<PAGE> 1
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
Commission File Number 0-18209
CITIZENS BANCSHARES, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-1372535
- ---- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 East Main Street, Salineville, Ohio 43945
(Address of principal executive offices)
(Registrant's telephone number) 330/679-2328
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such report(s) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
On August 13, 1998 there were 17,739,117 shares of Common Stock, without par
value, of Citizens Bancshares, Inc., outstanding.
<PAGE> 2
CITIZENS BANCSHARES, INC.
-------------------------
FORM 10-Q
---------
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements Page
- ---------------------------- Number
------
Interim Financial Information required by Rule 10-01 of Regulation
S-X is included in this Form 10-Q as referenced below:
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Comprehensive Income 5
Condensed Consolidated Statements of Changes in
Shareholders' Equity 5
Condensed Consolidated Statements of
Cash Flows 6
Notes to the Consolidated Financial
Statements 7 - 16
Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations 17 - 22
Item 3.Quantitative and Qualitative Disclosure About Market Risk 23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 23
--
Item 2. Changes in Securities 23
--
Item 3. Defaults Upon Senior Securities 23
Item 4. Submissions of Matters to a Vote of Security Holders 24 - 25
Item 5. Other Information 25
--
Item 6. Exhibits and Reports on Form 8-K 25 - 28
Signatures 29
2
<PAGE> 3
CITIZENS BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, December 31,
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) 1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks ...................................... $ 54,966 $ 54,043
Federal funds sold ........................................... 11,175 21,960
----------- -----------
Total cash and cash equivalents ......................... 66,141 76,003
Interest-bearing deposits with financial institutions ........ 9,277 4,661
Securities available for sale (Note 2) ....................... 523,108 432,306
Securities held to maturity (estimated market value of $88,018
at December 31 (Note 2) ................................... -- 87,207
Total loans (Note 3) ......................................... 1,142,430 1,127,846
Less allowance for loan losses (Note 4) .................... (20,454) (18,276)
----------- -----------
Net loans ............................................... 1,121,976 1,109,570
Premises and equipment, net .................................. 29,518 30,794
Bank owned life insurance .................................... 25,124 23,080
Accrued interest receivable and other assets ................. 29,334 27,402
----------- -----------
Total assets ............................................ $ 1,804,478 $ 1,791,023
=========== ===========
LIABILITIES
Deposits:
Noninterest-bearing deposits ................................. $ 155,170 $ 134,217
Interest-bearing deposits .................................... 1,245,055 1,246,096
----------- -----------
Total deposits .......................................... 1,400,225 1,380,313
Securities sold under repurchase agreements and
Federal funds purchased .................................... 79,873 79,188
Federal Home Loan Bank advances .............................. 151,805 160,765
Accrued interest payable and other liabilities ............... 13,491 13,463
----------- -----------
Total liabilities ....................................... 1,645,394 1,633,729
----------- -----------
MINORITY INTEREST IN SUBSIDIARY ................................... 68 627
SHAREHOLDERS' EQUITY
Serial preferred stock, $10.00 par value; authorized
200,000 shares; none issued
Common stock, no par value; 36,000,000 shares
authorized; shares issued 17,748,688 and 17,738,935,
respectively ........................................ 29,528 31,189
Retained earnings ............................................ 125,605 122,106
Treasury stock at cost, (9,571 and 17,626 shares) ............ (185) (222)
ESOP obligations and unearned shares ......................... (262) (325)
Unrealized gain on securities available for sale ............. 4,330 3,919
----------- -----------
Total shareholders' equity .............................. 159,016 156,667
----------- -----------
Total liabilities and shareholders' equity .............. $ 1,804,478 $ 1,791,023
=========== ===========
</TABLE>
See notes to the consolidated financial statements
3
<PAGE> 4
CITIZENS BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months For the six months
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) ended June 30, ended June 30,
------------------------ ------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees ........................ $ 26,894 $ 24,478 $ 52,633 $ 47,766
Securities
Taxable .................................... 7,574 7,518 15,304 13,921
Nontaxable ................................. 421 448 846 886
Federal funds sold and other ................. 288 339 744 808
-------- -------- -------- --------
Total interest income .................... 35,177 32,783 69,527 63,381
-------- -------- -------- --------
INTEREST EXPENSE
Deposits ..................................... 13,479 12,417 27,320 24,279
Federal funds, repurchase agreements and other 1,145 1.866 2,282 3,189
Federal Home Loan Bank advances .............. 1,947 1,318 3,967 2,216
-------- -------- -------- --------
Total interest expense ................... 16,571 15,601 33,569 29,684
-------- -------- -------- --------
NET INTEREST INCOME ............................. 18,606 17,182 35,958 33,697
PROVISION FOR LOAN LOSSES (NOTE 4) .............. 2,714 602 3,409 1,215
-------- -------- -------- --------
INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES .................... 15,892 16,580 32,549 32,482
-------- -------- -------- --------
OTHER INCOME
Service charges and fees on deposits ......... 1,212 1,129 2,318 2,166
Other income ................................. 1,160 1,363 2,691 2,628
Increase in value in bank owned life insurance 360 151 666 161
Investment gains (losses) (Note 2) ........... 322 0 353 (4)
-------- -------- -------- --------
Total other income ......................... 3,054 2,643 6,028 4,951
-------- -------- -------- --------
OTHER EXPENSE
Salaries and employee benefits ............... 5,249 5,456 10,080 10,639
Occupancy expense ............................ 808 774 1,613 1,527
Equipment expense ............................ 1,043 884 2,013 1,704
Merger, integration and restructure expense .. 972 4,904
Other operating expense .................... 3,481 3,216 7,018 6,091
-------- -------- -------- --------
Total other expense ...................... 11,553 10,330 25,628 19,961
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES ..................... 7,393 8,893 12,949 17,472
INCOME TAXES ................................... 2,342 2,684 3,770 5,340
-------- -------- -------- --------
NET INCOME ..................................... $ 5,051 $ 6,209 $ 9,179 $ 12,132
======== ======== ======== ========
BASIC EARNINGS PER COMMON SHARE ................ $ .29 $ .35 $ .52 $ .69
======== ======== ======== ========
DILUTED EARNINGS PER COMMON SHARE .............. $ .29 $ .35 $ .52 $ .68
======== ======== ======== ========
</TABLE>
See notes to the consolidated financial statements
4
<PAGE> 5
CITIZENS BANCSHARES, INC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<TABLE>
<CAPTION>
For the six months ended June 30,
---------------------------------
1998 1997
--------- ---------
<S> <C> <C>
Net Income .................................................... $ 9,179 $ 12,132
Other comprehensive income, net of tax;
Unrealized gain (loss) on securities available for sale ....... 411 (322)
--------- ---------
Comprehensive income .......................................... $ 9,590 $ 11,810
========= =========
</TABLE>
CITIZENS BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
For the six months ended June 30,
---------------------------------
1998 1997
--------- ---------
<S> <C> <C>
(IN THOUSANDS OF DOLLARS)
Balances at January 1, as previously reported ................. $ 103,277 $ 89,712
Restated to capital structure for pooling of interests (Note 1) 53,390 49,749
--------- ---------
Balances at January 1, as restated ............................ 156,667 139,461
Net income .................................................... 9,179 12,132
Change in ESOP obligation and release of shares ............... 63 63
Net purchase of treasury stock ................................ (245)
Stock options exercised ....................................... (1,780) 233
Cash dividends declared ($.31 per share in 1998 and
$.25 in 1997) and cash paid for fractional shares ........... (5,524) (4,476)
Change in unrealized gain (loss) on securities
available for sale ........................................... 411 (322)
--------- ---------
Balances at June 30, .......................................... $ 159,016 $ 146,846
========= =========
</TABLE>
See notes to the consolidated financial statements
5
<PAGE> 6
CITIZENS BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------
1998 1997
--------- ---------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
NET CASH FLOWS FROM OPERATING ACTIVITIES ...................... $ 2,680 $ 9,402
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest-bearing deposits
with financial institutions .............................. (4,616) (2,355)
Securities available for sale:
Proceeds from sales ...................................... 4,600 391
Proceeds from paydowns, maturities, calls ................ 81,179 41,281
Purchases ................................................ (109,405) (110,567)
Securities held to maturity:
Proceeds from paydowns, maturities, calls ................ 20,260 40,703
Purchases ................................................ (395) (45,893)
Loans purchased ............................................ (3,250)
Proceeds from commercial and student loans sold ............ 2,000
Net increase in loans ...................................... (7,803) (60,534)
Purchases of premises and equipment ........................ (1,808) (3,355)
Proceeds from premises and equipment sold .................. 434
Purchase of life insurance contracts ....................... (1,200) (20,000)
Sales of other real estate ................................. 14 125
--------- ---------
Net cash used for investing activities ................. (19,174) (161,020)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts ........................... 19,912 56,084
Cash dividends and fractional shares paid .................. (4,514) (4,305)
Net increase in repurchase agreements and Federal funds purchased 685 55,393
Net change in short-term FHLB advances ..................... (62,210)
Proceeds from long-term FHLB advances ...................... 71,500 40,400
Repayment of long-term FHLB advances ....................... (18,250) (4,117)
Redemption of minority interest in subsidiary .............. (559) (561)
Proceeds from stock options exercised ...................... 410 233
Net treasury stock purchase ................................ (342) (245)
--------- ---------
Net cash from financing activities ....................... 6,632 142,882
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS ....................... (9,862) (8,736)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................ 76,003 78,888
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................... $ 66,141 $ 70,152
========= =========
</TABLE>
See notes to the consolidated financial statements
6
<PAGE> 7
CITIZENS BANCSHARES, INC.
-------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
----------------------------------------------------------
(Dollars in thousands, except per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of Citizens
Bancshares, Inc., ("Bancshares") and its wholly-owned subsidiaries, The Citizens
Banking Company ("Citizens"), Freedom Financial Life Insurance Company
("Insurance Company"), Freedom Express, Inc., First National Bank of Chester
("FNB") and Century National Bank and Trust Company ("Century"). All significant
inter-company transactions have been eliminated in consolidation. Bancshares'
unaudited consolidated financial statements have been restated for prior periods
due to the March 6, 1998 merger of UniBank, Steubenville, Ohio, ("UniBank") into
Citizens and the May 12, 1998 merger of Century Financial Corporation and its
subsidiary Century National Bank and Trust Company. Both transactions have been
accounted for as poolings of interests. The supplemental unaudited consolidated
statements give retroactive effect to the transactions and, as a result, the
supplemental consolidated balance sheets, statements of income and statements of
cash flows are presented as if Bancshares, UniBank and Century had been
consolidated for all periods presented.
Basis of Presentation
- ---------------------
These interim consolidated 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 Bancshares at June 30,
1998 and its results of operations and cash flows for the periods presented. All
such adjustments are of a normal, recurring nature. The consolidated financial
statements do not purport to contain all the necessary financial disclosures
required by generally accepted accounting principles that might otherwise be
necessary under the circumstances and should be read in conjunction with the
1997 consolidated financial statements and notes thereto of Bancshares included
in its Annual Report to Shareholders for the year ended December 31, 1997.
Nature of Operations
- --------------------
Bancshares is a holding company that provides banking and financial services.
Its principal banking subsidiaries are Citizens, which operates primarily in the
eastern Ohio counties of Columbiana, Jefferson, Mahoning, Stark, Belmont and
Carroll; FNB which operates primarily in Hancock County, West Virginia, and
Century, which operates in the southwestern Pennsylvania counties of Beaver and
Butler. The banks' primary services include accepting demand, savings and time
deposits and granting commercial, industrial, real estate and consumer loans.
Bancshares' other subsidiaries do not comprise a significant portion of its
operations.
The provision for income taxes is based upon the effective tax rate expected to
be applicable for the entire year.
Supplemental Disclosure of Cash Flow Information
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------
1998 1997
<S> <C> <C>
Cash paid during the period for:
Interest $34,154 $29,184
Income taxes 3,144 5,400
</TABLE>
7
<PAGE> 8
CITIZENS BANCSHARES, INC.
-------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
----------------------------------------------------------
(Dollars in thousands, except per share data)
Securities with an amortized cost of $6,512 were transferred from held to
maturity to available for sale at March 06, 1998. These securities were owned by
UniBank prior to its merger with Citizens with no significant differences
between fair value and amortized cost. They were transferred to conform the
combined entity with Bancshares' existing interest rate risk position.
Accounting for Transfers of Financial Assets and Extinguishment of Liabilities
- ------------------------------------------------------------------------------
Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities",
revises accounting treatment for transfers of financial assets, such as loans
and securities, and for distinguishing between sales and secured borrowings.
SFAS No. 125 did not materially impact Bancshares' financial statements for the
quarter or the six month period ended June 30, 1998.
Comprehensive Income
- --------------------
Effective January 1, 1998, Bancshares adopted Statement of Financial Accounting
Standards Statement No. 130, "Reporting Comprehensive Income." Statement No. 130
establishes standards for reporting and presentation of comprehensive income and
its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. It requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is presented with
the same prominence as other financial statements. The adoption of Statement No.
130 did not have a material impact on Bancshares.
Earnings Per Share
- ------------------
Effective December 31, 1997, Bancshares adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share." Statement No. 128 replaced
the previously reported primarily and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. Earnings per share amounts
for the previously reported periods have been restated to conform to Statement
No. 128.
The following table sets forth the computation of basic and diluted earnings per
share.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------------------- -----------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Denominator for basic earnings per share:
Weighted-average shares outstanding 17,705,265 17,656,116 17,701,379 17,654,494
========== ========== ========== ==========
Denominator for diluted earnings per share:
Weighted-average shares outstanding 17,705,265 17,656,116 17,701,379 17,654,494
Employee stock options 105,364 102,534 110,367 92,937
---------- ---------- ---------- ----------
Denominator for diluted earnings per share 17,810,629 17,758,650 17,811,746 17,747,431
========== ========== ========== ==========
</TABLE>
There are no convertible securities which would effect the calculation of basic
and diluted earnings per share.
8
<PAGE> 9
CITIZENS BANCSHARES, INC.
-------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
----------------------------------------------------------
(Dollars in thousands, except per share data)
Common Stock Split
- ------------------
On May 11, 1998, the Board of Directors approved a two-for-one stock split paid
on June 1, 1998, to shareholders of record May 12, 1998. All references to the
number of average common shares and per share amounts for previous periods have
been restated to reflect the stock split.
ACQUISITIONS
- ------------
Effective March 6, 1998, UniBank affiliated with Bancshares by merging into
Citizens. The transaction was affected through the exchange of 13.25 common
shares of Bancshares for each of UniBank's 75,000 outstanding shares (total of
1,889,998 after giving effect to the two-for-one stock split paid by Bancshares
on June 1, 1998) with cash paid in lieu of fractional shares. UniBank had assets
of $217 million with ten offices in Jefferson County, operating as branches of
Citizens.
Effective May 12, 1998, Century Financial Corporation and its wholly owned
subsidiary, Century National Bank and Trust Company affiliated with Bancshares
by merging Century Financial Corporation into Bancshares with Century National
Bank and Trust Company operating as a subsidiary of Bancshares. The transaction
was affected through the exchange of .7926 common shares of Bancshares (after
giving affect to the two-for-one stock split paid by Bancshares on June 1, 1998)
for each of Century Financial Corporation's 5,121,914 outstanding common shares
with cash paid in lieu of fractional shares. Century Financial Corporation had
consolidated assets of $453 million and operated 13 offices in Beaver County and
one office in Butler County through its subsidiary, Century National Bank and
Trust Company. The following is a summary of separate results of operations for
Bancshares, UniBank and Century Financial Corporation for the three and six
months ended June 30, 1997.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30,1997 June 30, 1997
------------------ ----------------
Net interest income Net income Net interest income Net income
------------------- ---------- ------------------- ----------
<S> <C> <C> <C> <C>
Bancshares $10,684 $ 4,333 $21,155 $ 8,442
UniBank 2,114 623 3,929 1,135
Century 4,384 1, 253 8,613 2,555
</TABLE>
Pending Accounting Standards
- ----------------------------
In 1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 132, "Employers' Disclosure about Pensions and
Other Postretirement Benefits." The new Statement revises the required
disclosures for employee benefit plans, but it does not change the measurement
or recognition of such plans. The new standard requires some additional
information about benefit plans while eliminating certain disclosures and
standardizes the disclosures for pensions and other postretirement benefits.
SFAS 132 supercedes the disclosure requirements in SFAS 87, "Employers'
Accounting for Pensions," SFAS 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits, "
and SFAS 106, "Employers Accounting for Postretirement Benefits Other Than
Pensions." Statement No. 132 is effective for fiscal year beginning after
December 15, 1997. Management believes that adoption of this statement will not
have a material impact on Bancshares' financial position on results of
operations.
9
<PAGE> 10
CITIZENS BANCSHARES, INC.
-------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
----------------------------------------------------------
(Dollars in thousands, except per share data)
NOTE 2 - INVESTMENT AND MORTGAGE-BACKED SECURITIES
Investment securities available for sale at June 30, 1998 increased $90,802 or
21.0% when compared to December 31, 1997. This increase was mostly a result of
Bancshares transferring securities held to maturity with an amortized cost of
$6,512 to available for sale on March 6, 1998. These securities were owned by
UniBank prior to its merger with Citizens (Note 1) with no significant
difference between fair value and amortized cost. They were transferred to
conform the combined entity with Bancshares existing interest rate risk.
Additionally, Bancshares reclassed its remaining held to maturity portfolio with
the acquisition of Century. Approximately $60 million was transferred with no
significant difference between fair value and amortized cost.
The amortized costs, unrealized gains and losses and estimated fair values are
as follows:
<TABLE>
<CAPTION>
JUNE 30, 1998
-----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury securities $ 51,122 $ 278 $ (2) $ 51,398
U.S. Government agencies
and corporations 98,791 1,348 (123) 100,016
Obligations of states and
political subdivisions 36,686 837 (34) 37,489
Corporate and other securities 23,371 794 24,165
Mortgage-backed securities
GNMA, FHLMC and FNMA certificates 239,571 950 (383) 240,138
Agency collateralized mortgage obligations 33,589 116 (181) 33,524
Other 5,057 9 5,066
-------- -------- -------- --------
Total debt securities available for sale 488,187 4,332 (723) 491,796
Marketable equity securities 28,272 3,350 (310) 31,312
-------- -------- -------- --------
Total investment securities available for sale $516,459 $ 7,682 $ (1,033) $523,108
======== ======== ======== ========
</TABLE>
10
<PAGE> 11
CITIZENS BANCSHARES, INC.
-------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
----------------------------------------------------------
(Dollars in thousands, except per share data)
NOTE 2 - INVESTMENT AND MORTGAGE-BACKED SECURITIES - CONTINUED
The amortized costs, unrealized gains and losses and estimated fair values are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury securities $ 19,963 $ 124 $ (3) $ 20,084
U.S. Government agencies
and corporations 82,934 1,164 (161) 83,937
Obligations of states and
political subdivisions 14,278 480 (36) 14,722
Corporate and other securities 27,870 328 (108) 28,090
Mortgage-backed securities 263,638 1,425 (596) 264,467
Marketable equity securities 17,610 3,397 (1) 21,006
-------- -------- -------- --------
Total investment securities available for sale $426,293 $ 6,918 $ (905) $432,306
======== ======== ======== ========
SECURITIES HELD TO MATURITY:
U.S. Treasury securities $ 38,618 $ 158 $ (8) $ 38,768
U.S. Government agencies and corporations 22,981 51 (13) 23,019
Obligations of states and political
subdivisions 22,013 428 22,441
Mortgage-backed securities 2,099 219 2,318
Corporate and other securities 1,496 (24) 1,472
-------- -------- -------- --------
Total investment securities held to maturity $ 87,207 $ 856 $ (45) $ 88,018
======== ======== ======== ========
</TABLE>
11
<PAGE> 12
CITIZENS BANCSHARES, INC.
-------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
----------------------------------------------------------
(Dollars in thousands, except per share data)
NOTE 2 - INVESTMENT AND MORTGAGE-BACKED SECURITIES - CONTINUED
The amortized cost and estimated market value of debt securities at June 30,
1998 by contractual maturity are shown below. Expected maturities will likely
differ from contractual maturities because some issuers have the right to call
or repay obligations at any time with or without penalty.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
<S> <C> <C>
DEBT SECURITIES AVAILABLE FOR SALE:
Due in one year or less $ 38,621 $ 38,749
Due after one year through five years 83,304 83,970
Due after five years through ten years 71,200 72,691
Due after ten years 16,845 17,658
Mortgage-backed securities 278,217 278,728
--------- ---------
Total debt securities available for sale $488,187 $491,796
======== ========
</TABLE>
Gross gains and losses were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------- ----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross gains $330 $ 0 $361 $ 0
Gross losses 8 0 8 4
</TABLE>
12
<PAGE> 13
CITIZENS BANCSHARES, INC.
-------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
----------------------------------------------------------
(Dollars in thousands, except per share data)
NOTE 3 - LOANS
Total loans increased $14,584 or 1.3% in the first six months of 1998 when
compared to December 31, 1997. The increase in the loan portfolio during the
first half of 1998 occurred mostly in 1- 4 family residential mortgages. Funding
for the 1998 loan growth was provided by a combination of deposit growth and
short term liquid assets.
The following table represents the composition of Bancshares' loan portfolio:
<TABLE>
<CAPTION>
JUNE 30, December 31,
1998 1997
---------- ----------
<S> <C> <C>
Commercial, financial and agricultural $ 237,657 $ 250,569
Residential real estate mortgage 498,635 449,828
Commercial real estate 217,176 221,227
Construction 14,473 15,591
Consumer 160,532 184,296
Real estate mortgage loans held for sale 13,957 6,335
---------- ----------
Total loans $1,142,430 $1,127,846
========== ==========
</TABLE>
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Bancshares allowance for loan losses was $20,454 at June 30, 1998 compared to
$18,276 at December 31, 1997. This represents a $2,178 or 12.0% increase over
the December 31, 1997 balance. Contributing to this increase was a $3,409 loan
loss provision charged to operations during the first half of 1998, of which
$2,000 additional provision for loan losses were related to the Century
acquisition to increase Century's loan loss allowance as a percentage of loans
outstanding to Bancshares' level.
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1998 1997
-------- --------
<S> <C> <C> <C>
Balance at January 1, $ 18,276 $ 15,629
Provision for loan losses 3,409 1,215
Recoveries 516 565
Loans charged-off (1,747) (1,340)
-------- --------
Balance at June 30 $ 20,454 $ 16,069
======== ========
Net charge-offs as a percentage of average loans .22% .15%
Allowance for loan loss to total loans 1.79 1.51
</TABLE>
Nonperforming assets include nonperforming loans and other real estate owned.
Nonperforming loans consists of non-accrual loans, loans 90 days or more past
due and restructured loans. Nonaccrual loans represent loans on which interest
accruals have been discontinued and any previously accrued interest is reversed
against current income.
13
<PAGE> 14
CITIZENS BANCSHARES, INC.
-------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
----------------------------------------------------------
(Dollars in thousands, except per share data)
NOTE 4 - ALLOWANCE FOR LOAN LOSSES - CONTINUED
Restructured loans are loans with respect to which a borrower has been granted a
concession on the interest rate or the original repayment terms because of
financial difficulties.
The following table sets forth information regarding nonperforming assets:
<TABLE>
<CAPTION>
JUNE 30, December 31,
1998 1997
------ ------
<S> <C> <C>
Nonaccrual loans $3,114 $5,203
Loans past due 90 days or more 2,490 1,446
Restructured loans 215 211
------ ------
Total nonperforming loans $5,819 $6,860
====== ======
</TABLE>
Nonperforming loans as a percentage of total loans,
net of unearned income 0.51% 0.64%
Nonperforming assets as a percentage of total assets 0.31% 0.40%
Nonperforming assets as a percentage of allowance
for loan losses 0.28% 0.43%
Total nonperforming assets at June 30, 1998 totaled $5,819 compared to $6,860 at
December 31, 1997. Nonperforming assets for both periods presented are comprised
mostly of nonaccrual loans which totaled $3,114 and $5,203 at June 30, 1998 and
December 31, 1997, respectively.
Information regarding impaired loans is as follows:
<TABLE>
<CAPTION>
For the six months ended June 30,
1998 1997
------ ------
<S> <C> <C>
Average investment in impaired loans $5,434 $4,955
Interest income recognized on impaired loans $ 338 $ 210
Interest income received on impaired loans $ 171 $ 201
</TABLE>
14
<PAGE> 15
CITIZENS BANCSHARES, INC.
-------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
----------------------------------------------------------
(Dollars in thousands, except per share data)
NOTE 4 - ALLOWANCE FOR LOAN LOSSES - CONTINUED
<TABLE>
<CAPTION>
JUNE 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Balance of impaired loans $4,852 $5,025
Specific allocation associated with
impaired loans 425 545
</TABLE>
NOTE 5 - CONCENTRATIONS OF CREDIT RISK
Bancshares, through its subsidiary banks, grants residential, consumer and
commercial loans to customers located primarily in the eastern Ohio counties of
Columbiana, Jefferson, Stark, Mahoning, Carroll and Belmont, Hancock county in
West Virginia and Beaver and Butler counties in Pennsylvania.
Real estate mortgage loans, including construction loans and loans held for
sale, totaled $527,065 of loans at June 30, 1998, and are secured primarily by 1
- - 4 family residences. Commercial real estate loans comprised 19.01% of loans at
June 30, 1998 and represent borrowings secured by commercial buildings and real
estate primarily in the Citizens, Century and FNB market areas.
Also at June 30, 1998, 8.75% of total loans were to a group of related
enterprises involved in purchasing pools of one-to-four family residential, home
equity and other consumer loans. The primary repayment source for the latter is
the underlying pools of consumer and mortgage debt that represent diverse loan
types and geographic distribution.
Citizens, Century, and FNB are parties to financial instruments which involve
off-balance sheet risk. These instruments are entered into in the normal course
of business to meet the financing needs of their customers. These financial
instruments include commitments to make loans. There were $101,897 in variable
rate commitments and $16,714 in fixed rate commitments at June 30, 1998. The
fixed rate commitments have an interest rate range of 5.69% to 8.32%. There were
$72,353 in variable rate commitments and $4,824 in fixed rate commitments at
year end 1997. The fixed rate commitments have an interest rate range of 6.375%
to 8.00%. All fixed rate mortgage real estate commitments expire after sixty
days. Since many expire without being used, these amounts do not necessarily
represent future cash commitments.
The exposure to credit loss in the event of nonperformance by the other party to
the financial instrument for commitments to make loans and lines and letters of
credit is represented by the contractual amount of those instruments. Citizens,
Century and FNB follow the same credit policy to make such commitments as is
followed for those loans recorded in the financial statements. In management's
opinion, these commitments represent normal banking transactions and no material
losses are expected to result therefrom. Collateral obtained upon exercise of
the commitments is determined using management's credit evaluation of the
borrower and may include real estate and/or business assets.
15
<PAGE> 16
CITIZENS BANCSHARES, INC.
-------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
----------------------------------------------------------
(Dollars in thousands, except per share data)
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Citizens, Century and FNB are involved in various legal actions arising in the
ordinary course of business. In the opinion of management, the outcome of these
matters will not have a material effect on Bancshares.
Bancshares' subsidiary banks were required to have approximately $19,399 of cash
on hand or on deposit with the Federal Reserve Bank to meet regulatory reserve
requirements at June 30, 1998. These balances do not earn interest.
NOTE 7 - FEDERAL HOME LOAN BANK ADVANCES
Bancshares' Federal Home Loan Bank advances at June 30, 1998 were:
<TABLE>
<CAPTION>
Maturity or first
Amount Rate repricing date
------ ---- --------------
<S> <C> <C>
123,305 5.42% 1998
23,500 6.15 1999
5,000 5.59 2001
-------
$151,805
========
</TABLE>
16
<PAGE> 17
CITIZENS BANCSHARES, INC.
-------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS.
- --------------
(Dollars in thousands, except per share data)
The purpose of this discussion is to focus on information concerning the
consolidated financial condition of Bancshares at June 30, 1998, compared to
December 31, 1997, and the results of operations for the three and six months
ended June 30, 1998, as compared to the same period in 1997, which is not
otherwise apparent from the financial statements. This discussion should be read
in conjunction with the interim consolidated financial statements and the
footnotes thereto included elsewhere in this Form 10-Q. Forward-looking
statements contained in this discussion involve risks and uncertainties and are
subject to change based on various important factors. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements, and the purpose of this paragraph is to secure the use of the safe
harbor provisions. While Bancshares believes that the assumptions underlying the
forward- looking statements contained herein and in other public documents are
reasonable, any of the assumptions could prove to be inaccurate, and
accordingly, actual results and experience could differ materially from the
anticipated results or other experiences expressed by Bancshares in its
forward-looking statements.
SUMMARY OF FINANCIAL
Bancshares' consolidated assets were $1,804,478 at June 30, 1998, an increase of
$13,455 or .75% over assets at December 31, 1997. This increase was attributable
to an increase in net loans receivable offset by a reduction in Federal funds
sold. Total consolidated liabilities increased $11,665 or .71% when compared to
total consolidated liabilities as of December 31, 1997. The increase in total
liabilities was mostly attributable to an increase in total deposits offset by a
decrease in Federal Home Loan Bank advances. Bancshares total consolidated
stockholders' equity increased $2,349 or 1.5% when compared to total
stockholders' equity at December 31, 1997. This increase was primarily a result
of $9,179 in net income earned, less cash dividends declared to shareholders of
$5,524.
RESULTS OF OPERATIONS
Comparison of the results of operations for the three months ended June 30, 1998
and 1997 is as follows:
Core earnings, which excludes the after tax financial impact of merger,
integration, and restructuring expense, an additional provision for loan losses
related to second quarter acquisitions, and gains on sales of loans and
investments, were $7,037 a 13.6% increase from the $6,195 earned in the
comparable period in 1997. The core earnings per common share for the second
quarter of 1998 were $.40 representing an increase of 14.3% from the $.35 earned
per share in the comparable period in 1997.
Net income for the quarter ended June 30, 1998, included nonrecurring after tax
income and expense. The nonrecurring items for the quarter ended June 30, 1998,
were a $754 after tax merger, integration and restructuring charge related to an
acquisition, a $1,300 after tax additional provision for loan losses related to
an acquisition, and after tax gains on the sales of loans and securities of
$268. The merger, integration and restructuring charge was for severance pay,
branch closures, service contracts, and transaction fees. Net income, as a
result of the after tax financial impact of the nonrecurring items previously
discussed, was $5,051 for the second quarter of 1998 and decreased 18.53% from
the $6,200 earned in the comparable period in 1997. Basic and diluted earnings
per share for the second quarter of 1998 were $.29, representing a decrease of
0.06% over the $.35 basic and diluted earnings per share for the comparable
period in 1997.
17
<PAGE> 18
The provision for loan losses of $2,714 for the quarter ended June 30, 1998
increased $2,112 from the comparable period in 1997. The increase in the
provision for loan losses was mostly attributable to a $2,000 additional
provision related to the Century acquisition to increase Century's loan loss
allowance as a percent of loans outstandings to Bancshares level.
Total other income of $3,054 for the second quarter of 1998 increased $441 or
15.6% from the comparable period in 1997. This increase was primarily the result
of investment gains of $322. The rise in other income also was affected by an
increase in service charges on deposit accounts and gain on the sale of loans of
$331 for the three months ended
CITIZENS BANCSHARES, INC.
-------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS.
- --------------
(Dollars in thousands, except per share data)
June 30,1998 and $132 for the three months ended June 30, 1997. Income earned on
the bank owned life insurance ("BOLI") for the second quarter 1998 was $360 as
compared to $151 for the second quarter 1997.
Total other expense of $11,553 for the second quarter of 1998 increased $1,223
or 11.8% from the comparable period in 1997. This increase was primarily due to
the pretax merger, integration and restructure expense of $972 discussed above.
The increase in other operating expense also was affected by an increase in
amortization of intangible assets of $199 in 1998 compared to the same period in
1997.
Comparison of the results of operations for the six months ended June 30, 1998
and 1997 is as follows:
Core earnings, which excludes the after tax financial impact of merger,
integration, and restructuring expense, and gains on sales of loans and
investments, were $13,725 a 13.6% increase from the $12,084 earned in the
comparable period in 1997. The core earnings per common share for the first half
of 1998 were $.78 representing an increase of 14.7% from the $.68 earned per
share in the comparable period in 1997.
Net income for the six months ended June 30, 1998, included nonrecurring after
tax income and expense. The nonrecurring items were a $3,555 after tax merger,
integration and restructuring charge related to two acquisitions, a $1,300 after
tax additional provision for loan losses related to an acquisition, and after
tax gains on the sales of loans and securities of $309. The merger, integration
and restructuring charge was for severance pay, branch closures, service
contracts, and transaction fees. Net income, as a result of the after tax
financial impact of the nonrecurring items previously discussed, was $9,179 for
the first half of 1998 and decreased 24.3% from the $2,953 earned in the
comparable period in 1997. Basic and diluted earnings per share for the first
half of 1998 were $.52, representing a decrease of 0.17% over the $.69 basic
earnings per share and a decrease of .16% over the $.68 diluted earnings per
share for the comparable period in 1997.
The provision for loan losses of $3,409 for the six months ended June 30, 1998
increased $2,194 or 180.1% from the comparable period in 1997. The increase in
the provision for loan losses was mostly attributable to a $2,000 additional
provision related to the Century acquisition to increase Century's loan loss
allowance as a percent of loans outstandings to Bancshares' level.
Total other income of $6,028 for the six months ended June 30,1998 increased
$1,077 or 21.8% from the comparable period in 1997. This increase was primarily
the result of; (1) security gains realized, (2) income earned on the bank owned
life insurance ("BOLI"). Income from BOLI was $666 for the six months ended June
30, 1998 as compared
<PAGE> 19
CITIZENS BANCSHARES, INC.
-------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------
OPERATIONS (CONTINUED).
- -----------------------
to $161 for the six months ended June 30, 1997. Citizens implemented the single
premium BOLI to offset the cost of employee benefits, (3) an increase in
services charges on deposit accounts and gain on sale of loans of $361 and $189
for the six month periods ended June 30, 1998 and 1997, respectively.
Total other expense of $25,678 for the six months of 1998 increased $5,667 or
28.4% from the comparable period in 1997. This increase was primarily due to the
pretax merger, integration and restructure expense of $4,904 discussed above.
The increase in other operating expense also was affected by an increase in
amortization of intangible assets of $405 in 1998 compared to the same period in
1997.
18
<PAGE> 20
CITIZENS BANCSHARES, INC.
-------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------
OPERATIONS (CONTINUED).
- -----------------------
(Dollars in thousands, except per share data)
RESULTS OF OPERATIONS - CONTINUED
Excluding the nonrecurring after tax expense and income items discussed above,
return on average shareholders' equity was 17.62% and return on average assets
was 1.54%. In addition, excluding the nonrecurring after tax expense and income,
the Corporation's efficiency ratio, a measure of operating efficiency, was
48.33% for the second quarter of 1998.
NET INTEREST INCOME
<TABLE>
<CAPTION>
For the six months ended June 30,
1998 1997
---------- ----------
<S> <C> <C>
Net interest income $ 35,958 $ 33,697
Taxable equivalent adjustment 1,372 1,211
---------- ----------
Net interest income taxable equivalent $ 37,330 $ 34,908
========== ==========
Net interest margin 4.30% 4.44%
Taxable equivalent adjustment .16 .16
---------- ----------
Net interest margin taxable equivalent 4.46% 4.60%
========== ==========
</TABLE>
Net interest income taxable equivalent, of $37,330, for the six months ended
June 30, 1998 increased $2,422 from the comparable period in 1997.
The net interest margin, fully taxable equivalent of 4.46% for the first six
months of 1998 decreased from 4.60% for the comparable period in 1997. The yield
on average earning assets was 8.47% for the first six months of 1998 compared to
8.51% for the comparable period in 1997. The cost of interest bearing
liabilities was 4.52% for the first six months of 1998 compared to 4.49% for the
comparable period in 1997. Increases in interest rates paid on Federal Home Loan
Bank advances and securities sold under repurchase agreements have contributed
to the increase in the cost of interest bearing liabilities for the first six
months of 1998 compared to the same period in 1997.
Average gross earning assets increased $9,000 during the second quarter of 1998,
while the average rate earned on these assets increased from 8.33% at December
31, 1997 to 8.47% at June 30, 1998.
19
<PAGE> 21
CITIZENS BANCSHARES, INC.
-------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------
OPERATIONS (CONTINUED).
- -----------------------
(Dollars in thousands, except per share data)
DEPOSITS
Total noninterest bearing demand deposits increased $20,953 or 15.6% in the
first half of 1998 when compared to December 31, 1997 and resulted in total
deposits increasing by $19,912 during the same period.
NONPERFORMING ASSETS
Other real estate totaled $139 at June 30, 1998 and $166 at December 31, 1997,
respectively.
LIQUIDITY
Bancshares' liquidity position remained strong at June 30, 1998. Core deposits,
representing Bancshares' largest most stable and generally least costly source
of funds, totaled $1,280,892 and were 114.16% of total loans at June 30, 1998.
The core deposit levels at June 30, 1998 approximated the levels at year-end
1997.
Cash and cash equivalents, interest-bearing deposits and securities available
for sale are Bancshares' most liquid assets. At June 30, 1998, these assets
totaled $598,526, an increase of $35,556 or 16.7% from December 31, 1997. This
increase is mostly a result of Bancshares transferring UniBank's held to
maturity securities to available for sale (Note 1 ). All securities at
Bancshares held to maturity were reclassified to available for sale in order to
provide additional liquidity following the acquisitions in 1998. Approximately
$60 million of securities were reclassified. The market value of the securities
transferred was not materially different than their book value.
Management believes that Bancshares' liquidity position is strong based on its
high level of cash, cash equivalents, core deposits, the stability of its other
funding sources and its capital base.
20
<PAGE> 22
CITIZENS BANCSHARES, INC.
-------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------
OPERATIONS (CONTINUED).
- -----------------------
(Dollars in thousands, except per share data)
CAPITAL RESOURCES
Shareholders' equity totaled $159,016 at June 30, 1998, compared to $156,667 at
December 31, 1997. The ratio of shareholders' equity to assets was 8.81% at June
30, 1998 and 8.75% at December 31, 1997, respectively.
<TABLE>
<CAPTION>
JUNE 30, 1998 December 31, 1997
------------------------ -------------------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C>
Tier 1 risk-based capital
Actual $146,721 12.93% $145,706 12.90%
Required 45,382 4.00 45,821 4.00
Total risk-based capital
Actual $161,050 14.20% $159,687 14.10%
Required 90,763 8.00 91,641 8.00
</TABLE>
The following table summarizes Bancshares' consolidated leverage capital ratio
and required amounts at June 30, 1998 and December 31, 1997.
<TABLE>
<CAPTION>
JUNE 30, 1998 December 31, 1997
------------------------ -----------------------
Leverage Ratio AMOUNT PERCENT Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Actual $146,721 8.19% $145,706 8.60%
Minimum required 53,774 3.00 50,934 3.00
Maximum required 89,624 5.00 84,890 5.00
</TABLE>
The unrealized gain on securities available for sale, net of tax effect, was
$4,330 at June 30, 1998, compared to an unrealized gain of $3,919 at December
31, 1997. The increase of $411 was primarily attributable to the
reclassification of Bancshares' held to maturity portfolio.
GENERAL
The Corporation acquired UniBank on March 6, 1998, and the branches of UniBank
became part of Bancshares' lead bank, Citizens . In the communities of
Steubenville and Wintersville, duplications of branch offices existed;
therefore, Citizens consolidated two offices without sacrificing customer
service while yielding greater efficiencies in operations. We are very pleased
that the technical conversion of customer accounts went smoothly. We are now in
the number one position in deposit and loan market share in Jefferson County,
where Citizens has 14 banking locations to serve its customers.
21
<PAGE> 23
CITIZENS BANCSHARES, INC.
-------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------
OPERATIONS (CONTINUED).
- -----------------------
(Dollars in thousands, except per share data)
GENERAL - CONTINUED
Century Financial Corporation ("Century"), Bancshares' largest acquisition, was
completed May 12, 1998. The Rochester, Pennsylvania, based bank has 13 banking
offices in Beaver and Butler counties and will initially operate as a
wholly-owned bank subsidiary of Bancshares. As of March 31, 1998, Century had
assets of $453 million, loans totaling $352 million, and deposits totaling $392
million.
Effective July 18, 1998, First National Bank of Chester ("FNB") Chester, West
Virginia, affiliated with Citizens by merging and becoming a branch of Citizens.
The transaction was accounted for as a "pooling of interests". FNB had assets of
$34,575 with the principal office located in Hancock county.
On May 21, 1998, Bancshares and Mid Am, Inc. ("Mid Am"), Bowling Green, Ohio,
announced a Definitive Agreement for a merger of equals. Under the terms of the
agreement, Mid Am shareholders will receive 0.385 of a share of Bancshares
common stock for each Mid Am share owned as a tax-free exchange. Mid Am is a
$2.2 billion diversified financial services holding company headquartered in
Bowling Green, Ohio. The merger is subject to normal regulatory and shareholder
approval. Closing is expected in the fourth quarter of 1998.
On July 22, 1998, Bancshares, Mid Am and The Ohio Bank ("Ohio Bank") Findlay,
Ohio, announced a Definitive Agreement to merge. Under the terms of the
agreement, Ohio Bank shareholders will receive 63.25 shares of Bancshares
common stock for each Ohio Bank share owned as a tax-free exchange. The
transaction is expected to close by December 31, 1998.
YEAR 2000
The Year 2000 issue deals with the fact that many computer applications, if not
corrected, could fail or create erroneous results by or at the year 2000
because many existing computer programs use only two digits to identify a year
in the date field and these programs were not designed or developed while
considering the impact of the upcoming change in the century. In order to
assess the year 2000 issue, Bancshares has established a project group that
represents functional areas to be affected by Year 2000 changes. The Year 2000
project group meets weekly to review Bancshares' progress. All data processing
systems have been identified and all major systems and most lesser systems have
been assessed for Year 2000 compliance. This assessment indicates that there
will be no material impact of Bancshares' operations or budgets to bring
systems into compliance by the year end 1998. Most security and environmental
systems have also been assessed with no material impact indicated. Regardless
of the Year 2000 compliance of Bancshares' systems, there is not complete
assurance that Bancshares will not be adversely affected to the extent other
entities not affiliated with Bancshares, such as vendors, services suppliers
and loan and other counterparties are unsuccessful in properly addressing this
issue.
Bancshares expects to move into our new retail bank/trust and investment complex
in Boardman during the third quarter of 1998. Located on an out parcel of
Creekside Place Shopping Center at the intersection of Route 224
(Boardman-Poland Road) and Tippecanoe Road, the new facility will replace an
older branch in Boardman and will incorporate the administrative and operations
areas of the Trust Group in a separate section.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Asset and Liability Management
The Corporation's 1997 annual report and Form 10-K provide information about
Bancshares' management of interest rate risk and, to a lesser extent, liquidity
risk. Bancshares does not maintain a trading account for any class of financial
instrument and is not affected by foreign currency exchange risk or commodity
price risk. Of the $28 million in equities held by Bancshares and subsidiaries,
$14 million represent FHLB stock and Federal Reserve Bank Stock.
22
<PAGE> 24
CITIZENS BANCSHARES, INC.
-------------------------
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK (CONTINUED)
The projected volatility of +/- 200 bp change in interest rates at June 30, 1998
falls well within the Board of Directors guidelines of +/- 30%.
<TABLE>
<CAPTION>
Projected change in net portfolio value
---------------------------------------
Change in rates $Amount $Change %Change
--------------- ------- ------- -------
<S> <C> <C> <C>
+200bp $190,671 $ 12,036 6%
Base 202,707
-200bp 185,610 17,097 8%
</TABLE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
- ----------------------------
There is no pending litigation, other than routine litigation
incidental to the business of Bancshares and its affiliates, or of a
material nature involving or naming Bancshares or any of its affiliates
as a defendant. Further, there are no material legal proceedings in
which any director, executive officer, principal shareholder or
affiliate of Bancshares is a party or has a material interest which is
adverse to Bancshares or any of its affiliates. None of the routine
litigation in which Bancshares or any of its affiliates are involved is
expected to have a material adverse impact upon the financial position
or results of operations of Bancshares or any of its affiliates.
ITEM 2. CHANGES IN SECURITIES.
- --------------------------------
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
- ------------------------------------------
Not Applicable.
23
<PAGE> 25
CITIZENS BANCSHARES, INC.
-------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- --------------------------------------------------------------
(a) A Special Meeting of the Shareholders of Citizens Bancshares, Inc.
was held on May 11, 1998 (the "Special Meeting"). In addition, the 1998
annual shareholders meeting of Citizens Bancshares, Inc. was held on
May 11, 1998 (the "Annual Meeting").
(b) At the Annual Meeting the following persons were elected to serve
three (3) year terms:
Marty E. Adams
Keith D.Burgett
Willard L. Davis
Kenneth E. McConnell
The following directors were not up for election at the Annual
Meeting and their respective terms in office continued after the
Annual Meeting:
Del Goedeker
Charles I. Homan
Fred H. Johnson
Fred H. Johnson III
H. Lee Kinney
Gerard P. Mastroianni
James C. McBane
Elden L. Surbey
Glenn F. Thorne
Joseph N. Tosh II
(c) At the Annual Meeting, the following matters were voted upon and the
results of such votes were as follows:
<TABLE>
<S> <C>
(1) Election of Directors
Marty E. Adams by 5,906,069 votes for, and 34,561 votes withheld
Keith D. Burgett by 5,921,749 votes for, and 18,881 votes withheld
Willard L. Davis by 5,890,811 votes for, and 49,819 votes withheld
Kenneth E. McConnell by 5,891,326 votes for, and 49,304 votes withheld
</TABLE>
(2) Approval of a Directors' Stock Retainer Plan by 4,832,276 votes
for, 367,435 votes against, and 212,142 votes withheld
(3) Approval of a Nonstatutory Stock Option Plan for Nonemployee
Directors by 4,875,060 votes for, 323,397 votes against, and
213,396 votes withheld
24
<PAGE> 26
CITIZENS BANCSHARES, INC.
-------------------------
(d) At the Special Meeting, the following matters were voted upon and
the results of such votes were as follows:
(1) Adoption of Agreement and Plan of Merger with Century Financial
Corporation. by 5,368,432 votes for, 5,218 votes against, and
18,910 votes withheld
(2) Amendment of Articles of Incorporation to increase the number of
authorized common shares to 36,000,000. by 5,327,910 votes for,
42,758 votes against, and 21,892 votes withheld
(3) Amendment of Article Seven of the Code of Regulations to increase
the number of members of the Board of Directors to Twenty-one
(21). by 5,037,628 votes for, 242,457 votes against, and 112,475
votes withheld
ITEM 5. OTHER INFORMATION.
- ---------------------------
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- -------------------------------------------
(a) The following Exhibits are included in this Form 10-Q or are
incorporated by reference as noted in the following index:
PART II - OTHER INFORMATION
---------------------------
EXHIBIT INDEX
-------------
EXHIBIT 3 Articles of Incorporation, By laws
(1) Registrant's Fifth Amended Articles of Incorporation,
(incorporated by reference in Exhibit 3.1 to the Form S-4
Registration Statement No. 333-60741 of Citizens Bancshares,
Inc.
(2) Registrant's Regulations, as amended on May 11, 1998.
EXHIBIT 10 Material Contracts
(1) The Citizens Bancshares Inc. Profit-Sharing Plan and Trust
(formerly known as the CBC Salineville Profit Sharing Plan and
Trust) (incorporated by reference in Exhibit 10 (2) to the
Form S-4 Registration Statement No. 0-18209 of Citizens
Bancshares, Inc.).
25
<PAGE> 27
CITIZENS BANCSHARES, INC.
-------------------------
PART II - OTHER INFORMATION
---------------------------
EXHIBIT INDEX-CONTINUED
-----------------------
(2) Citizens Bancshares, Inc. Employee Stock Ownership Plan
(incorporated by reference in Exhibit 10 (3) to the Form S-4
Registration Statement No. 0-18209 of Citizens Bancshares,
Inc.).
(3) Form of Indemnification Agreement between Citizens Bancshares,
Inc. and Individual Directors, Officers or Representatives
(incorporated by reference in Exhibit 10 (4) to the Form 10-K
of Citizens Bancshares, Inc. for the fiscal year ended
December 31, 1989).
(4) Employment Agreement by and among Citizens Bancshares, Inc.,
The Citizens Banking Company and Marty E. Adams (incorporated
by reference in Exhibit 10 (5) to the Form 10-K of Citizens
Bancshares, Inc. for the fiscal year ended December 31, 1992).
(5) Amendment to Executive Employment Agreement by and among
Citizens Bancshares, Inc., The Citizens Banking Company and
Marty E. Adams. (incorporated by reference in Exhibit 10 (8)
to the Form 10-K of Citizens Bancshares, Inc. for the fiscal
year ended December 31, 1993).
(6) Agreement by and among Citizens Bancshares, Inc., The Citizens
Banking Company and Frank J. Koch. (incorporated by reference
in Exhibit 10 (9) to the Form 10-K of Citizens Bancshares,
Inc. for the fiscal year ended December 31, 1993).
(7) Citizens Bancshares, Inc. Non-Statutory Stock Option and Stock
Appreciation Rights Plan.(incorporated by reference in Exhibit
10 (11) to the Form 10-Q of Citizens Bancshares, Inc. for the
quarter ended June 30, 1995).
(8) The Employee Retirement Plan for Citizens Bancshares, Inc.
(incorporated by reference in Exhibit 10 (12) to the Form 10-Q
of Citizens Bancshares, Inc. for the quarter ended June 30,
1995).
(9) Purchase and Assumption agreement between The Metropolitan
Savings Bank of Ohio and The Citizens Banking Company
(incorporated by reference in Exhibit 10 (12) to the Form 10-Q
of Citizens Bancshares, Inc. for the quarter ended June 30,
1997).
(10) Affiliation Agreement by and among Citizens Bancshares, Inc.,
The Citizens Banking Company and UniBank (incorporated by
reference in Exhibit 10 (13) to the Form 10-Q of Citizens
Bancshares, Inc. for the quarter ended September 30, 1997).
26
<PAGE> 28
CITIZENS BANCSHARES, INC.
-------------------------
PART II - OTHER INFORMATION
---------------------------
EXHIBIT INDEX-CONTINUED
-----------------------
(11) Purchase Agreement between The Citizens Banking Company and
ValueNet Inc. (incorporated by reference in Exhibit 10 (14) to
the Form 10-Q of Citizens Bancshares, Inc. for the quarter
ended September 30, 1997).
(12) Affiliation Agreement by and among Citizens Bancshares, Inc.,
The Citizens Banking Company and UniBank (incorporated by
reference in Exhibit 2 (1) to the Form S-4 Registration
Statement No. 333-42911 of Citizens Bancshares, Inc.).
(13) Stock Option Agreement by and between Citizens Bancshares,
Inc. and Century Financial Corporation (incorporated by
reference in Exhibit (a) to the Schedule 13D of Citizens
Bancshares, Inc. filed with the Commission on November 26,
1997).
(14) Agreement and Plan of Merger by and between Citizens
Bancshares, Inc. and Century Financial Corporation
(incorporated by reference in Exhibit to the Form 8-K of
Citizens Bancshares, Inc. filed with the Commission on January
2, 1998).
(15) The Amended and Restated Agreement and Plan of Merger by and
between Citizens Bancshares,Inc. and Mid Am, Inc.
(incorporated by reference in Exhibit 2 to the Form S-4
Registration Statement No.333-60741 of Citizens Bancshares,
Inc.).
(16) Stock Option Agreement by and between Citizens Bancshares,
Inc. and Mid Am, Inc. (incorporated by reference in Exhibit 2
to the Schedule 13D of Citizens Bancshares, Inc., filed with
the Commission on May 29, 1998).
(17) Stock Option Agreement by and between Mid Am, Inc. and
Citizens Bancshares, Inc. (incorporated by reference in
Exhibit 3 to the Schedule 13D of Citizens Bancshares, Inc.,
filed with the Commission on May 29, 1998).
(18) Employment Agreement by and among Citizens Bancshares, Inc.,
The Citizens Banking Company, Century National Bank and Trust
and Joseph N. Tosh.
(19) Citizens Bancshares, Inc. 1998 Stock Option Plan for
Nonemployee Directors.
(20) Citizens Bancshares, Inc. Directors' Stock Retainer Plan.
EXHIBIT 11 Statement regarding Computation of Per Share Earnings
(included in Note 1 to the Consolidated Financial Statements).
EXHIBIT 27 Financial Data Schedules
27
<PAGE> 29
REPORTS ON FORM 8-K
-------------------
Citizens Bancshares, Inc. filed reports on Form 8-K during the quarter ended
June 30, 1998 as follows:
(1) Form 8-K dated May 21, 1998 (Item 5) regarding proposed merger
of equals transaction with Mid Am, Inc.
(2) Form 8-K dated June 2, 1998 (Item 2) regarding consummation of
Century Financial Corporation merger.
(3) From 8-K dated June 25, 1998 (Item 5) regarding consummation
of Century Financial Corporation merger.
(4) Form 8-K/A dated June 25, 1998 including:
(i) Pro Forma Condensed Consolidated Balance Sheet
as of March 31, 1998.
(ii) Pro Forma Condensed Statement of Income for the
Three Months Ended March 31, 1998
(iii) Pro Forma Condensed Statements of Income for the
Years Ended December 31, 1997, 1996 and 1995.
28
<PAGE> 30
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.
Citizens Bancshares, Inc.
Date: August 13, 1998 Marty E. Adams
--------------- --------------
Marty E. Adams
President & Chief Executive Officer
Vice Chairman
(Principal Executive Officer)
Date: August 13, 1998 William L. White III
--------------- --------------------
William L. White III
Senior Vice President
Chief Financial Officer
(Principal Financial Officer)
29
<PAGE> 1
Exhibit 3(2)
AMENDED
AS OF 5/11/98
REGULATIONS
OF
CITIZENS BANCSHARES, INC., AS AMENDED
MEETINGS OF SHAREHOLDERS
------------------------
SECTION 1. ANNUAL MEETING.
---------------
The annual meeting of shareholders of the Corporation shall be held on
the first Thursday in March or at such other time and on such business day as
the directors may determine each year. The annual meeting shall be held at the
principal office of the Corporation or at such other place within or without the
State of Ohio as the directors may determine. The directors shall be elected
thereat and such other business transacted as may properly be brought before the
meeting.
SECTION 2. SPECIAL MEETINGS.
-----------------
Special meetings of the shareholders may be called at any time by the
Chairman of the Board, the President, a Vice President or by the directors by
action at a meeting or a majority of the directors acting without a meeting, or
by shareholders holding 50% or more of the outstanding shares entitled to vote
thereat. Such meetings may be held within or without the State of Ohio at such
time and place as may be specified in the notice thereof.
SECTION 3. NOTICE OF MEETINGS.
-------------------
Written notice of every annual or special meeting of the shareholders
stating the time, place and purposes thereof shall be given to each shareholder
entitled to notice as provided by law, not less than seven nor more than ninety
days before the date of the meeting. Such notice may be given by or at the
direction of the Chairman of the Board, the President, any Vice President or the
Secretary by personal delivery or by mail addressed to the shareholder at his
last address as it appears on the records of the Corporation. Any shareholder
may waive in writing notice of any meeting, either before or after the holding
of such meeting, and, by attending any meeting without protesting the lack of
proper notice, shall be deemed to have waived notice thereof.
SECTION 4. PERSONS BECOMING ENTITLED BY OPERATION OF LAW OR TRANSFER.
----------------------------------------------------------
Every person who, by operation of law, transfer or any other means
whatsoever, shall become entitled to any shares, shall be bound by every notice
in respect of such share or shares which previously to the entering of his name
and
<PAGE> 2
address on the records of the Corporation shall have been duly given to the
person from whom he derives his title to such shares.
SECTION 5. QUORUM AND ADJOURNMENTS.
------------------------
Except as may be otherwise required by law or by the Articles of
Incorporation or these Regulations, the holders of a majority of the
then-outstanding shares entitled to vote in an election of directors, taken
together as a single class ("Voting Shares"), present in person or by proxy,
shall constitute a quorum; provided that any meeting duly called, whether a
quorum is present or otherwise may, by vote of the holders of the majority of
the Voting Shares represented thereat, adjourn from time to time, in which case
no further notice of any such adjourned meeting need be given.
SECTION 6. BUSINESS TO BE CONDUCTED AT MEETINGS.
-------------------------------------
At any meeting of shareholders, only such business shall be conducted
as shall have been properly brought before the meeting. To be properly brought
before a meeting of shareholders, business must be specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the
directors, otherwise properly brought before the meeting by or at the direction
of the directors or otherwise properly brought before the meeting by a
shareholder. For business to be properly brought before a meeting of
shareholders by a shareholder, the shareholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than sixty (60) days nor
more than ninety (90) days prior to the meeting; provided, however, that in the
event that less than seventy-five (75) days' notice or prior public disclosure
of the date of the meeting is given or made to the shareholders, notice by the
shareholder to be timely must be so received not later than the close of
business on the fifteenth (15th) day following the earlier of the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. A shareholder's notice to the Secretary shall set forth as to each matter
the shareholder proposes to bring before the meeting (i) a brief description of
the business desired to be brought before the meeting and the reasons for
conducting such business at the meeting, (ii) the name and record address of the
shareholder proposing such business, (iii) the class and number of shares of the
Corporation which are beneficially owned by such shareholder, and (iv) any
material interest of such shareholder in such business.
Notwithstanding anything in the Regulations of the Corporation to the
contrary, no business shall be conducted at a meeting of shareholders except in
accordance with the procedures set forth in this Section 6.
-2-
<PAGE> 3
The Chairman of the meeting of shareholders shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of this Section 6
in which event any such business not properly brought before the meeting shall
not be transacted.
DIRECTORS
---------
SECTION 7. NUMBER.
-------
The number of directors may be determined by the vote of the holders of
a majority of the Voting Shares represented at any annual meeting or special
meeting called for the purpose of electing directors or by resolution adopted by
affirmative vote of a majority of the directors then in office, provided that,
except as provided in the Articles of Incorporation, the number of directors
shall in no event be fewer than nine (9) nor more than twenty-one (21).. When so
fixed, such number shall continue to be the authorized number of directors until
changed by the shareholders or directors by vote as aforesaid.
SECTION 8. NOMINATIONS.
------------
Only persons who are nominated in accordance with the following
procedures shall be eligible for election as directors. Nominations of persons
for election as directors of the Corporation may be made at a meeting of
shareholders by or at the direction of the directors by any nominating committee
or person appointed by the directors or by any shareholder of the Corporation
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth in this Section 8. Such nominations, other than
those made by or at the direction of the directors, shall be made pursuant to
timely notice in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than sixty (60) days nor
more than ninety (90) days prior to the meeting; provided, however, that in the
event that less than seventy-five (75) days' notice or prior public disclosure
of the date of the meeting is given or made to shareholders, notice by the
shareholder to be timely must be so received not later than the close of
business on the fifteenth (15th) day following the earlier of the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. Such shareholder's notice shall set forth (a) as to each person who is not
an incumbent director whom the shareholder proposes to nominate for election as
a director, (i) the name, age, business address and residence address of such
person; (ii) the principal occupation or employment of such person; (iii) the
class and number of shares of the Corporation which are beneficially owned by
such person; and (iv) any other information relating to such person that is
required to be disclosed in solicitations for proxies for election of directors
pursuant to Regulation 14A under the Securities Exchange Act of 1934,
-3-
<PAGE> 4
as amended; and (b) as to the shareholder giving the notice, (i) the name and
record address of such shareholder and (ii) the class and number of shares of
the Corporation which are beneficially owned by such shareholder. Such notice
shall be accompanied by the written consent of each proposed nominee to serve as
a director of the Corporation, if elected. No person shall be eligible for
election as a director of the Corporation unless nominated in accordance with
the procedures set forth in this Section 8.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
provisions of this Section 8, and, if he should so determine, the defective
nomination shall be disregarded.
SECTION 9. CLASSIFICATION, ELECTION AND TERM OF OFFICE OF DIRECTORS.
---------------------------------------------------------
The directors shall be divided into three classes, as nearly equal in
number as possible, and one of the classes shall be elected for a three-year
term of office at each annual shareholders meeting. At the annual meeting of
shareholders in 1985, one class of directors shall be elected for a one-year
term, one class shall be elected for a two-year term and one class shall be
elected for a three-year term. At each succeeding annual meeting of
shareholders, successors to the class of directors whose term expires in that
year will be elected to a three-year term. If the number of directors is
changed, any increase or decrease shall be apportioned among the classes so as
to maintain the number of directors in each class as nearly equal as possible,
and any additional director of any class elected to fill a vacancy resulting
from an increase in such class shall hold office for a term that shall coincide
with the remaining term of such class, but in no case will a decrease in the
number of directors shorten the term of any incumbent director. A director shall
hold office until the annual meeting for the year in which his term expires and
his successor shall be elected and shall qualify, subject, however, to prior
death, resignation, or removal from office. Election of directors shall be by
ballot whenever requested by any person entitled to vote at the meeting; but
unless so requested such election may be conducted in any way approved at such
meeting.
SECTION 10. REMOVAL.
--------
Except as otherwise provided by law, all the directors or all the
directors of a particular class, or any individual director, may be removed from
office without assigning any cause, by the affirmative vote of at least
seventy-five (75) percent of the Voting Shares, present in person or represented
by proxy, entitled to vote in respect thereof, at an annual meeting or at any
special meeting duly called.
-4-
<PAGE> 5
SECTION 11. VACANCIES.
----------
Whenever any vacancy shall occur among the directors, the remaining
directors shall constitute the directors of the Corporation until such vacancy
is filled or until the number of directors is changed pursuant to Section 7
hereof. Except in cases where a director is removed as provided by law and these
Regulations and his successor is elected by the shareholders, the remaining
directors may, by a vote of a majority of their number, fill any vacancy for the
unexpired term. A majority of the directors then in office may also fill any
vacancy that results from an increase in the number of directors.
SECTION 12. QUORUM AND ADJOURNMENTS.
------------------------
A majority of the directors in office at the time shall constitute a
quorum, provided that any meeting duly called, whether a quorum is present or
otherwise, may, by vote of a majority of the directors present, adjourn from
time to time and place to place within or without the State of Ohio, in which
case no further notice of the adjourned meeting need be given. At any meeting at
which a quorum is present, all questions and business shall be determined by the
affirmative vote of not less than a majority of the directors present, except as
is otherwise provided in the Articles of Incorporation or these Regulations or
is otherwise authorized by Section 1701.60(A)(1) of the Ohio Revised Code.
SECTION 13. ORGANIZATION MEETING.
---------------------
Immediately after each annual meeting of the shareholders at which
directors are elected, or each special meeting held in lieu thereof, the
directors, including those newly elected, if a quorum of all such directors is
present, shall hold an organization meeting at the same place or at such other
time and place as may be fixed by the shareholders at such meeting, for the
purpose of electing officers and transacting any other business. Notice of such
meeting need not be given. If for any reason such organization meeting is not
held at such time, a special meeting for such purpose shall be held as soon
thereafter as practicable.
SECTION 14. REGULAR MEETINGS.
-----------------
Regular meetings of the directors may be held at such times and places
within or without the State of Ohio as may be provided for in by-laws or
resolutions adopted by the directors and upon such notice, if any, as shall be
so provided for.
SECTION 15. SPECIAL MEETINGS.
-----------------
Special meetings of the directors may be held at any time within or
without the State of Ohio upon call by the Chairman of the Board, the President,
any Vice
-5-
<PAGE> 6
President, or by any two directors. Notice of each such meeting shall
be given to each director by personal delivery, by mail, cablegram or telegram,
or by telephone not less than two days prior to such meeting or such shorter
notice as the directors shall deem necessary and warranted under the
circumstances. Any director may waive in writing notice of any meeting, and, by
attending any meeting without protesting the lack of proper notice, shall be
deemed to have waived notice thereof. Unless otherwise limited in the notice
thereof, any business may be transacted at any organization, regular or special
meeting.
SECTION 16. COMPENSATION.
-------------
The directors are authorized to fix reasonable compensation, which may
include pension, disability, and death benefits, for services to the Corporation
by directors or a reasonable fee for attendance at any meeting of the directors,
the Executive Committee, or other committees elected under Section 20 hereof, or
any combination of salary and attendance fee. In addition to such compensation
provided for directors, they shall be reimbursed for any expenses incurred by
them in traveling to and from such meetings.
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
----------------------------------------
SECTION 17. MEMBERSHIP AND ORGANIZATION.
----------------------------
(a) The directors, at any time, may elect from their number an
Executive Committee which shall consist of three or more directors of the
Corporation, each of whom shall hold office during the pleasure of the directors
and may be removed at any time, with or without cause, by vote thereof.
(b) Vacancies occurring in the Committee may be filled by the
directors.
(c) In the event the directors have not designated a Chairman, the
Committee shall appoint one of its own number as Chairman who shall preside at
all meetings and may also appoint a Secretary (who need not be a member of the
Committee) who shall keep its records and who shall hold office during the
pleasure of the Committee.
SECTION 18. MEETINGS.
---------
(a) Regular meetings of the Committee may be held without notice of the
time, place or purposes thereof and shall be held at such times and places
within or without the State of Ohio as the Committee may from time to time
determine.
(b) Special meetings may be held upon notice of the time, place and
purposes thereof at any place within or without the State of Ohio and until
-6-
<PAGE> 7
otherwise ordered by the Committee shall be held at any time and place at the
call of the Chairman or any two members of the Committee.
(c) At any regular or special meeting the Committee may exercise any or
all of its powers, and any business which shall come before any regular or
special meeting may be transacted thereat, provided a majority of the Committee
is present, but in every case the affirmative vote of a majority of all of the
members of the Committee shall be necessary to take any action.
(d) Any authorized action by the Committee may be taken without a
meeting by a writing signed by all the members of the Committee.
SECTION 19. POWERS.
-------
Except as its powers, duties and functions may be limited or prescribed
by the directors, during the intervals between the meetings of the directors,
the Committee shall possess and may exercise all the powers of the directors
provided that the Committee shall not be empowered to declare dividends, elect
or remove officers, fill vacancies among the directors or Executive Committee,
adopt an agreement of merger or consolidation, recommend to the shareholders the
sale, lease or exchange of all or substantially all of the Corporation's
property and assets, nor recommend to the shareholders a dissolution of the
Corporation or revocation of a dissolution. All actions of the Committee shall
be reported to the directors at their meeting next succeeding such action and
shall be subject to revision or alteration by the directors, provided that no
rights of any third person shall be affected thereby.
SECTION 20. OTHER COMMITTEES.
-----------------
The directors may elect other committees from among the directors in
addition to or in lieu of an Executive Committee and give to them any of the
powers which under the foregoing provisions could be vested in an Executive
Committee. Sections 17 and 18 shall be applicable to such other committees.
OFFICERS
--------
SECTION 21. OFFICERS DESIGNATED.
--------------------
The directors, at their organization meeting or at a special meeting
held in lieu thereof, shall elect a Chairman of the Board, a President, a
Secretary, a Treasurer and, in their discretion, one or more Vice Presidents, an
Assistant Secretary or Secretaries, an Assistant Treasurer or Treasurers, and
such other officers as the directors may deem appropriate. The Chairman of the
Board and the President shall be, and the other officers may, but need not be,
chosen from among the directors. Any two or more of such offices other than that
of President and
-7-
<PAGE> 8
Vice President, or Secretary and Assistant Secretary, or Treasurer and Assistant
Treasurer, may be held by the same person, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity if such
instrument is required by law, the Articles of Incorporation, these Regulations
or any by-laws to be executed, acknowledged, or verified by two or more
officers.
SECTION 22. TENURE OF OFFICE.
-----------------
The officers of the Corporation shall hold office for such terms as the
directors shall determine from time to time. The directors may remove any
officer at any time with or without cause by a majority vote of the directors in
office at the time. A vacancy, however created, in any office may be filled by
election by the directors.
SECTION 23. CHAIRMAN OF THE BOARD.
----------------------
The Chairman of the Board shall preside at meetings of the shareholders
and directors, shall initiate and develop broad corporate policies and shall
have such other powers and duties as may be prescribed by the directors. Except
where the signature of the President is required by law, the Chairman of the
Board shall possess the same power as the President to execute all authorized
deeds, mortgages, bonds, contracts and other instruments and obligations in the
name of the Corporation.
SECTION 24. PRESIDENT.
----------
The President shall be the chief executive officer of the Corporation
and shall have general supervision over its property, business and affairs,
subject to the directions of the Chairman of the Board and/or the directors.
Unless otherwise determined by the directors, he shall have authority to execute
all authorized deeds, mortgages, bonds, contracts and other instruments and
obligations in the name of the Corporation, and in the absence of the Chairman
of the Board shall preside at meetings of the shareholders and the directors. He
shall have such other powers and duties as may be prescribed by the directors.
SECTION 25. VICE PRESIDENTS.
----------------
The Vice Presidents shall have such powers and duties as may be
prescribed by the directors or as may be delegated by the Chairman of the Board
or the President.
SECTION 26. SECRETARY.
----------
The Secretary shall attend and keep the minutes of all meetings of the
shareholders and of the directors. He shall keep such books as may be required
by
-8-
<PAGE> 9
the directors and shall give all notices of meetings of shareholders and
directors, provided, however, that any persons calling such meetings may, at
their option, themselves give such notice. He shall have such other powers and
duties as may be prescribed by the directors.
SECTION 27. TREASURER.
----------
The Treasurer shall receive and have in charge all money, bills, notes,
bonds, stocks in other corporations and similar property belonging to the
Corporation and shall do with the same as shall be ordered by the directors. He
shall keep accurate financial accounts and hold the same open for inspection and
examination of the directors. On the expiration of his term of office, he shall
turn over to his successor, or the directors, all property, books, papers and
money of the Corporation in his hands. He shall have such other powers and
duties as may be prescribed by the directors.
SECTION 28. OTHER OFFICERS.
---------------
The Assistant Secretaries, Assistant Treasurers, if any, and the other
officers, if any, shall have such powers and duties as the directors may
prescribe.
SECTION 29. DELEGATION OF DUTIES.
---------------------
The directors are authorized to delegate the duties of any officers to
any other officer and generally to control the action of the officers and to
require the performance of duties in addition to those mentioned herein.
SECTION 30. COMPENSATION.
-------------
The directors are authorized to determine or to provide the method of
determining the compensation of all officers.
SECTION 31. BOND.
-----
Any officer or employee, if required by the directors, shall give bond
in such sum and with such security as the directors may require for the faithful
performance of his duties.
SECTION 32. SIGNING CHECKS AND OTHER INSTRUMENTS.
-------------------------------------
The directors are authorized to determine or provide the method of
determining how checks, notes, bills of exchange and similar instruments shall
be signed, countersigned or endorsed.
-9-
<PAGE> 10
INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
SECTION 33. INDEMNIFICATION.
----------------
The Corporation shall indemnify any director or officer and any former
director or officer of the Corporation and any such director or officer who is
or has served at the request of the Corporation as a director, officer or
trustee of another corporation, partnership, joint venture, trust or other
enterprise (and his heirs, executors and administrators) against expenses,
including attorney's fees, judgments, fines and amounts paid in settlement,
actually and reasonably incurred by him by reason of the fact that he is or was
such director, officer or trustee in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative to the full extent permitted by applicable law. The
indemnification provided for herein shall not be deemed to restrict the power of
the Corporation (i) to indemnify employees, agents and others to the extent not
prohibited by law, (ii) to purchase and maintain insurance or furnish similar
protection on behalf of or for any person who is or was a director, officer or
employee of the Corporation, or any person who is or was serving at the request
of the Corporation as a director, officer, trustee, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him or incurred by him in any such capacity or
arising out of his status as such, and (iii) to enter into agreements with
persons of the class identified in clause (ii) above indemnifying them against
any and all liabilities (or such lesser indemnification as may be provided in
such agreements) asserted against or incurred by them in such capacities.
PROVISIONS IN ARTICLES OF INCORPORATION
---------------------------------------
SECTION 34. PROVISIONS IN ARTICLES OF INCORPORATION.
----------------------------------------
These Regulations are at all times subject to the provisions of the
Articles of Incorporation of the Corporation as the same may be in effect from
time to time, including without limitation the provisions of said Articles of
Incorporation granting the holders of "Serial Shares" the right to elect two
members of the Board of Directors during the pendency of any default in
dividends on the Serial Shares as said terms are defined in said Articles of
Incorporation.
LOST CERTIFICATES
-----------------
SECTION 35. LOST CERTIFICATES.
------------------
The directors may direct a new certificate to be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon such terms and conditions as they may deem advisable
upon satisfactory proof of loss or destruction thereof. When authorizing such
issue of a
-10-
<PAGE> 11
new certificate, the directors may, as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate, or his
legal representative, to advertise the same in such manner as the directors
shall require and/or to give the Corporation a suitable bond or indemnity
against loss by reason of the issuance of a new certificate.
RECORD DATES
------------
SECTION 36. RECORD DATES.
-------------
For any lawful purpose, including, without limitation, the
determination of the shareholders who are entitled to: (i) receive notice of or
to vote at a meeting of shareholders; (ii) receive payment of any dividend or
distribution; (iii) receive or exercise rights of purchase of or subscription
for, or exchange or conversion of, shares or other securities, subject to
contract rights with respect thereto; or (iv) participate in the execution of
written consents, waivers, or releases, the directors may fix a record date
which shall not be a date earlier than the date on which the record date is
fixed and, in the cases provided for in clauses (i), (ii) and (iii) above, shall
not be more than sixty (60) nor fewer than ten (10) days, unless the Articles of
Incorporation specify a shorter or a longer period for such purpose, preceding
the date of the meeting of the shareholders, or the date fixed for the payment
of any dividend or distribution, or the date fixed for the receipt or the
exercise of rights, as the case may be.
AMENDMENTS
----------
SECTION 37. AMENDMENTS.
-----------
(a) These Regulations may be altered, changed or amended in any respect
or superseded by new Regulations in whole or in part, by the affirmative vote of
the holders of a majority of the Voting Shares present in person or by proxy at
an annual or special meeting called for such purpose.
(b) Notwithstanding the provisions of Section 37(a) hereof and
notwithstanding the fact that a lesser percentage may be specified by law or in
any agreement with any national securities exchange or any other provision of
these Regulations, the amendment, alteration, change or repeal of, or adoption
of any provisions inconsistent with, Sections 7, 9 or 10 of these Regulations
shall require the affirmative vote of at least seventy-five (75) percent of the
Voting Shares, present in person or by proxy, at any annual meeting or special
meeting duly called for the purpose of acting on any such amendment, alteration,
change, repeal or adoption, unless such amendment, alteration, change, repeal or
adoption has been recommended by at least two-thirds of the Board of Directors
of the Corporation then in office, in which event the provisions of Section
37(a) hereof shall apply.
-11-
<PAGE> 1
Exhibit 10(18)
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of May 12,
1998, by and between CENTURY NATIONAL BANK AND TRUST, a national banking
association ("Century"), THE CITIZENS BANKING COMPANY, an Ohio bank
("Citizens"), and CITIZENS BANCSHARES, INC., an Ohio corporation ("Bancshares")
(collectively referred to as the "Company"), and JOSEPH N. TOSH
(the "Employee").
WHEREAS, the Company desires to procure the services of Employee, and
Employee is willing to be employed by the Company, upon the terms and subject to
the conditions contained herein.
NOW, THEREFORE, intending to be legally bound, the Company agrees to
employ Employee, and Employee hereby agrees to be employed by the Company, upon
the following terms and conditions:
1. EMPLOYMENT AND DUTIES.
----------------------
(A) Century agrees to employ and Employee agrees to be
employed by Century as Century's President and Chief Executive Officer. Upon
such time when Century becomes a division of Citizens, Citizens agrees to employ
and Employee agrees to be employed by Citizens as Citizens' Executive Vice
President/Century Division. Employee shall report directly to the Chief
Executive Officer of Citizens, or his designee ("Citizens Representative") and
shall have such responsibilities, consistent with his office, as may from time
to time be prescribed by the Citizens Representative. Employee agrees to perform
such duties as may be assigned, to devote all of his working time to the
business of the Company, and to use his best efforts to advance the interests of
the Company and its shareholders.
(B) Employee represents and warrants to the Company that he is
free to be employed by the Company, and that he has no prior or other
obligations or commitments of any kind to anyone that would in any way hinder or
interfere with Employee's full and faithful performance of his duties under this
Agreement.
(C) Notwithstanding anything to the contrary contained herein
or otherwise, nothing in this Agreement shall prohibit Employee from serving as
a director or officer of any trade association, civic, educational or charitable
or governmental entity so long as it does not substantially interfere with the
performance of his duties as provided in paragraph (a) hereof.
2. TERM. The Company hereby employs Employee for a period of three (3)
years beginning on the date of this Agreement and expiring on June 1, 2001,
unless terminated earlier in accordance with the provisions of Section 7 of this
Agreement. Notwithstanding the foregoing, Employee's obligations and the
Company's rights under Section 8 hereof and under the Confidentiality,
Noncompetition and Nonsolicitation Covenants (as hereinafter defined) shall
survive the termination of this Agreement.
<PAGE> 2
3. COMPENSATION.
-------------
(A) The Employee's annual base salary ("Base Salary") during
the term of this Agreement shall be One Hundred and Forty-Eight Thousand Dollars
($148,000). The Base Salary shall be payable in accordance with the Company's
normal payroll practices for employees (but no less frequently than monthly),
and the Company shall deduct or cause to be deducted from the Base Salary all
taxes and amounts required by law to be withheld.
(B) Nothing herein shall be deemed to preclude the Company
from paying Employee, in addition to his Base Salary, any bonuses as may be
awarded from time to time as provided in Section 5 herein.
(C) The Company will reimburse Employee for all reasonable
business expenses incurred by Employee in the course of performing Employee's
duties under this Agreement that are consistent with the Company's policies in
effect from time to time with respect to travel, entertainment and other
business expenses.
4. DIRECTORSHIPS. The Employee shall serve as a director as provided
herein:
(A) As of the date of this Agreement, the Employee shall serve
as a member of Century's Board of Directors without any additional compensation.
(B) Upon the consummation of the Citizens and Century merger,
the Employee shall serve as a member of Citizens' Board of Directors. Citizens
shall pay Employee for such services a fee equivalent to that paid to the
nonemployee members of said board. Citizens shall not be obligated to pay such
fee if the Employee ceases to serve on such board subject, however, to the
provisions of paragraph (d) herein.
(C) Upon the consummation of the Bancshares and Citizens
Financial Corporation merger, the Employee shall serve as a member of
Bancshares' Board of Directors. Bancshares shall pay Employee for such services
a fee equivalent to that paid to the nonemployee members of said board.
Bancshares shall not be obligated to pay such fee if the Employee ceases to
serve on such board subject, however, to the provisions of paragraph (d) herein.
(D) If the Employee fails to win re-election to either the
Citizens or Bancshares Board of Directors, or if the Employee is terminated
without cause pursuant to Section 7(e) of this Agreement and thereafter resigns
as a director of either Citizens or Bancshares, or if there occurs a "change in
control" (as hereinafter defined) of either Citizens or Bancshares and Employee
does not continue thereafter to serve on such board for any reason whatsoever,
including his voluntary resignation, then Citizens or Bancshares, as the case
may be, shall pay Employee an amount equal to the sum of director's fees that
Employee would have received had he served on such board until he reached the
age of sixty-five (65) based on the preceding year's nonemployee director's fee
(the "Sum"). The Sum shall be payable within thirty days after Employee ceases
to serve on such board. The Term "change in control" shall mean the following
events:
-2-
<PAGE> 3
(1) When any "person" as defined in Section 3(a)(9)
of the Exchange Act and as used in Sections 13(d) and 14(d) thereof, including a
"group" as defined in Section 13(d) of the Exchange Act, but excluding Citizens
or Bancshares and any employee benefit plan sponsored or maintained by Citizens
or Bancshares (including any trustee of such plan acting as trustee), 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 Citizens or
Bancshares representing more than fifty percent (50%) of the combined voting
power of Citizens' or Bancshares' then outstanding securities; or
(2) The completion of a transaction requiring
shareholder approval for the acquisition of substantially all of the stock or
assets of Citizens or Bancshares' by an entity other than Citizens or Bancshares
or any merger of Citizens or Bancshares into another company and Citizens or
Bancshares is not the surviving entity.
5. BONUS. During the term of this Agreement the Company shall pay to
the Employee an annual bonus (the "Bonus") according to the terms herein, but in
no case shall the Bonus exceed $55,000 per annum except as provided in Section 9
hereof. During the 1998 calendar year of this Agreement the Bonus shall be equal
to one-quarter (1/4) of the Employee's Base Salary for the attainment of each
and any of the goals in specified paragraphs (a) through (d). During the 1999
calendar year of this Agreement the Bonus shall be equal to one-third (1/3) of
the Employee's Base Salary for the attainment of each and any of the goals
specified in paragraphs (a) through (d) below. During the 2000 calendar year of
this Agreement the Bonus shall be equal to one-third (1/3) of the Employee's
Base Salary for the attainment of each and any of the goals specified in
paragraphs (a) through (c) below. During the 2001 calendar year of this
Agreement the Bonus shall be equal to one-third (1/3) of the Employee's Base
Salary for the attainment of each and any of the goals specified in paragraphs
(a) through (c) below. Notwithstanding the foregoing, for calendar year 2001,
and for calendar years in which the Employee is employed for less than twelve
(12) months, the Bonus shall be calculated by the Company and paid on a pro rata
basis (for complete months employed) by no later than the following February
1st.
(A) Citizens' return on equity equals or exceeds 16%;
(B) Citizens obtains the highest or second highest deposit
market share in Beaver County, Pennsylvania;
(C) Citizens' net loan charge offs are under 25 basis points
of gross loans in the Century Division;
(D) Century Financial Corporation becomes a division of
Citizens Banking Company by January 31, 1999.
6. BENEFITS. The Company shall afford the Employee the following
benefits as provided herein:
-3-
<PAGE> 4
(A) HEALTH, VISION AND DENTAL PLANS. During the term of this
Agreement and until Employee reaches the age of sixty-five (65), Employee and
Employee's eligible dependents shall be entitled to participate in health,
vision and dental plans generally afforded (ie. the same terms and co-payments)
by the Company to its executive employees from time to time.
(B) EMPLOYEE BENEFIT PLANS. During the term of this Agreement,
Employee shall be entitled to participate, if eligible, in all employee benefit
plans which are generally afforded (ie. the same terms and co-payments) by the
Company to its executive employees from time to time including the Citizens
Stock Option Plan so long as such participation complies with applicable federal
and state law.
(C) PERQUISITES. Notwithstanding paragraph (b) above, Employee
shall be entitled to the following benefits during the term of this Agreement:
(1) Thirty (30) days of paid vacation during the
first year of this Agreement and forty-five (45) days of paid vacation during
the second and third years of this Agreement;
(2) The Company shall pay the lease, insurance, gas
and maintenance expenses for one car of the Employee, provided however that such
payments shall not substantially exceed those currently incurred by Employee;
(3) The Company shall pay the Employee's Beaver
Valley Country Club dues and assessments.
7. DISABILITY OR DEATH; RESIGNATION; TERMINATION FOR CAUSE; OTHER
--------------------------------------------------------------
TERMINATIONS.
- -------------
(A) DEATH. In the event of Employee's death, this Agreement
and Employee's employment shall terminate upon such date of death, except that
Employee's designated beneficiary (or, in the absence of a designated
beneficiary, Employee's estate) shall be entitled to receive the unpaid portion
of Employee's Base Salary and Bonus earned up to the date of his death; and
Employee's designated beneficiary (or, in the absence of a designated
beneficiary, Employee's estate) shall be entitled to receive all benefits
payable as a result of Employee's death under the terms of the Company's
employee benefit plans.
(B) DISABILITY. If Employee is incapacitated for a period of
one hundred eighty (180) consecutive days so that Employee cannot substantially
perform his duties hereunder on a full-time basis (a "Disability"), Employee's
employment will terminate upon the expiration of such 180 day period.
Notwithstanding the foregoing, Employee's obligations and the Company's rights
under Section 8 hereof and under the Confidentiality, Noncompetition and
Nonsolicitation Covenants (as hereafter defined) shall survive the termination
of this Agreement, and Employee shall be entitled to receive (i) the unpaid
portion of Employee's Base Salary and Bonus earned up to the date of such
termination reduced by the amount of any payments received by Employee pursuant
to any short-term disability plan or other plan providing disability payments to
the Employee, and (ii) all benefits payable to Employee as a result of such
termination under the Company's employee benefit plans.
-4-
<PAGE> 5
(C) TERMINATION FOR CAUSE. The Company may terminate
Employee's employment at any time for cause (as defined below). If the Company
terminates Employee's employment for cause (as defined below), all of the
Company's obligations hereunder shall immediately terminate. As used in this
section, "for cause" shall mean (i) gross misconduct by Employee, or (ii)
Employee's commission of a felony or an act of moral turpitude, or (iii)
Employee's material breach or failure to perform any provision of this
Agreement, but only if Employee is first given written notice from the Citizens
Representative specifying the nature of such breach or failure and Employee
refused to remedy such breach or failure within a period of thirty (30) days
after receipt of such notice. Notwithstanding the termination of this Agreement
pursuant to this Section 7(c), Employee's obligations and the Company's rights
under Section 8 hereof and under the Confidentiality, Noncompetition and
Nonsolicitation Covenants (as hereafter defined) shall survive this termination
of this Agreement. Employee shall be entitled to receive the unpaid portion of
Employee's Base Salary earned up to the date of such termination.
(D) TERMINATION WITHOUT CAUSE BY EMPLOYEE.
--------------------------------------
(1) Employee may terminate his employment at any
time without cause pursuant to written notice at least thirty (30) days in
advance of the termination of employment date specified by him (the "Termination
Notice").
(2) If Employee's employment terminates pursuant to
this Section 7(d), both the Company's and Employee's obligations hereunder shall
terminate as of the termination date specified in the Termination Notice.
Employee shall be entitled to receive the unpaid portion of Employee's Base
Salary, Bonus and benefits payable to Employee as a result of such termination
under the Company's employee benefit plans earned up to the date of such
termination. Notwithstanding the foregoing, Employee's obligations and the
Company's rights under Section 8 hereof and under the Confidentiality,
Noncompetition and Nonsolicitation Covenants (as hereafter defined) shall
survive the termination of this Agreement.
(E) TERMINATION WITHOUT CAUSE BY THE COMPANY.
-----------------------------------------
(1) The Company may terminate Employee's employment
at any time without cause pursuant to written notice at least thirty (30) days
in advance of the termination of employment date specified by the Company (the
"Termination Notice").
(2) If Employee's employment terminates pursuant to
this Section 7(e), both the Company's and Employee's obligations hereunder shall
terminate as of the termination date specified in the Termination Notice.
Employee shall be entitled to receive the unpaid portion of Employee's Base
Salary, Bonus and benefits payable to Employee as a result of such termination
under the Company's employee benefit plans earned up to the date of such
termination. Notwithstanding the foregoing (i) Employee's obligations and the
Company's rights under Section 8 hereof and under the Confidentiality,
Noncompetition and Nonsolicitation Covenants (as hereafter defined) shall
survive the termination of this Agreement and (ii) Company's obligations under
Sections 3, 4, 5 and 6 hereof shall survive the termination of this Agreement.
-5-
<PAGE> 6
8. CONFIDENTIALITY, NONCOMPETITION AND NONSOLICITATION. The
confidentiality, noncompetition and nonsolicitation covenants attached hereto as
Exhibit A (the "Confidentiality, Noncompetition and Nonsolicitation Covenants")
are hereby incorporated by reference and made a part of this Agreement.
9. OPTION. In lieu of Section 3 hereof, the Employee shall have the
option, subject to the condition of Section 9(a) hereof, to work 1000 hours for
the Company and receive a Base Salary of Ninety Thousand Dollars $90,000 and a
Bonus not to exceed $27,500 during the third year of this Agreement (The
"Option"). Employee shall work at such times as Employee and the Citizens
Representative mutually agree but in increments of not less than 40 hours per
week.
(A) Employee shall notify the Company at least thirty (30)
days but no earlier than 120 days before the commencement of the third year of
this Agreement of Employee's intent to exercise the Option.
10. ENFORCEABILITY. The unenforceability or invalidity of any provision
of this Agreement shall not affect the enforceability or validity of the balance
of the Agreement. In the event that any such provision should be or becomes
invalid for any reason, such provision shall remain effective to the maximum
extent permissible, and the parties shall consult and agree on a legally
acceptable modification giving effect to the commercial objectives of the
unenforceable or invalid provision, and every other provision of this Agreement
shall remain in full force and effect.
11. ASSIGNMENT; BINDING EFFECT. This Agreement, being for the personal
services of Employee, shall not be assignable by Employee. Subject to the
foregoing, this Agreement shall inure to the benefit of, and be enforceable by,
the parties' successors, representatives, executors, administrators or
assignees.
12. NOTICES. All notices, requests, demands and other communications
made or given in connection with this Agreement shall be in writing and shall be
deemed to have been duly given (a) if delivered, at the time delivered against
receipt or (b) if mailed three (3) days after mailing at any general or branch
United States Post Office enclosed in a registered or certified postage paid
envelope, or (c) if couriered, one day after deposit with a national overnight
courier, addressed to the address of the respective parties as follows:
To the Company:
---------------------------
---------------------------
---------------------------
---------------------------
To Employee:
---------------------------
---------------------------
---------------------------
---------------------------
or to such other addresses as the party to whom notice is to be given may have
previously furnished to the other party in writing in the manner set forth
above, provided that notices of changes of address shall only be effective upon
receipt.
13. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties hereto relating to the subject matter hereof, and there are no
written or oral terms or representations made by either party other than those
contained herein.
-6-
<PAGE> 7
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio, without regard to principles of
conflicts of laws. The Company and Employee hereby irrevocably submit to the
jurisdiction of the courts of the state of Ohio, with venue in Columbiana
County, over any dispute arising out of this Agreement and agree that all claims
in respect of such dispute or proceeding shall be heard and determined in such
court. The Company and Employee hereby irrevocably waive, to the fullest extent
permitted by applicable law, any objection which they may have to the venue of
any such dispute brought in such court or any defense of inconvenient forum for
the maintenance if such dispute. The Company and Employee hereby consent to
process being served by them in any suit, action or proceeding by delivering it
in the manner specified by the provisions of Section 12 of this Agreement.
15. SET-OFF. Any and all payment obligations of the Company to Employee
under this Agreement shall be subject to the Company's right to set off amounts
owed to it by Employee, whether under this Agreement or otherwise.
16. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall constitute an
original hereof, and it shall not be necessary in making proof of this Agreement
to produce or account for more than one original counterpart hereof.
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
EMPLOYEE CENTURY NATIONAL BANK AND TRUST
/s/ Joseph N. Tosh By: /s/ Del E. Goedeker
- ------------------ -------------------
Joseph N. Tosh Its: Chairman
-------------------
CITIZENS BANKING COMPANY
By: /s/ Marty E. Adams
-------------------
Its: President, CEO
-------------------
CITIZENS BANCSHARES, INC.
By: /s/ Marty E. Adams
-------------------
Its: President, CEO
-------------------
-8-
<PAGE> 9
EXHIBIT A
TO
EMPLOYMENT AGREEMENT
CONFIDENTIALITY, NONCOMPETITION
AND NONSOLICITATION COVENANTS
------------------------------------------
1. NONCOMPETITION. Employee agrees that for a period of three years
commencing on the date of this Agreement that Employee shall not, without the
prior written consent of the Company, either directly or indirectly, engage in,
make any investment in or have any interest in any business in competition with
the business of the Company located within twenty (20) miles of Bancshares' or
its subsidiaries' places of business; and the Employee shall not advise, assist
or render services either directly or indirectly to any person, firm, company,
corporation or business other than the Company with reference to any business in
competition with the business engaged in by the Company during the Employee's
employment with the Company. Notwithstanding the foregoing, the ownership of
securities of any business competing with the Company, if such securities are
publicly traded on a national securities market and constitute less than five
percent (5%) of the outstanding stock thereof shall not constitute a violation
of this provision.
2. NONSOLICITATION. Employee agrees that Employee shall not at any time
(whether during or after Employee's termination of employment with the Company),
without the prior written consent of the Company, either directly or indirectly
(i) solicit (or attempt to solicit) induce, (or attempt to induce), cause or
facilitate any employee, director, agent, consultant, independent contractor,
representative or associate of the Company to terminate his, her or its
relationship with the Company, or (ii) solicit (or attempt to solicit) induce
(or attempt to induce), cause or facilitate any supplier of services or products
to the Company to terminate or change his, her or its relationship with the
Company, or otherwise interfere with any relationship between the Company and
any of the Company's suppliers of products or services.
3. NONDISCLOSURE. Employee agrees that Employee shall not at any time
(whether during or after the period of Employee's employment with the Company)
directly or indirectly divulge, disclose or communicate to any person, firm,
company, corporation or business in any manner whatsoever any confidential
information relating to the business of the Company, including without
limitation, the Company's business plans, strategies, pricing, sales methods,
trade secrets, know-how and similar types of information.
4. INVENTIONS AND PATENTS. Employee agrees that all inventions,
innovations, improvements, developments, methods, designs, analyses, drawings,
reports, and all similar or related information which relates to the Company's
actual or anticipated business, research and development or existing or future
products or services and which are conceived, developed or made by Employee
while employed by the Company or its predecessor (all of the foregoing being
referred to herein as "Work Product") belong to the Company. Employee shall
perform all actions reasonably requested by the Company (whether during or after
the employment Term) to establish and confirm such ownership of Work Product
(including, without limitation, assignments, consents, powers of attorney and
other instruments).
A-1
<PAGE> 1
Exhibit 10(19)
(As of 5/11/98)
CITIZENS BANCSHARES, INC.
1998 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS
SECTION 1. PURPOSE
The purpose of this Citizens Bancshares, Inc. 1998 Stock Option Plan
for Nonemployee Directors ("Plan") is to increase the proprietary interest of
the Nonemployee Directors in the success of Citizens Bancshares, Inc.
("Corporation") and to enhance the Corporation's ability to retain and attract
experienced and knowledgeable directors.
SECTION 2. DEFINITION OF SELECTED TERMS
In addition to the definitions of certain words and phrases that are
provided in various sections of this Plan, the following terms when used herein
shall have the meanings set forth below.
(A) "AFFILIATE(S)" shall mean those corporations a majority of
the outstanding voting capital stock of which is directly or
indirectly owned by the Corporation.
(B) "BOARD OF DIRECTORS" shall mean the Board of Directors of
the Corporation.
(C) "FAIR MARKET VALUE PER SHARE" on a particular date shall
mean (i) if the Stock is quoted or reported on the National
Association of Securities Dealers Automated Quotation
("NASDAQ") System or the NASDAQ National Market System, the
closing bid price for such day of the Stock (or if the
relevant date does not fall on a day on which the Stock is
trading on NASDAQ, or the NASDAQ National Market System, the
date on which Fair Market Value per Share shall be established
shall be the last day on which the Stock was so traded prior
to the relevant date),or (ii) if clause (i) is inapplicable, a
value determined in good faith by the Committee by any fair
and reasonable means prescribed by the Committee.
(D) "INTERNAL REVENUE CODE" shall mean the Internal Revenue
Code of 1986, as amended.
(E) "NONEMPLOYEE DIRECTOR(S)" shall mean those directors of
the Corporation who are not employees of the Corporation or
any Affiliate.
<PAGE> 2
(F) "OPTION" shall mean an option granted to a Nonemployee
Director under this Plan.
(G) "OPTIONEE" means any Nonemployee Director to whom an
Option has been granted or any other person who becomes a
holder of an Option under the provisions of this Plan.
SECTION 3. ADMINISTRATION
This Plan shall be administered by a committee of not less than two (2)
disinterested members of the Board of Directors, appointed by at least a
majority of the Board of Directors (the "Committee"). The Committee may, subject
to the provisions of this Plan, establish such rules and regulations as it deems
necessary or advisable for the proper administration of this Plan, determine the
number of shares of Stock (as defined herein) subject to each Option and the
terms and vesting thereof and may make determinations and may take such other
action in connection with or in relation to this Plan as it deems necessary or
advisable. Each determination or other action made or taken by the Committee
pursuant to this Plan, including interpretations of this Plan, shall be final
and conclusive for all purposes and upon all persons, including, but without
limitation, the Corporation, its Affiliates, the Board of Directors, the
affected Nonemployee Directors, and their respective successors in interest. The
Committee shall not be empowered to take any action, whether or not otherwise
authorized under this Plan, that would result in any Nonemployee Director
failing to qualify as a "disinterested person", as defined in Rule 16b-3 (as in
effect on the date hereof and as may be amended during the term of this Plan) of
the rules and regulations promulgated by the Securities and Exchange Commission
pursuant to its authority granted under the Securities Exchange Act of 1934
("Rule 16b-3").
SECTION 4. STOCK SUBJECT TO THIS PLAN
The Stock to be issued under this Plan shall be shares of common stock
of the Corporation ("Stock"). The Stock shall be made available from authorized
but unissued shares (including shares acquired in the open market). The total
number of shares of Stock that may be issued under this Plan pursuant to Options
granted hereunder shall be 125,000. Such number of shares shall be subject to
adjustment in accordance with Section 10 hereof. Stock subject to any
unexercised portion of an Option which expires, is canceled, or is terminated
for any reason, may again be subject to the grant of Options under this Plan.
SECTION 5. ELIGIBILITY
Each Nonemployee Director of the Corporation and its Affiliates is
eligible to participate in this Plan.
-2-
<PAGE> 3
SECTION 6. GRANT AND EXERCISE OF OPTION
(A) OPTION GRANTS. On an annual basis during the term of this Plan, the
Committee will (i) establish goals for eligible participants based upon reaching
specified earnings per share, return on shareholders' equity and other
performance-based measures, and (ii) subject to the terms of this Plan,
determine the aggregate number of Stock Options to be granted based upon such
goals and criteria. It is anticipated that grants of Options hereunder will be
made on an annual basis; provided however, in no event will any grants be made
until December, 1998 at the earliest.
(B) SCHEDULE UNDER WHICH OPTIONS BECOME FULLY EXERCISABLE. The
Committee shall determine from time to time when Options granted under this Plan
become exercisable.
(C) OPTION PRICE. The Option price for each share of Stock purchasable
under an Option shall be the Fair Market Value per Share on the date of grant.
(D) OPTION AGREEMENT. Each Option granted under this Plan shall be
evidenced by a stock option agreement ("Stock Option Agreement") that is duly
executed on behalf of the Corporation and by the Nonemployee Director to whom
the Option is granted. Each Stock Option Agreement shall be subject to the terms
and conditions of this Plan and in such form, not inconsistent with this Plan,
as the Board of Directors or the Committee shall from time to time approve. The
President and Secretary of the Corporation are hereby each authorized to execute
and deliver Stock Option Agreements on behalf of the Corporation.
(E) MANNER OF EXERCISE. Subject to Section 6(b), any Option may be
exercised from to time to time, in whole, or in part in minimum installments of
100 shares of Stock, by giving written notice to the Corporation, signed by the
person exercising the Option, stating the number of shares of Stock with respect
to which the Option is being exercised, accompanied by payment of the full
consideration for the shares of Stock as to which the Option is being exercised,
in one or a combination of the following alternative forms: (I) cash, or (II)
shares of Stock of the Corporation already owned by the person exercising the
Option, valued at the Fair Market Value per Share of Stock on the date of
exercise, provided such shares have been owned by the Optionee for more than six
(6) months (and have been paid for within the meaning of Securities and Exchange
Commission Rule 144) or were obtained by the Optionee in the open public market.
(F) EXPIRATION OF OPTIONS. The unexercised portion of each Option shall
automatically and without notice expire and become null and void at the time of
the earliest to occur of the following:
(I) the expiration of ten (10) years from the date the Option
was granted;
-3-
<PAGE> 4
(II) the expiration of three months after the Optionee ceases
to be a Nonemployee Director, other than by reason of
permanent disability (as defined in Section 22(e)(3) of the
Internal Revenue Code), death, or for cause;
(III) the expiration of one year following the death or
permanent disability (as defined in Section 22(e)(3) of the
Internal Revenue Code) of the Optionee; or
(IV) the termination of the Optionee's service as a
Nonemployee Director, if such termination is for cause (the
Committee or the Board of Directors shall have the right to
determine what constitutes cause, and such determination shall
be conclusive and binding for all purposes).
(G) OPTIONS ARE NONQUALIFIED. Each option granted under this Plan shall
be a nonqualified stock option which does not qualify as an incentive stock
option within the meaning of Section 422 of the Internal Revenue Code.
SECTION 7. NONTRANSFERABILITY OF OPTIONS
No option shall be transferable other than by last will and testament
or by the laws of descent and distribution. During the lifetime of an Optionee,
the Option shall be exercisable only by the Optionee personally or by the
Optionee's legal representative.
SECTION 8. NO RIGHT TO CONTINUE AS DIRECTOR
Neither this Plan nor the granting of an Option, nor any other action
taken pursuant to this Plan shall constitute or be evidence of any agreement or
understanding, express or implied, that the Board of Directors will nominate any
Nonemployee Director for re-election, or that the Corporation will retain a
Nonemployee Director for any period of time, or at any particular rate of
compensation.
SECTION 9. RIGHTS AS A SHAREHOLDER
An Optionee or a transferee of an Option pursuant to Section 7 shall
have no rights as a shareholder of the Corporation with respect to any Stock
that is the subject of either an unexercised or exercised Option until the
Optionee or such transferee shall have become the holder of record of such
Stock, and no adjustments shall be made for dividends in cash or other property
or other distributions or rights in respect of such Stock for which the record
date is prior to the date on which the Optionee or such transferee shall have in
fact become the holder of record of the Stock acquired pursuant to the Option.
-4-
<PAGE> 5
SECTION 10. ADJUSTMENT IN THE NUMBER OF SHARES AND IN OPTION PRICE
In the event there is any change in the number of shares of Stock
through the declaration of stock dividends or stock splits or through
recapitalization or merger or consolidation or combination of shares or
otherwise, the Committee or the Board of Directors shall make such adjustment,
if any, as it may deem appropriate in the number of shares of Stock available
for Options as well as the number of shares of Stock subject to any outstanding
Options, the option price thereof and any other terms it deems appropriate. Any
such adjustment may provide for the elimination of any fractional shares which
might otherwise become subject to any Option without payment therefor. The grant
of Options under this Plan shall not affect the right of the Corporation 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.
SECTION 11. USE OF PROCEEDS
The cash proceeds received by the Corporation from the issuance of
shares pursuant to Options under this Plan shall be used for general corporate
purposes.
SECTION 12. TAX WITHHOLDING
The delivery of any shares of Stock under the Plan shall be for the
account of the Corporation and any such delivery or distribution shall not be
made until the recipient shall have made satisfactory arrangements for the
payment of any applicable withholding taxes.
SECTION 13. EFFECTIVE DATE AND TERM OF THIS PLAN
(A) This Plan shall become effective on the date on which it is
approved by the stockholders of the Corporation in the manner required by Rule
16b-3 (the "Effective Date").
(B) Unless previously terminated in accordance with Section 14 of this
Plan, this Plan shall terminate at the close of business on May 11, 2008, after
which no Options shall be granted under this Plan.
Such termination shall not affect any Options granted prior to such termination.
SECTION 14. AMENDMENT, SUSPENSION OR TERMINATION OF THIS PLAN
The Board of Directors may, from time to time, terminate or suspend
this Plan, in whole or in part, or amend this Plan from time to time, including
the adoption of amendments deemed necessary or desirable to qualify the Options
under rules and regulations promulgated by the Securities and Exchange
Commission with respect to directors who are subject to the provisions of
Section 16 of the Securities Exchange Act of 1934 (the "Act"), or to correct any
defect or supply any omission or reconcile any inconsistency in this Plan or in
any Option granted hereunder, without the approval of the Shareholders of the
Corporation; except that no such
-5-
<PAGE> 6
action may be taken which would: (I) materially increase the benefits accruing
to Nonemployee Directors participating under this Plan, materially increase the
number of shares of Stock which may be issued under this Plan (except as
permitted in Section 10), or materially modify the eligibility requirements for
participation in this Plan, (II) cause any Nonemployee Director to not qualify
as a "disinterested person" as defined in Rule 16b-3, (III) cause this Plan not
to satisfy all applicable requirements of Rule 16b-3, or (IV) impair the rights
of any Optionee under any Option previously granted under this Plan without the
Optionee's consent. In no event shall any provision of this Plan dealing with
persons who are designated to receive grants or awards, the amount or price of
shares of Stock to be granted or awarded, or the timing of grants or awards, be
amended more than once every six months, other than to comport with changes in
the Internal Revenue Code or the rules thereunder, or other applicable law.
SECTION 15. LIMITATION ON ISSUE OR TRANSFER OF SHARES
Notwithstanding any provisions of this Plan or the terms of any Option,
the Corporation shall not be required to issue any shares of Stock or transfer
on its books and records any shares of Stock if such issue or transfer would, in
the judgment of the Committee or of counsel for the Corporation, constitute a
violation of any state or federal law, or of the rules or regulations of any
governmental regulatory body, or any securities exchange or automated dealer
quotation system. An Optionee desiring to exercise an Option may be required by
the Corporation, as a condition of the effectiveness of any exercise of an
Option, to agree in writing that all securities to be acquired pursuant to such
exercise shall be held for his or her account without a view to any further
distribution thereof, that the certificates for such shares shall bear an
appropriate legend to that effect, and that such shares will not be transferred
or disposed of except in compliance with applicable federal and state securities
laws.
SECTION 16. CHANGE IN CONTROL
(A) In the case of a Change in Control (as defined in subsection 16(c)
below) of the Corporation, unless the Committee determines otherwise, each
Option then outstanding shall become exercisable in full immediately prior to
such Change in Control.
(B) Any determination by the Committee made pursuant to this Section 16
may be made as to all outstanding Options or only as to certain Options
specified by the Committee and any such determinations shall be made in cases
covered by subsections 16(c) (i) and (ii) below prior to or as soon as
practicable after the occurrence of such event and in the cases covered by
subsection 16(c) (iii) or (iv) prior to the occurrence of such event.
(C) A "Change in Control" shall occur if:
-6-
<PAGE> 7
(I) Any "person" or "group of persons" as such terms are
defined in section 13(d) and 14(c) of the Act directly or indirectly purchases
or otherwise becomes the "beneficial owner" (as defined in the Act) or has the
right to acquire such beneficial ownership (whether or not such right is
exercised immediately, with the passage of time or subject to any condition) of
voting securities representing twenty-five percent (25%) or more of the combined
voting power of all outstanding voting securities of the Corporation,
(II) During any period of two consecutive years the
individuals who at the beginning of such period constitute the Board of
Directors cease or any reason to constitute at least the majority of the members
thereof unless (1) there are five or more directors then still in office who
were directors at the beginning of the period and (2) the election or the
nomination for election by the Corporation's shareholders of each new director
was approved by at least two-thirds (2/3) of the directors then still in office
who were directors at the beginning of the period,
(III) The shareholders of the Corporation shall approve an
agreement to merge or consolidate the Corporation with or into another
corporation as a result of which less than fifty percent (50%) of the
outstanding voting securities of the surviving or resulting entity are or are to
be owned by the former shareholders of the Corporation (excluding from former
shareholders a shareholder who is or as a result of the transaction in question,
becomes an "affiliate" as defined in Rule 12b-2 under the Act of any party to
such consolidation or merger), or
(IV) The shareholders of the Corporation shall approve the
sale of all or substantially all of the Corporation's business and/or assets to
a person or entity that is not a wholly-owned subsidiary of the Corporation.
SECTION 17. NO SEGREGATION OF CASH OR SHARES
The Corporation shall not be required to segregate any shares of Stock
that may at any time be represented by Options, and the Plan shall constitute an
"unfunded" plan of the Corporation. No Nonemployee Director shall have rights
with respect to shares of Stock prior to the delivery of such shares. The
Corporation shall not, by any provisions of the Plan, be deemed to be a trustee
of any Stock or any other property and the liabilities of the Corporation to any
Nonemployee Director pursuant to the Plan shall be those of a debtor pursuant to
such contract obligations as are created by or pursuant to the Plan, and the
rights of Nonemployee Director employee, former Nonemployee Director or
beneficiary under the Plan shall be limited to those of a general creditor of
the Corporation.
SECTION 18. DELIVERY OF SHARES OF STOCK
No shares of stock shall be delivered pursuant to any exercise of an
Option under the Plan unless the requirements of such laws and regulations as
may be deemed by the Committee to be applicable thereto are satisfied. All
certificates for shares of Stock delivered under the Plan shall be subject to
such stock-transfer orders and other restrictions as the Committee may
-7-
<PAGE> 8
deem advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Stock is
then listed, and any applicable federal or state securities law, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
SECTION 19. GOVERNING LAW
This Plan and all determinations made and actions taken pursuant
thereto shall be governed by the laws of the State of Ohio and construed in
accordance therewith.
SECTION 20. SEVERABILITY
If any provision of the Plan, or any term or condition of any Option
granted thereunder, is invalid, such provision, term, condition or application
shall to that extent be void (or, in the discretion of the Board of Directors,
such provision, term or condition may be amended so as to avoid such invalidity
or failure), and shall not affect other provisions, terms or conditions or
applications thereof, and to this extent such provisions, terms and conditions
are severable.
***
-8-
<PAGE> 1
Exhibit 10(20)
(As of 5/11/98)
CITIZENS BANCSHARES, INC.
DIRECTORS' STOCK RETAINER PLAN
ARTICLE I
PURPOSE
The purpose of the Citizens Bancshares, Inc. Directors' Stock
Retainer Plan (the "Plan") is to promote the interests of Citizens Bancshares,
Inc. and its shareholders by attracting and retaining Directors capable of
furthering the future success of the Company and by aligning their economic
interests more closely with those of the Company's shareholders.
ARTICLE II
DEFINITIONS
For purposes of the Plan, the following words and phrases shall
have the meanings indicated:
2.1 "Board" means the Board of Directors of the Company and its
subsidiaries.
2.2 "Company" means Citizens Bancshares, Inc., an Ohio
corporation.
2.3 "Director" means a member of the Board of the Company or one
of its subsidiaries.
2.4 "Retainer" means a Director's annual compensation that is
payable, including compensation based upon the number of Board or committee
meetings attended or Board or committee positions held.
2.5 "Shares" means common shares, without par value, of the
Company.
ARTICLE III
EFFECTIVE DATE AND TERM OF THE PLAN
The Plan shall become effective only if it is approved by the
affirmative vote of the holders of a majority of the Shares present or
represented and entitled to vote at the Annual Meeting of the Company's
shareholders to be held on May 11, 1998 or at any adjournment thereof and, if so
approved, shall be effective from the date approved ("Effective Date"). The term
during which Shares shall be granted under the Plan shall expire on the tenth
(10th) anniversary of the Effective Date.
<PAGE> 2
ARTICLE IV
SHARES AVAILABLE FOR GRANTS
The Shares which may be granted to Directors under the Plan shall
not exceed, in the aggregate, 75,000 Shares.
ARTICLE V
RETAINER PAID IN SHARES
5.1 Each of the Directors serving on the Board on the Effective
Date may participate in the Plan with respect to his/her respective Retainer by
providing written notice of his/her election to participate to the Company on or
prior to January 31st of the year in which participation will begin. Said
election will remain in effect unless and until it is terminated by written
notice to the Company. The number of Shares received shall be determined by
dividing the cash equivalent of the Retainer (the "Cash Equivalent"), as
determined annually by the Board, by the daily average of the bid price(s) of
the Shares for the six (6) month period immediately preceding the Retainer
payment date, rounded to the nearest whole Share. Shares will be issued under
the Plan on a semi-annual basis on or about June and December of each year;
provided, however, that no shares will be issued hereunder until, at the
earliest, December 1998. In the event a Director serves for less than an entire
year, he or she will be entitled to receive a pro rata portion of Shares, based
upon the portion of a 365 day year such Director served on the Board, rounded
down to the nearest whole Share.
5.2 None of the Shares granted under this Plan shall be subject to
forfeiture upon the termination of a Director's service prior to completion of
his or her term.
5.3 The Shares granted under the Plan may be newly-issued common
shares or common shares purchased in the open market from time to time. The
obligation of the Company to deliver Shares shall be subject to all applicable
laws, rules and regulations, and to such approvals by governmental agencies as
may be deemed necessary or appropriate by the Company, including, among others,
such steps as counsel for the Company shall deem necessary or appropriate to
comply with requirements of relevant securities laws. As a condition to its
issuance and delivery of certificates for the Shares issued under the Plan, the
Company may require the delivering by the Director of a commitment in writing
that it is his or her intention to acquire such Shares for his or her account
for investment only and not with a view to, or for resale in connection with,
the distribution thereof; that such person understands the Shares received
pursuant to the Plan may be "restricted securities" as defined in Rule 144
promulgated under the Securities Act of 1933 (the "Securities Act"); as amended,
and that any resale, transfer or other disposition of said Shares will be
accomplished only in compliance with Rule 144, the Securities Act, or other or
subsequent applicable rules and regulations thereunder. The Company may place on
the certificate evidencing the Shares a legend in the following form:
"The Shares represented by this certificate are issued
pursuant to a Directors' Stock Retainer Plan, a copy of which is
filed with the Secretary of the Company, and such Shares cannot be
sold, donated, transferred, pledged, hypothecated or in any other
manner disposed of or encumbered except in accordance therewith."
-2-
<PAGE> 3
Furthermore, the Company may refuse to permit transfer of such certificates
until it has been furnished evidence satisfactory to it that no violation of the
Securities Act or the rules and regulations promulgated thereunder would be
involved in such transfer.
ARTICLE VI
ADJUSTMENTS
6.1 The number and kind of Shares which shall be automatically
granted to each Director under Article V of the Plan shall be automatically
adjusted to prevent dilution or enlargement of the rights of Directors in the
event of any changes in the number or kind of outstanding Shares resulting from
a merger, recapitalization, stock exchange, stock split, stock dividend, other
extraordinary dividend or distribution, corporate division or other change in
the Company's corporate or capital structure. Notwithstanding the foregoing, no
adjustments will be made hereunder with respect to any issuance of Shares or
other Company securities by the Company in a merger, consolidation or other
transaction in which the Company is the surviving entity.
ARTICLE VII
MISCELLANEOUS
7.1 Amendment. The Board may at any time amend, suspend or
terminate any or all of the provisions of the Plan at any time, including
adjusting the amount of the Cash Equivalent in Section 5.1, from time to time,
during the term of the Plan; provided, however, that in no event shall Article
IV be amended to increase the aggregate number of Shares that may be granted
under the Plan, unless the increase shall have received the prior approval of
the Company's shareholders.
7.2 Retention of Powers. Nothing contained herein shall prevent
the Board from exercising those powers granted to them by law, the Company's
Articles of Incorporation, or Code of Regulations, or otherwise to set the
compensation of directors from time to time.
7.3 Governing Law. The provisions of the Plan shall be construed
and interpreted according to the laws of the State of Ohio and applicable
Federal law.
* * *
-3-
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