<PAGE> 1
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[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 ss. 240.14a-11(c) or ss. 240.14a-12
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:
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(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):
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(4) Proposed maximum aggregate value of transaction:
---------------------
(5) Total fee paid:
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[ ] 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:
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(2) Form, Schedule or Registration Statement No.:
------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
COMMUNITY BANCSHARES, INC.
Highway 231 South
P.O. Box 1000
Blountsville, Alabama 35031
March __, 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, proxy 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 proxy 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 PROXY IN THE
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. Approval and adoption of an Amended and Restated Certificate
of Incorporation;
4. Consideration of a stockholder proposal to amend the Company's
Bylaws to separate the position of Chairman of the Board from
the position of President;
5. Consideration of a stockholder proposal to amend the Company's
Bylaws to restrict the composition of the Board of Directors
to independent directors;
6. Consideration of a stockholder proposal to amend the Company's
Bylaws to declassify the Board of Directors; and
7. The transaction of such other business as may properly come
before the meeting or any adjournment thereof.
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 PROXY CARD AND RETURN IT PROMPTLY IN THE 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, please call the
Company at (205) 429-1000.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
APPROVAL OF ITEMS 1, 2 AND 3 ABOVE, AND A VOTE "AGAINST" ITEMS 4, 5 AND 6 ABOVE.
By Order of the Board of Directors,
Bishop K. Walker, Jr.
Secretary
Blountsville, Alabama
March __, 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 March ___, 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 form of proxy 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) "FOR" approval and adoption of the Amended and Restated
Certificate of Incorporation, (4) "AGAINST" the stockholder proposal to amend
the Company's Bylaws to separate the position of Chairman of the Board from the
position of President, (5) "AGAINST" the stockholder proposal to amend the
Company's Bylaws to restrict the composition of the Board of Directors to
independent directors, (6) "AGAINST" the stockholder proposal to amend the
Company's Bylaws to declassify the Board of Directors, and (7) 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
<PAGE> 5
revocation is actually received by the Corporate Secretary of the Company before
the vote of stockholders at the Annual Meeting.
OTHER MATTERS
The Board of Directors is not aware of any business to be presented at
the Annual Meeting other than that described in the accompanying Notice of
Annual Meeting. If other matters do properly come before the Annual Meeting, it
is intended that the persons named on the enclosed 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.
SOLICITATION OF PROXIES
Solicitation of proxies will be made initially by mail. In addition,
proxies may be solicited by directors, officers and other employees of the
Company and its subsidiaries in person, by telephone and by other means. The
Company may engage the services of a proxy solicitation firm to assist the
Company in soliciting proxies for the Annual Meeting. The cost of preparing,
assembling and mailing this Proxy Statement and other materials furnished to
stockholders and all other expenses of solicitation, 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, will be paid by the Company.
THIS SOLICITATION IS MADE BY THE BOARD OF DIRECTORS OF THE COMPANY. THE
BOARD OF DIRECTORS URGES THAT YOU EXECUTE AND RETURN THE ENCLOSED PROXY AS SOON
AS POSSIBLE AND RECOMMENDS THAT THE SHARES OF COMMON STOCK REPRESENTED BY THE
PROXY BE VOTED "FOR" APPROVAL OF PROPOSALS 1, 2 AND 3 AND "AGAINST" PROPOSALS 4,
5 AND 6.
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.
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<PAGE> 6
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 Securities and Exchange Commission ("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 3,600 5,000 *
Denny G. Kelly..................... 86,842(5) 283,158 370,000 7.96%
John J. Lewis, Jr.................. 42,467(6) 1,200 43,667 *
Loy McGruder....................... 34,650(7) 23,372 58,022 1.25
Hodge Patterson, III............... 74,755(8) 5,322 80,077 1.72
Kennon R. Patterson, Sr............ 105,874(9) 757,582 863,456 18.58
Merritt M. Robbins................. 180,276(10) 4,632 184,908 3.98
Robert O. Summerford............... 40,667(11) 76,200 116,867(12) 2.51
Bishop K. Walker, Jr............... 244,784(13) 324,695 569,479 12.25
R. Wayne Washam.................... 35,069(14) 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 ("ESOP")(15).................. -- 554,904(16) 554,904(16) 11.94
R.C. Corr, Jr., Doris J. Corr,
Bryan A. Corr, Tina M. Corr,
Joan M. Currier, John David
Currier, Christian M. Currier,
Oneonta Telephone Company, Inc.,
A. Lee Hanson, Jimmy C. Smith,
J.R. Whitlock, Sr. and William S.
Wittmeier as a group(17)(18)....... 101,775 362,228 464,003 9.98
</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
3
<PAGE> 7
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
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 Community Bancshares, Inc. Employee Stock Ownership
Plan (the "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% shareholder. 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.
(5) 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.
(6) Includes 28,667 shares which could be acquired within 60 days following
March 1, 1999 pursuant to stock options.
(7) 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.
(8) 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.
(9) 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.
(10) Includes 26,667 shares which could be acquired within 60 days following
March 1, 1999 pursuant to stock options.
(11) Includes 26,667 shares which could be acquired within 60 days following
March 1, 1999 pursuant to stock options.
(12) 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.
(13) 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.
(14) Includes 28,667 shares which could be acquired within 60 days following
March 1, 1999 pursuant to stock options.
4
<PAGE> 8
(15) The address of Bank One is P.O. Box 60279, New Orleans, Louisiana
70160.
(16) 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.
(17) The address of the members of the Corr and Currier families and Oneonta
Telephone Company 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.
(18) Information about this group was obtained from a Schedule 13D, and an
amendment 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.
5
<PAGE> 9
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 or until his respective successor is
elected and qualified. Unless "Withhold Authority" is noted as to all specified
nominees, proxies in the accompanying form will be voted at the Annual Meeting
for the election of the nominees named below for the term indicated.
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 shall have been elected and qualified. It is intended that the
persons named in the enclosed proxy 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.
NOMINEES FOR TERMS EXPIRING IN 2002 (CLASS III)
<TABLE>
<CAPTION>
Director of
Name, Age and Positions Held With the Company Principal Occupation
Company and its Subsidiaries Since During Past Five Years (1)
- ---------------------------------------------- ------------ ---------------------------------------------
<S> <C> <C>
Denny G. Kelly (59) 1986 President of Community Bank (1993-Present)
Director and Executive Vice President of the
Company; Director and 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 Executive Officer of
Chairman, President and Chief Executive the Company (1985-Present); Chairman and Chief
Officer of the Company; Chairman and Chief Executive Officer of Community Bank (1993-Present)
Executive Officer of Community Bank; Director
of Community Appraisals, Inc., Community
Insurance Corp., 1st Community Credit
Corporation and Southern Select Insurance, Inc.
Merritt M. Robbins (61) 1996 Piggly Wiggly store operator and property
Director of the Company, Community Bank, developer
and 1st Community Credit Corporation
R. Wayne Washam (62) 1996 Retired; Assistant Superintendent of Arab,
Director of the Company, Community Bank, Alabama City Schools (1992-1996)
and 1st Community Credit Corporation
</TABLE>
6
<PAGE> 10
DIRECTORS WITH TERMS EXPIRING IN 2000 (CLASS I)
<TABLE>
<CAPTION>
Director of
Name, Age and Positions Held in the Company Principal Occupation
Company and its Subsidiaries Since During Past Five Years (1)
- -------------------------------------------- ------------- ----------------------------------------------
<S> <C> <C>
Roy B. Jackson (64) 1999 Owner-operator of Jackson's Farm and Garden Center
Director of the Company and Community Bank
Hodge Patterson, III (43) 1993 Executive Vice President of Community Bank
Director of the Company; Director and (1997-Present); Vice-Chairman, Chief Executive
Executive Vice President of Community Officer and President of Community Bank, a
Bank; Director of 1st Community Credit Tennessee bank (1993-1997)
Corporation, Community Insurance Corp.
and Southern Select Insurance, Inc.
Robert O. Summerford (68) 1996 Owner-operator of Summerford Nursing Home and
Director of the Company, Community Bank, Summerford Drugs
and Community Appraisals, Inc.
</TABLE>
DIRECTORS WITH TERMS EXPIRING IN 2001 (CLASS II)
<TABLE>
<CAPTION>
Director of
Name, Age and Positions Held in the Company Principal Occupation
Company and its Subsidiaries Since During Past Five Years (1)
- -------------------------------------------- ------------- -----------------------------------------------
<S> <C> <C>
Glynn Debter (64) 1996 Owner-operator of Debter Farms
Director of the Company, Community Bank,
Community Insurance Corp and Southern
Select Insurance, Inc.
John J. Lewis, Jr. (51) 1997 Production Planning Manager for Tyson Foods, Inc.
Director of the Company, Community Bank
and Community Appraisals, Inc.
Loy McGruder (58) 1996 Executive Vice President of Community Bank
Director of the Company; Director and (1994-Present); City President of Community
Executive Vice President of Community Bank; Bank-Blountsville (1994-1997); Senior Vice
Director of Community Insurance Corp. President of Community Bank (1993-1994)
and Southern Select Insurance, Inc.
Bishop K. Walker, Jr. (67) 1983 Vice Chairman, Senior Executive Vice President
Director, Vice Chairman, Secretary, and General Counsel of the Company (1987-Present);
Executive Vice President and General Counsel President and Director of Community Insurance
of the Company; Director, Senior Executive Corp. (1987-1997)
Vice President and Secretary of Community Bank;
Director of Community Insurance Corp. and
Southern Select Insurance, Inc.
</TABLE>
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.
7
<PAGE> 11
Directors Kennon R. Patterson, Sr. and Hodge Patterson, III are
brothers.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THE ELECTION OF THE NOMINEES LISTED ABOVE AS DIRECTORS OF THE COMPANY.
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. 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.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 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
8
<PAGE> 12
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 lesser percentage of Board seats held by employee directors. In January
1999, three employee directors of the Company resigned from the Board to allow
the Company to achieve this goal. The effect of these resignations was a Board
of Directors comprised of five employee directors and six non-employee
directors. In the future the Board 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. 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 misrepresentations made in a letter to
stockholders.
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. The Company also believes that
Mr. Corr's resignation was in response to actions taken by the Board of
Directors to address certain actions taken by Mr. Corr during the Company's 1998
public offering of Common Stock. The Board of Directors considered the actions
taken by Mr. Corr to be inconsistent with his responsibilities and duties as a
director of the Company and, on November 30, 1998, dismissed Mr. Corr as a
director of Community Bank and its subsidiaries, and requested that Mr. Corr
resign as a director of the Company. Mr. Corr refused to resign as a director of
the Company at that time. 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.
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
9
<PAGE> 13
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 shareholder of the Company,
filed a shareholder derivative action against the directors of the Company in
the state Circuit Court for Blount County, Alabama. 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. 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
10
<PAGE> 14
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 have filed
a motion with the court seeking to have the complaint dismissed. 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.
11
<PAGE> 15
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 the Common Stock, on March 26, 1998.
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 (hereinafter
referred to as 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
ANNUAL UNDERLYING ALL OTHER
COMPENSATION OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS ($) ($)(1) (#) ($)(2)
--------------------------- ---- ---------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Kennon R. Patterson, Sr.
Chairman, President
and Chief Executive Officer....... 1998 $736,369 -- $41,877 16,667 $12,100
1997 660,000 -- 34,600 4,000 14,907
1996 450,000 -- 32,400 52,000 15,220
Bishop K. Walker, Jr.
Vice Chairman and
General Counsel................... 1998 $248,730 -- $33,000 13,333 $3,839
1997 225,000 $50,000 27,750 3,000 7,746
1996 200,000 60,000 26,000 36,000 9,059
Denny G. Kelly
President -
Community Bank.................... 1998 $190,288 -- $34,914 10,000 $1,800
1997 150,000 $30,000 27,000 2,000 5,707
1996 130,000 50,000 26,000 22,000 7,020
Hodge Patterson, III
Executive Vice President -
Community Bank.................... 1998 $170,019 -- $36,010 6,667 $1,800
1997 150,000 $30,000 28,600 2,000 5,707
1996 120,000 50,000 28,400 20,000 7,020
Loy McGruder
Executive Vice President -
Community Bank.................... 1998 $152,231 -- $32,448 6,667 $1,800
1997 125,000 $30,000 27,000 2,000 5,707
1996 95,000 35,000 26,000 18,000 5,976
</TABLE>
- --------------------
(1) Includes fees paid for service as a director of the Company and its
subsidiaries and miscellaneous compensation.
(2) Includes life insurance premiums paid by the Company and Company
contributions to the ESOP for each named executive officer for 1996 and
1997. Amounts shown for 1998 are life insurance premiums only.
Allocations to ESOP accounts have not yet been made for 1998.
12
<PAGE> 16
STOCK OPTIONS
The following table contains information regarding the grant of stock
options during 1998 to the named executive officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS(1) OPTION TERM(2)
------------------------------------------------------------ ------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS/
UNDERLYING SARS GRANTED EXERCISE OR
OPTIONS/SARS TO EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED(#) IN FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ------------------------------ ------------- -------------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Kennon R. Patterson, Sr.
Chairman, President
and Chief Executive Officer.... 16,667 8.19% $15.00 3/25/03 $69,071 $152,631
Bishop K. Walker, Jr.
Vice Chairman and General
Counsel........................ 13,333 6.55 15.00 3/25/03 55,255 122,099
Denny G. Kelly
President - Community Bank..... 10,000 4.91 15.00 3/25/03 41,442 91,577
Hodge Patterson, III
Executive Vice President -
Community Bank................. 6,667 3.27 15.00 3/25/03 27,629 61,054
Loy McGruder
Executive Vice President -
Community Bank................. 6,667 3.27 15.00 3/25/03 27,629 61,054
</TABLE>
- ------------------------------
(1) All stock options became exercisable on the date they were granted.
(2) Represents hypothetical gains that could be achieved with respect to the
grants of options if the options were to be exercised at the end of
the option term, based upon assumed rates of appreciation in the
market price of Common Stock of 5% and 10%, compounded annually from
the date of grant to the expiration date. Actual gains, if any, could
vary and will depend upon the actual date or dates on which options
are exercised and the actual rates of appreciation, if any, in the
price of Common Stock.
13
<PAGE> 17
OPTION EXERCISES AND HOLDINGS
The following table provides information concerning the exercise of
stock options during 1998 by the named executed officers and the unexercised
stock options held by them at December 31, 1998.
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-money
Options/SARs Options/SARs
at FY-End(#) at FY-End ($)(1)
Shares ------------------------ -------------------------
Acquired on Value Exercis- Unexercis- Exercis- Unexercis-
Name Exercise(#) Realized($) able able able able
- ------------------------------- ------------- ------------- ----------- ----------- ---------- ------------
<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
14
<PAGE> 18
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.
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.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AGREEMENTS
EMPLOYMENT CONTRACTS
The Company has 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 salary, bonuses and director
fees. 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, an automobile for business and
personal use, 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.
The Company has 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, an automobile for business and personal use,
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
15
<PAGE> 19
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 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.
Directors Bishop K. Walker, Jr. and Denny G. Kelly are also executive
officers of the Company and its subsidiaries.
EXECUTIVE COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's Executive Compensation Committee (the "Compensation
Committee") is responsible for establishing and administering executive
compensation policies and programs for the Company. The purpose of the Company's
executive compensation program is to attract, reward, retain and motivate the
strong leadership necessary for the Company to achieve, over time, superior
financial performance and stockholder return. The Company's executive
compensation program, generally, consists of three components: base
compensation, annual bonuses and long-term incentives.
Base Compensation. Base compensation provides the foundation for the
Company's executive compensation. Its purpose is to compensate the executive for
performing his basic duties.
16
<PAGE> 20
In determining base compensation for executive officers, the Compensation
Committee evaluates the Company's performance with regard to growth, asset
composition, rate-of-return and profitability, on both a peer group basis and an
internal, year-to-year comparison basis. The base compensation paid to Kennon R.
Patterson, Sr. was established by his employment agreement with the Company and
is subject to minimum annual increases and additional increases at the
discretion of the Compensation Committee. The base compensation paid to Bishop
K. Walker, Jr. was established by his employment agreement with the Company and
is subject to annual review of the Company. During 1998, the Compensation
Committee increased the annual base compensations of the named executive
officers as follows: Kennon R. Patterson, Sr. to $736,369, 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. These salary adjustments were based on the
Compensation Committee's assessment of the nature of the positions held by these
individuals, the experience of the individuals filling the positions and the
tenure of such individuals with and their general contributions to the Company.
Annual Bonuses. The Company has, in the past, provided short-term
incentives in the form of annual cash bonuses. In 1998, the Compensation
Committee determined that bonuses would not be paid to the named executive
officers.
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 business entities and allows the Company to be
competitive with such institutions. The options that were granted in 1998 have
an exercise price equal to 100% of the fair market value of the Common Stock on
the date of grant of the options, are exercisable immediately and expire five
years after the date of the grant.
Chief Executive Compensation. In reviewing Kennon R. Patterson, Sr.'s
compensation for 1998, the Compensation Committee considered the factors
described above. The Compensation Committee concluded that, during the prior
year, the Company achieved a number of important successes, including the
expansion of its geographic market by opening new locations and the development
of new business products and services. These accomplishments are key factors in
the continued growth in assets and profitability of the Company, and, the
Compensation Committee believes, due in large part to Mr. Patterson's management
leadership and strategic vision. Accordingly, Mr. Patterson's base salary and
long-term incentives were increased to their 1998 levels.
Compensation Planning for 1999. Consistent with its overall plan, the
Compensation Committee intends for the Company's executive compensation program
to attract, motivate and retain executive officers and other key employees of
the Company and its subsidiaries with the goal of providing (i) base salaries
competitive with those paid by comparable financial institutions, (ii) variable
annual incentives to reflect executive officers' contributions to the Company's
annual performance objectives, and (iii) a variable long-term incentive program
utilizing equity ownership in the Company to recognize executive officers'
contributions to the Company's achievement of longer term goals. For 1999, the
Compensation Committee will review the Company's executive compensation program
in light of the Company's continuing strategic development and make
recommendations to the Board of Directors consistent with the goals identified
above.
By the Executive Compensation Committee
Denny G. Kelly Merritt M. Robbins R. Wayne Washam Bishop K. Walker, Jr.
(Chairman) (Vice Chairman)
17
<PAGE> 21
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 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>
PERIOD ENDING
-------------------------------------------------------------------------------
INDEX 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Community Bancshares, Inc. 100.00 163.83 135.43 160.07 215.60 297.04
AMEX Major Market Index 100.00 108.57 149.06 190.20 243.18 292.96
NASDAQ Bank Index 100.00 99.64 148.38 195.91 328.02 324.90
</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 Securities Exchange Act
of 1934, as amended (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.
18
<PAGE> 22
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. 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 RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF DUDLEY, HOPTON-JONES, SIMS & FREEMAN, PLLP AS INDEPENDENT
AUDITORS FOR 1999.
PROPOSAL 3 -- APPROVAL AND ADOPTION OF AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
GENERAL
The Board of Directors proposes to amend and restate the Company's
Certificate of Incorporation (the "Existing Certificate") by adopting an Amended
and Restated Certificate of Incorporation in substantially the form set forth in
Appendix A hereto (the "Restated Certificate"). The Restated Certificate will,
among other things, (1) consolidate all previous amendments to the Existing
Certificate; (2) restate the purpose of the Company; (3) contain a provision
classifying the Board of Directors, replacing a similar provision currently
contained in the Company's Bylaws; (4) eliminate the ability of stockholders to
take action outside of a duly called annual or special meeting; (5) require a
"super-majority" stockholder vote to approve the repeal, amendment or adoption
of certain provisions of the Restated Certificate; and (6) enhance, under
certain circumstances, the Company's ability to indemnify directors and officers
and limit the personal liability of its directors.
The information below under the heading "Comparison of the Restated
Certificate to the Existing Certificate" sets forth the material differences
between the Restated Certificate and the Existing Certificate. In the event that
the proposed amendments to the Existing Certificate are not approved, the
Company will continue to operate under the Existing Certificate. Copies of the
Existing Certificate are available for inspection at the principal executive
offices of the Company and will be sent to a stockholder upon written request.
APPROVAL REQUIRED FOR AMENDMENT
A majority of the votes entitled to be cast on this proposal is
required for approval of the Restated Certificate. Because a majority of all the
votes entitled to be cast on the proposal is required, an abstention from voting
or a broker non-vote on this proposal will have the same effect as a vote
against this proposal.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors believes that the proposal to amend and restate
the Existing Certificate will provide greater flexibility and certainty in the
Company's operations as a public company that is not available under the
Existing Certificate. Also, this proposal will provide indemnity to ensure that
directors and officers of the Company can take action on the Company's
19
<PAGE> 23
behalf without undue concern of personal liability and loss. Additionally, this
proposal is designed to provide continuity and stability of the Company's
business strategies and policies and to discourage unfair or coercive takeover
attempts.
Accordingly, the Board of Directors believes that amending and
restating the Existing Certificate is in the best interests of the Company and
its stockholders and, therefore, recommends that stockholders vote "FOR"
approval of Proposal 3.
COMPARISON OF THE RESTATED CERTIFICATE TO THE EXISTING CERTIFICATE
The following comparison of the Restated Certificate to the Existing
Certificate does not purport to be complete and is subject to and qualified in
its entirety by reference to the Amended and Restated Certificate of
Incorporation, a copy of which is attached as Appendix A to this Proxy
Statement.
SHAREHOLDER ACTION BY WRITTEN CONSENT. The Restated Certificate
eliminates the ability of stockholders to act outside of a duly called meeting
of stockholders. The Existing Certificate is silent on the matter.
STAGGERED TERMS FOR DIRECTORS. The Restated Certificate would provide
for a classified, or "staggered," Board of Directors, whereby approximately
one-third of the Board of Directors would be up for election in any given year.
The Company's Bylaws currently contain a nearly identical provision, so no
immediate change in the structure of the Company's Board of Directors would
occur upon the approval of the Restated Certificate. The Restated Certificate
also fixes the number of directors at no less than nine and no more than 18,
which is consistent with the existing provisions of the Company's Bylaws. The
Existing Certificate does not address the size of the Board of Directors.
SUPER-MAJORITY REQUIREMENT TO AMEND THE RESTATED CERTIFICATE. The
Restated Certificate would require the approval of the holders of 80% of the
voting power to repeal, amend or adopt any provision inconsistent with certain
provisions of the Restated Certificate, including (1) the limitation on the
personal liability of the Company's directors; (2) the power of the Company to
indemnify its directors in a manner consistent with the Delaware General
Corporation Law ("DGCL"); (3) the above-described elimination of stockholder
action outside of meetings; (4) provisions in the Restated Certificate relating
to the Board of Directors, including the classified-Board provision; (5) this
super-majority requirement itself; and (6) certain other provisions contained in
Article VIII of the Restated Certificate. The Existing Certificate contains no
such provision. Rather, under the DGCL, the approval of the holders of only a
simple majority of the shares entitled to vote on a matter is necessary to amend
or repeal provisions of the Company's Existing Certificate.
INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Restated Certificate
requires the Company to indemnify (and upon request advance expenses to)
officers and directors of the Company in connection with certain legal
proceedings and subject to certain limitations. Specifically, the Restated
Certificate requires indemnification of any officer or director who becomes a
party to, or is threatened to be made a party to, any threatened, pending, or
completed action, suit or proceeding, whether civil, criminal or otherwise, by
reason of such person being an officer, director or person serving the Company
in certain other capacities. The Restated Certificate also permits the Company,
consistent with the DGCL, to purchase and maintain insurance on behalf of
officers, directors and persons serving the Company in certain other capacities.
The Company could not, however, indemnify a person who is adjudged to be liable
to the Company unless and only to the extent that the court in which such action
was brought determines that indemnification is fairly and reasonably entitled.
The Existing Certificate contains no provision regarding the
indemnification of such persons. The Company's Bylaws, however, contain a nearly
identical provision to that in the Restated Certificate. The Restated
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Certificate would extend the rights to indemnification and advancement of
expenses beyond the minimum standards under the DGCL for permissive
indemnification.
LIMITATIONS ON DIRECTOR LIABILITY. The Restated Certificate provides
that the Company's directors shall not be liable to the Company or its
stockholders for money damages for breach of fiduciary duty except for (i)
breaches of the director's duty of loyalty to the Company or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) unlawful distributions to stockholders of
the Company, and (iv) any transaction in which the director derived an improper
personal benefit. These provisions are consistent with a provision already
contained in the Existing Certificate. The Restated Certificate goes on to
provide, however, that if the DGCL is hereafter amended to authorize corporate
action further limiting or eliminating the personal liability of directors, then
the liability of the Company's directors shall, be limited or eliminated to the
fullest extent permitted by the DGCL, without any additional action by the
Company or its stockholders.
REMOVAL OF DIRECTORS. The Restated Certificate provides that a director
may be removed only for cause and only by the affirmative vote of the holders of
at least 80% of the shares entitled to vote. Cause is defined to mean willful
dishonesty towards, fraud upon, or deliberate injury or attempted injury to the
Company. The Existing Certificate does not contain a procedure for removal of
directors. However, the Company's Bylaws contain a director removal provision
identical to the provision contained in the Restated Certificate.
VACANCIES ON THE BOARD OF DIRECTORS. The Restated Certificate provides
that vacancies on the Board of Directors may be filled by the affirmative vote
of a majority of the remaining directors then in office, even if less than a
quorum, or by a sole remaining director. Under the Restated Certificate,
stockholders do not have the ability to fill vacancies on the Board of
Directors. The Existing Certificate does not contain a procedure for filling
vacancies on the Board of Directors. The Company's Bylaws, however, currently
include a provision consistent with the Restated Certificate.
PURPOSE OF THE COMPANY. The Restated Certificate contains a broad
statement of the nature of the Company's business and purpose, allowing the
Company to engage in all acts and activities permitted under the DGCL. The
Existing Certificate, drafted more than 15 years ago, also contains a broad
statement of purpose, but includes certain other narrow and specific purposes.
The Restated Certificate eliminates the narrow and specific purposes.
ANTI-TAKEOVER EFFECTS
Certain of the provisions in the Restated Certificate are designed to
help assure the continuity and stability of the Company's business strategies
and policies and to encourage persons seeking to acquire control of the Company
to engage in arms-length negotiations with the Board of Directors, which would
then be in a position to negotiate a transaction which is fair to all
stockholders, thereby making the Company less vulnerable to unfair or coercive
takeover attempts. Nevertheless, the Restated Certificate may discourage or
prevent a third party from obtaining control of or acquiring the Company, even
if that would be beneficial to the Company and its stockholders, and could
increase the likelihood that incumbent directors and management will retain
their positions.
The Restated Certificate provides for a classified Board of Directors,
consistent with the Company's current Bylaws, by which the Board is staggered
into three classes, with one class of directors being subject to election each
year. The terms of less than a majority of the incumbent directors expire at
each annual meeting and, accordingly, two annual meetings may be required to
replace a majority of the incumbent directors.
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The 80% "super-majority" stockholder vote provision in the Restated
Certificate would permit a minority of the stockholders of the Company to block
an attempt to repeal or amend the provisions of the Restated Certificate
providing for a classified Board and restricting stockholder action by written
consent, even if a majority of the stockholders voted in favor of such repeal or
amendment. Members of the Company's management currently hold greater than 20%
of the outstanding shares of Common Stock, and therefore could constitute such a
minority.
This proposal is not in direct response to any offer made to management
or the Board of Directors, and management continuity and stability has not been
a problem for the Company. Although a change-in-control of the Board of
Directors or the management of the Company, without prior consultation with the
incumbent Board of Directors or management, may not necessarily be detrimental
(and could be beneficial) to the Company and its stockholders, in view of the
current environment, with increasing hostile takeover attempts facing
publicly-held companies, the Board of Directors believes that it is prudent and
in the interests of stockholders generally to provide the advantages that will
result from the adoption of the Restated Certificate.
The Company's Existing Certificate already contains a provision
authorizing the Board of Directors, at its discretion, to issue up to 200,000
shares of preferred stock in such classes and having such voting powers,
designations, preferences and other special rights as may be prescribed by the
Board of Directors. The issuance of such preferred stock may be used by the
Board of Directors to impede a party seeking to acquire control of the Company.
The Company's Bylaws also contain certain provisions having anti-takeover
effects, including (1) a classified Board provision, (2) a provision preventing
the removal of directors except for cause and by a vote of the holders of at
least 80% of the voting power of all the shares eligible to vote thereon, and
(3) a provision requiring the affirmative vote of the holders of 80% of the
voting power of all the shares entitled to vote thereon to alter, amend or
repeal any provision of the Bylaws. Furthermore, the Board of Directors has
adopted a share purchase rights plan or "poison pill", which is triggered upon a
would-be acquiror's purchase of a certain percentage of the outstanding shares
of Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
ADOPTION OF THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION.
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STOCKHOLDER PROPOSALS
Certain stockholders of the Company have notified the Company that they
intend to present a total of three proposals at the Annual Meeting for
consideration by the stockholders of the Company. These proposals are described
below and are identified as Proposals 4, 5 and 6 on the enclosed proxy. The
Board of Directors has duly considered each of these proposals and unanimously
recommends a vote "AGAINST" each of these three stockholder proposals.
PROPOSAL 4 -- STOCKHOLDER PROPOSAL TO AMEND THE
COMPANY'S BYLAWS TO SEPARATE THE POSITION OF
CHAIRMAN OF THE BOARD FROM THE POSITION OF
PRESIDENT
R.C. Corr, Jr., whose address is 506 Third Avenue East, 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. Corr promptly upon receipt by the Corporate
Secretary of the Company of an oral or written request for such information.
NOW, THEREFORE, BE IT RESOLVED, by the stockholders of
Community Bancshares, Inc. (the "Corporation"), as follows:
Section 1. Article V, Section 2 of the By-Laws of the
Corporation shall be amended to delete the clause ", and shall be the
Corporation's chief executive officer" contained in the first sentence
thereof, and shall be further amended to include the following at the
conclusion thereof:
The position of Chairman of the Board of the Corporation and
the position of President of the Corporation shall not be
simultaneously held by the same person and the position of
Chairman of the Board of the Corporation shall be held by a
Director who is independent. A Director shall be independent
for the purposes hereof if he or she (i) is not 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 to
effect the foregoing and such amendment shall be effective commencing
with the election of the Corporation's officers immediately following
the expiration or earlier termination of that certain Employment
Agreement, dated as of March 28, 1996, between the Corporation and
Kennon R. Patterson, Sr.
MR. CORR'S SUPPORTING STATEMENT
Mr. Corr provided the following statement in support of his proposal:
The stockholders of Community Bancshares, Inc. (the
"Corporation") are best served by a Chairman of the Board who is chosen
from among the independent
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outside Directors of the Corporation. Such a person would bring
objectivity and a unique perspective to the deliberations of the
Corporation's Board of Directors (the "Board").
Among the Board's functions are evaluating the performance of
management and setting executive compensation, including that of the
President. Where the Chairman of the Board and the President are the
same person, the Board's ability to evaluate and oversee management
effectively may be compromised.
Stockholders of the Corporation, by law, have no role to play
in the day-to-day operations of the Corporation conducted by
management. The stockholders must accordingly rely on the Board to
oversee management. This system of checks and balances is compromised
when one person who is President of the Corporation also serves as
Chairman of the Board.
THE COMPANY'S RESPONSE
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "AGAINST" THIS PROPOSAL
4, FOR THE FOLLOWING REASONS:
By its terms, the Bylaw amendment proposed by Mr. Corr would not take
effect for almost nine years, when the Company's current employment agreement
with Kennon R. Patterson, Sr. expires in March 2008. The Board of Directors
believes that it is not advisable or in the best interests of the Company and
its stockholders to bind the Company on such a matter that far in advance. To
the extent that Mr. Corr's proposal has any merit, it is premature and
unnecessary to consider it at this time.
The Board of Directors also believes that separating the position of
Chairman of the Board from the position of President is neither necessary nor
desirable. Mr. Patterson has served as the Chairman, Chief Executive Officer and
President of the Company since 1983. By holding these positions, the Board of
Directors believes that Mr. Patterson has been better able to act effectively in
each capacity. As Chief Executive Officer and President, Mr. Patterson
understands the day-to-day operations of the Company. Therefore, in his capacity
as Chairman of the Board, he is a more effective liaison between management of
the Company and the Board of Directors. As Chairman, Mr. Patterson's ability to
guide the Board of Directors in setting the overall direction for the Company,
in a manner consistent with the vision and objectives of management, is enhanced
because of his participation as President in formulating management's
recommendations to the Board of Directors regarding long-term business plans.
Directors of the Company, including the Chairman, are bound by state
law fiduciary obligations to serve the best interests of the Company's
stockholders. Separating the offices of Chairman and President would not serve
to enhance or diminish the fiduciary duties of any officer or director of the
Company. The Company believes that the fact that the position of Chairman and
President are held by the same person does not at all impair the independence,
integrity or functioning of either office, but rather greatly enhances the
productivity of both positions. It is important to note that there is currently
nothing in the Company's Bylaws that would preclude the Board of Directors from
determining that the positions of Chairman and President should be held by
different people if, at some future time, the Board of Directors believes that
such action would be in the best interests of the Company's stockholders. The
proposed amendment, however, limits the flexibility of the Board of Directors to
act in the manner that it determines to be in the best interests of the
stockholders, based on the facts and circumstances at any given time. The
Company believes that it would be premature and inappropriate to place an
artificial constraint on the Board of Directors in exercising its responsibility
to determine who should serve as Chairman and President. The Board of Directors
should be permitted to fulfill this responsibility on the basis of its unique
and intimate knowledge of the abilities and skills of the individual or
individuals involved.
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The Board of Directors believes that its independence is not
compromised by having a single person serve as Chairman and Chief Executive,
particularly because the Executive Compensation Committee annually reviews all
officers' salaries and makes recommendations to the Board of Directors for
salary adjustments of all officers of the Company and its subsidiaries. The
Executive Compensation Committee is comprised of a majority of non-employee
directors. Mr. Patterson is not a member of the Executive Compensation Committee
and, therefore, does not participate in his own evaluation nor in establishing
his own salary.
The functions of the Board of Directors are carried out at the full
Board of Directors and committee level. Each of the directors is a full and
equal participant in the major strategic and policy decisions of the Company.
The Board of Directors believes that the Company has benefited from the full
attention, consistent direction and decisiveness of a single individual serving
as both Chairman and Chief Executive Officer, subject to the oversight of the
Company's Board of Directors as a whole. The strict mandate of the proposal
would eliminate the organizational flexibility necessary to respond to changes
in the Company's circumstances, a quality the Board of Directors believes is
necessary to meet the many challenges ahead.
In addition, the Company has been advised by its legal counsel that, in
their opinion, the proposal, if adopted, would violate state law, since the
proposed actions may be implemented through stockholder action only by amending
the Company's Certificate of Incorporation rather than its Bylaws. Therefore, in
the event that the stockholders approve the proposal, the Board of Directors may
determine that its fiduciary duties to the Company and its stockholders require
that the Board of Directors initiate potentially costly legal action to
challenge the proposal and have a court determine its validity under state law.
Accordingly, the Board of Directors recommends that you vote "AGAINST"
this proposal.
PROPOSAL 5 - STOCKHOLDER PROPOSAL TO AMEND THE
COMPANY'S BYLAWS TO RESTRICT THE COMPOSITION OF
THE BOARD OF DIRECTORS 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;
NOW, THEREFORE, BE IT RESOLVED, by the stockholders of the
Corporation, as follows:
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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 RECOMMENDS THAT YOU VOTE "AGAINST" THIS
PROPOSAL 5.
PROPOSAL 6 - 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.
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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
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 RECOMMENDS THAT YOU VOTE "AGAINST" THIS
PROPOSAL 6.
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VOTING PROCEDURES
Under the 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. Abstentions will in effect count as votes against approval of actions
to be taken at the Annual Meeting other than election of directors. Except with
respect to Proposal 2 regarding approval and adoption of an Amended and Restated
Certificate of Incorporation, which requires a majority of all votes entitled to
be cast in order to be approved, broker non-votes will not have an effect on the
outcome of the election of directors or approval of any other action to be taken
at the Annual Meeting.
MISCELLANEOUS INFORMATION
SHAREHOLDER 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 shareholder must give notice in writing of the nomination or
other business to the 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 shareholder must be a shareholder of
record at the time the notice is given and must be entitled to vote at such
meeting. The shareholder'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 shareholder 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
shareholder and the beneficial owner, if any, on
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whose behalf the nomination or proposal is made, and (c) as to the shareholder
giving the notice and the beneficial owner, if any, on whose behalf the
nomination is made (i) the name and address of the shareholder, 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
shareholder 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 shareholder proposal that is
not included in the Company's proxy statement for the 2000 annual meeting,
unless the Company received 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 shareholder making the proposal(s) complies
with Rule 14a-4(c)(2) under the Exchange Act.
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APPENDIX A
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
COMMUNITY BANCSHARES, INC.
Community Bancshares, Inc., a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), does
hereby certify as follows:
(a) The name of the Corporation is Community Bancshares, Inc.
The original Certificate of Incorporation of the Corporation
was filed with the Delaware Secretary of State on December 13,
1983.
(b) This Amended and Restated Certificate of Incorporation was
duly adopted and approved by the stockholders of the
Corporation in accordance with the provisions of Sections 242
and 245 of the Delaware General Corporation Law.
(c) The text of the Amended and Restated Certificate of
Incorporation of the Corporation is hereby restated and
amended to read in its entirety as follows:
ARTICLE I
NAME
The name of the corporation is Community Bancshares, Inc.
(the "Corporation").
ARTICLE II
REGISTERED OFFICE AND AGENT
The address of the registered office of the Corporation in the
State of Delaware is No. 100 West Tenth Street, in the City of Wilmington,
County of New Castle, Delaware 19801. The name of the registered agent of the
Corporation in the State of Delaware at the registered office is The Corporation
Trust Company.
ARTICLE III
PURPOSES
The nature of the business or purposes to be conducted or
promoted by the Corporation is to engage in any and all lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware as now or hereinafter in force. The Corporation shall possess
and exercise all of the powers and privileges granted by the General Corporation
Law of the State of Delaware, by any other law or by this Certificate, together
with all such powers and privileges incidental thereto as may be necessary or
convenient to the conduct, promotion or attainment of the purposes of the
Corporation.
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ARTICLE IV
CAPITALIZATION
(a) The Corporation shall be authorized to issue 20,200,000
shares of capital stock (the "Corporation Shares"), of which 20,000,000 shares
shall be shares of Common Stock, $0.10 par value ("Common Stock"), and 200,000
shares shall be shares of Preferred Stock, $0.10 par value ("Preferred Stock").
(b) Shares of Preferred Stock may be issued in one or more
series at such time or times and for such consideration or considerations as the
Board of Directors may determine. All shares of any one series shall be of equal
rank and identical in all respects except that the dates from which dividends
accrue or accumulate with respect thereto may vary.
(c) The Board of Directors is expressly authorized at any
time, and from time to time, to provide for the issuance of shares of Preferred
Stock in one or more series, with such voting powers, full or limited, or
without voting powers, and with such designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, as shall be stated and expressed in the resolution or
resolutions providing for the issue thereof adopted by the Board of Directors,
and as are not stated and expressed in this Certificate of Incorporation, or any
amendment thereto, including (but without limiting the generality of the
foregoing) the following:
(i) The distinctive designation and number of shares
comprising such series, which number may (except where otherwise provided by the
Board of Directors in creating such series) be increased or decreased (but not
below the number of shares then outstanding) from time to time by action of the
Board of Directors.
(ii) The dividend rate or rates on the shares of such
series and the relation which such dividends shall bear to the dividends payable
on any other class of capital stock or on any other series of Preferred Stock,
the terms and conditions upon which and the periods in respect of which
dividends shall be payable, whether and upon what conditions such dividends
shall be cumulative and, if cumulative, the date or dates from which dividends
shall accumulate.
(iii) Whether the shares of such series shall be
redeemable, and, if redeemable, whether redeemable for cash, property or rights,
including securities of any other corporation, at the option of either the
holder or the Corporation or upon the happening of a specified event, the
limitations and restrictions with respect to such redemption, the time or times
when, the price or prices or rate or rates at which, the adjustments with which
and the manner in which such shares shall be redeemable, including the manner of
selecting shares of such series for redemption if less than all shares are to be
redeemed.
(iv) The rights to which the holders of shares of such
series shall be entitled, and the preferences, if any, over any other series (or
of any other series over such series), upon the voluntary or involuntary
liquidation, dissolution, distribution or winding up of the Corporation, which
rights may vary depending on whether such liquidation, dissolution, distribution
or winding up is voluntary or involuntary, and, if voluntary, may vary at
different dates.
(v) Whether the shares of such series shall be subject to
the operation of a purchase, retirement or sinking fund, and, if so, whether and
upon what conditions such purchase, retirement or sinking fund shall be
cumulative or non-cumulative, the extent to which the manner in which such fund
shall be applied to the purchase or redemption of the shares of such series for
retirement or to other corporate purposes and the terms and provisions relative
to the operation thereof.
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(vi) Whether the shares of such series shall be
convertible into or exchangeable for shares of any other class or of any other
series of any class of capital stock of the Corporation, and, if so convertible
or exchangeable, the price or prices or the rate or rates of conversion or
exchange and the method, if any, of adjusting the same, and any other terms and
conditions of such conversion or exchange.
(vii) The voting powers, full and/or limited, if any, of
the shares of such series, and whether and under what conditions the shares of
such series (along or together with the shares of one or more other series
having similar provisions) shall be entitled to vote separately as a single
class, for the election of one or more additional directors of the Corporation
in case of dividend arrearages or other specified events, or upon other matters.
(viii) Whether the issuance of any additional shares of
such series, or of any shares of any other series, shall be subject to
restrictions as to issuance, or as to the powers, preferences or rights of any
such other series.
(ix) Any other preferences, privileges and powers and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions of such series, as the Board of Directors may deem
advisable and as shall not be inconsistent with the provisions of this
Certificate of Incorporation.
(d) Unless and except to the extent otherwise required by law
or provided in the resolution or resolutions of the Board of Directors creating
any series of Preferred Stock pursuant to this Article IV, the holders of the
Preferred Stock shall have no voting power with respect to any matter
whatsoever. In no event shall the Preferred Stock be entitled to more than one
vote in respect of each share of stock.
(e) Shares of Preferred Stock redeemed, converted, exchanged,
purchased, retired or surrendered to the Corporation, or which have been issued
and reacquired in any manner, may, upon compliance with any applicable
provisions of the General Corporation Law of the State of Delaware, be given the
status of authorized and unissued shares of Preferred Stock and may be reissued
by the Board of Directors as part of the series of which they were originally a
part or may be reclassified into and reissued as part of a new series or as a
part of any other series, all subject to the protective conditions or
restrictions of any outstanding series of Preferred Stock.
(f) Such numbers of shares of Common Stock as may from time to
time be required for such purpose shall be reserved for issuance (i) upon
conversion of any shares of Preferred Stock or any obligation of the Corporation
convertible into shares of Common Stock which is at the time outstanding or
issuable upon exercise of any options or warrants at the time outstanding and
(ii) upon exercise of any options or warrants at the time outstanding to
purchase shares of Common Stock.
(g) Without affecting rights granted to holders of warrants,
options, and other forms of convertible securities by law or contract, no holder
of any Corporation Shares of any kind, class, or series shall have, as a matter
of right, any preemptive or preferential right to subscribe for, purchase or
receive any of the Corporation Shares of any kind, class or series or any
Corporation securities or obligations, whether now or hereafter authorized.
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ARTICLE V
LIMITATION ON PERSONAL LIABILITY OF DIRECTORS
A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director except for liability: (a) for any breach of the
director's duty of loyalty to the Corporation or its stockholders; (b) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (c) under Section 174 of the General Corporation Law
of the State of Delaware (or the corresponding provision of any successor act or
law); and (d) for any transaction from which the director derived an improper
personal benefit. If the law of the State of Delaware is hereafter amended to
authorize corporate action further limiting or eliminating the personal
liability of directors, then the liability of directors to the Corporation or
its stockholders shall be limited or eliminated to the fullest extent permitted
by law of the State of Delaware as so amended from time to time. Any repeal or
modification of the provisions of this Article V, either directly or by the
adoption of an inconsistent provision of this Certificate, shall be prospective
only and shall not adversely affect any right or protection set forth herein
existing in favor of a particular individual at the time of such repeal or
modification.
ARTICLE VI
INDEMNIFICATION
(a) The Corporation shall indemnify, and upon request shall
advance expenses (including attorneys' fees) to, in the manner and to the
fullest extent permitted by law, any officer or director (or the estate of any
such person) who was or is a party to, or is threatened to be made a party to,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, investigative or otherwise, by reason of the fact that
such person is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, partner,
trustee, employee or agent of another corporation, partnership, joint venture,
trust, other enterprise or employee benefit plan (an "indemnitee"). The
Corporation may, to the fullest extent permitted by law, purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, partner, trustee, employee or agent of another
corporation, partnership, joint venture, trust, other enterprise or employee
benefit plan against any liability which may be asserted against such person. To
the fullest extent permitted by law, the indemnification and advances provided
for herein shall include expenses (including attorneys' fees), judgments,
penalties, fines and amounts paid in settlement. The indemnification provided
herein shall not be deemed to limit the right of the Corporation to indemnify
any other person for any such expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement to the fullest extent permitted by law,
both as to action in his official capacity and as to action in another capacity
while holding such office.
(b) Notwithstanding the foregoing, the Corporation shall not
indemnify any such indemnitee who was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the Corporation to secure a judgment in its favor against such
indemnitee with respect to any claim, issue or matter as to which the indemnitee
shall have been adjudged to be liable to the Corporation, unless and only to the
extent that, the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such indemnitee is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
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(c) The rights to indemnification and advancement of expenses
set forth in this Article VI are intended to be greater than those which are
otherwise provided for in the General Corporation Law of the State of Delaware,
are contractual between the Corporation and the person being indemnified, his
heirs, executors and administrators, and, with respect to this Article VI are
mandatory, notwithstanding a person's failure to meet the standard of conduct
required for permissive indemnification under the General Corporation Law of the
State of Delaware, as amended from time to time. The rights to indemnification
and advancement of expenses set forth in this Article VI are nonexclusive of
other similar rights which may be granted by law, this Certificate, the Bylaws,
a resolution of the Board of Directors or stockholders or an agreement with the
Corporation, which means of indemnification and advancement of expenses are
hereby specifically authorized.
(d) Any repeal or modification of the provisions of this
Article VI, either directly or by the adoption of an inconsistent provision of
this Certificate, shall be prospective only and shall not adversely affect any
right or protection set forth herein existing in favor of a particular
individual at the time of such repeal or modification. In addition, if an
amendment to the General Corporation Law of the State of Delaware limits or
restricts in any way the indemnification rights permitted by law as of the date
hereof, such amendment shall apply only to the extent mandated by law and only
to activities of persons subject to indemnification under this Article VI which
occur subsequent to the effective date of such amendment.
ARTICLE VII
ACTION BY STOCKHOLDERS
Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called meeting of
stockholders of the Corporation and may not be effected by consent in writing by
such stockholders.
ARTICLE VIII
SPECIAL PROVISIONS
In furtherance and not in limitation of the powers conferred
by law, the following provisions for the regulation of the Corporation, its
directors and stockholders are hereby established:
(a) The Corporation shall have the right to purchase, take,
receive or otherwise acquire, hold, own, pledge, transfer or otherwise dispose
of its own capital stock to the full extent of undivided profits, earned
surplus, capital surplus or other funds lawfully available therefor.
(b) No contract or other transaction between the Corporation
and one or more of its directors or officers or between the Corporation or any
other person, corporation, firm, association or entity in which one or more of
its directors or officers are directors or officers or are financially
interested, shall be void or voidable because of such relationship or interest,
or because such director or officer is present at or participates in the meeting
of the Board of Directors or a committee thereof which authorizes, approves or
ratifies such contract or transaction, or solely because his or their votes are
counted for such purpose, if such contract or transaction is permitted by the
Delaware General Corporation Law, Section 144, as now or hereafter in effect.
(c) The Corporation may from time to time enter into any
agreement to which all, or less than all, holders of record of the issued and
outstanding shares of the Corporation's
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<PAGE> 38
Shares are parties, restricting the transfer or registration of transfer of any
or all of the Corporation's Shares, upon such reasonable terms and conditions as
may be approved by resolution or resolutions adopted by the Corporation's Board
of Directors.
(d) Subject to any provision contained in any resolution of
the Board of Directors adopted pursuant to Section (c) of Article IV of this
Certificate of Incorporation requiring an increase or increases in the number of
directors, the number of directors constituting the Board of Directors shall be
that number as shall be fixed from time to time in the manner provided by
Article IX of this Certificate of Incorporation and by Bylaws in conformity
therewith. Election of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide.
In addition to all of the powers conferred by statute, the
Board of Directors is expressly authorized to make, alter or repeal the Bylaws
of the Corporation.
Wherever the term "Board of Directors" is used in this
Certificate of Incorporation, such term shall mean the Board of Directors of the
Corporation; provided, however, that, to the extent any committee of directors
of the Corporation is lawfully entitled to exercise the powers of the Board of
Directors, such committee may exercise any right or authority of the Board of
Directors under this Certificate of Incorporation.
ARTICLE IX
BOARD OF DIRECTORS
(a) The business and affairs of the Corporation shall be
managed by or under the direction of a Board of Directors. The number of the
directors of the Corporation shall be fixed from time to time be resolution
adopted by the affirmative vote of a majority of the entire Board of Directors
of the Corporation, except that the minimum number of directors shall be fixed
at no less than nine (9) and the maximum number of directors shall be fixed at
no more than eighteen (18). The directors shall be divided into three classes,
designated Class I, Class II and Class III. Each class shall consist, as nearly
equal in number as possible, of one-third of the total number of directors
constituting the entire Board of Directors. The terms of the initial Class I
directors of the Corporation shall expire at the annual meeting of stockholders
first occurring following the date that this Certificate of Incorporation first
becomes effective; the terms of the initial Class II directors of the
Corporation shall expire at the next annual meeting; and the terms of the
initial Class III directors of the Corporation shall expire at the next annual
meeting of stockholders following such second annual meeting. At each such
annual meeting of stockholders, successors of the class of directors whose term
expires at that annual meeting following such annual meeting. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible.
(b) Nominations for election to the Board of Directors of the
Corporation at a meeting of stockholders must be made in accordance with the
Bylaws of the Corporation and any applicable law. The chairman of the meeting of
stockholders may, if the facts warrant, determine that a nomination was not made
in accordance with the foregoing procedures, and if the chairman should so
determine, the chairman shall so declare to the meeting and the defective
nomination shall be disregarded.
(c) Newly created directorships resulting from any increase in
the number or director and any vacancies on the Board of Directors resulting
from death, resignation, disqualification, removal or other cause shall be
filled by the affirmative vote of a majority of the remaining directors then in
office, even though less than a quorum, or by a sole remaining director. Any
director of any class chosen to fill a vacancy in such class shall hold office
for a term that shall coincide with the remaining term of that class, but in no
case will a decrease in the number of
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<PAGE> 39
directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting for the year in which his or her term expires
and until such director's successor shall have been elected and qualified.
(d) Any director may be removed only for cause by vote of the
holders of at least eighty percent (80%) of the voting power of all the shares
of the Corporation that are present at a shareholder meeting for which a quorum
exists, voting together as a single class. Cause shall mean the director's
willful dishonesty towards, fraud upon, or deliberate injury or attempted injury
to the Corporation.
(e) Notwithstanding the foregoing paragraphs, whenever the
holders of any one or more classes or series of Preferred Stock issued by the
Corporation shall have the right, voting separately by class or series, to elect
directors at an annual or special meeting of stockholders, the election, term of
office, filling of vacancies and other features of such directorships shall be
governed by the terms of the Certificate of Incorporation applicable thereto.
The then authorized number of directors of the Corporation shall be increased by
the number of additional directors to be elected, and such directors so elected
shall not be divided into classes pursuant to this Article IX unless expressly
provided by such terms or required by applicable law.
ARTICLE X
AMENDMENTS
(a) Notwithstanding any of the provisions of this Certificate
or the Bylaws of the Corporation (and notwithstanding the fact that a lesser
percentage may be specified by law, this Certificate or the Bylaws of the
Corporation), the affirmative vote of the holders of at least eighty percent
(80%) of the voting power of all the shares of the Corporation that are present
and eligible to vote at a shareholder meeting for which a quorum exists, voting
together as a single class, shall be required to repeal, or amend or adopt any
provision inconsistent with, Articles V, VI, VII, VIII, IX or X.
(b) Subject to the protective conditions or restrictions of
any outstanding series of Preferred Stock, any amendment to this Certificate of
Incorporation which shall increase or decrease the authorized capital stock of
any class or classes may be adopted by the affirmative note of the holders of a
majority of the stock of the Corporation entitled to vote.
(c) The Board of Directors reserves the right from time to
time to amend, alter, change or repeal any provision contained in this
Certificate in the manner now or hereinafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
(d) The Board of Directors is authorized and empowered to
amend, alter, change or repeal the Corporation's Bylaws and adopt new Bylaws by
a majority vote of the directors then in office at any regular or special
meeting of the Board of Directors or by written consent, subject to any specific
right under Delaware law allowing stockholders of the Corporation to alter or
repeal any Bylaws made by the Board of Directors.
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<PAGE> 40
Appendix B
PROXY CARD
COMMUNITY BANCSHARES, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
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) FOR THE APPROVAL AND ADOPTION OF AN
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION, (4) AGAINST A STOCKHOLDER
PROPOSAL TO AMEND THE COMPANY'S BYLAWS TO SEPARATE THE POSITION OF CHAIRMAN OF
THE BOARD FROM THE POSITION OF PRESIDENT, (5) AGAINST A STOCKHOLDER PROPOSAL TO
AMEND THE COMPANY'S BYLAWS TO RESTRICT THE COMPOSITION OF THE BOARD OF DIRECTORS
TO INDEPENDENT DIRECTORS, (6) AGAINST A STOCKHOLDER PROPOSAL TO AMEND THE
COMPANY'S BYLAWS TO DECLASSIFY THE BOARD OF DIRECTORS, AND (7) 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> 41
1. Election of Class III Directors.
Nominees: Denny G. Kelly
Kennon R. Patterson, Sr.
Merritt M. Robbins
R. Wayne Washam
FOR all nominees WITHHOLD
listed (except as AUTHORITY to vote
marked to the for all nominees listed
contrary below)
[ ] [ ]
INSTRUCTION: To withhold authority to vote for any individual nominee, write his
name or their names in the following space:
- --------------------------------------------------------------------------------
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.
2. Proposal to ratify 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.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Proposal to approve and adopt an Amended and Restated Certificate of
Incorporation.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. Stockholder proposal to amend the Company's Bylaws to separate the position
of Chairman of the Board from the position of President.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
5. Stockholder proposal to amend the Company's Bylaws to restrict the
composition of the Board of Directors to independent directors.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
6. Stockholder proposal to amend the Company's Bylaws to declassify the Board
of Directors.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Dated:_______________________________, 1999
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.
- -------------------------------------------
Signature
- -------------------------------------------
Signature if held jointly
