<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
COMMUNITY BANCSHARES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
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<PAGE> 2
COMMUNITY BANCSHARES, INC.
HIGHWAY 231 SOUTH
P.O. BOX 1000
BLOUNTSVILLE, ALABAMA 35031
April , 1999
To the Stockholders of Community Bancshares, Inc.:
In connection with the Annual Meeting of stockholders of Community
Bancshares, Inc. to be held at 10:00 a.m., local time, on Thursday, April 22,
1999, we enclose a Notice of Annual Meeting of Stockholders, GREEN proxy card
and Proxy Statement containing information concerning those matters which are to
be considered at the Annual Meeting.
You are cordially invited to attend the Annual Meeting in person. Please
sign and return the enclosed GREEN proxy card in the enclosed postage-prepaid
envelope so that your shares can be voted in the event you are unable to attend
the meeting. This will not limit your rights to vote in person or attend the
Annual Meeting.
We are enthusiastic about the future and appreciate your continued support.
We look forward to seeing you on April 22.
Sincerely yours,
KENNON R. PATTERSON, SR.
Chairman, Chief Executive Officer and
President
PLEASE COMPLETE, DATE, SIGN AND MAIL PROMPTLY THE ACCOMPANYING GREEN PROXY CARD
IN THE POSTAGE-PAID RETURN ENVELOPE FURNISHED FOR THAT PURPOSE, WHETHER OR NOT
YOU PLAN TO ATTEND THE ANNUAL MEETING.
<PAGE> 3
COMMUNITY BANCSHARES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
------------------------
The Annual Meeting of the stockholders of Community Bancshares, Inc. (the
"Company") will be held at the Administrative Building of Community Bank
headquarters, Highway 231 South, Blountsville, Alabama, on Thursday, April 22,
1999 at 10:00 a.m., local time, for the following purposes:
1. The election of Denny G. Kelly, Kennon R. Patterson, Sr., Merritt M.
Robbins and R. Wayne Washam as Class III directors;
2. Ratification of the appointment of Dudley, Hopton-Jones, Sims &
Freeman, PLLP, to serve as independent auditors of the Company and its
subsidiaries for the year ending December 31, 1999;
3. Consideration of a stockholder proposal to amend the Company's Bylaws
to restrict the composition of the Board of Directors (other than the
President of the Company) to independent directors;
4. Consideration of a stockholder proposal to amend the Company's Bylaws
to declassify the Board of Directors; and
5. The transaction of such other business as may properly come before the
meeting or any adjournment thereof.
Please note that the Board of Directors has determined to postpone
consideration of a proposal to amend and restate the Company's Certificate of
Incorporation, given the number of other important matters to be addressed at
the Annual Meeting and the short amount of time remaining until the Annual
Meeting. The Board wants you to have adequate time to consider the information
in the attached Proxy Statement and in other materials that the Company may send
you.
The Board of Directors has fixed the close of business on March 15, 1999 as
the record date for determining stockholders of the Company entitled to notice
of and to vote at the Annual Meeting and any adjournment of the Annual Meeting.
Your attention is directed to the accompanying Proxy Statement for further
information with respect to the matters to be acted upon at the Annual Meeting.
You are cordially invited to attend the Annual Meeting. WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE COMPLETE, DATE AND SIGN THE
ENCLOSED GREEN PROXY CARD AND RETURN IT PROMPTLY IN THE POSTAGE-PAID RETURN
ENVELOPE ENCLOSED FOR THAT PURPOSE. The person giving the enclosed proxy may
revoke it at any time before it is voted by voting in person at the Annual
Meeting or by delivering a later written proxy or a written revocation to the
Corporate Secretary of the Company, provided such later written proxy or
revocation is actually received by the Corporate Secretary of the Company before
the vote of stockholders at the Annual Meeting.
If you need assistance in completing your proxy card, please call me at
(205) 429-1000.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
APPROVAL OF ITEMS 1 AND 2 ABOVE, AND A VOTE "AGAINST" ITEMS 3 AND 4 ABOVE.
By Order of the Board of Directors,
BISHOP K. WALKER, JR.
Secretary
Blountsville, Alabama
April 2, 1999
<PAGE> 4
COMMUNITY BANCSHARES, INC.
HIGHWAY 231 SOUTH
P.O. BOX 1000
BLOUNTSVILLE, ALABAMA 35031
------------------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 22, 1999
------------------------
INTRODUCTION
This Proxy Statement is furnished to stockholders of Community Bancshares,
Inc., a Delaware corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company for use at the
Annual Meeting of stockholders to be held April 22, 1999, and at any
adjournments thereof (the "Annual Meeting"), for the purposes set forth in the
accompanying Notice of Annual Meeting.
The executive offices of the Company are located at Highway 231 South, P.O.
Box 1000, Blountsville, Alabama 35031. This Proxy Statement was mailed to
stockholders of the Company on or about April , 1999.
STOCKHOLDERS ENTITLED TO VOTE
Each holder of record of the Company's common stock, $.10 par value per
share ("Common Stock"), as of the close of business on March 15, 1999, will be
entitled to vote at the Annual Meeting. Each stockholder will be entitled to one
vote on each proposal for each share of Common Stock held as of such date. At
the close of business on March 15, 1999, there were 4,656,847 shares of Common
Stock issued and outstanding, which were held by approximately 2,209
stockholders of record. The Company's stock transfer books will not be closed
and shares of Common Stock may be transferred subsequent to the record date,
although all votes must be cast in the names of stockholders of record as of the
record date.
PROXIES
If the enclosed GREEN proxy card is properly executed and received by the
Company before or at the Annual Meeting, the shares of Common Stock represented
thereby will be voted as specified in the proxy by the persons designated in
such proxy. If no specification is made in the proxy, shares of Common Stock
represented by the proxy will be voted (1) "FOR" the election of the nominees
for directors listed in the accompanying Notice of Annual Meeting, (2) "FOR"
ratification of the appointment of Dudley, Hopton-Jones, Sims & Freeman, PLLP,
as independent auditors of the Company and its subsidiaries for the year ending
December 31, 1999, (3) "AGAINST" the stockholder proposal to amend the Company's
Bylaws to restrict the composition of the Board of Directors (other than the
President of the Company) to independent directors, (4) "AGAINST" the
stockholder proposal to amend the Company's Bylaws to declassify the Board of
Directors, and (5) in accordance with the recommendation of the Board of
Directors as to any other matters which may come before the Annual Meeting. The
person giving the enclosed proxy may revoke it at any time before it is voted by
voting in person at the Annual Meeting or by delivering a later written proxy or
a written revocation to the Corporate Secretary of the Company, provided such
later written proxy or revocation is actually received by the Corporate
Secretary of the Company before the vote of stockholders at the Annual Meeting.
SOLICITATION OF PROXIES
THIS SOLICITATION IS MADE BY THE BOARD OF DIRECTORS OF THE COMPANY. THE
BOARD OF DIRECTORS URGES THAT YOU EXECUTE AND RETURN THE ENCLOSED GREEN PROXY
CARD AS SOON AS POSSIBLE AND RECOMMENDS THAT THE SHARES OF COMMON STOCK
REPRESENTED BY THE PROXY BE VOTED "FOR" APPROVAL OF PROPOSALS 1 AND 2 AND
"AGAINST" PROPOSALS 3 AND 4.
<PAGE> 5
Solicitation of proxies by the Company will be made by mail. In addition,
directors and officers of the Company and its subsidiaries will solicit proxies
in person, by telephone and by other means. Such directors and officers will not
receive any additional compensation in connection with such solicitation. The
Company will pay the cost of preparing, assembling and mailing this Proxy
Statement and other materials furnished to stockholders by the Company and all
other expenses in furtherance of or in connection with the Company's
solicitation of proxies for the Annual Meeting, including the expense of
brokers, custodians, nominees and other fiduciaries who, at the request of the
Company, mail material to or otherwise communicate with beneficial owners of
shares of Common Stock held by them. The Company estimates that the total amount
of such solicitation costs will be approximately $600,000, of which
approximately $275,000 has been incurred to date, excluding costs that would
normally be incurred by the Company in the absence of a competing proxy
solicitation and excluding the salaries and wages of officers and other
employees of the Company and its subsidiaries.
OTHER MATTERS
The Board of Directors is not aware of any business to be presented at the
Annual Meeting except as described in the accompanying Notice of Annual Meeting
and in the following paragraph. If other matters do properly come before the
Annual Meeting, it is intended that the persons named on the enclosed GREEN
proxy card will vote on such matters in accordance with the recommendation of
the Board of Directors. The Board of Directors has recommended that such persons
vote "AGAINST" any proposal or other business that is presented at the Annual
Meeting unless the Board of Directors has previously approved such proposal or
other business.
On March 25, 1999, a small group of stockholders led by Bryan A. Corr and
members of his family (using the alias "Stockholders for Integrity and
Responsibility") filed a preliminary proxy statement with the Securities and
Exchange Commission ("SEC"), indicating that they intend to solicit proxies for
the Annual Meeting in order to vote for the election of their slate of nominees
for directors and in favor of certain proposals that were omitted from this
Proxy Statement and the enclosed GREEN proxy card in accordance with Rule 14a-8
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
persons named in the enclosed GREEN proxy card intend to vote against the Corr
group's slate of nominees for directors and against proposals presented by the
Corr group at the Annual Meeting.
The Board of Directors of the Company opposes the Corr group's solicitation
and urges you NOT to sign or return any proxy card that the Corr group may send
you. If you have previously signed and returned any such proxy card, you have
every right to change your mind and revoke that proxy. You can do this by
completing, signing, dating and returning the enclosed GREEN proxy card.
ANNUAL REPORTS
A COPY OF THE COMPANY'S 1998 ANNUAL REPORT TO STOCKHOLDERS ACCOMPANIES THIS
PROXY STATEMENT. A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1998 WILL BE FURNISHED WITHOUT CHARGE TO ANY STOCKHOLDER WHO
REQUESTS SUCH REPORT IN WRITING FROM KENNON R. PATTERSON, SR., COMMUNITY
BANCSHARES, INC., P.O. BOX 1000, BLOUNTSVILLE, ALABAMA 35031.
2
<PAGE> 6
PROPOSAL 1 -- ELECTION OF DIRECTORS
The Bylaws of the Company provide for a classified Board of Directors
consisting of three classes, with the term of office of each class expiring in
successive years, and that the number of directors will be fixed from time to
time by the vote of the directors. The current number of directors has been
fixed at 11. The terms of the Class III directors expire at the Annual Meeting.
The terms of the Class I and Class II directors will expire in 2000 and 2001,
respectively. The Board of Directors is recommending the re-election of those
persons currently serving as Class III directors. Each of the Class III
directors elected at the Annual Meeting will serve three-year terms expiring at
the 2002 annual meeting of stockholders and until his respective successor is
elected and qualified. A director of the Company is elected by the affirmative
vote of the holders of a plurality of the shares of Common Stock present or
represented at the Annual Meeting and entitled to vote.
The Board of Directors has nominated Denny G. Kelly, Kennon R. Patterson,
Sr., Merritt M. Robbins and R. Wayne Washam for election as Class III directors
to hold office until expiration of their term and until their successors have
been elected and qualified. It is intended that the persons named in the
enclosed GREEN proxy card will vote for the election of these nominees. Each
nominee has consented to serve as director if elected, but if for any reason any
of these persons should not be available or able to serve, the proxies may
exercise discretionary authority to vote for substitutes proposed by the
Company's Board of Directors. The names of the nominees and the directors who
will continue to serve unexpired terms and certain information relating to them,
including the business experience of each during the past five years, follow.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE ELECTION OF THE NOMINEES LISTED BELOW AS DIRECTORS OF THE COMPANY.
NOMINEES FOR TERMS EXPIRING IN 2002 (CLASS III)
<TABLE>
<CAPTION>
DIRECTOR OF
COMPANY PRINCIPAL OCCUPATION
NAME, AGE AND POSITIONS HELD WITH THE COMPANY AND ITS SUBSIDIARIES SINCE DURING PAST FIVE YEARS
- ------------------------------------------------------------------ ----------- -------------------------------------
<S> <C> <C>
DENNY G. KELLY (59)....................................... 1986 President of Community Bank
Director and Executive Vice President of the Company; Director and (1993-Present)
President of Community Bank; Director of 1st Community Credit
Corporation, Community Appraisals, Inc., Community Insurance Corp.
and Southern Select Insurance, Inc.
KENNON R. PATTERSON, SR. (56)............................. 1983 Chairman, President and Chief
Chairman, President and Chief Executive Officer of the Company; Executive Officer of the Company
Chairman and Chief Executive Officer of Community Bank; Director (1985-Present); Chairman and Chief
of Community Appraisals, Inc., Community Insurance Corp., 1st Executive Officer of Community Bank
Community Credit Corporation and Southern Select Insurance, Inc. (1993-Present)
MERRITT M. ROBBINS (61)................................... 1996 Piggly Wiggly grocery store operator
Director of the Company, Community Bank and 1st Community Credit and property developer, New Hope,
Corporation Alabama
R. WAYNE WASHAM (62)...................................... 1996 Retired; Assistant Superintendent of
Director of the Company, Community Bank and 1st Community Credit Arab, Alabama City Schools
Corporation (1992-1996)
</TABLE>
3
<PAGE> 7
DIRECTORS WITH TERMS EXPIRING IN 2000 (CLASS I)
<TABLE>
<CAPTION>
DIRECTOR OF
COMPANY PRINCIPAL OCCUPATION
NAME, AGE AND POSITIONS HELD WITH THE COMPANY AND ITS SUBSIDIARIES SINCE DURING PAST FIVE YEARS
- ------------------------------------------------------------------ ----------- -------------------------------------
<S> <C> <C>
ROY B. JACKSON (64)....................................... 1999 Retired; Former owner-operator of
Director of the Company and Community Bank Jackson's Farm and Garden Center,
Minor Hill, Tennessee
HODGE PATTERSON, III (43)................................. 1993 Executive Vice President of Community
Director of the Company; Director and Executive Vice President of Bank (1997- Present); Vice-Chairman,
Community Bank; Director of 1st Community Credit Corporation, Chief Executive Officer and President
Community Insurance Corp. and Southern Select Insurance, Inc. of Community Bank, a Tennessee bank
(1993-1997)
ROBERT O. SUMMERFORD (68)................................. 1996 Owner-operator of Summerford Nursing
Director of the Company, Community Bank, and Community Appraisals, Home and Summerford Drugs store,
Inc. Falkville, Alabama
</TABLE>
DIRECTORS WITH TERMS EXPIRING IN 2001 (CLASS II)
<TABLE>
<CAPTION>
DIRECTOR OF
COMPANY PRINCIPAL OCCUPATION
NAME, AGE AND POSITIONS HELD WITH THE COMPANY AND ITS SUBSIDIARIES SINCE DURING PAST FIVE YEARS
- ------------------------------------------------------------------ ----------- -------------------------------------
<S> <C> <C>
GLYNN DEBTER (64)......................................... 1996 Owner-operator of Debter Farms,
Director of the Company, Community Bank, Community Insurance Corp Horton, Alabama
and Southern Select Insurance, Inc.
JOHN J. LEWIS, JR. (51)................................... 1997 Production Planning Manager for Tyson
Director of the Company, Community Bank and Community Appraisals, Foods, Inc. (food processing),
Inc. Blountsville, Alabama
LOY MCGRUDER (58)......................................... 1996 Executive Vice President of Community
Director of the Company; Director and Executive Vice President of Bank (1994- Present); City President
Community Bank; Director of Community Insurance Corp. and Southern of Community Bank-Blountsville
Select Insurance, Inc. (1994-1997); Senior Vice President of
Community Bank (1993-1994)
BISHOP K. WALKER, JR. (67)................................ 1983 Vice Chairman, Senior Executive Vice
Director, Vice Chairman, Secretary, Senior Executive Vice President and General Counsel of the
President and General Counsel of the Company; Director, Senior Company (1987- Present); President
Executive Vice President and Secretary of Community Bank; Director and Director of Community Insurance
of Community Insurance Corp. and Southern Select Insurance, Inc. Corp. (1987-1997)
</TABLE>
Kennon R. Patterson, Sr. and Hodge Patterson, III are brothers.
All directors of the Company hold office for three-year terms unless they
sooner resign, become disqualified or are removed. The officers of the Company
are elected annually by the directors and serve until their successors are
elected and qualified or until their earlier resignation, removal or
disqualification.
During the past 10 years, none of the directors of the Company have been
convicted in a criminal proceeding (excluding any traffic offenses). During the
past two years, the directors of the Company have bought and sold shares of
Common Stock as described in the footnotes to the table below under the heading
"Security Ownership of Certain Beneficial Owners and Management." In March 1998,
each of the directors of
4
<PAGE> 8
the Company were granted options to purchase shares of Common Stock at an
exercise price equal to the fair market value of the Common Stock on the date of
grant. Additional information regarding these grants is provided below under the
subheading "Stock Options." Kennon R. Patterson, Sr., Bishop K. Walker, Jr. and
Denny G. Kelly serve as members of the Company's ESOP and Pension Plan
Administrative Committee. Except as otherwise described herein, none of the
directors of the Company is, or during the past year was, a party to any
contract, arrangements or understandings with any person with respect to any
securities of the Company.
Each of Kennon R. Patterson, Sr. and Bishop K. Walker, Jr. is a party to an
employment agreement and change in control agreement with the Company. In
addition, each of Denny G. Kelly, Hodge Patterson, III and Loy McGruder is
employed by the Company and is a party to a change in control agreement with the
Company. These agreements are described below under the subheading "Employment
Agreements and Change in Control Arrangements." Certain affiliates of Kennon R.
Patterson, Sr. and members of his family have engaged, and may in the future
engage, in transactions with the Company and its subsidiaries. In addition,
Community Bank has engaged, and may in the future engage, in banking and lending
transactions with directors of the Company in the ordinary course of business.
These transactions are described below under the subheading "Certain
Relationships and Related Transactions." Except as otherwise described herein,
none of the directors of the Company, or their associates, have any arrangement
or understanding with any person with respect to future employment by the
Company or its affiliates, or with respect to future transactions to which the
Company or its affiliates will or may be a party.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held nine meetings during 1998. To
assist it in its work, the Board of Directors has the following standing
committees: Executive Committee, Nominating Committee, Executive Compensation
Committee, ESOP and Pension Plan Administrative Committee, and Audit Committee.
The membership of the Executive Committee currently consists of Kennon R.
Patterson, Sr. (Chairman), Denny G. Kelly (Vice Chairman), Glynn Debter, Merritt
M. Robbins, Bishop K. Walker, Jr. and R. Wayne Washam. This committee has the
authority, to the extent permitted by law and the Company's governing documents,
to exercise all the powers of the board of directors in the management of the
business and affairs of the Company. In performing these functions, the
committee met six times during 1998.
The Nominating Committee is currently composed of Glynn Debter (Chairman),
John J. Lewis, Jr. (Vice Chairman), Robert O. Summerford and Bishop K. Walker,
Jr. The purpose of this committee is to recommend to the Board of Directors
nominations for directors of the Company. This committee met one time in 1998.
The Executive Compensation Committee reviews the compensation of all
officers of the Company and its subsidiaries. Membership of this committee,
which met one time in 1998, currently consists of Merritt M. Robbins (Chairman),
R. Wayne Washam (Vice Chairman), Denny G. Kelly and Bishop K. Walker, Jr.
The ESOP and Pension Plan Administrative Committee administers the
Company's pension plan and employee stock ownership plan ("ESOP"). This
committee is currently composed of Denny G. Kelly (Chairman), Kennon R.
Patterson, Sr. (Vice Chairman) and Bishop K. Walker, Jr. This committee held one
meeting in 1998.
The Audit Committee reviews the financial and internal operations of the
Company. Members of the Audit Committee are R. Wayne Washam (Chairman), John J.
Lewis, Jr., Glynn Debter, Merritt M. Robbins and Robert O. Summerford. This
committee met ten times during 1998.
DIRECTOR ATTENDANCE
During 1998, all incumbent directors of the Company attended at least 75%
of the total number of meetings of the Board of Directors and meetings of the
committees of which they were members.
5
<PAGE> 9
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who own more than 10% of the Common Stock to file
with the SEC initial reports of ownership and reports of changes in ownership of
Common Stock. These officers, directors and stockholders are also required by
SEC rules to furnish the Company with copies of all Section 16(a) reports they
file. There are specific dates by which these reports are to be filed and the
Company is required to report in this Proxy Statement any failure to file
reports as required for 1998.
For 1998, Kennon R. Patterson, Sr., Bishop K. Walker, Jr., Denny G. Kelly,
Loy McGruder, Hodge Patterson, III, Kennon R. Patterson, Jr. and Stacey Mann
each failed to file a report on Form 4 to show an increase in their ownership of
a partnership which holds shares of Common Stock. Each such person subsequently
reported this event on a Form 5, which was timely filed. Kennon R. Patterson,
Sr., Bishop K. Walker, Jr. and Denny G. Kelly each failed to file a report on
Form 4 during 1998 to show an increase in the number of unallocated shares of
Common Stock held by the Company's ESOP, as to which shares each person
disclaims beneficial ownership. Each such person subsequently reported this
event on a Form 5, which was timely filed. During 1998, Michael A. Bean filed an
untimely report on Form 3 reporting that he held no shares of Common Stock upon
becoming an executive officer of the Company. Bryan A. Corr filed an untimely
report on Form 4 during 1998 reporting an increase in his beneficial ownership
of Common Stock. Glynn Debter filed two untimely reports on Form 4 during 1998
reporting increases in his beneficial ownership of Common Stock. The Company has
relied on written representations of its directors and executive officers and
copies of the reports that have been filed in making required disclosures
concerning beneficial ownership reporting.
DIRECTOR RESIGNATIONS
As part of its efforts to conform the Company's corporate governance
policies and procedures to those of other publicly-held companies, the Board of
Directors determined that it would be in the best interests of the Company to
have a smaller percentage of Board seats held by employee directors. In January
1999, three employee directors of the Company voluntarily resigned from the
Board of Directors to allow the Company to achieve this goal. The Board of
Directors is currently comprised of five employee directors and six non-
employee directors. In the future, the Board of Directors may take further
action to increase or decrease the proportion of employee directors to
non-employee directors as it deems appropriate to further the objectives of the
Company.
Effective January 28, 1999, Bryan A. Corr resigned as a director of the
Company. Mr. Corr's term as a director of the Company would have expired at the
Annual Meeting. The Nominating Committee did not nominate Mr. Corr for
re-election to the Board of Directors. On November 30, 1998, Mr. Corr was
dismissed as a director of Community Bank and was asked to resign as a director
of the Company, in response to actions taken by Mr. Corr during the Company's
Fall 1998 public offering of Common Stock. Mr. Corr, without informing the
Company or the Board of Directors, purchased approximately 32,000 shares of
Common Stock from a former employee of the Company at $18.00 per share, at a
time in which the Company was offering shares of Common Stock to the public at
$19.00 per share. The Board of Directors determined that Mr. Corr's actions were
inconsistent with his responsibilities and duties as a director of the Company
and of Community Bank.
SEC rules require that we provide a summary of the disagreements cited by
Mr. Corr as the reason for his resignation. In his letter of resignation, Mr.
Corr cited his disagreement with certain actions he alleged were or should have
been taken by the Company's Board of Directors. Specifically, Mr. Corr indicated
his disagreement with the practice of management not providing a "Board Book"
for each Board meeting, inadequate examination of related-party transactions,
adoption of a share purchase rights plan and amendments to the Company's Bylaws,
failure to respond to proposals submitted by a group of stockholders for
inclusion in this Proxy Statement, and alleged misrepresentations in a letter
sent to stockholders in January 1999. The Company believes Mr. Corr's
allegations are without merit. Mr. Corr's allegations are either patently false
or based on criticisms of management style rather than management quality.
6
<PAGE> 10
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Community Bank has from time to time made loans to certain of its directors
and executive officers, and members of their immediate families, in the ordinary
course of business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time of the loans for comparable
transactions with other persons. These loans did not involve more than the
normal risk of collectibility or present other unfavorable features. Community
Bank maintains a program whereby each of its full-time employees is eligible for
a one percent discount in the rate of interest charged on a loan from the bank.
Federal banking regulations have been amended to permit executive officers of
Community Bank to participate in this program. In addition, Community Bank
maintains a program for executive officers and other of its employees who are
required by the bank to relocate within its market area in connection with their
employment with the bank. Under this program, each of these employees is
eligible for a five percent annual interest rate on first mortgage, real estate
loans from the bank. During 1998, the total amount of loans to directors and
executive officers of the Company and members of their immediate families
originated by Community Bank under these two programs was approximately $3.6
million. As of March 10, 1999, the total outstanding balance of loans by
Community Bank to directors and executive officers of the Company and members of
their immediate families under these two programs was approximately $2.4
million.
During 1998, Community Bank contracted with Heritage Valley Farms, an
unincorporated business owned by Kennon R. Patterson, Sr., a director and named
executive officer of the Company, for the upkeep and maintenance of the external
grounds of certain locations of the bank and its subsidiaries. During most of
1998, such services were provided by Heritage Valley Farms at seven of the
Company's locations. During the first quarter of 1998, Heritage Valley Farms
provided such services at an additional 12 locations. Pursuant to its service
contract with Heritage Valley Farms, Community Bank and its subsidiaries paid
Heritage Valley Farms a total of $51,465 during 1998, or a monthly average of
$468 per location. In February 1999, Community Bank entered into a new service
contract with Heritage Valley Farms for the maintenance of 12 locations at a
total monthly cost of $7,058, or an average monthly cost of $588 per location.
During 1998, Heritage Interiors, a decorating and design firm owned and
operated by the wife of Kennon R. Patterson, Sr., provided interior design
services and furnishings, including furniture, appliances, fixtures, hardware,
carpets, wall coverings, paint, drapes and accessories, to the Company,
Community Bank and its subsidiaries in connection with the opening of new
facilities and the renovation of existing facilities. For such services and
furnishings, Heritage Interiors was paid a total of $666,492, including $265,000
in connection with the completion of three new buildings containing a total of
about 60,000 square feet, $31,876 in connection with the renovation of an
existing building at the Company's headquarters in Blountsville, Alabama,
$150,723 in connection with the opening of a permanent facility in Double
Springs, Alabama, $38,647 in connection with the opening of bank locations in
Albertville, Boaz and Guntersville, Alabama, $44,610 in connection with the
opening of six locations for 1st Community Credit Corporation, and additional
amounts relating to 23 other office locations.
The Company has entered into an agreement with the accounting firm of
Schauer, Taylor, Cox & Vise, P.C. to provide accounting services and perform
preliminary work in connection with the Company's annual audit. Doug Schauer, a
member of such firm, is Kennon R. Patterson, Sr.'s son-in-law. During 1998, the
Company or its subsidiaries paid such firm a total of $165,000. The preliminary
audit work of this firm is reviewed by the Company's independent auditors,
Dudley, Hopton-Jones, Sims & Freeman, PLLP, which issues an audit opinion to the
Company.
At December 31, 1998, the total outstanding balance of indebtedness
incurred by the ESOP to purchase shares of Common Stock was approximately
$2,944,232. This indebtedness, which is owed to a third party and is secured by
a pledge of 241,350 shares of Common Stock that have not been allocated by the
ESOP, is guaranteed by the Company.
LEGAL PROCEEDINGS
On November 19, 1998, Mr. William Towns, a stockholder of the Company,
filed a stockholder derivative action against the directors of the Company in
the state Circuit Court for Blount County, Alabama.
7
<PAGE> 11
Mr. Towns amended his complaint on January 14, 1999 to add the Company and
Community Bank as defendants in the action. On February 11, 1999, the complaint
was again amended to add Mr. Pat Bellew and Mrs. Mary Bellew, who are also
stockholders of the Company, as additional plaintiffs. On December 21, 1998, the
Company and its directors filed a motion with the court seeking to have the
complaint dismissed. On March 1, 1999, the Board of Directors appointed a
special Board committee, comprised of Roy B. Jackson, Merritt M. Robbins and R.
Wayne Washam, each of whom is a non-employee director of the Company, to review
the plaintiffs' allegations in accordance with Delaware law. On April , 1999,
at the request of each of the parties to the action, the court ordered that the
litigation and related discovery, motions and hearings be stayed, pending
completion of the special committee's review.
The complaint alleged that the directors of the Company breached their
fiduciary duty to the Company and its stockholders, engaged in fraud, fraudulent
concealment, suppression of material facts and suppression of the plaintiff
stockholders, failed to supervise management, conspired to conceal wrongful acts
from the Company's stockholders and paid themselves excessive director fees. The
complaint also alleged that the Board of Directors acquiesced in mismanagement
and misconduct by Kennon R. Patterson, Sr., the Chairman of the Board, Chief
Executive Officer and President of the Company, including alleged self-dealing,
payment of excessive compensation, misappropriation of corporate opportunities
and misappropriation of funds. The complaint sought an unspecified amount of
compensatory and punitive damages, removal of the current directors, appointment
of a new Board of Directors, and attorneys fees and costs. Management of the
Company believes that the plaintiffs' allegations are false and that the action
lacks merit. The Company and its directors intend to defend the action
vigorously, and management of the Company believes that the action will not have
a material adverse effect on the Company's results of operations and financial
condition.
8
<PAGE> 12
EXECUTIVE COMPENSATION
All share amounts and per share amounts in the following discussion have
been adjusted to reflect a two-for-one stock split, effected in the form of a
stock dividend of shares of Common Stock, on March 26, 1998. For additional
information about compensation of the Company's executive officers, please see
the section below captioned "Executive Compensation Committee Report on
Executive Compensation."
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides summary information concerning compensation
paid by the Company and its subsidiaries during 1998 to the Chief Executive
Officer and each of the four other most highly compensated executive officers of
the Company at December 31, 1998 (the "named executive officers") for the fiscal
years ended December 31, 1998, 1997 and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------- ---------------
AWARDS
OTHER SECURITIES ALL OTHER
ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS/SARS(#) ($)(1)(2)
- --------------------------- ---- --------- -------- ---------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Kennon R. Patterson, Sr.... 1998 $544,500 $281,500 -- 16,667 $53,928
Chairman, President 1997 495,000 165,000 -- 4,000 49,507
and Chief Executive
Officer 1996 450,000 150,000 -- 52,000 47,620
Bishop K. Walker, Jr...... 1998 $248,730 -- -- 13,333 $41,667
Vice Chairman and 1997 225,000 $ 50,000 -- 3,000 35,496
General Counsel 1996 200,000 60,000 -- 36,000 35,059
Denny G. Kelly............ 1998 $190,288 -- -- 10,000 $41,128
President -- 1997 150,000 $ 30,000 -- 2,000 34,307
Community Bank 1996 130,000 50,000 -- 22,000 35,420
Hodge Patterson, III...... 1998 $170,019 -- $17,740(3) 6,667 $35,378
Executive Vice
President -- 1997 150,000 $ 30,000 -- 2,000 34,307
Community Bank 1996 120,000 50,000 -- 20,000 35,420
Loy McGruder.............. 1998 $152,231 -- -- 6,667 $33,728
Executive Vice
President -- 1997 125,000 $ 30,000 -- 2,000 32,707
Community Bank 1996 95,000 35,000 -- 18,000 31,976
</TABLE>
- ---------------
(1) Includes director fees paid for service as a director of the Company and of
its subsidiaries during 1998, 1997 and 1996, respectively, as follows:
Kennon R. Patterson, Sr., $37,000, $34,600 and $32,400; Bishop K. Walker,
Jr., $33,000, $27,750 and $26,000; Denny G. Kelly, $34,500, $27,000 and
$26,000; Hodge Patterson, III, $28,750, $28,600 and $28,400; and Loy
McGruder, $27,000, $27,000 and $26,000.
(2) Also includes life insurance premiums paid by the Company and contributions
by the Company to the ESOP during 1998, 1997 and 1996, respectively, as
follows: Kennon R. Patterson, Sr., $16,928, $14,907 and $15,220; Bishop K.
Walker, Jr., $8,667, $7,746 and $9,059; Denny G. Kelly, $6,628, $5,707 and
$7,020; Hodge Patterson, III, $6,628, $5,707 and $7,020; and Loy McGruder,
$6,628, $5,707 and $5,976.
(3) Includes $4,805 with respect to social club dues, $5,675 with respect to
usage of a Company-owned automobile, and $7,260 with respect to discounted
interest rates through participation in the Company's employee loan
programs.
9
<PAGE> 13
STOCK OPTIONS
The following table contains information regarding the grant of stock
options during 1998 to the named executive officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS (1) OPTION TERM(2)
-------------------------------------------------------- ----------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS/
UNDERLYING SARS GRANTED EXERCISE OR
OPTIONS/SARS TO EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED(#) IN FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ---- ------------ -------------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Kennon R. Patterson, Sr........ 16,667 8.19% $15.00 3/25/03 $69,071 $152,631
Chairman, President and Chief
Executive Officer
Bishop K. Walker, Jr........... 13,333 6.55 15.00 3/25/03 55,255 122,099
Vice Chairman and General
Counsel
Denny G. Kelly................. 10,000 4.91 15.00 3/25/03 41,442 91,577
President -- Community Bank
Hodge Patterson, III........... 6,667 3.27 15.00 3/25/03 27,629 61,054
Executive Vice President --
Community Bank
Loy McGruder................... 6,667 3.27 15.00 3/25/03 27,629 61,054
Executive Vice President --
Community Bank
</TABLE>
- ---------------
(1) All stock options became exercisable on the date they were granted.
(2) Represents hypothetical gains that could be achieved with respect to the
grants of options if the options were to be exercised at the end of the
option term, based upon assumed rates of appreciation in the market price of
Common Stock of 5% and 10%, compounded annually from the date of grant to
the expiration date. Actual gains, if any, could vary and will depend upon
the actual date or dates, if any, on which options are exercised and the
actual rates of appreciation, if any, in the price of Common Stock.
10
<PAGE> 14
OPTION EXERCISES AND HOLDINGS
The following table provides information concerning the exercise of stock
options during 1998 by the named executed officers and the unexercised stock
options held by them at December 31, 1998.
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES AT FY-END(#) AT FY-END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kennon R. Patterson, Sr..... -- -- 72,667 -- $633,335 --
Bishop K. Walker, Jr........ -- -- 52,333 -- 449,165 --
Denny G. Kelly.............. -- -- 34,000 -- 285,000 --
Hodge Patterson, III........ -- -- 28,667 -- 248,335 --
Loy McGruder................ -- -- 26,667 -- 228,335 --
</TABLE>
- ---------------
(1) Represents market value of underlying shares of Common Stock at December 31,
1998 net of the exercise price of the options.
RETIREMENT PLAN
The following table shows the estimated annual benefits payable at normal
retirement age (age 65) under a qualified defined benefit retirement plan
(Community Bancshares, Inc. Revised Pension Plan) as well as under a
non-qualified supplemental retirement plan (Community Bancshares Inc. Benefit
Restoration Plan). This supplemental plan provides benefits that would otherwise
be denied participants because of Internal Revenue Code limitations on qualified
plan benefits. All of the named executive officers, other than Mr. McGruder, are
participants in this supplemental plan.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
AVERAGE ANNUAL -----------------------------------------
COMPENSATION 10 20 30 40
- -------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
$ 25,000 $ 3,750 $ 7,500 $ 11,250 $ 15,000
50,000 7,500 15,000 22,500 30,000
75,000 11,250 22,500 33,750 45,000
100,000 15,000 30,000 45,000 60,000
250,000 37,500 75,000 112,500 150,000
500,000 75,000 150,000 225,000 300,000
750,000 112,500 225,000 337,500 450,000
1,000,000 150,000 300,000 450,000 500,000
</TABLE>
The benefits shown are not subject to any deduction for Social Security
benefits or other offset amounts. Benefits shown above are computed as a
straight-life annuity beginning at age 65.
The amount of compensation covered by the combination of plans covering the
named executive officers is total compensation, including bonuses, overtime or
other forms of extraordinary compensation. The amount of the retirement benefit
is determined by the length of the retiree's credited service under the plans
and his average monthly earnings for the five highest consecutive calendar years
of the retiree's final ten consecutive calendar years of employment with the
Company and its subsidiaries. The full years of credited service under the plans
for the named executive officers are as follows: Kennon R. Patterson, Sr.: 16
years; Bishop K. Walker, Jr.: 12 years; Denny G. Kelly: 13 years; Hodge
Patterson, III: 12 years; and Loy McGruder: 12 years.
11
<PAGE> 15
COMPENSATION OF DIRECTORS
Directors of the Company are paid a fee of $1,000 for each month during
which the director serves. Members of the Executive Committee and Audit
Committee receive a fee of $1,000 for each month during which such committees
meet. Directors of the Company who are also directors of Community Bank or its
subsidiaries receive the following monthly fees: Community Bank -- $1,000;
Community Appraisal, Inc. -- $250; 1st Community Credit Corporation -- $250;
Community Insurance Corp. -- $250; and Southern Select Insurance, Inc. -- $250.
In March 1998, directors of the Company were granted options to purchase an
aggregate of 86,669 shares of Common Stock at an exercise price equal to the
fair market value of the Common Stock on the date of grant.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
EMPLOYMENT AGREEMENTS
Effective April 1, 1996, the Company entered into an Employment Agreement
with Kennon R. Patterson, Sr., which expires on March 31, 2008. The agreement
provides that Mr. Patterson will serve as the Chairman of the Board of
Directors, President and Chief Executive Officer of the Company and receive a
minimum base salary and annual bonus. Pursuant to the agreement, this
compensation package is to be increased by at least 10% each year. Mr.
Patterson's agreement also provides that he will receive four weeks of paid
vacation annually, use of an automobile for business and personal purposes,
reimbursement of business and professional expenses, memberships in civic and
social clubs, and an annual allowance of $10,000 for the purchase of life
insurance. In the event that Mr. Patterson is disabled to the extent that he is
incapable of performing his duties, he is entitled to a continuation of his
compensation during the period of disability, but not to exceed one year. If Mr.
Patterson's employment with the Company is terminated, he may not engage in the
business of banking within a 25 mile radius of any office of the Company or its
subsidiaries for a period of two years following the termination of his
employment.
Effective April 1, 1996, the Company also entered into an Employment
Agreement with Bishop K. Walker, Jr., which expires on March 31, 2001. Pursuant
to this agreement, Mr. Walker is to serve as Vice Chairman, Executive Vice
President, General Counsel and Secretary of the Company and in other capacities
for certain of its subsidiaries. Mr. Walker is to receive a stated salary which
will be reviewed annually. Mr. Walker's agreement also provides that he will
receive three weeks of paid vacation annually, use of an automobile for business
and personal purposes, reimbursement of business and professional expenses,
memberships in civic and social clubs and an employer-provided life insurance
policy in an amount of $100,000. If Mr. Walker is disabled to the extent that he
is incapable of performing his duties, he is entitled to receive his normal
compensation for the period of disability, but not to exceed 90 days. If Mr.
Walker's employment with the Company is terminated he may not engage in the
business of banking within a 25 mile radius of the Company's Blountsville,
Alabama office or in any other county in which the Company and its subsidiaries
does business for a period of two years following the termination of his
employment.
CHANGE IN CONTROL AGREEMENTS
The Company has entered into Change in Control Agreements with each of the
named executive officers. These agreements have terms of three years and may be
renewed annually thereafter by the Company's Executive Compensation Committee.
In the event of a change in control of the Company (as defined in the
agreements), the named executive officer is entitled to receive certain
severance benefits if his employment is terminated by the Company within 30
months following the change in control, unless the termination is for cause or
by reason of the officer's death or disability. The officer is also entitled to
these severance benefits if the officer terminates employment with the Company
within 30 months following a change in control because, among other reasons, the
officer's authority, duties, compensation or benefits have been reduced or the
officer is forced to relocate more than 50 miles from his place of employment
immediately prior to the change in control. If, during the term of the agreement
a transaction is proposed which, if consummated, would constitute a change in
control, the officer's employment is thereafter terminated by the Company other
than for cause or by reason of the officer's death or disability, and the
proposed transaction is consummated within
12
<PAGE> 16
one year following the officer's termination of employment, the change in
control will be deemed to have occurred during the term of the agreement and the
officer will be entitled to severance benefits.
The severance benefits payable under the Change in Control Agreements are
as follows: (i) a lump sum payment equal to the present value of the officer's
monthly salary which would have been payable for 30 months following the
officer's termination of employment but for such termination; (ii) a lump sum
payment equal to the present value of a monthly payment payable for 30 months,
which monthly payment is calculated by taking one-twelfth of the average of the
bonuses earned by the officer for the two calendar years immediately preceding
the year in which the officer's termination of employment occurs; (iii)
continuation of the officer's health and life insurance benefits for 30 months
following the officer's termination of employment at the same level and on the
same terms as provided to the officer immediately prior to his termination of
employment; (iv) full vesting and continued participation for a period of 30
months following the officer's termination of employment in certain retirement
plans or, if such full vesting and continued participation is not allowed,
payment by the Company of a lump sum supplemental benefit in lieu of full
vesting and continued participation in such plans; and (v) individual career
counseling and outplacement services for a reasonable period of time following
the officer's termination of employment, up to a maximum cost to the Company of
$5,000 per officer.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following directors currently serve as members of the Executive
Compensation Committee of the Company's Board of Directors and also served on
such committee during 1998:
Merritt M. Robbins (Chairman)
R. Wayne Washam (Vice Chairman)
Denny G. Kelly
Bishop K. Walker, Jr.
Former director Henry Sims, who has retired from the Board, also served on
the committee during a portion of 1998.
Bishop K. Walker, Jr. and Denny G. Kelly are also executive officers of the
Company and its subsidiaries.
13
<PAGE> 17
EXECUTIVE COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
OVERVIEW
The Company's Executive Compensation Committee (the "Compensation
Committee") is responsible for establishing and administering the Company's
executive compensation program. The Compensation Committee also makes
recommendations regarding executive compensation to the Board of Directors,
which has final approval of the compensation of each executive officer,
including the named executive officers identified in the Summary Compensation
Table above. Bishop K. Walker, Jr. and Denny G. Kelly do not participate in the
Compensation Committee's review and recommendation of their respective
compensation. Likewise, the named executive officers do not participate in the
Board of Directors' review and determination of their respective compensation.
The Company's executive compensation program is designed to attract,
reward, retain and motivate executive officers who will provide strong
leadership necessary for the Company to achieve superior financial performance
and stockholder return, and who will be an integral part of the communities that
the Company serves. During 1998, the Company's executive compensation program
consisted of (i) base compensation, (ii) annual bonuses, and (iii) long-term
incentives utilizing equity ownership in the Company. Executive officers also
receive various perquisites of a type comparable to those made available to
executive officers of other financial institutions, as well as retirement and
other employee benefits that are generally available to employees of the Company
and its subsidiaries.
EXECUTIVE COMPENSATION PROGRAM
BASE COMPENSATION
Base compensation provides the foundation for the Company's executive
compensation. Its purpose is to compensate the executive for performing the
basic duties that he or she is expected to perform. Salaries are typically
reviewed and adjusted each year. The base compensation paid to Kennon R.
Patterson, Sr. and Bishop K. Walker, Jr. are subject to the terms of their
respective employment agreements with the Company. Mr. Patterson's employment
agreement provides for a minimum base salary, with annual salary increases of at
least 10%. Mr. Walker's employment agreement provides for a minimum base salary,
which is subject to annual review in the discretion of the Compensation
Committee.
In determining the base compensation for a particular executive officer,
the Compensation Committee makes a subjective evaluation of three primary
factors: (i) the officer's individual performance, (ii) performance of the
Company and business unit or units of the Company for which the officer is
responsible, and (iii) published compensation data for comparable positions at
other financial institutions. The Compensation Committee does not assign any
relative or specific weights to these factors, and individual members of the
Compensation Committee may give differing weights to different factors.
Accordingly, during a particular year, the base compensation of an executive
officer of the Company may not necessarily be related to the Company's
performance during that year or the prior year.
Individual Performance. In determining its recommended compensation for
each executive officer of the Company, the Compensation Committee considers the
officer's individual performance during the prior year. Individual performance
is generally evaluated by reference to the executive officer's annual
performance review, in which the officer is subjectively graded by his or her
superiors on various specified criteria, such as leadership skill and management
ability.
Company Performance. The Compensation Committee also considers the
performance during the prior year of the Company and the bank, branch, branches
or other business unit or units of the Company for which the executive officer
is responsible. For example, in determining the compensation for Kennon R.
Patterson, Sr., the Chairman, Chief Executive Officer and President of the
Company, the Compensation Committee reviews the performance of the entire
Company, and in determining the compensation for Denny G. Kelly, the President
of Community Bank, the Compensation Committee reviews the performance of
Community Bank
14
<PAGE> 18
as a whole. The Compensation Committee subjectively evaluates the performance by
the business units with respect to criteria that the Compensation Committee
believes to be relevant in assessing the units' performance. The Compensation
Committee has not established any target amounts for these criteria, which may
differ from unit to unit, depending on the nature of the unit's business (such
as banking, consumer finance or insurance) and how long the unit has been in
operation, among other factors. The Compensation Committee particularly focuses
on the following five criteria, to the extent applicable, in assessing each
unit's performance: (i) growth in loan portfolio; (ii) growth in deposits; (iii)
amount of employee turnover; (iv) net profit; and (v) charge-offs and loan
losses.
Published Compensation Data. The Company subscribes to several industry
publications that report compensation of the executive officers of other
financial institutions. The Compensation Committee reviews information regarding
the compensation of similarly-situated executives at comparable institutions in
determining its recommended compensation for a particular executive officer.
Based on these and other factors that the Compensation Committee and its
members may deem to be relevant, the Compensation Committee determines the base
compensation of each executive officer and recommends such amounts to the Board
of Directors. The Board of Directors then considers the Compensation Committee's
recommendations, and may elect to decrease, increase or approve the compensation
recommended by the Compensation Committee. During 1998, the annual base
compensation for each of the named executive officers was increased as follows:
Kennon R. Patterson, Sr. to $544,500, Bishop K. Walker, Jr. to $248,730, Denny
G. Kelly to $190,288, Hodge Patterson, III to $170,019 and Loy McGruder to
$152,231. The Board of Directors approved, without material change, the
compensation recommended by the Compensation Committee for 1998.
ANNUAL BONUSES
The Company has, to a limited extent, provided short-term incentives to
executive officers in the form of annual cash bonuses in recognition of
outstanding individual performance and/or business unit performance. Kennon R.
Patterson, Sr.'s employment agreement with the Company provides for a minimum
annual bonus, which is to be increased by at least 10% per year. For 1998, the
Board of Directors awarded a total bonus to Kennon R. Patterson, Sr. in the
amount of $281,500. Of this amount, $181,500 reflected the minimum bonus payable
under Mr. Patterson's employment agreement and $100,000 represented an
additional discretionary bonus that was awarded by the Board of Directors in
recognition of Mr. Patterson's outstanding performance and significant
contributions to the Company's progress toward achieving its strategic plan, the
significant growth in the Company's assets, deposits, loans, number of locations
and services, and the growth in the Company's profitability during a time in
which, consistent with its strategic plan, the Company incurred significant
expansion costs related to the addition of new branches and subsidiaries. The
Board of Directors did not award bonuses to any other executive officer of the
Company for 1998, based on the Board's determination that the other officers'
base compensation and stock option awards provided adequate compensation with
respect to their performance and that of the Company during 1998.
LONG-TERM INCENTIVES
The purpose of long-term incentives is to provide incentives and rewards
recognizing the performance of the Company over time and to motivate long-term,
strategic thinking among executives. During 1998, the Company granted stock
options to its directors and certain of its officers as long-term incentives
because, among other reasons, the Compensation Committee believes stock options
properly align executive pay with stockholders' interests. The grant of stock
options is a common method of compensation for financial institutions and other
publicly held companies and allows the Company to be competitive with other
employers. The number of options granted to a particular executive officer
generally reflects the officer's position within the Company, the Compensation
Committee's subjective evaluation of the officer's performance and contribution
to the Company, and the Compensation Committee's analysis of the value of the
options awarded (using a standard methodology for valuing options). During 1998,
the Company granted options to each of the named executive officers, and certain
other executive officers of the Company, with an
15
<PAGE> 19
exercise price equal to 100% of the fair market value of the Common Stock on the
date that the options were granted.
CHIEF EXECUTIVE OFFICER COMPENSATION
Effective April 1, 1996, the Company entered into an employment agreement
with Kennon R. Patterson, Sr., the Chief Executive Officer of the Company, which
expires on March 31, 2008. Mr. Patterson's employment agreement provides for a
minimum base salary and annual bonus, each of which is to be increased each year
by at least 10%, regardless of Mr. Patterson's performance or that of the
Company or its subsidiaries. The Board of Directors approved this Employment
Agreement in 1996 because of Mr. Patterson's length of service with the Company,
the growth and success that the Company had achieved under his leadership, and
the Board's view that Mr. Patterson's efforts, strategic vision and leadership
were a key component in achieving such growth and success. In addition, the
Board desired to ensure that the Company continued to retain Mr. Patterson's
services as Chief Executive Officer of the Company. Based on the amount of
annual increases in compensation that had historically been awarded to officers
of the Company, the Board determined that a minimum annual raise in compensation
of 10% was reasonable.
Compensation for Mr. Patterson during 1998 was determined in accordance
with the terms of his employment agreement and the Board of Directors'
subjective evaluation of Mr. Patterson's performance and that of the Company, as
well as the other factors and criteria described above for other executive
officers of the Company. For 1998, Mr. Patterson's base salary was increased
from $495,000 to $544,500, representing an increase of 10%, the minimum amount
provided under his employment agreement. Mr. Patterson was also awarded an
annual bonus in the amount of $281,500, which was comprised of a minimum bonus
of $181,500 payable under Mr. Patterson's employment agreement and an additional
discretionary bonus in the amount of $100,000 in recognition of Mr. Patterson's
outstanding performance and the Company's growth. In addition, Mr. Patterson was
awarded options to purchase 16,667 shares of the Company's Common Stock.
In determining the amount of Mr. Patterson's compensation, the Compensation
Committee considered various qualitative and quantitative criteria regarding Mr.
Patterson's individual performance and that of the Company, as well as published
data regarding compensation paid to the chief executive officers of other
financial institutions. The Compensation Committee did not establish any target
amounts with respect to these criteria, or assign any particular weights to the
criteria considered. In particular, the Compensation Committee considered the
increases during 1998 in the Company's total assets to $603.2 million from
$491.8 million, in the Company's deposits to $538.6 million from $440.9 million,
and in the Company's net loans to $433.9 million from $326.1 million. The
Compensation Committee also considered the 1998 expansion of the Company's
geographic market through the opening of new locations for Community Bank and
the Company's insurance and finance company subsidiaries, the development and
expansion of the Company's products and services (such as insurance, appraisal
and consumer finance) and the increase in the Company's net income to $3.6
million from $3.5 million during 1998, a period in which the Company incurred
significant expansion costs as an investment in future growth and profitability.
The Compensation Committee determined that these accomplishments were key
factors in the continued growth in the size and profitability of the Company,
and that they were due in large part to Mr. Patterson's management leadership,
strategic vision and dedication to the Company and the communities it serves.
By the Executive Compensation Committee:
<TABLE>
<S> <C> <C> <C>
Denny G. Kelly Merritt M. Robbins Bishop K. Walker, Jr R. Wayne Washam
(Chairman) (Vice Chairman)
</TABLE>
16
<PAGE> 20
PERFORMANCE GRAPH
Set forth below is a graph comparing the yearly percentage change in the
cumulative total return of the Company's Common Stock against the cumulative
total return of the Nasdaq Stock Market Bank Index and the American Stock
Exchange Major Market Index for the last five years. It assumes that the value
of the investment in the Company's Common Stock and in each index was $100.00
and that all dividends were reinvested. There is no established trading market
for the Company's Common Stock and, therefore, no reliable information is
available as to the prices at which such Common Stock has traded. To the extent
that cumulative total return data provided in the graph below is based in part
on the price of the Common Stock at the dates indicated, such information should
not be viewed as indicative of the actual or market value of the Common Stock.
TOTAL RETURN PERFORMANCE
<TABLE>
<CAPTION>
COMMUNITY BANCSHARES, INC. AMEX MAJOR MARKET INDEX NASDAQ BANK INDEX
- -------------------------- ----------------------- -----------------
<S> <C> <C>
100 100.00 100.00
163.83 108.57 99.64
135.43 149.06 148.38
160.07 190.20 195.91
215.6 243.18 328.02
297.04 292.96 324.90
</TABLE>
The information provided under the headings "Executive Compensation
Committee Report on Executive Compensation" and "Performance Graph" above shall
not be deemed to be "soliciting material" or to be "filed" with the SEC, or
subject to Regulation 14A or 14C, other than as provided in Item 402 of
Regulation S-K, or to liabilities of Section 18 of the Exchange Act and, unless
specific reference is made therein to such headings, shall not be incorporated
by reference into any filings under the Securities Act of 1933 or the Exchange
Act.
17
<PAGE> 21
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 1, 1999,
with respect to ownership of shares of Common Stock by each of the Company's
directors and nominees for directors, all directors, nominees for directors and
executive officers of the Company as a group, and each other person or group
that is known by the Company, based solely upon a review of filings made with
the SEC, to be the beneficial owner of more than 5% of the outstanding shares of
Common Stock.
<TABLE>
<CAPTION>
PERCENTAGE
SHARES OF COMMON STOCK BENEFICIALLY OWNED(1) OF TOTAL
----------------------------------------------- SHARES
PERSON, GROUP OR ENTITY SOLE POWER(2) SHARED POWER(3) AGGREGATE OUTSTANDING
- ----------------------- ------------- --------------- --------- -----------
<S> <C> <C> <C> <C>
I. DIRECTORS, NOMINEES
AND EXECUTIVE OFFICERS
Glynn Debter........................ 26,867(4) 10,200 37,067 *
Roy B. Jackson...................... 1,400(5) 3,600 5,000 *
Denny G. Kelly...................... 86,842(6) 283,158 370,000 7.96%
John J. Lewis, Jr. ................. 42,467(7) 1,200 43,667 *
Loy McGruder........................ 34,650(8) 23,372 58,022 1.25
Hodge Patterson, III................ 74,755(9) 5,322 80,077 1.72
Kennon R. Patterson, Sr. ........... 105,874(10) 757,582 863,456 18.58
Merritt M. Robbins.................. 180,276(11) 4,632 184,908 3.98
Robert O. Summerford................ 40,667(12) 76,200 116,867(13) 2.51
Bishop K. Walker, Jr. .............. 244,784(14) 324,695 569,479 12.25
R. Wayne Washam..................... 35,069(15) 4,000 39,069 *
All Company directors, nominees for
directors and executive officers
as a group (12 persons)........... 873,651 960,921 1,834,572 39.47
II. OTHERS
Bank One as Trustee of the Community
Bancshares, Inc. Employee Stock
Ownership Plan(16)................ -- 554,904(17) 554,904(17) 11.94
R.C. Corr, Jr., Doris J. Corr, Bryan
A. Corr, Tina M. Corr, Joan M.
Currier, John David Currier,
Christina M. Currier, Corr, Inc.,
A. Lee Hanson, Jimmy C. Smith,
J.R. Whitlock, Sr. and William S.
Wittmeier, Jr. as a group
(18)(19).......................... 103,109 362,228 465,337 9.99
</TABLE>
- ---------------
* Less than 1%.
(1) The number of shares reflected are shares which, under applicable SEC
regulations, are deemed to be beneficially owned, including shares as to
which, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, either voting power or investment
power is held or shared. In addition, in computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options held by that person which are
currently exercisable, or which will become exercisable within 60 days
following March 1, 1999, are deemed to be outstanding. Such shares,
however, are not deemed outstanding for the purposes of computing the
percentage ownership of any other person. The total number of shares
beneficially owned is divided, where applicable, into two categories: (i)
shares as to which voting/investment power is held solely, and (ii) shares
as to which voting/investment power is shared.
(2) Unless otherwise specified in the following footnotes, if a beneficial
owner is shown as having sole power, the owner has sole voting as well as
sole investment power, and if a beneficial owner is shown as having
18
<PAGE> 22
shared power, the owner has shared voting power as well as shared
investment power. Some individuals are shown as beneficial owners of shares
held by the Company's ESOP. The individual has sole power to direct the
ESOP trustee as to the manner in which shares allocated to the individual's
account under the ESOP are to be voted. The individual has no direct power
of disposition with respect to shares allocated to the individual's
account, except to request a distribution under the terms of the ESOP.
(3) This column may include shares held in the name of, among others, a spouse,
minor children or certain other relatives sharing the same home as the
director, nominee, executive officer or 5% stockholder. In the cases of
Messrs. Kennon R. Patterson, Sr., Bishop K. Walker, Jr. and Denny G. Kelly,
this column includes 267,836 shares which are held by the ESOP and which
have not been allocated to any participant account. These individuals serve
as members of the Administrative Committee of the ESOP and have voting and
investment authority over the unallocated shares, but each individual
disclaims any beneficial ownership with respect to such unallocated shares.
In the case of Messrs. Kennon R. Patterson, Sr., Bishop K. Walker, Jr.,
Denny G. Kelly, Loy McGruder and Hodge Patterson, III, this column includes
5,322 shares held by Community Investments, a partnership composed of eight
individuals, of which each such individual is a partner. The number of
shares shown is each partner's individual interest in the 42,578 shares of
Common Stock held by the partnership.
(4) Includes 26,667 shares which could be acquired within 60 days following
March 1, 1999 pursuant to stock options. Since April 1, 1997, Mr. Debter
has purchased shares of Common Stock as follows: 1,100 shares on January
23, 1998, 100 shares on February 24, 1998, 436 shares on March 6, 1998,
3,064 shares on November 18, 1998 and 100 shares on November 23, 1998. Mr.
Debter borrowed funds for his purchases of Common Stock on January 23,
1998, May 6, 1998, November 18, 1998 and November 23, 1998 and, as of March
31, 1999, none of such indebtedness remained outstanding. Mr. Debter's
business address is 4134 Co. Highway 30, Horton, Alabama 35980.
(5) Mr. Jackson's business address is 14573 Minor Hill Highway, Minor Hill,
Tennessee 38473.
(6) Includes 34,000 shares which could be acquired within 60 days following
March 1, 1999 pursuant to stock options and 13,172 shares allocated to Mr.
Kelly's ESOP account as of December 31, 1997. Since April 1, 1997, Mr.
Kelly has purchased shares of Common Stock as follows: 10,000 shares on
November 30, 1998, 532.2 shares on July 22, 1998, 532.2 shares on July 29,
1998 and 56,682 shares on December 1, 1998.
(7) Includes 28,667 shares which could be acquired within 60 days following
March 1, 1999 pursuant to stock options. Since April 1, 1997, Mr. Lewis has
purchased shares of Common Stock as follows: 333 shares on December 31,
1997, 783 shares on January 5, 1998 and 4,756 shares on November 24, 1998.
Mr. Lewis borrowed funds for his purchase of Common Stock on November 24,
1998 and, as of March 31, 1999, none of such indebtedness remained
outstanding. Mr. Lewis' business address is 67240 Main Street,
Blountsville, Alabama 35031.
(8) Includes 26,667 shares which could be acquired within 60 days following
March 1, 1999 pursuant to stock options and 7,983 shares allocated to Mr.
McGruder's ESOP account as of December 31, 1997. Since April 1, 1997, Mr.
McGruder has purchased shares of Common Stock as follows: 525 shares on
April 18, 1997, 532.2 shares on July 22, 1998 and 532.2 shares on July 29,
1998. Mr. McGruder borrowed funds for his purchases of Common Stock on
April 18, 1997 and November 20, 1998, and, as of March 31, 1999, none of
such indebtedness remained outstanding.
(9) Includes 28,667 shares which could be acquired within 60 days following
March 1, 1999 pursuant to stock options and 9,484 shares allocated to Mr.
Patterson's ESOP account as of December 31, 1997. Since April 1, 1997, Mr.
Patterson has purchased shares of Common Stock as follows: 120 shares on
February 24, 1998, 532.2 shares on July 22, 1998 and 532.2 shares on July
29, 1998.
(10) Includes 72,667 shares which could be acquired within 60 days following
March 1, 1999 pursuant to stock options and 33,207 shares allocated to Mr.
Patterson's ESOP account as of December 31, 1997. Since April 1, 1997, Mr.
Patterson has purchased shares of Common Stock as follows: 100 shares on
April 18, 1997, 532.2 shares on July 22, 1998, 532.2 shares on July 29,
1998 and 3,080 shares on November 23, 1998.
19
<PAGE> 23
(11) Includes 26,667 shares which could be acquired within 60 days following
March 1, 1999 pursuant to stock options. Since April 1, 1997, Mr. Robbins
has purchased shares of Common Stock as follows: 268 shares on September
12, 1997, 5,241 shares on October 23, 1998, 10,000 shares on November 20,
1998 and 3,000 shares on December 15, 1998. Mr. Robbins borrowed funds for
his purchase of Common Stock on November 20, 1998 and, as of March 31,
1999, none of such indebtedness remained outstanding. Mr. Robbins' business
address is P.O. Box 450, New Hope, Alabama 35760.
(12) Includes 26,667 shares which could be acquired within 60 days following
March 1, 1999 pursuant to stock options. Since April 1, 1997, Mr.
Summerford has purchased shares of Common Stock as follows: 2,000 shares on
April 18, 1997, 100 shares on May 15, 1997, 2,000 shares on September 12,
1997 and 20,000 shares on November 17, 1998. Mr. Summerford's business
address is 4087 Highway 31 S.W., Falkville, Alabama 35622.
(13) Includes 62,200 shares held by Summerford Nursing Home and 14,000 shares
held by Summerford Drug. Mr. Summerford is a controlling shareholder of
both companies.
(14) Includes 52,333 shares which could be acquired within 60 days following
March 1, 1999 pursuant to stock options and 11,747 shares allocated to Mr.
Walker's ESOP account as of December 31, 1997. Since April 1, 1997, Mr.
Walker has purchased shares of Common Stock as follows: 100 shares on June
30, 1997, 16 shares on September 12, 1997, 28,784 shares on October 28,
1997, 50 shares on January 20, 1998, 88 shares on March 6, 1998, 532.2
shares on July 22, 1998, 532.2 shares on July 29, 1998, 56,682 shares on
December 1, 1998 and 75 shares on February 9, 1999.
(15) Includes 28,667 shares which could be acquired within 60 days following
March 1, 1999 pursuant to stock options. Mr. Washam's business address is
P.O. Box 114, Arab, Alabama 35016.
(16) The address of Bank One is P.O. Box 60279, New Orleans, Louisiana 70160.
(17) Participants in the ESOP have the power to direct the ESOP trustee how to
vote shares allocated to their individual accounts. Any unallocated shares,
and any allocated shares with respect to which voting instructions are not
received from a participant, will be voted by the appropriate ESOP
fiduciary in its discretion.
(18) The address of the members of the Corr and Currier families and Corr, Inc.
is 600 Third Avenue East, Oneonta, Alabama 35121. Mr. Hanson's address is
No. 5 Greenbriar Lane, Oneonta, Alabama 35121. Mr. Smith's address is 1630
2nd Avenue East, Oneonta, Alabama 35121. Mr. Whitlock's address is 3410
Rocky Hollow Road, Blountsville, Alabama 35031. Mr. Wittmeier's address is
1 Creek Side Way S.W., Rome, Georgia 30165.
(19) Information about this group was obtained from a Schedule 13D, and
amendments thereto, filed by such group with the SEC, except that the
percentage of ownership has been recalculated based on the number of shares
of Common Stock outstanding as of March 1, 1999.
20
<PAGE> 24
PROPOSAL 2 -- RATIFICATION OF APPOINTMENT OF AUDITORS
Upon the recommendation of the Audit Committee, the Board of Directors has
appointed the accounting firm of Dudley, Hopton-Jones, Sims & Freeman, PLLP as
the independent auditors of the Company and its subsidiaries for 1999, subject
to approval by the Company's stockholders. This firm has served as the Company's
independent auditors since 1989. The affirmative vote of the holders of a
majority of the shares of Common Stock present or represented at the Annual
Meeting and entitled to vote is required to ratify the appointment of Dudley,
Hopton-Jones, Sims & Freeman, PLLP as independent auditors of the Company and
its subsidiaries for 1999. If the appointment is not approved by the
stockholders, the matter will be referred to the Audit Committee for further
review.
A representative of Dudley, Hopton-Jones, Sims & Freeman, PLLP is expected
to be present at the Annual Meeting and will have an opportunity to make a
statement and to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" RATIFICATION OF
THE APPOINTMENT OF DUDLEY, HOPTON-JONES, SIMS & FREEMAN, PLLP AS INDEPENDENT
AUDITORS FOR 1999.
STOCKHOLDER PROPOSALS
Certain stockholders of the Company have notified the Company that they
intend to present proposals at the Annual Meeting for consideration by the
stockholders of the Company. These proposals are described below and are
identified as Proposals 3 and 4 on the enclosed GREEN proxy card. The Board of
Directors has duly considered each of these proposals and unanimously recommends
a vote "AGAINST" each of these two stockholder proposals. The Company disclaims
any responsibility for the content of these stockholder proposals and supporting
statements. The affirmative vote of the holders of a majority of the shares of
Common Stock present or represented at the Annual Meeting and entitled to vote
is required for approval of each of these stockholder proposals.
PROPOSAL 3 -- STOCKHOLDER PROPOSAL TO AMEND THE COMPANY'S
BYLAWS TO RESTRICT THE COMPOSITION OF THE BOARD OF
DIRECTORS (OTHER THAN THE PRESIDENT OF THE
COMPANY) TO INDEPENDENT DIRECTORS
Jimmy C. Smith, whose address is 101 Hickory Street, Oneonta, Alabama
35121, has given notice to the Company that he intends to present the following
proposal at the Annual Meeting for consideration by the stockholders of the
Company. The Company will provide you with information regarding shares of
Common Stock held by Mr. Smith promptly upon receipt by the Corporate Secretary
of the Company of an oral or written request for such information.
WHEREAS, the Board of Directors (the "Board") of Community
Bancshares, Inc. (the "Corporation") is intended to be an independent
body elected by the Corporation's stockholders and is charged with the
duty, authority and responsibility to formulate and direct corporate
policies which are in the best interests of such stockholders;
WHEREAS, the Board should monitor management of the Corporation
in the implementation of those policies; and
WHEREAS, the Corporation's interests can best be served by having
Directors who are independent of management and who possess a breadth
of business experience;
21
<PAGE> 25
NOW, THEREFORE, BE IT RESOLVED, by the stockholders of the
Corporation, as follows:
Section 1. Article III, Section 1 of the By-Laws of the
Corporation shall be amended to insert at the conclusion thereof the
following:
The Board of Directors shall consist of Directors who are
independent, with the exception of one management representative
who shall be the President of the Corporation. A Director shall
be deemed to be independent for the purposes hereof if he or she
(i) has not been employed by the Corporation, or a subsidiary or
an affiliate thereof, within the preceding five years; (ii) is
not a member of the "immediate family" of any person who has
been so employed (as such term is defined in Item 404(a) of
Regulation S-K promulgated by the U.S. Securities and Exchange
Commission ("Regulation S-K")); and (iii) has not had any
business relationship that would be required to be disclosed by
Item 404(b) of Regulation S-K. The preceding two sentences shall
not be altered or repealed without approval by the stockholders
of the Corporation.
Section 2. Such amendment of the By-Laws of the Corporation
shall be effective with respect to nominees for Director to be elected
subsequent to the 1999 annual meeting of stockholders of the
Corporation.
MR. SMITH'S SUPPORTING STATEMENT
Mr. Smith provided the following statement in support of his proposal:
The Board of Directors (the "Board") of Community Bancshares,
Inc. (the "Corporation") is comprised of 15 Directors, eight of whom
are officers of the Corporation or its subsidiaries and three of whom
are members of the same family. The Corporation's management, which
includes these eight "inside" Directors, is responsible for the
day-to-day operations of the Corporation. The Board, on the other
hand, is responsible for setting corporate policy, evaluating the
performance of management in implementing that policy and establishing
executive compensation. This system of checks and balances is
compromised when a majority or even a significant number of the
members of the Board is comprised of management "insiders". Members of
management lack the independence and true objectivity necessary to act
in the best interests of the Corporation's stockholders. Accordingly,
it is important that members of the Board be "independent" of
management in order to help ensure that the interests of all, and not
just a few, stockholders are protected and advanced by improving the
accountability of management.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "AGAINST" THIS
PROPOSAL 3.
PROPOSAL 4 -- STOCKHOLDER PROPOSAL TO AMEND THE COMPANY'S BYLAWS TO
DECLASSIFY THE BOARD OF DIRECTORS
J.R. Whitlock, Sr., whose address is 9 Greenbriar Lane, Oneonta, Alabama
35121, has given notice to the Company that he intends to present the following
proposal at the Annual Meeting for consideration by the stockholders of the
Company. The Company will provide you with information regarding shares of
Common Stock held by Mr. Whitlock promptly upon receipt by the Corporate
Secretary of the Company of an oral or written request for such information.
WHEREAS, the Board of Directors (the "Board") of Community
Bancshares, Inc. (the "Corporation") is classified;
WHEREAS, the classification of the Board maintains the incumbency
of the current Board and management of the Corporation and thus limits
the accountability of both to the Corporation's stockholders; and
22
<PAGE> 26
WHEREAS, the declassification of the Board would allow the
Corporation's stockholders the opportunity to register annually their
respective views of the performance of the Board and its members;
NOW, THEREFORE, BE IT RESOLVED, by the stockholders of the
Corporation, as follows:
Section 1. The Board shall be declassified in order that all
Directors of the Corporation may be elected annually.
Section 2. The By-Laws of the Corporation shall be amended to
effect the foregoing by deleting Article II, Section 2 and Article
III, Sections 1 and 2 thereof in their entirety and re-inserting their
respective predecessor sections as they existed prior to the 1996
annual meeting of stockholders, except that the number of Directors
which may compose the Board shall be nine.
Section 3. Such amendment of the By-Laws of the Corporation
shall be effected in a manner that does not affect the unexpired term
of the Corporation's Directors previously elected.
MR. WHITLOCK'S SUPPORTING STATEMENT
Mr. Whitlock provided the following statement in support of his proposal:
The Board of Directors (the "Board") of Community Bancshares,
Inc. (the "Corporation") is divided into three classes serving
staggered three-year terms. This arrangement, which is commonly
referred to as a "classified" board of directors, is not in the best
interests of the Corporation or its stockholders.
The classification of the Board serves to protect the incumbency
of the current Board and management and thus limits the accountability
of both to the Corporation's stockholders. Concerns that the
"declassification" of the Board could lead to inexperienced members of
the Board if no incumbents were returned to their respective
directorship are unfounded.
The stockholders of the Corporation deserve the opportunity to
vote on each Director annually, rather than once every three years.
The declassification of the Board would allow the Corporation's
stockholders the opportunity to register annually their respective
view of the performance of the Board and its members.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "AGAINST" THIS
PROPOSAL 4.
VOTING PROCEDURES
Under the Delaware General Corporation Law ("DGCL") and the Company's
Bylaws, the presence in person or by proxy of a majority of the outstanding
shares of Common Stock is necessary to constitute a quorum of the stockholders
to take action at the Annual Meeting. For these purposes, shares which are
present or represented by a proxy at the Annual Meeting will be counted for
quorum purposes regardless of whether the holder of the shares or the proxy
abstains from voting on any particular matter or whether a broker with
discretionary authority fails to exercise its discretionary voting authority
with respect to any particular matter. Under the DGCL, once a quorum of the
stockholders is established, (i) the directors standing for election must be
elected by a plurality of the shares of Common Stock present, in person or by
proxy, at the Annual Meeting, and (ii) any other action to be taken must be
approved by the vote of the holders of a majority of the shares of Common Stock
present, in person or by proxy, at the Annual Meeting, unless otherwise provided
in the Company's Certificate of Incorporation or Bylaws. Abstentions will in
effect count as votes against approval of actions to be taken at the Annual
Meeting other than election of directors. Broker non-votes will not have an
effect on the outcome of the election of directors or approval of any other
action the Company is aware is to be taken at the Annual Meeting.
23
<PAGE> 27
MISCELLANEOUS INFORMATION
STOCKHOLDER PROPOSALS
Any proposals by stockholders intended to be presented at the Company's
2000 annual meeting of stockholders must be received in written form at the
Company's executive offices on or before November 30, 1999, and must otherwise
be in compliance with Rule 14a-8 under the Exchange Act and other applicable
legal requirements in order to be included in the Company's proxy materials for
that annual meeting.
NOMINATIONS FOR DIRECTORS AND OTHER BUSINESS
The Company's Bylaws require stockholders who wish to submit to the annual
meeting of stockholders nominations of persons for election to the Board of
Directors or other business to follow certain procedures. The Company's
Nominating Committee will consider nominations of persons for election to the
Board of Directors that are timely and otherwise submitted in accordance with
the following. The stockholder must give notice in writing of the nomination or
other business to the Corporate Secretary of the Company at its office at
Highway 231 South, P.O. Box 1000, Blountsville, Alabama 35031, not later than
the close of business on the 90th day, nor earlier than the 120th day, prior to
the first anniversary of the preceding year's annual meeting. If the date of the
annual meeting is more than 30 days before or more than 60 days after such
anniversary date, however, notice to be timely must be delivered not earlier
than the close of business on the 120th day prior to such annual meeting and not
later than the close of business on the later of the 90th day prior to the
annual meeting or the 10th day following the day on which public announcement of
the date of such meeting is first made by the Company. The stockholder must be a
stockholder of record at the time the notice is given and must be entitled to
vote at such meeting. The stockholder's notice must set forth (a) as to each
nominee all information relating to that person that is required to be disclosed
in solicitations of proxies for election of directors in an election contest, or
is otherwise required, in each case pursuant to Regulation 14A under the
Exchange Act and Rule 14a-11 thereunder (including the nominee's written consent
to being named in the proxy statement as a nominee and to serving as a director
if elected), (b) as to any other business that the stockholder proposes to bring
before the Annual Meeting, a brief description of the business desired to be
brought before the Annual Meeting, the reasons for conducting such business at
the Annual Meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the nomination or
proposal is made, and (c) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination is made (i) the name
and address of the stockholder, as they appear on the Company's books, and of
such beneficial owner and (ii) the number and class of shares of the Company
owned of record and beneficially by such stockholder and such beneficial owner.
The individuals named as proxies on the proxy card for the Company's 2000
annual meeting of stockholders will be entitled to exercise their discretionary
authority in voting proxies on any stockholder proposal that is not included in
the Company's proxy statement for the 2000 annual meeting, unless the Company
receives notice of the matter(s) to be proposed no later than the 90th day
preceding the first anniversary of this year's Annual Meeting. Even if proper
notice is received within such time period, the individuals named as proxies on
the proxy card for the meeting may nevertheless exercise their discretionary
authority with respect to such matter(s) by advising stockholders of the
proposal(s) and how the proxies intend to exercise their discretion to vote on
the matter(s), unless the stockholder making the proposal(s) complies with Rule
14a-4(c)(2) under the Exchange Act.
24
<PAGE> 28
(COMMUNITY BANCSHARES LOGO)
DETACH PROXY CARD HERE
----------------------------------------------------------------
PROXY CARD
COMMUNITY BANCSHARES, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Dicey Childers and Bishop K. Walker, Jr.,
and either of them, as proxies, with full power of substitution and
resubstitution, to vote all of the shares of Common Stock which the undersigned
is entitled to vote at the Annual Meeting of Stockholders of Community
Bancshares, Inc. (the "Company") to be held at the Administrative Building of
Community Bank headquarters, Highway 231 South, Blountsville, Alabama on
Thursday, April 22, 1999, at 10:00 a.m. (Central Time), and at any adjournment
thereof (the "Annual Meeting").
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE IN ACCORDANCE WITH
THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS UPON SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE ANNUAL MEETING.
THIS PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS AND WILL BE VOTED AS
SPECIFIED. IF NOT OTHERWISE SPECIFIED, THE ABOVE NAMED PROXIES WILL VOTE (1) FOR
THE ELECTION AS CLASS III DIRECTORS OF THE NOMINEES NAMED ON THIS CARD, (2) FOR
THE RATIFICATION OF THE APPOINTMENT OF DUDLEY, HOPTON-JONES, SIMS & FREEMAN,
PLLP AS INDEPENDENT AUDITORS OF THE COMPANY AND ITS SUBSIDIARIES FOR THE YEAR
ENDING DECEMBER 31, 1999, (3) AGAINST A STOCKHOLDER PROPOSAL TO AMEND THE
COMPANY'S BYLAWS TO RESTRICT THE COMPOSITION OF THE BOARD OF DIRECTORS (OTHER
THAN THE PRESIDENT OF THE COMPANY) TO INDEPENDENT DIRECTORS, (4) AGAINST A
STOCKHOLDER PROPOSAL TO AMEND THE COMPANY'S BYLAWS TO DECLASSIFY THE BOARD OF
DIRECTORS, AND (5) IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF
DIRECTORS ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING.
(CONTINUED ON REVERSE SIDE)
<PAGE> 29
DETACH PROXY CARD HERE
----------------------------------------------------------------
<TABLE>
<S> <C>
1. Election of Class III Directors. Nominees: Denny G. Kelly
Kennon R. Patterson, Sr.
Merritt M. Robbins
R. Wayne Washam
FOR WITHHOLD AUTHORITY
all nominees listed (except as to vote for all
marked to the contrary below) nominees listed
[ ] [ ]
INSTRUCTION: To withhold authority to vote for any
individual nominee, write his name or their names in the
following space:
[ ] --------------------------------------------------------
- ----
</TABLE>
NOTICE: IF THIS PROXY IS EXECUTED IN SUCH MANNER AS NOT TO WITHHOLD AUTHORITY TO
VOTE FOR THE ELECTION OF ANY NOMINEE, IT SHALL BE DEEMED TO GRANT SUCH
AUTHORITY.
<TABLE>
<S> <C> <C> <C>
Proposal to ratify the appointment of
2. Dudley, Hopton-Jones, Sims & Freeman,
PLLP as independent auditors of the
Company and its subsidiaries for the year
ending December 31, 1999.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Stockholder proposal to amend the
3. Company's Bylaws to restrict the
composition of the Board of Directors
(other than the President of the Company)
to independent directors.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. Stockholder proposal to amend the
Company's Bylaws to declassify the Board
of Directors.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
</TABLE>
IMPORTANT: PLEASE SIGN EXACTLY AS YOUR NAME OR NAMES APPEAR ON THIS PROXY AND
MAIL PROMPTLY IN THE ENCLOSED ENVELOPE.
IF YOU SIGN AS AGENT OR IN ANY OTHER
CAPACITY, PLEASE STATE THE CAPACITY IN
WHICH YOU SIGN.
DATED: , 1999
---------------------------
---------------------------------------
SIGNATURE
---------------------------------------
SIGNATURE IF HELD JOINTLY
