<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the transition period from _____ to _____.
Commission file number: 333-68797
---------
CNBC BANCORP
------------
(Exact name of small business issuer as specified in its charter)
Ohio 31-1478140
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
100 East Wilson Bridge Road, Worthington, Ohio 43085
----------------------------------------------------
(Address of principal executive offices)
(614) 848-8700
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Common stock, without par value 1,295,964 common shares
outstanding at June 30, 1999
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -----
<PAGE> 2
CNBC BANCORP
FORM 10-QSB
QUARTER ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets .......................................... 3
Condensed Consolidated Statements of Income..................................... 4
Condensed Consolidated Statements of Comprehensive Income....................... 5
Condensed Consolidated Statements of Changes in
Shareholders' Equity .......................................................... 6
Condensed Consolidated Statements of Cash Flows ................................ 7
Notes to the Consolidated Financial Statements ................................. 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................. 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................................... 16
Item 2. Changes in Securities and Use of Proceeds....................................... 16
Item 3. Defaults Upon Senior Securities................................................. 16
Item 4. Submission of Matters to a Vote of Security Holders............................. 17
Item 5. Other Information............................................................... 17
Item 6. Exhibits and Reports on Form 8-K................................................ 17
SIGNATURES ........................................................................... 19
</TABLE>
2.
<PAGE> 3
CNBC BANCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30 December 31
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and Noninterest-bearing Balances .................................. $ 8,566,078 $ 5,256,468
Interest-bearing Balances .............................................. 3,530,975 2,589,088
Federal Funds Sold ..................................................... 6,400,000 4,850,000
Money Market Funds ..................................................... 9,899,403 4,801,173
------------- -------------
Total Cash and Cash Equivalents ................................... 28,396,456 17,496,729
Securities Available for Sale .......................................... 8,977,208 5,218,341
Loans, Net ............................................................. 163,972,147 148,880,855
Premises and Equipment ................................................. 2,120,898 1,943,744
Accrued Interest Receivable ............................................ 997,904 825,435
Other Assets ........................................................... 1,163,184 748,079
------------- -------------
Total Assets............................................................ $ 205,627,797 $ 175,113,183
============= =============
LIABILITIES
Deposits:
Noninterest-bearing ............................................... $ 23,962,980 $ 21,013,393
Interest-bearing .................................................. 148,890,344 130,466,924
------------- -------------
Total Deposits ................................................ 172,853,324 151,480,317
Borrowings ............................................................. 13,910,457 10,684,892
Other Liabilities ...................................................... 1,095,437 976,472
------------- -------------
Total Liabilities ...................................................... 187,859,218 163,141,681
SHAREHOLDERS' EQUITY
Common Stock No Par Value;
Authorized Shares - 2,000,000
Issued and Outstanding - 1,295,964 in 1999 and
1,116,972 in 1998 ................................................. 13,395,063 8,379,375
Retained Earnings ...................................................... 4,387,583 3,579,127
Accumulated Other Comprehensive Income ................................. (14,067) 13,000
------------- -------------
Total Shareholders' Equity ............................................. 17,768,579 11,971,502
------------- -------------
Total Liabilities and Shareholders' Equity ............................. $ 205,627,797 $ 175,113,183
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
3.
<PAGE> 4
CNBC BANCORP
CONDENSED CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including Fees .......... $3,390,386 $2,862,976 $6,667,327 $5,571,940
Taxable Securities ............. 84,871 83,438 154,760 148,727
Money Market Funds ............. 101,098 70,925 155,556 154,117
Federal Funds Sold ............. 65,653 44,450 89,114 93,968
Deposits with Banks ............ 66,464 73,666 116,301 102,645
---------- ---------- ---------- ----------
Total Interest Income ................ 3,708,472 3,135,455 7,183,058 6,071,397
INTEREST EXPENSE
Deposits ....................... 1,524,998 1,417,189 2,933,093 2,731,722
Borrowings ..................... 210,029 148,592 411,892 301,830
---------- ---------- ---------- ----------
Total Interest Expense ......... 1,735,027 1,565,781 3,344,985 3,033,552
---------- ---------- ---------- ----------
Net Interest Income ............ 1,973,445 1,569,674 3,838,073 3,037,845
Provision for Loan Losses ...... 109,000 125,200 273,000 245,000
---------- ---------- ---------- ----------
Net Interest Income After
Provision for Loan Losses ...... 1,864,445 1,444,474 3,565,073 2,792,845
NONINTEREST INCOME
Service Charges on Deposits .... 42,416 31,407 87,651 61,863
Net Gains on Sales of Securities -- -- 15,395 --
Other Income ................... 33,995 24,991 63,761 50,695
---------- ---------- ---------- ----------
Total Noninterest Income ............. 76,411 56,398 166,807 112,558
---------- ---------- ---------- ----------
NONINTEREST EXPENSES
Salaries and Benefits .......... 614,350 483,041 1,223,969 955,143
Occupancy and Equipment, Net ... 82,701 22,768 109,943 51,666
Data Processing ................ 76,155 64,258 152,370 128,981
Customer Courier ............... 48,000 43,500 96,000 88,500
Professional Services .......... 44,419 30,248 80,546 60,245
State Franchise Tax ............ 34,923 32,442 72,033 64,859
Other Expenses ................. 175,651 138,364 355,901 261,191
---------- ---------- ---------- ----------
Total Noninterest Expenses ........... 1,076,199 814,621 2,090,762 1,610,585
---------- ---------- ---------- ----------
Income Before Income Taxes ........... 864,657 686,251 1,641,118 1,294,818
Income Tax Expense ................... 300,970 234,000 573,470 445,400
---------- ---------- ---------- ----------
Net Income ..................... $ 563,687 $ 452,251 $1,067,648 $ 849,418
========== ========== ========== ==========
EARNINGS PER COMMON SHARE
Basic .......................... $ .45 $ .41 $ .90 $ .76
========== ========== ========== ==========
Diluted ........................ $ .41 $ .37 $ .82 $ .69
========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
4.
<PAGE> 5
CNBC BANCORP
CONDENSED CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income ............................. $ 563,687 $ 452,251 $ 1,067,648 $ 849,418
Other Comprehensive Income:
Unrealized Gain or (Loss) on
Securities Available for Sale .... (16,372) -- (25,518) (1,308)
Tax Effect ............................. (5,567) -- (8,676) (408)
----------- ----------- ----------- -----------
Net .................................... (10,805) (16,842) (900)
Less: Reclassification adjustment
for Gains included in
Net Income ............... 15,395
Tax Effect ....................... 5,170
-----------
Reclassification Adjustment, Net . 10,225
----------- ----------- ----------- -----------
Total Other Comprehensive Income ....... (10,805) -- (27,067) (900)
----------- ----------- ----------- -----------
Comprehensive Income ................... $ 552,882 $ 452,251 $ 1,040,581 $ 848,518
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
5.
<PAGE> 6
CNBC BANCORP
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1999 1998
---- ----
<S> <C> <C>
BALANCES AT BEGINNING OF PERIOD ........ $ 11,971,502 $ 10,481,664
Net Income .............................. 1,067,648 849,418
Proceeds from Exercise of Warrants ...... 32,694 12,723
Proceeds and Tax Benefit from Exercise of
Stock Options ...................... 129,301 --
Proceeds from Stock Offering,
Net of Costs ....................... 4,853,694 --
Cash Dividends Declared ($0.20 per share
in 1999 and $0.17 per share in 1998) (259,193) (189,386)
Other Comprehensive Income .............. (27,067) (900)
------------ ------------
BALANCES AT END OF PERIOD .............. $ 17,768,579 $ 11,153,519
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
6.
<PAGE> 7
CNBC BANCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ............................................... $ 1,067,648 $ 849,418
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Loan Losses .............. 273,000 245,000
Depreciation ........................... 105,400 78,220
Net Realized Gain on Securities
Available for Sale .................. (15,395) --
Net Amortization/Accretion on Securities 5,355 1,984
Federal Home Loan Bank Stock Dividend .. (41,600) (39,100)
Changes in:
Interest Receivable ........... (172,469) (286,193)
Other Assets .................. (401,260) (72,688)
Other Liabilities ............. 49,658 (28,145)
------------ ------------
Net Cash Provided by Operating Activities ....... 870,337 748,496
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Securities .................................. (8,553,219) (2,028,281)
Maturities of Securities ................................. 1,750,000 750,000
Sales of Securities Available for Sale ................... 3,055,079 --
Net Increase in Loans .................................... (15,364,292) (12,030,021)
Purchase of Premises and Equipment ....................... (282,554) (52,854)
------------ ------------
Net Cash Flows Used in Investing Activities ..... (19,394,986) (13,361,156)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits ................................. 21,373,007 26,369,019
Net Proceeds from Issuance of Common Stock ............... 5,015,689 12,723
Maturities of Federal Home Loan Bank Advances ............ (250,000) (750,000)
Advances from Federal Home Loan Bank ..................... 4,000,000 750,000
Principal Payments on Federal Home Loan Bank Advances .... (508,807) (419,725)
Net Proceeds from Loan Payable ........................... 1,000,000 --
Repayment of Loan Payable ................................ (1,015,628) --
Dividends Paid ........................................... (189,885) (138,970)
------------ ------------
Net Cash Flows Provided by Financing Activities . 29,424,376 25,823,047
------------ ------------
Net Change in Cash and Cash Equivalents ......... 10,899,727 13,210,387
Cash and Cash Equivalents at Beginning of Year ........... 17,496,729 15,060,033
------------ ------------
Cash and Cash Equivalents at End of Period ............... $ 28,396,456 $ 28,270,420
============ ============
Cash Paid During the Period for
Interest ........................................ $ 3,320,854 $ 2,948,240
Income Taxes .................................... 680,000 525,000
</TABLE>
See Notes to Consolidated Financial Statements
7.
<PAGE> 8
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These interim financial statements are prepared without audit and reflect all
adjustments which, in the opinion of management, are necessary to present fairly
the consolidated financial position of CNBC Bancorp ("CNBC") at June 30, 1999,
and its results of operations and cash flows for the periods presented. All such
adjustments are normal and recurring in nature. The accompanying consolidated
financial statements have been prepared in accordance with the instructions of
Form 10-QSB and, therefore, do not purport to contain all necessary financial
disclosures required by generally accepted accounting principles that might
otherwise be necessary in the circumstances, and should be read in conjunction
with the consolidated financial statements and notes thereto of CNBC Bancorp for
the year ended December 31, 1998, included in its 1998 Annual Report. Reference
is made to the accounting policies of CNBC Bancorp described in the notes to
consolidated financial statements contained in its 1998 Annual Report. CNBC has
consistently followed these policies in preparing this Form 10-QSB.
The accompanying consolidated financial statements include the accounts of CNBC
Bancorp and its wholly-owned subsidiary, Commerce National Bank ("Commerce
National"). All significant intercompany transactions and balances have been
eliminated.
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 are expected to be repaid from cash flows from
operations of businesses. Personal loans are secured by real estate, stocks and
other collateral. A small portion of loans are unsecured. All of CNBC's banking
operations are considered by management to be aggregated in one reportable
operating segment.
To prepare financial statements in conformity with generally accepted accounting
principles, management makes estimates and assumptions based on available
information. These estimates and assumptions affect amounts reported in the
financial statements and the disclosures provided, and future results could
differ. The allowance for loan losses, fair values of financial instruments and
the status of contingencies are particularly subject to change.
CNBC 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"). Basic EPS is net income divided by the weighted-average
number of common shares outstanding. Diluted EPS is 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 CNBC's
common stock. The calculation for weighted average shares is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares for basic EPS .. 1,255,303 1,113,523 1,186,920 1,112,758
Add dilutive effect of:
Exercise of warrants ............. 44,218 48,201 44,218 48,201
Exercise of stock options ........ 71,921 67,552 71,921 67,552
--------- --------- --------- ---------
Weighted averages shares for diluted EPS 1,371,442 1,229,276 1,303,059 1,228,511
</TABLE>
8.
<PAGE> 9
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 CNBC in January, 1998.
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 and includes amortization of net deferred loan
fees and costs over the loan term. The accrual of interest on loans will be
suspended when a loan is 90 days or more past due, unless the loan is well
collateralized or in the process of collection. 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.
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 basis 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.
CNBC adopted on January 1, 1998, SFAS No. 130, "Reporting Comprehensive Income,"
issued by the FASB in June 1997. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. SFAS No. 130 requires all items that are required to be recognized
under accounting standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. It does not require a specific format for that financial
statement but requires that an enterprise display an amount representing total
comprehensive income for the period in that financial statement.
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position.
Certain items in the financial statements have been reclassified to conform with
the current presentation.
9.
<PAGE> 10
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - LOANS
Loans were comprised of the following:
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
Residential Real Estate Loans $ 21,772,540 $ 21,234,368
Real Estate Construction Loans 6,821,981 9,903,512
Real Estate Investment Loans . 73,297,670 63,607,025
Business Loans ............... 53,608,774 46,203,996
Personal Loans ............... 11,121,431 10,215,288
------------- -------------
Subtotal ............ 166,622,396 151,164,189
Allowance for Loan Losses .... (2,334,013) (2,055,000)
Net Deferred Fees and Costs .. (316,236) (228,334)
------------- -------------
Net Loans .................... $ 163,972,147 $ 148,880,855
============= =============
</TABLE>
NOTE 3 - DEPOSITS
Total interest-bearing deposits were classified as follows:
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
Interest-bearing Demand ........ $ 15,534,951 $ 14,232,748
Savings ........................ 67,036,235 58,690,625
Time, Balances Under $100,000 .. 36,949,193 30,571,254
Time, Balances $100,000 and Over 29,369,965 26,972,297
------------ ------------
Total Interest Bearing Deposits $148,890,344 $130,466,924
============ ============
</TABLE>
NOTE 4 - REGULATORY MATTERS
CNBC and Commerce National are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and,
additionally for banks, prompt corrective action regulations involve
quantitative measures of assets, liabilities 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.
10.
<PAGE> 11
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - REGULATORY MATTERS - CONTINUED
The Office of the Comptroller of the Currency ("OCC") must approve the
declaration of any dividends for Commerce National in excess of available
retained earnings and in excess of the sum of profits for the year combined with
the retained earnings from the two preceding years, less any required transfer
to surplus. In addition, dividends may not reduce capital levels below the
minimum regulatory requirements disclosed above.
The prompt corrective action regulations provide five regulatory capital
classifications: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized. These terms are
not intended to represent overall financial condition. Commerce National met the
requirements of a well capitalized institution as defined above, at June 30,
1999 and December 31, 1998. If Commerce National's capital classification were
to change to adequately capitalized, it would need to obtain regulatory approval
to continue to accept brokered deposits.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Millions)
<S> <C> <C> <C> <C> <C> <C>
June 30, 1999
Total Capital to Risk Weighted Assets
Consolidated ........................... $ 19.9 12.0% $ 13.3 8.0% $ 16.6 10.0%
Commerce National only ................. $ 21.2 12.8% $ 13.3 8.0% $ 16.6 10.0%
Tier 1 (Core) Capital to Risk Weighted Assets
Consolidated ........................... $ 17.8 10.7% $ 6.6 4.0% $ 10.0 6.0%
Commerce National only ................. $ 12.8 7.7% $ 6.6 4.0% $ 10.0 6.0%
Tier 1 (Core) Capital to Average Assets
Consolidated ........................... $ 17.8 9.0% $ 7.9 4.0% $ 9.9 5.0%
Commerce National only ................. $ 12.8 6.5% $ 7.9 4.0% $ 9.9 5.0%
December 31, 1998
Total Capital to Risk Weighted Assets
Consolidated ........................... $ 13.7 9.5% $ 11.5 8.0% $ 14.4 10.0%
Commerce National only ................. $ 15.2 10.6% $ 11.5 8.0% $ 14.4 10.0%
Tier 1 (Core) Capital to Risk Weighted Assets
Consolidated ........................... $ 11.9 8.3% $ 5.8 4.0% $ 8.7 6.0%
Commerce National only ................. $ 10.0 6.9% $ 5.8 4.0% $ 8.6 6.0%
Tier 1 (Core) Capital to Average Assets
Consolidated ........................... $ 11.9 7.0% $ 6.8 4.0% $ 8.5 5.0%
Commerce National only ................. $ 10.0 5.9% $ 6.8 4.0% $ 8.5 5.0%
</TABLE>
11.
<PAGE> 12
CNBC BANCORP
MANAGEMENT'S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The following discussion focuses on the consolidated financial condition of CNBC
Bancorp ("CNBC") at June 30, 1999, compared to December 31, 1998, and the
consolidated results of operations for the three and six months ended June 30,
1999, compared to the same periods in 1998. The purpose of this discussion is to
provide the reader with a more thorough understanding of the consolidated
financial statements. This discussion should be read in conjunction with the
interim consolidated financial statements and related footnotes.
When used in this Form 10-QSB or future filings by CNBC with the Securities and
Exchange Commission, in CNBC's press releases or other public or shareholder
communications, or in oral statements made with the approval of an authorized
executive officer, the words or phrases "will likely result," "are expected to,"
"will continue," "is anticipated," "estimate," "project," "believe," or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. CNBC wishes to
caution readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made, and to advise readers that
various factors, including regional and national economic conditions, changes in
levels of market interest rates, credit risks of lending activities and
competitive and regulatory factors, could affect CNBC's financial performance
and could cause CNBC's actual results for future periods to differ materially
from those anticipated or projected. CNBC does not undertake, and specifically
disclaims, any obligation to publicly release the result of any revisions which
may be made to any forward-looking statements to reflect occurrence of
anticipated or unanticipated events or circumstances after the date of such
statements.
CNBC is not aware of any trends, events or uncertainties that will have or are
reasonably likely to have a material effect on the liquidity, capital resources
or operations except as discussed herein. In addition, CNBC is not aware of any
current recommendations by regulatory authorities that would have such effect if
implemented.
FINANCIAL CONDITION
Total assets increased $30.5 million, or 17.4%, to $205.6 million at June 30,
1999. The two largest components of this increase are an increase in cash and
cash equivalents of $10.9 million and an increase of $15.1 million in loans
outstanding.
The increase in loans is comprised primarily of a $9.7 million increase in real
estate investment loans and a $7.4 million increase in business loans. These
increases are above Commerce National's budgeted growth goals. Management
attributes much of this growth to the continuing consolidation of its
competitors, which has resulted in a higher demand for Commerce National's more
personal and responsive service. The central Ohio economy continues to be
strong, especially in residential and commercial real estate construction.
Management anticipates opportunities are good for continued growth due to
Commerce National's small business focus and personal service, a strong local
economy, and continuing consolidation of its competitors.
The primary reason for the large increase in cash and cash equivalents is the
conscious effort by management to maintain higher levels of liquidity as we
approach year end. Additionally, approximately $5 million represents balances
maintained for anticipated deposit outflows from a small number of large balance
accounts. Refer to the section below titled "Liquidity" for further discussion.
12.
<PAGE> 13
CNBC BANCORP
MANAGEMENT'S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION - CONTINUED
The primary increase in liabilities was a $21.4 million increase in deposit
accounts. Of this increase, $8.3 million was in savings account balances. Demand
and savings deposit balances continue to grow as a result of Commerce National's
small business focus and available cash management products for its customers.
Certificates of deposit grew $8.8 million, with $8.0 million of this growth
achieved through solicitation of deposits on the national rate-listing network
to which Commerce National subscribes. Maturities for new certificates generally
range from 18 months to 3 years.
Borrowings increased $3.2 million, with an increase in Federal Home Loan Bank
advances. These advances have variable rates and ten-year terms.
Equity increased $5.8 million to $17.8 million at June 30, 1999. In April 1999,
CNBC completed a public offering for a total of 165,000 shares of its common
stock that raised $4,854,000 in new capital funds, net of costs.
RESULTS OF OPERATIONS
Net income for the six-month period ended June 30, 1999 was $1,067,648, a 25.7%
increase, compared to $849,418 during the same period in 1998. The increase in
earnings was due to improved interest income from the increase in loan balances,
offset somewhat by increased non-interest expense. Second quarter income in 1999
was $563,687, a 24.6% increase over the $452,251 for the same period in 1998.
Discussed below are the major factors that influenced the operating results for
the three and six month periods ended June 30, 1999.
NET INTEREST INCOME
Net interest income is the largest component of CNBC's income and is affected by
the interest rate environment and the volume and composition of interest-earning
assets and interest-bearing liabilities. Net interest income increased by
$800,000 for the six-month period ended June 30, 1999, compared to the same
period in 1998. The 26.3% increase in net interest income was primarily the
result of an increase in average loans outstanding of 29% for 1999 compared to
1998. Loan growth was most significant in the business and real estate
investment loan categories, which reflects Commerce National's business focus
and an expanding local economy. Interest income during the six-month period
ended June 30, 1999 increased 18.3% over the prior year six-month period,
compared to a 10.3% increase in interest expense.
Interest income for the second quarter 1999 was $3,708,472, an increase of 18.3%
over the same period in 1998. Interest expense for the second quarter 1999 was
$1,735,027, an increase of 10.8% over the same period in 1998. The 25.7%
increase in net interest income was primarily the result of an increase in
average loans outstanding.
NONINTEREST INCOME
Noninterest income for the both the three and six months ended June 30, 1999
increased approximately 35% over the same periods in the prior year as a result
of growth in the number of deposit accounts and an increase in service charge
fees. Additionally, for the six months ended June 30, 1999, there was a $15,000
gain on the sale of securities classified as available for sale.
13.
<PAGE> 14
CNBC BANCORP
MANAGEMENT'S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NONINTEREST EXPENSE
Non-interest expense was up $480,000 or 29.8% for the six months ended June 30,
1999 versus the six months ended June 30, 1998 and $261,578, or 32.1%, for the
three months ended June 30,1999 versus the three months ended June 30, 1998.
Normal salary increases and the hiring of additional personnel to generate and
support Commerce National's growth were the major reasons for the increase in
non-interest expense. One of the key measures utilized by management to track
personnel efficiency is the dollar amount of revenues generated (net interest
income plus noninterest income) per dollar amount of personnel expense. For the
six months ended June 30, 1999 and 1998, these figures were $3.27 and $3.30,
respectively. Occupancy expense increased due to a significant drop in rental
income received on the property owned by Commerce National Bank. Two tenants
have moved from the building, allowing room for expansion to meet Commerce
National's current needs for facilities. Data processing expenses have also
increased with the growth of CNBC. During the second quarter 1999, a conversion
was completed of the check processing system, bringing the system in-house from
a third-party processor . A conversion is also scheduled for third quarter 1999
to bring the data processing function in-house from the current third-party
processor. As a result of this new data processing system, CNBC expects to
realize future cost savings. The system will also provide several opportunities
to improve customer service and internal information flow. The increase in other
expenses related to an increased budget for marketing and advertising and for
employee training.
Federal income tax expense was up $128,000 or 28.8% for the six months ended
June 30, 1999 versus the six months ended June 30, 1998 and $67,000, or 28.6%
for the three months ended June 30, 1999 versus the three months ended June 30,
1998. The increase in federal income tax expense was the result of CNBC's
increased profitability.
LIQUIDITY
CNBC'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, CNBC 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 or Federal Reserve Bank. Management believes that it has
the capital adequacy, profitability and reputation to meet its current and
foreseeable liquidity needs.
At June 30, 1999, Commerce National had $52.3 million in available short-term
funding sources to mitigate risks from changes in deposit account balances or
other liquidity needs. These sources are detailed as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash and short-term investments $ 20,491,000
Unused borrowing capacity with the Federal Home Loan Bank 19,807,000
Federal funds lines of credit with other banks 6,400,000
Unpledged investment securities 5,652,000
------------
Total $ 52,349,000
============
</TABLE>
14.
<PAGE> 15
CNBC BANCORP
MANAGEMENT'S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAPITAL RESOURCES
CNBC and Commerce National are both subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and,
additionally for banks, prompt corrective action regulations involve
quantitative measures of assets, liabilities 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 regulators can lower
classifications in certain cases. Failure to meet various capital requirements
can initiate regulatory action having a direct material affect on the operations
of Commerce National.
The prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized, although these terms are not
used to represent overall financial condition. Commerce National met the
requirements of a well capitalized institution as defined above, at June 30,
1999 and December 31, 1998. If Commerce National's capital classification were
to change to adequately capitalized, regulatory approval would need to be
obtained to continue to accept brokered deposits. If undercapitalized, capital
distributions are limited, as is asset growth and expansion, and plans for
capital restoration are required. The minimum requirements are:
<TABLE>
<CAPTION>
Capital to risk-
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%
</TABLE>
CNBC's capital requirements are measured on a combined basis with Commerce
National, using consolidated totals. Commerce National is measured
independently. The actual capital ratios are discussed in Note 4 to the
Consolidated Financial Statements included in the Form 10-QSB.
CNBC Bancorp filed a registration statement with the Securities and Exchange
Commission on Form SB-2 to sell approximately $4,950,000 of its common stock in
March 1999. The stock offering was fully subscribed and closed as of April 16,
1999. The net proceeds were used to purchase subordinated debentures and common
stock of Commerce National to increase Commerce National's capital ratios, to
pay-off a short-term loan and to provide working capital for CNBC Bancorp.
YEAR 2000
As stated in CNBC's registration statement on Form SB-2, file number 333-68797
filed March 12, 1999, the majority of its efforts regarding Year 2000 ("Y2K")
preparedness have been completed. During March and April 1999, Commerce National
completed the testing of its new proof and item capture system with no
significant problems noted. Management has also secured an $18 million
guaranteed line of credit for liquidity needs through the Federal Home Loan Bank
("FHLB") and is in the process of establishing a similar, formal borrowing
arrangement with the Federal Reserve Bank to expedite any additional borrowing
needs. Management's current estimate of Y2K costs for 1999 is $35,000. This
includes a commitment fee charged by the FHLB for the guaranteed line.
15.
<PAGE> 16
CNBC BANCORP
FORM 10-QSB
Quarter ended June 30, 1999
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1 - LEGAL PROCEEDINGS:
There are no matters required to be reported under this item.
Item 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS:
CNBC completed a registration statement on Form SB-2, file number
333-68797 filed March 12, 1999. The stock offering for the sale
of 165,000 shares of common stock was fully subscribed and closed
as of April 16, 1999.
Per Share Total
--------- -----
Public Price $30.00 $4,950,000
Offering Expenses .58 96,306
------ ----------
Proceeds to CNBC $29.42 $4,853,694
====== ==========
The following table sets forth the expenses of CNBC in connection
with the Offering.
SEC Registration Fee $ 1,376
Legal Fees and Expenses 73,000
Accounting Fees and Expenses 11,125
Printing and Engraving Expenses 16,719
Blue Sky Fees and Expenses 1,000
Escrow Account Income, Net of Fees (6,914)
--------
Total $ 96,306
========
The net offering proceeds were used as follows:
<TABLE>
<CAPTION>
<S> <C>
Investment in Commerce National Bank common stock $ 1,800,000
Investment in subordinated debentures issued by Commerce National 1,600,000
Repayment of short-term loan 1,000,000
Working Capital 453,694
-----------
Total $ 4,853,694
===========
</TABLE>
On May 25,1999, Commerce National Bank issued $5,300,000 of
Subordinated Notes to CNBC Bancorp in an offering 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 or commissions were paid.
Item 3 - DEFAULTS UPON SENIOR SECURITIES:
There are no matters required to be reported under this item.
16.
<PAGE> 17
CNBC BANCORP
FORM 10-QSB
Quarter ended June 30, 1999
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
On April 20, 1999, CNBC Bancorp held the Annual Meeting of
Shareholders at which shareholders voted upon the election of six
directors for a term expiring in 2002. The results of the voting
on these matters were as follows:
Nominee Votes For Withheld
------- --------- --------
Loreto V. Canini 670,052 2,772
Jameson Crane, Jr. 670,052 2,772
George A. Gummer 670,052 2,772
William L. Hoy 670,052 2,772
Thomas D. McAuliffe 670,052 2,772
Samuel E. McDaniel 670,052 2,772
The following director's term of office continued after the
meeting:
Mark S. Corna, Judith A. DeVillers, Douglas W. James, Donald R.
Kenney, Daniel M. Mahoney, Richard F. Ruhl, David J. Ryan, Peter
C. Taub, John A. Tonti, Alan R. Weiler, Michael Wren.
Other matters submitted to the shareholders, for which the
following votes were cast:
1) Approval of the CNBC Bancorp 1999 Stock Option Plan to make
stock options available to directors, officers and employees
of CNBC Bancorp and its subsidiary, Commerce National Bank.
FOR: 643,713 AGAINST: 0 WITHHOLD AUTHORITY: 29,111
Item 5 - OTHER INFORMATION:
There are no matters required to be reported under this item.
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K:
(a)(1) Exhibit 3.1 - Articles of Incorporation of CNBC Bancorp.
Reference is made to Exhibit 3.1 to the Registration
Statement on Form SB-2, File No. 333-68797, filed March
12, 1999, which exhibit is incorporated herein by
reference
(2) Exhibit 3.2 - Regulation of CNBC Bancorp. Reference is
made to Exhibit 3.2 to the Registration Statement on
Form SB-2, File No. 333-68797, filed March 12, 1999,
which exhibit is incorporated herein by reference
(3) Exhibit 10.1 - Employment Agreement dated as of March 1,
1998 as amended and restated effective December 31, 1998
by and between and among Commerce National Bank, CNBC
Bancorp and Thomas D. McAuliffe.
(4) Exhibit 10.2 - Form of Indemnification Agreement between
CNBC Bancorp and its directors, officers and certain
representatives. Reference is made to Exhibit 10.2 to
the Registration Statement on Form SB-2, File No.
333-68797, filed March 12, 1999, which exhibit is
incorporated herein by reference
17.
<PAGE> 18
CNBC BANCORP
FORM 10-QSB
Quarter ended June 30, 1999
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K - CONTINUED:
(5) Exhibit 10.3 -Non-Qualified Stock Option Plan. Reference
is made to Exhibit 10.3 to the Registration Statement on
Form SB-2, File No. 333-68797, filed March 12, 1999,
which exhibit is incorporated herein by reference
(6) Exhibit 10.4 -Form of Deferred Compensation Agreement.
Reference is made to Exhibit 10.4 to the Registration
Statement on Form SB-2, File No. 333-68797, filed March
12, 1999, which exhibit is incorporated herein by
reference
(7) Exhibit 10.5 - CNBC Bancorp 1999 Stock Option Plan.
(8) Exhibit 27 - Financial Data Schedule
(b) No current reports on Form 8-K were filed by the small
business issuer during the quarter ended June 30, 1999.
18.
<PAGE> 19
CNBC BANCORP
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CNBC BANCORP
---------------------------------
(Registrant)
Date: August 13, 1999 /s/ Thomas D. McAuliffe
---------------- ---------------------------------
(Signature)
Thomas D. McAuliffe
Chairman and President
Date: August 13, 1999 /s/ John Romelfanger
---------------- ---------------------------------
(Signature)
John Romelfanger
Treasurer
- --------------------------------------------------------------------------------
19.
<PAGE> 20
CNBC BANCORP
Index to Exhibits
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE NUMBER
-------------- ----------- -----------
<S> <C> <C>
3.1 Articles of Incorporation of CNBC Bancorp Reference is made to
Exhibit 3.1 to the
Registration Statement on
Form SB-2, File No.
333-68797, filed March 12,
1999, which exhibit is
incorporated herein by
reference
3.2 Regulation of CNBC Bancorp Reference is made to
Exhibit 3.2 to the
Registration Statement on
Form SB-2, File No.
333-68797, filed March 12,
1999, which exhibit is
incorporated herein by
reference
10.1 Employment Agreement dated as of March 1, 1998
as amended and restated effective December 31, 1998
by and between and among Commerce National Bank,
CNBC Bancorp and Thomas D. McAuliffe
10.2 Form of Indemnification Agreement between CNBC Reference is made to Exhibit
Bancorp and its directors, officers and certain 10.2 to the Registration
representatives Statement on Form SB-2, File No.
333-68797, filed March 12,
1999, which exhibit is
incorporated herein by
reference
10.3 Non-Qualified Stock Option Plan Reference is made to
Exhibit 10.3 to the
Registration Statement on
Form SB-2, File No.
333-68797, filed March 12,
1999, which exhibit is
incorporated herein by
reference
10.4 Form of Deferred Compensation Agreement Reference is made to
Exhibit 10.4 to the
Registration Statement on
Form SB-2, File No.
333-68797, filed March 12,
1999, which exhibit is
incorporated herein by
reference
10.5 CNBC Bancorp 1999 Stock Option Plan
27 Financial Data Schedule
</TABLE>
- --------------------------------------------------------------------------------
20.
<PAGE> 1
Exhibit 10.1
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is
dated as of March 1, 1998, as amended and restated effective December 31, 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 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.
<PAGE> 2
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
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
-2-
<PAGE> 3
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).
(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
-3-
<PAGE> 4
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.
(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.
-4-
<PAGE> 5
(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 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
-5-
<PAGE> 6
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:
(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
-6-
<PAGE> 7
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.
(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
-7-
<PAGE> 8
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 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,
-8-
<PAGE> 9
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;
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.
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<PAGE> 10
(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.
(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:
(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
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<PAGE> 11
Termination, and continuing for a total of one
hundred twenty (120) consecutive months. The annual
amount shall be determined by multiplying 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) THIS SUBPARAGRAPH WAS INTENTIONALLY DELETED.
(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.
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<PAGE> 12
(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. 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 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.
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<PAGE> 13
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.
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.
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<PAGE> 14
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 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.
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<PAGE> 15
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 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
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<PAGE> 16
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 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.
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<PAGE> 17
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
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:
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<PAGE> 18
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.
(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.
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<PAGE> 19
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
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<PAGE> 20
Exhibit A-Earnings per Share Example
The following example serves to illustrate the calculation of the minimum salary
increase as prescribed by the contract.
Diluted Earnings Percent Increase Minimum
Year Per Share or (Decrease) Increase
- ---- --------- ------------- --------
1 $1.80
2 $2.12 17.8% 8.9%
3 $1.56 (26.4)% 0.0%
4 $2.30 47.4% 10.5%
5 $2.45 6.5% 3.3%
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<PAGE> 21
Exhibit B -Benefits Summary
1) 401k Savings Plan, including 3% "base" contribution plus 50% "match"
contribution up to 3% of pay
2) Medical Plan
3) Medical Flexible Spending Plan
4) Section 125 Cafeteria Plan
5) Dental/Vision Reimbursement Plan
6) Group Life and Accidental Death and Dismemberment at maximum coverage
of $200,000
7) Paid Sick Leave
8) Paid Short Term Disability Pay
9) Paid Long Term Disability Pay
10) Wellness Cost Reimbursement Plan
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<PAGE> 1
Exhibit 10.5
CNBC BANCORP
1999 STOCK OPTION PLAN
PART I - GENERAL
1. PURPOSE. The purpose of this CNBC Bancorp 1999 Stock Option
Plan (the "1999 Plan") is to advance the interests of CNBC Bancorp ("CNBC") and
its subsidiaries (collectively, 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") to acquire or increase
and retain a financial interest in the Bank and thereby encourage the Key
Personnel to remain in the service of the Bank and to put forth maximum efforts
for the success of the Bank. In addition, this 1999 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 such purposes will be effected by the granting of nonqualified
stock options ("NSOs"), incentive stock options ("ISOs") intended to qualify
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")
(collectively with NSOs, "Options"), and stock appreciation rights ("Stock
Appreciation Rights").
2. ADMINISTRATION OF THIS 1999 PLAN.
(a) IN GENERAL. This 1999 Plan shall be administered by the
Board of Directors of CNBC (the "Board") or one or more committees appointed by
the Board (the "Committee"). Whenever the term "Board" is used hereafter, it
shall also mean the Committee where appropriate.
(b) AUTHORITY OF THE BOARD. The Board shall have full power
and authority in its discretion, subject to and not inconsistent with the
express provisions of this 1999 Plan, to administer this 1999 Plan and to
exercise all the power and authority specifically granted to it under this 1999
Plan or necessary or advisable, in the sole and absolute discretion of the
Board, for the administration of this 1999 Plan including, without limitation,
the authority to: select from among Key Personnel those individuals to whom
Options and Stock Appreciation Rights may be granted pursuant to this 1999 Plan;
fix the terms and provisions and restrictions of any Option and Stock
Appreciation Right granted under this 1999 Plan; grant Options and Stock
Appreciation Rights, interpret and construe any provision of this 1999 Plan or
of any Option and Stock Appreciation Right granted hereunder; adopt, amend and
rescind such rules and regulations relating to this 1999 Plan as the Board shall
determine in its discretion, subject to the express provisions of this 1999
Plan; and make all other determinations deemed by it necessary or advisable for
the administration of this 1999 Plan. All decisions and designations made by the
Board pursuant to the provisions of this 1999 Plan shall be final, binding and
conclusive with respect to all interested parties.
<PAGE> 2
(c) INDEMNIFICATION. Persons ("members") who are or shall have
been members of the Board shall be indemnified and held harmless by CNBC 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 this 1999 Plan
and against and from any and all amounts paid by them in settlement thereof,
with CNBC's approval, or paid by them in satisfaction of judgment in any such
action, suit, or proceeding against them; provided they shall give CNBC 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 CNBC's Articles of Association or
Bylaws, as a matter of law, or otherwise, or any power that CNBC may have to
indemnify them or hold them harmless. CNBC may refuse to indemnify a member if
such member did not act in good faith in the execution of his or her duties.
3. ELIGIBILITY.
(a) GENERAL. Key Personnel of the Bank shall be eligible to
receive grants of Options and Stock Appreciation Rights pursuant to this 1999
Plan. Notwithstanding the foregoing, ISOs may only be granted to such Key
Personnel who are employees of the Bank. Key Personnel may include full-time
employees, part-time employees or directors; provided, however, that members of
the Board may not participate in this 1999 Plan unless approved by the majority
of disinterested members of the Board. More than one Option and/or Stock
Appreciation Right may be granted to Key Personnel. The Board shall, in its sole
discretion, from time to time, select from such Key Personnel to whom Options
and Stock Appreciation Rights shall be granted and determine the number of
Common Shares (as hereafter defined) to be included in such Options and Stock
Appreciation Rights.
(b) FACTORS. In determining the Key Personnel to whom Options
and Stock Appreciation Rights are to be granted under this 1999 Plan, the Board
shall take into consideration the respective duties of the Key Personnel, their
present and potential contributions to the success of the Bank and such other
factors as the Board shall deem relevant in connection with accomplishing the
purpose of this 1999 Plan.
(c) NO OTHER RIGHTS. Nothing contained in this 1999 Plan, nor
any Option or Stock Appreciation Right granted pursuant to this 1999 Plan, shall
confer upon any Key Personnel, 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.
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<PAGE> 3
4. SHARES SUBJECT TO THIS 1999 PLAN.
(a) The shares for which Options and Stock Appreciation Rights
may be granted under this 1999 Plan shall consist of thirty-one thousand eight
hundred twenty-nine (31,829) common shares, without par value (the "Common
Shares"), of CNBC; subject to adjustment in Section 5.
(b) Common Shares subject to this 1999 Plan may be, at the
discretion of the Board, either authorized and unissued Common Shares or Common
Shares reacquired by CNBC and held as treasury shares.
(c) If any outstanding Option or Stock Appreciation Right
under this 1999 Plan for any reason expires or is terminated without having been
exercised in full, the Common Shares allocable to the unexercised portion
thereof shall (unless this 1999 Plan shall have been terminated) become
available for subsequent grants of Options and Stock Appreciation Rights under
this 1999 Plan.
(d) Notwithstanding anything in this 1999 Plan to the
contrary, the grant of Options and Stock Appreciation Rights shall be subject to
the following limitations: (i) in any one calendar year, no more than twelve
thousand (12,000) Common Shares may be granted under Options and Stock
Appreciation Rights; and (ii) in any one calendar year no more than two thousand
five hundred (2,500) Common Shares may be granted under Options and Stock
Appreciation Rights to any one individual under this 1999 Plan.
5. 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 CNBC 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 divided or stock split, then unless such change results
in the termination of all outstanding Options pursuant to the provisions of this
1999 Plan, there shall be substituted for or added to each share of CNBC
theretofore appropriate or thereafter subject or which may become subject to an
Option and Stock Appreciation Right under this 1999 Plan, the number and kind of
shares or other securities into which each outstanding share of CNBC shall be so
changed, or for which each such share shall be entitled, as the case may be.
Outstanding Options and Stock Appreciation Rights 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 CNBC, 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 Board shall, in its sole discretion,
determine that such change equitably requires an adjustment in any Option and
Stock
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<PAGE> 4
Appreciation Right theretofore granted or which may be granted under this 1999
Plan, such adjustment shall be made in accordance with such determination.
Fractional shares resulting from any adjustment in Options and Stock
Appreciation Rights pursuant to this Section 5 shall be rounded down to the
nearest whole number of shares.
(b) Notice of any adjustment shall be given by CNBC to each
holder of an Option and Stock Appreciation Right 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 this 1999 Plan and any
instrument or agreement issued thereunder.
6. EFFECTIVE DATE AND TERMINATION OF PLAN. This 1999 Plan was
approved by the affirmative vote of the Board on March 11, 1999. This 1999 Plan
was approved by a majority of the shareholders of CNBC on April 20, 1999. This
Plan shall terminate upon the earlier of (i) March 11, 2009; or (ii) the date on
which all Common Shares available for issuance under this 1999 Plan have been
issued pursuant to the exercise of options granted hereunder; or (iii) the
determination of the Board that this 1999 Plan shall terminate. No Options or
Stock Appreciation Rights may be granted under this 1999 Plan after such
termination date, provided that the Options and Stock Appreciation Rights
granted and outstanding on such termination date shall continue to have force
and effect in accordance with the provisions of the Option Agreements and SAR
Agreements (as hereafter defined) evidencing such.
7. AMENDMENT OF THIS 1999 PLAN. The Board may, from time to time,
alter, amend, modify, suspend or discharge or make such changes in and additions
to this 1999 Plan as it may deem desirable, without further action on the part
of the shareholders of CNBC; 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 this 1999 Plan, no action of the Board, unless taken with the approval of
shareholders of CNBC, may:
(a) increase the total number of Common Shares available for
issuance pursuant to this 1999 Plan;
(b) reduce the minimum Option price;
(c) increase the period in which Options and Stock
Appreciation Rights granted under this 1999 Plan
may be exercised;
(d) increase the number of Common Shares subject to this 1999
Plan which may be optioned to any one individual or in any
one year;
(e) extend the termination date of this 1999 Plan; or
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<PAGE> 5
(f) change the class of Key Personnel eligible to receive
options under this 1999 Plan.
Subject to and without limiting the generality of the foregoing, the Board may
amend or modify this 1999 Plan and any outstanding Options and Stock
Appreciation Rights under this 1999 Plan to the extent necessary to qualify any
or all of such Options and Stock Appreciation Rights or future Options and Stock
Appreciation Rights 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 this 1999 Plan (including without
limitation any proposed or final Treasury regulations).
8. NOTICES. Each notice relating to this 1999 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 Board shall be addressed as follows:
CNBC Bancorp
100 E. Wilson Bridge Road, Suite 100
Worthington, Ohio 43085
Attention: Board of Directors
Each notice to a holder of Options and/or Stock Appreciation
Rights (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 1999 Plan may designate, in writing, a new
address by notice to that effect.
PART II - STOCK APPRECIATION RIGHTS
9. GENERAL. Each grant of Stock Appreciation Rights under this
1999 Plan shall be evidenced by an agreement between CNBC and the grantee which
contains the terms, conditions and restrictions pertaining to his or her Stock
Appreciation Rights (the "SAR Agreement"). The provisions of the various SAR
Agreements entered into under this 1999 Plan need not be identical. Each SAR
Agreement shall specify the number of Common Shares to which the Stock
Appreciation Rights pertain and Stock Appreciation Rights may be granted in
conjunction with all or part of any Option granted under this 1999 Plan. In the
case of a NSO, such rights may be granted either at or after the time of the
grant of such Option. In the case of an ISO, such rights may be granted only at
the time of the grant of such Option. If a Stock Appreciation Right is granted
in connection with an Option granted under this 1999 Plan, such Stock
Appreciation Right may cover the
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<PAGE> 6
same number of Common Shares covered by an Option or such lesser number of
Common Shares as the Board may determine.
10. TERMINATION. Unless otherwise provided in the SAR Agreement,
a Stock Appreciation Right or applicable portion thereof granted with respect to
a given Option shall terminate and no longer be exercisable upon the termination
or exercise of the related Option.
11. OTHER TERMS AND CONDITIONS. Stock Appreciation Rights granted
under the Plan shall be subject to the following terms and conditions, and shall
contain such additional terms and conditions, not inconsistent with the
provisions of this 1999 Plan, as the Board shall deem appropriate.
(a) EXERCISABILITY AND TERM. Each SAR Agreement shall specify
the date when all or any installment of the Stock Appreciation Rights is to
become exercisable. The SAR Agreement shall also specify the term of the Stock
Appreciation Rights. The SAR Agreement may provide for accelerated
exercisability in the event of the grantee's death, disability, or retirement or
other events and may provide for expiration prior to the end of its term in the
event of the termination of the grantee's service with the Bank. Stock
Appreciation Rights shall be exercisable only at such time or times and to the
extent that the Options to which they relate, if any, shall be exercisable in
accordance with the provisions of the SAR Agreement and this 1999 Plan;
provided, however, that a Stock Appreciation Right granted subsequent to the
grant of the related Option shall not be exercisable during the first six months
of its terms; and provided, further, however, that a Stock Appreciation Right
granted in connection with an ISO may be exercised only if and when the market
price of the Common Share subject to the ISO exceeds the exercise price of such
ISO.
(b) AMOUNT PAYABLE. Upon the exercise of a Stock Appreciation
Right, an Optionee shall be entitled to receive up to, but not more than, an
amount in cash or Common Shares equal in value to the excess of the Market Value
of one Common Share over the option price per share specified in the related
Option, multiplied by the number of Common Shares in respect of which the Stock
Appreciation Right shall have been exercised. The Board shall determine the form
of payment.
(c) TRANSFERABILITY. Stock Appreciation Rights shall be
transferable only when and to the extent that the underlying Option would be
transferable under this 1999 Plan.
(d) CHANGE IN CONTROL OF CNBC. Any SAR Agreement may provide
that Stock Appreciation Rights will be exercisable in the event of a Change in
Control.
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<PAGE> 7
PART III - OPTIONS
12. GRANT OF OPTIONS.
(a) To the extent not inconsistent with the provisions of
this 1999 Plan, the Board 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 "Option Agreement") between the Option holder and the Board. The
Option Agreement shall contain such terms, conditions and limitations as
provided by the Board, but shall also be subject to the provisions of this
Section 12 and other Sections of Part III of this 1999 Plan. Each Option
Agreement shall specify whether the Option is an ISO or a NSO. The provisions of
the various Option Agreements need not be identical.
(b) The Option purchase price to be paid by Option holders in
this 1999 Plan for a Common Share shall be determined by the Board, 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 Option is granted. The fair market value of the
Common Shares on a particular date shall be determined by the Board.
(c) Any Option granted hereunder shall provide, as determined
by the Board, for appropriate arrangements for the satisfaction by CNBC 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 Board 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
Board in its sole and absolute discretion.
(d) The Board 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 this
1999 Plan and the grant in substitution thereof of new Options under this 1999
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 Shares on the new grant date.
(f) The Board may include in an Option Agreement such other
terms and conditions not inconsistent with the foregoing as the Board shall
approve. Without limiting the generality of the foregoing sentence, the Board
shall be
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<PAGE> 8
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 Board.
13. NOTICE OF GRANT OF OPTION. Upon the granting of any Option to
a participant, the Board 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 Board's authorization of such grant or such later date as may be
determined by the Board at the time such grant is authorized, subject to the
satisfaction of any conditions the Board may place on the effectiveness of the
grant.
14. ACCELERATION OF EXERCISE OF OPTIONS.
(a) In the event of a Change in Control of CNBC, as
hereinafter defined, or in the event of the death or permanent disability of an
Option holder, the following provisions shall apply to Options previously
granted under this 1999 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;
(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 this 1999 Plan which have
not previously vested shall become vested; and
(iv) the exercise restrictions provided in
Section 16 of this 1999 Plan shall not be
applicable.
(b) For purposes of this 1999 Plan, the term "Change in
Control" in ownership of CNBC 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 CNBC representing thirty percent (30%) or more
of the combined voting power of CNBC's then outstanding securities, or (ii)
there commences a tender offer for securities of CNBC 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 CNBC
representing thirty percent (30%) or more of the combined voting power of CNBC's
then outstanding securities, or (iii) there is a consolidation or combination of
CNBC with, or merger of CNBC into or with, any
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<PAGE> 9
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 CNBC representing more than thirty
percent (30%) of the combined voting power of such controlling company, or (iv)
there is an acquisition of CNBC or of all or substantially all of the assets of
CNBC by another person, company or entity.
(c) The grant of Options under this 1999 Plan shall in no way
affect the right of CNBC 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.
15. ADDITIONAL PROVISIONS. Any Option Agreements authorized under
this 1999 Plan shall contain such other provisions as the Board shall deem
advisable which are not inconsistent with the terms herein stated.
16. EXERCISE OF OPTIONS.
(a) The exercise of Options shall be subject to restrictions
that may be created by the Board 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 Board 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 CNBC or Option holder of specified periods
of continued employment, specific performance criteria or other goals.
(b) Each Option granted under this 1999 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 Board
in such form as the Board 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 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.
17. EXERCISE AFTER TERMINATION OF EMPLOYMENT.
(a) Except as otherwise provided in this 1999 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 Section 14.
(b) Except as provided in Section 14 of this 1999 Plan, any
Option holder's Option which is exercisable by its terms at the time the Option
holder ceases
-9-
<PAGE> 10
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 (12) months from the
date of termination after which period such Option shall expire. For purposes of
Section 15 or this Section 17(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
Board, in its sole discretion, may approve or deny the request.
18. 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.
19. TERMINATION OF OPTION. Each Option shall terminate in any
event no later than ten (10) years from the date of the grant.
20. ASSIGNABILITY. An Option granted under this 1999 Plan may not
be transferred except by will or the laws of descent and distribution and,
during the
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<PAGE> 11
lifetime of the Option holder to whom granted, may be exercised only by him or
her, his or her guardian or legal representative.
PART IV - MISCELLANEOUS
21. LAWS AND REGULATIONS.
(a) This 1999 Plan and all Options and Stock Appreciation
Rights 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 1999 Plan or the Options and Stock Appreciation Rights
granted, the holder of an Option and/or Stock Appreciation Rights shall not be
entitled to exercise such Option and/or Stock Appreciation Right, nor shall CNBC
be obligated to issue any Common Shares or pay any cash under this 1999 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) CNBC, in its discretion, may postpone the issuance and
delivery of Common Shares upon any exercise of an Option and/or Stock
Appreciation Right 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 CNBC 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, CNBC shall proceed with reasonable promptness to complete any
such listing, registration or other qualification.
(c) Common Shares issued and delivered upon exercise of an
Option and/or Stock Appreciation Right shall be subject to such restrictions on
trading, including appropriate legending of certificates to that effect, as
CNBC, in its discretion, shall determine are necessary to satisfy applicable
legal requirements and obligations.
22. SHAREHOLDER RIGHTS. An Option and/or Stock Appreciation Right
holder shall have none of the rights of a shareholder of CNBC with respect to
any Common Shares subject to any Option or Stock Appreciation Right granted
hereunder until such individual shall have exercised the Option or Stock
Appreciation Right and been issued Common Shares therefor.
23. SEVERABILITY. If any provision of this 1999 Plan shall cause
this 1999 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 this 1999 Plan and shall be null and void or shall be deemed
null and void ab initio, as shall be
-11-
<PAGE> 12
appropriate or necessary and this 1999 Plan shall continue in full force and
effect as such provisions were not part of this 1999 Plan.
24. USE OF PROCEEDS. The proceeds received by CNBC from the sale
of Common Shares pursuant to the Options granted under this 1999 Plan shall be
used for general corporate purposes.
25. EXPENSES. The expenses of this 1999 Plan shall be borne by
CNBC.
* * *
-12-
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<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS
PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
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<INT-BEARING-DEPOSITS> 3,531
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<ALLOWANCE> 2,334
<TOTAL-ASSETS> 205,628
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<COMMON> 13,395
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