<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE 14A
(RULE 14A)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
XXXXX
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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<PAGE> 2
[LOGO]
[CITIZENS BANCSHARES, INC. LETTERHEAD]
February 14, 1997
Dear Shareholders:
The Annual Meeting of Shareholders of Citizens Bancshares, Inc., will be
held in the Raymond J. Lowry Auditorium of the Fred H. Johnson Building, 10 East
Main Street, Salineville, Ohio, on Thursday, March 27, 1997, at 7:00 p.m. I hope
you will be able to attend the Meeting.
The only item proposed for action by the shareholders at the Meeting is
the election of directors. In addition, the officers will give current reports
on the status of Bancshares and its subsidiaries, The Citizens Banking Company
and First National Bank of Chester.
The nominees for election as directors are more fully described in the
enclosed Proxy Statement, which we encourage you to read. It is important to all
interests that you participate in the affairs of Bancshares regardless of the
number of shares you own. Accordingly, we urge you to fill out, sign, and return
the enclosed proxy promptly, even if you plan to attend the Meeting. You have
the option to revoke it at any time prior to the Meeting or to vote your shares
personally on request if you attend the Meeting.
Enclosed is our Annual Report for 1996. We are very proud of the results
achieved last year and we encourage you to review the details of this Report in
advance of the Meeting.
Sincerely,
/s/ Marty E. Adams
Marty E. Adams
President and
Chief Executive Officer
<PAGE> 3
CITIZENS BANCSHARES, INC.
10 EAST MAIN STREET
SALINEVILLE, OHIO 43945
NOTICE OF 1997 ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF CITIZENS BANCSHARES, INC.
Notice is hereby given that the 1997 Annual Meeting of Shareholders of
Citizens Bancshares, Inc., will be held in the the Raymond J. Lowry Auditorium
of the Fred H. Johnson Building, 10 East Main Street, Salineville, Ohio, on
Thursday, March 27, 1997, at 7:p.m. (Eastern Standard Time), for the following
purposes:
1. To elect three (3) directors for three-year terms expiring in 2000.
2. To consider and act upon such other matters as may properly come
before the Meeting or any adjournment thereof.
Shareholders of record at the close of business on February 1, 1997, are
entitled to notice of and to vote at said Meeting and at any and all
adjournments thereof.
By Order of the Board of Directors,
Marty E. Adams, President & Chief Executive Officer
Fred H. Johnson III, Secretary
February 14, 1997
Shareholders are requested by the Board of Directors
to fill out and sign the enclosed form of proxy
and to return it in the accompanying envelope.
A statement relating to this proxy is
set forth on the following pages.
<PAGE> 4
PROXY STATEMENT
ELECTION OF DIRECTORS
The Board of Directors of Citizens Bancshares, Inc. ("Bancshares"),
presently consists of nine members, divided into three classes. The directors in
each class are elected for terms of three years so that at each Annual Meeting
the term of office of one class of directors expires. The terms of office of
Messrs. Fred H. Johnson, Gerard P. Mastroianni, and James C. McBane will expire
on the day of the 1997 Annual Meeting, upon election of their successors.
Proxies solicited hereunder granting authority to vote on the election of
directors will be voted for the election of Messrs. Johnson, Mastroianni, and
McBane to serve for three-year terms and until their successors are elected;
provided, however, that if the election of directors is by cumulative voting
(see page 16 of this Proxy Statement), the persons appointed by the accompanying
proxy intend to cumulate the votes represented by the proxies they receive and
distribute such votes in accordance with their best judgment. All of the
nominees are directors whose present terms of office will expire at the Annual
Meeting.
If any nominee is not available at the time of the election, proxies may
be voted for a substitute. However, Bancshares has no reason to believe that any
of the nominees will not be available.
Mr. Raymond J. Lowry, Chairman of the Boards of Directors of Bancshares
and The Citizens Banking Company ("Citizens"), Director from 1985, and Director
of Bancshares' other banking subsidiary, First National Bank of Chester ("FNB"),
from 1990, died on May 21, 1996. Mr. Mastroianni, a Citizens Director since
1993, was appointed to fill the unexpired term of Mr. Lowry. Mr. Thomas W.
Liggett, a Citizens Director from 1994, died on May 22, 1996. Mr. Lee Smith was
appointed to fill a vacancy on the Citizens Board of Directors. Mr. McBane was
named Chairman of the Boards of Directors of Bancshares and Citizens on
September 17, 1996.
The following information, furnished to Bancshares by each director, sets
forth the name, age, principal occupation or employment of each director, and
the period during which he has served as a director of Bancshares and, prior to
its formation, as a director of Citizens. All of the directors of Bancshares are
also directors of Citizens, with the exception of Mr. Glenn Thorne. As noted
below, Messrs. Jonathan Levy and Lee Smith serve as directors of Citizens only.
In addition, some of the Bancshares directors, namely, Messrs. Marty Adams and
James McBane, are directors of FNB. Except where otherwise noted, each person
has held his principal position for at least five years.
NOMINEES FOR ELECTION AT THE ANNUAL MEETING
(For terms expiring in 2000)
FRED H. JOHNSON (80). Director since 1965, Chairman of the Board from 1984 to
1995. Mr. Johnson is the retired former owner of Summitville Tile. Mr.
Johnson is the past President of Summitcrest, Inc., which operates angus
cattle farms in several states and is headquartered in Summitville, Ohio.
GERARD P. MASTROIANNI (41). Director since May 23, 1996. Mr. Mastroianni was
appointed by the Board of Directors to fill the vacancy created by the
death of Mr. Raymond J. Lowry. Mr. Mastroianni has been a Citizens Director
since 1993. Mr. Mastroianni is President of Buckeye Village Market, Inc. (a
grocery store chain), Alliance, Ohio, and President of Alliance Ventures (a
real estate holding company), Alliance, Ohio.
1
<PAGE> 5
JAMES C. MCBANE (57). Chairman of the Boards of Bancshares and Citizens since
September 17, 1996, Director since 1964. Director of FNB since 1990.
Principal and executive of McBane Insurance Agency, Inc., of Bergholz,
Ohio.
DIRECTORS WHOSE TERMS OF OFFICE WILL CONTINUE
AFTER THE ANNUAL MEETING
MARTY E. ADAMS (44). Vice Chairman of the Board, President, and Chief Executive
Officer of Bancshares and Citizens, Director since 1984. Director and
Chairman of the Board of FNB since 1990. Mr. Adams has been employed by
Citizens for 20 years in positions of increasing responsibility and as
President and Chief Executive Officer since 1987. (Term expires in 1998).
KEITH D. BURGETT (54). Director since 1988. Dr. Burgett is a veterinarian and
the owner of Carrollton Animal Hospi- tal, Carrollton, Ohio. He is the
owner of Burgett Angus Farm, Carrollton, Ohio. Dr. Burgett is a member of
the Ohio State Veterinary Medical Board. (Term expires in 1998).
WILLARD L. DAVIS (67). Director since 1991. Mr. Davis is the President of Steel
Valley Leasing, Inc. (an auto leasing company) in Steubenville, Ohio, Vice
President of State Park Motors, Inc. (an auto dealership) in Richmond,
Ohio, and co-owner of Cardinal Motors, Inc. (an auto dealership) in Cadiz,
Ohio. (Term expires in 1998).
FRED H. JOHNSON III (35). Corporate Secretary, Director since 1988. Mr. Johnson
is a director and President of Summitcrest, Inc. Mr. Johnson is the son of
Fred H. Johnson. (Term expires in 1999).
KENNETH E. MCCONNELL (60). Director since 1973. Mr. McConnell owns and operates
McConnell's Farms and is a partner in McConnell's Farm Market (a meat
market), Richmond, Ohio. (Term expires in 1998).
GLENN F. THORNE (68). Director since 1994. Mr. Thorne was formerly a director of
The Firestone Bank from 1985 until its affiliation with Bancshares in
February, 1994. Mr. Thorne is President and Chief Executive Officer of
Thorne Management, Inc., which owns and operates supermarkets in Ohio and
Pennsylvania and a leasing company in Ohio; Manager of Bias Realty, Ltd.,
which owns and operates a supermarket and commercial rental properties in
Ohio; and General Partner of CPW Properties, Ltd., which owns and operates
commercial and residential properties in Ohio. Mr. Thorne is also a
Trustee of Mount Vernon Nazarene College. (Term expires in 1999).
DIRECTORS OF CITIZENS
In addition to the individuals listed above (with the exception of Mr.
Thorne), Messrs. Jonathan Levy and Lee Smith serve as directors of Citizens.
Information with respect to Messrs. Levy and Smith is set forth below.
JONATHAN A. LEVY (36). Director since April 16, 1996. Mr. Levy was formerly a
director of Western Reserve Bank of Ohio until its affiliation with
Citizens in 1995. Mr. Levy is a partner of Redstone Investments (a real
estate devel- opment, construction, and management company), and President
of Redstone Construction, Inc.
LEE A. SMITH (44). Director since May 23, 1996. Mr. Smith was appointed by the
Board of Directors of Citizens to fill the vacancy created by the death of
Mr. Thomas W. Liggett. Mr. Smith is President and owner of Pleasant View
Nursing Home. Mr. Smith practiced law in Lisbon, Ohio, from 1978 until
1996.
2
<PAGE> 6
CERTAIN MATTERS PERTAINING TO THE BOARDS OF DIRECTORS
The Board of Directors of Bancshares held 4 regularly scheduled quarterly
meetings and 8 special meetings in 1996. The Board of Directors of Citizens held
12 regularly scheduled monthly meetings and 1 special meeting in 1996. The Board
of Directors of FNB held 12 regularly scheduled monthly meetings in 1996.
Committees of the various Boards met from time to time upon call of the
President. Each director attended 75% or more of the aggregate of all meetings
of the Boards and the Board committees on which he served during the year.
In 1996, each director who served on both the Bancshares and Citizens
Boards of Directors was paid an annual retainer of $14,800. The directors of
Bancshares only were entitled to receive an annual retainer of $9,800 and
directors of Citizens only were entitled to receive an annual retainer of $9,800
in 1996. Directors were also paid an attendance fee of $450 for meetings of the
Boards and $150 for meetings of their respective committees. For his service as
Chairman of the Board of Bancshares prior to May 21, 1996, Mr. Lowry was paid
$5,000, and for his service as Chairman of the Board of Bancshares subsequent to
September 17, 1996, Mr. McBane was paid $5,000. Furthermore, for his service as
Chairman of the Board of Citizens until May 21, 1996, Mr. Lowry was paid
$13,750, and for his service as Chairman of the Board of Citizens subsequent to
September 17, 1996, Mr. McBane was paid $10,000.
The Citizens Audit Committee, whose primary function is to represent the
Board in discharging its responsibilities relating to the accounting, reporting,
and financial control practices of Citizens, was comprised of Messrs. Burgett,
Johnson III, Lowry, and McConnell until May 21, 1996. Citizens Board of
Directors appointed the following committee members on June 18, 1996: Messrs.
Burgett, Johnson III, McConnell, and Smith.
This committee held three meetings in 1996.
The FNB Examining Committee, whose primary function is to represent the
Board in discharging its responsibilities relating to the accounting, reporting,
and financial control practices of FNB, was comprised of Messrs. Lowry, McBane,
Edwin S. Morse, and John D. Fitzjohn until May 21, 1996. After May 21, 1996, the
committee was comprised of Messrs. McBane, Morse, and Fitzjohn. One meeting was
held by this committee in 1996.
The Bancshares Personnel and Compensation Committee, whose primary
function is to administer the Citizens Bancshares, Inc., Non-Statutory Stock
Option and Stock Appreciation Rights Plan (the "Stock Option Plan") and to
review compensation of all officers and employees of Bancshares, was comprised
of Messrs. Davis, Johnson III, Lowry, McConnell, and Thorne until May 21, 1996.
The Bancshares Board of Directors appointed the following committee members on
June 18, 1996: Messrs. Davis, Johnson III, Mastroianni, McConnell, and Thorne.
This committee held two meetings in 1996.
The Citizens Personnel and Compensation Committee, whose primary function
is to review compensation of all officers and employees of Citizens, was
comprised of Messrs. Davis, Lowry, Mastroianni, and McConnell until May 21,
1996. The Citizens Board of Directors appointed the following committee members
on June 18, 1996: Messrs. Davis, Johnson III, Mastroianni, and McConnell. This
committee held two meetings in 1996.
3
<PAGE> 7
BANCSHARES PERSONNEL AND COMPENSATION COMMITTEE
AND CITIZENS PERSONNEL AND COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
Messrs. Davis, Johnson III, Mastroianni, McConnell, and Thorne, being all
of the members of the Bancshares Personnel and Compensation Committee and
Messrs. Davis, Johnson III, Mastroianni, and McConnell, being all of the members
of the Citizens Personnel and Compensation Committee, hereby make the following
report with respect to executive officer compensation policies of Bancshares and
its subsidiaries, respectively:
(1) The compensation of executive officers of Bancshares (and its
subsidiaries), including the executive officers named in the Summary
Compensation Table on page 7 hereof, is based, subject to the provisions of
applicable employment agreements, upon a number of factors relating to
achievement of individual goals and objectives; corporate performance
(including, but not limited to, return on shareholders' equity); stock
price performance; a review of compensation data of other entities within
Bancshares' peer group with similar financial results; and prevailing
economic conditions.
(2) The compensation of Mr. Adams is based upon the same factors as are
outlined immediately above, subject to the provisions of his employment
agreement.
(3) All 1996 compensation decisions with respect to all of the executive
officers named in the Summary Compensa- tion Table on page 7 hereof were
made during November of 1995.
By: Willard L. Davis
Fred H. Johnson III
Gerard P. Mastroianni
Kenneth E. McConnell
Glenn F. Thorne
4
<PAGE> 8
SECURITY OWNERSHIP OF DIRECTORS,
EXECUTIVE OFFICERS, AND CERTAIN BENEFICIAL OWNERS
Based on information supplied as of February 1, 1997, no person owns more
than 5% of the outstanding common shares of Bancshares. As of February 1, 1997,
there were 5,897,540 common shares of Bancshares issued and outstanding, plus
2,250 treasury shares.
The following table sets forth as of February 1, 1997, the number of
common shares owned by each director of Bancshares and Citizens, by each
executive officer named in the Summary Compensation Table and by all directors
and executive officers as a group, based solely on information furnished to
Bancshares by such persons:
Amount and
Nature of Beneficial Percent
Name Ownership (a) of Class
- ---- ------------- --------
Marty E. Adams 32,764 (b) *
Keith D. Burgett 10,150 (c) *
Willard L. Davis 54,898 (d) *
Fred H. Johnson 21,450 *
Fred H. Johnson III 64,186 (e) 1.09
Jonathan A. Levy** 4,336 (f) *
Gerard P. Mastroianni 6,000 *
James C. McBane 75,566 (g) 1.28
Kenneth E. McConnell 43,403 (h) *
Lee A. Smith** 7,500 (i) *
Glenn F. Thorne 69,275 (j) 1.17
Frank J. Koch 3,241 (k) *
William L. White III 1,920 (l) *
All Executive Officers
and Directors as a
Group (17 persons) 418,781 (m) 7.10
* Common shares owned represent less than 1% of the class.
** Directors of Citizens only.
(a) Unless otherwise indicated, the person has sole voting and investment power
as to the common shares held. Does not include common shares owned
individually by spouses.
(b) Shared voting and investment power as to 31,787 of the 32,764 common
shares. Includes 977 common shares allocated to Mr. Adams in the Citizens
Bancshares, Inc., Employee Stock Ownership Plan ("Bancshares ESOP").
(c) Shared voting and investment power. Includes 4,050 common shares held by
children, of which Dr. Burgett has power of attorney.
(d) Shared voting and investment power. Includes 2,811 shares held as
co-trustee of a trust.
5
<PAGE> 9
(e) Includes 63,186 common shares held in a trust as to which Mr. Johnson is
the sole trustee and beneficiary.
(f) Includes 100 common shares held by minor child.
(g) Includes 6,146 common shares held as custodian for minor child.
(h) Shared voting and investment power as to 4,203 of the 43,403 common shares.
(i) Shared voting and investment power as to 5,250 of the 7,500 common shares.
(j) Includes 65,980 common shares held by Thorne Management, Inc., of which Mr.
Thorne is President and Chief Executive Officer.
(k) Shared voting and investment power as to 2,458 of the 3,241 common shares.
Includes 783 common shares allocated to Mr. Koch in the Bancshares ESOP.
(l) Includes 402 common shares allocated to Mr. White in the Bancshares ESOP.
(m) Includes an aggregate of 3,675 common shares of the Bancshares ESOP
allocated to executive officers.
IDENTIFICATION OF EXECUTIVE OFFICERS
In addition to Mr. Adams, President and Chief Executive Officer, with
respect to whom information is provided on page 2 of the Proxy Statement, the
following persons serve as executive officers of Bancshares and/or one of its
banking subsidiaries:
FRANK J. KOCH (43). Executive Vice President, Citizens, since 1988.
LAWRENCE P. CROW (49). Senior Vice President and Branch Administrator, Citizens,
since 1987; previously Vice President, Citizens.
THOMAS G. LEEK (48). Senior Vice President, Bank Operations, Citizens, since
1989.
WILLIAM L. WHITE III (38). Senior Vice President and Chief Financial Officer,
Citizens, since 1991.
JAYSON M. ZATTA (36). Senior Vice President and Manager, Commercial Banking
Department, Citizens, since 1993; previously Vice President and Manager of
the Commercial Banking Department from 1989 to 1993.
ROBERT L. GESSFORD (61). President and Chief Executive Officer of FNB, Director
of FNB since 1974.
Other than as set forth in this Proxy Statement, there is no plan or
arrangement for the future payment of compensation by Bancshares or any of its
subsidiaries to any executive officer of Bancshares, Citizens, or FNB,
respectively.
6
<PAGE> 10
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
Name and Other Annual All Other
Principal Salary Bonus Compensation Compensation
Position Year ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
Marty E. Adams,
President and
Chief Executive
Officer of 1996 236,000 120,000 42,690 (a) 30,000 (d)
Bancshares and 1995 225,000 110,000 44,233 (a) 20,000 (d)
Citizens 1994 205,000 110,000 48,500 (a) 7,500 (d)
Frank J. Koch,
Executive Vice 1996 115,500 59,000 18,190 (b)
President of 1995 110,000 52,500 19,733 (b)
Citizens 1994 100,000 52,500 17,150 (b)
William L. White III,
Senior Vice
President and
Chief Financial 1996 88,000 25,000 13,572 (c)
Officer of 1995 85,000 22,500 14,142 (c)
Citizens 1994 75,000 25,000 11,378 (c)
<FN>
(a) Includes director retainers of $14,800 for each of 1996, 1995, and 1994,
respectively, and fees for meeting attendance of $9,700, $9,700, and
$11,200, respectively in 1996, 1995, and 1994. Also includes amounts
allocable under the Citizens Bancshares, Inc., Profit Sharing Plan and
Trust (the "Profit Sharing Plan") and the Bancshares ESOP (discussed more
fully below under "Compensation Pursuant to Plans") as follows: Profit
Sharing Plan - $16,290 in 1996, $17,850 in 1995, and $21,400 in 1994;
Bancshares ESOP - $1,900 in 1996, $1,883 in 1995, and $1,100 in 1994.
(b) Includes amounts allocable under Profit Sharing Plan and Bancshares ESOP
(discussed more fully below under "Compensation Pursuant to Plans") as
follows: Profit Sharing Plan - $16,290 in 1996, $17,850 in 1995, and
$16,050 in 1994; Bancshares ESOP - $1,900 in 1996, $1,883 in 1995, and
$1,100 in 1994.
(c) Includes amounts allocable under Profit Sharing Plan and Bancshares ESOP
(discussed more fully below under "Compensation Pursuant to Plans") as
follows: Profit Sharing Plan - $12,272 in 1996, $12,793 in 1995, and
$10,700 in 1994; Bancshares ESOP - $1,300 in 1996, $1,349 in 1995, and $678
in 1994.
(d) Insurance premiums paid by Bancshares on a reverse split dollar policy for
the sole benefit of executive having a current cash value of $55,244 and a
$525,000 death benefit.
</TABLE>
7
<PAGE> 11
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL ARRANGEMENTS
MR. ADAMS
In 1992, Bancshares and Citizens entered into an employment agreement with
Mr. Adams (the "Agreement") for an initial employment period extending until
January 1, 1994. The Agreement was amended in 1993 to extend Mr. Adams'
employment period through January 1, 1997, and to provide for automatic
three-year extensions commencing January 1, 1994. As compensation for his
services as President and Chief Executive Officer of both Bancshares and
Citizens, Mr. Adams is entitled to: (i) an annual base salary of at least
$180,000; (ii) an annual bonus to be determined by Bancshares' Board of
Directors; (iii) continued participation in the Profit Sharing Plan and the
Bancshares ESOP; and (iv) other benefits, perquisites, and plans in effect as of
the date of the Agreement, as disclosed elsewhere in this Proxy Statement. In
the event Mr. Adams' employment terminates other than for cause, the principal
severance-related benefits payable to Mr. Adams under the Agreement are: (i) in
the event of death, two years of base salary plus insurance and health care
benefits for his spouse until the date of normal retirement age; (ii) in the
event of retirement or disability, such benefits as are payable in accordance
with Bancshares' retirement or long-term disability plan then in effect, as the
case may be; and (iii) in the event of a voluntary termination for "good reason"
(including a change-in-control) or a termination by Bancshares or Citizens
without cause, base salary and accrued bonus through the termination date, a
lump-sum payment equal to 2.9 times current annual salary and a continued right
to participate in all benefit plans for up to two years. If a termination for
cause occurs, Bancshares and Citizens agree to continue Mr. Adams' existing
health insurance (or provide comparable coverage) for a one-year period.
MR. KOCH
During 1993, Bancshares and Citizens entered into an employment agreement
with Mr. Koch (the "Koch Agreement") which provides for an initial employment
period extending until January 1, 1996, subject to annual two-year automatic
extensions commencing January 1, 1995. As compensation for his service as the
Executive Vice President of Citizens, Mr. Koch is entitled to: (i) an annual
salary equal to his salary for the immediately preceding year (plus an increase
calculated in a manner which is at least as favorable as pay increases for other
Citizens executives); (ii) discretionary annual bonuses; (iii) continued
participation in the Profit Sharing Plan and the Bancshares ESOP; and (iv) other
benefits, perquisites, and plans in effect as of the date of the Koch Agreement,
as disclosed elsewhere in this Proxy Statement. The Koch Agreement provides
that, in the event of a change-in-control of Bancshares, Mr. Koch is to continue
to be employed by Citizens in an executive position until the earlier of: (i)
normal retirement or (ii) 24 months, during which time he shall receive: (a) the
salary and bonus thereto described above; (b) certain insurance and health
benefits; and (c) continued participation in the Profit Sharing Plan. Following
a change-in-control, if Mr. Koch's employment with Citizens is terminated by
Bancshares or Citizens for any reason, including death or disability (but
excluding misconduct) or by Mr. Koch for cause, Mr. Koch shall receive, for a
twenty-four (24) month period from the date of the change-in-control: (i)
monthly salary at the level of the highest monthly salary received from Citizens
during the twelve months immediately preceding the change-in-control; (ii) the
right to health care benefits and continued participation in the Profit Sharing
Plan, if possible; and (iii) a bonus based upon a prescribed formula.
Notwithstanding the foregoing, if Mr. Koch, at his option, terminates his
employment within six months of a change-in-control, he is entitled to receive
one year's salary plus a bonus prorated to the date of termination of
employment.
8
<PAGE> 12
TRANSACTIONS WITH BANCSHARES
Directors and executive officers of Bancshares and its subsidiaries and
their respective associates, including immediate families, have had transactions
with Bancshares and its subsidiaries in the ordinary course of business and
additional transactions may be expected to take place in the ordinary course of
business in the future. Such transactions have included, and may in the future
include, loans to spouses of directors and executive officers in connection with
their respective businesses and investments. Loans and commitments included in
such transactions were made in the ordinary course of business on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons and did not include more
than the normal risk of collectibility or present other unfavorable features. At
no time did the maximum extension of credit to any one such person exceed ten
percent (10%) of the equity of either Citizens or FNB.
COMPENSATION PURSUANT TO PLANS
Bancshares and its subsidiaries maintain four plans in which the executive
officers named in the Summary Compensation Table on page 7 hereof participated
during 1996: the Profit Sharing Plan, the Bancshares ESOP, the Employees
Retirement Plan for Citizens Bancshares, Inc. (the "Bancshares Pension Plan"),
and the Stock Option Plan. These plans, except for the Stock Option Plan, are
covered by the Employee Retirement Income Security Act of 1974, as amended, and
are intended to be qualified plans under Section 401(a) of the Internal Revenue
Code of 1986, as amended.
PROFIT SHARING PLAN. Citizens established the Profit Sharing Plan on
December 31, 1974, effective as of December 31, 1974, to share a portion of its
profits with its employees in order to promote in them a strong interest in the
successful operation of the business and increased efficiency in their work, to
assure them that they would share in the prosperity of the business, and to
provide an opportunity for an accumulation of funds for their retirement and
financial emergencies. Any employee of Citizens who works 1,000 hours during the
calendar year is eligible to participate in the Profit Sharing Plan. The Profit
Sharing Plan covers substantially all employees of Citizens. Total contributions
expensed and paid in 1996 were $697,000. Amounts to be contributed to the Profit
Sharing Plan are annually determined by the Board of Directors of Citizens. In
connection with the Profit Sharing Plan, the "CBC Salineville Profit Sharing
Trust" was created in order to enable participating employees of Citizens to
share in the profits of the business in accordance with the Profit Sharing Plan.
In no event will the principal or income of this trust be paid to or invested in
Citizens, or be used for any purpose whatsoever other than for the exclusive
benefit of the participating employees or their beneficiaries.
Profit sharing contributions are made pursuant to a formula based on up to
15% of Citizens' qualifying employees' W-2 wages of up to $150,000 (excluding
group term life). Under this formula, the executive officers named in the
Summary Compensation Table on page 7 of the Proxy Statement received
approximately the following profit sharing contributions in 1996: Marty E.
Adams, $16,290; Frank J. Koch, $16,290; and William L. White III, $12,272.
BANCSHARES ESOP. Pursuant to action taken by its Board of Directors on
August 15, 1989, Bancshares established the Bancshares ESOP effective as of
January 1, 1989. The purpose of the Bancshares ESOP is to permit employees of
Bancshares and its affiliates to acquire stock ownership interest in Bancshares.
Employees become eligible to participate in the Bancshares ESOP on December 31
of the year in which they (i) attain age 21 and (ii) are credited with at least
1,000 hours of service. Employer contributions to the Bancshares ESOP are
discretionary and are determined by the Bancshares Board of Directors or a
committee thereof annually. Employee participants are not permitted to make
contributions to the Bancshares ESOP. Allocations of contributions to the
Bancshares ESOP are made to the
9
<PAGE> 13
accounts of the participants on the basis of the individual participant's
compensation relative to the total compensation of all participants in the
Bancshares ESOP. Bancshares ESOP participants obtain vested interests in the
employee stock and cash allocated to their accounts beginning with the third
year of participation at the rate of 20%; thereafter, vesting increases by 20%
for every additional year of participation such that 100% vesting occurs at year
7. Vesting credit is given only for credited services with the employer after
January 1, 1989. If a Bancshares ESOP participant terminates service due to
death, disability, or retirement (at age 65, or age 55 with 7 years of service),
he or she will become 100% vested in his or her account and will be entitled to
a distribution of benefits no later than the end of the year following the year
of his or her termination. If participation in the Bancshares ESOP terminates
for any other reason, a participant is entitled to distribution of his or her
vested account starting no later than the end of the year following the
five-year period from the date of termination. A terminating participant may
choose to have his or her account distributed in stock or cash. The stock is
subject to (i) a put option which gives the participant the right, for a limited
time, to have Bancshares repurchase the stock and (ii) a right of first refusal
which gives Bancshares the right to match any offer made by a third party. The
Bancshares ESOP was initially funded by Bancshares on December 29, 1989, with
3,333 Bancshares common shares having an estimated fair market value of
$100,000. An additional 3,000 common shares having an estimated fair market
value of $98,250 were added in 1990. No contribution was made to the Bancshares
ESOP in 1991. However, pursuant to the 25% stock dividend paid May 1, 1991,
1,583 common shares were added in 1991. An additional 3,000 common shares having
an estimated fair market value of $101,590 were added in 1992. Pursuant to the
2-for-1 stock split paid April 15, 1993, 10,916 common shares were added in
1993. No contribution was made to the Bancshares ESOP in 1994. An additional
7,000 common shares having an estimated fair market value of $250,000 were added
in 1995. Pursuant to the 3-for 2 stock split paid January 12, 1996, 14,416
common shares were added in 1996 in addition to 5,724 common shares having an
estimated fair market value of $172,000.
The executive officers named in the Summary Compensation Table on page 7
of the Proxy Statement will receive Bancshares ESOP contributions with respect
to 1996 in approximately the following amounts: Marty E. Adams, $1,900;
Frank J. Koch, $1,900, and William L. White III, $1,300.
BANCSHARES PENSION PLAN. Since January 1, 1994, the Bancshares Pension
Plan has covered all full-time employees of Bancshares and its subsidiaries who
completed 1,000 hours of service within a calendar. No owners, directors, or
executive officers of Bancshares were covered by the Bancshares Pension Plan
prior to January 1, 1994. The years of service used to determine pension amounts
("credited service") are generally limited to an employee's service while a Plan
participant.
The Bancshares Pension Plan provides for normal retirement at age 65, and
early retirement at age 55 for employees with 10 years of corporate service
("vesting service"). Retirement benefits for normal retirement are 1.1% of the
employee's average earnings (the highest average over the 5 consecutive calendar
years during his or her last 10 calendar years with Bancshares) times his years
of credited service up to 35 years. Earnings are defined as current W-2
earnings. Employees who terminate employment after 5 years of service have a
vested right to receive an unreduced normal retirement pension beginning at age
65, or a reduced early retirement pension beginning at age 55.
The Firestone Bank Employees Retirement Plan and the New Waterford Bank
Pension Plan were merged into the Bancshares Pension Plan on January 1, 1995.
Benefits which accrued to Firestone Bank or New Waterford Bank participants
prior to the plan merger -- reflecting service with those banks prior to the
merger -- have been grandfathered; this may result in benefits higher than shown
in the table below for individuals with Firestone or New Waterford service.
10
<PAGE> 14
The following table shows annual pension benefits payable upon retirement
at age 65 for various compensation and years-of-service classifications,
assuming election of a retirement benefit payable as a straight life annuity
with retirement on January 1, 1997. The Plan bases annual pension benefits on a
participant's 5-year average pay (with 5-year averages calculated on the
assumption that each participant's pay increased 4% annually) and years of
service. The 1996 Compensation for this purpose is the same as the total of
salary and bonus as disclosed in the Summary Compensation Table, but not more
than $150,000 (the 1996 limit imposed by Section 401(a)(17) of the Internal
Revenue Code). See footnote (1) to the Table. Annual benefits payable are not
subject to any deduction for Social Security or other offset amounts.
<TABLE>
<CAPTION>
PENSION PLAN TABLE
1996 --------------------------Years of Service-------------------------------------
Compensation (1)(2) 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$125,000 $ 19,098 $ 25,464 $ 31,831 $ 38,197 $ 44,563
150,000 22,918 30,557 38,197 45,836 53,475
175,000 26,738 35,650 44,563 53,475 62,388
200,000 30,557 40,743 50,929 61,115 71,300
225,000 34,377 45,836 57,295 68,754 80,213
250,000 38,197 50,929 63,661 76,393 89,125
300,000 45,836 61,115 76,393 91,672 106,951
350,000 53,475 71,300 89,125 106,951 124,776
400,000 61,115 81,486 101,858 122,229 142,601
450,000 68,754 91,672 114,590 137,508 160,426
500,000 76,393 101,858 127,322 152,787 178,251
(1) Section 401(a)(17) of the Internal Revenue Code limits the amount of annual
compensation that may be used to determine benefit amounts under pension
plans such as the Bancshares Pension Plan. This limit was $150,000 for
1996, and will be $160,000 in 1997. The benefit amounts shown in the table
have been calculated without regard to this limit, since it is subject to
future adjustments.
(2) Marty E. Adams, Frank J. Koch, and William L. White III each had three
years of credited service under the Bancshares Pension Plan as of January
1, 1997. They were, however, fully vested in their accrued benefits as of
that date.
STOCK OPTION PLAN. In 1995, the shareholders approved the Stock Option
Plan, which provides for the issuance of non-qualified stock options ("Options")
and stock appreciation rights ("SARs") to officers of Bancshares and its
subsidiaries. The exercise price for the Options and SARs may not be less than
100% of the fair market value of Bancshares common shares on the date of the
grant. The fair market value of a common share shall be the closing bid
quotation as reported on the NASDAQ National Market System on the grant date.
The Stock Option Plan provides that SARs will be exercised automatically upon
the exercise of the Options granted in connection therewith. Options and SARs
shall vest three years from the date of the grant and shall be for a term
determined by the committee which administers the Stock Option Plan; provided,
however, that in no event shall the term be longer than ten years from the date
of grant. Notwithstanding the foregoing, in the event of a "Control Share
Acquisition" as defined in Bancshares' Fourth Amended Articles of Incorporation
or a sale of all or substantially all of the assets of Bancshares and its
subsidiaries, all Options and SARs shall become immediately exercisable. In the
aggregate, 450,000 options on Bancshares common shares and 675,000 SARs are
issuable in connection with the Stock Option Plan. As of February 1, 1997,
</TABLE>
11
<PAGE> 15
there were 121,771 Bancshares common shares covered by outstanding Options and
SARs held by 63 persons which are exercisable at $29 per common share beginning
January 1, 1999.
Information is set forth below with respect to the grants of Options and
tandem SARs under the Stock Option Plan to the officers named in the Summary
Compensation Table during the year ended December 31, 1996. The Stock Option
Plan is administered by the Bancshares Personnel and Compensation Committee of
the Board of Directors, which determines the officers of Bancshares and its
subsidiaries to whom Options and SARs are granted. In the event of a change in
control of Bancshares, as defined in the Stock Option Plan, all of the Option
and SAR grants shown below would become immediately exercisable.
OPTION/SAR GRANTS IN 1996
<TABLE>
<CAPTION>
Percent of
Number of Total
Securities Options/SARs
Underlying Granted to
Name and Option/SARs Employees Exercise of Grant Date
Principal Granted in Fiscal Base Price Expiration Present
Position (#) Year (%) ($/Sh) Date Value ($) (1)
- ------------------ ---------------- -------------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Marty E. Adams,
President and
Chief Executive
Officer of
Bancshares and
Citizens 1,848 (2) 16.6 29 01/01/06 12,123
Frank J. Koch,
Executive Vice
President of
Citizens 896 (2) 8.1 29 01/01/06 5,878
William L. White III,
Senior Vice
President and
Chief Financial
Officer of
Citizens 445 (2) 4.0 29 01/01/06 2,919
<FN>
- ----------
(1) The dollar amounts in this column are the result of calculations made using
the Black-Scholes model, a theoretical method for estimating the present
value of stock options based on complex assumptions about the stock's price
volatility and dividend rate as well as interest rates. Because of the
unpredictable assumptions required, the Black-Scholes model, or any other
valuation model, is incapable of accurately predicting Bancshares' stock
price or of placing an accurate present value on options to purchase this
stock.
</TABLE>
12
<PAGE> 16
In spite of any theoretical value which may be placed on a stock option grant,
no increase of the stock option's value is possible without an increase in the
market value of the underlying stock. Any appreciation in the market value of
Bancshares' stock would benefit all shareholders and would be dependent in part
upon the efforts of the named executive officers.
In determining the grant date present value under the Black-Scholes model, the
following underlying assumptions were used:
Exercise Price $29.00
Riskless Rate of Return 5.57% (a)
Volatility Measure 16.44% (b)
Duration (in Years) 9
Stock Price $29.00 (c)
Dividend Yield 3.00%
Black-Scholes Value of Each Option $ 6.56
----------
(a) 10-year continuously compounded treasury yield as of January 1,
1996, the date of grant.
(b) The volatility was calculated on a natural logarithmic basis of
Bancshares' stock price for each month-end in the 32-month period
preceding the date of grant.
(c) Stock price at date of grant.
(2) Options and SARs become exercisable January 1, 1999
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
Name and at FY-End (#) at FY-End ($)
Principal Shares Acquired Value
Position on Exercise (#) Realized ($) Unexercisable Unexercisable
-------- --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Marty E. Adams,
President and
Chief Executive
Officer of
Bancshares and
Citizens 0 0 76,848 776,604
Frank J. Koch,
Executive Vice
President of
Citizens 0 0 13,646 134,496
William L. White III,
Senior Vice
President and
Chief Financial
Officer of
Citizens 0 0 5,170 50,322
</TABLE>
13
<PAGE> 17
PERFORMANCE GRAPH
The following line graph is designed to compare the yearly percentage
change in Bancshares' cumulative total shareholder return on its common shares
during fiscal years 1991 through 1996 with (i) the cumulative total return of
the NASDAQ Bank Stocks Index (the "NASDAQ Bank Index") and (ii) the cumulative
total return of the S&P 500 Index (the "S&P 500") (assuming reinvestment of
dividends).
<TABLE>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
CITIZENS BANCSHARES, INC., NASDAQ BANK STOCK INDEX, AND S&P 500
<CAPTION>
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
CITIZENS BANCSHARES, INC. 100.0000 146.1684 248.8089 292.5968 366.1507 424.0547
NASDAQ BANK STOCK INDEX 100.0000 145.5510 165.9890 165.3050 246.3190 325.6000
S&P 500 100.0000 107.6700 118.1690 119.7810 164.8450 203.2430
</TABLE>
Return based on $100 invested on December 31, 1991, and the reinvestment of
dividends
The financial information upon which the NASDAQ Bank Index and the S&P 500
are based has been compiled from information issued by the companies themselves
or other secondary sources. Although these sources are considered to be
reliable, management makes no representations or warranties with respect to the
accuracy or completeness of this analysis or the underlying data, and
specifically disclaims any implied warranties of merchantability or fitness for
any particular purpose. This analysis does not purport to be a complete analysis
nor does it constitute an offer or recommendation to buy or sell any securities.
14
<PAGE> 18
SECTION 16 LATE FILINGS
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to Bancshares pursuant to Rule 16a-3(e) during 1996 and Forms 5 and
amendments thereto furnished to Bancshares during 1996, the following reports
required under Section 16(a) of the Securities Exchange Act of 1934, as amended,
were not filed on a timely basis: a Form 4 filing for each of the following
reporting persons: Mr. Thomas G. Leek (with respect to the acquisition of common
shares), Mr. Fred H. Johnson III (with respect to the acquisition of common
shares), Mr. Keith D. Burgett (with respect to the acquisition of common
shares).
INFORMATION REGARDING AUDITORS
Crowe, Chizek and Company LLP, Certified Public Accountants, were engaged
on June 20, 1989, as independent auditors, by the Board of Directors of
Bancshares, effective for the year ended December 31, 1989, and have continued
in that capacity for the year ended December 31, 1996. Their engagement was
based upon the recommendation of Citizens' Audit Committee.
Pursuant to the recommendation of the Citizens Audit Committee, the Board
of Directors has retained Crowe, Chizek and Company LLP as independent auditors
of Bancshares' consolidated financial statements for the year ending December
31, 1997. A representative of Crowe, Chizek and Company LLP will be at the
Meeting of the shareholders, will have the opportunity to make a statement if he
or she desires to do so, and will be available to respond to appropriate
questions.
SHAREHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
The 1998 Annual Meeting of Shareholders is expected to be held on or about
March 26, 1998. Any shareholder who is the record or beneficial owner of at
least 1% or $1,000 in market value of Bancshares common shares entitled to vote
at the 1998 Annual Meeting of Shareholders and who has held such shares for at
least one year may present a proposal at the 1998 Annual Meeting. Any
shareholder who intends to present a proposal at the 1998 Annual Meeting and who
wishes to have the proposal included in the Bancshares Proxy Statement and form
of proxy for that meeting must deliver the proposal to Bancshares no later than
October 29, 1997.
MISCELLANEOUS
The accompanying proxy is solicited by the Board of Directors of
Bancshares and will be voted in accordance with the instruction thereon if it is
returned duly executed and is not revoked. A shareholder may revoke his or her
proxy without affecting any vote previously taken by giving notice to Bancshares
in writing or in the open meeting.
Bancshares will bear the cost of preparing and mailing this statement,
with the accompanying proxy and other instruments. In addition to using the
mails, directors, officers, and other employees of Bancshares acting on its
behalf, may also solicit proxies. Proxies may be solicited personally, by
telephone, or by telegram.
15
<PAGE> 19
The record date for determination of shareholders entitled to vote at the
1997 Annual Meeting is February 1, 1997. On that date, the outstanding voting
securities of Bancshares were 5,897,540 common shares, without par value, which
does not include 2,250 treasury shares. Each share has one vote.
Under the General Corporation Law of Ohio, if notice in writing is given
by any shareholder to the President or any Vice President or the Secretary of
Bancshares, not less than 48 hours before the time fixed for holding the
Meeting, that the shareholder desires that the voting for election of directors
shall be cumulative, and if an announcement of the giving of such notice is made
upon the convening of the Meeting, each shareholder will have cumulative voting
rights. Cumulative voting means that each shareholder is entitled to that number
of votes equal to the number of shares that he or she owns multiplied by the
number of directors to be elected. Each shareholder may cast all of his or her
votes for a single nominee or may distribute his or her votes among as many
nominees as he or she sees fit. As indicated on page 1 of this Proxy Statement,
if the election of directors is by cumulative voting, the persons appointed by
the accompanying proxy intend to cumulate the vote represented by the proxies
they receive and distribute such votes in accordance with their best judgment.
OTHER MATTERS
The Board of Directors does not know of any matters, other than the
election of directors, which will come before the Meeting. In case any other
matters should properly come before the Meeting, it is the intention of the
persons named in the enclosed proxy to vote in accordance with their best
judgment.
By Order of the Board of Directors,
Marty E. Adams, President & Chief
Executive Officer
Citizens Bancshares, Inc.
February 14, 1997
16
<PAGE> 20
<TABLE>
<CAPTION>
CITIZENS BANCSHARES, INC.
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CITIZENS BANCSHARES, INC.
The undersigned hereby appoints Marty E. Adams and James C. McBane, and each of them, the proxies of the undersigned, with
full power of substitution to vote all Common Shares of Citizens Bancshares, Inc., which the undersigned is entitled to vote
at the Annual Meeting of Shareholders of Citizens Bancshares, Inc., to be held March 27, 1997, and at any and all
adjournments thereof, as specified below:
<S> <C> <C>
1. ELECTION OF DIRECTORS: Fred H. Johnson _______ FOR _______ WITHHOLD
Gerard P. Mastroianni _______ FOR _______ WITHHOLD
James C. McBane _______ FOR _______ WITHHOLD
2. In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting
or any adjournment thereof.
IF NO INSTRUCTION IS INDICATED, AUTHORITY IS GRANTED TO CAST THE VOTE OF THE UNDERSIGNED FOR THE ELECTION OF THE NOMINEES
FOR DIRECTOR.
DATE:___________________________________, 1997
______________________________________________
Signature
______________________________________________
Signature, if jointly held
______________________________________________
Print your name(s) here
NOTE: THE SIGNATURE(S) ON THIS PROXY SHOULD
CORRESPOND WITH THE NAME(S) IN WHICH YOUR
STOCK IS REGISTERED. WHEN STOCK IS REGISTERED
JOINTLY IN THE NAMES OF TWO OR MORE PERSONS,
ALL SHOULD SIGN. WHEN SIGNING AS AN ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE, OR
GUARDIAN, PLEASE GIVE YOUR FULL TITLE AS
SUCH. A PROXY GIVEN BY A CORPORATION SHOULD
BE SIGNED IN THE CORPORATE NAME BY THE
CHAIRMAN OF ITS BOARD OF DIRECTORS, ITS
PRESIDENT, VICE PRESIDENT, SECRETARY, OR
TREASURER.
Please mark, sign, date, and return this proxy card promptly using the enclosed envelope.
</TABLE>
