<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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:
[ ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 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:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
COMMUNITY BANCSHARES, INC.
68149 Highway 231 South
P.O. Box 1000
Blountsville, Alabama 35031
April 17, 2000
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., Central Time, on Thursday, May 11,
2000, in the Playhouse at the Von Braun Civic Center, 700 Monroe Street,
Huntsville, Alabama, enclosed are a Notice of Annual Meeting of Stockholders,
proxy card and Proxy Statement containing information about your company and
matters to be considered at the Annual Meeting. We encourage you to read them.
You are cordially invited to attend the Annual Meeting in person.
Please sign, date, mark and return the enclosed proxy card in the enclosed
postage-prepaid envelope to ensure that your shares are voted at 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 May 11.
Sincerely yours,
Kennon R. Patterson, Sr.
Chairman, Chief Executive Officer and
President
PLEASE COMPLETE, DATE, SIGN AND MAIL PROMPTLY THE ACCOMPANYING PROXY CARD IN THE
POSTAGE-PAID RETURN ENVELOPE FURNISHED FOR THAT PURPOSE, WHETHER OR NOT YOU PLAN
TO ATTEND THE ANNUAL MEETING.
<PAGE> 3
COMMUNITY BANCSHARES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
----------------------------
The Annual Meeting of the stockholders of Community Bancshares, Inc.
(the "Company") will be held in the Playhouse at the Von Braun Civic Center, 700
Monroe Street, Huntsville, Alabama, on Thursday, May 11, 2000 at 10:00 a.m.,
Central Time, for the following purposes:
1. To elect Roy B. Jackson, Hodge Patterson, III and Robert O.
Summerford as Class I directors;
2. To approve and adopt a number of amendments to the Company's
Certificate of Incorporation, as described in the attached
proxy statement:
A. Proposal to amend the Company's Certification of
Incorporation to limit the liability of the Company's
directors;
B. Proposal to amend the Company's Certificate of
Incorporation to enhance the Company's indemnification of
directors and officers;
C. Proposal to amend the Company's Certificate of
Incorporation to eliminate stockholder action by written
consent;
D. Proposal to amend the Company's Certificate of
Incorporation to provide for staggered terms for directors;
E. Proposal to amend the Company's Certificate of
Incorporation regarding vacancies on the Board of Directors
and the removal of directors;
F. Proposal to amend the Company's Certificate of
Incorporation to require a super-majority vote by
stockholders to amend the Company's Certificate of
Incorporation;
G. Proposal to restate and make miscellaneous amendments to
the Company's Certificate of Incorporation; and
3. To transact such other business as may properly come before
the annual meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on Tuesday,
April 11, 2000 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 attached 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 POSTAGE-PAID RETURN
ENVELOPE ENCLOSED FOR THAT PURPOSE. The person giving the enclosed proxy may
revoke it at any time before it is voted by voting in person at the Annual
Meeting or by delivering a later written proxy or a written revocation to the
Corporate Secretary of the Company, provided such later written proxy or
revocation is actually received by the Corporate Secretary of the Company before
the vote of stockholders at the Annual Meeting.
If you need assistance in completing your proxy card, please call me at
(205) 429-1000.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
APPROVAL OF ITEMS 1 AND 2 ABOVE.
By Order of the Board of Directors,
Bishop K. Walker, Jr.
Secretary
Blountsville, Alabama
April 17, 2000
<PAGE> 4
COMMUNITY BANCSHARES, INC.
68149 Highway 231 South
P.O. Box 1000
Blountsville, Alabama 35031
-------------------------------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 11, 2000
-------------------------------------
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 May 11, 2000, 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 68149 Highway 231
South, P.O. Box 1000, Blountsville, Alabama 35031. This Proxy Statement is being
mailed to stockholders of the Company on or about April 17, 2000.
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 April 11, 2000, 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 April 11, 2000, there were 4,674,995 shares of Common
Stock issued and outstanding, which were held by approximately 2,339
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 proxy card is properly executed and received by the
Company before or at the Annual Meeting, the shares of Common Stock represented
thereby will be voted as specified in the proxy by the persons designated in
such proxy. If no specification is made in the proxy, shares of Common Stock
represented by the proxy will be voted (1) "FOR" the election of the nominees
for directors listed in the accompanying Notice of Annual Meeting, (2) "FOR" the
approval and adoption of each proposed amendment of the Company's Certificate of
Incorporation described in the attached proxy statement, and (3) in accordance
with the recommendation of the Board of Directors as to any other matters which
may come before the Annual Meeting. The person giving the enclosed proxy may
revoke it at any time before it is voted by voting in person at the Annual
Meeting or by delivering a later written proxy or a written revocation to the
Corporate Secretary of the Company, provided such later written proxy or
revocation is actually received by the Corporate Secretary of the Company before
the vote of stockholders at the Annual Meeting.
SOLICITATION OF PROXIES
THIS SOLICITATION IS MADE BY THE BOARD OF DIRECTORS OF THE COMPANY. THE
BOARD OF DIRECTORS URGES THAT YOU EXECUTE AND RETURN THE ENCLOSED PROXY CARD AS
SOON AS POSSIBLE AND RECOMMENDS THAT THE SHARES OF COMMON STOCK REPRESENTED BY
THE PROXY BE VOTED "FOR" APPROVAL OF PROPOSAL 1 AND EACH OF PROPOSALS 2-A
THROUGH 2-G.
The Company will bear the costs associated with the solicitation of
proxies.
<PAGE> 5
OTHER MATTERS
The Board of Directors is not aware of any business to be presented at
the Annual Meeting except as described in the accompanying Notice of Annual
Meeting. 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.
ANNUAL REPORTS
COPIES OF THE COMPANY'S 1999 ANNUAL REPORT TO STOCKHOLDERS AND ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 ACCOMPANY THIS PROXY
STATEMENT. ADDITIONAL COPIES OF THESE DOCUMENTS WILL BE FURNISHED WITHOUT CHARGE
TO ANY STOCKHOLDER WHO REQUESTS SUCH REPORT IN WRITING FROM KENNON R. PATTERSON,
SR., COMMUNITY BANCSHARES, INC., P.O. BOX 1000, BLOUNTSVILLE, ALABAMA 35031.
2
<PAGE> 6
PROPOSAL 1 -- ELECTION OF DIRECTORS
The Bylaws of the Company provide for a classified Board of Directors
consisting of three classes, with the three-year 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 I directors expire at the Annual
Meeting. The terms of the Class II and Class III directors will expire in 2001
and 2002, respectively. The Board of Directors is recommending the re-election
of those persons currently serving as Class I directors. Each of the Class I
directors elected at the Annual Meeting will serve three-year terms expiring at
the 2003 annual meeting of stockholders and until his respective successor is
elected and qualified. A director of the Company is elected by the affirmative
vote of the holders of a plurality of the shares of Common Stock present or
represented at the Annual Meeting and entitled to vote.
The Board of Directors has nominated Roy B. Jackson, Hodge Patterson,
III and Robert O. Summerford for election as Class I directors to hold office
until expiration of their term and until their successors have been elected and
qualified. It is intended that the persons named in the enclosed proxy card will
vote for the election of these nominees. Each nominee has consented to serve as
director if elected, but if for any reason any of these persons should not be
available or able to serve, the persons named in the enclosed proxy card may
exercise discretionary authority to vote for substitutes proposed by the
Company's Board of Directors. The names of the nominees and the directors who
will continue to serve unexpired terms and certain information relating to them,
including the business experience of each during the past five years, follow.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THE ELECTION OF THE NOMINEES LISTED BELOW AS DIRECTORS OF THE COMPANY.
NOMINEES FOR TERMS EXPIRING IN 2003 (CLASS I)
<TABLE>
<CAPTION>
DIRECTOR OF
NAME, AGE AND POSITIONS HELD WITH THE COMPANY PRINCIPAL OCCUPATION
COMPANY AND ITS SUBSIDIARIES SINCE DURING PAST FIVE YEARS
- ---------------------------------------------------- ----------- ----------------------------
<S> <C> <C>
ROY B. JACKSON (65) 1999 (Retired) Owner of Jackson
Director of the Company, Community Bank and Farm & Garden Center, Minor
Community Appraisals, Inc. Hill, Tennessee
HODGE PATTERSON, III (44) 1993 Executive Vice President of
Director of the Company; Director and Executive Vice Community Bank (1997-
President of Community Bank; Director of Community Present); Vice-Chairman,
Insurance Corp. and Southern Select Insurance, Inc. Chief Executive Officer and
President of Community Bank,
a Tennessee bank (1993-1997)
ROBERT O. SUMMERFORD (68) 1996 Owner-operator of
Director of the Company, Community Bank, Community Summerford Nursing Home
Insurance Corp. and Southern Select Insurance, Inc. and Summerford Drugs Store,
Falkville, Alabama
</TABLE>
3
<PAGE> 7
DIRECTORS WITH TERMS EXPIRING IN 2001 (CLASS II)
<TABLE>
<CAPTION>
DIRECTOR OF
NAME, AGE AND POSITIONS HELD WITH THE COMPANY PRINCIPAL OCCUPATION
COMPANY AND ITS SUBSIDIARIES SINCE DURING PAST FIVE YEARS
- ---------------------------------------------------- ----------- ----------------------------
<S> <C> <C>
GLYNN DEBTER (65) 1996 Owner-operator of Debter
Director of the Company, Community Bank and 1st Farms (cattle breeding), Horton,
Community Credit Corporation. Alabama
JOHN J. LEWIS, JR. (52) 1997 Production Planning Manager
Director of the Company, Community Bank and 1st for Tyson Foods, Inc. (food
Community Credit Corporation. processing), Blountsville,
Alabama
LOY MCGRUDER (59) 1996 Executive Vice President of
Director of the Company; Director and Executive Vice Community Bank (1994-
President of Community Bank; Director of Community Present); City President of
Insurance Corp. and Southern Select Insurance, Inc. Community Bank-Blountsville
(1994-1997); Senior Vice
President of Community Bank
(1993-1994)
BISHOP K. WALKER, JR. (68) 1983 Vice Chairman, Senior Executive
Director, Vice Chairman, Secretary, Senior Executive Vice President and General
Vice President and General Counsel of the Company; Counsel of the Company (1987-
Director, Senior Executive Vice President and Secretary Present); President and Director
of Community Bank; Director of Community Insurance of Community Insurance Corp.
Corp. and Southern Select Insurance, Inc. (1987-1997)
</TABLE>
DIRECTORS WITH 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
- ---------------------------------------------------- ----------- ----------------------------
<S> <C> <C>
DENNY G. KELLY (60) 1986 President of Community Bank
Director and Executive Vice President of the Company; (1993-Present)
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. (57) 1983 Chairman, President and Chief
Chairman, President and Chief Executive Officer of the Executive Officer of the
Company; Chairman and Chief Executive Officer of Company (1985-Present);
Community Bank; Director of Community Appraisals, Chairman and Chief Executive
Inc., Community Insurance Corp., 1st Community Credit Officer of Community Bank
Corporation and Southern Select Insurance, Inc. (1993-Present)
</TABLE>
4
<PAGE> 8
<TABLE>
<CAPTION>
DIRECTOR OF
NAME, AGE AND POSITIONS HELD WITH THE COMPANY PRINCIPAL OCCUPATION
COMPANY AND ITS SUBSIDIARIES SINCE DURING PAST FIVE YEARS
- ---------------------------------------------------- ----------- ----------------------------
<S> <C> <C>
MERRITT M. ROBBINS (62) 1996 Piggly Wiggly grocery store
Director of the Company, Community Bank, Community operator and property
Insurance Corp. and Southern Select Insurance, Inc. developer, New Hope,
Alabama
R. WAYNE WASHAM (63) 1996 (Retired) Assistant
Director of the Company, Community Bank and Superintendent of Arab,
Community Appraisals, Inc. Alabama City Schools (1992-
1996)
</TABLE>
Kennon R. Patterson, Sr. and Hodge Patterson, III are brothers.
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.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held 12 meetings during 1999. 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, John
J. Lewis, Jr., Robert O. Summerford and Bishop K. Walker, Jr. 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. This committee did not
meet during 1999.
The Nominating Committee is currently composed of Glynn Debter
(Chairman), John J. Lewis, Jr. (Vice Chairman) and Robert O. Summerford. 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 1999.
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 1999, currently consists of Merritt M. Robbins (Chairman),
R. Wayne Washam (Vice Chairman), Glynn Debter, Roy B. Jackson, John J. Lewis,
Jr. and Robert O. Summerford.
The ESOP and Pension Plan Administrative Committee administers the
Company's pension plan and employee stock ownership plan ("ESOP"). This
committee is currently composed of Denny G. Kelly (Chairman), Hodge Patterson,
III and Loy McGruder. This committee held two meetings in 1999.
The Audit Committee reviews the financial and internal operations of
the Company. Members of the Audit Committee are R. Wayne Washam (Chairman),
Merritt M. Robbins (Vice Chairman), John J. Lewis, Jr., Glynn Debter, Roy B.
Jackson and Robert O. Summerford. This committee met ten times during 1999.
DIRECTOR ATTENDANCE
During 1999, all incumbent directors of the Company attended at least
75% of the total number of
5
<PAGE> 9
meetings of the Board of Directors and meetings of the committees of which they
were members.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's directors, executive officers and persons
who beneficially own more than 10% of the Common Stock to file with the
Securities and Exchange Commission ("SEC") initial reports of ownership and
reports of changes in ownership of Common Stock. These officers, directors and
stockholders are also required by SEC rules to furnish the Company with copies
of all Section 16(a) reports they file. There are specific dates by which these
reports are to be filed and the Company is required to report in this Proxy
Statement any failure to file reports as required for 1999.
The Company is not aware of any reporting person who failed to file a
timely report. 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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From time to time Community Bank may enter into arrangements with
certain directors or executive officers of the Company or Community Bank
pursuant to which the director or executive officer would purchase from
Community Bank a building in which a Community Bank office is located and lease
it back to Community Bank. In each case the purchase price would be Community
Bank's cost of acquiring the property and constructing or renovating the
building. The monthly base rent paid by Community Bank would be equal to the
monthly debt service incurred by the director or executive officer to purchase
the property. In addition to the base rent, Community Bank would pay amounts
necessary to reimburse the director or executive officer for property taxes,
insurance and maintenance on the property. Community Bank would have an option
to repurchase the property at any time during the term of the lease at the same
price the director or executive officer paid to purchase the property from
Community Bank. The Company currently anticipates that a limited liability
company affiliated with Glynn Debter, a director of the Company, will purchase
Community Bank's office in Boaz, Alabama, for approximately $1.7 million and
will enter into a 20 year lease with Community Bank on terms consistent with
those described in this paragraph.
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 1% discount in the rate of interest charged on a loan from
Community Bank. Federal banking regulations 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 Community Bank to relocate within its market area in connection with
their employment with Community Bank. Under this program, each of these
employees is eligible for a 5% annual interest rate on first mortgage, real
estate loans from Community Bank. During 1999, the total amount of loans to
directors and executive officers of the Company and members of their immediate
families originated by Community Bank under these two programs was approximately
$4 million. As of March 29, 2000, 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 $4.5
million.
During 1999, Community Bank contracted with Heritage Valley Farms, an
unincorporated business owned by Kennon R. Patterson, Sr., a director and
executive officer of the Company, for the upkeep and maintenance of the external
grounds of certain locations of Community Bank and its subsidiaries. These
services were performed at five offices of Community Bank for the entire year
and at five additional offices of Community Bank and two offices of 1st
Community Credit Corporation for most of 1999. Pursuant to its service contract
with Heritage Valley Farms, Community Bank and its subsidiaries paid Heritage
6
<PAGE> 10
Valley Farms a total of $62,323 during 1999, or a monthly average of $588 per
location.
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 during 1999. During 1999, Heritage Interiors was paid
$262,912 in connection with the completion, opening and furnishing of two new
bank buildings located in Boaz and Demopolis, Alabama. Community Bank also paid
Heritage Interiors $279,026 in connection with the renovation, expansion and
furnishing of Community Bank's new permanent location at the Fite House located
in Hamilton, Alabama. As a result of being listed on the state and national
register of historical places, a portion of the cost associated with furnishing
and decorating the Fite House was to preserve the architectural style and
historical significance of the building. Community Bank also paid Heritage
Interiors $120,080 during 1999 in connection with the renovation and furnishing
of three offices furnished to Area Executive Vice Presidents of Community Bank
and the first floor of the Company's headquarters building. Additional payments
totaling $16,121 were made to Heritage Interiors during 1999 in connection with
24 other bank offices. During 1999, 1st Community Credit Corporation paid
Heritage Interiors $23,835 for furnishings and decorating associated with the
opening of its new office in Oneonta, Alabama and $7,469 in connection with the
relocation of its office in Hartselle, Alabama. 1st Community Credit Corporation
also paid Heritage Interiors $78,632 during 1999 in connection with the
renovation and furnishing of five of its offices located in Boaz, Gadsden,
Huntsville, Ft. Payne and Jasper, Alabama. Additional payments totaling $12,931
were made to Heritage Interiors during 1999, relating to the other five
locations and administrative offices of 1st Community Credit Corporation. The
Company, Community Insurance Corp. and Southern Select Insurance, Inc. made
payments totaling $35,848 to Heritage Interiors for various furnishings and
services rendered during 1999. Total payments to Heritage Interiors in 1999 were
$836,854.
The Company has entered into an agreement with the accounting firm of
Schauer, Taylor, Cox & Vise, P.C. to provide certain accounting and internal
audit services. Doug Schauer, a member of the firm, is Kennon R. Patterson,
Sr.'s son-in-law. The Company or its subsidiaries paid Schauer, Taylor, Cox &
Vise, P.C. $143,000 for their services rendered in 1999.
At December 31, 1999, the total outstanding balance of indebtedness
incurred by the ESOP to purchase shares of Common Stock was approximately
$2,788,442. This indebtedness, which is owed to a third party and is secured by
a pledge of 221,321 shares of Common Stock that have not been allocated by the
ESOP, is guaranteed by the Company.
7
<PAGE> 11
LEGAL PROCEEDINGS
On November 19, 1998, Mr. William Towns, a stockholder 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. On December 21, 1998, the Company and its
directors filed a motion with the court seeking to have the complaint dismissed.
On March 1, 1999, the Board of Directors appointed a special board committee,
comprised of Roy B. Jackson, Merritt M. Robbins and R. Wayne Washam, each of
whom is a non-employee director of the Company, to review the plaintiffs'
allegations in accordance with Delaware law. On April 6, 1999, each of the
parties to the action requested that the court stay the litigation and related
discovery, motions and hearings, pending completion of the special committee's
review. On April 30, 1999, the court entered an order staying the litigation and
related discovery motions and hearings with the parties' request. On October 15,
1999, the special board committee filed its final report with the court. On
October 21, 1999, the parties forwarded to the court an agreed upon order
governing the confidentiality of the special committee's report which the court
entered on January 2, 2000. On January 19, 2000, the Company and its directors
filed a motion to dismiss the complaints, based upon the special committee's
report. The parties are awaiting a hearing on this motion. 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 fact and suppression of the plaintiff stockholders, failed to supervise
management, and conspired to conceal wrongful acts from the Company's
shareholders and paid themselves excessive director fees. The complaint also
alleged that the Board of Directors acquiesced in mismanagement and misconduct
by Kennon R. Patterson, Sr., the Chairman of the Board, Chief Executive Officer
and President of the Company, including alleged self-dealing, payment of
excessive compensation, misappropriation of corporate opportunities and
misappropriation of funds. The complaint sought an unspecified amount of
compensatory and punitive damages, removal of the current directors, appointment
of a new Board of Directors, and attorneys fees and costs. Management of the
Company believes that the plaintiffs' allegations are false and that the action
lacks merit. The Company and its directors intend to defend the action
vigorously, and management of the Company believes that the action will not have
a material adverse effect on the Company's financial condition or results of
operations.
8
<PAGE> 12
EXECUTIVE COMPENSATION
For additional information about compensation of the Company's
executive officers, please see the section below captioned "Executive
Compensation Committee Report on Executive Compensation."
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides summary information concerning
compensation paid by the Company and its subsidiaries during 1999 to the Chief
Executive Officer and each of the four other most highly compensated executive
officers of the Company at December 31, 1999 (collectively, the "named executive
officers") for the fiscal years ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM
------------------- COMPENSATION
-------------
OTHER AWARDS
ANNUAL SECURITIES ALL OTHER
COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) OPTIONS/SARS (#) ($)(1)(2)
- --------------------------- ---- ---------- --------- ------------ ------------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Kennon R. Patterson, Sr.
Chairman, President
and Chief Executive Officer 1999 $588,950 $309,650 -- 40,000 $75,808
1998 544,500 281,500 -- 16,667 53,928
1997 495,000 165,000 -- 4,000 49,507
Bishop K. Walker, Jr.
Vice Chairman and
General Counsel............ 1999 $421,923 -- -- 15,000 $29,087
1998 248,730 -- -- 13,333 41,667
1997 225,000 $50,000 -- 3,000 35,496
Denny G. Kelly
President -
Community Bank............. 1999 $323,654 -- -- 20,000 $30,048
1998 190,288 -- -- 10,000 41,128
1997 150,000 $30,000 -- 2,000 32,707
Hodge Patterson, III
Executive Vice President -
Community Bank............. 1999 $250,000 -- $29,050(3) 5,000 $ 8,048
1998 170,019 -- $17,740(3) 6,667 35,378
1997 150,000 $30,000 -- 2,000 34,307
Loy McGruder
Executive Vice President -
Community Bank............. 1999 $230,000 -- -- 5,000 $ 8,048
1998 152,231 -- -- 6,667 33,628
1997 125,000 $30,000 -- 2,000 32,707
</TABLE>
9
<PAGE> 13
- --------------------
(1) Includes director fees paid for service as a director of the Company and of
its subsidiaries during 1999, 1998 and 1997, respectively, as follows: Kennon R.
Patterson, Sr., $56,250, $37,000 and $34,600; Bishop K. Walker, Jr., $19,000,
$33,000 and $27,750; Denny G. Kelly, $22,000, $34,500 and $27,000; Hodge
Patterson, III, $0, $28,750 and $28,600; and Loy McGruder, $0, $27,000 and
$27,000.
(2) Also includes life insurance premiums paid by the Company and contributions
by the Company to the ESOP during 1999, 1998 and 1997, respectively, as follows:
Kennon R. Patterson, Sr., $19,558, $16,928 and $14,907; Bishop K. Walker, Jr.,
$10,087, $8,667 and $7,746; Denny G. Kelly, $8,048, $6,628 and $5,707; Hodge
Patterson, III, $8,048, $6,628 and $5,707; and Loy McGruder, $8,048, $6,628 and
$5,707. ESOP contributions for 1999 are estimated because the allocations for
the 1999 plan year have not been completed by the plan trustee.
(3) Includes during 1999 and 1998, respectively, $2,265 and $4,805 with respect
to social club dues, $9,703 and $5,675 with respect to usage of a Company-owned
automobile, and $17,082 and $7,260 with respect to discounted interest rates
through participation in the Company's employee loan programs.
10
<PAGE> 14
STOCK OPTIONS
The following table contains information regarding the grant of stock
options during 1999 to the named executive officers.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants (1) Option Term (2)
------------------------------------------------------------ ----------------------
Number of Percent of
Securities Total Options
Underlying /SARs Granted Exercise or
Options/SARS to Employees Base Price Expiration
Name Granted (#) in Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ------------------------- ------------ -------------- ----------- ----------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Kennon R. Patterson, Sr.
Chairman, President and
Chief Executive Officer 40,000 19.6% $20.00 12/03/04 $221,025 $488,408
Bishop K. Walker, Jr.
Vice Chairman and General
Counsel 15,000 7.35 20.00 12/03/04 82,884 183,153
Denny G. Kelly
President -
Community Bank 20,000 9.80 20.00 12/03/04 110,513 244,204
Hodge Patterson, III
Executive Vice President -
Community Bank 5,000 2.45 20.00 12/03/04 27,628 61,051
Loy McGruder
Executive Vice President -
Community Bank 5,000 2.45 20.00 12/03/04 27,628 61,051
- ---------------------------
</TABLE>
(1) All stock options are exercisable beginning on the date they were granted.
(2) Represents hypothetical gains that could be achieved with respect to the
grants of options if the options were to be exercised at the end of the option
term, based upon assumed rates of appreciation in the market price of Common
Stock of 5% and 10%, compounded annually from the date of grant to the
expiration date. Actual gains, if any, could vary and will depend upon the
actual date or dates, if any, on which options are exercised and the actual
rates of appreciation, if any, in the price of Common Stock.
11
<PAGE> 15
OPTION EXERCISES AND HOLDINGS
The following table provides information concerning the exercise of
stock options during 1999 by the named executed officers and the unexercised
stock options held by them at December 31, 1999.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs In-the-money Options/SARs
at FY-End (#) at FY-End ($) (1)
Shares -------------------------- ------------------------------
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kennon R. Patterson, Sr.
-- -- 112,667 -- $1,084,003 --
Bishop K. Walker, Jr.
-- -- 67,333 -- 718,497 --
Denny G. Kelly
-- -- 54,000 -- 501,000 --
Hodge Patterson, III
-- -- 33,667 -- 383,003 --
Loy McGruder
-- -- 31,667 -- 355,003 --
</TABLE>
- -------------------------
(1) Represents market value of underlying shares of Common Stock at December 31,
1999, as determined by the Board of Directors, 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 are participants in this
supplemental plan.
PENSION PLAN TABLE
Years of Credited Service
<TABLE>
<CAPTION>
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
1,000,000 150,000 300,000 450,000 600,000
1,250,000 187,500 375,000 562,500 750,000
</TABLE>
12
<PAGE> 16
The benefits shown are not subject to any deduction for Social Security
benefits or other offset amounts. Benefits shown above are computed as a
straight-life annuity beginning at age 65.
The amount of compensation covered by the combination of plans covering
the named executive officers is total compensation, including bonuses, overtime
or other forms of extraordinary compensation. The amount of the retirement
benefit is determined by the length of the retiree's credited service under the
plans and his average monthly earnings for the five highest consecutive calendar
years of the retiree's final ten consecutive calendar years of employment with
the Company and its subsidiaries. The full years of credited service under the
plans for the named executive officers are as follows: Kennon R. Patterson, Sr.:
17 years; Bishop K. Walker, Jr.: 13 years; Denny G. Kelly: 14 years; Hodge
Patterson, III: 13 years; and Loy McGruder: 13 years.
COMPENSATION OF DIRECTORS
Directors of the Company are paid an annual retainer of $15,000 and a
fee of $1,500 for each month during which the director serves. Members of the
Executive Committee, Nominating Committee, Executive Compensation Committee and
Audit Committee receive a fee of $500 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 -
$500; Community Appraisal, Inc. - $250; 1st Community Credit Corporation - $250;
and Community Insurance Corp. - $250. In December 1999, directors of the Company
were granted options to purchase an aggregate of 115,000 shares of Common Stock
at an exercise price equal to the fair market value of the Common Stock on the
date of grant, as determined by the Board of Directors.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
EMPLOYMENT AGREEMENTS
Effective April 1, 1996, the Company entered into an Employment
Agreement with Kennon R. Patterson, Sr., which expires on March 31, 2008. The
agreement was amended on October 14, 1999, to: (a) eliminate a provision
accelerating payments due to Mr. Patterson from the Company in the event the
Company defaults on its obligations under the contract; (b) eliminate Mr.
Patterson's automatic salary increases and provide that increases in his salary
are to be determined by the Executive Compensation Committee; (c) establish Mr.
Patterson's total cash compensation for 1999 as a minimum for future years and;
(d) clarify that Mr. Patterson's expense account will cover reasonable business
expenses in an amount suitable to the needs of both Mr. Patterson and the
Company. The agreement, as amended, provides that Mr. Patterson will serve as
the Chairman of the Board of Directors, President and Chief Executive Officer of
the Company and receive a minimum amount of cash compensation. Mr. Patterson's
agreement also provides that he will receive four weeks of paid vacation
annually, use of an automobile for business and personal purposes, reimbursement
of reasonable business and professional expenses, memberships in civic and
social clubs, and an annual allowance of $10,000 for the purchase of life
insurance. In the event that Mr. Patterson is disabled to the extent that he is
incapable of performing his duties, he is entitled to a continuation of his
compensation during the period of disability, but not to exceed one year. If Mr.
Patterson's employment with the Company is terminated, he may not engage in the
business of banking within a 25 mile radius of any office of the Company or its
subsidiaries for a period of two years following the termination of his
employment.
Effective April 1, 1996, the Company also entered into an Employment
Agreement with Bishop K. Walker, Jr., which expires on March 31, 2001. Pursuant
to this agreement, Mr. Walker is to serve as Vice Chairman, Executive Vice
President, General Counsel and Secretary of the Company and in other capacities
for certain of its subsidiaries. Mr. Walker is to receive a stated salary which
will be reviewed annually. Mr. Walker's agreement also provides that he will
receive three weeks of paid vacation annually, use of an automobile for business
and personal purposes, reimbursement of business and professional expenses,
memberships in civic and social clubs and an employer-provided life insurance
policy in an amount of $100,000. If Mr. Walker is disabled to the extent that he
is incapable of performing his duties, he is entitled to receive his normal
compensation for the period of disability, but not to exceed 90 days. If Mr.
Walker's employment with the Company is terminated he may not engage in the
business of banking within a 25 mile radius of the Company's Blountsville,
Alabama office or in any other county in which the Company and its subsidiaries
does business for a period of two years following the termination of his
employment.
13
<PAGE> 17
CHANGE IN CONTROL AGREEMENTS
The Company entered into Change in Control Agreements with each of the
named executive officers on December 4, 1999. These agreements have terms of
three years and are automatically renewed unless terminated at the end of a term
by the Company's Executive Compensation Committee. In the event of a change in
control of the Company (as defined in the agreements), the named executive
officer is entitled to receive certain severance benefits if his employment is
terminated by the Company within 30 months following the change in control,
unless the termination is for cause or by reason of the officer's death,
disability or retirement on or after age 65. 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, disability or retirement on
or after age 65, 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 officer is also entitled to receive
severance benefits if the officer terminates employment for any reason during a
30-day period beginning 12 months after the occurrence of a change in control.
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 1999:
<TABLE>
<S> <C> <C>
Merritt M. Robbins (Chairman) Glynn Debter John J. Lewis, Jr.
R. Wayne Washam (Vice Chairman) Roy B. Jackson Robert O. Summerford
</TABLE>
The Company anticipates that Mr. Debter will purchase from Community
Bank the property in which Community Bank's office in Boaz, Alabama is located,
for approximately $1.7 million, and will enter into a 20 year lease of the
property with Community Bank. See "Certain Relationships and Related
Transactions" above.
14
<PAGE> 18
EXECUTIVE COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
OVERVIEW
The Company's Executive Compensation Committee (the "Compensation
Committee") is responsible for establishing and administering the Company's
executive compensation program. The Compensation Committee also makes
recommendations regarding executive compensation to the Board of Directors,
which has final approval of the compensation of each executive officer,
including the named executive officers identified in the Summary Compensation
Table above. The named executive officers do not participate in the Board of
Directors' review and determination of their compensation.
The Company's executive compensation program is designed to attract,
reward, retain and motivate executive officers who will provide strong
leadership necessary for the Company to achieve superior financial performance
and stockholder return, and who will be an integral part of the communities that
the Company serves. During 1999, the Company's executive compensation program
consisted of (i) base compensation, (ii) annual bonuses, and (iii) long-term
incentives utilizing equity ownership in the Company. Executive officers also
receive various perquisites comparable to those made available to executive
officers of other financial institutions, as well as retirement and other
employee benefits that are generally available to employees of the Company and
its subsidiaries.
EXECUTIVE COMPENSATION PROGRAM
BASE COMPENSATION
Base compensation provides the foundation for the Company's executive
compensation. Its purpose is to compensate the executive for performing the
basic duties that he or she is expected to perform. Salaries are typically
reviewed and adjusted each year. The base compensation paid to Kennon R.
Patterson, Sr. and Bishop K. Walker, Jr. are subject to the terms of their
respective employment agreements with the Company. Each of Mr. Patterson's and
Mr. Walker's employment agreements provides for a minimum base salary, which is
subject to annual review in the discretion of the Compensation Committee.
In determining the base compensation for a particular executive
officer, the Compensation Committee performs a subjective evaluation with three
primary factors in mind: (i) the officer's individual performance, (ii)
performance of the Company and business unit or units of the Company for which
the officer is responsible, and (iii) published compensation data for comparable
positions at other financial institutions. The Compensation Committee does not
assign any relative or specific weights to these factors, and individual members
of the Compensation Committee may give differing weights to different factors.
Accordingly, during a particular year, the base compensation of an executive
officer of the Company may not necessarily be related to the Company's
performance during that year or the prior year.
Individual Performance. In determining its recommended compensation for
each executive officer of the Company, the Compensation Committee considers the
officer's individual performance during the prior year. Individual performance
is generally evaluated by reference to the executive officer's annual
performance review, in which the officer is subjectively graded by his or her
superiors on various specified criteria, such as leadership skill and management
ability.
Company Performance. The Compensation Committee also considers the
performance during the prior year of the Company and the bank, branch, branches
or other business unit or units of the Company for which the executive officer
is responsible. For example, in determining the compensation for Kennon R.
Patterson, Sr., the Chairman, Chief Executive Officer and President of the
Company, the Compensation Committee reviews the performance of the entire
Company, and in determining the compensation for Denny G. Kelly, the President
of Community Bank, the Compensation Committee reviews the performance of
15
<PAGE> 19
Community Bank as a whole. The Compensation Committee subjectively evaluates the
performance by the business units with respect to criteria that the Compensation
Committee believes to be relevant in assessing the units' performance. The
Compensation Committee has not established any target amounts for these
criteria, which may differ from unit to unit, depending on the nature of the
unit's business (such as banking, consumer finance or insurance) and how long
the unit has been in operation, among other factors. The Compensation Committee
generally focuses on the following five criteria, to the extent applicable, in
assessing each unit's performance: (i) growth in loan portfolio; (ii) growth in
deposits; (iii) amount of employee turnover; (iv) net profit; and (v)
charge-offs and loan losses.
Compensation Survey. During 1999, the Company commissioned a
compensation survey to determine the competitiveness of its compensation of 36
employees in 15 benchmark positions. The results of this survey were utilized by
the Compensation Committee in determining its recommendations for the
compensation of the particular positions covered by the survey, including all of
the named executive officers.
Published Compensation Data. The Company subscribes to several industry
publications that report compensation of the executive officers of other
financial institutions. The Compensation Committee reviews information regarding
the compensation of similarly-situated executives at comparable institutions in
determining its recommended compensation for a particular executive officer.
Based on these and other factors that the Compensation Committee and
its members may deem to be relevant, the Compensation Committee determines the
base compensation of each executive officer and makes its recommendations to the
Board of Directors. The Board of Directors then considers the Compensation
Committee's recommendations, and may elect to decrease, increase or approve the
compensation recommended by the Compensation Committee. During 1999, the annual
base compensation for each of the named executive officers was increased as
follows: Kennon R. Patterson, Sr. to $588,950, Bishop K. Walker, Jr. to
$421,923, Denny G. Kelly to $323,654, Hodge Patterson, III to $250,000 and Loy
McGruder to $230,000. The Board of Directors approved, without material change,
the base compensation recommended by the Compensation Committee for 1999.
ANNUAL BONUSES
The Company has, to a limited extent, provided short-term incentives to
executive officers in the form of annual cash bonuses in recognition of
outstanding individual performance and/or business unit performance. For 1999,
the Board of Directors awarded a total bonus to Kennon R. Patterson, Sr. in the
amount of $309,650, the minimum bonus payable under Mr. Patterson's employment
agreement prior to its amendment on October 14, 1999. The Board of Directors did
not award bonuses to any other executive officer of the Company for 1999, based
on the Board's determination that the other officers' base compensation and
stock option awards provided adequate compensation based on individual
performance, the Company's performance and published compensation data for
comparable positions at other financial institutions during 1999.
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 1999, 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 incentive compensation for
financial institutions and other publicly held companies and allows the Company
to be competitive with other employers. The number of options granted to a
particular executive officer generally reflects the officer's position within
the Company, the Compensation Committee's subjective evaluation of the officer's
performance and contribution to the Company, and the Compensation Committee's
analysis of the value of the options awarded (using a standard methodology for
valuing options). During 1999, the Company granted options to each of the named
executive officers and certain other executive officers of the Company, with an
exercise price equal to 100% of the fair market value of the Common Stock on the
date that the options were granted, as determined by the Board of Directors.
16
<PAGE> 20
CHIEF EXECUTIVE OFFICER COMPENSATION
Effective April 1, 1996, the Company entered into an employment agreement with
Kennon R. Patterson, Sr., the Chief Executive Officer of the Company, which
expires on March 31, 2008. The agreement was amended on October 14, 1999, to:
(a) eliminate a provision accelerating payments due to Mr. Patterson from the
Company in the event the Company defaults on its obligations under the contract;
(b) eliminate Mr. Patterson's automatic salary increases and provide that
increases in his salary are to be determined by the Executive Compensation
Committee; (c) establish Mr. Patterson's total cash compensation for 1999 as a
minimum for future years and; (d) clarify that Mr. Patterson's expense account
will cover reasonable business expenses in an amount suitable to the needs of
both Mr. Patterson and the Company. Mr. Patterson's employment agreement, as
amended, provides for a minimum amount of cash compensation. The Board of
Directors approved this employment agreement because of Mr. Patterson's length
of service with the Company, the growth and success that the Company had
achieved under his leadership, and the Board's view that Mr. Patterson's
efforts, strategic vision and leadership were a key component in achieving such
growth and success. In addition, the Board desired to ensure that the Company
continued to retain Mr. Patterson's services as Chief Executive Officer of the
Company.
Compensation for Mr. Patterson during 1999 was determined in accordance
with the terms of his employment agreement and the Board of Directors'
subjective evaluation of Mr. Patterson's performance and that of the Company, as
well as the other factors and criteria described above for other executive
officers of the Company. For 1999, Mr. Patterson's base salary was increased
from $544,500 to $588,950. Mr. Patterson was also awarded an annual bonus in the
amount of $309,650, in accordance with the terms of Mr. Patterson's employment
agreement prior to its amendment on October 14, 1999. In addition, Mr. Patterson
was awarded options to purchase 40,000 shares of the Company's Common Stock.
In determining the amount of Mr. Patterson's compensation, the
Compensation Committee considered various qualitative and quantitative criteria
regarding Mr. Patterson's individual performance and that of the Company, as
well as the results of the compensation survey and published data regarding
compensation paid to the chief executive officers of other financial
institutions. The Compensation Committee did not establish any target amounts
with respect to these criteria, or assign any particular weights to the criteria
considered. In particular, the Compensation Committee considered the increases
during 1999 in the Company's total assets to $674.9 million from $603.2 million,
in the Company's deposits to $573.3 million from $538.6 million, and in the
Company's net loans to $496.1 million from $430.8 million. The Compensation
Committee determined that these accomplishments were key factors in the
continued growth in the size and profitability of the Company, and that they
resulted in large part from Mr. Patterson's management, leadership, strategic
vision and dedication to the Company and the communities it serves.
By the Executive Compensation Committee:
<TABLE>
<S> <C> <C>
Merritt M. Robbins (Chairman) Glynn Debter John J. Lewis, Jr.
R. Wayne Washam (Vice Chairman) Roy B. Jackson Robert O. Summerford
</TABLE>
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 Major Market Index for the last five years. It assumes that the value
of the investment in the Company's Common Stock and in each index was $100.00
and that all dividends were reinvested. There is no established trading market
for the Company's Common Stock and, therefore, no reliable information is
available as to the prices at which such Common Stock has traded. To the extent
that cumulative total return data provided in the graph below is based in part
on the price of the Common Stock at the dates indicated, such information should
not be viewed as indicative of the actual or market value of the Common Stock.
COMMUNITY BANCSHARES, INC. CHART
<TABLE>
<CAPTION>
Period Ending
--------------------------------------------------------------------
Index 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
<C> <C> <C> <C> <C> <C> <C>
Community Bancshares, Inc. 100.00 82.22 96.13 129.48 178.39 220.49
Amex Major Market Index 100.00 133.92 166.97 209.24 247.56 291.53
NASDAQ Bank Index* 100.00 149.00 196.73 329.39 327.10 314.60
</TABLE>
The information provided under the headings "Executive Compensation
Committee Report on Executive Compensation" and "Performance Graph" above shall
not be deemed to be "soliciting material" or to be "filed" with the SEC, or
subject to Regulation 14A or 14C, other than as provided in Item 402 of
Regulation S-K, or to liabilities of Section 18 of the Exchange Act and, unless
specific reference is made therein to such headings, shall not be incorporated
by reference into any filings under the Securities Act of 1933 or the Exchange
Act.
18
<PAGE> 22
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 1,
1999, with respect to ownership of shares of Common Stock by each of the
Company's directors and nominees for directors, all directors, nominees for
directors and executive officers of the Company as a group, and each other
person or group that is known by the Company, based solely upon a review of
filings made with the SEC, to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK BENEFICIALLY OWNED (1) PERCENTAGE OF
----------------------------------------- TOTAL SHARES
OUTSTANDING
PERSON, GROUP OR ENTITY SOLE POWER (2) SHARED POWER (3) AGGREGATE -------------
- ----------------------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
I. Directors, Nominees and
Executive Officers
Glynn Debter 31,867 (4) 13,200 45,067 *
Roy B. Jackson 6,400 (5) 6,600 13,000 *
Denny G. Kelly 67,957 (6) 276,313 344,270 7.36%
John J. Lewis, Jr. 50,467 (7) 1,200 51,667 1.11
Loy McGruder 40,312 (8) 247,793 288,105 6.16
Hodge Patterson, III 83,548 (9) 226,643 310,191 6.64
Kennon R. Patterson, Sr. 147,141 (10) 490,175 637,316 13.63
Merritt M. Robbins 185,977 (11) 4,842 190,819 4.08
Robert O. Summerford 45,667 (12) 76,200 121,867 (13) 2.61
Bishop K. Walker, Jr. 260,537 (14) 56,859 317,396 6.79
R. Wayne Washam 40,069 (15) 7,000 47,069 1.01
All Company directors,
nominees for directors and
executive officers as a group
(13 persons) 970,476 973,089 1,943,565 41.57
II. OTHERS
U.S. Trust Company, N.A.
as Trustee of the
Community Bancshares, Inc.
Employee Stock Ownership
Plan (16) -- 554,904 (17) 554,904 (17) 11.87
R.C. Corr, Jr., Doris J. Corr,
Bryan A. Corr, Tina M. Corr,
Joan M. Currier, John David
Currier, Christina M. Currier,
Corr, Inc., as a group, 600
Third Avenue East, Oneonta,
AL 35121 (18) 10,468 370,881 381,349 8.16
</TABLE>
19
<PAGE> 23
- -------------------------
* Less than 1%.
(1) The number of shares reflected are shares which, under applicable SEC
regulations, are deemed to be beneficially owned, including shares as to which,
directly or indirectly, through any contract, arrangement, understanding,
relationship or otherwise, either voting power or investment power is held or
shared. In addition, in computing the number of shares beneficially owned by a
person and the percentage ownership of that person, shares of Common Stock
subject to options held by that person which are currently exercisable, or which
will become exercisable within 60 days following March 1, 2000, 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 Company's ESOP.
The individual has sole power to direct the ESOP trustee as to the manner in
which shares allocated to the individual's account under the ESOP are to be
voted. The individual has no direct power of disposition with respect to shares
allocated to the individual's account, except to request a distribution under
the terms of the ESOP.
(3) This column may include shares held in the name of, among others, a spouse,
minor children or certain other relatives sharing the same home as the director,
nominee, executive officer or 5% stockholder. In the cases of Messrs. Denny G.
Kelly, Hodge Patterson, III and Loy McGruder this column includes 221,321 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 31,667 shares which could be acquired within 60 days following
March 1, 2000 pursuant to stock options.
(5) Includes 5,000 shares which could be acquired within 60 days following March
1, 2000 pursuant to stock options.
(6) Includes 54,000 shares which could be acquired within 60 days following
March 1, 2000 pursuant to stock options and 13,957 shares allocated to Mr.
Kelly's ESOP account as of December 31, 1998.
(7) Includes 33,667 shares which could be acquired within 60 days following
March 1, 2000 pursuant to stock options.
(8) Includes 31,667 shares which could be acquired within 60 days following
March 1, 2000 pursuant to stock options and 8,645 shares allocated to Mr.
McGruder's ESOP account as of December 31, 1998.
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(9) Includes 33,667 shares which could be acquired within 60 days following
March 1, 2000 pursuant to stock options and 10,181 shares allocated to Mr. Hodge
Patterson's ESOP account as of December 31, 1998.
(10) Includes 112,667 shares which could be acquired within 60 days following
March 1, 2000 pursuant to stock options and 34,474 shares allocated to Mr.
Kennon R. Patterson's ESOP account as of December 31, 1998.
(11) Includes 31,667 shares which could be acquired within 60 days following
March 1, 2000 pursuant to stock options.
(12) Includes 31,667 shares which could be acquired within 60 days following
March 1, 2000 pursuant to stock options.
(13) Includes 62,200 shares held by Summerford Nursing Home and 14,000 shares
held by Summerford Drug. Mr. Summerford is a controlling shareholder of both
companies.
(14) Includes 67,333 shares which could be acquired within 60 days following
March 1, 2000 pursuant to stock options and 12,500 shares allocated to Mr.
Walker's ESOP account as of December 31, 1998.
(15) Includes 33,667 shares which could be acquired within 60 days following
March 1, 2000 pursuant to stock options.
(16) U.S. Trust Company, N.A. became trustee of the plan on April 3, 2000. The
address of U.S. Trust Company, N.A. is 515 S. Flower Street, Suite 2700, Los
Angeles, CA 90071-2291.
(17) Participants in the ESOP have the power to direct the ESOP trustee how to
vote shares allocated to their individual accounts. Any unallocated shares, and
any allocated shares with respect to which voting instructions are not received
from a participant, will be voted by the appropriate ESOP fiduciary in its
discretion.
(18) Information about this group was obtained from a Schedule 13D, and
amendments thereto, filed by such group with the SEC.
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PROPOSAL 2 - AMENDMENT AND RESTATEMENT OF
THE COMPANY'S CERTIFICATE OF INCORPORATION
(PROPOSALS 2-A THROUGH 2-G)
GENERAL
The Board of Directors proposes to amend and restate the Company's
Certificate of Incorporation (the "Existing Certificate") by adopting certain
amendments thereto (each an "Amendment" and together the "Amendments"). The
Amendments will, among other things, (A) limit the personal liability of the
Company's directors; (B) provide, under certain circumstances, the ability to
indemnify directors and officers; (C) eliminate the ability of stockholders to
take action outside of a duly called annual or special meeting; (D) contain a
provision (comparable to one currently contained in the Company's Bylaws)
classifying the Board of Directors; (E) specify procedures for the removal of
directors and the filling of vacancies on the Board of Directors; (F) require a
"super-majority" stockholder vote to approve the repeal, amendment or adoption
of certain provisions of the Company's Certificate of Incorporation; and (G)
restate the purpose of the Company as stated in the Existing Certificate and
delete certain obsolete provisions.
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.
VOTES REQUIRED
A majority of all of the votes entitled to be cast on an Amendment is
required for approval of that Amendment. Because a majority of all the votes
entitled to be cast is required, an abstention from voting or a broker non-vote
on an Amendment will have the same effect as a vote against an Amendment.
If approved, an Amendment would become effective upon its filing with
the Delaware Secretary of State, which filing would occur promptly after the
Annual Meeting. APPROVAL OF ALL OF THE AMENDMENTS IS A CONDITION TO THE
EFFECTIVENESS OF ANY OF THE AMENDMENTS. THEREFORE, A VOTE AGAINST ANY PROPOSED
AMENDMENT IS, IN EFFECT, A VOTE AGAINST ALL OF THE PROPOSED AMENDMENTS. The
Board of Directors has reserved the right under ss. 242(c) of the Delaware
General Corporation Law ("DGCL") to abandon any or all of the Amendments,
notwithstanding the approval of the Amendments by the stockholders and without
further action by the stockholders. If all of the Amendments are approved by
stockholders, following the Annual Meeting the Company intends to amend and
restate its Certificate of Incorporation in substantially the form attached
hereto as Appendix A (the "Proposed Restated Certificate") in order to
consolidate the Amendments with all prior amendments, to make certain technical
changes to the Existing Certificate and to renumber the provisions accordingly.
In the event that any Amendment is not approved by the Company's stockholders,
the Existing Certificate will remain in effect without amendment. References
herein to "re-numbered" provisions are given as if all the Amendments are
approved and, therefore, the Proposed Restated Certificate is filed in the form
of Appendix A.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors believes that the Amendments would provide
greater flexibility and certainty in the Company's operations as a public
company that are not available under the Existing Certificate. Accordingly, the
Board of Directors believes that the Amendments to the Existing Certificate are
in the best interests of the Company and its stockholders and, therefore,
unanimously recommends that stockholders vote "FOR" approval of each of
Proposals 2-A through 2-G.
PROPOSAL 2-A -- AMENDMENT TO CERTIFICATE OF INCORPORATION
TO LIMIT THE LIABILITY OF THE COMPANY'S DIRECTORS
Summary of the Amendment. The Board of Directors unanimously recommends
that the stockholders approve a proposal to amend the Existing Certificate to
provide that the Company's directors shall not be liable to
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the Company or its stockholders for monetary 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. The Board of Directors
recommends that the Existing Certificate be so amended by deleting Article VI,
Section 6.05 in its entirety and inserting a (re-numbered) Article V as follows:
ARTICLE V
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.
Effects of the Amendment. The DGCL permits a Delaware corporation to
include in its certificate of incorporation a provision that eliminates a
director's personal liability to the Company or its stockholders (but not as to
other persons such as creditors) for monetary damage for certain breaches of
fiduciary duty. These provisions are consistent with a provision already
contained in the Existing Certificate (see Article VI, Section 6.05). Under the
Amendment, however, 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 would be limited or eliminated to the
fullest extent permitted by the DGCL, without any additional action by the
Company or its stockholders.
The Company believes that this Amendment (and its predecessor provision
in the Existing Certificate) enables directors and officers of the Company to
take action on the Company's behalf without undue concern for personal liability
and loss. Investigations, claims, actions, suits and proceedings (including
stockholder derivative actions) seeking to impose liability on directors of
publicly held corporations have become increasingly common. Such proceedings are
extremely expensive, whatever their eventual outcome. Under both the Amendment
and the Existing Certificate, the Company's directors will not be liable for
monetary damages even if they fail, through negligence or gross negligence, to
satisfy their duty of care (which requires directors to exercise their informed
business judgment in discharging their duties). The Amendment does not affect
the right of stockholders to pursue equitable remedies, such as an action to
enjoin or rescind a transaction involving a breach of a director's duty of care
(although such remedies may not always be available), and the provision in no
way would affect a director's liability under the Federal securities laws.
The Company has not received notice of any proceeding to which the
proposed Amendment might apply in a manner that is different from the
application of Article VI, Section 6.05 of the Existing Certificate. The
Amendment is not being proposed in response to any specific resignation, threat
of resignation or refusal to serve by or of any director or potential director.
Advantages and Disadvantages of the Amendment. The Board of Directors
believes that the proposed Amendment is in the best interests of the Company and
its stockholders because it should protect the Company's ability to attract and
retain qualified directors. Stockholders should note that, because the Company's
directors may benefit from the added protection the Amendment provides, the
directors have a personal interest in its adoption. The Company believes,
however, that the diligence exercised by directors derives primarily from their
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desire to act in the best interests of the Company and the stockholders and not
from a fear of monetary damage awards. Consequently, the Board of Directors
believes that the level of scrutiny and care exercised by directors will not be
lessened by the adoption of the Amendment.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" PROPOSAL 2-A.
PROPOSAL 2-B -- AMENDMENT TO CERTIFICATE OF INCORPORATION
TO PROVIDE FOR INDEMNIFICATION OF DIRECTORS AND OFFICERS
Summary of the Amendment. The Board of Directors unanimously recommends
that the stockholders approve a proposal to amend the Existing Certificate to
require 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. The Board of Directors recommends that the
Existing Certificate be so amended by inserting a (re-numbered) Article VI as
follows:
ARTICLE VI
(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.
(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
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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.
Effects of the Amendment. This Amendment would require 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. This
Amendment also would permit the Company 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 such person is fairly and
reasonably entitled to indemnification. While the Existing Certificate contains
no provision regarding the indemnification of such persons, the Company's Bylaws
contain a provision nearly identical to this Amendment. Section 145 of the DGCL
specifically allows a Delaware corporation to afford its directors and officers
the protection contained in this Amendment. The Amendment would extend the
rights to indemnification and advancement of expenses beyond the minimum
standards under the DGCL for permissive indemnification by mandating
indemnification in circumstances where DGCL Section 245 makes such
indemnification optional for Delaware corporation on a case-by-case basis.
Advantages and Disadvantages of the Amendment. The Board of Directors
recommends this proposal because of the increasing hazard of litigation and its
related expenses directed at corporate directors and the effect this hazard
could have on the Company's ability to continue to attract and retain qualified
directors in light of these circumstances. Although none of the Company's
current directors have indicated that they will no longer serve absent changes
to the Existing Certificate provisions on indemnification, the Company is
concerned that it may encounter difficulty in attracting qualified individuals
to serve as directors in the future. In order to ensure that the Company will be
able to attract and retain experienced individuals to serve as directors, and as
a matter of fairness, the Board of Directors believes that the Company should
provide the maximum possible protection to its directors consistent with
applicable law.
The Board of Directors acknowledges that current and future directors
could benefit from the approval of the foregoing amendment and, in this regard,
the directors may be considered to have a conflict of interest and have a
personal interest in approval of the amendment. Nevertheless, the Board of
Directors believes that approval of the amended indemnification provisions is in
the best interests of the Company and its stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" PROPOSAL 2-B.
PROPOSAL 2-C -- AMENDMENT TO CERTIFICATE OF INCORPORATION
TO ELIMINATE STOCKHOLDER ACTION BY WRITTEN CONSENT
Summary of the Amendment. The Board of Directors unanimously recommends
that the stockholders approve a proposal to amend the Existing Certificate to
eliminate the ability of stockholders to act outside of a duly called meeting of
stockholders. The Board of Directors recommends that the Existing Certificate be
so amended by inserting a new (re-numbered) Article VII as follows:
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<PAGE> 29
ARTICLE VII
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.
Effects of the Amendment. Under DGCL, unless otherwise provided in a
Delaware corporation's certificate of incorporation, any action required or
permitted to be taken by stockholders of a corporation may be taken without a
meeting and without a stockholder vote if a written consent setting forth the
action to be taken is signed by the holders of shares of outstanding stock
having the requisite number of votes that would be necessary to authorize such
action at a meeting of stockholders and is delivered in accordance with the
procedures set forth under the DGCL. The Existing Certificate is silent on the
matter of stockholder action by written consent and, therefore, Delaware law
would permit a majority of the stockholders to take such action. The Amendment
would have the effect of eliminating action by stockholders by written consent.
Advantages and Disadvantages of the Amendment. The Company believes
that the Amendment would give all stockholders the opportunity to have their
views taken into account and thereby prevent a faction of stockholders that
acquires a majority of voting power from using a written consent to take action
other than at a meeting of stockholders. The Company believes that the Amendment
is desirable because it preserves the opportunity for a greater number of
stockholders to be heard before any stockholder action is taken. The Board of
Directors believes that the use of a less-than-unanimous consent procedure in
lieu of a meeting and vote of stockholders is inappropriate for a publicly-owned
company.
The effect of the proposed Amendment, in conjunction with certain other
proposed amendments, may be to lengthen the term of incumbent management, even
when the holders having a majority of the voting power of the Company desire to
replace incumbent management. The proposed amendment could delay the ability of
a stockholder to have the stockholders vote on proposals not supported by the
Board of Directors. The probable delay could deter potential acquirers from
proposing transactions which stockholders of the Company may favor and which
might have resulted in stockholders being offered a premium for their shares.
See also "Anti-Takeover Effects of the Proposals" below.
Taking all of these factors into consideration, however, the Board of
Directors believes that this Amendment will increase the likelihood that all
stockholders will be treated equally and fairly when stockholder action is taken
and should enhance the ability of the Company and its stockholders to carefully
consider stockholder proposals.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" PROPOSAL 2-C.
PROPOSAL 2-D -- AMENDMENT TO CERTIFICATE OF INCORPORATION
TO PROVIDE FOR STAGGERED TERMS FOR DIRECTORS
Summary of the Amendment. The Board of Directors unanimously recommends
that the stockholders approve a proposal that would amend the Existing
Certificate to provide for a classified Board of Directors with "staggered"
terms, whereby approximately one-third of the Board of Directors would be up for
election in any given year. The Board of Directors recommends that the Existing
Certificate be so amended by inserting the following paragraphs as (re-numbered)
Article IX (a), (b) and (e) and Article VIII (d), respectively:
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 by 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 Class II directors
of the Corporation serving on the date on which this Certificate of
Incorporation first becomes effective (the "Effective Date") shall expire at the
annual meeting of stockholders first occurring following the Effective Date; the
terms of the Class III directors of the Corporation serving on the Effective
Date shall expire at the next annual meeting of stockholders following such
first annual meeting; and the terms of the Class I directors of the Corporation
serving on the Effective Date shall expire at the next annual meeting of
stockholders following such second annual meeting. At each succeeding annual
meeting of stockholders, successors to the class of directors whose term expires
at such annual meeting shall be elected for a term of three years and shall
serve until their successors are elected and qualified, or until their earlier
resignation, removal or death. 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.
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(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.
(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 VIII
(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.
Effects of the Amendment. The Company's Bylaws currently contain
provisions nearly identical to those in this Proposal 2-D, therefore no
immediate change in the structure of the Company's Board of Directors would
result from the approval of this Proposal 2-D. This Amendment also would fix the
number of directors at no less than 9 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. Under either the current
Bylaws or the Amendment, at least two annual meetings of stockholders would be
necessary to change a majority of the directors, therefore no change would be
effected in this regard under the Amendment. Section 141(d) of the DGCL allows,
but does not require, a Delaware corporation such as the Company to have a
staggered board of directors. Under the DGCL, the number of directors can also
be fixed by the certificate of incorporation. If the certificate of
incorporation does not fix the number of directors, then the number of directors
is established by the bylaws.
Advantages and Disadvantages of the Amendment. The primary advantage of
moving the classified board provision and the provision pertaining to the number
of directors from the Bylaws to the Proposed Restated Certificate would be to
make their amendment or repeal more difficult under the potentially coercive
circumstances associated with an unsolicited takeover bid. A classified board of
directors has the effect of making it more difficult for a large stockholder to
abruptly change the entire board of directors without the approval or
cooperation of incumbent directors. However, because staggered board provisions
affect every election of directors and are not
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<PAGE> 31
triggered by the occurrence of a particular event such as an unsolicited
takeover bid, a classified board of directors also makes it more difficult for
stockholders to change a majority of directors even if a reason for such a
change might be stockholder dissatisfaction with the performance of incumbent
directors. See also "Anti-Takeover Effects of the Proposals."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" PROPOSAL 2-D.
PROPOSAL 2-E -- AMENDMENT TO CERTIFICATE OF INCORPORATION
REGARDING VACANCIES ON THE BOARD OF DIRECTORS
AND THE REMOVAL OF DIRECTORS
Summary of the Amendment. The Board of Directors unanimously recommends
that the stockholders approve a proposal that would amend the Existing
Certificate to provide that: (1) 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; and (2) 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. The Board of Directors
recommends that the Existing Certificate be so amended by inserting the
following paragraphs as (re-numbered) Article IX:
ARTICLE IX
(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 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 from office only for cause (as
hereinafter defined) and only by 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 or represented at a stockholder
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.
Effects of the Amendments:
Vacancies on the Board of Directors. Under this Amendment, only the
remaining directors, and not the stockholders, would have the ability to fill a
vacancy on the Board of Directors. This provision, like the removal provision
described above, makes the rapid acquisition of control of the Board of
Directors more difficult and less likely. Under Section 223 of the DGCL, unless
otherwise provided in the certificate of incorporation or bylaws, vacancies
would have to be filled by a majority of the elected directors in office. This
Amendment, specifically permitted by DGCL Section 223, would allow a majority of
the remaining directors, even if not constituting a quorum, to fill a vacancy.
Removal of Directors. The Company's Bylaws currently contain a
provision consistent with this Amendment. Under the Bylaws and this Amendment, a
director would be removable only for cause by a "super-majority" vote of
stockholders. The Existing Certificate does not contain a procedure for the
removal of directors. Absent any provision in the Existing Certificate or the
Bylaws, the DGCL provides that directors may be removed, with or without cause,
by the holders of a majority of shares entitled to vote at the election of
directors. The effect of the Amendment and the current Bylaw provision would be
to preclude large stockholders from removing
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incumbent directors and simultaneously gaining control of the Board of Directors
by filling vacancies with their own nominees.
Advantages and Disadvantages of the Amendments. The Board of Directors
believes that the threat of imminent removal of the Company's management in a
takeover scenario through a change in the composition of the Board of Directors
could severely curtail the Company's ability to negotiate effectively with a
would-be acquirer. However, the Board of Directors recognizes that this
Amendment could increase the likelihood that incumbent members of management
will retain their positions or lengthen their tenure. See also "Anti-Takeover
Effects of the Proposals."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" PROPOSAL 2-E.
PROPOSAL 2-F -- AMENDMENT TO CERTIFICATE OF INCORPORATION TO
REQUIRE A SUPER-MAJORITY VOTE BY STOCKHOLDERS TO
AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION
Summary of the Amendment. The Board of Directors unanimously recommends
that the stockholders approve a proposal that would amend the Existing
Certificate to 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
Proposed 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 DGCL; (3) the elimination of
stockholder action outside of meetings; (4) provisions in the Proposed 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 Proposed Restated Certificate. The
Board of Directors recommends that the Existing Certificate be so amended by
inserting a (re-numbered) Article X as follows:
ARTICLE X
(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 stockholder
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 vote 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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Effects of the Amendment. The Existing Certificate contains no
provision with respect to the amendment of the certificate of incorporation by
the stockholders of the Company. 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 Existing Certificate.
In recognition of the importance and significance of changing the
Company's most fundamental governance document, this Amendment would require a
vote of 80% of the voting power of all of the stock of the Company entitled to
vote, rather than a simple majority, to amend, alter or repeal any of the
articles of the Proposed Restated Certificate described in paragraph (a) of the
Amendment.
Advantages and Disadvantages of the Amendment. The "super-majority"
requirement contained in this Amendment is designed to prevent a simple majority
of the stockholders from defeating the purposes served by all of these
Amendments, including those which provide more effective resistance against and
more time to consider the merits of any sudden or surprise attempt to take
control of the Company. Therefore, the Board of Directors believes that the
Amendment will enable the Board of Directors and the Company to more effectively
negotiate with would-be acquirers.
This Amendment may have the potential effect of limiting stockholder
flexibility to amend the Company's Certificate of Incorporation. However, the
Company believes that this Amendment will make it more difficult for persons
controlling less than 80% of the voting power to amend the Company's Certificate
of Incorporation to the potential detriment of minority stockholders or the
Company itself. See also "Anti-Takeover Effects of the Proposals."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" PROPOSAL 2-F.
PROPOSAL 2-G -- RESTATEMENT OF AND MISCELLANEOUS AMENDMENTS TO
THE COMPANY'S CERTIFICATE OF INCORPORATION
Summary of the Amendments.
1. Changing the "Purpose" of the Company, as Recited in the Company's
Certificate of Incorporation. The Board of Directors unanimously recommends that
the stockholders approve a proposal that would amend the Existing Certificate to
eliminate references to a narrow and specific "purpose" of the Company currently
found in the Existing Certificate. The Board of Directors recommends that the
Existing Certificate be so amended by deleting Article III in its entirety and
replacing it as follows:
ARTICLE III
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.
Effects of the Amendment. This Amendment 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, contains a similarly broad statement of purpose
but goes on to enumerate certain other narrow and specific purposes which the
Board of Directors now proposes to eliminate as unnecessarily restrictive and
functionally obsolete. The Company does not expect that approval of this
Amendment will or could result in a change to the business of the Company. The
Amendment is intended to conform Article III to the updated language commonly
used by Delaware corporations when describing their corporate purpose.
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2. Summary of the Amendment Deleting Certain Obsolete Provisions. The
Board of Directors also unanimously recommends that stockholders approve a
proposal that would amend the Existing Certificate to delete the following
obsolete and unnecessary provisions in the Company's Existing Certificate: (1)
Article V, which references the incorporators of the Company; (2) Article 6,
Section 6.04, which reserves certain powers to the Company with respect to the
amendment of the Existing Certificate, but which has been superseded by
amendments to the Existing Certificate; and (3) Article VII, stating that the
Company is to be of "perpetual duration," a superfluous and unnecessary
provision under Delaware law.
Effects of the Amendment. The Board of Directors does not consider any
of these deletions to be a material change to the Existing Certificate.
Moreover, there are no anticipated effects to the Company's business, operations
or prospects that would result. Accordingly, the Board of Directors recommends
that the Existing Certificate be so amended by deleting each of these three
provisions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" PROPOSAL 2-G.
ANTI-TAKEOVER EFFECTS OF PROPOSALS 2-A THROUGH 2-G.
Certain of the Amendments 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 overall effect of the Amendments described in Proposals 2-C through 2-F may
be to discourage, render more difficult 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. Proposals 2-C through 2-F could increase the
likelihood that incumbent directors and management will retain their positions.
The Amendment contained in Proposal 2-D would provide 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. Accordingly, two annual meetings would
be required to replace a majority of the incumbent directors, thereby making it
more difficult for a person seeking control of the Board of Directors to quickly
gain such control.
The Amendment contained in Proposal 2-E, like the one in Proposal 2-D,
will make it more difficult for insurgent factions or would-be acquirers to
rapidly gain control of the Board of Director. Thus, Proposal 2-E may make the
Board of Directors and the Company's management more likely to retain their
respective positions.
Proposal 2-F, which would require an 80% "super-majority" stockholder
vote, would permit a minority of the stockholders of the Company to block an
attempt to repeal or amend certain provisions of the Company's Certificate of
Incorporation that provide for a classified Board and eliminate stockholder
action by written consent, even if a majority of the stockholders were to vote
in favor of such repeal or amendment. Members of the Company's management
currently control greater than 20% of the outstanding shares of Common Stock
and, therefore, could constitute such a minority. Consequently, it appears
unlikely, absent a change in the make-up of the stockholder base, that
stockholders would be able to effect a change in the provisions of the Proposed
Restated Certificate pertaining to the classified board and stockholder action
by written consent without the cooperation of the Board of Directors and
management.
Proposals 2-C through 2-F were not in direct response to any offer made
to management or the Board of Directors, and management continuity and stability
have 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
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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 Amendments.
Management does not presently intend to propose other anti-takeover measures in
future proxy solicitations.
The Company's Existing Anti-Takeover Provisions. 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 acquirer's purchase of a certain
percentage of the outstanding shares of Common Stock. As required under the
DGCL, the stockholders of the Company approved a classified board provision
contained in the Company's Bylaws. Stockholder approval was not required with
respect to the adoption of the other provisions of the Bylaws outlined above or
with respect to the poison pill and was therefore not obtained. The terms of the
poison pill do not provide for its repeal by the stockholders. Neither the
Company's Existing Certificate nor the Company's Bylaws provides for cumulative
voting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THE ADOPTION OF EACH OF PROPOSALS 2-A THROUGH 2-G TO AMEND AND RESTATE THE
COMPANY'S CERTIFICATE OF INCORPORATION.
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, unless otherwise provided in the Company's Certificate of Incorporation
or Bylaws. Abstentions will in effect count as votes against approval of actions
to be taken at the Annual Meeting other than election of directors. Broker
non-votes will not have an effect on the outcome of the election of directors or
approval of any other action the Company is aware is to be taken at the Annual
Meeting.
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MISCELLANEOUS INFORMATION
STOCKHOLDER PROPOSALS
Any proposals by stockholders intended to be presented at the Company's
2001 annual meeting of stockholders, if to be included in the Company's proxy
materials for that annual meeting, must be received in written form at the
Company's executive offices on or before December 16, 2000, and must otherwise
be in compliance with Rule 14a-8 under the Exchange Act and other applicable
legal requirements.
NOMINATIONS FOR DIRECTORS AND OTHER BUSINESS
The Company's Bylaws require stockholders to follow certain procedures
in order to submit nominations of persons for election to the Board of Directors
or to purpose other business to be acted upon at the Company's 2001 annual
meeting of stockholders. The Company's Nominating Committee will consider
nominations of persons for election to the Board of Directors that are timely
and otherwise submitted in accordance with the following. The stockholder must
give notice in writing of the nomination or other business to the Corporate
Secretary of the Company at its office at 68149 Highway 231 South, P.O. Box
1000, Blountsville, Alabama 35031, not later than the close of business on
February 10, 2001, nor earlier than January 11, 2001. If the date of the annual
meeting is more than 30 days before or more than 60 days after May 11, 2001,
however, notice to be timely must be delivered not earlier than the close of
business on the 120th day prior to such annual meeting and not later than the
close of business on the later of the 90th day prior to the annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made by the Company. The stockholder must be a stockholder of
record at the time the notice is given and must be entitled to vote at such
meeting. The stockholder's notice must set forth (a) as to each nominee all
information relating to that person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the Exchange
Act and Rule 14a-4 thereunder (including the nominee's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected), (b) as to any other business that the stockholder proposes to bring
before the annual meeting, a brief description of the business desired to be
brought before the annual meeting, the reasons for conducting such business at
the annual meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the nomination or
proposal is made, and (c) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination is made, the name and
address of the stockholder, as they appear on the Company's books, and of such
beneficial owner, and the number and class of shares of the Company owned of
record and beneficially by such stockholder and such beneficial owner.
The individuals named as proxies on the proxy card for the Company's
2001 annual meeting of stockholders will be entitled to exercise their
discretionary authority in voting proxies on any stockholder proposal that is
not included in the Company's proxy statement for the 2001 annual meeting,
unless the Company receives notice of the matter(s) to be proposed no later than
February 10, 2001. Even if proper notice is received within such time period,
the individuals named as proxies on the proxy card for the meeting may
nevertheless exercise their discretionary authority with respect to such
matter(s) by advising stockholders of the proposal(s) and how the proxies intend
to exercise their discretion to vote on the matter(s), unless the stockholder
making the proposal(s) complies with Rule 14a-4(c)(2) under the Exchange Act.
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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.
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.
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(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.
(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.
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(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.
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,
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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.
(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.
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(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 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 by 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 Class II directors
of the Corporation serving on the date on which this Certificate of
Incorporation first becomes effective (the "Effective Date") shall expire at
the annual meeting of stockholders first occurring following the Effective Date;
the terms of the Class III directors of the Corporation serving on the Effective
Date shall expire at the next annual meeting of stockholders following such
first annual meeting; and the terms of the Class I directors of the Corporation
serving on the Effective Date shall expire at the next annual meeting of
stockholders following such second annual meeting. At each succeeding annual
meeting of stockholders, successors to the class of directors whose term expires
such annual meeting shall be elected for a term of three years and shall serve
until their successors are elected and qualified, or until their earlier
resignation, removal or death. 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 of 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
A-5
<PAGE> 42
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
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 from office only for cause (as herein-
after defined) and only by 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 or represented at a stockholder 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 class 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 stockholder 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 vote 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.
A-6
<PAGE> 43
PROXY CARD
COMMUNITY BANCSHARES, INC.
PROXY FOR 2000 ANNUAL MEETING OF STOCKHOLDERS
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Bishop K. Walker, Jr. and Michael A.
Bean, and either of them, as proxies, with full power of substitution and
re-substitution, 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 10:00 a.m., Central Time, on
Thursday, May 11, 2000, in the Playhouse at the Von Braun Civic Center, 700
Monroe Street, Huntsville, Alabama, 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 I DIRECTORS OF THE NOMINEES NAMED ON THIS
CARD, (2) FOR THE APPROVAL AND ADOPTION OF EACH PROPOSED AMENDMENT AND
RESTATEMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION, AND (3) IN ACCORDANCE
WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS ON ANY OTHER MATTERS THAT MAY
PROPERLY COME BEFORE THE ANNUAL MEETING.
<TABLE>
<S> <C> <C>
1. Election of Class I Directors Nominees: Roy B. Jackson, Hodge Patterson, III and
Robert O. Summerford
</TABLE>
[] FOR all nominees listed (except as marked to the contrary below)
[] WITHHOLD AUTHORITY to vote for all nominees listed
[] 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. Amendment and Restatement of the Company's Certificate of Incorporation.
2-A. Proposal to amend the Company's Certificate of Incorporation to limit the
liability of the Company's directors.
[] FOR
[] AGAINST
[] ABSTAIN
2-B. Proposal to amend the Company's Certificate of Incorporation to enhance the
Company's indemnification of directors and officers.
[] FOR
[] AGAINST
[] ABSTAIN
2-C. Proposal to amend the Company's Certificate of Incorporation to eliminate
stockholder action by written consent.
[] FOR
[] AGAINST
[] ABSTAIN
(Continued on reverse side)
<PAGE> 44
2-D. Proposal to amend the Company's Certificate of Incorporation to provide
for staggered terms for directors.
[] FOR
[] AGAINST
[] ABSTAIN
2-E. Proposal to amend the Company's Certificate of Incorporation regarding
vacancies on the Board of Directors and the removal of directors.
[] FOR
[] AGAINST
[] ABSTAIN
2-F. Proposal to amend the Company's Certificate of Incorporation to require a
super-majority vote by stockholders to amend the Company's Certificate of
Incorporation.
[] FOR
[] AGAINST
[] ABSTAIN
2-G. Proposal to restate and make miscellaneous amendments to the Company's
Certificate of Incorporation.
[] FOR
[] AGAINST
[] ABSTAIN
Dated:_______________________________, 2000
Signature:_________________________________
Signature:_________________________________
(if held jointly)
IMPORTANT: Please sign exactly as your name or names appear on this proxy and
mail promptly in the enclosed envelope. If you sign as an agent or in any other
capacity, please state the capacity in which you sign.
