<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 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
COMMUNITY FINANCIAL GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
COMMUNITY FINANCIAL GROUP, INC.
- --------------------------------------------------------------------------------
(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)(1) 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 FINANCIAL GROUP, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 13, 1998
Notice is hereby given that the Annual Meeting of Shareholders of Community
Financial Group, Inc. ("the Company") will be held May 13, 1998 at 10:00 a.m.
(Local Time), at the Company's main office in the L & C Tower, 3rd Floor, 401
Church Street, Nashville, Tennessee 37219. The meeting will be held for the
following reasons:
1. To elect nine (9) Directors as follows: (a) three (3) Directors to
serve a three-year term, three (3) Directors to serve a two-year term
and three (3) Directors to serve a one-year term, or until their
successors are elected and qualified, or (b) if Proposal 2 is not
approved, nine (9) Directors to serve a one-year term or until their
successors are elected and qualified; and
2. To approve the amendment of the Charter to provide for the
classification of the Board of Directors and related matters; and
3. To transact such other business as may properly be brought before the
Annual Meeting, or any adjournment thereof.
The Board of Directors has fixed the close of business on March 18, 1998, as the
record date for determining those shareholders who will be entitled to notice of
and to vote at the meeting and any adjournments thereof.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO COMPLETE, DATE,
SIGN, AND RETURN THE ENCLOSED PROXY. YOUR PROXY MAY BE REVOKED AT ANY TIME PRIOR
TO THE TIME IT IS VOTED AS PROVIDED IN THE PROXY STATEMENT.
Your attention is directed to the Proxy Statement accompanying this notice for a
more complete statement regarding matters to be acted upon at the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
-------------------------------------
Joan B. Marshall, Corporate Secretary
Nashville, Tennessee
March 27, 1998
1
<PAGE> 3
PROXY STATEMENT
FOR THE
ANNUAL MEETING OF SHAREHOLDERS
OF
COMMUNITY FINANCIAL GROUP, INC.
L&C TOWER, 401 CHURCH STREET, NASHVILLE, TENNESSEE 37219
This proxy statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Community Financial Group, Inc. ("the Company") for
use at the Annual Meeting of Shareholders of the Company, to be held at the
Company's main office on the Third Floor, L & C Tower, 401 Church Street,
Nashville, Tennessee, at 10:00 a.m. (Local Time), on May 13, 1998, and at all
adjournments thereof. The presence in person or by proxy of holders of a
majority of the outstanding shares of the common stock entitled to vote at the
Annual Meeting constitutes a quorum for the purpose of transacting business at
the meeting.
This Proxy Statement and the Annual Report of the Company for the Fiscal year
ended December 31, 1997 were first mailed to shareholders on or about March 27,
1998, to shareholders of record as of March 18, 1998.
PURPOSE OF MEETING
At the Annual Meeting, the shareholders will be asked to:
1. To elect nine (9) Directors as follows: (a) three (3) Directors to
serve a three-year term, three (3) Directors to serve a two-year term
and three (3) Directors to serve a one-year term, or until their
successors are elected and qualified, or (b) if Proposal 2 is not
approved, nine (9) Directors to serve a one-year term or until their
successors are elected and qualified; and
2. To approve the amendment of the Charter to provide for the
classification of the Board of Directors and related matters; and
3. To transact such other business as may properly be brought before the
Annual Meeting or any adjournment thereof.
GENERAL PROXY STATEMENT INFORMATION
OUTSTANDING SECURITIES AND VOTING RIGHTS
There were issued and outstanding __________shares of the Company's common stock
on March 18, 1998, which has been fixed as the record date for purposes of
determining shareholders entitled to notice of, and to vote at, the Annual
Meeting. Only holders of the Company's common stock will be entitled to vote,
and may vote, in person or by proxy, one vote for each share of common stock
held of record on the books of the Company as of the record date, on any matter
submitted to a vote of the shareholders. There is no provision for cumulative
voting. If a properly executed proxy is returned and the shareholder has
abstained from voting on any matter, the shares represented by the proxy will be
considered present at the meeting for purposes of determining a quorum, but will
not be considered to have been voted in favor of such matters. Any broker
non-votes will be considered present at the meeting for purposes of determining
a quorum, but will not be considered to be represented at the meeting for
calculating the vote on such matters.
2
<PAGE> 4
REVOCABILITY OF PROXIES
A proxy for use at the Annual Meeting is enclosed. Any shareholder who executes
and delivers such proxy has the right to revoke it at any time before it is
exercised by filing with the Corporate Secretary a written statement revoking
the proxy, or a duly executed proxy bearing a later date. In addition, the
powers of the proxy holders will be revoked if the person executing the proxy is
present at the meeting and elects to vote in person.
Subject to such revocation, all shares represented by a properly executed proxy
received in time for the Annual Meeting will be voted by the proxy holders, in
accordance with the instructions on the proxy. In the absence of contrary
instructions, the shares represented by proxy will be voted FOR the election of
directors described herein under the "Election of Directors"; "FOR" the approval
of the Charter Amendment providing for classification of the Board of Directors
and other related matters; and at their discretion on any other items as may be
properly brought before the meeting.
SOLICITATION OF PROXIES
This solicitation of proxies is being made by the Board of Directors of the
Company. The expense of preparing, printing and mailing these proxy materials
will be borne by the Company. It is contemplated that proxies will be solicited
principally through the use of mail, but officers, directors and employees of
the Company may solicit proxies personally or by telephone, without receiving
special compensation. Although there is no formal agreement to do so, The
Company may reimburse banks, brokerage houses, depositories and custodians,
nominees and fiduciaries for mailing proxy materials to their principals.
STOCK OWNERSHIP
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AS OF JANUARY 31, 1998
The following table sets forth information as to the beneficial ownership of
each person known to the Company to own more than 5% of the outstanding common
stock as of January 31, 1998. The Company currently has warrants outstanding
that are presently exercisable and that expire on 12/31/98. The tables do not
reflect any shares that could be purchased upon the exercise of such warrants.
<TABLE>
<CAPTION>
Name and Address of Amount/Nature of
Beneficial Owner Beneficial Owner % of Class*
---------------- ---------------- -----------
<S> <C> <C>
Leon Moore 255,512 11.546%
2229 Nashville Pike Individual, Trust
Gallatin, TN 37066 and Corporate Ownership
</TABLE>
*Percentage based on 2,212,915 shares outstanding as of January 31, 1998.
Includes 228,804 shares held directly by Mr. Moore, 8,617 shares held by The
Leon Moore Family Trust of which Mr. Moore serves as co-trustee, and 18,091
shares owned a corporation of which Mr. Moore is a shareholder, director, and
chief executive officer.
3
<PAGE> 5
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS AS OF JANUARY 31, 1998
The following table reflects shares of Common Stock beneficially owned (or
deemed to be beneficially owned pursuant to the rules of the Securities and
Exchange Commission) by each current director, executive officers included in
the Summary Compensation Table, and directors and executive officers as a group.
Percentage based on 2,212,915 shares outstanding at January 31, 1998, increased
by the 69,300 shares subject to employee stock options referred to herein.
<TABLE>
<CAPTION>
Name of Amount/Nature of %
Beneficial Owner Beneficial Owner of Class Principal Occupation
---------------- ---------------- -------- --------------------
<S> <C> <C> <C>
J. B. Baker 32,537 1.426% President & CEO
Volunteer Express, Inc.
Anne J. Cheatham 12,365(1) .542% Senior Vice President
Community Financial Group, Inc.
Julian C. Cornett 29,399(1) 1.288% Executive Vice President
Community Financial Group, Inc.
Jo D. Federspiel 7.823 .343% President
Deason International, Inc.
Richard H. Fulton 39,175(2) 1.717% Chairman
Fulton,Moore, Fosbinder & Palk
Mack S. Linebaugh, Jr. 59,343(1) 2.600% Chairman, President & CEO
Community Financial Group,Inc.
Leon Moore 255,512(3) 11.196% President & CEO
ShoLodge, Inc.
Perry W. Moskovitz 26,921 1.180% Senior Vice President
Sedgwick, Inc.
C. Norris Nielsen 2,849 .125% Partner
MacNiel Advisors
David M. Resha(4) 300 .013% Chief Operating Officer
Sirrom Capital Corporation
G. Edgar Thornton 31,810 1.393% President
Thornton & Harwell Agency, Inc.
All Directors and Executive 505,100(1) 22.132%
Officers as a Group (13 persons)
</TABLE>
(1) Includes the following shares subject to exercisable stock options: Ms.
Cheatham, 500 shares; Mr. Cornett, 23,000 shares; Mr. Linebaugh, 45,200
shares; and all other executive officers, 600 shares. Also includes
interests in shares held in Associates Stock Purchase Plan and the
Retirement Savings Plan (401k).
(2) Includes 2,326 shares held by Mr. Fulton's wife directly with respect to
which Mr. Fulton disclaims beneficial ownership.
4
<PAGE> 6
(3) Includes 18,091 shares owned by ShoLodge, Inc. of which Mr. Moore is an
officer and director and 8,617 shares held in the Leon Moore Family Trust.
(4) Mr. Resha was elected as a Director effective February 10, 1998.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors is herein nominating nine persons to be elected as
Directors of the Company by shareholders at the Annual Meeting. If Proposal 2 is
approved, the Directors will be appointed to the classes and serve for the terms
specified below. If Proposal 2 is not approved, the Directors will serve until
the 1999 Annual Meeting or until their successors are elected and qualified. All
of the nominees are presently directors of the Company.
At the meeting each share of common stock shall have one (1) vote which may be
cast by the owner of record or by his authorized representative. The candidates
receiving the largest number of votes shall be elected.
In the election of directors, a shareholder may withhold authority for the proxy
holder(s) to vote for all or any one of the nominees identified herein by so
indicating on the enclosed proxy. Unless authority to vote for the nominees is
so withheld, the proxy holders will vote the proxies received by them for the
election of nominations identified herein. If any nominee identified herein
should be unable or declines to serve, which is not now anticipated, the Board
of Directors shall have the discretionary authority to name a substitute who
shall be designated to fill the vacancy.
DIRECTORS AND NOMINEES
The following information regarding the nominees for election as Directors of
the Company is provided below: class, name, age, and the principal occupation
during the past five years.
Class I: Directors serving for a term expiring at the 1999 Annual Meeting:
L. Leon Moore
Mr. Moore, 57, is President, Chief Executive Officer and a Director of ShoLodge,
Inc., a corporation engaged in the ownership, management and franchising of
lodging facilities. Mr. Moore was elected a director of the Company in May, 1996
having served as a director of The Bank of Nashville since July 18, 1989.
C. Norris Nielsen
Mr. Nielsen, 59, is Partner of MacNiel Advisors which serves as the general
partner of the Iroquois Fund and the Saint Andrews Fund, two privately held
equity investment partnerships. Mr. Nielsen was elected a director of the
Company in May, 1996 having served as a director of The Bank of Nashville since
June 27, 1995.
5
<PAGE> 7
G. Edgar Thornton
Mr. Thornton, 73, is President, Thornton & Harwell Agency, Inc., a general
insurance agency specializing in property/casualty insurance and contract bonds.
Mr. Thornton also serves as President, Smyrna Air Center. Mr. Thornton was
elected a director of the Company in May, 1996 having served as a director of
The Bank of Nashville since May 21, 1991.
Class II: Directors serving for a term expiring at the 2000 Annual Meeting:
Jo D. Federspiel
Ms. Federspiel, 63, is President of Deason International, Inc., a company which
links U.S. companies with business expansion opportunities in the international
market. Ms. Federspiel was elected a director of the Company in May, 1996 having
served as a director of The Bank of Nashville since September 21, 1993.
Richard H. Fulton
Mr. Fulton, 71, is Chairman of Fulton, Moore, Fosbinder & Palk, formerly The
Fulton Group, Inc., a consulting firm which enables the private and public
sectors to form partnerships providing public service more efficiently and
economically. Mr. Fulton was elected a director of the Company in May, 1996
having served as a director of The Bank of Nashville since July 18, 1989. He
served as Chairman of the Board of The Bank of Nashville from 1989 through 1992
and Chairman Emeritus from 1992 through 1994.
Perry W. Moskovitz
Mr. Moskovitz, 63, is Senior Vice President of Sedgwick, Inc., an insurance
brokerage firm. Prior to this affiliation, Mr. Moskovitz served as Vice
President of Marsh & McLennan, Incorporated. He also serves as President of
Perry W. Moskovitz Company, Incorporated, an investment and development company.
Mr. Moskovitz was elected a director of the Company in May, 1996 having served
as a director of The Bank of Nashville since July 18, 1989.
Class III: Directors serving for a term expiring at the 2001 Annual Meeting:
J. B. Baker
Mr. Baker, 50, is President and Chief Executive Officer of Volunteer Express,
Inc. and co-owner of Five Star Express, Inc. Mr. Baker was elected a director of
the Company in May, 1996 having served as a director of The Bank of Nashville
since July 12, 1994.
Mack S. Linebaugh, Jr.
Mr. Linebaugh, 59, is Chairman, President and Chief Executive Officer of
Community Financial Group, Inc. and The Bank of Nashville. Mr. Linebaugh was
elected a director of the Company in May, 1996 having served as a director of
The Bank of Nashville since September 8, 1992.
David M. Resha
Mr. Resha, 51, is Chief Operating Officer of Sirrom Capital Corporation, a
speciality finance company which offers financing and management services to
small, growing companies. Prior to joining Sirrom Capital Corporation in 1995,
he served as Senior Vice President of First Union National Bank of Tennessee,
Mr. Resha was elected a director effective February 10, 1998.
6
<PAGE> 8
BOARD ATTENDANCE AND COMPENSATION
The Company was chartered in December, 1995 and became the holding company of
The Bank of Nashville (the "Bank") on May 1, 1996. All members of the Company's
Board of Directors are also members of the Board of Directors of the Bank. The
Company's By-Laws provide for an Audit Committee and other committees as the
Board of Directors may appoint from time to time. At the present time, the
Company has no other committees. The Bank has four (4) standing committees: the
Compensation Committee, the Finance Committee, the Marketing Committee and the
Trust Committee. In 1997, the Company's Board of Directors met 11 times with 10
of those meetings being joint meetings with the Bank's Board of Directors.
Additionally the Bank's Board of Directors met 8 times. All incumbent Directors
attended at least 75% of the aggregate number of the meetings held by the
Company's Board of Directors and by the Bank's Board of Directors and Committees
during the period for which she/he served as a Director, except for Mr. Moore
who had other business conflicts.
In 1997, the Directors of the Company were not compensated by the Company, but
as Directors of the Bank, they were each paid an annual retainer of $2,400 as
compensation for services on the Board. Directors were also paid for attendance
at each meeting of the Board and Committees on which they serve. A meeting fee
of $400 was paid for each meeting attended. The Chairman of each Committee
received an additional $100 for each meeting chaired during the year. Members of
the Company's Board who were also employees of the Company or the Bank did not
receive any meeting or committee fees. In 1997, all fees due the Directors were
paid in the form of shares of Common Stock of the Company. The number of shares
was determined based upon the market value of the Common Stock and the
Director's attendance at Board and Committee meetings.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and greater than 10% shareholders ("Reporting
Persons") to file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission. Executive officers and
directors are required by SEC regulations to furnish the Company with copies of
all Section 16(a) forms they file. Based solely on a review of such forms
furnished to the Company and written representations from such Reporting Persons
with respect to the period from January 1, 1997 through December 31, 1997, all
filing requirements applicable to Reporting Persons have been met.
COMMITTEES OF THE BOARD OF DIRECTORS
The By-Laws of the Company provide for an Audit Committee consisting of at least
three (3) members of the Board of Directors appointed by the Board, none of whom
are active officers of the Company. The Committee is to meet once each year, or
more often if required by the Chairman of the Board or the President and shall
examine, or cause to be examined, such books, assets, and securities of the
Company as it deems necessary or proper, or as it may be directed to examine. A
record shall be kept of all such examinations, which shall be certified by the
Committee serving, and presented to the Board of Directors at its next meeting.
The Audit Committee shall state whether the Company is in a sound and solvent
condition, whether adequate internal audit controls and procedures are being
maintained, and shall recommend to the Board such changes as shall be deemed
advisable. The Audit Committee, upon its own recommendation and with the
approval of the Board of Directors, may employ a qualified firm of Certified
Public Accountants to make the examination and audit of the Company. If such a
procedure is followed, the one annual examination and the audit by such firm of
accountants and the presentation of its report to the Board of Directors, shall
be deemed sufficient to comply with the requirements of the Audit Committee. The
current members of the Company's Audit Committee are:
7
<PAGE> 9
Ms. Federspiel (Chairperson), Messrs. Moore, Moskovitz, Nielsen and Thornton.
The Audit Committee of the Company met twice in 1997.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION OF THE AFOREMENTIONED
NOMINEES AS DIRECTORS OF THE COMPANY. IT IS INTENDED THAT SHARES REPRESENTED BY
PROXIES WILL, UNLESS CONTRARY INSTRUCTIONS ARE GIVEN, BE VOTED IN FAVOR OF THEIR
ELECTION.
EXECUTIVE OFFICERS
The following information regarding each person who currently serves as an
executive officer of the Company is listed below: name, age, current position
with the Company, and principal occupations during the past five years. The
executive officers serve at the discretion of the Board of Directors in their
various capacities. Each of the executive officers also serves as an executive
officer of The Bank of Nashville.
Officer Age
------- ---
Mack S. Linebaugh, Jr. 59
Chairman of the Board, President, Chief Executive Officer, and a Director of the
Company and the Bank. Mr. Linebaugh joined the Bank on September 2, 1992,
Julian C. Cornett 53
Executive Vice President of the Company and the Bank. Mr. Cornett joined the
Bank on October 13, 1992 and is responsible for all aspects of Credit
Administration.
Anne J. Cheatham 56
Senior Vice President of the Company and the Bank. Ms. Cheatham joined the Bank
on January 3, 1989 and is responsible for Bank Administration.
Joan B. Marshall 49
Corporate Secretary and Senior Vice President of the Company and the Bank. Ms.
Marshall joined the Bank on January 17, 1989 and is responsible for maintaining
the official records of the Company and shareholder relations.
T. Wayne Hood 36
Senior Vice President and General Counsel of the Company and the Bank. Mr. Hood
joined the Bank as Vice President on March 29, 1993 and currently also serves as
Senior Trust Officer and Compliance Officer. From 1989 to 1993, Mr. Hood served
as Associate Counsel and Compliance Officer for Great Western Consumer Finance
Group.
8
<PAGE> 10
SUMMARY COMPENSATION TABLE
AS OF FISCAL YEAR END 1997
The following table sets forth, as to the Chief Executive Officer and the four
most highly compensated Executive Officers (other than the CEO) of the Company
and its subsidiary, The Bank of Nashville, whose total compensation exceeded
$100,000, and certain information regarding cash compensation received from the
Company or its subsidiary for services performed in all capacities during the
last three fiscal years. The officers were not compensated by the Company. All
compensation was paid by the Bank.
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- -----------------------
(2)
Other Restricted Securities (3)
Name and Annual Stock Underlying All Other
Principal (1) Compen- Awards Options LTIP Compen-
Position Year Salary Bonus sation ($) (#) Payouts sation
-------- ---- ------ ----- ------ --- --- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mack S. Linebaugh, Jr.* 1997 $189,000 $9,450 $7,500 -0- -0- -0- $11,479
Chairman, CEO
President/Director 1996 $189,000 $9,134 -0- -0- -0- -0- $ 6,000
1995 $183,100 $8,649 -0- -0- -0- -0- $ 5,736
Julian C. Cornett* 1997 $144,700 $7,235 $5,000 -0- -0- -0- $ 7,830
Executive Vice
President 1996 $144,700 $6,923 -0- -0- -0- -0- $ 5,841
1995 $139,525 $6,626 -0- -0- -0- -0- $ 4,986
Anne J. Cheatham 1997 $ 98,000 $4,900 $4,500 -0- -0- -0- $ 7,466
Senior Vice President
1996 $ 98,000 $4,802 -0- -0- -0- -0- $ 6,078
1995 $ 95,734 $4,672 -0- -0- -0- -0- $ 5,918
</TABLE>
* The Bank of Nashville entered into initial employment agreements with Mack
S. Linebaugh, Jr. effective September 2, 1992 and Julian C. Cornett
effective October 13, 1992. Mr. Linebaugh's agreement is for a continuously
renewing term of three years unless notice of termination is given by
either party. Effective September 2, 1997, Mr. Linebaugh's agreement
provides for compensation of $189,000 and other employee benefits as
described herein. Upon its annual renewal on October 13, 1997, Mr.
Cornett's agreement provides for compensation of $144,700 and other
employee benefits as described herein.
(1) The amounts shown in this column reflect payment under an Incentive
Performance Plan in which all employees of the Bank participate.
(2) Represents performance awards granted by the Compensation Committee of the
Board of Directors.
(3) Represents (1) the Bank's annual accrued contribution to the Retirement
Savings Plan (401k),see Plan description under Employee Benefit Plans, and
(2) includes payment by the Bank of permanent life insurance premium during
1997.
9
<PAGE> 11
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information with respect to grants of
stock options made during 1997 to each of the Named Officers: the name of such
officer; the number of options granted; the percent the grant represents of the
total options granted to all employees during 1997; the per share exercise price
of the options at grant date; and the expiration date.
<TABLE>
<CAPTION>
Number of Securities % of Total Options Exercise or
Underlying Options Granted to Employees Base Price Expiration
Name Granted in 1997 in 1997 ($/Sh) Date
---- ---------------- ------- ------- ----
<S> <C> <C> <C> <C>
Mack S. Linebaugh, Jr. 6,000 26.09% $ 11.625 4/29/07
Julian C. Cornett 5,000 21.74% $ 11.625 4/29/07
Anne J. Cheatham 2,500 10.87% $ 11.625 4/29/07
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The following table sets forth certain information with respect to options
exercised during 1997 and the value of unexercised options held by the named
executive officers of the Company at December 31, 1997.
<TABLE>
<CAPTION>
Number of Securities (1)
Underlying Unexercised Value of Unexercised
Options In the Money Options
# of Shares $ December 31, 1997(#) December 31, 1997($)
Acquired On Value --------------------------- --------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
Options
-------
<S> <C> <C> <C> <C> <C> <C>
Mack S. Linebaugh, Jr. -0- -0- 45,200 10,800 $361,050 $ 45,450
Julian C. Cornett -0- -0- 23,000 7,000 $183,125 $ 28,125
Anne J. Cheatham -0- -0- 500 2,000 $ 1,688 $ 6,750
</TABLE>
(1) Determined by calculating the difference in exercise price and market value
of common stock at fiscal year end 1997.
LONG TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
The Company made no awards during 1997 under any "Long Term Incentive Plans" as
defined in securities regulation definitions.
10
<PAGE> 12
TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
Some of the Company's executive officers and directors and certain of their
associates (immediate family members including spouses, parents, children,
siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers-
and sisters-in-law) are customers of the Company's subsidiary bank. As customers
of such bank, they have had transactions in the ordinary course of business with
the bank, including borrowings. As of December 31, 1997, there was an aggregate
of approximately $2,239,817 (9.42% of equity and 1.87% of net loans) in loans
outstanding to such persons. This aggregate comprised loans to executive
officers, directors and nominees in the amount of $1,830,099 and loans to
related parties, immediate family members, corporations or other organizations
that are associates of such persons in the amount of approximately $409,718. All
such loans were made in the ordinary course of business on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons and did not involve more
than a normal risk of collectability or present other unfavorable features at
the time such loans were made.
EMPLOYEE BENEFIT PLANS
The Company's subsidiary, The Bank of Nashville, sponsors major medical and
dental insurance plans, long and short-term disability plans, an accidental
death and dismemberment plan, a workmen's compensation plan, a term-life
insurance plan, and an employee supplemental parking program. The major medical
and dental plans are administered under provisions of a premium conversion
program as set forth in Section 125 of the Internal Revenue Code of 1986, as
amended. The Company and the Bank also sponsor a Retirement Savings Plan
[401(k)] and an Associates' Stock Purchase Plan.
RETIREMENT SAVINGS PLAN
The Bank of Nashville's Retirement Savings Plan (the "401(k) Plan") was adopted
in 1990 and amended in 1993 to reward employees (associates) for their long and
loyal service the Bank of providing them with retirement benefits. The 401(k)
Plan was adopted effective April 30, 1996 by the Company, and participation in
the 401(k) Plan is now available to all associates, including officers of the
Company and the Bank beginning the first day of the month coinciding with or
following the date of employment. As of December 31, 1997, 45 associates were
eligible and 42 were participating. All eligible associates may contribute
between 1% and 10% of their annual compensation; however, a participant's total
contribution for a calendar year may not exceed a dollar limit which is
determined by the Internal Revenue Service. For 1998, the limit is $10,000. All
associates' deferrals are fully vested. Each associate is entitled to direct the
investment of his or her contribution in one or more of five funds, one of which
invests solely in the Company's common stock.
The Board of Directors of the Bank and the Company establish the levels of
contribution each will make to the 401(k) Plan on behalf of their respective
employees. During 1997, all 401(k) Plan participants were Bank employees and the
Bank matched $1.00 for each $1.00 on the first 2% of the employee deferrals and
$.50 for each $1.00 on deferrals for the next 4% with no matching on employee
deferrals in excess of 6%. All of the Company's or Bank's contributions are made
in the form of the Company's common stock and are held in a separate investment
fund. Both the associate's and the Bank's (or Company's) contributions to the
plan are tax deferred until distributed. Associates vest 100% in Bank (or
Company) contributions after three years of service as defined in the 401(k)
Plan.
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<PAGE> 13
STOCK PURCHASE PLAN
The Community Financial Group, Inc. Associates' Stock Purchase Plan (ASPP) was
amended and restated effective May 1, 1996 to replace the ASPP previously
maintained by The Bank of Nashville. The purpose of the ASPP is to encourage
employees of the Company and its subsidiaries to identify with the success of
the Company through stock ownership. Participation is non-discretionary and
immediate for all full-time associates who work at least 20 hours per week and
five (5) calendar months per year. As of December 31, 1997, there were 47
eligible and participating associates in the ASPP. The Board approved the sale
of a maximum of 100,000 shares of the common stock of the Company through the
ASPP. The ASPP allows common stock to be sold at a discount. Until September 30,
1996, the discount was 15%. Thereafter, the ASPP provides that the discount will
be 16%, or such other percentage as may be established from time to time by the
Board. However, the ASPP provides that the stock will not be sold for less than
Par Value ($6.00 per share) and further provides for the decrease of the
discount, if necessary to comply with this provision. All associates contribute
to the ASPP a minimum of $5.00 to a maximum of 10% of their basic compensation
per payroll period. All associates' accounts are 100% vested at all times. The
Company pays all administrative costs associated with the ASPP.
1997 NONSTATUTORY STOCK OPTION PLAN
In 1997, the Board of Directors adopted the 1997 Nonstatutory Stock Option Plan
which reserved 150,000 shares of the Company's Common Stock for use under the
Plan (plus 10% of any additional shares of stock issued after the effective date
of the Plan). Stock issued pursuant to the Plan may be either authorized but
unissued shares or shares held in the treasury of the Corporation. Options are
granted at an option price of no less than the Fair Market Value of the stock on
the date of grant. Each grant of an option shall be evidenced by a stock option
agreement specifying the number of shares, the exercise price, and a vesting
schedule. During 1997, 23,000 options were granted under the Plan.
PROPOSAL 2
AMENDMENT TO CHARTER RELATING TO CLASSIFICATION OF
THE BOARD OF DIRECTORS AND RELATED MATTERS
The Board of Directors has voted unanimously to authorize amendments to the
Company's Charter and to recommend such proposed amendments to the shareholders
for adoption at the Annual Meeting. Specifically, the Board proposes to amend
Sections 7 and 10 of the Company's Charter to provide that the Board of
Directors be divided into three classes of Directors serving staggered
three-year terms and to provide that a director may be removed only for cause.
Currently, all of the Directors are elected annually to serve one-year terms.
Proposal 2 also contains related provisions concerning the size of the Board of
Directors, quorum requirements and the filling of Board vacancies. The text of
the amendments are attached hereto as Exhibit A.
Proposal 2 provides for three classes of Directors, each consisting as nearly as
possible of one-third of the Board and for one-third of the Board to be elected
each year. However, members of all three classes would be elected initially at
the 1998 Annual Meeting. If Proposal 2 is approved and the slate of nine (9)
directors proposed for election at the 1998 Annual Meeting is elected, they
would be elected in three separate classes as follows: three "Class I Directors"
would be elected for a term expiring at the 1999 Annual Meeting; three "class II
Directors" would be elected for a term expiring at the 2000 Annual Meeting; and
three "Class III Directors" would be elected for a term expiring at the 2001
Annual meeting. At each Annual Meeting after the 1998 Annual Meeting, only
Directors with the class whose term is expiring would be voted upon, and upon
election each such Director would serve a three-year term.
12
<PAGE> 14
Under Proposal 2, the Board of Directors would be empowered to determine from
time to time the size of the Board of Directors, but in no event could they
determine to have a Board consisting of fewer than three Directors. The total
number of Directors and the number of Directors constituting each class of
Directors (with each of the three classes being as nearly equal as possible)
could be fixed or changed from time to time by the Board of Directors, subject
to the three Director minimum. Currently, the Company's Charter provides that
the number of Directors of the Company shall be fixed by the by-laws and the
by-laws provide that the number of Directors shall be at least five but no more
than 25 Directors.
Subject to Tennessee law, Proposal 2 expressly delegates to incumbent Directors
sole power to fill vacancies whether occurring by an increase in the number of
Directors or otherwise. A Director elected to fill a vacancy would hold office
for the unexpired portion of the term of the Director who was being replaced. A
Director elected to fill a newly created directorship would hold office until
the next election for the class to which such Director was elected. If the size
of the Board is increased, the additional Directors would be apportioned among
the three classes of Directors to keep all such classes as nearly equal as
possible.
Proposal 2, if approved would provide that a majority of Directors would
constitute a quorum for the transaction of business. The Company's Charter
presently does not provide for a quorum of Directors and the current By-laws
provide that a majority of the number of Directors then serving constitute a
quorum.
Proposal 2, if approved, would provide that Directors may be removed only for
cause. The Company's Charter currently provides that a Director may be removed
for cause by a vote of a majority of the entire Board of Directors, but does not
prohibit removal by shareholders with or without cause. In order to ensure that
the reasons for which the classification of the Board is sought is not abrogated
by a majority of shareholders removing all of the Directors, the Board of
Directors proposes to add to the Charter that Directors may be removed by the
shareholders only for "cause".
The number of Directors to be elected at the Annual Meeting is nine, which is
the number currently provided in the Company's By-laws for the size of the Board
and the present number of Directors. The Board of Directors has no present
plans, arrangements, commitments or understandings with respect to increasing or
decreasing the size of the Board or any class of Directors.
If Proposal 2 is approved, the Company's Charter will be amended to replace the
first paragraph of Section 7 and to replace Section 10. Contingent upon approval
of the Proposal 2, the Board of Directors plans to adopt various conforming
amendments to the Company's By-laws.
Reasons for and Effects on Proposal 2
The Board of Directors believes that the adoption of Proposal 2 is advantageous
to the Company and its shareholders for a number of reasons.
Public companies are potentially subject to attempts by various individuals and
entities to acquire significant minority positions in the company with the
intent either of obtaining actual control of the company by electing their own
slate of directors, or of achieving some other goal, such as repurchase of their
shares by the company at a premium. Public companies are potentially subject to
inadequate prices or coercive bids for control through majority share ownership.
These prospective acquirers may be in a position to elect a company's entire
13
<PAGE> 15
board of Directors through a proxy contest or otherwise, even though they do not
own a majority of the company's outstanding shares at the time. If Proposal 2 is
approved, a majority of the Company's Directors could not be removed by such
persons until two Annual Meetings of shareholders have occurred, unless such
removal was for cause and the requisite vote was obtained. By providing this
additional time to the Board of Directors and eliminating the possibility of
rapid removal of the Board, the Directors of the company will have the necessary
time to most effectively satisfy their responsibility to the Company's
shareholders to evaluate any proposal and to assess and develop alternatives
without the pressure created by the threat of imminent removal. In addition,
Proposal 2, by providing that Directors will serve three-year terms rather than
one-year terms, will enhance continuity and stability in the composition of the
Company's Board of Directors and in the policies formulated by the Board, The
Board believes that this, in turn, will permit it more effectively to represent
the interests of all shareholders, including responding to demands or actions by
any shareholder or group.
Proposal 2 may discourage potential purchasers because its provisions would
operate to delay the purchaser's ability to obtain control of the Board of
Directors, since it will generally take a purchaser two Annual Meetings of
shareholders to elect a majority of the Board. In addition, Proposal 2 would
similarly delay shareholders who do not approve of policies of the Board from
replacing a majority of the Directors, unless they can show cause, obtain the
requisite vote and then convince the remaining Directors to elect a more
acceptable replacement. For the same reasons, the adoption of Proposal 2 may
also deter certain mergers, tender offers or other takeover attempts which some
or a majority of the Company's voting stock may deem to be in their best
interests.
The Board has no knowledge of any present effort to gain control of the Company
or to organize a proxy contest. In addition, there has been no problem in the
past or at the present time with the Board's continuity or stability. However,
the Board believes that adopting Proposal 2 is prudent, advantageous and in the
best interests of shareholders because it will give the Board more time to
fulfill its responsibilities to shareholders and, it will provide greater
assurance of continuity and stability in the composition and policies of the
Board of Directors. The board also believes such advantages outweigh any
disadvantage relating to discouraging potential acquirers from attempting to
obtain control of the Company.
The adoption of this proposal requires authorization by the holders of a
majority of the Company's common stock present, either in person or by proxy, at
the Annual Meeting. The proposed amendment to the Charter will also provide that
the sections ofd the Charter being amended may not be repealed or further
amended without the approval of holders of three-fourths of the outstanding
voting stock of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF PROPOSAL 2. IT IS
INTENDED THAT SHARES REPRESENTED BY PROXIES WILL, UNLESS CONTRARY INSTRUCTIONS
ARE GIVEN, BE VOTED IN FAVOR OF THEIR ELECTION.
OTHER MATTERS
The Board of Directors, at the time of the preparation of this Proxy Statement,
knows of no business to come before the meeting other than that referred to
herein. If any other business should come before the meeting, the persons named
in the enclosed Proxy will have discretionary authority to vote all proxies in
accordance with the recommendations of the Board of Directors.
14
<PAGE> 16
PROPOSALS OF SHAREHOLDERS
Shareholders intending to submit proposals for presentations at the 1999 Annual
Meeting of Shareholders of the Company and inclusion of such in the Proxy
Statement and form of proxy for such meeting should forward proposals to Joan B.
Marshall, Corporate Secretary, Community Financial Group, Inc., L & C Tower, 2nd
Floor, 401 Church Street, Nashville, TN 37219. The proposals must be in writing
and must be received by the Company prior to November 15,1998. Proposals should
be sent to the Company via Certified Mail - Return Receipt Requested.
BY ORDER OF THE BOARD OF DIRECTORS
Community Financial Group, Inc.
Nashville, Tennessee
/s/ JOAN B. MARSHALL
--------------------------------
Joan B. Marshall
Corporate Secretary
March 27, 1998
<PAGE> 17
Exhibit A to Proxy Statement
ARTICLES OF AMENDMENT TO THE CHARTER
COMMUNITY FINANCIAL GROUP, INC.
(Control Number )
Pursuant to the provisions of Section 48-20-106 of the
Tennessee Business Corporation Act, the undersigned corporation adopts the
following Articles of Amendment to its Charter:
1. Name of the Corporation: COMMUNITY FINANCIAL GROUP, INC.
2. The text of the amendment is as follows:
A. The first paragraph of section 7 of the Charter is hereto
deleted in its entirety and replaced with the following:
The property, affairs and business of the Corporation shall be
managed by a Board of Directors. The number of directors shall
be determined from time to time by resolution adopted by
affirmative vote of a majority of the entire Board of
Directors; provided, however, that in no event shall the
number of directors be less than three. The directors shall be
divided into three classes, designated Class I, Class II and
Class III. Each class shall consist, as nearly as may be
possible, of one-third of the total number of directors
constituting the entire Board of Directors. At the 1998 annual
meeting of shareholders, Class I directors shall be elected
for a one-year term, Class II directors for a two-year term
and Class III directors for a three-year term. At each
succeeding annual meeting of shareholders beginning in 1999,
successors to the class of directors whose term expires at
that annual meeting shall be elected for a three-year term.
If the number of directors is changed, any increase or
decrease shall be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal
as possible, and any additional director of any class elected
to fill a vacancy resulting from an increase in such class
shall hold office for a term that shall coincide with the
remaining term of 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 his or her successor shall be elected and shall qualify,
subject, however, to prior death, resignation, retirement,
disqualification or
<PAGE> 18
removal from office. A majority of total directors shall
constitute a quorum for the transaction of business. Except as
otherwise required by law, any vacancy on the Board of
Directors that results from an increase in the number of
directors shall be filled only by a majority of the Board of
Directors then in office, provided that a quorum is present,
and any other vacancy occurring on the Board of Directors
shall be filled by a majority of the directors then in office,
even if less that a quorum, of by a sole remaining director.
Any director elected to fill a vacancy not resulting from an
increase in the number of directors shall have the same
remaining term as that of his or her predecessor. A director
need not be a shareholder in order to be elected to the Board
of Directors but shall purchase and continue to own at least
ten (10) shares of Common Stock within 90 days of election or
appointment.
The remaining portions of section 7 of the Charter shall remain in full
force and effect and are not amended hereby.
B. Section 10 of the Charter is hereby deleted in its entirety
and replaced with the following:
Directors of the Corporation may be removed only for cause by
a vote of the holders of a majority of all of the shares of
stock of the Corporation outstanding and entitled to vote for
the election of directors, given at a duly called annual or
special meeting of the shareholders, or by the vote of a
majority of the entire Board of Directors. "Cause" shall
include, but not be limited to, a director willfully or
without reasonable cause being absent from any regular or
special meeting for the purpose of obstructing or hindering
the business of the Corporation.
3. The corporation is for profit.
4. The amendment was duly adopted on , 1998 by the shareholders of the
corporation.
COMMUNITY FINANCIAL GROUP, INC.
By:
---------------------------
Its:
---------------------------
<PAGE> 19
Appendix A
REVOCABLE PROXY
COMMUNITY FINANCIAL GROUP, INC.
[X} PLEASE MARK VOTES
AS IN THIS EXAMPLE
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned here appoints Jo D. Federspiel and C. Norris Nielsen the true
and lawful attorneys in fact for the undersigned, with full power of
substitution to vote as Proxies for the undersigned at the Annual Meeting of
Shareholders of Community Financial Group, Inc. to be held on May 13, 1998, and
at any and all adjournments thereof, the number of shares which the undersigned
will be entitled to vote if then personally present, for the following purposes:
FOR ALL
FOR WITHHOLD EXCEPT
# 1 ELECTION OF DIRECTORS [ ] [ ] [ ]
Election of Class I Directors: L. LEON MOORE
C. NORRIS NIELSEN
G. EDGAR THORNTON
Election of Class II Directors: JO D. FEDERSPIEL
RICHARD H. FULTON
PERRY W. MOSKOVITZ
Election of Class III Directors: J. B. BAKER
MACK S. LINEBAUGH, Jr.
DAVID M. RESHA
INSTRUCTION: To withhold authority to vote for any individual nominee, mark "For
All Except" and write that nominee's name in the space provided below.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
#2 CHARTER AMENDMENT to provide for the classification of the Board of Directors
and related matters.
Approve Disapprove Abstain
[ ] [ ] [ ]
#3 Authority to transact such other business as may properly come before the
meeting or any adjournment thereof.
Approve Disapprove Abstain
[ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE LISTED PROPOSALS.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED FOR THE PROPOSALS STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT THE MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY
IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Please be sure to sign and date Date ___________
this Proxy in the box below.
- --------------------------------------------------------------------------------
Shareholder sign above Co-holder (if any) sign above
DETACH ABOVE CARD, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED.
COMMUNITY FINANCIAL GROUP, INC.
Note: Please date Proxy and sign exactly as your name appears on this Proxy
card. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such. If signer is a corporation, please sign full
corporate name by authorized officer.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
