status as directors, even when the dissident nominations might be in the best
interests of the Company and its shareholders. In this sense, the provisions can
be viewed as advantageous to incumbent directors and executive officers and may
discourage takeover attempts.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Section 1701.13 of the Ohio Revised Code provides for the
indemnification of officers and directors against liability and certain expenses
that may be incurred by them in the event of an action against them as a result
of their service for or on behalf of the Company. The Code of Regulations of the
Company contains specific provisions in regard to indemnification of officers
and directors of the Company and its subsidiaries to implement the general
provisions of such section. Furthermore, to enable the Company to continue to
attract and retain qualified directors and officers, the Company has entered
into indemnification agreements with each director and officer of the Company
that specify the types of matters for which indemnification by the Company is
available and the extent of indemnification afforded and provide for advancement
of defense expenses under certain conditions.
SHARES ELIGIBLE FOR FUTURE SALE
The market price of the Common Shares could drop as a result of sales
of a large number of Common Shares in the market after the Offering, or the
perception that such sales could occur. These factors could also make it more
difficult for the Company to raise funds through future offerings. As a result
of the Offering, there will be an additional 125,000 Company common shares
outstanding. All of these shares will be freely transferable without restriction
of future registration, except for any Common Shares purchased by "affiliates"
of the Company, as defined in Rule 144 under the Securities Act. The remaining
1,114,636 outstanding common shares of the Company, which have been issued in
private offerings or are issuable upon the exercise of warrants, are "restricted
securities" as defined in Rule 144 and may be resold without restriction to the
extent permitted by Rule 144 or an exemption under the Securities Act. It should
be noted that the holding period restrictions on the majority of the 1,114,636
shares have lapsed. Assuming the Offering is fully subscribed for, the Company
will have 522,415 authorized but unissued shares which may be issued without
further approval of its shareholders.
LEGAL PROCEEDINGS
Neither the Company nor the Bank is a party to any material pending
legal proceedings.
EXPERTS
The consolidated financial statements as of December 31, 1997 and 1996
and for the years then ended included in this Prospectus and in the Registration
Statement have been audited by Crowe, Chizek and Company LLP, independent public
accountants, as set forth in their report thereon dated February 5, 1998, which
appears elsewhere herein and in the Registration Statement. All such financial
statements have been included herein in reliance upon such reports given upon
the authority of such firm as experts in auditing and accounting.
The validity of the Common Shares offered hereby has been passed upon
for the Company by the law firm of Squire, Sanders & Dempsey L.L.P., Cleveland,
Ohio.
-40-
<PAGE> 46
FINANCIAL STATEMENTS
Consolidated Financial Statements for the nine month period ended
September 30, 1998 (unaudited) and the years ended December 31, 1997 and 1996.
<TABLE>
<S> <C>
Independent Auditors' Report..................................................................... F-1
Consolidated Financial Statements:
Balance Sheet Statements................................................................ F-2
Income Statements....................................................................... F-3
Comprehensive Income Statements......................................................... F-4
Statements of Changes in Shareholders' Equity........................................... F-5
Statements of Cash Flows................................................................ F-6
Notes to Consolidated Financial Statements.............................................. F-7
</TABLE>
-41-
<PAGE> 47
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND THE SHAREHOLDERS OF CNBC BANCORP:
We have audited the accompanying consolidated balance sheets of CNBC Bancorp as
of December 31, 1997 and 1996, and the related consolidated statements of
income, changes in shareholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of CNBC Bancorp's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CNBC Bancorp as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
CROWE, CHIZEK AND COMPANY, LLP
Columbus, Ohio
February 5, 1998
<PAGE> 48
CNBC BANCORP
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 (unaudited) AND
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
September 30 December 31
1998 1997 1996
---- ---- ----
ASSETS (unaudited)
<S> <C> <C> <C>
Cash and Non Interest-Bearing Balances..................... $ 7,873,346 $ 5,084,869 $ 4,248,421
Interest Bearing Balances................................... 3,302,169 794,592 2,360,741
Federal Funds Sold.......................................... 4,800,000 4,000,000 3,600,000
Money Market Funds.......................................... 8,395,344 5,180,572 4,530,654
-------------- -------------- --------------
Total Cash and Cash Equivalents............................. 24,370,859 15,060,033 14,739,816
Securities Available for Sale............................... 4,921,021 4,050,988 3,130,253
Loans, Net of Allowance for Loan Losses..................... 134,558,639 117,078,439 85,086,853
Premises and Equipment...................................... 1,842,606 1,863,380 281,202
Accrued Interest Receivable................................. 820,354 641,591 505,266
Deferred Federal Income Taxes............................... 564,000 434,000 326,000
Other Assets................................................ 246,211 196,350 137,377
-------------- -------------- --------------
Total Assets................................................ $ 167,323,690 $ 139,324,781 $ 104,206,767
============== ============== ==============
LIABILITIES
Deposits:
Non Interest-Bearing Deposits...................... $ 19,164,630 $ 16,891,426 $ 13,772,234
Interest-Bearing Deposits.......................... 124,832,744 102,213,987 76,604,307
-------------- -------------- --------------
Total Deposits............................ 143,997,374 119,105,413 90,376,541
Borrowings.................................................. 10,823,826 8,860,482 4,884,049
Other Liabilities........................................... 842,730 877,222 648,930
-------------- -------------- --------------
Total Liabilities........................................... 155,663,930 128,843,117 95,909,520
SHAREHOLDERS' EQUITY
Common Stock: No Par Value;
Authorized Shares -2,000,000
Issued and Outstanding - 1,114,636 in 1998,
555,890 in 1997 and 526,827 in 1996............... 8,365,273 8,349,051 7,297,557
Retained Earnings........................................... 3,271,487 2,133,913 1,010,790
Unrealized Gain/(Loss) on Securities Available for Sale..... 23,000 (1,300) (11,100)
-------------- -------------- --------------
Total Shareholders' Equity.................................. 11,659,760 10,481,664 8,297,247
-------------- -------------- --------------
Total Liabilities and Shareholders' Equity.................. $ 167,323,690 $ 139,324,781 $ 104,206,767
============== ============== ==============
</TABLE>
See Notes to Consolidated Financial Statements
F-2
<PAGE> 49
CNBC BANCORP
CONSOLIDATED INCOME STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (unaudited) AND
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
For the Nine Months For the Years
Ended September 30 Ended December 31
1998 1997 1997 1996
---- ---- ---- ----
(unaudited)
INTEREST INCOME
<S> <C> <C> <C> <C>
Loans, including Fees......................... $ 8,625,342 $ 6,506,663 $ 9,160,044 $ 7,041,088
Taxable Securities............................ 226,447 151,285 212,621 222,625
Money Market Funds............................ 238,482 169,189 219,432 278,392
Federal Funds Sold............................ 141,414 72,618 75,490 110,815
Deposits with Banks........................... 149,055 41,514 62,761 26,305
----------- ----------- ----------- -----------
Total Interest Income.................................. 9,380,740 6,941,269 9,730,348 7,679,225
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits ..................................... 4,201,602 2,944,160 4,137,289 3,390,599
Borrowings.................................... 440,926 340,496 487,178 313,949
----------- ----------- ----------- -----------
Total Interest Expense................................. 4,642,528 3,284,656 4,624,467 3,704,548
----------- ----------- ----------- -----------
Net Interest Income.................................... 4,738,212 3,656,613 5,105,881 3,974,677
Provision for Loan Losses.............................. 384,800 257,700 385,600 254,400
----------- ----------- ----------- -----------
Net Interest Income After Provision for Loan Losses.... 4,353,412 3,398,913 4,720,281 3,720,277
OTHER INCOME
Service Charges on Deposits................... 95,331 87,370 118,580 95,877
Other Income.................................. 74,230 50,797 69,879 65,026
----------- ----------- ----------- -----------
Total Other Income..................................... 169,561 138,167 188,459 160,903
----------- ----------- ----------- -----------
OPERATING EXPENSES
Salaries and Benefits......................... 1,473,790 1,098,897 1,529,582 1,205,966
Occupancy and Equipment....................... 75,622 140,274 166,780 180,286
Data Processing............................... 196,030 174,681 228,830 199,062
Customer Courier.............................. 132,000 105,500 146,750 115,550
Professional Services......................... 124,307 69,349 133,699 75,394
State Franchise Tax........................... 97,301 88,346 117,723 111,064
Other Expenses................................ 395,364 321,646 445,507 358,437
----------- ----------- ----------- -----------
Total Operating Expenses............................... 2,494,414 1,998,693 2,768,871 2,245,759
----------- ----------- ----------- -----------
Income Before Income Taxes............................. 2,028,559 1,538,387 2,139,869 1,635,421
Income Tax Expense..................................... 701,600 535,850 745,200 572,648
----------- ----------- ----------- -----------
Net Income............................................. $ 1,326,959 $ 1,002,537 $ 1,394,669 $ 1,062,773
============ ============ ============= ============
EARNINGS PER COMMON SHARE
Basic .......................................... $ 1.19 $ .95 $ 1.31 $ 1.02
============ ============ ============= ============
Diluted .......................................... $ 1.08 $ .86 $ 1.21 $ .95
============ ============ ============= ============
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE> 50
CNBC BANCORP
CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (unaudited) AND
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
For the Nine Months For the Years
Ended September 30 Ended December 31
1998 1997 1997 1996
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Net Income................................................ $1,326,959 $1,002,537 $1,394,669 $1,062,773
Other Comprehensive Income, net of tax:
Unrealized Gain/(Loss) on Securities Available for Sale... 24,300 9,800 9,800 (27,600)
---------- ---------- ---------- ---------
Comprehensive Income...................................... $1,351,259 $1,012,337 $1,404,469 $1,035,173
========== ========== ========== ==========
</TABLE>
F-4
<PAGE> 51
CNBC BANCORP
CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1998 (unaudited) AND
YEARS ENDED DECEMBER 31, 997 AND 1996
<TABLE>
<CAPTION>
Unrealized
Gain/(Loss) on
Additional Securities
Common Paid-In Retained Available
Stock Capital Earnings for Sale Total
------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1996...................... $ 2,615,481 $ 4,639,866 $ 132,407 $ 16,500 $ 7,404,254
Reclassification from
Reorganization................................... 4,639,866 (4,639,866)
Proceeds from Exercise of 3,740 Warrants......... 42,486 42,486
Redemption of 9.2 Fractional Shares.............. (276) (276)
Net Income....................................... 1,062,773 1,062,773
Change in Unrealized Gain/(Loss) on
Securities Available for Sale.................... (27,600) (27,600)
Cash Dividends Declared ($.175 per share)........ (184,390) (184,390)
------------ ------------ ------------ ------------- ------------
BALANCES AT DECEMBER 31, 1996.................... 7,297,557 0 1,010,790 (11,100) 8,297,247
Offering Proceeds from
Sale of 25,000 Shares............................ 1,000,000 1,000,000
Offering Costs................................... (8,193) (8,193)
Proceeds from Exercise of 2,633 Warrants......... 29,911 29,911
Proceeds and Tax Benefit from Exercise
of 1,430 Stock Options........................... 29,776 29,776
Net Income....................................... 1,394,669 1,394,669
Cash Dividends Declared ($.25 per Share)......... (271,546) (271,546)
Change in Unrealized Gain/(Loss) on
Securities Available for Sale.................... 9,800 9,800
------------ ------------ ------------ ------------- ------------
BALANCES AT DECEMBER 31, 1997.................... 8,349,051 0 2,133,913 (1,300) 10,481,664
Proceeds from Exercise of 2,856 Warrants......... 16,222 16,222
Net Income....................................... 1,326,959 1,326,959
Cash Dividends Declared ($.17 per Share)........ (189,385) (189,385)
Change in Unrealized Gain/(Loss) on
Securities Available for Sale.................... 24,300 24,300
------------ ------------ ------------ ------------- ------------
BALANCES AT SEPTEMBER 30, 1998 (UNAUDITED)....... $ 8,365,273 $ 0 $ 3,271,487 $ 23,000 $11,659,760
============ ============ ============ ============= ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE> 52
CNBC BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (unaudited) AND
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
For the Nine Months Ended For the Years Ended
September 30, December 31,
1998 1997 1997 1996
---- ---- ---- ----
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net Income................................................ $ 1,326,959 $ 1,002,537 $ 1,394,669 $ 1,062,773
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Loan Losses............... 384,800 257,700 385,600 254,400
Depreciation............................ 111,975 85,328 121,237 81,276
Deferred Income Taxes................... (142,000) (104,000) (113,000) (31,800)
Net Amortization/Accretion on Securities 4,448 (2,118) (3,027) (14,719)
Federal Home Loan Bank Stock Dividend... (59,400) (36,500) (69,300) (45,500)
Changes in:
Interest Receivable............ (178,763) (156,779) (136,325) (75,676)
Other Assets................... (50,353) (62,757) (58,973) (97,359)
Other Liabilities.............. 104,478 177,165 273,712 (27,634)
------------ ------------- ------------- -------------
Net Cash Provided by Operating Activities........ 1,502,144 1,160,576 1,794,593 1,105,761
------------ ------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Securities................................... (2,028,289) (1,168,008) (1,333,608) (1,747,637)
Maturities of Securities.................................. 1,250,000 500,000 500,000 2,000,000
Net Increase in Loans..................................... (17,865,000) (23,179,540) (32,377,186) (17,433,761)
Purchase of Premises and Equipment........................ (91,201) (1,617,430) (1,703,415) (70,921)
------------ ------------- ------------- -------------
Net Cash Flows Used in Investing Activities...... (18,734,490) (25,464,978) (34,914,209) (17,252,319)
------------ ------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits.................................. 24,891,961 16,697,625 28,728,872 21,328,811
Net Proceeds from Issuance of Common Stock................ 16,222 53,018 1,051,494 42,486
Stock Subscriptions Received.............................. 261,600
Maturities of Federal Home Loan Bank Advances............. (1,250,000) (1,250,000) (1,250,000) (500,000)
Advances from Federal Home Loan Bank...................... 3,500,000 3,550,000 3,550,000 500,000
Principal Payments on Federal Home Loan Bank Advances..... (286,656) (204,738) (323,567) (265,230)
Net Proceeds from Loan Payable............................ 2,000,000 2,000,000
Dividends Paid............................................ (328,355) (316,966) (316,966) (130,774)
------------ ------------- ------------- -------------
Net Cash Flows Provided by Financing Activities.. 26,543,172 20,790,539 33,439,833 20,975,293
------------ ------------- ------------- -------------
Net Change in Cash and Cash Equivalents.......... 9,310,826 (3,513,863) 320,217 4,828,735
Cash and Cash Equivalents at Beginning of Year............ 15,060,033 14,739,816 14,739,816 9,911,081
------------ ------------- ------------- -------------
Cash and Cash Equivalents at End of Year.................. $24,370,859 $11,225,953 $ 15,060,033 $ 14,739,816
=========== =========== ============= =============
Cash Paid During the Year for
Interest......................................... $ 4,642,994 $ 3,218,129 $ 4,570,182 $ 3,689,948
Income Taxes..................................... 851,955 622,593 857,000 758,288
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE> 53
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997 (unaudited) AND
DECEMBER 31, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed in
the preparation of the financial statements.
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of CNBC Bancorp ("Bancorp") and its wholly owned subsidiary, Commerce
National Bank ("Bank"). All significant intercompany balances and transactions
have been eliminated in consolidation. All information as of September 30, 1998
and 1997 and for the nine months then ended is unaudited.
At a special shareholder meeting held October 22, 1996, the Bank's shareholders
approved a plan of reorganization whereby they would exchange each share of Bank
$5 par value common stock for no par value common stock of Bancorp. The
reorganization was consummated November 30, 1996. The transaction represented an
internal reorganization and the historical basis of assets and liabilities were
carried forward without change.
NATURE OF OPERATIONS: Revenues and assets are derived from the banking industry,
serving primarily small business customers in the central Ohio region. Banking
deposit products include checking and savings accounts and certificates of
deposit. Business loans are secured by real estate, accounts receivable,
inventory, equipment and other types of collateral and personal loans are
secured by real estate, stocks and other collateral. A small portion of loans
are unsecured.
USE OF ESTIMATES: To prepare financial statements in conformity with generally
accepted accounting principles, management makes certain estimates and
assumptions based on available information. These estimates and assumptions
affect the amounts reported in the financial statements and the disclosures
provided. Future results could differ from these estimates. The collectibility
of loans, fair values of financial instruments and status of contingencies are
more susceptible to change.
SECURITIES: Securities can be classified into held to maturity, available for
sale, and trading categories. Held to maturity securities are those which
management has the positive intent and ability to hold to maturity, and are
reported at amortized cost. Available for sale securities are those which may be
sold prior to maturity for liquidity, asset-liability management, or other
reasons. Available for sale securities are reported at fair value, with
unrealized gains or losses included as a separate component of shareholders'
equity, net of tax. Trading securities are bought principally for sale in the
near term and are reported at fair value with unrealized gains or losses
included in earnings. Realized gains or losses are determined based on the
amortized cost of the specific security sold. Interest income includes
amortization of purchase premium or discount.
LOANS: Loans are reported at the principal balance outstanding, net of deferred
loan fees and costs and the allowance for loan losses. Interest income on loans
is recognized on the interest method. The accrual of interest on loans will be
suspended when, in management's opinion, the collection of all or a portion of
interest has become doubtful. When a loan is placed on nonaccrual status,
accrued and unpaid interest at risk is charged against income. Payments received
on nonaccrual loans will be applied against principal until recovery of the
remaining balance is reasonably assured. Loan fees and direct costs associated
with originating or acquiring loans are deferred and recognized over the life of
the loan as an adjustment of the yield.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is increased by
recording a provision for loan losses, which is charged to current expense, and
receiving recoveries on loans previously charged off. The allowance for loan
losses is decreased by loan charge-offs. Management's periodic evaluation of the
adequacy of the allowance is based on known and inherent risks in the loan
portfolio, assessment of individual borrower's ability to repay their loans
including the value of any collateral, current economic conditions, and past
loan loss experience. Many of these factors are subjective and may change over
time. A loan is classified as impaired when full payment under the loan terms is
not expected. Impairment is evaluated in total for smaller balance loans or
loans of a similar nature such as residential mortgage and credit card loans,
and on an individual basis for other loans. Loans considered to be impaired are
reduced to the present value of expected future cash flows, or the fair value of
collateral securing the loan, by allocating a portion of the allowance for loan
losses to such loans. Loans are evaluated for impaired status when payments are
past due 90 days or more or when management's grading system indicates a
doubtful classification. Interest received on impaired loans that are not on
nonaccrual status is recorded as interest income.
F-7
<PAGE> 54
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997 (unaudited) AND
DECEMBER 31, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
CONCENTRATION OF CREDIT RISK: Business and real estate investment loans
comprised approximately 78 percent (unaudited), 75 and 70 percent of total loans
at September 30, 1998, December 31, 1997 and 1996, respectively.
PREMISES AND EQUIPMENT: Asset cost is reported net of accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated useful
life of the asset. Maintenance and repairs are charged to expense as incurred,
and major improvements are capitalized. Assets are reviewed for impairment when
events indicate the carrying amount may not be recoverable.
EMPLOYEE BENEFITS: A trusteed 401(k) savings plan covers all employees who have
attained the age of 20-1/2 and work a minimum of 1,000 hours per calendar year.
An employer contribution for each participant equal to three percent of the
participant's compensation is made annually. The plan also allows employee
contributions, with contributions up to six percent of the participant's
compensation matched 50 percent by the employer. Expense related to the plan was
$59,500 and $39,400 for the nine months ended September 30, 1998 and 1997
(unaudited), and $60,400 and $47,900 in 1997 and 1996. No post-retirement
benefits other than the 401(k) plan are provided to employees.
In March 1998, an employment contract was executed between Thomas D. McAuliffe,
Bancorp and the Bank. The terms of the contract include Mr. McAuliffe
maintaining his duties as the Bancorp's and Bank's president for a term of 5
years subject to certain terms and conditions.
STOCK COMPENSATION: Expense for employee compensation under the stock option
plan is recorded only if options are granted below the market value of the stock
on the grant date. Pro forma disclosures of net income and earnings per share
are provided as if the fair value accounting method were used for stock-based
compensation.
INCOME TAXES: Income tax expense is the sum of the current year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
EARNINGS PER SHARE: Bancorp adopted Statement of Financial Accounting Standards
("SFAS") No. 128 on December 31, 1997 which requires dual presentation of basic
and diluted earnings per share ("EPS"). All prior EPS data has been restated.
Basic EPS is based on net income divided by the weighted-average number of
common shares outstanding. Diluted EPS is based on the weighted-average number
of common shares outstanding during the year and the assumed exercise of
dilutive stock options and warrants less the number of treasury shares assumed
to be purchased from the proceeds using the average market price of Bancorp's
common stock. The calculation for weighted average shares is as follows:
<TABLE>
<CAPTION>
September 30 December 31
1998 1997 1997 1996
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Weighted average shares for basic EPS ............ 1,113,220 1,058,090 1,067,216 1,046,708
Add dilutive effect of:
Exercise of warrants......................... 49,251 42,061 43,196 39,499
Exercise of stock options.................... 71,122 59,093 43,214 30,793
--------- --------- --------- ---------
Weighted average shares for diluted EPS........... 1,233,593 1,159,244 1,153,626 1,117,000
========= ========= ========= =========
</TABLE>
The weighted-average shares outstanding and earnings per share and dividends per
share information has been adjusted to reflect the 2-for-1 stock split declared
by Bancorp in January, 1998.
STATEMENTS OF CASH FLOWS: Cash flows are reported net for customer loan and
deposit transactions. Cash and cash equivalents are defined as those amounts
included in the balance sheet captions, "Cash and Non Interest-Bearing
Balances," "Interest Bearing Balances," "Federal Funds Sold," and "Money Market
Funds."
F-8
<PAGE> 55
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997 (unaudited) AND
DECEMBER 31, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
COMPREHENSIVE INCOME: Under a new accounting standard, comprehensive income is
now reported for all periods. Comprehensive income includes both net income and
other comprehensive income. Currently, other comprehensive income components
material to Bancorp include the change in unrealized gains and losses on
securities available for sale.
RECLASSIFICATIONS: Certain items in the financial statements have been
reclassified to conform with the current presentation.
NOTE 2 - MONEY MARKET FUNDS
Money market funds consist of investments in money market mutual funds that buy
and sell at a constant $1 per share value; therefore, cost and fair value are
the same. Balances in the funds are summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997 1996
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Liquid Cash Trust (LCT).......................... $3,645,759 $3,000,343 $2,898,156
Automated Government Money Trust (AGMT).......... 4,192,336 1,491,191 1,135,986
Money Market Flex Fund........................... 557,249 689,038 496,512
---------- ---------- ----------
Total............................................ $8,395,344 $5,180,572 $4,530,654
========== ========== ==========
</TABLE>
LCT has approximately $500 million in assets which consist of federal funds sold
to banks and repurchase agreements secured by U.S. Treasury securities which are
held in safekeeping by a third-party custodian.
AGMT has approximately $2.4 billion in assets which consist of short term U.S.
Treasury obligations and repurchase agreements secured by U.S. Treasury
securities which are held in safekeeping by a third-party custodian.
The Flex Fund has approximately $834 million in assets which consist of
commercial paper, corporate bonds, and U.S. Treasury securities.
F-9
<PAGE> 56
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997 (unaudited)
AND DECEMBER 31, 1997 AND 1996
NOTE 3 - SECURITIES AVAILABLE FOR SALE
The amortized cost and approximate fair value of securities available for sale
are summarized as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gross Gains Gross Losses Value
---------- ----------- ---------- ----------
September 30, 1998 (unaudited)
<S> <C> <C> <C> <C>
U.S. Treasury Securities......................... $3,520,321 $ 34,800 $ - $3,555,121
Federal Reserve Bank Stock....................... 217,700 217,700
Federal Home Loan Bank Stock..................... 1,148,200 1,148,200
---------- ---------- --------- ----------
Total............................................ $4,886,221 $ 34,800 $ - $4,921,021
========== ========== ========== ==========
December 31, 1997
U.S. Treasury Securities......................... $2,746,480 $ 4,200 $ (6,192) $ 2,744,488
Federal Reserve Bank Stock....................... 217,700 217,700
Federal Home Loan Bank Stock..................... 1,088,800 1,088,800
---------- ---------- ---------- -----------
Total............................................ $4,052,980 $ 4,200 $ (6,192) $ 4,050,988
========== ========== ========== ===========
December 31, 1996
U.S. Treasury Securities......................... $2,247,953 $ 1,500 $ (18,300) $ 2,231,153
Federal Reserve Bank Stock....................... 217,700 217,700
Federal Home Loan Bank Stock..................... 681,400 681,400
---------- ---------- ---------- -----------
Total............................................ $3,147,053 $ 1,500 $ (18,300) $ 3,130,253
========== ========== ========== ===========
</TABLE>
The amortized cost and approximate fair value of debt securities by contractual
maturity are shown below.
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
---------------------- -----------------
(unaudited)
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due Within One Year............................ $1,499,205 $1,504,375 $1,998,663 $1,992,770
Due in One to Five Years....................... 2,021,116 2,050,746 747,817 751,718
---------- ---------- ---------- ----------
Total Debt Securities.......................... $3,520,321 $3,555,121 $2,746,480 $2,744,488
========== ========== ========== ==========
</TABLE>
No sales of securities occurred in 1998, 1997 or 1996.
At September 30, 1998 and December 31, 1997 and 1996, there were no holdings of
securities of any one issuer, other than the U.S. Government or U.S. Government
agencies, in an amount greater than 10 percent of shareholders' equity.
At September 30, 1998 and December 31, 1997 and 1996, $2,261,000, $962,000 and
$249,760, respectively, in amortized cost of U.S. Treasury securities were
pledged to secure public funds or other obligations.
F-10
<PAGE> 57
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997 (unaudited) AND
DECEMBER 31, 1997 AND 1996
NOTE 4 - LOANS
Loans are comprised of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997 1996
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Residential Real Estate Loans.................... $ 20,155,963 $ 19,931,398 $ 18,256,655
Real Estate Investment Loans..................... 57,609,790 46,697,339 30,496,226
Business Loans................................... 48,536,040 42,456,456 29,894,855
Personal Loans................................... 10,439,370 9,771,403 7,882,229
------------ ------------ ------------
Subtotal................................ 136,741,163 118,856,596 86,529,965
Allowance for Loan Losses........................ (1,984,800) (1,600,000) (1,264,400)
Net Deferred Fees and Costs...................... (197,724) (178,157) (178,712)
------------ ------------ ------------
Net Loans........................................ $134,558,639 $117,078,439 $ 85,086,853
============ ============ ============
</TABLE>
Activity in the allowance for loan losses for the nine months ended September
30, and the years ended December 31, is summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
1998 1997 1997 1996
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Beginning Balance................................ $ 1,600,000 $ 1,264,400 $ 1,264,400 $ 1,010,000
Loan Loss Provision.............................. 384,800 257,700 385,600 254,400
Loans Charged Off................................ (50,000)
------------- ------------- -------------- -------------
Ending Balance................................... $ 1,984,800 $ 1,522,100 $ 1,600,000 $ 1,264,400
============= ============= ============== =============
</TABLE>
Information regarding impaired loans is as follows for the nine months ended
September 30, 1998 and 1997, and the years ended December 31:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997 1997 1996
---- ----- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Average Investment in
Impaired Loans................................... $ 205,000 $119,000 $ 150,806 $ -
Interest Income Recognized
During Impairment................................ 7,661 6,590 9,412 -
Cash Basis Interest Income
Recognized on Impaired Loans..................... - - - -
</TABLE>
Information regarding impaired loans at September 30 and at December 31 is as
follows:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997 1996
---- ---- ----
(unaudited)
Impaired Loans with No Allowance
<S> <C> <C>
for Losses Allocated............................. $ - $ 100,000 $ -
Impaired Loans with Allowance
for Loan Losses Allocated........................ 194,000 101,894 -
Amount of Allowance for Loan Losses
Allocated to Impaired Loan Balance............... 100,000 50,000 -
</TABLE>
F-11
<PAGE> 58
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997 (unaudited) AND
DECEMBER 31, 1997 AND 1996
NOTE 5 - RELATED PARTY TRANSACTIONS
In the ordinary course of business, certain of the executive officers and
directors of Bancorp and the Bank have loan and deposit relationships with the
Bank. The aggregate dollar amount of loans outstanding was $5,613,000,
$5,511,000 and $4,814,000 at September 30, 1998 (unaudited), December 31, 1997
and 1996. These amounts are net of portions sold to other financial institutions
of $238,000, $214,000 and $622,000 at September 30, 1998 (unaudited), December
31, 1997 and 1996. Total deposit balances were $4,242,000, $8,203,000 and
$6,679,000 at September 30, 1998 (unaudited), December 31, 1997 and 1996.
Activity for related party loans is as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Beginning of Period.............................. $5,511,000 $4,814,000
New Loans........................................ 1,583,000 2,304,000
Repayments....................................... (1,481,000) (1,607,000)
---------- ----------
End of Period.................................... $5,613,000 $5,511,000
========== ==========
</TABLE>
NOTE 6 - PREMISES AND EQUIPMENT
Premises and equipment is summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997 1996
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Land and Building................................ $1,624,435 $1,599,639
Leasehold Improvements........................... $ 102,831
Equipment, Software and Furniture................ 726,486 660,081 489,088
---------- ---------- -----------
2,350,921 2,259,720 591,919
Less Accumulated Depreciation.................... (508,315) (396,340) (310,717)
---------- ---------- -----------
Premises and Equipment, Net...................... $1,842,606 $1,863,380 $ 281,202
========== ========== ===========
</TABLE>
On June 1, 1997, the Bank purchased the building in which its office is located.
The Bank occupies approximately 40 percent of the building, with the remaining
space leased to other businesses. Occupancy expense for September 30, 1998 and
1997 (unaudited) is shown net of rental income received of $160,801 and $62,869.
Rental income received during the year ended December 31, 1997 totaled $113,386.
Prior to June 1, 1997, the Bank leased its office space. Lease expense for 1997
and 1996 was $54,791 and $97,582, respectively.
F-12
<PAGE> 59
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997 (unaudited) AND
DECEMBER 31, 1997 AND 1996
NOTE 7 - DEPOSITS
Total interest bearing deposits are comprised of the following classifications:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997 1996
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Interest Bearing Demand.......................... $ 14,493,420 $ 9,169,345 $ 10,547,348
Savings.......................................... 49,225,257 39,483,320 24,075,924
Time, Balances Under $100,000.................... 31,488,308 27,646,361 20,173,140
Time, Balances $100,000 and Over................. 29,625,759 25,914,961 21,807,895
------------ ------------ ------------
Total Interest Bearing Deposits.................. $124,832,744 $102,213,987 $ 76,604,307
============ ============ ============
</TABLE>
Total deposit accounts with balances of $100,000 and over, including non
interest-bearing demand accounts, totaled $83,821,000, $66,559,000 and
$49,694,000 at September 30, 1998 (unaudited), and December 31, 1997 and 1996.
The Bank accepts time deposits from customers outside its primary market area,
which are primarily solicited through a national rate-listing network. The total
balances of these time deposits were $32,385,000, $27,952,000 and $17,720,000 at
September 30, 1998 (unaudited), December 31, 1997 and 1996. At September 30,
1998 (unaudited) and December 31, 1997, the average weighted remaining maturity
of these deposits was 11 months and 14.5 months and the weighted average
interest rate paid was 5.99 percent and 6.17 percent.
Stated maturities of time deposits were as follows:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
(unaudited)
<S> <C> <C>
1998 $17,593,000 $ 35,871,000
1999 30,935,000 12,681,000
2000 11,342,000 4,902,000
2001 1,131,000 107,000
2002 113,000
----------- -------------
Total $61,114,000 $ 53,561,000
=========== =============
</TABLE>
NOTE 8 - BORROWINGS
<TABLE>
<CAPTION>
Borrowings consisted of the following:
September 30, December 31,
1998 1997 1996
---- ---- ----
(unaudited)
<S> <C> <C> <C>
FHLB Term Advances............................... $ 4,500,000 $ 2,282,609 $ 3,065,217
FHLB Mortgage Matched Advances................... 4,323,826 4,577,873 1,818,832
Loan Payable..................................... 2,000,000 2,000,000
----------- ------------ ------------
Total............................................ $10,823,826 $ 8,860,482 $ 4,884,049
=========== ============ ============
</TABLE>
F-13
<PAGE> 60
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997 (unaudited) AND
DECEMBER 31, 1997 AND 1996
NOTE 8 - BORROWINGS (Continued)
Term advances and mortgage matched advances from The Federal Home Loan Bank
("FHLB") are used as a longer term funding source. Mortgage matched advances
with maturities ranging from 10 to 20 years are utilized to fund specific fixed
rate loans with certain prepayment of principal permitted without penalty. Term
advances cannot be prepaid without penalty. At September 30, 1998 (unaudited)
and December 31, 1997, required principal payments are as follows:
<TABLE>
<CAPTION>
Principal Weighted Average
Payments Interest Rate
-------- -------------
September 30, 1998 December 31, 1997 September 30, 1998 December 31, 1997
------------------ ----------------- ------------------ -----------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
1998 $ 89,581 $ 1,747,198 6.25% 5.84%
1999 729,143 712,234 6.21% 6.22%
2000 1,204,103 1,186,182 6.22% 6.22%
2001 1,502,997 495,127 5.70% 6.36%
2002 1,415,888 395,524 5.65% 6.32%
2003 & thereafter 3,882,114 2,324,217 6.45% 6.54%
------------ ------------
Total $ 8,823,826 $ 6,860,482
============ ============
</TABLE>
On May 1, 1997, Bancorp borrowed $2,000,000 from another financial institution.
The proceeds were utilized to purchase subordinated notes of Commerce National
Bank. The interest rate on the loan adjusts every 90 days for the first two
years at 2.50 percent over the 90-day U.S. Treasury bill rate. Only interest
payments are required for the first two years. On May 1, 1999, the rate will
adjust to a fixed interest rate of 2.50 percent over the 5-year U.S. Treasury
note rate and Bancorp will be required to make equal monthly principal and
interest payments calculated on a 96-month amortization. The loan is unsecured;
however, Bancorp has agreed not to pledge its ownership interest in Commerce
National Bank stock during the term of the loan.
Additionally, a $4 million cash management advance revolving line of credit was
approved with the FHLB. At September 30, 1998 (unaudited), December 31, 1997 and
1996, no advances were outstanding on the line. Available collateral for all
FHLB advances totaled $37,366,000 at September 30, 1998 (unaudited), and
$33,953,000 at December 31, 1997 and consists of a blanket pledge of all first
mortgage loans secured by 1-4 family residential properties and all FHLB stock.
NOTE 9 - INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997 1997 1996
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Current ........................................ $ 843,600 $ 639,850 $ 858,200 $ 604,448
Deferred ........................................ (142,000) (104,000) (113,000) (31,800)
------------ ------------ ------------ -----------
Total Income Tax Expense......................... $ 701,600 $ 535,850 $ 745,200 $ 572,648
============ ============ ============ ===========
</TABLE>
F-14
<PAGE> 61
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997 (unaudited) AND
DECEMBER 31, 1997 AND 1996
NOTE 9 - INCOME TAXES (Continued)
Total income tax expense differed from the amounts computed by applying the U.S.
Federal income tax rate of 34 percent to income before income taxes as a result
of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997 1997 1996
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Tax Expense at Statutory Rate of 34%............. $ 689,710 $ 523,051 $ 727,555 $ 556,043
Increase in Taxes Resulting from
Nondeductible Expenses............... 11,890 12,799 17,645 16,605
----------- ----------- ----------- -----------
Income Tax Expense............... $ 701,600 $ 535,850 $ 745,200 $ 572,648
=========== =========== =========== ===========
</TABLE>
Deferred tax assets and liabilities at September 30, 1998 (unaudited), and
December 31, 1997 and 1996 are comprised of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997 1996
---- ---- ----
(unaudited)
Deferred Tax Assets
<S> <C> <C> <C>
Allowance for Loan Losses............... $ 666,000 $ 535,000 $ 413,000
Deferred Compensation Expense........... 86,000 65,000 59,000
Deferred Loan Fees...................... 15,000 22,000 33,000
Other................................... 3,000 1,000 6,000
----------- ----------- -----------
Total............................ 770,000 623,000 511,000
Deferred Tax Liabilities
Cash Basis Reporting.................... (55,000) (73,000) (101,000)
Nontaxable Stock Dividend............... (89,000) (71,000) (47,000)
Accumulated Depreciation................ (28,000) (29,000) (23,000)
Other................................... (34,000) (16,000) (14,000)
----------- ----------- -----------
Total............................ (206,000) (189,000) (185,000)
----------- ----------- -----------
Total, Net....................... $ 564,000 $ 434,000 $ 326,000
=========== =========== ===========
</TABLE>
NOTE 10 - COMMON STOCK WARRANTS
In connection with the initial stock offering in 1991, warrants were issued to
all shareholders. Each warrant is freely transferable and entitles the holder to
purchase a share of common stock at $5.68 per share. The warrants will expire on
October 10, 2000, and are subject to adjustment for stock splits, stock
dividends, and similar transactions. At September 30, 1998 (unaudited), December
31, 1997 and 1996, 61,754, 64,612 and 69,878 warrants were issued and
outstanding. In 1998 (unaudited), 1997 and 1996, 2,856, 5,266 and 7,480 warrants
were exercised. In connection with the formation of CNBC Bancorp, all fractional
warrants were rounded up to the nearest whole warrant resulting in the issuance
of an additional 14.8 warrants.
F-15
<PAGE> 62
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997 (unaudited) AND
DECEMBER 31, 1997 AND 1996
NOTE 11 - STOCK OPTION PLANS
Stock option plans are used to reward employees and directors and provide them
with an additional equity interest in Bancorp. Options granted prior to 1996
have a 20 year expiration and were 100 percent vested on the grant date. Options
granted in 1996 and later were issued with a 10 year expiration with vesting
occurring over either a 3- or 5-year period, depending on the employee's years
of service. At September 30, 1998 (unaudited) and December 31, 1997, 18,265 and
19,280 shares were authorized for future grants. Information about option grants
follows. Amounts have been adjusted to reflect the 2-for-1 stock split declared
by Bancorp in January, 1998.
<TABLE>
<CAPTION>
Number Weighted-average
of Options Exercise Price
---------- --------------
<S> <C> <C>
Outstanding, Beginning of 1996................... 141,260 $ 7.56
Granted ........................................ 8,460 15.38
------- ------
Outstanding, End of 1996......................... 149,720 8.00
Granted.......................................... 10,120 18.71
Exercised........................................ (2,860) 7.76
------- ------
Outstanding, End of 1997......................... 156,980 8.70
Granted (unaudited).............................. 950 25.11
------- ------
Outstanding, September 30, 1998 (unaudited) 157,930 8.81
======= ======
</TABLE>
Options exercisable totaled 140,930, 140,930 and 141,260 at September 30, 1998
(unaudited), and December 31, 1997 and 1996.
SFAS No. 123, which became effective for 1996, requires pro forma disclosures
for companies that do not adopt its fair value accounting method for stock-based
employee compensation. Accordingly, the following pro forma information presents
net income and earnings per share had the Standard's fair value method been used
to measure compensation cost for stock option plans. No compensation cost was
recognized for stock option plans for 1998 (unaudited), 1997 or 1996. All
information has been adjusted to reflect the 2-for-1 stock split.
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997 1997 1996
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net Income as Reported ................. $1,326,959 $1,002,537 $1,394,669 $1,062,773
Pro Forma Net Income ................. $1,305,589 $ 995,568 $1,385,377 $1,062,773
Basic Earnings per Share as Reported........ $ 1.19 $ .95 $ 1.31 $ 1.02
Pro Forma Basic Earnings Per Share.......... $ 1.17 $ .94 $ 1.30 $ 1.02
Diluted Earnings per Share as Reported...... $ 1.08 $ .86 $ 1.21 $ .95
Pro Forma Diluted Earnings per Share........ $ 1.06 $ .86 $ 1.20 $ .95
</TABLE>
All options are granted at the market price of the stock on the date of grant.
For options granted during 1998 (unaudited), 1997 and 1996, the weighted-average
fair values at grant date were calculated to be $6.72, $5.85 and $5.56. Options
granted in 1997 and 1996 were awarded as of December 31. Thus, no pro forma
compensation cost is disclosed in the year of the grant due to the vesting
schedule discussed above.
The fair value of options granted during 1998 (unaudited), 1997 and 1996 is
estimated using the following weighted-average information: risk-free interest
rate of 4.77%, 5.75% and 6%, expected life of 10 years, no expected volatility
of stock price, and an expected dividend yield of 1% per year.
F-16
<PAGE> 63
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997 (unaudited)
AND DECEMBER 31, 1997 AND 1996
NOTE 11 - STOCK OPTION PLANS (Continued)
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
Weighted-Average
Range of Remaining Weighted-Average
Exercise Prices Outstanding Exercisable Contractual Life Exercise Price
--------------- ----------- ----------- ---------------- --------------
<S> <C> <C> <C> <C>
$ 5.68 - $ 7.28 80,630 80,630 14.4 Years $ 6.74
$ 8.18 - $ 10.75 57,770 57,770 16.6 Years $ 8.67
$15.38 - $ 20.00 18,580 2,530 9.5 Years $17.19
</TABLE>
NOTE 12 - COMMITMENTS AND CONTINGENCIES
There are various contingent liabilities that are not reflected in the financial
statements, including claims and legal actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the ultimate disposition of these matters is not expected to have a material
effect on financial condition or results of operations.
At September 30, 1998 (unaudited), and December 31, 1997 and 1996, reserves of
$995,000, $915,000 and $814,000 were required as deposits with the Federal
Reserve or as cash on hand. These reserves do not earn interest.
Some financial instruments are used in the normal course of business to meet the
financing needs of customers and to reduce exposure to interest rate changes.
These financial instruments include commitments to extend credit and standby
letters of credit. These involve, to varying degrees, credit and interest-rate
risk in excess of the amount reported in the financial statements.
Exposure to credit loss if the other party does not perform is represented by
the contractual amount for commitments to extend credit, standby letters of
credit, and financial guarantees written. The same credit policies are used for
commitments and conditional obligations as are used for loans.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the commitment.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Some of the commitments are expected to expire
without being used; therefore, the total commitments do not necessarily
represent future cash requirements. Standby letters of credit and financial
guarantees written are conditional commitments to guarantee a customer's
performance to a third party.
A summary of the notional or contractual amounts of financial instruments with
off-balance-sheet risk is as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997 1996
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Approved, Unadvanced Lines of Credit............ $30,544,000 $22,415,000 $19,920,000
Unadvanced Draw Notes............................ 7,816,000 5,403,000 4,824,000
New Loan Commitments:
Secured by Real Estate.................. 8,757,000 8,026,000 1,911,000
Other................................... 4,041,000 3,136,000 4,222,000
Letters of Credit................................ 1,329,000 532,000 177,000
Available Lines for Credit Cards................. 1,052,000 941,000
</TABLE>
F-17
<PAGE> 64
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997 (unaudited) AND
DECEMBER 31, 1997 AND 1996
NOTE 13 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table shows the estimated fair value of financial instruments and
the related carrying values. Items that are not financial instruments are not
included. These would include, among others, such items as property and
equipment, and intangible value of the Bank's customer base and profit
potential.
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997 1996
---- ---- ----
Carrying Fair Carrying Fair Carrying Fair
Value Value Value Value Value Value
----- ----- ----- ----- ----- -----
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Financial Assets (In Thousands)
- ----------------
Cash and Equivalents........................ $ 24,371 $ 24,371 $ 15,060 $ 15,060 $ 14,740 $ 14,740
Securities Available for Sale............... 4,921 4,921 4,051 4,051 3,130 3,130
Loans, Net of Allowance for Loan Losses..... 134,559 137,606 117,078 117,493 85,087 85,068
Accrued Interest Receivable................. 820 820 642 642 505 505
Financial Liabilities
- ---------------------
Demand and Savings Deposits................. $ (82,883) $ (82,883) $ (65,544) $ (65,544) $ (48,395) $ (48,395)
Time Deposits............................... (61,114) (61,675) (53,561) (53,734) (41,981) (42,102)
Borrowings.................................. (10,824) (10,855) (8,860) (8,953) (4,884) (4,813)
Accrued Interest Payable.................... (210) (210) (192) (192) (151) (151)
</TABLE>
For purposes of the above disclosures of estimated fair value, the following
assumptions were used. The estimated fair value for cash and cash equivalents is
considered to approximate cost. The estimated fair value for securities is based
on quoted market values for the individual securities or for equivalent
securities. Carrying value is considered to approximate fair value for accrued
interest receivable, for deposit liabilities subject to immediate withdrawal,
and for accrued interest payable. The fair values of loans, time deposits, and
borrowings are approximated by calculating the sum of the carrying value for
amounts that contractually reprice at intervals less than six months and the
present value of cash flows using an estimated market discount interest rate for
amounts that reprice less frequently than every six months. The fair values of
unrecorded commitments at September 30, 1998 (unaudited), and December 31, 1997
and 1996 are not material.
While these estimates are based on management's judgment of the appropriate
evaluation factors, there is no assurance that were such items liquidated the
estimated fair values would necessarily have been realized. The estimated fair
values should not be considered to apply at subsequent dates.
NOTE 14 - REGULATORY MATTERS
Payment of dividends is subject to various regulatory restrictions. The Office
of the Comptroller of the Currency ("OCC") must approve the declaration of any
dividends for the Bank in excess of available retained earnings and in excess of
the sum of profits for the year combined with the Bank's retained earnings from
the two preceding years, less any required transfer to surplus.
The Bank is subject to regulatory capital requirements administered by the OCC.
Capital adequacy guidelines and prompt corrective action regulations involve
quantitative measures of assets, liabilities, capital and certain
off-balance-sheet items calculated under regulatory accounting practices.
Capital amounts and classifications are also subject to qualitative judgments by
regulators about components, risk weightings, and other factors, and the
regulators can lower classifications in certain cases. Failure to meet
adequately capitalized requirements could result in regulatory action that could
have a direct material effect on the financial statements.
F-18
<PAGE> 65
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997 (unaudited) AND
DECEMBER 31, 1997 AND 1996
NOTE 14 - REGULATORY MATTERS (Continued)
The prompt corrective action regulations provide five regulatory capital
classifications. Each classification has established minimum guidelines for
three different capital ratios which must all be met to enable the Bank to
qualify for that classification. The minimum requirements for these
classifications, which are not intended to represent overall financial
condition, are as follows:
<TABLE>
<CAPTION>
Capital
Weighted Assets
--------------- Tier 1 Capital
Total Tier 1 to Average Assets
----- ------ -----------------
<S> <C> <C> <C>
Well capitalized 10% 6% 5%
Adequately capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
Significantly capitalized * * *
Critically undercapitalized * * *
</TABLE>
*The significantly undercapitalized category fails to meet any one of the three
minimums specified for undercapitalized, but has tangible equity above 2% of
total assets. The critically undercapitalized category fails to maintain
tangible equity equal to or exceeding 2% of total assets.
The Bank met the requirements of a well capitalized institution as defined
above, at September 30, 1998 (unaudited), December 31, 1997 and 1996. If the
Bank's capital classification were to change to adequately capitalized, it would
need to obtain regulatory approval to continue to accept brokered deposits.
At September 30, 1998 (unaudited), and December 31, 1997 and 1996 actual capital
levels (in millions) and minimum required levels were as follows:
<TABLE>
<CAPTION>
Minimum Required
To Be Well
Actual Capitalized
Amount Ratio Amount Ratio
------ ----- ------ -----
<S> <C> <C> <C> <C>
September 30, 1998 (unaudited)
Total capital to risk weighted assets... $14.9 10.9% $13.7 10.0%
Tier 1 capital to risk weighted assets.. $9.7 7.1% $8.2 6.0%
Tier 1 capital to average assets........ $9.7 6.1% $8.0 5.0%
December 31, 1997
Total capital to risk weighted assets... $13.7 12.1% $11.3 10.0%
Tier 1 capital to risk weighted assets.. $8.6 7.6% $6.8 6.0%
Tier 1 capital to average assets........ $8.6 6.5% $6.6 5.0%
December 31, 1996
Total capital to risk weighted assets... $8.4 10.8% $7.8 10.0%
Tier 1 capital to risk weighted assets.. $7.5 9.6% $4.7 6.0%
Tier 1 capital to average assets........ $7.5 7.5% $5.0 5.0%
</TABLE>
During 1998, Bancorp's consolidated assets surpassed $150 million for the first
time. As a result, the Federal Reserve will monitor the consolidated capital
position of Bancorp in addition to the capital position of the Bank. At
September 30, 1998 (unaudited), Bancorp qualified as adequately capitalized,
with a total capital to risk weighted assets ratio of 9.7%, tier 1 capital to
risk weighted assets of 8.5% and a tier 1 capital to average assets ratio of
7.3%.
F-19
<PAGE> 66
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997 (unaudited) AND
DECEMBER 31, 1997 AND 1996
NOTE 15 - PARENT COMPANY FINANCIAL STATEMENTS
The following are condensed parent company only financial statements for CNBC
Bancorp. The statements of income and cash flows for 1996 represent the period
from the date Bancorp was formed through December 31, 1996.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997 1996
---- ---- ----
(unaudited)
<S> <C> <C> <C>
ASSETS
Cash and Cash Equivalents with Subsidiary........ $ 145,360 $ 182,635 $ 91,344
Short Term Investments........................... 900,125
----------- ----------- -----------
Total Cash and Cash Equivalents.................. 145,360 182,635 991,469
Investment in subsidiary:
Equity...................................... 9,744,256 8,648,134 7,456,556
Subordinated Notes.......................... 3,700,000 3,700,000
Other Assets..................................... 86,344 128,748 39,447
----------- ----------- -----------
Total Assets................................ $13,675,960 $12,659,517 $ 8,487,472
=========== =========== ===========
LIABILITIES
Loan Payable..................................... $ 2,000,000 $ 2,000,000 $ -
Other Liabilities................................ 16,200 177,853 190,225
----------- ----------- -----------
Total Liabilities........................... $ 2,016,200 $ 2,177,853 $ 190,225
============ ============ ===========
SHAREHOLDERS' EQUITY
Common Stock..................................... 8,365,273 8,349,051 7,297,557
Retained Earnings................................ 3,271,487 2,133,913 1,010,790
Unrealized Gain/(Loss) on Securities
Available for Sale............................... 23,000 (1,300) (11,100)
----------- ----------- -----------
Total Liabilities and Shareholders' Equity.. $13,675,960 $12,659,517 $ 8,487,472
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
INCOME STATEMENTS
Nine Months Ended Years Ended
September 30, December 31,
1998 1997 1997 1996
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Income
Dividends from Subsidiary................... $ 200,000 $ 133,000 $ 183,000 $ 1,107,884
Interest Income............................. 204,649 105,855 167,050 806
----------- ----------- ----------- -----------
Total Income............................ 404,649 238,855 350,050 1,108,690
Expenses
Interest Expense............................ 114,311 66,371 105,292 -
Other Expense............................... 16,801 12,619 16,417 2,724
----------- ----------- ----------- -----------
Income Before Income Taxes and Equity in
Undistributed Net Income of Subsidiary........... 273,537 159,865 228,341 1,105,966
Income Tax Expense............................... 18,400 9,100 15,450 (652)
----------- ----------- ----------- -----------
Income Before Equity in Undistributed Net
Income of Subsidiary............................. 255,137 150,765 212,891 1,106,618
Undistributed Net Income of Subsidiary........... 1,071,822 851,772 1,181,778 (1,005,810)
----------- ----------- ----------- -----------
Net Income....................................... 1,326,959 1,002,537 1,394,669 100,808
Change in Unrealized Gains/(Losses) on
Securities Held for Sale......................... 24,300 9,800 9,800 2,800
----------- ----------- ----------- -----------
Comprehensive Income............................. $1,351,259 $1,012,337 $1,404,469 $ 103,608
========== ========== ========== ============
</TABLE>
F-20
<PAGE> 67
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997 (unaudited) AND
DECEMBER 31, 1997 AND 1996
NOTE 15 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
1998 1997 1997 1996
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net Income.................................. $1,326,959 $1,002,537 $1,394,669 $ 100,808
Adjustments to Reconcile Net Income to
Net Cash from Operating Activities
Undistributed Net Income of Subsidiary...... (1,071,822) (851,772) (1,181,778) 885,810
Amortization................................ 6,030 6,030 8,040 658
Change in Other Assets and Liabilities...... 13,691 (30,904) (64,293) (34,389)
----------- ---------- ----------- ----------
Net Cash Provided by
Operating Activities.................... 274,858 125,891 156,638 952,887
Cash Flows from Investing Activities
Purchase of Subordinated Notes.............. (2,700,000) (3,700,000)
----------- ---------- ----------- ----------
Net Cash Used for Investing Activities...... - (2,700,000) (3,700,000) -
Cash Flows from Financing Activities
Cash Dividends Paid to Shareholders......... (328,355) (316,966) (316,966)
Proceeds from Loan Payable.................. 2,000,000 2,000,000 160,000
Loan Principal Payments..................... (160,000)
Proceeds from Stock Sales................... 16,222 53,018 1,051,494 38,582
Stock Subscriptions Received................ 261,600
----------- ---------- ----------- ----------
Net Cash (Used for) Provided By
Financing Activities.................... (312,133) 1,997,652 2,734,528 38,582
----------- ---------- ----------- ----------
Net Change in Cash and Cash Equivalents (37,275) (576,457) (808,834) 991,469
Cash and Cash Equivalents
Beginning of Year........................... 182,635 991,469 991,469 -
----------- ---------- ----------- ----------
End of Year................................. $ 145,360 $ 415,012 $ 182,635 $ 991,469
=========== ========== =========== ==========
</TABLE>
F-21
<PAGE> 68
APPENDIX A
----------
STOCK SUBSCRIPTION APPLICATION
CNBC BANCORP
BY EXECUTING THIS STOCK SUBSCRIPTION APPLICATION, THE UNDERSIGNED ACKNOWLEDGES
HAVING RECEIVED, READ AND UNDERSTOOD THE CNBC BANCORP PROSPECTUS DATED DECEMBER
___, 1998 TOGETHER WITH ALL APPENDICES (THE "PROSPECTUS"), AND THE UNDERSIGNED
AGREES TO THE TERMS OF THE SUBSCRIPTION AGREEMENT, APPENDIX B TO THE PROSPECTUS,
WHICH IS INCORPORATED HEREIN BY REFERENCE.
The undersigned is aware that the purchase of the Common Shares
involves a high degree of risk.
The undersigned hereby subscribes for and offers to purchase the number
of Common Shares, no par value, of CNBC Bancorp ("Common Shares"), set forth
below, upon the terms and conditions specified in the Prospectus and
Subscription Agreement at a purchase price of $28 per share. All subscriptions
must be for a minimum of 100 shares. NO FRACTIONAL SHARES WILL BE ISSUED.
The undersigned acknowledges and agrees that this Application
constitutes an irrevocable offer and may not be withdrawn without the consent of
CNBC Bancorp. If any subscription is accepted only in part, any portion of funds
not required for partial subscription will be returned to the subscriber
together with interest actually earned on such portion. If any subscription is
declined, subscription funds will be returned upon declination, with any
interest actually earned thereon.
If this offering of Common Shares by CNBC Bancorp is canceled in its
entirety or the Company rejects the Application, this offer to purchase and
subscribe shall become void and any payments received from the subscriber will
be returned in full plus any actual interest earned on the amount returned. All
such refunds will be mailed immediately upon termination of the offering or
rejection of the Application.
SUBSCRIPTIONS MAY BE MADE BY COMPLETING AND SIGNING THIS STOCK
SUBSCRIPTION APPLICATION IN TRIPLICATE AND DELIVERING ALL THREE COPIES TO: CNBC
BANCORP, 100 EAST WILSON BRIDGE ROAD, WORTHINGTON, OHIO 43085, BY 5:00 P.M.,
EASTERN STANDARD TIME, WITHIN 90 DAYS OF THE DATE OF THE OFFERING, UNLESS THIS
DATE IS EXTENDED OR SHORTENED BY CNBC BANCORP, IN ITS DISCRETION. THE STOCK
SUBSCRIPTION APPLICATION MUST BE DELIVERED TOGETHER WITH A COMPLETED FORM W-9
AND THE FULL AMOUNT OF THE PURCHASE PRICE FOR THE SHARES SUBSCRIBED, IN UNITED
STATES DOLLARS, BY CHECK, BANK DRAFT, OR MONEY ORDER, MADE PAYABLE TO "CNBC
BANCORP".
A-1
<PAGE> 69
SHARE REGISTRATION. PLEASE CHECK AS APPROPRIATE AND WRITE OUT THE WAY
IN WHICH SHARES ARE TO BE REGISTERED:
[ ] INDIVIDUAL
[ ] JT TEN -- as joint tenants with right of survivorship
and not as tenants in common
[ ] TEN COM -- as tenants in common
[ ] TEN ENT -- as tenants by the entireties
Registration Name:_____________________________________________________________
CHECK AS APPROPRIATE AND, IF CHECKED, COMPLETE AS INDICATED:
[ ] Uniform Gifts to Minors Act
- Name of custodian:_________________________
- Custodian for _____________ under Uniform
Gifts to Minors Act, State of ____________.
[ ] IRA, SEPP or Keogh Account #
- Brokerage Firm:____________________________
- Broker:____________________________________
- Broker's Phone #:__________________________
- Custodian Firm
- Mailing Address of Broker or Custodian
-------------------------------------------
-------------------------------------------
-------------------------------------------
Date of Subscription: ___________________________________
Number of Shares: ________________________________________
Amount of Subscription $: __________________________________
Social Security Number or Tax ID Number or Registered owner(s):______________
Address of Registered Owner
- ------------------------------------
- ------------------------------------
- ------------------------------------
A-2
<PAGE> 70
Telephone Numbers
Day: ________________________________
Evening: ________________________________
Funds Received from: __________________________________________________
Check or Money Order number:____________________________________________
UPON CLOSING, ALL FUNDS RECEIVED FOR SUBSCRIPTIONS, WHICH ARE ACCEPTED
BY CNBC BANCORP, SHALL BECOME CAPITAL OF CNBC BANCORP TOGETHER WITH INTEREST
THEREON. THESE SECURITIES ARE NOT DEPOSITS AND ARE NOT INSURED BY THE FDIC.
I have read and hereby agree to the terms of this Application and of
the Subscription Agreement (Appendix B of the Prospectus), which is incorporated
herein by reference.
Signature of Purchaser
_______________________________________
A-3
<PAGE> 71
APPENDIX B
----------
CNBC BANCORP
COMMON STOCK SUBSCRIPTION AGREEMENT
This Common Stock Subscription Agreement (the "Agreement") is entered
into by CNBC Bancorp, an Ohio corporation ("the Company"), and each signatory
(the "Purchaser") to a Subscription Application (the "Application"), which has
been accepted by the Company in whole or in part.
SECTION 1. THE TERM OF THE OFFERING
The Prospectus is dated December ___, 1998. The Offering commences this
date and shall remain open for up to 90 days except as follows: At the
discretion of the Company, this Offering may be terminated early at any time, or
may be extended by up to 30 days. Any extension or early termination of this
Offering is at the discretion of the Company.
SECTION 2. AUTHORIZATION AND SALE OF COMMON STOCK
2.1 AUTHORIZATION. The Company will authorize the issuance of up to
125,000 shares of its no par value Common Stock (the "Shares") for sale and
issuance to investors including Purchaser. Subject to the terms and conditions
hereof and to acceptance by the Company, the Company will issue and sell to
Purchaser a portion of the Shares, as hereinafter provided, and Purchaser will
purchase the same from the Company at a purchase price of $28.00 per share.
2.2 SUBSCRIPTION. Purchaser shall subscribe to purchase ____ Shares
hereunder by executing and delivering an Application to the Company together
with a check payable to "CNBC Bancorp," in the amount of the purchase price,
together with a completed IRS Form W-9, Request for Taxpayer Identification
Number and Certification. The Company's address is:
CNBC Bancorp
100 East Wilson Bridge Road
Worthington, Ohio 43085
SECTION 3. ACCEPTANCE BY THE COMPANY
3.1 IRREVOCABLE OFFER. Purchaser acknowledges that his/her/its
execution of the Application constitutes an irrevocable offer to purchase Shares
as herein indicated and that the Company may accept such offer in whole or in
part of may reject it in its entirety.
3.2 NOTICE OF ACCEPTANCE OR REJECTION. The Company shall notify
Purchaser in writing as to the extent to which Purchaser's offer is accepted,
not later than thirty days after the closing of the Offering. To the extent
Purchaser's offer is not accepted by the Company, concurrently with such
declination, Commerce National Bank as Impound Agent will return Purchaser's
unaccepted funds together with interest actually earned thereon.
SECTION 4. PAYMENT INTO IMPOUND ACCOUNT; CLOSING
4.1 COMMERCE NATIONAL BANK AS IMPOUND AGENT. All funds received from
Subscribers for the Company's Shares, which meet the conditions of the
Application and of this Agreement, will be deposited in a Commerce National Bank
Savings Account (the "Impound Account"). The Impound Account will be maintained
by the Bank as Impound Agent in the manner provided in this Agreement ("the Bank
as Impound Agent").
4.2 CLOSING. At the address noted above, the Company will close the
Offering at its discretion within 90 days of the date of the Offering, unless it
chooses to extend the Offering by 30 days, in which case it will close the
offering within 120 days of the date of the Offering. On the closing date,
subscription purchase monies in the Impound Account (including any interest
earned thereon) relating to Applications accepted by the Company shall be
released to the Company in full.
B-1
<PAGE> 72
4.3 DELIVERY OF STOCK CERTIFICATES. The Company will mail to Purchaser,
within 30 business days after closing date, a stock certificate, registered in
Purchaser's name, representing the respective Shares subscribed, against
delivery of the purchase price and any interest thereon.
SECTION 5. REPRESENTATION AND WARRANTIES OF THE PURCHASER
By signing the Application, the Purchaser represents and warrants to
the Company, with respect to the purchase of the Shares, as follows:
5.1 INVESTMENT. Purchaser is acquiring Shares for investment for
Purchaser's own account, not as a nominee or agent except as indicated in the
Application, and not with the view to, or for resale in connection with, any
distribution thereof.
5.2 LIMITED PUBLIC MARKET. Purchaser understands that only a limited
public market now exists for any Shares to be issued by the Company, and that
the Company has made no assurances that a ready public market will ever exist
for the Shares.
5.3 ACCESS TO DATA. Purchaser acknowledges receipt of and has read the
Company's Prospectus dated December ___, 1998 to which this Agreement is
appended.
5.4 TAX CONSEQUENCES. Purchaser has reviewed with his/her/its own tax
advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. Purchaser is
relying solely on such advisors and not on any statements or representations of
the Company or any of its agents, and understands that Purchaser (and not the
Company) shall be responsible for Purchaser's own tax liability that may arise
as a result of this investment or the transactions contemplated by this
Agreement.
SECTION 6. CONDITIONS TO THE COMPANY'S OBLIGATION TO CLOSE
The Company's obligation to close the purchase and sale of Shares hereunder
shall be subject to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES CORRECT. The
representations and warranties made by the Purchaser in Section 3
hereof shall be true and correct in all respects when made, and shall
continue to be true and correct in all respects on the closing date.
(b) MINIMUM PURCHASE. The Company shall have received and
accepted from Purchaser a subscription to purchase at least 100 Shares.
(c) GOOD FUNDS ON DEPOSIT. The Company as Impound Agent shall
be holding on deposit funds equal to at least the purchase price of the
Shares to be issued.
(d) COMPLIANCE WITH SECURITIES LAWS. The Company and its
counsel shall have determined to their satisfaction, for the benefit of
the Company and not of Purchaser, that the sale of the Shares to each
Purchaser complies with all applicable securities laws.
(e) APPROVALS AND PERMITS. The Company shall have received any
approval or permit that is deemed necessary or advisable by the Company or its
counsel.
SECTION 7. RETURN OF THE SUBSCRIPTION FUNDS
7.1 DECLINED SUBSCRIPTION. See 3.2 (Notice of Acceptance or Rejection).
If the Company does not accept an Application for any reason, then the Company
shall, within one business day of its decision to decline, return to the
subscriber the subscription amount, plus any interest actually earned by the
respective subscription amount. Such refunds shall be mailed to the attention of
the subscriber at the address shown on the subscription application.
B-2
<PAGE> 73
7.2 TERMINATION OF OFFERING. If for any reason whatsoever, the Offering
does not close by 90 days from the date of the Offering (or by 30 days
thereafter, if the Company elects to extend the Offering), the Company will
deliver written notice of such determination to Purchaser, and will immediately
return to Purchaser the amount of his/her/its deposit plus any interest actually
earned thereon.
7.3 TAX REPORTING. In the event that the Impound Account is distributed
pursuant to Section 5b, above, the Bank as Impound Agent shall, as to each
Subscriber, file Forms 599 and 1099 with the State of Ohio and the Internal
Revenue Service, respectively.
SECTION 8. UNPAID CHECKS
In the event that any check received by the Bank as Impound Agent is
returned unpaid by the drawee bank, the Bank as Impound Agent may return the
check with the related Application and a notice declining the subscription.
SECTION 9. RIGHTS OF THE BANK AS IMPOUND AGENT
9.1 CONFLICTING DEMANDS. If conflicting demands are made or notices
served upon the Bank as Impound Agent with respect to the Impound Account, the
Bank as Impound Agent shall be entitled to refuse to comply with any such claim
or demand and to suspend performance of this Agreement so long as such
disagreement shall continue; in so doing the Bank as Impound Agent shall not be
or become liable for damages or interest to any person (including but not
limited to Subscribers) for failure to comply with such conflicting or adverse
demands. The Bank as Impound Agent shall be entitled to continue so to refrain
and refuse so to act until:
(i) The rights of the adverse claimants have been finally
adjudicated in a court assuming and having jurisdiction of the parties
and/or the money, papers, and property involved in the claim or demand;
and/or
(ii) All differences have been settled by mutual agreement and
the Bank as Impound Agent has been notified of the settlement in
writing, signed by all of the interested persons.
9.2 DEPOSITORY. The Bank as Impound Agent shall act as a depository
only and is not responsible or liable in any manner whatever for the
sufficiency, correctness, genuineness or validity of any instrument deposited
with it pursuant to this Agreement, or with respect to the form or execution of
any such instrument, or the identity, authority, or rights of any person
executing or depositing any such instrument.
9.3 WRITTEN NOTICE. No notice, demand or change of instructions shall
be of any effect unless made in a writing signed by all parties to the
Application and mailed or delivered to an authorized officer of the Bank as
Impound Agent at its office in Worthington, Ohio.
9.4 ENTITLEMENTS. The Bank as Impound Agent:
(i) shall be entitled to consult with legal counsel and shall
not be liable for any action taken or omitted by that counsel;.
(ii) shall not, by act, delay, omission or otherwise, be
deemed to have waived any rights or remedies under this Agreement
unless such waiver is in a writing signed by the Bank as Impound Agent;
a waiver by the Bank as Impound Agent of any right or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right
or remedy on any future occasion.
9.5 GOOD FAITH. The Bank as Impound Agent shall not be liable for any
action taken or omitted to be taken in good faith, and shall be liable only for
its own gross negligence or willful misconduct;
9.6 RELIANCE. The Bank as Impound Agent shall be entitled to rely on
any paper, request, certificate, schedule, notice or other document which it in
good faith believes to be genuine and to have been signed or adopted by the
proper party or parties;
B-3
<PAGE> 74
9.7 RISK. The Bank as Impound Agent shall under no circumstances be
required to risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, if it shall have reasonable grounds
for believing that repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it;
9.8 DUTY. The Bank as Impound Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement, and the
permissive right of the Bank as Impound Agent to do things or omit to do things
as set forth in this Agreement shall not be construed as a duty.
SECTION 10. MISCELLANEOUS
10.1 NOTICE. Any notice, report, demand, waiver or consent required or
permitted to this Agreement shall be in writing and shall be given by prepaid
first class mail, addressed as follows:
CNBC Bancorp
100 East Wilson Bridge Road
Worthington, Ohio 43085
10.2 GOVERNING LAW. Any disputes arising under this Agreement shall be
governed in all respects by the laws of the State of Ohio.
10.3 SURVIVAL. The representatives, warranties, covenants and
agreements made herein and in the Subscription Application shall survive the
closing of the transactions contemplated hereby.
10.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
10.5 ENTIRE AGREEMENT; AMENDMENT. This Agreement, its attachments and
the other documents, including particularly the Application, constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof, and no party shall be liable or bound to any other
party in any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. Except as expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
10.6 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand, messenger or
facsimile, addressed (a) if to a Purchaser, at such Purchaser's address set
forth on the signature page of the Application, or at such other address as such
Purchaser shall have furnished to the Company in writing, or (b) if to the
Company, to its address set forth in Section 11.1 of this Agreement and
addressed to the attention of the President, or at such other address as the
Company shall have furnished to the Purchasers, with copy sent to M. Patricia
Oliver, Squire, Sanders & Dempsey L.L.P., 4900 Key Tower, 127 Public Square,
Cleveland, Ohio 44114.
10.7 EXPENSES. The Company and the Purchaser shall each bear its own
expenses incurred on its behalf with respect to this Agreement and the
transactions contemplated hereby.
10.8 COUNTERPARTS. The Application may be executed in counterparts,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
10.9 SEVERABILITY. In the event that any provision of this Agreement or
the Application becomes or is declared by a court of competent jurisdiction to
be illegal, unenforceable or void, this Agreement shall continue in full force
and effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
B-4
<PAGE> 75
10.10 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
10.11 FINDER'S FEE. The Company and each Purchaser agree to indemnify
and hold each other harmless from and liability for any commission or
compensation in the nature of a finder's fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Company or
such Purchaser or any of their respective officers, agents, representatives or
employees is responsible in connection with this transaction.
10.12 FORM W-9. Purchaser will complete, execute and deliver to Impound
Agent, Form W-9, Request for Taxpayer Identification Number and Certification.
B-5
<PAGE> 76
<TABLE>
<CAPTION>
<S> <C> <C>
Form W-9
(Rev. December 1996) REQUEST FOR TAXPAYER Give form to the
IDENTIFICATION NUMBER AND CERTIFICATION requester. Do NOT
Department of the Treasury send to the IRS.
Internal Revenue Service
- -----------------------------------------------------------------------------------------------------------------------
PLEASE PRINT OR TYPE
Name (if a joint account or you changed your name, see SPECIFIC INSTRUCTIONS on page 2.)
- -----------------------------------------------------------------------------------------------------------------------
Business name, if different from above. (See SPECIFIC INSTRUCTIONS on page 2.)
- -----------------------------------------------------------------------------------------------------------------------
CHECK appropriate BOX: [ ] Individual/Sole proprietor [ ] Corporation [ ] Partnership [ ] Other - ..........
- -----------------------------------------------------------------------------------------------------------------------
Address (number, street, and apt. or suite no.)
- -----------------------------------------------------------------------------------------------------------------------
City, State, And ZIP Code
- -----------------------------------------------------------------------------------------------------------------------
Requester's name and address (optional)
- -----------------------------------------------------------------------------------------------------------------------
TAXPAYER IDENTIFICATION NUMBER (TIN)
- -----------------------------------------------------------------------------------------------------------------------
Enter your TIN in the appropriate box. For individuals, this is your social Social Security number
security number (SSN). However, if you are a resident alien OR a sole -------------------------------
proprietor, see the instructions on page 2. For other entities, it is your - -
employer identification number (EIN). If you do not have a number, see HOW TO -------------------------------
GET A TIN on page 2.
OR
NOTE: IF the account is in more than one name, see the chart on page 2 for
guidelines on whose number to enter. Employer identification number
-------------------------------
-
-------------------------------
- -----------------------------------------------------------------------------------------------------------------------
List account number(s) here (optional)
- -----------------------------------------------------------------------------------------------------------------------
FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING (See the instructions on page 2.)
- -----------------------------------------------------------------------------------------------------------------------
- -
- -----------------------------------------------------------------------------------------------------------------------
CERTIFICATION
- -----------------------------------------------------------------------------------------------------------------------
Under penalties of perjury, I certify that:
1. The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be
issued to me) and
2. I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been
notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to
report all interest or dividends, (c) the IRS has notified me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS.- You must cross out item 2 above if you have been notified by the IRS that you are currently
subject to backup withholding because you have failed to report all interest and dividends on your tax return. For real
estate transactions, item 2 does not apply. For mortgage interest paid, acquisition or abandonment of secured property,
cancellation of debt, contributions to an individual retirement arrangement (IRA), and generally, payments other than
interest and dividends, you are not required to sign the Certification, but you must provide your correct TIN. (See the
instructions on page 2.)
- -----------------------------------------------------------------------------------------------------------------------
Sign |
Here | Signature - Date -
- -----------------------------------------------------------------------------------------------------------------------
PURPOSE OF FORM.-A person who is required to file an information return with the IRS must get your correct taxpayer
identification number (TIN) to report, for example, income paid to you, real estate transactions, mortgage interest you
paid, acquisition or abandonment of secured property, cancellation of debt, or contributions you made to an IRA.
Use Form W-9 to give your correct TIN to the person requesting it (the requester) and, when applicable, to:
1. Certify the TIN you are giving is correct (or you are waiting for a number to be issued),
2. Certify you are not subject to backup withholding, or
3. Claim exemption from backup withholding if you are an exempt payee.
NOTE: If a requester gives you a form other than a W-9 to request your TIN, you must use the requester's form if it is
substantially similar to this Form W-9.
WHAT IS BACKUP WITHHOLDING?--PERSONS making certain payments to you must withhold and pay to the IRS 31% of such payments
under certain conditions. This is called "backup withholding." Payments that may be subject to backup withholding
include interest, dividends, broker and barter exchange transactions, rents, royalties, nonemployee pay, and certain
payments from fishing boat operators. Real estate transactions are not subject to backup withholding.
If you give the requester your correct TIN, make the proper certifications, and report all your taxable interest
and dividends on your tax return, payments you receive will not be Subject to backup withholding. Payments you receive
WILL be subject to backup withholding if:
1. You do not furnish your TIN to the requester, or
2. The IRS tells the requester that you furnished an incorrect TIN, or
3. The IRS tells you that you are subject to backup withholding because you did not report all your interest and
dividends on your tax return (for reportable interest and dividends only), or
4. You do not certify to the requester that you are not subject to backup withholding under 3 above (for
reportable interest and dividend accounts opened after 1983 only), or
5. You do not certify your TIN when required. See the Part III instructions on page 2 for details.
Certain payees and payments are exempt from backup withholding. See the Part II instructions and the separate
INSTRUCTIONS FOR THE REQUESTER OF FORM W-9.
PENALTIES
FAILURE TO FURNISH TIN. -- IF you fail to furnish your correct TIN to a requester, you are subject to a penalty of $50 for
each such failure unless your failure is due to reasonable cause and not to willful neglect.
CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you make a false statement with no reasonable basis
that results in no backup withholding, you are subject to a $500 penalty.
CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying certifications or affirmations may subject you to
criminal penalties including fines and/or imprisonment.
MISUSE OF TINS.-If the requester discloses or uses TINs in violation of Federal law, the requester may be subject to
civil and criminal penalties.
- -----------------------------------------------------------------------------------------------------------------------
Cat. No. 10231X Form W-9 (Rev. 12-96)
</TABLE>
<PAGE> 77
Form W-9 (Rev. 12-96) Page 2
- --------------------------------------------------------------------------------
SPECIFIC INSTRUCTIONS
NAME. -- If you are an individual, you must generally enter the name shown on
your social security card. However, if you have changed your last name, for
instance, due to marriage, without informing the Social Security
Administration of the name change, enter your first name, the last name shown
on your social security card, and your new last name.
If the account is in joint names, list first and then circle the name of the
person or entity whose number you enter in Part I of the form.
Sole Proprietor.-You must enter your INDIVIDUAL name as shown on your social
security card. You may enter your business, trade, or "doing business as" name
on the BUSINESS NAME line.
Other Entities. -- Enter the business name as shown on required Federal tax
documents. This name should match the name shown on the charter or other legal
document creating the entity. You may enter any business, trade, or "doing
business as" name on the business name line.
PART I-TAXPAYER IDENTIFICATION NUMBER (TIN)
You must enter your TIN in the appropriate box. If you are a resident alien and
you do not have and are not eligible to get an SSN, your TIN is your IRS
individual taxpayer identification number (ITIN). Enter it in the social
security number box. If you do not have an ITIN, see HOW TO GET A TIN below.
If you are a sole proprietor and you have an EIN, you may enter either your SSN
or EIN. However, using your EIN may result in unnecessary notices to the
requester.
NOTE: See the chart on this page for further clarification of name and TIN
combinations.
HOW TO GET A TIN.- IF you do not have a TIN, apply for one immediately. To apply
for an SSN, get FORM SS-5 from your local Social Security Administration office.
Get FORM W-7 to apply for an ITIN or FORM SS-4 to apply for an EIN. You can get
Forms W-7 and SS-4 from the IRS by calling 1-800-TAX-FORM (1-800-829-3676).
IF you do not have a TIN, write "Applied For" in the space for the TIN, sign and
date the form, and give it to the requester. For interest and dividend payments,
and certain payments made with respect to readily tradable instruments, you will
generally have 60 days to get a TIN and give it to the requester. Other payments
are subject to backup withholding.
NOTE: Writing "Applied For" means that you have already applied for a TIN OR
that you intend to apply for one soon.
PART II - FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING
Individuals (including sole proprietors) are NOT exempt from backup withholding.
Corporations are exempt from backup withholding for certain payments, such as
interest and dividends. For more information on exempt payees, see the separate
Instructions for the Requester of Form W-9.
If you are exempt from backup withholding, you should still complete this
form to avoid possible erroneous backup withholding. Enter your correct TIN in
Part I, write "Exempt" in Part II, and sign and date the form.
IF you are a nonresident alien or a foreign entity not subject to backup
withholding, give the requester a completed FORM W-8, Certificate of Foreign
Status.
PART III - CERTIFICATION
For a joint account, only the person whose TIN is shown in Part I should sign
(when required).
1. INTEREST, DIVIDEND, AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE 1984 AND
BROKER ACCOUNTS CONSIDERED Active DURING 1983. You must give your correct TIN,
but you do not have to sign the certification.
2. INTEREST, DIVIDEND, BROKER, AND BARTER EXCHANGE ACCOUNTS OPENED AFTER
1983 AND BROKER ACCOUNTS CONSIDERED INACTIVE DURING 1983. You must sign the
certification or backup withholding will apply. IF you are subject to backup
withholding and you are merely providing your correct TIN to the requester, you
must cross out item 2 in the certification before signing the form.
3. REAL ESTATE TRANSACTIONS. You must sign the certification. You may cross
out item 2 of the certification.
4. OTHER PAYMENTS. You must give your correct TIN, but you do not have to
sign the certification unless you have been notified that you have previously
given an incorrect TIN. "Other payments" include payments made in the course of
the requester's trade or business for rents, royalties, goods (other than bills
for merchandise), medical and health care services (including payments to
corporations), payments to a nonemployee for services (including attorney and
accounting fees), and payments to certain fishing boat crew members.
5. MORTGAGE INTEREST PAID BY YOU, ACQUISITION OR ABANDONMENT OF SECURED
PROPERTY, CANCELLATION OF DEBT, OR IRA CONTRIBUTIONS. You must give your correct
TIN, but you do not have to sign the certification.
PRIVACY ACT NOTICE
Section 6109 of the Internal Revenue Code requires you to give your correct TIN
to persons who must file information returns with the IRS to report interest,
dividends, and certain other income paid to you, mortgage interest you paid, the
acquisition or abandonment of secured property, cancellation of debt, or
contributions you made to an IRA. The IRS uses the numbers for identification
purposes and to help verify the accuracy of your tax return. The IRS may also
provide this information to the Department of Justice for civil and criminal
litigation and to cities, states, and the District of Columbia to carry out
their tax laws.
You must provide your TIN whether or not you are required to file a tax return.
Payers must generally withhold 31% of taxable interest, dividend, and certain
other payments to a payee who does not give a TIN to a payer. Certain penalties
may also apply.
WHAT NAME AND NUMBER TO
GIVE THE REQUESTER
- ---------------------------------------------------------------------------
For this type of account: Give name and SSN of:
- ---------------------------------------------------------------------------
1. Individual The individual
2. Two or more The actual owner of the
individuals (joint account or, if combined
account) funds, the first individual
on the account (1)
3. Custodian account of The minor (2)
a minor (Uniform
Gift to Minors Act)
4. a. The usual revocable The grantor-trustee (1)
savings trust
(grantor is also
trustee)
b. So-called trust The actual owner (1)
account that is not
a legal or valid trust
under state law
5. Sole proprietorship The owner (3)
- ---------------------------------------------------------------------------
For this type of account: Give name and EIN of:
- ---------------------------------------------------------------------------
6. Sole proprietorship The owner (3)
7. A valid trust, estate, or Legal entity (4)
pension trust
8. Corporate The corporation
9. Association, club, The organization
religious, charitable,
educational, or other
tax-exempt
organization
10. Partnership The partnership
11. A broker or registered The broker or nominee
nominee
12. Account with the The public entity
Department of Agriculture
in the name of a public
entity (such as a state or
local government, school
district, or prison) that
receives agricultural
program payments
- ---------------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has an SSN, that person's number must be
furnished.
(2) Circle the minor's name and furnish the minor's SSN.
(3) You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your SSN or EIN (if you have
one).
(4) List first and circle the name of the legal trust, estate, or pension trust
(Do not furnish the TIN of the personal representative or trustee unless the
legal entity itself is not designated in the account title.)
NOTE. If no name is circled when more than one name is listed, the number will
be considered to be that of the first name listed.
<PAGE> 78
PART II TO FORM SB-2
INFORMATION NOT REQUIRED IN THE PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
As authorized by Section 1701.13(E) of the Ohio Revised Code, Section
33 of the Company's Code of Regulations ("Section 33") provides that directors
and officers of the Company may, under certain circumstances, be indemnified
against expenses (including attorneys' fees) and from other liabilities actually
and reasonably incurred by them as a result of any suit brought against them in
their capacity as a director or officer, if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, if they
had no reasonable cause to believe their conduct was unlawful. Section 33 also
provides that directors and officers may also be indemnified against expenses
(including attorneys' fees) incurred by them in connection with a derivative
suit if they acted in good faith and in a manner they reasonably believed to be
in or not opposed to the best interests of the corporation, except that no
indemnification may be made without court approval if such person was adjudged
liable to the corporation.
The Company has purchased director and officer liability insurance in
the amount of $5 million covering its current executive officers and directors.
RECENT SALES OF UNREGISTERED SECURITIES
In October 1997, the Company sold 50,000 Common Shares at an adjusted
price of $20.00 per share to various individuals and companies, including some
directors, totaling $1,000,000, in an offering exempt from registration under
Rule 504 of Regulation D and Section 3(b) of the Securities Act. No underwriters
were involved in the sale and no underwriting discounts or commissions were
paid.
During 1997 the Bank issued $3,700,000 of Subordinated Notes to the
Company in 3 separate offerings exempt from registration under Rule 506 of
Regulation D and Section 4(2) of the Securities Act. No underwriters were
involved in the sale and no underwriting discounts on commissions were paid.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses of the
Company in connection with the Offering other than underwriting discounts.
<TABLE>
<S> <C>
SEC Registration Fee $ 1,043
Legal Fees and Expenses 30,000
Accounting Fees and Expenses 5,000
Printing and Engraving Expenses 2,500
Blue Sky Fees and Expenses 1,000
Miscellaneous 4,457
-------
Total $44,000
=======
</TABLE>
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
The information required by this Item 21(a) is set forth in the Index
to Exhibits accompanying this Registration Statement and is incorporated herein
by reference.
(b) FINANCIAL STATEMENT SCHEDULES
The financial statement schedules listed below follow:
II-1
<PAGE> 79
UNDERTAKINGS
1. The undersigned Registrant hereby undertakes to file, during any period
in which offers or sales are being made, a post-effective amendment to
this registration statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and,
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
2. The undersigned Registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
3. The undersigned Registrant hereby undertakes to remove from registration by
means of a post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
4. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
5. The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or Rule 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was
declared effective.
(b) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
II-2
<PAGE> 80
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Worthington and State of Ohio on December 11,
1998.
CNBC BANCORP,
an Ohio corporation
By: /s/ Thomas D. McAuliffe
---------------------------------------
Thomas D. McAuliffe
Chief Executive Officer and
President
By: /s/ John Romelfanger
---------------------------------------
John Romelfanger
Vice President, Secretary and
Treasurer (Principal Accounting
Officer)
II-3
<PAGE> 81
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, constitutes and
appoints THOMAS D. MCAULIFFE and JOHN ROMELFANGER, and each of them, his true
and lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Form SB-2 Registration Statement, and to file the same with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting such attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming that all such attorneys-in-fact and agents, or each of them, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Thomas D. McAuliffe
- ---------------------------------- Chairman of the Board of Directors, November 17, 1998
Thomas D. McAuliffe President and Chief Executive Officer
(Principal Executive Officer)
/s/ John Romelfanger
- ---------------------------------- Vice President, Secretary and Treasurer November 17, 1998
John Romelfanger (Principal Financial and Accounting
Officer)
/s/ Daniel M. Mahoney
- --------------------------------- Director, Vice President and Senior November 17, 1998
Daniel M. Mahoney Lending Officer
/s/ Loretto (Larry) V. Canini
- --------------------------------- Director November 17, 1998
Loretto (Larry) V. Canini
/s/ Mark S. Corna
- --------------------------------- Director November 17, 1998
Mark S. Corna
/s/ Jameson Crane, Jr.
- --------------------------------- Director November 17, 1998
Jameson Crane, Jr.
/s/ Judith A. DeVillers
- --------------------------------- Director November 17, 1998
Judith A. DeVillers
/s/ George A. Gummer
- --------------------------------- Director November 17, 1998
George A. Gummer
/s/ William L. Hoy
- --------------------------------- Director November 17, 1998
William L. Hoy
</TABLE>
II-4
<PAGE> 82
<TABLE>
<S> <C> <C>
- --------------------------------- Director November __, 1998
Douglas W. James
/s/ Donald R. Kenney
- -------------------------------- Director November 17, 1998
Donald R. Kenney
/s/ Samuel E. McDaniel
- -------------------------------- Director November 17, 1998
Samuel E. McDaniel
/s/ Richard F. Ruhl
- -------------------------------- Director November 17, 1998
Richard F. Ruhl
/s/ David J. Ryan
- -------------------------------- Director November 17, 1998
David J. Ryan
- -------------------------------- Director November __, 1998
Peter C. Taub
/s/ John A. Tonti
- -------------------------------- Director November 17, 1998
John A. Tonti
/s/ Alan R. Weiler
- -------------------------------- Director November 17, 1998
Alan R. Weiler
/s/ Michael Wren
- -------------------------------- Director November 17, 1998
Michael Wren
</TABLE>
II-5
<PAGE> 83
EXHIBIT INDEX
EXHIBIT # DESCRIPTION
- --------- -----------
3.1 Articles of Incorporation of CNBC Bancorp
3.2 Regulations of CNBC Bancorp
4.1 Form of CNBC Bancorp Common Share Certificate
5 Opinion of Squire, Sanders & Dempsey L.L.P. as to the
legality of the Common Shares being registered (including
consents)
10.1 Employment Agreement dated as of March 1, 1998 by and
between and among Commerce National Bank, CNBC Bancorp and
Thomas D. McAuliffe
10.2 Form of Indemnification Agreement between CNBC Bancorp and
its directors, officers and certain representatives
10.3 Non-Qualified Stock Option Plan
10.4 Form of Deferred Compensation Agreement
21 Subsidiaries of CNBC Bancorp
23.1 Consent of Squire, Sanders & Dempsey L.L.P. (see Exhibit 5)
23.2 Consent of Crowe, Chizek and Company L.L.P.
24 Power of Attorney (included in Part II of the Registration
Statement)
27 Financial Data Schedule
II-6
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
CNBC BANCORP
The undersigned, desiring to form a corporation for profit under
Sections 1701.01 to 1701.98, inclusive, of the Ohio Revised Code, do hereby
certify:
FIRST: The name of the Corporation shall be the CNBC Bancorp.
SECOND: The place in the State of Ohio where the principal office of
the Corporation will be located is in Worthington, Franklin County, or such
other location as the Board of Directors may from time to time determine.
THIRD: The purpose for which the Corporation is formed is to engage in
any lawful act or activity for which corporations may be formed under Sections
1701.01 to 1701.98, inclusive, of the Ohio Revised Code, as now in effect or
hereafter amended.
FOURTH: The total number of shares of all classes which the Corporation
shall have authority to issue is Two Million Two Hundred Thousand (2,200,000),
divided into two classes as follows: 200,000 Serial Preferred Shares, par value
ten dollars ($10.00) per share ("Serial Shares"), and 2,000,000 Common Shares,
without par value ("Common Shares").
The shares of such classes shall have the following express terms:
DIVISION A
EXPRESS TERMS OF THE SERIAL SHARES
SECTION 1. The Serial Shares may be issued from time to time in one or
more series. All shares of Serial Shares shall be of equal rank and shall be
identical, except in respect of the matters that may be fixed by the Board of
Directors as hereinafter provided, and each share of each series shall be
identical with all other shares of such series, except as to the date from which
dividends are cumulative. Subject to the provisions of Sections 2 to 6, both
inclusive, of this division, which provisions shall apply to all Serial Shares,
the Board of Directors hereby is authorized to cause such shares to be issued in
one or more series and with respect to each such series prior to the issuance
thereof to fix:
(a) The designation of the series, which may be by
distinguishing number, letter, or title;
(b) The number of shares of the series, which number the Board
of Directors may (except where otherwise provided in the creation of
the series) increase or decrease (but not below the number of shares
thereof then outstanding);
(c) The annual dividend rate of the series;
(d) The dates at which dividends, if declared, shall be
payable, and the dates from which dividends shall be cumulative;
<PAGE> 2
(e) The redemption rights and price or prices, if any, for
shares of the series;
(f) The terms and amount of any sinking fund provided for the
purchase or redemption of shares of the series;
(g) The amounts payable on shares of the series in the event
of any voluntary liquidation, dissolution, or winding up of the affairs
of the Corporation;
(h) Whether the shares of the series shall be convertible into
Common Shares, and, if so, the conversion price or prices, any
adjustments thereof, and all other terms and conditions upon which
conversion may be made;
(i) Restrictions (in addition to those set forth in Sections
5(b) and 5(c) of this Division) on the issuance of shares of the same
series or of any other class or series.
The Board of Directors is authorized to adopt from time to time
amendments to the Articles of Incorporation fixing, with respect to each such
series, the matters described in clauses (a) to (i), both inclusive, of this
Section 1.
SECTION 2. The holders of Serial Shares of each series, in preference
to the holders of Common Shares and of any other class of shares ranking junior
to the Serial Shares, shall be entitled to receive out of any funds legally
available and when and as declared by the Board of Directors dividends in cash
at the rate for such series fixed in accordance with the provisions of Section 1
of this Division and no more, payable quarterly on the dates fixed for such
series. Such dividends shall be cumulative, in the case of shares of each
particular series, from and after the date or dates fixed with respect to such
series. No dividends may be paid upon or declared or set apart for any of the
Serial Shares for any quarterly dividend period unless at the same time a like
proportionate dividend for the same quarterly dividend period, ratably in
proportion to the respective annual dividend rates fixed therefor, shall be paid
upon or declared or set apart for all Serial Shares of all series then issued
and outstanding and entitled to receive such dividend.
SECTION 3. In no event so long as any Serial Shares shall be
outstanding shall any dividends, except a dividend payable in Common Shares or
other shares ranking junior to the Serial Shares, be paid or declared or any
distribution be made except as aforesaid on the Common Shares or any other
shares ranking junior to the Serial Shares, nor shall any Common Shares or any
other shares ranking junior to the Serial Shares be purchased, retired, or
otherwise acquired by the Corporation (except out of the proceeds of the sale of
Common Shares or other shares ranking junior to the Serial Shares received by
the Corporation subsequent to August 23, 1996):
(a) Unless all accrued and unpaid dividends on Serial Shares,
including the full dividends for the current quarterly dividend period,
shall have been declared and paid or a sum sufficient for payment
thereof set apart; and
(b) Unless there shall be no arrearages with respect to the
redemption of Serial Shares of any series from any sinking fund
provided for shares of such series in accordance with Section 1 of this
Division.
SECTION 4. (a) The holders of Serial Shares of any series shall, in
case of liquidation, dissolution, or winding up of the affairs of the
Corporation, be entitled to receive in full out of the assets of the
Corporation, including its capital, before any amount shall be paid or
distributed among the holders of the Common Shares or any other shares ranking
junior to the Serial Shares, the amounts fixed with respect to shares of such
series in accordance with Section 1 of this Division, plus an amount equal to
all dividends accrued and unpaid thereon to the date of payment of the amount
due pursuant to such liquidation, dissolution, or winding up of the affairs of
<PAGE> 3
the Corporation. In case the net assets of the Corporation legally available
therefor are insufficient to permit the payment upon all outstanding Serial
Shares of the full preferential amount to which they are respectively entitled,
then such net assets shall be distributed ratably upon outstanding Serial Shares
in proportion to the full preferential amount to which each such share is
entitled.
After payment to holders of Serial Shares of the full preferential
amounts as aforesaid, holders of Serial Shares as such shall have no right or
claim to any of the remaining assets of the Corporation.
(b) The merger or consolidation of the Corporation into or with any
other corporation, or the merger of any other corporation into it, or the sale,
lease or conveyance of all or substantially all the property or business of the
Corporation, shall not be deemed to be a dissolution, liquidation, or winding up
for the purposes of this Section 4.
SECTION 5. (a) The holders of Serial Shares shall be entitled to one
vote for each share of such stock upon all matters presented to the
shareholders; and, except as otherwise provided herein or required by law, the
holders of Serial Shares and the holders of Common Shares shall vote together as
one class on all matters.
If, and so often as, the Corporation shall be in default in the payment
of six (6) full quarterly dividends (whether or not consecutive) on any series
of Serial Shares at the time outstanding, whether or not earned or declared, the
holders of Serial Shares of all series, voting separately as a class and in
addition to all other rights to vote for directors, shall be entitled to elect,
as herein provided, two (2) members of the Board of Directors of the
Corporation; provided, however, that the holders of Serial Shares shall not have
or exercise such special class voting rights except at meetings of the
shareholders for the election of directors at which the holders of not less than
one-third of the outstanding Serial Shares of all series then outstanding are
present in person or by proxy; and provided further that the special class
voting rights provided for herein when the same shall have become vested shall
remain so vested until all accrued and unpaid dividends on the Serial Shares of
all series then outstanding shall have been paid, whereupon the holders of
Serial Shares shall be divested of their special class voting rights in respect
of subsequent elections of directors, subject to the revesting of such special
class voting rights in the event hereinabove specified in this paragraph.
In the event of default entitling the holders of Serial Shares to elect
two (2) directors as above specified, a special meeting of the shareholders for
the purpose of electing such directors shall be called by the Secretary of the
Corporation upon written request of, or may be called by, the holders of record
of at least ten percent (10%) of the Serial Shares of all series at the time
outstanding, and notice thereof shall be given in the same manner as that
required for the annual meeting of shareholders; provided, however, that the
Corporation shall not be required to call such special meeting if the annual
meeting of shareholders shall be held within one hundred twenty (120) days after
the date of receipt of the foregoing written request from the holders of Serial
Shares. At any meeting at which the holders of Serial Shares shall be entitled
to elect directors, the holders of one-third of the then outstanding Serial
Shares of all series, present in person or by proxy, shall be sufficient to
constitute a quorum, and the vote of the holders of a majority of such shares so
present at any such meeting at which there shall be such a quorum shall be
sufficient to elect the members of the Board of Directors which the holders of
Serial Shares are entitled to elect as hereinabove provided. The two directors
who may be elected by the holders of Serial Shares pursuant to the foregoing
provisions shall be in addition to any other directors then in office or
proposed to be elected otherwise than pursuant to such provisions, and nothing
in such provisions shall prevent any change otherwise permitted in the total
number of directors of the Corporation or require the resignation of any
director elected otherwise than pursuant to such provisions. Notwithstanding any
classification of the other directors of the Corporation, the two directors
elected by the holders of Serial Shares shall be elected annually for terms
expiring at the next succeeding annual meeting of shareholders.
<PAGE> 4
(b) The affirmative vote of the holders of at least two-thirds of the
Serial Shares at the time outstanding, given in person or by proxy at a meeting
called for the purpose at which the holders of Serial Shares shall vote
separately as a class, shall be necessary to effect any one or more of the
following (but so far as the holders of Serial Shares are concerned, such action
may be effected with such vote):
(i) Any amendment, alteration, or repeal of any of the
provisions of the Articles of Incorporation or of the Regulations of
the Corporation which affects adversely the voting powers, rights or
preferences of the holders of Serial Shares; provided, however, that,
for the purpose of this clause (i) only, neither the amendment of the
Articles of Incorporation so as to authorize or create, or to increase
the authorized or outstanding amount of, Serial Shares or of any shares
of any class ranking on a parity with or junior to the Serial Shares,
nor the amendment of the provisions of the Regulations so as to
increase the number of directors of the Corporation shall be deemed to
affect adversely the voting powers, rights or preferences of the
holders of Serial Shares; and provided further, that if such amendment,
alteration, or repeal affects adversely the rights or preferences of
one or more but not all series of Serial Shares at the time
outstanding, only the affirmative vote of the holders of at least
two-thirds of the number of shares at the time outstanding of the
series so affected shall be required;
(ii) The authorization or creation of, or the increase in the
authorized amount of, any shares of any class, or any security
convertible into shares of any class, ranking prior to the Serial
Shares; or
(iii) The purchase or redemption (for sinking fund purposes or
otherwise) of less than all of the Serial Shares then outstanding
except in accordance with a stock purchase offer made to all holders of
record of Serial Shares, unless all dividends upon all Serial Shares
then outstanding for all previous quarterly dividend periods shall have
been declared and paid or funds therefor set apart and all accrued
sinking fund obligations applicable thereto shall have been complied
with.
(c) The affirmative vote of the holders of at least a majority of the
shares of Serial Shares at the time outstanding, given in person or by proxy at
a meeting called for the purpose at which the holders of Serial Shares shall
vote separately as a class, shall be necessary to effect any one or more of the
following (but so far as the holders of Serial Shares are concerned, such action
may be effected with such vote):
(i) The sale, lease or conveyance by the Corporation of all or
substantially all of its property or business, or its consolidation
with or merger into any other corporation unless the corporation
resulting from such consolidation or merger will have after such
consolidation or merger no class of shares either authorized or
outstanding ranking prior to or on a parity with the Serial Shares
except the same number of shares ranking prior to or on a parity with
the Serial Shares and having the same rights and preferences as the
shares of the Corporation authorized and outstanding immediately
preceding such consolidation or merger, and each holder of Serial
Shares immediately preceding such consolidation or merger shall receive
the same number of shares, with the same rights and preferences, of the
resulting corporation; or
(ii) The authorization of any shares ranking on a parity with
the Serial Shares or an increase in the authorized number of Serial
Shares.
SECTION 6. For the purpose of this Division A, whenever reference is
made to shares "ranking prior to the Serial Shares" or "on a parity with the
Serial Shares," such reference shall mean and include all shares of the
Corporation in respect of which the rights of the holders thereof
<PAGE> 5
as to the payment of dividends or as to distributions in the event of a
voluntary or involuntary liquidation, dissolution, or winding up of the affairs
of the Corporation are given preference over, or rank on an equality with (as
the case may be) the rights of holders of Serial Shares; and whenever reference
is made to shares "ranking junior to the Serial Shares," such reference shall
mean and include all shares of the Corporation in respect of which the rights of
the holders thereof as to the payment of dividends and as to distributions in
the event of a voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Corporation are junior and subordinate to the rights of
the holders of Serial Shares.
DIVISION B
EXPRESS TERMS OF THE COMMON SHARES
The Common Shares shall be subject to the express terms of the Serial
Shares and any series thereof. Each Common Share shall be equal to every other
share of Common Share. The holders of Common Shares shall be entitled to one
vote for each share of such stock upon all matters presented to the
shareholders.
FIFTH: No holder of any class of shares of the Corporation shall, as
such holder, have any preemptive or preferential right to purchase or subscribe
to any shares of any class of stock of the Corporation, whether now or hereafter
authorized, whether unissued or in the treasury, or to purchase any obligations
convertible into shares of any class of stock of the Corporation, which at any
time may be proposed to be issued by the Corporation or subjected to rights or
options to purchase granted by the Corporation.
SIXTH: No person shall make a Control Share Acquisition without the
prior authorization of the Corporation's shareholders.
SECTION 1. PROCEDURE. In order to obtain authorization of a Control
Share Acquisition by the Corporation's shareholders, a Person shall deliver a
notice (the "Notice") to the Corporation at its principal place of business that
sets forth all of the following information:
(a) The identity of the Person who is giving the Notice;
(b) A statement that the Notice is given pursuant to this
Article SIXTH;
(c) The number and class of shares of the Corporation owned,
directly or indirectly, by the Person who gives the Notice;
(d) The range of voting power under which the proposed Control
Share Acquisition would, if consummated, fall;
(e) A description in reasonable detail of the terms of the
proposed Control Share Acquisition; and
(f) Reasonable evidence that the proposed Control Share
Acquisition, if consummated, would not be contrary to law and that the
Person who is giving the Notice has the financial capacity to make the
proposed Control Share Acquisition.
SECTION 2. CALL OF SPECIAL MEETING OF SHAREHOLDERS. The Board of
Directors of the Corporation shall, within ten days after receipt of such Notice
by the Corporation, call a special meeting of shareholders to be held not later
than fifty (50) days after receipt of the Notice by the Corporation, unless the
Person who delivered the Notice agrees to a later date, to consider the proposed
Control Share Acquisition; provided that the Board of Directors shall have no
obligation to call such meeting if they make a determination within ten days
after receipt of the Notice (a) that
<PAGE> 6
the Notice was not given in good faith, (b) that the proposed Control Share
Acquisition would not be in the best interests of the Corporation and its
shareholders, (c) that the proposed Control Share Acquisition could not be
consummated for financial or legal reasons. In determining what is in the best
interests of the Corporation and its shareholders under clause (b), the Board of
Directors may consider any of the following: (i) the interests of the
Corporation's employees, suppliers, creditors, and customers; (ii) the economy
of the Corporation's market area(s), the state and the nation; (iii) community
and societal considerations; (iii) the long-term as well as short-term interests
of the Corporation and its shareholders, including the possibility that these
interests may be best served by the continued independence of the Corporation.
Notwithstanding anything to the contrary contained in clause (b), the Board of
Directors shall not determine not to call such special meeting of shareholders
for the reason stated in such clause (b) if the Control Share Acquisition
described in the Notice is for any and all shares of the Corporation at a price
higher than 250% of the book value of the Common Shares as of the close of the
immediately preceding fiscal year. The Board of Directors may adjourn such
meeting if, prior to such meeting, the Corporation has received a Notice from
any other Person and the Board of Directors has determined that the Control
Share Acquisition proposed by such other Person or a merger, consolidation or
sale of assets of the Corporation should be presented to shareholders at an
adjourned meeting or at a special meeting held at a later date.
For purposes of making a determination that a special meeting of
shareholders should not be called pursuant to this Section 3, no such
determination shall be deemed void or voidable with respect to the Corporation
merely because one or more of its directors or officers who participated in
making such determination may be deemed to be other than disinterested, if in
any such case the material facts of the relationship giving rise to a basis for
self-interest are known to the directors and the directors, in good faith
reasonably justified by the facts, make such determination by the affirmative
vote of a majority of the disinterested directors, even though the disinterested
directors constitute less than a quorum. For purposes of this paragraph,
"disinterested directors" shall mean directors whose material contacts with the
Corporation are limited principally to activities as a director, a shareholder,
a customer or a depositor of the Corporation or any of its subsidiaries or
affiliates. A director shall not be deemed to be other than a "disinterested
director" merely because he would no longer be a director if the proposed
Control Share Acquisition were approved and consummated.
SECTION 3. NOTICE OF SPECIAL MEETING. The Corporation shall give notice
of such special meeting to all shareholders of record as of the record date set
for such meeting as promptly as practicable. Such notice shall include or be
accompanied by a copy of the Notice and by a statement of the Corporation,
authorized by the Board of Directors, of its position or recommendation, or that
it is taking no position or making no recommendation, with respect to the
proposed Control Share Acquisition.
SECTION 4. REQUIREMENTS FOR APPROVAL. The Person who delivered the
Notice may make the proposed Control Share Acquisition if both of the following
occur: (a) the shareholders of the Corporation authorize such acquisition at the
special meeting called by the Board of Directors at which a quorum is present
and held for that purpose by an affirmative vote of a majority of the shares
entitled to vote in the election of directors ("Voting Shares") represented at
such meeting in person or by proxy and by a majority of the portion of such
Voting Shares represented at such meeting in person or by proxy excluding the
votes of Interested Shares; and (b) such acquisition is consummated, in
accordance with the terms so authorized, not later than 360 days following
shareholder authorization of the Control Share Acquisition.
SECTION 5. VIOLATIONS OF RESTRICTION. Shares issued or transferred to
any Person in violation of this Article SIXTH shall be valid only with respect
to such amount of shares as does not result in a violation of this Article
SIXTH, and such issuance or transfer shall be null and void with respect to the
remainder of such shares, any such remainder of shares being hereinafter called
"Excess Shares." If the last clause of the foregoing sentence is determined to
be invalid by virtue of any legal decision, statute, rule or regulation, the
Person who holds Excess Shares shall be conclusively deemed to have acted as an
agent on behalf of the Corporation in acquiring the Excess
<PAGE> 7
Shares and to hold such Excess Shares on behalf of the Corporation. As the
equivalent of treasury securities for such purposes, the Excess Shares shall not
be entitled to any voting rights, shall not be considered to be outstanding for
quorum or voting purposes, and shall not be entitled to receive dividends,
interest or any other distribution with respect to the Excess Shares. Any person
who receives dividends, interest or any other distribution in respect to Excess
Shares shall hold the same as agent for the Corporation and, following a
permitted transfer, for the transferee thereof. Notwithstanding the foregoing,
any holder of Excess Shares may transfer the same (together with any
distributions thereon) to any person who, following such transfer, would not own
shares in violation of this Article SIXTH. Upon such permitted transfer, the
Corporation shall pay or distribute to the transferee any distributions on the
Excess Shares not previously paid or distributed.
SECTION 6. DEFINITIONS. As used in this Article SIXTH:
(a) "Person" includes, without limitation, an individual, a
corporation (whether nonprofit or for profit), a partnership, an
unincorporated society or association, and two or more persons having a
joint or common interest.
(b)(i) "Control Share Acquisition" means the acquisition,
directly or indirectly, by any Person, of shares of the Corporation
that, when added to all other shares of the Corporation in respect of
which such Person may exercise or direct the exercise of voting power
as provided in this Section 6(b)(i), would entitle such Person,
immediately after such acquisition, directly or indirectly, alone or
with others, to exercise or direct the exercise of the voting power of
the Corporation in the election of directors within any of the
following ranges of such voting power:
(A) One-fifth or more but less than one-third of such
voting power;
(B) One-third or more but less than a majority of such
voting power;
(C) A majority or more of such voting power.
A bank, broker, nominee, trustee, or other person who acquires shares
in the ordinary course of business for the benefit of others in good
faith and not for the purpose of circumventing this Article SIXTH
shall, however, be deemed to have voting power only of shares in
respect of which such person would be able to exercise or direct the
exercise of votes without further instruction from others at a meeting
of shareholders called under this Article SIXTH. For purposes of this
Article SIXTH, the acquisition of securities immediately convertible
into shares of the Corporation with voting power in the election of
directors shall be treated as an acquisition of such shares.
(ii) The acquisition of any shares of the Corporation does not
constitute a Control Share Acquisition for the purpose of this Article
SIXTH if the acquisition is consummated in any of the following
circumstances:
(A) By underwriters in good faith and not for the
purpose of circumventing this Article SIXTH in
connection with an offering of the securities of the
Corporation to the public;
(B) By bequest or inheritance, by operation of law upon
the death of any individual, or by any other
transfer without valuable consideration, including a
gift, that is made in good faith and not for the
purpose of circumventing this Article SIXTH;
<PAGE> 8
(C) Pursuant to the satisfaction of a pledge or other
security interest created in good faith and not for
the purpose of circumventing this Article SIXTH;
(D) Pursuant to a merger or consolidation adopted, or a
combination or majority share acquisition authorized,
by shareholder vote in compliance with the provisions
of Section 1701.78 or Section 1701.83 of the Ohio
Revised Code if the Corporation is the surviving or
new corporation in the merger or consolidation or is
the acquiring corporation in the combination or
majority share acquisition and if the vote of the
shareholders of the surviving, new, or acquiring
corporation is required by the provisions of Section
1701.78 or 1701.83 of the Ohio Revised Code;
(E) Prior to August 22, 1996;
(F) Pursuant to a contract existing prior to August 22,
1996.
The acquisition by any Person of shares of the Corporation in a manner
described under this Section 6(b)(ii) shall be deemed to be a Control
Share Acquisition authorized pursuant to this Article SIXTH within the
range of voting power under Section 6(b)(i)(A), (B) or (C) of this
Article SIXTH that such Person is entitled to exercise after such
acquisition, provided that, in the case of an acquisition in a manner
described under Section 6(b)(ii)(B) or (C), the transferor of shares to
such Person had previously obtained any authorization of shareholders
required under this Article SIXTH in connection with such transferor's
acquisition of shares of the Corporation.
(iii) The acquisition of shares of the Corporation in good
faith and not for the purpose of circumventing this Article SIXTH the
acquisition of which (A) had previously been authorized by shareholders
in compliance with this Article or (B) would have constituted a Control
Share Acquisition but for Section 6(b)(ii), does not constitute a
Control Share Acquisition for the purpose of this Article SIXTH unless
such acquisition entitles any Person, directly or indirectly, alone or
with others, to exercise or direct the exercise of voting power of the
Corporation in the election of directors in excess of the range of such
voting power authorized pursuant to this Article SIXTH, or deemed to be
so authorized under Section 6(b)(ii).
(c) "Interested Shares" means Voting Shares of the Corporation
in respect of which any of the following persons may exercise or direct
the exercise of the voting power of the Corporation in the election of
directors:
(i) any Person whose Notice prompted the calling of
the meeting of shareholders;
(ii) any officer of the Corporation elected or
appointed by the directors of the Corporation; and
(iii) any employee of the Corporation who is also a
director of the Corporation.
SECTION 7. PROXIES. No proxy appointed for or in connection with the
shareholder authorization of a Control Share Acquisition pursuant to this
Article SIXTH is valid if it provides that it is irrevocable. No such proxy is
valid unless it is sought, appointed, and received both:
(a) in accordance with all applicable requirements of law; and
<PAGE> 9
(b) separate and apart from the sale or purchase, contract or
tender for sale or purchase, or request or invitation for tender for
sale or purchase, of shares of the Corporation.
SECTION 8. REVOCABILITY OF PROXIES. Proxies appointed for or in
connection with the shareholder authorization of a Control Share Acquisition
pursuant to this Article SIXTH shall be revocable at all times prior to the
obtaining of such shareholder authorization, whether or not coupled with an
interest.
SECTION 9. AMENDMENTS. Notwithstanding any other provisions of these
Articles of Incorporation or the Regulations of the Corporation, as the same may
be in effect from time to time, or any provision of law that might otherwise
permit a lesser vote of the directors or shareholders, but in addition to any
affirmative vote of the directors or the holders of any particular class or
series of shares required by law, the Articles of Incorporation or the
Regulations of the Corporation, as the same may be in effect from time to time,
the affirmative vote of a least seventy-five (75) percent of the Voting Shares
shall be required to alter, amend or repeal this Article SIXTH or adopt any
provisions in the Articles of Incorporation or Regulations of the Corporation,
as the same may be in effect from time to time, which are inconsistent with the
provisions of this Article SIXTH.
SECTION 10. LEGEND ON SHARE CERTIFICATES. Each certificate representing
shares of the Corporation's capital stock shall contain the following legend:
"Transfer of the shares represented by this Certificate is subject to the
provisions of Article SIXTH of the Corporation's Articles of Incorporation as
the same may be in effect from time to time. Upon written request delivered to
the Secretary of the Corporation at its principal place of business, the
Corporation will mail to the holder of this Certificate a copy of such
provisions without charge within five days after receipt of written request
therefor. By accepting this Certificate the holder hereof acknowledges that it
is accepting the same subject to the provisions of said Article SIXTH as the
same may be in effect from time to time and covenants with the Corporation and
each shareholder thereof from time to time to comply with the provisions of said
Article SIXTH as the same may be in effect from time to time."
SEVENTH: The provisions of Section 1701.831 of the Ohio Revised Code,
as amended from time to time, or any successor provision or provisions to said
section, shall not apply to this Corporation.
EIGHTH: Without derogation from any other power to purchase shares of
the Corporation, the Corporation may, by action of its Board of Directors, and
to the extent not prohibited by law, purchase outstanding shares of any class of
the Corporation's shares; subject, however, to such limitation or restriction,
if any, as is contained in the express terms of any class of stock of the
Corporation outstanding at the time of the purchase in question.
NINTH: Except as otherwise provided in these Articles of Incorporation
or the Regulations of the Corporation as they may be amended from time to time,
the holders of a majority of the Corporation's outstanding voting shares are
authorized to take any action which, but for this Article NINTH, would require
the vote or other action of the holders of more than a majority of such shares.
Notwithstanding the foregoing, the adoption of any amendment, alteration, change
or repeal to these Articles of Incorporation as the same may be in effect from
time to time which is inconsistent with or would have the effect of amending,
altering, changing or repealing the provisions of Sections 8, 10, or 11 of the
Regulations of the Corporation as the same may be in effect from time to time
shall require the same affirmative vote of shareholders as would be required
under such Regulations to adopt any amendment, alteration, change or repeal of
said Sections 8, 10 or 11 or to adopt any provisions inconsistent therewith.
<PAGE> 1
EXHIBIT 3.2
CODE OF REGULATIONS
OF
CNBC BANCORP
MEETINGS OF SHAREHOLDERS
------------------------
SECTION 1. ANNUAL MEETING.
---------------
The annual meeting of shareholders of the Corporation shall be held at
such time as the directors may determine each year. The annual meeting shall be
held at the principal office of the Corporation or at such other place within or
without the State of Ohio as the directors may determine. The directors shall be
elected thereat and such other business transacted as may properly be brought
before the meeting.
SECTION 2. SPECIAL MEETINGS.
-----------------
Special meetings of the shareholders may be called at any time by the
President, a Vice President or by the directors by action at a meeting or a
majority of the directors acting without a meeting, or by shareholders holding
fifty (50) percent or more of the outstanding shares entitled to vote thereat.
Such meetings may be held within or without the State of Ohio at such time and
place as may be specified in the notice thereof.
SECTION 3. NOTICE OF MEETINGS.
-------------------
Written notice of every annual or special meeting of the shareholders
stating the time, place and purposes thereof shall be given to each shareholder
entitled to notice as provided by law, not less than seven (7) nor more than
ninety (90) days before the date of the meeting. Such notice may be given by or
at the direction of the President, any Vice President or the Secretary by
personal delivery or by mail addressed to the shareholder at his last address as
it appears on the records of the Corporation. Any shareholder may waive in
writing notice of any meeting, either before or after the holding of such
meeting, and, by attending any meeting without protesting the lack of proper
notice, shall be deemed to have waived notice thereof.
SECTION 4. PROXIES: PERSONS BECOMING ENTITLED BY OPERATION OF LAW OR
---------------------------------------------------------
TRANSFER.
---------
Every person who, by operation of law, transfer or any other means
whatsoever, shall become entitled to any shares, shall be bound by every notice
in respect to such share or shares which previously to the entering of his name
and address on the records of the Corporation shall have been duly given to the
person from whom he derives his title to such shares.
SECTION 5. QUORUM AND ADJOURNMENTS.
-----------------------
Except as may be otherwise required by law or by the Articles of
Incorporation or these Regulations, the holders of a majority of the
then-outstanding shares entitled to vote in an election of directors, taken
together as a single class ("Voting Shares"), present in person or by proxy,
shall constitute a quorum; provided that any meeting duly called, whether a
quorum is present or otherwise may, by vote of the holders of the majority of
the Voting Shares represented thereat,
<PAGE> 2
adjourn from time to time, in which case no further notice of any such adjourned
meeting need be given.
SECTION 6. BUSINESS TO BE CONDUCTED AT MEETINGS.
-------------------------------------
At any meeting of shareholders, only such business shall be conducted
as shall have been properly brought before the meeting. To be properly brought
before a meeting of shareholders, business must be specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the
directors, otherwise properly brought before the meeting by or at the direction
of the directors or otherwise properly brought before the meeting by a
shareholder. For business to be properly brought before a meeting of
shareholders by a shareholder, the shareholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than sixty (60) days nor
more than ninety (90) days prior to the meeting; provided, however, that in the
event that less than seventy-five (75) days' notice or prior public disclosure
of the date of the meeting is given or made to the shareholders, notice by the
shareholder to be timely must be so received not later than the close of
business on the fifteenth (15th) day following the earlier of the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. A shareholder's notice to the Secretary shall set forth as to each matter
the shareholder proposes to bring before the meeting (i) a brief description of
the business desired to be brought before the meeting and the reasons for
conducting such business at the meeting, (ii) the name and record address of the
shareholder proposing such business, (iii) the class and number of shares of the
Corporation which are beneficially owned by such shareholder, and (iv) any
material interest of such shareholder in such business.
Notwithstanding anything in the Regulations of the Corporation to the
contrary, no business shall be conducted at a meeting of shareholders except in
accordance with the procedures set forth in this Section 6.
The Chairman of the meeting of shareholders shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of this Section 6
in which event any such business not properly brought before the meeting shall
not be transacted.
SECTION 7. WRITTEN CONSENT IN LIEU OF MEETING OF THE SHAREHOLDERS.
-------------------------------------------------------
Actions by shareholders may only be taken at meetings of shareholders.
Shareholder actions may not be taken by written consent.
DIRECTORS
---------
SECTION 8. NUMBER.
-------
The number of directors may be determined by the vote of the holders of
a majority of the Voting Shares represented at any annual meeting or special
meeting called for the purpose of electing directors or by resolution adopted by
affirmative vote of a majority of the directors then in office, provided that,
except as provided in the Articles of Incorporation, the number of directors
shall in no event be fewer than nine (9) nor more than twenty-five (25). When
so fixed, such number shall continue to be the authorized number of directors
until changed by the shareholders or directors by vote as aforesaid.
SECTION 9. NOMINATIONS.
------------
<PAGE> 3
Only persons who are nominated in accordance with the following
procedures shall be eligible for election as directors. Nominations of persons
for election as directors of the Corporation may be made at a meeting of
shareholders by or at the direction of the directors by any nominating committee
or person appointed by the directors or by any shareholder of the Corporation
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth in this Section 9. Such nominations, other than
those made by or at the direction of the directors, shall be made pursuant to
timely notice in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than sixty (60) days nor
more than ninety (90) days prior to the meeting; provided, however, that in the
event that less than seventy-five (75) days' notice or prior public disclosure
of the date of the meeting is given or made to shareholders, notice by the
shareholder to be timely must be so received not later than the close of
business on the fifteenth (15th) day following the earlier of the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. Such shareholder's notice shall set forth (a) as to each person who is not
an incumbent director whom the shareholder proposes to nominate for election as
a director, (i) the name, age, business address and residence address of such
person; (ii) the principal occupation or employment or such person; (iii) the
number of shares of the Corporation which are beneficially owned by such person;
and (iv) any other information relating to such person that is required to be
disclosed in solicitations for proxies for election of directors pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended; and (b) as
to the shareholder giving the notice, (i) the name and record address of such
shareholder and (ii) the number of shares of the Corporation which are
beneficially owned by such shareholder. Such notice shall be accompanied by the
written consent of each proposed nominee to serve as a director of the
Corporation, if elected. No person shall be eligible for election as a director
of the Corporation, unless nominated in accordance with the procedures set forth
in this Section 9.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
provisions of this Section 9 and, if he should so determine, the defective
nomination shall be disregarded.
SECTION 10. CLASSIFICATION, ELECTION AND TERM OF OFFICE OF DIRECTORS.
---------------------------------------------------------
The directors shall be divided into three classes, as nearly equal in
number as possible, and each class shall be elected for a staggered three-year
term of office at each annual shareholders meeting. If the number of directors
is changed, any increase or decrease shall be apportioned among the classes so
as to maintain the number of directors in each class as nearly equal as
possible, and any additional director of any class elected to fill a vacancy
resulting from an increase in such class shall hold office for a term that shall
coincide with the remaining term of such class, but in no case will a decrease
in the number of directors shorten the term of any incumbent director. A
director shall hold office until the annual meeting for the year in which his
term expires and his successor shall be elected and shall qualify; subject,
however, to prior death, resignation, or removal from office. No person shall be
nominated to be a director who shall have attained the age of seventy (70) on or
before the annual meeting at which directors are to be elected. Election of
directors shall be by ballot whenever requested by any person entitled to vote
at the meeting; but unless so requested such election may be conducted in any
way approved at such meeting.
SECTION 11. REMOVAL.
--------
Except as otherwise provided by law, all the directors or all the
directors of a particular class, or any individual director, may be removed from
office without assigning any cause, by the affirmative vote of at least
seventy-five (75) percent of the Voting Shares, present in person or represented
by proxy, entitled to vote in respect thereof, at an annual meeting or at any
special meeting duly called.
<PAGE> 4
SECTION 12. VACANCIES.
----------
Whenever any vacancy shall occur among the directors, the remaining
directors shall constitute the directors of the Corporation until such vacancy
is filled or until the number of directors is changed pursuant to Section 8
hereof. Except in cases where a director is removed as provided by law and these
Regulations and his successor is elected by the shareholders, the remaining
directors may, by a vote of a majority of their number, fill any vacancy for the
unexpired term. A majority of the directors then in office may also fill any
vacancy that results from an increase in the number of directors.
SECTION 13. QUORUM AND ADJOURNMENTS.
------------------------
A majority of the directors in office at the time shall constitute a
quorum, provided that any meeting duly called, whether a quorum is present or
otherwise, may, by vote of a majority of the directors present, adjourn from
time to time and place to place within or without the State of Ohio, in which
case no further notice of the adjourned meeting need be given. At any meeting at
which a quorum is present, all questions and business shall be determined by the
affirmative vote of not less than a majority of the directors present, except as
is otherwise provided in the Articles of Incorporation or these Regulations or
is otherwise authorized by Section 1701.60(A)(1) of the Ohio Revised Code.
SECTION 14. ORGANIZATION MEETING.
---------------------
Immediately after each annual meeting of the shareholders at which
directors are elected, or each special meeting held in lieu thereof, the
directors, including those newly elected, if a quorum of all such directors is
present, shall hold an organization meeting at the same place or at such other
time and place as may be fixed by the shareholders at such meeting, for the
purpose of electing officers and transacting any other business. Notice of such
meeting need not be given. If for any reason such organization meeting is not
held at such time, a special meeting for such purpose shall be held as soon
thereafter as practicable.
SECTION 15. REGULAR MEETINGS.
-----------------
Regular meetings of the directors may be held at such times and places
within or without the State of Ohio as may be provided for in by-laws or
resolutions adopted by the directors and upon such notice, if any, as shall be
so provided.
SECTION 16. SPECIAL MEETINGS.
-----------------
Special meetings of the directors may be held at any time within or
without the State of Ohio upon call by the President, any Vice President, or by
any two directors. Notice of each such meeting shall be given to each director
by personal delivery, by mail, cablegram or telegram, or by telephone not less
than two days prior to such meeting or such shorter notice as the directors
shall deem necessary and warranted under the circumstances. Any director may
waive in writing notice of any meeting, and, by attending any meeting without
protesting the lack of proper notice, shall be deemed to have waived notice
thereof. Unless otherwise limited in the notice thereof, any business may be
transacted at any organization, regular or special meeting.
SECTION 17. COMPENSATION.
-------------
The directors are authorized to fix reasonable compensation, which may
include pension, disability, and death benefits, for services to the Corporation
by directors or a reasonable fee for
<PAGE> 5
attendance at any meeting of the directors, the Executive Committee, or other
committees elected under Section 21 hereof, or any combination of salary and
attendance fee. In addition to such compensation provided for directors, they
shall be reimbursed for any expenses incurred by them in traveling to and from
such meetings.
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
----------------------------------------
SECTION 18. MEMBERSHIP AND ORGANIZATION.
----------------------------
(a) The directors, at any time, may elect from their number an
Executive Committee which shall consist of three (3) or more directors of the
Corporation, each of whom shall hold office during the pleasure of the directors
and may be removed at any time, with or without cause, by vote thereof.
(b) Vacancies occurring in the Committee may be filled by the
directors.
(c) In the event the directors have not designated a Chairman of the
Committee, the Committee shall appoint one of its own number as Chairman who
shall preside at all meetings and may also appoint a Secretary (who need not be
a member of the Committee) who shall keep its records and who shall hold office
during the pleasure of the Committee.
SECTION 19. MEETINGS.
---------
(a) Regular meetings of the Committee may be held without notice of
time, place or purposes thereof and shall be held at such times and places
within or without the State of Ohio as the Committee may from time to time
determine.
(b) Special meetings may be held upon notice of the time, place and
purposes thereof at any place within or without the State of Ohio and until
otherwise ordered by the Committee shall be held at any time and place at the
call of the Chairman or any two members of the Committee.
(c) At any regular or special meeting the Committee may exercise any or
all of its powers, and any business which shall come before any regular or
special meeting may be transacted thereat, provided a majority of the Committee
is present, but in every case the affirmative vote of a majority of all of the
members of the Committee shall be necessary to take any action.
(d) Any authorized action by the Committee may be taken without a
meeting by a writing signed by all the members of the Committee.
SECTION 20. POWERS.
-------
Except as its powers, duties and functions may be limited or prescribed
by the directors, during the intervals between the meetings of the directors,
the Committee shall possess and may exercise all the powers of the directors
provided that the Committee shall not be empowered to declare dividends, elect
or remove officers, fill vacancies among the directors or Executive Committee,
adopt an agreement of merger or consolidation, recommend to the shareholders the
sale, lease or exchange of all or substantially all of the Corporation's
property and assets, nor recommend to the shareholders a dissolution of the
Corporation or revocation of a dissolution. All actions of the Committee shall
be reported to the directors at their meeting next succeeding such action and
shall be subject to revision or alteration by the directors, provided that no
rights of any third person shall be affected thereby.
SECTION 21. OTHER COMMITTEES.
-----------------
<PAGE> 6
The directors may elect other committees from among the directors in
addition to or in lieu of an Executive Committee and give to them any of the
powers which under the foregoing provisions could be vested in an Executive
Committee. Sections 18 and 19 shall be applicable to such other committees.
OFFICERS
--------
SECTION 22. OFFICERS DESIGNATED.
--------------------
The directors, at their organization meeting or at a special meeting
held in lieu thereof, shall elect a President, a Secretary, a Treasurer and, in
their discretion, one or more Vice Presidents, an Assistant Secretary or
Secretaries, an Assistant Treasurer or Treasurers, and such other officers as
the directors may deem appropriate. The President shall be, and the other
officers may, but need not be, chosen from among the directors. Any two or more
of such offices other than that of President and Vice President, or Secretary
and Assistant Secretary, or Treasurer and Assistant Treasurer, may be held by
the same person, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity if such instrument is required by law, the
Articles of Incorporation, these Regulations or any by-laws to be executed,
acknowledged, or verified by two or more officers.
SECTION 23. TENURE OF OFFICE.
-----------------
The officers of the Corporation shall hold office for such terms as the
directors shall determine from time to time. The directors may remove any
officer at any time with or without cause by a majority vote of the directors in
office at the time. A vacancy, however created, in any office may be filled by
election by the directors.
SECTION 24. PRESIDENT.
----------
The President shall be the chief executive officer of the Corporation
and shall have general supervision over its property, business and affairs,
subject to the directions of the directors. Unless otherwise determined by the
directors, he shall have authority to execute all authorized deeds, mortgages,
bonds, contracts and other instruments and obligations in the name of the
Corporation, and shall preside at meetings of the shareholders and the
directors. He shall have such other powers and duties as may be prescribed by
the directors.
SECTION 25. VICE PRESIDENTS.
----------------
The Vice Presidents shall have such powers and duties as may be
prescribed by the directors or as may be delegated by the President.
SECTION 26. SECRETARY.
----------
The Secretary shall attend and keep the minutes of all meetings of the
shareholders and of the directors. He shall keep such books as may be required
by the directors and shall give all notices of meetings of shareholders and
directors; provided, however, that any persons calling such meetings may, at
their option, themselves give such notice. He shall have such other powers and
duties as may be prescribed by the directors.
SECTION 27. TREASURER.
----------
<PAGE> 7
The Treasurer shall receive and have in charge all money, bills, notes,
bonds, stocks in other corporations and similar property belonging to the
Corporation and shall do with the same as shall be ordered by the directors. He
shall keep accurate financial accounts and hold the same open for inspection and
examination of the directors. On the expiration of his term of office, he shall
turn over to his successor, or the directors, all property, books, papers and
money of the Corporation in his hands. He shall have such other powers and
duties as may be prescribed by the directors.
SECTION 28. OTHER OFFICERS.
---------------
The Assistant Secretaries, Assistant Treasurers, if any, and the other
officers, if any, shall have such powers and duties as the directors may
prescribe.
SECTION 29. DELEGATION OF DUTIES.
---------------------
The directors are authorized to delegate the duties of any officers to
any other officer and generally to control the action of the officers and to
require the performance of duties in addition to those mentioned herein.
SECTION 30. COMPENSATION.
-------------
The directors are authorized to determine or to provide the method of
determining the compensation of all officers.
SECTION 31. BOND.
-----
Any officer or employee, if required by the directors, shall give bond
in such sum and with such security as the directors may require for the faithful
performance of his duties.
SECTION 32. SIGNING CHECKS AND OTHER INSTRUMENTS.
-------------------------------------
The directors are authorized to determine or provide the method of
determining how checks, notes, bills of exchange and similar instruments shall
be signed, countersigned or endorsed.
<PAGE> 8
SECTION 33. INDEMNIFICATION.
----------------
The Corporation shall indemnify any director or officer and any former
director or officer of the Corporation and any such director or officer who is
or has served at the request of the Corporation as a director, officer, member,
manager or trustee of another corporation, domestic or foreign, non-profit or
for profit, partnership, limited liability company, joint venture, trust or
other enterprise (and his heirs, executors and administrators) against expenses,
including attorney's fees, judgments, fines and amounts paid in settlement,
actually and reasonably incurred by him by reason of the fact that he is or was
such director, officer or trustee in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative to the full extent permitted by applicable law. The
indemnification provided for herein shall not be deemed to restrict the power of
the Corporation (i) to indemnify employees, agents and others to the extent not
prohibited by law, (ii) to purchase and maintain insurance or furnish similar
protection on behalf of or for any person who is or was a director, officer or
employee of the Corporation, or any person who is or was serving at the request
of the Corporation as a director, officer, member, manager, trustee, employee or
agent of another corporation, domestic or foreign, non-profit or for profit,
partnership, limited liability company, joint venture, trust or other enterprise
against any liability asserted against him or incurred by him in any such
capacity or arising out of his status as such, and (iii) to enter into
agreements with persons of the class identified in clause (ii) above
indemnifying them against any and all liabilities (or such lesser
indemnification as may be provided in such agreements) asserted against or
incurred by them in such capacities.
For the purposes of this Section 33, references to the "Corporation"
include all constituent entities in a consolidation or merger and the new or
surviving corporation, so that any person who is or was a director, officer,
employee, trustee, member, manager, or agent of such a constituent entity, or is
or was serving at the request of such constituent entity as a director, trustee,
officer, employee, member, manager, or agent of another corporation, domestic or
foreign, non-profit or for profit, a limited liability company, or a
partnership, joint venture, trust, or other enterprise, shall stand in the same
position under this Section 33 with respect to the new or surviving corporation
as he would if he had served the new or surviving corporation in the same
capacity.
PROVISIONS IN ARTICLES OF INCORPORATION
---------------------------------------
SECTION 34. PROVISIONS IN ARTICLES OF INCORPORATION.
----------------------------------------
These Regulations are at all times subject to the provisions of the
Articles of Incorporation of the Corporation as the same may be in effect from
time to time (including such terms whenever used in these Regulations, and
amendments thereto).
LOST CERTIFICATES
-----------------
SECTION 35. LOST CERTIFICATES.
------------------
The directors may direct a new certificate to be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon such terms and conditions as they may deem advisable
upon satisfactory proof of loss or destruction thereof. When authorizing such
issue of a new certificate, the directors may, as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as the directors shall require and/or to give the Corporation a suitable bond or
indemnity against loss by reason of the issuance of a new certificate.
<PAGE> 9
RECORD DATES
------------
SECTION 36. RECORD DATES.
-------------
For any lawful purpose, including, without limitation, the
determination of the shareholders who are entitled to: (i) receive notice of or
to vote at a meeting of shareholders; (ii) receive payment of any dividend or
distribution; (iii) receive or exercise rights of purchase of or subscription
for, or exchange or conversion of, shares or other securities, subject to
contract rights with respect thereto; or (iv) participate in the execution of
written consents, waivers, or releases, the directors may fix a record date
which shall not be a date earlier than the date on which the record date is
fixed and, in the cases provided for in clauses (i), (ii) and (iii) above, shall
not be more than sixty (60) nor fewer than ten (10) days, unless the Articles of
Incorporation specify a shorter or a longer period for such purpose, preceding
the date of the meeting of the shareholders, or the date fixed for the payment
of any dividend or distribution, or the date fixed for the receipt or the
exercise of rights, as the case may be.
AMENDMENTS
----------
SECTION 37. AMENDMENTS.
-----------
(a) These Regulations may be altered, changed or amended in respect or
superseded by new Regulations in whole or in part, by the affirmative vote of
the holders of a majority of the Voting Shares present in person or by proxy at
an annual or special meeting for such purpose.
(b) Notwithstanding the provisions of Section 37(a) hereof and
notwithstanding the fact that a lesser percentage may be specified by law or in
any agreement with any national securities exchange or any other provision of
these Regulations, the amendment, alteration, change or repeal of, or adoption
of any provisions inconsistent with, Sections 8, 10 or 11 of these Regulations
shall require the affirmative vote of at least seventy-five (75) percent of the
Voting Shares, present in person or by proxy, at any annual or special meeting
called for such purpose.
<PAGE> 1
EXHIBIT 4.1
NUMBER SHARES
CNBC
================================================================================
CNBC BANCORP
(An Ohio Corporation)
================================================================================
THIS CERTIFIES THAT is owner of
Shares of the Common Stock of
CNBC BANCORP
hereinafter called the "Corporation". Such shares are fully paid and
non-assessable shares without par value and are transferable only on the books
of the Corporation by the holder hereof in person, or by duly authorized
attorney, upon the surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its duly authorized officers and its seal to be hereunto affixed.
Dated
- ------------------------------------------ ---------------------------------
Secretary President
Transfer of the shares represented by this Certificate is subject to the
provisions of Article SIXTH of the Corporation's Articles of Incorporation as
the same may be in effect from time to time. Upon written request delivered to
the Secretary of the Corporation at its principal place of business, the
Corporation will mail to the holder of this Certificate a copy of such
provisions without charge within five days after receipt of written request
therefor. By accepting this Certificate the holder hereof acknowledges that it
is accepting the same subject to the provisions of said Article SIXTH as the
same may be in effect from time to time and covenants with the Corporation and
each shareholder thereof from time to time to comply with the provisions of said
Article SIXTH as the same may be in effect from time to time.
[LOGO-
CNBC BANCORP
CORPORATE
SEAL]
<PAGE> 1
EXHIBIT 5
December 11, 1998
CNBC Bancorp
100 East Wilson Bridge Road
Worthington, Ohio 43085
Ladies and Gentlemen:
Reference is made the Registration Statement on Form SB-2
("Registration Statement") to be filed by CNBC Bancorp with the Securities and
Exchange Commission on December 11, 1998 with respect to the issuance of up to
125,000 of its common shares, no par value ("Common Shares"). We are familiar
with the Registration Statement and we have examined such documents and
certificates and considered such matters of law as we deemed necessary for the
purpose of rendering this opinion.
Based upon the foregoing, we are of the opinion that the Common Shares
to be offered pursuant to the Registration Statement, when issued in accordance
with the provisions thereof, will be legally issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Respectfully submitted,
/s/ SQUIRE, SANDERS & DEMPSEY L.L.P.
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is dated as of March 1,
1998 by and between and among:
COMMERCE NATIONAL BANK ("CNB"), a National Association, with
its principal place of business at 100 E. Wilson Bridge Road,
Worthington, Ohio 43085;
CNBC BANCORP ("CNBC"), an Ohio corporation, with its principal
place of business at 100 E. Wilson Bridge Road, Worthington,
Ohio 43085; and
THOMAS D. MCAULIFFE ("McAuliffe"), residing at 4187 Olentangy
Blvd., Columbus, Ohio 43214.
WHEREAS, CNB and CNBC (collectively the "Bank" unless the context
indicates one entity or the other) are engaged in the financial services
business, and the services of McAuliffe have been an invaluable factor
contributing to the prior success enjoyed by the Bank; and
WHEREAS, the Bank wishes to retain the services, knowledge, and
abilities of McAuliffe as the President and Chief Executive Officer of the Bank,
and the Bank also desires to prevent any other competitive business from
securing McAuliffe's services and utilizing his experience, background and
expertise; and
WHEREAS, McAuliffe is willing to continue in the employ of the Bank and
agrees to be bound by the terms and conditions of this Agreement as hereinafter
set forth; and
WHEREAS, the Board of Directors of CNB and CNBC (the "Boards") have
determined that it is in the best interests of CNB and CNBC and their
shareholders to continue to employ McAuliffe
<PAGE> 2
as President and Chief Executive Officer and that CNB and CNBC should be bound
by the terms and conditions of this Agreement, and McAuliffe desires to serve in
that capacity.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CONTRACT PERIOD. The Bank shall continue to employ McAuliffe, and
McAuliffe shall serve the Bank, on the terms and conditions set forth in this
Agreement, for the period commencing on the date of this Agreement and ending on
February 28, 2003 (the "Contract Period"). However, the Contract Period may be
extended beyond February 28, 2003, by mutual agreement of McAuliffe and the
Bank, in which event the Contract Period shall end on such date as agreed.
2. POSITION AND DUTIES.
(a) During the Contract Period, McAuliffe shall be the
President and Chief Executive Officer of CNB and CNBC with such duties
and responsibilities as are assigned to him by the Boards consistent
with his position as Chief Executive Officer of both entities.
McAuliffe shall, from time to time, and with the consent of the Boards,
be entitled to delegate with appropriate supervision the performance of
some of his duties and responsibilities to other management personnel
of the Bank.
(b) During the Contract Period, and excluding any periods of
vacation and sick leave to which he is entitled, McAuliffe shall devote
his full attention and time during normal business hours to the
business and affairs of the Bank and shall perform his services
primarily at the Bank's headquarters, wherever the Boards may from time
to time designate it to be, and to the extent necessary to discharge
the responsibilities assigned to him under this Agreement, use his
reasonable best efforts to carry out such responsibilities faithfully
<PAGE> 3
and efficiently. It shall not be considered a violation of the
foregoing for McAuliffe to (i) serve on corporate, civic or charitable
boards or committees, (ii) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (iii) manage
personal investments, so long as such activities do not compete with
and are not provided to or for any entity that competes with or intends
to compete with the Bank and do not interfere with the performance of
his responsibilities as the President and Chief Executive Officer of
the Bank in accordance with this Agreement.
3. COMPENSATION AND BENEFITS.
(a) BASE SALARY. During the Contract Period and for the
remainder of the current calendar year which expires on December 31,
1998, McAuliffe shall receive an annual base salary ("Annual Base
Salary") of One Hundred Forty Thousand Dollars ($140,000), payable in
equal installments at intervals not less frequent than monthly. For the
calendar year commencing January 1, 1999, and for each subsequent
calendar year prior to the expiration of the Contract Period, McAuliffe
shall receive an increase in his then Annual Base Salary in an amount
which shall be determined by the Boards, or its designated committee,
but in no event shall the percentage increase be less than fifty
percent (50%) of the percentage increase in the diluted earnings per
common share of CNBC (the "EPS") during the immediately preceding year
over the prior year. In no event shall the Annual Base Salary then
currently being paid be decreased. In calculating the application of
the fifty percent (50%) provision where there is an increase in the EPS
for a year following a year in which there has been a decrease in the
EPS, the minimum percentage increase in the Annual Base Salary shall be
fifty percent (50%) of the sum of the percentage decrease in EPS of the
earlier year and the percentage increase in EPS for the later year.
Exhibit A attached hereto contains example calculations which
illustrate the provisions of this Subparagraph (a).
<PAGE> 4
(b) BONUS. In addition to the Annual Base Salary, McAuliffe
may be awarded, for each calendar year or portion of a calendar year
ending during the Contract Period, an annual bonus (the annual bonus
from time to time in effect for the then current calendar year is
referred to as the "Annual Bonus"). The Annual Bonus will be as
determined by the Boards, or its designated committee. Any such Annual
Bonus shall be paid in a single cash lump sum no later than ninety (90)
days after the end of the calendar year for which the Annual Bonus is
awarded.
(c) SUPPLEMENTAL RETIREMENT BENEFIT. During the Contract
Period, the Bank shall contribute the sum of Twenty-Five Thousand
Dollars ($25,000.00) each full calendar year, prorated on a daily basis
for partial calendar years, to the trustee of a certain trust (the
"Trust") established by the Bank pursuant to the terms of a Severance
Benefit Trust Agreement (the "Trust Agreement") of even date herewith.
McAuliffe shall be entitled to receive payments from the Trust in
accordance with the terms of this Agreement and the Trust Agreement.
(d) OTHER BENEFITS. During the Contract Period: (i) McAuliffe
shall be entitled to participate in all incentive, savings and
retirement plans, practices, policies and programs of the Bank to the
same extent as the other executive officers of the Bank; and (ii)
McAuliffe and/or McAuliffe's family, as the case may be, shall be
eligible for participation in, and shall receive all benefits under,
all welfare benefit plans, practices, policies and programs provided by
the Bank (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life insurance, group life
insurance, accidental death and travel accident insurance plans and
programs) to the same extent as the other executive officers of the
Bank. The benefits currently being provided to McAuliffe are set forth
on Exhibit B attached hereto.
<PAGE> 5
(e) EXPENSES. During the Contract Period, McAuliffe shall be
entitled to receive prompt reimbursement for all reasonable expenses
incurred by him in carrying out his duties under this Agreement,
provided that he complies with the policies, practices and procedures
of the Bank for submission of expense reports, receipts, or similar
documentation of such expenses.
(f) VACATION. McAuliffe shall be entitled to four (4) weeks of
paid vacation during each full calendar year in the Contract Period.
Further, beginning with the calendar year 2000, he shall be entitled to
five (5) weeks of paid vacation.
(g) OPTIONS. Annually, McAuliffe shall be granted options to
purchase shares of the common stock of CNBC in an amount equal to
twenty percent (20%) of his Annual Base Salary for the immediately
preceding year, subject however, to the anti-dilution adjustments, as
and to the extent set forth in the CNBC Bancorp 1996 Non-Qualified
Stock Option Plan (as amended and restated March 18, 1997), and as it
may be subsequently amended, restated or replaced (collectively the
"Plan"), and subject also to any other limitations set forth in the
Plan, including the limitation on the maximum number of options to be
granted each year to any one individual.
(h) LIFE INSURANCE. In addition to any group life insurance
coverage provided to McAuliffe by the Bank under Paragraph (d) above,
the Bank will continue in force and will pay the premiums for an
individual life insurance policy on McAuliffe's life in the face amount
of Two Million Dollars ($2,000,000) or any replacement thereof.
McAuliffe will have the right to designate the beneficiary of this
policy or any replacement thereof.
(i) DISABILITY POLICY. The Bank will annually reimburse
McAuliffe for the premium paid by him to maintain in force an
individual disability income policy. The
<PAGE> 6
reimbursement shall be (i) made within ten (10) days following
submission by McAuliffe to the Bank of an expense report with
appropriate supporting documentation and (ii) treated as compensation
to McAuliffe and shall be subject to all appropriate withholdings.
4. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. McAuliffe's employment shall
terminate automatically upon his death during the Contract Period. The
Bank shall be entitled to terminate McAuliffe's employment during the
Contract Period due to his Disability. "Disability" means that
McAuliffe has been unable, for a period of either (A) 120 consecutive
calendar days or (B) an aggregate of 180 calendar days in a period of
365 consecutive calendar days, to substantially perform his material
duties under this Agreement, as a result of physical or mental illness
or injury. A termination of McAuliffe's employment by the Bank due to
his Disability shall be communicated to him by written notice, and
shall be effective on the 30th day after receipt of such notice by him
(the "Disability Effective Date"), unless he returns to work and is
able to substantially perform his duties in accordance with the
provisions of Section 2 before the Disability Effective Date. For and
during any period prior to the Bank electing to terminate McAuliffe's
employment due to his Disability, when he is receiving partial or full
disability income benefits from either the Bank provided group policy
or his individual disability income policy referred to in Paragraph (i)
of Section 3 above, the Annual Base Salary paid to him shall be reduced
in order to give the Bank credit for the partial or full disability
income benefits being received by McAuliffe.
(b) CAUSE. The Bank may terminate McAuliffe's employment
during the Contract Period "For Cause" or "Without Cause." "For Cause"
means:
<PAGE> 7
(i) The continued failure of McAuliffe to
substantially perform the duties and responsibilities of his
position; or
(ii) Illegal conduct or gross misconduct by McAuliffe
that results in material and demonstrable damage to the
business or reputation of the Bank.
With regards to Section 4(b)(i), the Bank shall be required to
provide McAuliffe with written notification regarding those duties and
responsibilities which it determines he has failed to substantially
perform. The Bank must cite specific objectives which it believes would
represent substantial performance and which must be met by McAuliffe.
Further, the Bank must provide McAuliffe with an appropriate and
reasonable time frame to accomplish that substantial performance. Only
upon McAuliffe's failure to meet those specific objectives within the
stated time frame will there be a right to terminate "For Cause" under
Section 4(b)(i).
Any act or failure to act by McAuliffe that is based upon
authority given him pursuant to a resolution duly adopted by the
Boards, or the advice of counsel for the Bank, shall be conclusively
presumed to be done, or omitted to be done, by McAuliffe in good faith
and in the best interests of the Bank, and shall not give rise to a
termination For Cause under this Paragraph. McAuliffe's termination For
Cause shall be effective immediately unless the Bank states otherwise.
"Without Cause" shall be termination of McAuliffe's employment
during the Contract Period by the Boards for any reason other than For
Cause, Death or Disability.
(c) GOOD REASON.
<PAGE> 8
(i) McAuliffe's employment may be terminated by him
during the Contract Period for "Good Reason" or "Without Good
Reason." "Good Reason" means:
A. The assignment to McAuliffe of any duties
inconsistent in any respect with Paragraph (a) of
Section 2 of this Agreement, or any other action by
the Bank that results in a material diminution in his
position, authority, duties or responsibilities,
other than an isolated or an insubstantial and
inadvertent action that is not taken in bad faith and
is remedied by the Bank within a reasonable period of
time after receipt of written notice thereof from
McAuliffe; or
B. Any material breach of this Agreement by
the Bank, other than an isolated or an insubstantial
and inadvertent breach that is not taken in bad faith
and is remedied by the Bank within a reasonable
period of time after receipt of written notice
thereof from McAuliffe. A material breach shall
include, but not be limited to, a failure by the Bank
to comply with any provision of Section 3, Section 6
or Paragraph (c) of Section 11 of this Agreement.
(ii) A termination of employment by McAuliffe for
Good Reason shall be communicated to the Bank by written
notice ("Notice of Termination for Good Reason") of the
termination, setting forth in reasonable detail the specific
conduct of the Bank that constitutes Good Reason and the
specific provision(s) of this Agreement on which McAuliffe
relies. A termination of employment by McAuliffe for Good
Reason shall be effective on the fifth (5th) business day
following the date when the Notice of Termination for Good
Reason is given, unless the notice sets
<PAGE> 9
forth a later date (which date shall in no event be later than
thirty (30) days after the notice is given).
(iii) "Without Good Reason" shall be termination by
McAuliffe of his employment during the Contract Period for any
reason other than those cited under for Good Reason or "change
in control" (as hereafter defined).
(d) CHANGE IN CONTROL. McAuliffe's employment may be
terminated by him for any reason in the event that during the Contract
Period there has been a "change in control" of the Bank (as defined
below). Solely for the purposes of applying the provisions of the
immediately preceding sentence, if McAuliffe elects to terminate his
employment due to a change in control, then the Date of Termination
shall be the date selected by McAuliffe when he ceases to be employed
by the Bank.
(i) For purposes of this Paragraph (d), a change in
control shall be deemed to occur:
A. When any "person" as defined in Section
(a)(9) of the Securities Exchange Act of 1934 (the
"Exchange Act") and as used in Sections 13(d) and
14(d) thereof, including a "group" as defined in
Section 13(d) of the Exchange Act, but excluding CNBC
and any subsidiary of CNBC, any employee benefit plan
sponsored or maintained by CNBC or CNB or any
subsidiary of CNBC (including any trustee of such
plan acting as trustee), and McAuliffe or any
affiliate of McAuliffe, directly or indirectly,
becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act, as amended from time to
time) of securities of CNBC representing twenty
percent (20%) or more of the combined voting power of
CNBC's then outstanding securities;
<PAGE> 10
B. When, during any period of twenty-four
(24) consecutive months during the term of this
Agreement, the individuals who, at the beginning of
such period, constitute the Board of Directors of
CNBC (the "Incumbent Directors") cease for any reason
other than death to constitute at least a majority
thereof; provided, however, that a director who was
not a director at the beginning of such 24-month
period shall be deemed to have satisfied such
24-month requirement (and be an Incumbent Director)
if such director was elected by, or on the
recommendation or with the approval of, at least
sixty-seven percent (67%) of the directors who then
qualified as Incumbent Directors either actually
(because they were directors at the beginning of such
24-month period) or by prior operation of this
Subparagraph B; or
C. When the shareholders of either CNBC or
CNB approve a merger or consolidation resulting in
the shareholders of CNBC immediately prior to the
merger or consolidation owning less than fifty
percent (50%) of the surviving entity immediately
following the merger or consolidation, or approve a
sale or disposition of all or substantially all of
either CNBC's or CNB's assets or a plan of partial or
complete liquidation.
(e) NO WAIVER. The failure to set forth any fact or
circumstance in a Notice of Termination for Cause or a Notice of
Termination for Good Reason shall not constitute a waiver of the right
to assert, and shall not preclude the party giving notice from
asserting, such fact or circumstance in an attempt to enforce any right
under or provision of this Agreement.
<PAGE> 11
(f) DATE OF TERMINATION. The "Date of Termination" means the
date of McAuliffe's death, the Disability Effective Date, or the date
on which the termination of McAuliffe's employment by the Bank or by
McAuliffe is effective, as the case may be.
5. OBLIGATIONS OF THE BANK UPON TERMINATION.
(a) UPON CHANGE IN CONTROL. If McAuliffe elects to terminate
his employment on account of the occurrence of a change in control, as
defined in Paragraph (d) of Section 4, the Bank shall pay the amounts
described in Subparagraph (i) below to McAuliffe or in the case of his
death after commencement of payments to his estate or beneficiary and
shall continue the benefits described in Subparagraph (ii) below until
the completion of the payment of the amounts described in Subparagraph
(i) below; and McAuliffe shall have the option described in
Subparagraph (iii) below:
(i) The amounts to be paid as described above are:
A. McAuliffe's accrued but unpaid cash
compensation (the "Accrued Obligations"), which shall
equal any portion of his Annual Base Salary through
the Date of Termination that has not yet been paid;
(2) any compensation previously deferred by McAuliffe
(together with any accrued interest or earnings
thereon) that has not yet been paid; and (3) any
accrued but unpaid vacation pay; and
B. Severance payments calculated on an
annual basis and paid on a monthly basis, beginning
one (1) month following the Date of Termination, and
continuing for a total of one hundred twenty (120)
consecutive months. The annual amount shall be
determined by multiplying
<PAGE> 12
McAuliffe's Annual Base Salary for the calendar year
in which the Date of Termination occurs by a factor
of two and nine-tenths (2.9), then dividing by a
factor of ten (10).
(ii) The benefits to be continued are benefits to
McAuliffe and/or his family at least as favorable as those
that would have been provided to them under Paragraph (d)(ii)
of Section 3 of this Agreement if McAuliffe's employment had
continued until the completion of the payments of the amounts
described in Subparagraph (i) above; provided, however, that
during any period when McAuliffe is eligible to receive such
benefits under another employer-provided plan, the benefits
provided by the Bank under this subparagraph may cease. The
foregoing notwithstanding, if the Bank is unable to continue
to provide benefits to McAuliffe and/or his family on account
of his or their ceasing to be eligible for those benefits
under the terms of the applicable plan or policy, then the
Bank will pay to McAuliffe and/or his family on a monthly
basis the cost of providing medical, life and disability
insurance of substantially equal or better coverage.
(iii) McAuliffe shall have the option exercisable
once or more than once, for a period of five (5) years from
the Date of Termination, to elect to sell to CNBC some or all
of his shares of stock in CNBC, in which event CNBC shall be
obligated to purchase the shares as hereinafter provided. The
foregoing election shall be subject, however, to the receipt
by CNBC of whatever regulatory approvals are required. The
exercise of this option by McAuliffe shall be evidenced by the
giving of written notice to CNBC at any time or times prior to
the fifth (5th) anniversary of the Date of Termination. The
notice shall state the number of shares McAuliffe wishes to
sell and his desired price per share (the "Desired Price").
The notice shall not be valid unless the minimum aggregate
value of the shares to be sold based upon
<PAGE> 13
the Desired Price is One Hundred Fifty Thousand Dollars
($150,000). The closing of such purchase and sale shall take
place at the office of CNBC at a date designated by CNBC,
which date shall not be more than ninety (90) days following
the date or dates of the notice of the exercise of the option
to cause the purchase, and not less than ten (10) days
following such date or dates. At the closing the purchase
price shall be paid in full by cashier's check or the
equivalent.
A. The price to be paid by CNBC for the
shares will be determined in the following manner.
CNBC and McAuliffe shall initially make a best
efforts attempt to agree on the per share price for
the shares. If they are unable to so agree, then
within ten (10) days after the receipt by CNBC from
McAuliffe of his written notification of his desire
to exercise his option, one appraiser shall be named
by CNBC and one appraiser shall be named by
McAuliffe, or if this shall be a purchase after his
death, by the personal representative of McAuliffe's
estate. The two appraisers shall complete their
appraisals within forty-five (45) days of their
appointments. If the value of the higher appraisal is
no more than One Hundred and Ten Percent (110%) of
the value of the lower, then the purchase price shall
be the average of the two. If the value of the higher
appraisal is more than One Hundred and Ten Percent
(110%) of the value of the lower, then the two (2)
appraisers shall agree upon and appoint a third
appraiser, and the decision of the appraisers shall
be made within five (5) days thereafter and shall be
final on this issue. The average of the conclusions
of the three (3) appraisers shall be utilized for
purposes of determining the purchase price. If the
price as finally determined is ninety-five percent
(95%) or more of the Desired Price, McAuliffe shall
be required to sell at that price at least the number
of shares set forth in the notice which he gave the
Bank. Except as provided in the
<PAGE> 14
following sentence, a per share price once determined
under this Subparagraph A shall be valid and binding
for all purposes of this Subparagraph (iii) for a
period of six (6) months from the date of its
determination. However, the Bank, in its sole
discretion, may elect to have the price re-determined
at any time during the six (6) month period utilizing
the same procedure. All of the costs of obtaining
these appraisals shall be borne by the Bank.
(iv) If the payments provided under this Agreement
would constitute a "parachute payment" as defined in Section
280G of the Internal Revenue Code of 1986, as amended (the
"Code"), such payments shall be reduced to the largest amount
as will result in no portion of the benefit under Paragraph
5(a) being subject to the excise tax imposed by Section 4999
of the Code or being disallowed as deductions to the Bank
under Section 280G of the Code.
(b) WITHOUT CAUSE: FOR GOOD REASON. If McAuliffe's employment
is terminated during the Contract Period either by the Bank Without
Cause as provided in Paragraph (b) of Section 4, or by McAuliffe for
Good Reason as provided in Paragraph (c) of Section 4, the Bank shall
pay the amounts described in Subparagraph 5(a)(i)(A) above to
McAuliffe, shall continue to pay his Annual Base Salary for a period of
one (1) year following the Date of Termination, and shall continue the
benefits described in Subparagraph 5(a)(ii) above for a period of one
year following the Date of Termination; and in the case McAuliffe's
employment is terminated by the Bank Without Cause then McAuliffe shall
have the option described in Subparagraph 5(a)(iii) above. Further,
McAuliffe shall also be entitled to receive in a single payment, within
thirty (30) days of the Date of Termination, all of the funds then
either allocated or credited to McAuliffe under the Trust plus the
before tax income received from the investment of those funds. The Bank
shall be required to make a
<PAGE> 15
prorated contribution to the Trust of the amount required of it under
Paragraph (c) of Section 3 for the calendar year in which the Date of
Termination occurs, which contribution shall be made within the
aforesaid thirty (30) day period. After the Date of Termination, the
Bank shall be relieved of any further obligation to contribute to the
Trust.
(c) FOR CAUSE; WITHOUT GOOD REASON. If McAuliffe's employment
is terminated during the Contract Period by the Bank For Cause as
provided in Paragraph (b) of Section 4, or by McAuliffe Without Good
Reason as provided in Paragraph (c) of Section 4, then he shall be
entitled to be paid the amounts described in Paragraph 5(a)(i)(A).
(d) EXPIRATION OF CONTRACT PERIOD. If McAuliffe's employment
is terminated for any reason after the expiration of the Contract
Period, he shall be entitled to receive in a single payment, within
thirty (30) days of the Date of Termination, all of the funds then
either allocated or credited to McAuliffe under the Trust plus the
before tax income received from the investment of those funds.
6. FUNDING OF SUPPLEMENTAL RETIREMENT BENEFITS. Upon the occurrence of
a "change in control" as defined in Paragraph (d) of Section 4, then within ten
(10) days thereafter the Bank shall contribute to the trustee of the Trust in a
single payment that amount which shall be necessary to fully fund the benefit to
be paid to McAuliffe by the Bank as described in Paragraph (a)(i)(B) of Section
5. Furthermore, if the change in control is due to the sale, merger or
consolidation of either CNBC or CNB or the assets of either of them, then such
contribution will be required prior to the date of the consummation of such
sale, merger or consolidation. In determining the amount necessary to fully fund
the obligation, the Bank shall be entitled to discount its future liability to
McAuliffe by a rate equal to the interest rate then being paid on United States
Treasury obligations having a maturity of ten (10) years.
<PAGE> 16
7. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent
or limit McAuliffe's continuing or future participation in any plan, program,
policy or practice provided by the Bank or any of its affiliated companies for
which he may qualify, nor shall anything in this Agreement limit or otherwise
affect such rights as McAuliffe may have under any contract or agreement with
the Bank. Vested benefits and other amounts that McAuliffe is otherwise entitled
to receive under any plan, policy, practice or program of, or any contract or
agreement with the Bank on or after the Date of Termination shall be payable in
accordance with such plan, policy, practice, program, contract or agreement, as
the case may be, except as explicitly modified by this Agreement.
8. FULL SETTLEMENT. The Bank's obligation to make the payments provided
for in, and otherwise to perform its obligations under, this Agreement shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action that the Bank may have against McAuliffe or others. In no event
shall McAuliffe be obligated to seek other employment or take any other action
by way of mitigation of the amounts payable to McAuliffe under any of the
provisions of this Agreement and such amounts shall not be reduced, regardless
of whether McAuliffe obtains other employment so long as such other employment
does not conflict with the obligations set forth in Section 10 below. The Bank
agrees to pay, as incurred, to the fullest extent permitted by law, all legal
fees and expenses that McAuliffe may reasonably incur as a result of any contest
by the Bank, McAuliffe or others of the validity or enforceability of, or
liability under, any provision of this Agreement, together with interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended, but only upon
the condition that the contest is in the context of or relates to a "change of
control" as that term is defined in Paragraph (d) of Section 4 above.
9. CONFIDENTIAL INFORMATION. McAuliffe shall hold in a fiduciary
capacity for the benefit of the Bank all secret or confidential information,
knowledge or data relating to the Bank or
<PAGE> 17
any company affiliated therewith and their respective businesses that he obtains
during his employment by the Bank and that is not public knowledge (other than
as a result of McAuliffe's violation of this Section 9) ("Confidential
Information"). McAuliffe shall not communicate, divulge or disseminate
Confidential Information at any time during or after his employment with the
Bank, except with the prior written consent of the Bank or as otherwise required
by law or legal process.
10. NONCOMPETITION; NONSOLICITATION.
(a) During the Contract Period and during the two (2) year
period following the termination of his employment with the Bank (the
"Restriction Period"), McAuliffe shall not become associated with any
entity, whether as a principal, partner, employee, consultant or
shareholder (other than as a holder of not in excess of one percent
(1%) of the outstanding voting shares of any company) that is, or
intends to be, engaged in any business which is in competition with the
business of the Bank or any of its subsidiaries in any geographic area
in which the Bank or any of its subsidiaries operates an office which
employs at least one (1) person (a "Competitor"). The restrictive
covenant set forth in this Paragraph (a) shall not apply, however, if
the termination of McAuliffe's employment is on account of the Bank
exercising its right to terminate his employment under Paragraph (a) of
Section 4 in the event of his Disability.
(b) During the Contract Period and during the two (2) year
period following the termination of his employment with the Bank (the
"Nonsolicitation Period"), McAuliffe shall not, directly or indirectly,
encourage or solicit, or assist any other person or firm in encouraging
or soliciting, any person that during the two year period preceding
such termination of his employment with the Bank is or was engaged in a
business relationship with the Bank or any of its subsidiaries to
terminate its relationship with the Bank or any of
<PAGE> 18
its subsidiaries or to engage in a business relationship with a
Competitor. The restrictive covenant set forth in this Paragraph (b)
shall not apply, however, if the termination of McAuliffe's employment
is on account of the Bank exercising its right to terminate his
employment under Paragraph (a) of Section 4 in the event of his
Disability.
(c) During the Nonsolicitation Period, McAuliffe will not,
except with the prior written consent of the Bank, directly or
indirectly, induce any employee of the Bank or any of its subsidiaries
to terminate employment with such entity, and will not, directly or
indirectly, either individually or as owner, agent, employee,
consultant or otherwise, employ, offer employment or cause employment
to be offered to any person who is or was employed by the Bank or a
subsidiary thereof unless such person shall have ceased to be employed
by such entity for a period of at least six (6) months.
(d) Promptly following his termination of employment,
McAuliffe shall return to the Bank all property of the Bank, and all
copies thereof in his possession or under his control, including,
without limitation, all Confidential Information in whatever media such
Confidential Information is maintained.
(e) McAuliffe acknowledges and agrees that the Restriction
Period and the Nonsolicitation Period and the matters and territories
covered thereby are fair and reasonable and the result of negotiation,
and further acknowledges and agrees that the covenants and obligations
of him in Section 9 and this Section 10 with respect to noncompetition,
nonsolicitation, confidentiality and Bank property relate to special,
unique and extraordinary matters and that a violation of any of the
terms of such covenants and obligations will cause the Bank irreparable
injury for which adequate remedies are not available at law. Therefore,
McAuliffe agrees that the Bank shall be entitled to an injunction,
restraining order or such other equitable relief as a court of
competent
<PAGE> 19
jurisdiction may deem necessary or appropriate to restrain him from
committing any violation of such covenants and obligations. These
injunctive remedies are cumulative and are in addition to any other
rights and remedies the Bank may have at law or in equity.
11. SUCCESSORS.
(a) This Agreement is personal to McAuliffe and, without the
prior written consent of the Bank, shall not be assignable by him
otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by
McAuliffe's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Bank and its successors and assigns.
(c) The Bank shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise (an
"Acquisition")) to all or substantially all of the business and/or
assets of the Bank expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Bank would
have been required to perform it if no such succession had taken place.
As used in this Agreement, "Bank" shall mean both the Bank as defined
above and any such successor that assumes and agrees to perform this
Agreement, by operation of law or otherwise.
12. MISCELLANEOUS.
(a) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Ohio without reference to
principles of conflict of laws. The captions of this Agreement are not
part of the provisions hereof and shall have no force or effect. This
<PAGE> 20
Agreement may not be amended or modified except by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications under this Agreement
shall be in writing and shall be given by hand delivery to the other
party or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to McAuliffe:
----------------
Thomas D. McAuliffe
4187 Olentangy Blvd.
Columbus, Ohio 43214
With a copy to:
Thomas J. Riley, Esq.
Hahn, Loeser & Parks
10 West Broad Street, Suite 1800
Columbus, Ohio 43215
If to the Bank:
Commerce National Bank
100 East Wilson Bridge Road
Worthington, Ohio 43085
Attention: Secretary
or to such other address as either party furnishes to the other in
writing in accordance with this paragraph. Notices and communications
shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement.
<PAGE> 21
(d) Notwithstanding any other provision of this Agreement, the
Bank may withhold from amounts payable under this Agreement all
Federal, state, local and foreign taxes that are required to be
withheld by applicable laws or regulations.
(e) McAuliffe's or the Bank's failure to insist upon strict
compliance with any provision of, or to assert any right under, this
Agreement (including, without limitation, the right of McAuliffe to
terminate employment for Good Reason pursuant to Paragraph (c) of
Section 4 of this Agreement) shall not be deemed to be a waiver of such
provision or right or of any other provision of or right under this
Agreement.
IN WITNESS WHEREOF, McAuliffe has hereunto set his hand and, pursuant
to the authorization of their Board of Directors, CNB and CNBC have caused this
Agreement to be executed in their name on their behalf, all as of the day and
year first above written.
COMMERCE NATIONAL BANK
By:
------------------------------------------
John A. Romelfanger, Vice President
& Chief Operating Officer
CNBC BANCORP
By:
------------------------------------------
John A. Romelfanger, Vice President
THOMAS D. McAULIFFE, INDIVIDUAL
By:
------------------------------------------
Thomas D. McAuliffe
<PAGE> 1
EXHIBIT 10.2
INDEMNIFICATION AGREEMENT
-------------------------
This Agreement made this _____ day of ____________, 19__, between CNBC
Bancorp, a bank holding company registered under the Bank Holding Company Act of
1956, as amended and an Ohio corporation (the "Company") and
___________________, a director, officer or representative (as hereinafter
defined) of the Company (the "Indemnitee");
WHEREAS, the Company and the Indemnitee are each aware of the exposure
to litigation of officers, directors and representatives of the Company as such
persons exercise their duties to the Company;
WHEREAS, the Company and the Indemnitee are also aware of conditions in
the insurance industry that have affected and may continue to affect the
Company's ability to obtain appropriate directors' and officers' liability
insurance on an economically acceptable basis;
WHEREAS, the Company desires to continue to benefit from the services
of highly qualified, experienced and otherwise competent persons, such as the
Indemnitee;
WHEREAS, the Indemnitee desires to serve or to continue to serve the
Company as a director or officer or as a director, officer or trustee of another
corporation, joint venture, trust or other enterprise in which the Company has a
direct or indirect ownership interest, for so long as the Company continues to
provide on an acceptable basis adequate and reliable indemnification against
certain liabilities and expenses which may be incurred by the Indemnitee.
<PAGE> 2
NOW THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, and of Indemnitee's continuing to serve the
Company, the parties hereto agree as follows:
1. INDEMNIFICATION. Subject to the terms of this Agreement, the Company
shall indemnify the Indemnitee with respect to his activities as a director or
officer of the Company and/or as a person who is serving or has served on behalf
of the Company ("representative") as a director, officer, trustee, member or
manager of another corporation, joint venture, limited liability company, trust
or other enterprise, domestic or foreign, in which the Company has a direct or
indirect ownership interest (an "affiliated entity") against expenses
(including, without limitation, attorneys' fees, judgments, fines, and amounts
paid in settlement) actually and reasonably incurred by him ("Expenses") in
connection with any claim against Indemnitee which is the subject of any
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, investigative or otherwise and whether formal or
informal (a "Proceeding"), to which Indemnitee was, is, or is threatened to be
made a party by reason of facts which include Indemnitee's being or having been
such a director, officer or representative, to the extent that is the highest
and most advantageous to the Indemnitee, as determined by the Indemnitee, of one
or any combination of the following:
(a) The benefits provided by the Company's Regulations, or the Articles
of Incorporation/Association or Regulations/Bylaws of an affiliated entity of
which the Indemnitee serves as a representative, in effect on the date hereof;
(b) The benefits provided by the Articles of Incorporation or
Regulations, or their equivalent, of the Company, or the Articles of
Incorporation/Association or Regulations/Bylaws of
-2-
<PAGE> 3
an affiliated entity of which the Indemnitee serves as a representative, in
effect at the time Expenses are incurred by Indemnitee;
(c) The benefits allowable under Ohio law in effect at the date hereof;
(d) The benefits allowable under the law of the jurisdiction under
which the Company exists at the time Expenses are incurred by the Indemnitee;
(e) The benefits available under liability insurance obtained by the
Company in effect at the date hereof;
(f) The benefits available under liability insurance obtained by the
Company, in effect at the time Expenses are incurred by Indemnitee; and
(g) Such other benefits as are or may be otherwise available to
Indemnitee.
A combination of two or more of the benefits provided by (a) through
(g) shall be available to the extent that the Applicable Document, as hereafter
defined, does not require that the benefits provided therein be exclusive of
other benefits. The document or law providing for the benefits listed in items
(a) through (g) above is called the "Applicable Document" in this Agreement. The
Company hereby undertakes to use its best efforts to assist Indemnitee, in all
proper and legal ways, to determine the benefits available to Indemnitee under
each Applicable Document with respect to a Proceeding and to obtain the benefits
selected by Indemnitee under items (a) through (g) above.
For purposes of this Agreement, references to "other enterprises" shall
include employee benefit plans for employees of the Company or of any affiliated
entity without regard to ownership of such plans; references to "fines" shall
include any excise taxes assessed on the Indemnitee with respect to any employee
benefit plan; references to "serving on behalf of the Company" shall include any
services as a director, officer, trustee, employee or agent of the Company which
-3-
<PAGE> 4
imposes duties on, or involves services by, the Indemnitee with respect to an
employee benefit plan, its participants or beneficiaries; references to the
masculine shall include the feminine; references to the singular shall include
the plural and VICE VERSA; and if the Indemnitee acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan he shall be deemed to have acted in a
manner consistent with the standards required for indemnification by the Company
under the Applicable Documents.
2. INSURANCE. The Company shall maintain directors' and officers'
liability insurance for so long as Indemnitee's services are covered hereunder,
provided and only to the extent that such insurance is available in amounts and
on terms and conditions determined by the Company to be acceptable. However, the
Company agrees that the provisions hereof shall remain in effect regardless of
whether liability or other insurance coverage is at any time obtained or
retained by the Company; except that any payments in fact made to Indemnitee
under an insurance policy obtained or retained by the Company shall reduce the
obligation of the Company to make payments hereunder by the amount of the
payments made under any such insurance policy.
3. PAYMENT OF EXPENSES. At Indemnitee's request, the Company shall pay
the Expenses as and when incurred by Indemnitee, after receipt of written notice
pursuant to Section 5 hereof and an undertaking in the form of Exhibit I
attached hereto by or on behalf of Indemnitee (i) to repay such amounts so paid
on Indemnitee's behalf if it shall ultimately be determined under the Applicable
Document that Indemnitee is required to repay such amounts and (ii) to
reasonably cooperate with the Company concerning such Proceeding. That portion
of Expenses which represents attorneys' fees and other costs incurred in
defending any Proceeding shall be paid by the Company within thirty (30) days of
its receipt of such request, together with reasonable
-4-
<PAGE> 5
documentation (consistent, in the case of attorney's fees, with Company practice
in payment of legal fees for outside counsel generally) evidencing the amount
and nature of such Expenses, subject to its also having received such a notice
and undertaking.
4. ADDITIONAL RIGHTS. The indemnification provided in this Agreement
shall not be exclusive of any other indemnification or right to which Indemnitee
may be entitled and shall continue after Indemnitee has ceased to occupy a
position as an officer, director or representative as described in Paragraph 1
above with respect to Proceedings relating to or arising out of Indemnitee's
acts or omissions during his service in such position. The benefits provided to
Indemnitee pursuant to this Agreement with respect to Indemnitee's service as a
representative shall be payable only if and to the extent that reimbursement to
Indemnitee by the affiliated entity with which Indemnitee has served as a
representative, whether pursuant to agreement, applicable law, articles of
incorporation or association, by-laws or regulations of the entity, or insurance
maintained by such affiliated entity, is insufficient to compensate Indemnitee
for Expenses actually incurred and otherwise payable by the Company pursuant to
this Agreement. Any payments in fact made to, or on behalf of, Indemnitee
directly or indirectly by the affiliated entity with which Indemnitee served as
a representative shall reduce the obligation of the Company hereunder.
5. NOTICE OF COMPANY. Indemnitee shall provide to the Company prompt
written notice of any Proceeding brought, threatened, asserted or commenced
against Indemnitee with respect to which Indemnitee may assert a right to
indemnification hereunder; provided, however, that failure to provide such
notice shall not in any way limit Indemnitee's rights under this Agreement.
-5-
<PAGE> 6
6. COOPERATION IN DEFENSE AND SETTLEMENT. Indemnitee shall not make any
admission or effect any settlement of any Proceeding without the Company's
written consent unless Indemnitee shall have determined to undertake his own
defense in such matter and has waived the benefits of this Agreement. The
Company shall not settle any Proceeding to which Indemnitee is a party in any
manner which would impose any Expense on Indemnitee without his written consent.
Neither Indemnitee nor the Company will unreasonably withhold consent to any
proposed settlement. Indemnitee and the Company shall cooperate to the extent
reasonably possible with each other and with the Company's insurers, in attempts
to defend and/or settle such Proceeding.
7. ASSUMPTION OF DEFENSE. Except as otherwise provided below, to the
extent that it may wish, the Company, jointly with any other indemnifying party
similarly notified, will be entitled to assume Indemnitee's defense in any
Proceeding, with counsel mutually satisfactory to Indemnitee and the Company.
After notice from the Company to Indemnitee of the Company's election so to
assume such defense, the Company will not be liable to Indemnitee under this
Agreement for Expenses subsequently incurred by Indemnitee in connection with
the defense thereof other than reasonable costs of investigation or as otherwise
provided below. Indemnitee shall have the right to employ counsel in such
Proceeding, but the fees and expenses of such counsel incurred after notice from
the Company of its assumption of the defense thereof shall be at Indemnitee's
expense unless:
(a) the employment of counsel by Indemnitee has been authorized by the
Company;
(b) counsel employed by the Company initially is unacceptable or later
becomes unacceptable to Indemnitee and such unacceptability is reasonable under
then existing circumstances;
-6-
<PAGE> 7
(c) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between Indemnitee and the Company (or any other party
being represented jointly with the Company) in the conduct of the defense of
such Proceeding; or
(d) the Company shall not have employed counsel promptly to assume the
defense of such Proceeding, in each of which case the fees and expenses of
counsel shall be at the expense of the Company and subject to payment pursuant
to this Agreement. The Company shall not be entitled to assume the defense of
Indemnitee in any Proceeding brought by or on behalf of the Company or as to
which Indemnitee shall have drawn either of the conclusions provided for in
clauses (b) and (c) above.
8. ENFORCEMENT. In the event that any dispute or controversy shall
arise under this Agreement between Indemnitee and the Company with respect to
whether the Indemnitee is entitled to indemnification in connection with any
Proceeding or with respect to the amount of Expenses incurred, then with respect
to each such dispute or controversy, Indemnitee may seek to enforce the
Agreement through legal action or, at Indemnitee's sole option and written
request, through arbitration. If arbitration is requested, such dispute or
controversy shall be submitted by the parties to binding arbitration in the City
of Columbus, State of Ohio, before a single arbitrator agreeable to both
parties; provided that indemnification in respect of any claim, issue or matter
in a Proceeding brought against Indemnitee by or in the right of the Company and
as to which Indemnitee shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Company shall be submitted to
arbitration only to the extent permitted under the Applicable Document and
applicable law then in effect. If the parties cannot agree on a designated
arbitrator
-7-
<PAGE> 8
within 15 days after arbitration is requested in writing by Indemnitee, the
arbitration shall proceed in the City of Columbus, State of Ohio, before an
arbitrator appointed by the American Arbitration Association. In either case,
the arbitration proceeding shall commence promptly under the rules then in
effect of that Association and the arbitrator agreed to by the parties or
appointed by that Association shall be an attorney other than an attorney who
has, or is associated with a firm having associated with it an attorney which
has, been retained by or performed services for the Company or Indemnitee at any
time during the five years preceding the commencement of arbitration. The award
shall be rendered in such form that judgment may be entered thereon in any court
having jurisdiction thereof. The prevailing party shall be entitled to prompt
reimbursement of any costs and expenses (including, without limitation,
reasonable attorneys' fees) incurred in connection with such legal action or
arbitration; provided that Indemnitee shall not be obligated to reimburse the
Company unless the arbitrator or court which resolves the dispute determines
that Indemnitee acted in bad faith in bringing such action or arbitration.
9. EXCLUSIONS. Notwithstanding the scope of indemnification which may
be available to Indemnitee from time to time under any Applicable Document, no
indemnification, reimbursement or payment shall be required of the Company
hereunder with respect to:
(a) Any claim or any part thereof as to which Indemnitee shall have
been determined by a court of competent jurisdiction, from which no appeal is or
can be taken, by clear and convincing evidence, to have acted or failed to act
with deliberate intent to cause injury to the Company or with reckless disregard
for the best interests of the Company;
-8-
<PAGE> 9
(b) Any claim or any part thereof arising under Section 16(b) of the
Securities Exchange Act of 1934 pursuant to which Indemnitee shall be obligated
to pay any penalty, fine, settlement or judgment;
(c) Any obligation of Indemnitee based upon or attributable to the
Indemnitee gaining in fact any personal gain, profit or advantage to which he
was entitled; or
(d) Any proceeding initiated by Indemnitee without the consent or
authorization of the Board of Directors of the Company, provided that this
exclusion shall not apply with respect to any claims brought by Indemnitee (i)
to enforce his rights under this Agreement or (ii) in any Proceeding initiated
by another person or entity whether or not such claims were brought by
Indemnitee against a person or entity who was otherwise a party to such
proceeding.
(e) Any claim or part thereof, against an Indemnitee in his capacity as
a representative of a national bank, falling within the prohibitions of 12
C.F.R. Sec. 7.5217.
Nothing in this Section 9 shall eliminate or diminish Company's
obligations to advance that portion of Indemnitee's Expenses which represent
attorneys' fees and other costs incurred in defending any Proceeding pursuant to
Section 3 of this Agreement.
10. EXTRAORDINARY TRANSACTIONS. The Company covenants and agrees that,
in the event of any merger, consolidation or reorganization in which the Company
is not the surviving entity, any sale of all or substantially all of the assets
of the Company or any liquidation of the Company (each such event is hereinafter
referred to as an "extraordinary transaction"), the Company shall:
(a) Have the obligations of the Company under this Agreement expressly
assumed by the survivor, purchaser or successor, as the case may be, in such
extraordinary transaction; or
-9-
<PAGE> 10
(b) Otherwise adequately provide for the satisfaction of the Company's
obligations under this Agreement, in a manner acceptable to Indemnitee.
11. NO PERSONAL LIABILITY. Indemnitee agrees that neither the directors
nor any officer, employee, representative or agent of the Company shall be
personally liable for the satisfaction of the Company's obligations under this
Agreement, and Indemnitee shall look solely to the assets of the Company for
satisfaction of any claims hereunder.
12. SEVERABILITY. If any provision, phrase, or other portion of this
Agreement should be determined by any court of competent jurisdiction to be
invalid, illegal or unenforceable, in whole or in part, and such determination
should become final, such provision, phrase or other portion shall be deemed to
be severed or limited, but only to the extent required to render the remaining
provisions and portions of the Agreement enforceable, and the Agreement as thus
amended shall be enforced to give effect to the intention of the parties insofar
as that is possible.
13. SUBROGATION. In the event of any payment under this Agreement, the
Company shall be subrogated to the extent thereof to all rights to
indemnification or reimbursement against any insurer or other entity or person
vested in the Indemnitee, who shall execute all instruments and take all other
actions as shall be reasonably necessary for the Company to enforce such rights.
14. GOVERNING LAW. The parties hereto agree that this Agreement shall
be construed and enforced in accordance with and governed by the laws of the
State of Ohio.
15. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be considered to have been duly given if
delivered by hand and receipted for by the party to whom the notice, request,
demand or other communication shall have been directed,
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<PAGE> 11
or sent by certified mail, return receipt requested, or by a commercially
recognized express courier service, with postage/charges prepaid:
(a) If to the Company, to:
CNBC Bancorp
100 East Wilson Bridge Road
Suite 100
Worthington, Ohio 43085
Attention: President
(b) If to Indemnitee, to:
-------------------------------
-------------------------------
-------------------------------
or to such other or further address as shall be designated from time to time by
the Indemnitee or the Company to the other.
16. TERMINATION. This Agreement may be terminated by either party upon
not less than sixty (60) days prior written notice delivered to the other party,
but such termination shall not in any way diminish the obligations of Company
hereunder with respect to Indemnitee's activities prior to the effective date of
termination; provided, that this Agreement shall terminate automatically and be
void AB INITIO if the shareholders of the Company have not by October 22, 1996,
voted to grant the Company the authority to enter into and perform its
obligations hereunder.
17. AMENDMENTS AND BINDING EFFECT. This Agreement and the rights and
duties of Indemnitee and the Company hereunder may not be amended, modified or
terminated except by written instrument signed and delivered by the parties
hereto. This Agreement is and shall be binding upon and shall inure to the
benefits of the parties thereto and their respective heirs, executors,
administrators, successors and assigns.
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<PAGE> 12
IN WITNESS WHEREOF, the undersigned have executed this Agreement in
triplicate as of the date first above written.
INDEMNITEE CNBC Bancorp
By:
- ------------------------------- -----------------------------
Title: Title:
------------------------- --------------------------
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<PAGE> 13
EXHIBIT I
FORM OF UNDERTAKING
-------------------
THIS UNDERTAKING has been entered into by _____________________
(hereinafter "Indemnitee") pursuant to an Indemnification Agreement dated
________________, 199__ (the "Indemnification Agreement") between CNBC Bancorp
(hereinafter the "Company"), a bank holding company registered under the Bank
Holding Company Act of 1956, as amended, and an Ohio corporation, and
Indemnitee.
W I T N E S S E T H:
--------------------
WHEREAS, pursuant to the Indemnification Agreement, Company agreed to
pay Expenses (within the meaning of the Indemnification Agreement)as and when
incurred by Indemnitee in connection with any claim against Indemnitee which is
the subject of any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative or investigative, to which
Indemnitee was, is, or is threatened to be made a party by reason of facts which
include Indemnitee's being or having been a director, officer or representative
(within the meaning of the Indemnification Agreement) of the Company;
WHEREAS, such a claim has arisen against Indemnitee and Indemnitee has
notified Company thereof in accordance with the terms of Section 5 of the
Indemnification Agreement (hereinafter the "Proceeding");
NOW, THEREFORE, Indemnitee hereby agrees that in consideration of the
Company's advance payment of Indemnitee's Expenses incurred prior to a final
disposition of the Proceeding, Indemnitee hereby undertakes to reimburse the
Company for any and all Expenses paid by the
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<PAGE> 14
Company on behalf of Indemnitee prior to a final disposition of the Proceeding
in the event that Indemnitee is determined under the Applicable document (within
the meaning of the Indemnification Agreement) to be required to repay such
amounts to the Company pursuant to the Indemnification Agreement and applicable
law, provided that if Indemnitee is entitled under the Applicable Document to
indemnification for some or a portion of such Expenses, Indemnitee's obligation
to reimburse the Company shall only be for those Expenses for which Indemnitee
is determined to be required to so repay. Such reimbursement or arrangements for
reimbursement by Indemnitee shall be consummated within ninety (90) days after a
determination that Indemnitee is so required to repay such amounts to the
Company pursuant to the Indemnification Agreement and applicable law.
Further, the Indemnitee agrees to reasonably cooperate with the Company
concerning such proceeding.
IN WITNESS WHEREOF the undersigned has set his hand this ____ day of
_______________, 199__.
INDEMNITEE
------------------------------------
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<PAGE> 1
Exhibit 10.3
CNBC BANCORP
1996 NON-QUALIFIED STOCK OPTION PLAN
(AS AMENDED AND RESTATED MARCH 18, 1997)
PART I GENERAL
1. PURPOSE. The purpose of this Commerce National Bank ("CNBC") 1996
Non-Qualified Stock Option Plan (the "Plan") is to advance the interests of CNBC
(the "Bank") and to enhance the value of the shareholders' investment in the
Bank by encouraging key management employees and directors (collectively
referred to as "key personnel" and "personnel") to acquire or increase and
retain a financial interest in the Bank and thereby encourage the key personnel
to remain in the employment of the Bank and to put forth maximum efforts for the
success of the Bank. In addition, the Plan is intended to enable the Bank to
compete effectively for the services of potential key personnel by furnishing an
additional incentive to join the employment of the Bank. It is intended that
non-qualified stock options may be granted under the Plan. Effective March 18,
1997, the Plan is renamed the CNBC Bancorp 1996 Non-qualified Stock Option Plan,
and the definition of "Bank" is changed from "CNBC" to "CNBC Bancorp and its
subsidiaries" or to "CNBC Bancorp", as appropriate.
2. ADMINISTRATION OF THE PLAN.
(a) COMMITTEE. The Plan shall be administered by the
Compensation Committee (the "Committee") established under the bylaws of the
Bank. The members of the Committee shall be appointed by, and serve at the
pleasure of, the board of directors of the Bank. Effective March 18, 1997, the
Plan shall be administered by the Board of Directors of CNBC Bancorp (the
"Board"), instead of by the Committee.
(b) AUTHORITY OF THE COMMITTEE. The Committee shall
have full power and authority in its discretion, subject to and not inconsistent
with the express provisions of the Plan, to administer the Plan and to exercise
all the power and authority specifically granted to it under the Plan or
necessary or advisable, in the sole and absolute discretion of the Committee,
for the administration of the Plan including, without limitation, the authority
to: select from among key personnel those individuals to whom stock options may
be granted pursuant to the Plan; fix the terms and provisions and restrictions
of any option granted under the Plan; grant options, interpret and construe any
provision of the Plan or of any option granted hereunder; adopt, amend and
rescind such rules and regulations relating to the Plan as the Committee shall
determine in its discretion, subject to the express provisions of the Plan; and
make all other determinations deemed by it necessary or advisable for the
administration of the Plan. All decisions and designations made by the Committee
pursuant to the provisions of the Plan shall be final, binding and conclusive
with respect to all interested parties, unless otherwise determined by the board
of directors. However, any actions which directly affect a committee member must
be approved by a majority of disinterested members of the board of directors.
Effective March 18, 1997, all references to the "Committee" in this Section of
2(b) are replaced by "Board"; the phrase "unless otherwise determined by the
board of directors" in the second sentence is deleted; and the last sentence is
deleted.
(c) VACANCIES, ETC. The board of directors shall fill
all vacancies, however caused, in the Committee. The board of directors may,
from time to time, appoint additional members to the Committee, and may at any
time remove one or more Committee members and substitute others. One member of
the Committee shall be selected by the board of directors to serve as chairman
of the Committee. The Committee shall hold its meetings at such times and places
as it shall deem advisable. All determinations of the Committee shall be made by
a majority of its members. The Committee may appoint a secretary and make such
rules and regulations for the conduct of its business as it shall deem
advisable, and shall keep minutes of its meetings. Effective March 18, 1997,
this Section 2(c) is deleted.
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<PAGE> 2
(d) INDEMNIFICATION. Persons ("members") who are or
shall have been members of the Committee or of the board of directors shall be
indemnified and held harmless by the Bank against and from any loss, cost,
liability, or expense that may be imposed upon or reasonably incurred by them in
connection with or resulting from any claim, action, suit, or proceeding to
which they may be a party or in which they may be involved by reason of any
action taken or failure to act under the Plan and against and from any and all
amounts paid by them in settlement thereof, with the Bank's approval, or paid by
them in satisfaction of judgment in any such action, suit, or proceeding against
them; provided they shall give the Bank an opportunity, at its own expense, to
handle and defend the same before they undertake to handle and defend it on
their own behalf. The foregoing right of indemnification shall not be exclusive
of any other rights of indemnification to which such persons may be entitled
under the Bank's Articles of Association or Bylaws, as a matter of law, or
otherwise, or any power that the Bank may have to indemnify them or hold them
harmless. The Bank may refuse to indemnify a member if such member did not act
in good faith in the execution of his or her duties. Effective March 18, 1997,
the phrase "or the Board" is inserted after the phrase "or of the board of
directors" in the second line hereof.
3. CONSOLIDATION OF PRIOR NON-QUALIFIED STOCK OPTION PLANS. The Plan
hereby incorporates and consolidates all previously approved Non-Qualified Stock
Option Plans (the "Prior Plans") into the Plan and all terms and conditions of
the Plan will govern and dictate all options previously issued. The Prior Plans
include the 1991, 1992, 1993, 1994 and 1995 Non-Qualified Stock Option Plans of
Commerce National Bank. All options granted pursuant to the Prior Plans are
subject to the provisions of the Plan. A total of 71,070 shares have been
granted under the Prior Plans.
4. ELIGIBILITY.
(a) GENERAL. "Key Personnel" of the Bank shall be
eligible to receive stock options pursuant to the Plan. Key personnel may
include full-time employees, part-time employees or directors. Provided,
however, that members of the Committee may not participate in the Plan unless
approved by the majority of disinterested members of the board of directors.
More than one option may be granted to a participant. The Committee shall, in
its sole discretion, from time to time, select from such key personnel to whom
stock options shall be granted and determine the number of shares to be included
in such stock option. Effective March 18, 1997, the foregoing references to
"Committee" are changed to "Board".
(b) FACTORS. In determining the persons to whom stock
options are to be granted under the Plan, the Committee shall take into
consideration the respective duties of the persons, their present and potential
contributions to the success of the Bank and such other factors as the Committee
shall deem relevant in connection with accomplishing the purpose of the Plan.
Effective March 18, 1997, the foregoing references to "Committee" are changed to
"Board".
(c) NO OTHER RIGHTS. Nothing contained in the Plan,
nor any stock option granted pursuant to the Plan, shall confer upon any
employee or director any right to continue in the employment of the Bank nor
limit in any way the right of the Bank to terminate the employment of any
employee or director at any time.
5. SHARES SUBJECT TO THE PLAN.
(a) The shares for which options may be granted under
the Plan shall consist of 90,000 common shares, par value $5.00 per share (the
"Common Shares"), of the Bank; subject to adjustment in Section 11. The shares
issued in conjunction with the Prior Plans are included as shares subject to the
Plan.
(b) Common Shares subject to the Plan may be, at the
discretion of the board of directors, either authorized and unissued Common
Shares or Common Shares reacquired by the Bank and held as treasury shares.
2
<PAGE> 3
(c) If any outstanding option under the Plan for any
reason expires or is terminated without having been exercised in full, the
Common Shares allocable to the unexercised portion of such option shall (unless
the Plan shall have been terminated) become available for subsequent grants of
options under the Plan.
(d) Effective November 30, 1996, the phrase "par
value $5.00 per share" in Section 9(a) is changed to "without par value", the
term "Common Shares" shall refer to "common shares of CNBC Bancorp" and all
references to "Bank" are replaced by "CNBC Bancorp".
6. EFFECTIVE DATE AND TERMINATION OF PLAN. The Plan was approved by the
affirmative vote of the board of directors on February 20, 1996. The effective
date of the Plan shall be April 16, 1996, subject to the approval of
shareholders owning a majority of the voting shares of the Bank. This Plan shall
terminate upon the earlier of (i) April 16, 2001; or (ii) the date on which all
Common Shares available for issuance under the Plan have been issued pursuant to
the exercise of options granted hereunder; or (iii) the determination of the
board of directors that the Plan shall terminate. No options may be granted
under the Plan after such termination date, provided that the options granted
and outstanding on such termination date shall continue to have force and effect
in accordance with the provisions of the documents evidencing such options.
Effective November 30, 1996, the foregoing references to "Common Shares" shall
refer to "common shares of CNBC Bancorp".
7. AMENDMENT OF THE PLAN. The board of directors may, from time to
time, alter, amend, modify, suspend or discharge or make such changes in and
additions to this Plan as it may deem desirable, without further action on the
part of the shareholders of the Bank; provided, however, that no such action
shall deprive any person without such person's consent of any rights theretofore
granted pursuant hereto and further provided, however, that, except as provided
in Section 11, no action of the Board, unless taken with the affirmative vote of
the holders of a majority of the oustanding common shares of the Bank, may:
(a) increase the total number of Common Shares available
for issuance pursuant to the Plan;
(b) reduce the minimum option price;
(c) increase the period in which options granted under
the Plan may be exercised;
(d) increase the number of Common Shares subject to the
Plan which may be optioned to any one individual or
in any one year;
(e) extend the termination date of the Plan; or
(f) change the class of employees eligible to receive
options under the Plan.
Subject to and without limiting the generality of the foregoing, the Board may
amend or modify the Plan and any outstanding options under the Plan to the
extent necessary to qualify any or all of such options or future options to be
granted for such beneficial federal income tax treatment as may be afforded
employee stock options under the Code or any amendments thereto or other
statutes or regulations or rules (or any interpretations thereof by any
applicable governmental agency or entity) which become effective after the
effective date of the Plan (including without limitation any proposed or final
Treasury regulations). Effective November 30, 1996, the foregoing references to
"shareholders of the Bank" shall refer to "shareholders of CNBC" and the term
"Common Shares" shall refer to "common shares of CNBC Bancorp".
8. NOTICES. Each notice relating to this Plan shall be in writing and
delivered in person or by first class or certified mail to the proper addressee.
Each notice shall be deemed to have been given on the date it is received. Each
notice to the Committee shall be addressed as follows:
Commerce National Bank
100 E. Wilson Bridge Rd., Suite 100
Worthington, OH 43085
3
<PAGE> 4
Attention: Compensation Committee
Each notice to a holder of options (or other person or persons then
entitled to exercise an option) shall be addressed to the holder (or such other
person or persons), at the holder's address set forth in the Bank's current
personnel records. Anyone to whom a notice may be given under this Plan may
designate, in writing, a new address by notice to that effect. Effective March
18, 1997, the third sentence hereof is amended to read as follows: Each Notice
to the Board shall be addressed as follows:
CNBC Bancorp
100 E. Wilson Bridge Road, Suite 100
Worthington, OH 43085
Attention: Board of Directors
PART II OPTIONS
9. GRANT OF OPTIONS.
(a) To the extent not inconsistent with the
provisions of this Plan, the Committee shall fix the terms and provisions and
restrictions of options, including the number of Common Shares to be subject to
each option, the dates on which options may be fully or partially exercised, the
minimum period (if any) during which the same must be held until exercisable and
the expiration dates thereof. Options granted hereunder shall be evidenced by a
written option agreement (an "Agreement") between the option holder and the
Committee. The Agreement shall contain such terms, conditions and limitations as
provided by the Committee, but shall also be subject to the provisions of this
Section 9 and other Sections of Part II of this Plan.
(b) Notwithstanding anything in this Plan to the
contrary, the grant of options shall be subject to the following limitations:
(i) in any one fiscal year, no more than 6,000 Common Shares may be granted
under options; and (ii) in any one fiscal year not more than 1,000 Common Shares
may be granted under options to any one individual in the Plan.
(c) The option purchase price to be paid by option
holders in the Plan for a Common Share, shall be determined by the Committee,
but shall be in no event less than the greater of the fair market value or book
value of the Common Shares on the date such stock option is granted. The fair
market value of the Common Shares on a particular date shall be determined by
the Committee.
(d) Any option granted hereunder shall provide, as
determined by the Committee, for appropriate arrangements for the satisfaction
by the Bank and the option holder of all federal, state, local or other income,
excise or employment taxes or tax withholding requirements applicable to the
exercise of the option or the later disposition of the Common Shares or other
property thereby acquired and all such additional taxes or amounts as determined
by the Committee in its discretion, including, without limitations, the right of
the Bank to receive transfers of Common Shares or other property from the option
holder or to deduct or withhold in the form of cash or shares from any transfer
or payment to an option holder, in such amount or amounts deemed required or
appropriate by the Committee in its sole and absolute discretion.
(e) The Committee shall have the authority to effect,
at any time and from time to time, with the consent of the affected option
holder or option holders, the cancellation of any or all outstanding options
granted under the Plan and the grant in substitution thereof of new options
under the Plan (subject to the limitations hereof) covering the same or
different numbers of Common Shares at an option price per share in all events
not less than the fair market value or book value of the common stock on the new
grant date.
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<PAGE> 5
(f) The Committee may include such other terms and
conditions not inconsistent with the foregoing as the Committee shall approve.
Without limiting the generality of the foregoing sentence, the Committee shall
be authorized to determine that options shall be exercisable in one or more
installments during the term of the option and the right to exercise may be
cumulative as determined by the Committee.
(g) Effective November 30, 1996, all references to
"Common Shares" in this Section 9 shall refer to common shares of CNBC Bancorp.
Effective March 18, 1997, all references to "Committee" in this Section 9 are
changed to "Board".
10. NOTICE OF GRANT OF OPTION. Upon the granting of any option to a
participant, the Committee shall promptly cause such participant to be notified
of the fact of such grant. The date on which an option shall be granted shall be
the date of the Committee's authorization of such grant or such later date as
may be determined by the Committee at the time such grant is authorized, subject
to the satisfaction of any conditions the Committee may place on the
effectiveness of the grant. Effective March 18, 1997, all references to
"Committee" in this Section 10 are changed to "Board".
11. ADJUSTMENTS AND CHANGES IN THE COMMON SHARES
(a) In the event that the Common Shares as presently
constituted shall be changed into or exchanged for a different kind of shares or
other securities of the Bank or another corporation (whether by reason of
merger, consolidation, recapitalization, reclassification, split-up, combination
of shares or otherwise) or if the number of such shares shall be increased
through the payment of a stock dividend or stock split, then unless such change
results in the termination of all outstanding options pursuant to the provisions
of Section 12 hereof, there shall be substituted for or added to each share of
the Bank theretofore appropriated or thereafter subject or which may become
subject to an option under this Plan, the number and kind of shares or other
securities into which each outstanding share of the Bank shall be so changed, or
for which each such share shall be entitled, as the case may be. Outstanding
options shall also be appropriately amended as to price and number of shares and
other terms as may be necessary to reflect the foregoing events. In the event
there shall be any other change in the number or kind of the outstanding shares
of the Bank, or of any share or other securities into which such shares shall
have been changed, or for which they shall have been exchanged, then if the
Committee shall, in its sole discretion, determine that such change equitably
requires an adjustment in any option theretofore granted or which may be granted
under the Plan, such adjustment shall be made in accordance with such
determination. Fractional shares resulting from any adjustment in options
pursuant to this Section 11 shall be rounded down to the nearest whole number of
shares.
(b) Notice of any adjustment shall be given by the
Bank to each holder of an option which shall have been so adjusted, provided
that such adjustment (whether or not such notice is given) shall be effective
and binding for all purposes of the Plan and any instrument or agreement issued
thereunder.
(c) Effective November 30, 1996, all references to
"Bank" are changed to "CNBC Bancorp" and all references to "Common Shares" shall
refer to "common shares of CNBC Bancorp". Effective March 18, 1997, all
references to "Committee" in this section 11(a) are changed to "Board".
12. ACCELERATION OF EXERCISE OF OPTIONS.
(a) In the event of a Change in Control of the
Bank, as hereinafter defined, or in the
event of the death or permanent disability
of an option holder, the following
provisions shall apply to stock options
previously granted under the Plan,
notwithstanding any provision herein or in
any agreement to the contrary:
(i) all options which provide for
exercise in one or more installments
shall become immediately exercisable
in full;
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<PAGE> 6
(ii) if any option holder shall cease to
be employed by the Bank within one
(1) year following a Change in
Control, the option may in all
events be exercised for a period of
three (3) months after such
termination of employment and within
the option period;
(iii) all options under the Plan which
have not previously vested shall
become vested; and
(iv) the exercise restrictions provided
in Section 15 of the Plan shall not
be applicable.
(b) For purposes of the Plan, the term "Change in
Control" in ownership of the Bank shall mean and shall be deemed to have
occurred if (i) any person [as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")], is or
becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Bank representing thirty percent
(30%) or more of the combined voting power of the Bank's then outstanding
securities, or (ii) there commences a tender offer for securities of the Bank
which, if successful, would result in any person becoming the beneficial owner
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Bank representing thirty percent (30%) or more of the combined
voting power of the Bank's then outstanding securities, or (iii) there is a
consolidation or combination of the Bank with, or merger of the Bank into or
with, any other company and the inside stockholders are not beneficial owners
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of a company that directly or indirectly owns the Bank representing
more than thirty percent (30%) of the combined voting power of such controlling
company, or (iv) there is an acquisition of the Bank or of all or substantially
all of the assets of the Bank by another person, company or entity.
(c) The grant of options under this Plan shall in no
way affect the right of the Bank to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
(d) Effective November 30, 1996, all references in
Section 12 to "Bank" are changed to "CNBC Bancorp".
13. ADDITIONAL PROVISIONS. Any Agreements authorized under the Plan
shall contain such other provisions as the Committee and the Board of Directors
of the Bank shall deem advisable which are not inconsistent with the terms
herein stated. Effective March 18, 1997, the phrase "the Committee and the Board
of the Directors of the Bank" is replaced by the phrase "the Board".
14. EXERCISE OF OPTIONS.
(a) The exercise of stock options shall be subject to
restrictions that may be created by the Committee in its discretion as to the
number of such options which may be exercised by an option holder at a given
time or in a given period of time. The Committee shall establish a vesting
period, schedule and criteria for the exercise of options as it deems
appropriate, such as vesting in installments upon the achievement by the Bank or
option holder of specified periods of continued employment, specific performance
criteria or other goals.
(b) Each option granted under this Plan shall be
exercisable on such date or dates and during such period and for such number of
Common Shares as shall be determined pursuant to the terms of the Agreement
evidencing such option. An option may be exercised by notice given to the
Committee in such form as the Committee shall require. No fraction of a Common
Share may be purchased by an option holder upon exercising his option, and to
the extent that the use of fractional or percentage computations would
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<PAGE> 7
otherwise give rise to the right of the option holder to purchase a fraction of
a Common Share, the total Common Shares subject to exercise shall be adjusted
down to the nearest whole number.
(c) Effective November 30, 1996, all references to
"Common Shares" in this Section 14 shall refer to "common shares of "CNBC
Bancorp". Effective March 18, 1997, the references to "Committee" in Sections
14(a) and (b) are changed to "Board".
15. EXERCISE AFTER TERMINATION OF EMPLOYMENT
(a) Except as otherwise provided in the Plan, an
option holder's options (i) are exercisable only by the option holder, and (ii)
are exercisable only while the option holder is in the employment of the Bank
except as provided in Sections 15(b) through 15(e).
(b) Except as provided in Section 12 of the Plan, any
option holder's option which is exercisable by its terms at the time the option
holder ceases to be in the employment of the Bank must be exercised on or before
the earlier of (i) thirty (30) days after the date of termination of employment,
or (ii) the fixed expiration date of such option after which period such option
shall expire. However, options cease to be exercisable on the date the option
holder ceases to be in the employment of the Bank if termination of employment
is for nonperformance of duties or other cause.
(c) In the event of the death of the option holder,
each of that option holder's unexercised options (whether or not then
exercisable by their terms) shall become immediately exercisable by his or her
estate for a period ending on the earlier of the fixed expiration date of such
option or twelve months after the date of death, after which period such option
shall expire. For purposes hereof, the estate of an option holder shall be
defined to include the legal representatives thereof or any person who has
acquired the right to exercise an option by reason of the death of the option
holder.
(d) In the event of the termination of employment by
reason of the permanent disability (as defined below) of the option holder, each
of that option holder's unexercised options (whether or not then exercisable by
their terms) shall become exercisable for a period ending on the earlier of (i)
the fixed expiration date of such option, or (ii) twelve months from the date of
termination after which period such option shall expire. For purposes of Section
12 or this Section 15(d), "permanent disability" shall be deemed to be the
inability of the option holder to perform the duties of his or her job with the
Bank because of a physical or mental disability as evidenced by the opinion of a
Bank-approved doctor of medicine licensed to practice medicine in the United
States of America.
(e) In the event of the death or permanent disability
of the option holder, the estate or option holder, respectively, may request
cash payment equal to the difference between the fair market value of the common
shares and the option exercise price multiplied by the number of options
outstanding in exchange for surrendering its options to the Bank; however, the
Committee, in its sole discretion, may approve or deny the request. Effective
March 18, 1997, the references to "Committee" in this Section 15(e) is replaced
by the phrase "the Board". Effective November 30, 1996, the reference to "Common
Shares" in this Section 15(e) shall refer to common shares of "CNBC Bancorp".
16. PAYMENT FOR COMMON SHARES. Common Shares which are subject to an
option shall be transferred only upon exercise of the option in whole or in part
and upon full payment of the purchase price for the Common Shares as to which
the option is exercised. The option price shall be payable upon exercise of the
option in United States dollars in cash, check, bank draft or money order.
Effective November 30, 1996, the reference to "Common Shares" in this Section 16
shall refer to the "common shares of 'CNBC Bancorp'".
17. TERMINATION OF OPTION. Each stock option shall terminate in any
event no later than twenty (20) years from the date of the grant.
18. ASSIGNABILITY. An option granted under the Plan may not be
transferred except by will or the laws of descent and distribution and, during
the lifetime of the option holder to whom granted, may be exercised only by him
or her, his or her guardian or legal representative.
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<PAGE> 8
19. LAWS AND REGULATIONS.
(a) The Plan and all options granted pursuant to it
are subject to all laws and regulations of any governmental authority which may
be applicable thereof, and notwithstanding any provisions of this Plan or the
options granted, the holder of a stock option shall not be entitled to exercise
such option, nor shall the Bank be obligated to issue any Common Shares or pay
any cash under the Plan to the holder, if such exercise, issuance or payment
shall constitute a violation by the option holder or the Bank of any provisions
of any such law or regulation.
(b) The Bank, in its discretion, may postpone the
issuance and delivery of Common Shares upon any exercise of an option until
completion of any stock exchange listing or registration or other qualification
of such Common Shares under any state or federal law, rule or regulation as the
Bank may consider appropriate; and may require any person exercising an option
to make such representations and furnish such information as it may consider
appropriate in connection with the issuance of the Common Shares in compliance
with applicable law. Under such circumstances, the Bank shall proceed with
reasonable promptness to complete any such listing, registration or other
qualification.
(c) Common Shares issued and delivered upon exercise
of a stock option shall be subject to such restrictions on trading, including
appropriate legending of certificates to that effect, as the Bank, in its
discretion, shall determine are necessary to satisfy applicable legal
requirements and obligations.
(d) Effective November 30, 1996, all references in
this Section 19 to "Bank" are changed to "CNBC Bancorp" and all references to
"Common Shares" shall refer to "common shares of 'CNBC Bancorp'".
20. SHAREHOLDER RIGHTS. An option holder shall have none of the rights
of a shareholder of the Bank with respect to any Common Shares subject to any
option granted hereunder until such individual shall have exercised the option
and been issued Common Shares therefor. Effective November 30, 1996, all
references in this Section 20 to "Common Shares" shall refer to the "common
shares of 'CNBC Bancorp'".
21. SEVERABILITY. If any provision of the Plan shall cause the Plan to
violate any provision of any applicable law, rule or governmental regulation or
to be considered null and void, such provision shall be severed from the Plan
and shall be null and void or shall be deemed null and void ab initio, as shall
be appropriate or necessary and the Plan shall continue in full force and effect
as such provisions were not part of the Plan.
22. USE OF PROCEEDS. The proceeds received by the Bank from the Sale of
Common Shares pursuant to the options granted under this Plan shall be used for
general corporate purposes. Effective November 30, 1996, all references in this
Section 20 to "Common Shares" shall refer to the "common shares of 'CNBC
Bancorp'".
23. EXPENSES. The expenses of the Plan shall be borne by the Bank.
8
<PAGE> 1
Exhibit 10.4
FORM OF DEFERRED COMPENSATION AGREEMENT
THIS DEFERRED COMPENSATION AGREEMENT dated this day of
, by and between Commerce National Bank, a national association
("Employer"); and ("Employee").
RECITALS
--------
WHEREAS, Employee has been employed by Employer beginning on
; and
WHEREAS, the services of Employee and Employee's experience and
knowledge of the affairs of Employer are extremely valuable to Employer; and
WHEREAS, Employer desires that Employee remain in its service,
wishes to continue to receive the benefit of Employee's knowledge and
experience, and is willing to offer Employee an incentive in the form of
deferred compensation.
AGREEMENT
---------
NOW, THEREFORE, the parties hereto agree as follows:
I. EMPLOYMENT DUTIES AND COMPENSATION.
Employee shall remain in the employ of Employer with Employee's
duties, compensation and terms of employment in that capacity to be such as may
be determined from time to time by Employer's President and Employer's Board of
Directors or Compensation Committee of the Board of Directors (collectively
referred to as the "Board") until such employment is terminated by either
Employer or Employee. In addition to Employee's compensation as determined by
the President, Employee shall further be entitled to such amounts as are
provided hereinafter.
II. DEFERRED COMPENSATION AMOUNT.
A. Employer may credit an amount of deferred compensation to the
account for Employee's benefit in such amounts and at such times as determined
in the sole discretion of the Board. Employer shall maintain the account on its
records designated as the Deferred Compensation Account for Employee. Employee
shall be informed in writing by employer of the amount of deferred compensation,
if any, and the time as of which such deferred compensation is credited to
Employee's Deferred Compensation Account. Any amounts of deferred compensation
credited to Employee's Deferred Compensation Account may be kept in cash or
invested and reinvested in mutual funds, stocks, bonds, securities, a policy or
policies of life insurance on Employee's life, or any other assets which
Employer is legally permitted to invest in, or such amounts may be used by
Employer in connection with the operation of its business, as may be determined
by the Board.
1
<PAGE> 2
B. As of the date of this agreement, such deferred compensation
amount shall be equal to the annual increase in the cash surrender value of the
life insurance policy number , issued by Northwestern Mutual Life Insurance
Company on Employee's life. This amount of deferred compensation may be amended
by action of the Board.
C. As an investment of Employee's Deferred Compensation Account,
the Board may direct Employer to purchase a policy of life insurance on the life
of the Employee. In the event that such a life insurance policy is purchased for
purposes of this Agreement, Employer shall be the applicant, owner and
beneficiary of the policy. Employer shall have all rights under the policy and
all incidents of ownership under the policy. Employer, at its option, may assign
all or a portion of the death benefits under the policy.
III. PAYMENT OF DEFERRED COMPENSATION AT AGE 65.
Upon Employee's attainment of age 65, Employer shall pay Employee
deferred compensation in ten (10) annual installments commencing on the date of
Employee's attainment of age 65, with the amount of such annual payment
determined to be the greater of the amount under A or B as follows:
A. An amount equal to one-tenth (1/10) of the amount
credited to Employee's Deferred Compensation Account plus
interest, if any, upon the date Employee attains age 65,
payable in such installments commencing upon Employee's
attainment of age 65 and upon the annual anniversary date
of Employee's 65th birthday for each of the succeeding
nine (9) years until all ten (10) annual installments
have been paid. The interest credited to the Employee's
Deferred Compensation Account shall be determined on the
first day of January of each year and shall be equal to
the interest rate paid by Commerce National Bank on a
five-year certificate of deposit.
B. An amount equal to the before tax equivalent of the
maximum level amount of loans and/or dividend surrenders
which Employer can take for a period of ten (10) years
from the cash value, if any, of any life insurance policy
purchased by Employer on Employee's life as an investment
for purposes of this Deferred Compensation Agreement. The
maximum level of loans and/or dividend surrenders shall
be determined on the date the Employee attains age 65
assuming that interest on the loans is added to principal
and that premiums due on the policy are also paid by
premium loan and/or dividend surrender. Payments to
Employee shall commence upon his attainment of age 65 and
shall be made annually on the anniversary of Employee's
birthday for each of the succeeding nine (9) years until
all ten (10) installments have been paid.
2
<PAGE> 3
Employee's right to payment of deferred compensation under this paragraph III
shall be determined solely with reference to Employee's attainment of age 65.
Employee's right to such payments shall not be affected in any way by Employee's
continued employment beyond attainment of age 65.
IV. PAYMENT OF DEFERRED COMPENSATION UPON TERMINATION OF EMPLOYMENT
PRIOR TO AGE 65.
Upon Employee's termination of employment after December 31, 2007
and prior to Employee's attainment of age 65, Employer may, in the sole
discretion of the Board, pay Employee deferred compensation in ten (10) annual
installments commencing on any date following the date of Employee's termination
of employment with Employer with the amount of such annual payment determined to
be the greater of the amounts under A or B as follows:
A. An amount equal to one tenth (1/10) of the amount
credited to Employee's Deferred Compensation Account plus
interest, if any, upon the date which the Board, in its
discretion, elects to commence payments under this
paragraph IV, payable in such installments commencing
upon any such date as may be elected by the Board to
commence payments and upon the annual anniversary of such
date for each of the succeeding nine (9) years until all
ten (10) annual installments have been paid. The interest
credited to the Employee's Deferred Compensation Account
shall be determined on the first day of January of each
year and shall be equal to the interest rate paid by
Commerce National Bank on a five-year certificate of
deposit.
B. An amount equal to the before tax equivalent of the
maximum level amount of loans and/or dividend surrenders
which Employer can take for a period of ten (10) years
from the cash value, if any, of any life insurance policy
purchased by Employer on Employee's life as an investment
for purposes of this Deferred Compensation Agreement. The
maximum level of loans and/or dividend surrenders shall
be determined on the date Employee terminates employment
with Employer assuming that interest on the loans is
added to principal and that premiums due on the policy
are also paid by premium loan and/or dividend surrender.
Payments to Employee shall commence on the date
determined by the Board and shall be made annually on the
anniversary of said date for each of the succeeding nine
(9) years until all ten (10) installments have been paid.
Payment of deferred compensation under this paragraph IV is subject to the sole,
absolute discretion of the Board. Employer is under no obligation to make any
payment to Employee unless Employee remains an employee of Employer on a full
time basis for a period of ten years from the date of this agreement.
3
<PAGE> 4
V. PAYMENT OF DEFERRED COMPENSATION IN EVENT OF EMPLOYEE'S TOTAL AND
PERMANENT DISABILITY.
In the event of Employee's total and permanent disability prior
to commencement of payments provided under paragraph III or IV, Employer shall
pay Employee the deferred compensation in the same amount and the same manner
and schedule as set forth in paragraph IV. Employee shall be deemed to have
incurred a total and permanent disability if Employee satisfies all requirements
and conditions to qualify as totally disabled as defined by Employer's group
long term disability insurance plan and policy.
VI. PAYMENT OF DEFERRED COMPENSATION IN EVENT OF EMPLOYEE'S DEATH
WHEN EMPLOYEE HAS COMMENCED RECEIVING PAYMENTS UNDER PARAGRAPHS
III, IV OR V.
In the event of Employee's death when Employee has commenced
receiving payments under Paragraph III, IV or V, Employer shall pay Employee's
designated beneficiary compensation in annual installments with the amount and
time of such annual payment determined pursuant to A or B as follows:
A. If Employee was receiving payments of deferred
compensation determined under paragraph III(A), IV(A) or
V was established pursuant to IV(A), then such payment
amounts shall be continued, on the payment dates as
determined for purposes of paragraph III, IV or V. The
annual payments shall be continued to Employee's
designated beneficiary for the balance of the ten (10)
year period determined for the Employee for purposes of
paragraph III, IV or V until all ten (10) annual
installments have been paid to either Employee or his
designated beneficiary.
B. If Employee was receiving deferred compensation under
paragraph III(B), IV(B) or V, if the payment amount under
paragraph V was established pursuant to paragraph IV(B),
then deferred compensation payments shall be continued to
the Employee's designated beneficiary for the Employee
for purposes of paragraph III, IV or V until all ten (10)
annual installments have been paid to either Employee or
his designated beneficiary.
VII. PAYMENT OF DEFERRED COMPENSATION IN EVENT OF EMPLOYEE'S DEATH
WHEN EMPLOYEE HAS NOT COMMENCED RECEIVING PAYMENTS UNDER
PARAGRAPHS III, IV, OR V.
In the event of Employee's death prior to commencement of payment
to him of any benefits under paragraph III, IV or V above, Employee's designated
beneficiary shall be entitled to receive the death benefit, if any, payable
under any life insurance policy which Employer may have purchased as an
investment for purposes of this Agreement,
4
<PAGE> 5
subject to the provisions of the Split-Dollar Life Insurance Agreement attached
hereto as Exhibit "A".
VIII. NO DUPLICATION OF DEFERRED COMPENSATION.
Deferred compensation shall not be paid to Employee, or to his
designated beneficiary, under more than one of the following paragraphs of this
Agreement: III, IV, V, VI or VII.
IX. DESIGNATED BENEFICIARY.
For purposes of paragraphs III, IV, V and VI of this Agreement,
the designated beneficiary shall be as specified in Exhibit "B" attached to this
Agreement. Employee may change the designated beneficiary by notice in writing
to Employer at any time. If the designated beneficiary shall have died, whether
prior to Employee's death or after commencement of payments to the designated
beneficiary, any remaining payments shall be paid to Employee's estate which
shall be deemed to be the Employee's designated beneficiary. For purposes of
paragraph VII of this Agreement, the designated beneficiary shall be the direct
or contingent beneficiaries specified by Employee in accordance with paragraph 2
of the Split-Dollar Life Insurance Agreement attached hereto as Exhibit "A".
X. PROHIBITION AGAINST ASSIGNMENT.
Except as hereinabove otherwise expressly provided, Employee
agrees on behalf of himself and on behalf of his personal representatives,
heirs, legatees, distributees and any other person or persons claiming any
benefits under him by virtue of this Agreement, that this Agreement and the
rights, interests and benefits hereunder shall not be assigned, transferred,
pledged or hypothecated in any way by Employee or any personal representative,
heir, legatee, distributee or other person claiming under Employee by virtue of
this Agreement and shall not be subject to execution, attachment or similar
process. Any attempted assignment, transfer, pledge, or hypothecation or other
disposition of this Agreement or of such rights, interests and benefits contrary
to the foregoing provisions, or the levy of any attachment or similar process
thereupon, shall be null and void and without effect and Employer shall have no
further liability hereunder.
XI. NOTICES AND ELECTIONS.
Any notice or election to be given hereunder shall be sent by
certified mail, return receipt requested, to Employer at its registered office
and to Employee at such address as is carried on the records of Employer. Either
party may change the address to which notices are to be addressed by notice in
writing given to the other in accordance with the terms hereof. The effective
date of any such notice shall be the date of mailing, as determined by postmark.
5
<PAGE> 6
XII. FUNDS
Nothing contained in this Agreement and no action taken pursuant
to the provisions of this Agreement shall create or be construed to create a
trust of any kind, a fund, or fiduciary relationship between Employer and
Employee, his designated beneficiary or any other person. Any funds, including
all investments and any life insurance policies, used to provide payment under
this Agreement shall be a part of the general funds and assets of Employer and
subject to the claims of general creditors and no person other than Employer
shall by virtue of the provisions of this Agreement have any right, interest or
title in such funds. To the extent that any person acquires a right to receive
payments from Employer under this Agreement, such right shall be not greater
than the right of any unsecured general creditor of Employer. Benefits provided
by this Agreement are separate from and unrelated to the proceeds or value of
any insurance policy purchased by Employer to fund this Agreement. Employee
shall not have any present right or interest in, nor any deferred claim to, or
beneficial ownership of, any insurance policy held by Employer to provide the
benefits under this Agreement.
XIII. EFFECT UPON EMPLOYMENT RELATIONSHIP.
Nothing in this Agreement shall be construed as granting Employee
the right to be continued in the employment of Employer, or as a limitation on
the right of Employer to terminate the employment of Employee at any time.
XIV. CHANGE IN CONTROL
Upon the occurrence of a change in control of Employer as
hereinafter defined, all amounts accumulated in Employee's Deferred Compensation
Account shall immediately vest and shall be immediately payable to Employee.
Employee, in his sole discretion, may elect to receive the transfer of the
ownership of the life insurance policy on his life as payment and total
satisfaction of all amounts due under this agreement.
For purposes of this agreement, the term "Change in Control" in
ownership of Employer shall mean and shall be deemed to have occurred if (i) any
person, as such term is used in Section 13 (d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), is or becomes the beneficial owner (as
defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of
securities of Employer representing thirty percent (30%) or more of the combined
voting power of Employer's then outstanding securities, or (ii) there commences
a tender offer for securities of Employer which, if successful, would result in
any person becoming the beneficial owner (as defined in Rule 13d-3 of the
Exchange Act), directly or indirectly of securities of the Bank representing
thirty percent (30%) or more of the combined voting power of Employer's then
outstanding securities, or (iii) there is a consolidation or combination of
Employer with, or merger of Employer into or with, any other company and the
stockholders of Employer prior to such consolidation, combination or merger are
not beneficial owners (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of a company that, directly or indirectly
6
<PAGE> 7
owns one hundred percent (100%) of Employer, representing more than seventy
percent (70%) of the combined voting power of such controlling company, or (iv)
there is an acquisition of Employer or of all or substantially all of the assets
of Employer by another person, company or entity.
XV. BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of
any successor of Employer and any such successor shall be deemed substituted for
Employer under the terms of this Agreement. As used in this Agreement, the term
"successor" shall include the person, firm, corporation, or other business
entity which at any time, whether by merger, purchase or otherwise, acquires all
or substantially all of the assets of business of Employer.
XVI. GOVERNING LAW.
This Agreement shall be interpreted, construed, enforced, and
performed in accordance with the laws of the State of Ohio.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first written above.
COMMERCE NATIONAL BANK
BY:
------------------------------
Thomas D. McAuliffe
Title: President
----------------------------
EMPLOYEE:
---------------------------------
7
<PAGE> 8
EXHIBIT "A"
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT
-------------------------------------
THIS AGREEMENT is entered into this ____ DAY OF ________, 199_,
by and between Commerce National Bank, a national association ("Employer"), and
_________________ ("Employee").
RECITALS
--------
WHEREAS, Employee is a valued employee of Employer and Employer
wishes to retain him in its employ, and
WHEREAS, Employer, as an inducement to such continued employment,
wishes to assist Employee with his personal life insurance program.
AGREEMENT
---------
NOW, THEREFORE, Employer and Employee agree as follows:
1. The life insurance policy with which this Agreement deals is
Policy Number ("Policy") issued by The Northwestern Mutual Life Insurance
Company ("Northwestern") on the life of Employee. Employer shall be the sole
owner of the Policy and the direct beneficiary of the greater of an amount of
the death proceeds equal to (a) the cash value of the Policy as of the date of
death of the Employee to which premiums have been paid, or (b) the aggregate
premiums paid to Northwestern by Employer with respect to the Policy. Any
indebtedness on the Policy will first be deducted from the proceeds payable to
Employer. Also, any collateral assignment made by the Employer will be deducted
from the proceeds payable to it.
2. Employee shall have the right to designate and change the
direct and contingent beneficiaries of any remaining proceeds and to elect and
change a payment plan for such beneficiaries. Any assignment of the proceeds by
Employee shall apply only to said remaining proceeds.
3. The entire premium on the Policy shall be paid by Employer as
it becomes due.
4. Policy dividends shall be applied to purchase paid-up
additional insurance protection.
5. This Agreement may be terminated by either party hereto, with
or without the consent of the other, by giving notice of termination in writing
to the other party. This Agreement shall terminate automatically upon Employee's
attainment of age 65 or upon termination of Employee's employment with Employer
for any reason whatsoever other than the Employee's death.
8
<PAGE> 9
6. This Agreement shall bind Employer and its successors and
assigns, Employee and his heirs, executors, administrators and assigns, and any
Policy beneficiary.
7. The following provisions are part of this Agreement and are
intended to meet the requirements of the Employee Retirement Income Security Act
of 1974:
(a) The Employer is hereby designated as the "named
fiduciary" under this Agreement. The named fiduciary shall have authority to
control and manage the operation and administration of this Agreement, and it
shall be responsible for establishing and carrying out a funding policy and
method consistent with the objectives of this Agreement.
(b) The Employer shall make all determinations concerning
rights to benefits under this Agreement. Any decision by the Employer denying a
claim by Employee or any other beneficiary for benefits under this Agreement
shall be stated in writing and delivered or mailed to Employee or such other
beneficiary. Such decision shall set forth the specific reasons for the denial,
written to the best of the Employer's ability in a manner that may be understood
without legal or actuarial counsel. In addition, the Employer shall afford a
reasonable opportunity to Employee or such other beneficiary for a full and fair
review of the decision denying such claim.
IN WITNESS WHEREOF, the parties have executed this agreement on
the date first above written.
In the presence of: COMMERCE NATIONAL BANK
By:
- --------------------------------- ------------------------------------
Thomas D. McAuliffe
Title: President
- --------------------------------- ------------------------------
EMPLOYEE:
---------------------------------------
9
<PAGE> 10
EXHIBIT "B"
TO
DEFERRED COMPENSATION AGREEMENT
BETWEEN
COMMERCE NATIONAL BANK
AND
_________________
My Beneficiary is:
Date: DECEMBER 31, 1997
- ------------------------------
Witnesses:
- ------------------------------
- ------------------------------
10
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES OF CNBC BANCORP
- ------------------------------------
Commerce National Bank, a national banking association.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation in this registration statement of CNBC Bancorp
on Form SB-2, and all amendments thereto, of our report dated February 5, 1998,
appearing in this registration statement, for the year ended December 31,
1997. We also consent to the reference to our firm under the heading "Experts"
in the prospectus, which is part of the registration statement.
Crowe, Chizek and Company LLP
Columbus, Ohio
December 8, 1998
<TABLE> <S> <C>
<ARTICLE> 9
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<CASH> 7,873
<INT-BEARING-DEPOSITS> 11,698
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<LOANS> 136,543
<ALLOWANCE> 1,985
<TOTAL-ASSETS> 167,324
<DEPOSITS> 143,997
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<LIABILITIES-OTHER> 843
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<COMMON> 8,365
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<TOTAL-LIABILITIES-AND-EQUITY> 167,324
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<TABLE> <S> <C>
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<PERIOD-TYPE> YEAR
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0
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<INCOME-PRETAX> 2,140
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<NET-INCOME> 1,395
<EPS-PRIMARY> 1.31
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<ALLOWANCE-OPEN> 1,264
<CHARGE-OFFS> 50
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<ALLOWANCE-CLOSE> 1,600
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
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<INT-BEARING-DEPOSITS> 6,891
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<LOANS> 86,351
<ALLOWANCE> 1,264
<TOTAL-ASSETS> 104,207
<DEPOSITS> 90,377
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<LONG-TERM> 4,884
0
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<OTHER-SE> 1,000
<TOTAL-LIABILITIES-AND-EQUITY> 104,207
<INTEREST-LOAN> 7,041
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<CHANGES> 0
<NET-INCOME> 1,063
<EPS-PRIMARY> 1.02
<EPS-DILUTED> .95
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<LOANS-NON> 0
<LOANS-PAST> 0
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