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.
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(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:
COMMUNITY BANCSHARES, INC.
68149 Highway 231 South
P.O. Box 1000
Blountsville, Alabama 35031
May 31, 2002
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 Tuesday, July 2,
2002, at The Heritage Club, 111 Washington Street, N.E., 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 and mark the enclosed proxy card and return it in the
enclosed postage-prepaid envelope to ensure that your shares are voted at the
Annual Meeting. This will not limit your rights to vote your shares 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 July 2.
Sincerely yours,
Kennon R. Patterson, Sr.
Chairman, Chief Executive Officer and
President
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND PROMPTLY MAIL IT IN
THE POSTAGE-PAID RETURN ENVELOPE FURNISHED FOR THAT PURPOSE, WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL MEETING.
COMMUNITY BANCSHARES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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The Annual Meeting of the stockholders of Community Bancshares, Inc.
(the "Company") will be held at The Heritage Club, 111 Washington Street, N.E.,
Huntsville, Alabama, on Tuesday, July 2, 2002 at 10:00 a.m., Central Time, for
the following purposes:
1. To elect Denny G. Kelly, Kennon R. Patterson, Sr. and Merritt
Robbins (or, in the event that any or all of the foregoing
are unable to serve, such other nominee(s) designated by the
Company's Board of Directors) as Class III directors; and
2. To transact such other business as may properly come before
the Annual Meeting or any adjournment thereof, but which is
not now anticipated.
The Board of Directors has fixed the close of business on May 10, 2002
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 executed proxy or a written revocation to the
Corporate Secretary of the Company, provided such later executed 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) 429-1001.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
APPROVAL OF ITEM 1 ABOVE.
By Order of the Board of Directors,
William H. Caughran, Jr.
Secretary
Blountsville, Alabama
May 31, 2002
COMMUNITY BANCSHARES, INC.
68149 Highway 231 South
P.O. Box 1000
Blountsville, Alabama 35031
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PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 2, 2002
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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 July 2, 2002, and at any
adjournments thereof (the "Annual Meeting"), for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders.
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 May 31, 2002.
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 May 10, 2002, 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 May 10, 2002, there were approximately 4,826,601
shares of Common Stock issued and outstanding, which were held by approximately
2,340 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 of
Stockholders, and (2) in accordance with the recommendation of the Board of
Directors as to any other matters which may properly 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
executed proxy or a written revocation to the Corporate Secretary of the
Company, provided such later executed 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.
The Company will bear the costs associated with this solicitation of
proxies.
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 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 recommendations of the Board of Directors.
ANNUAL REPORTS
COPIES OF THE COMPANY'S 2001 ANNUAL REPORT TO STOCKHOLDERS AND ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2001 ACCOMPANY THIS PROXY
STATEMENT. ADDITIONAL COPIES OF THESE DOCUMENTS WILL BE FURNISHED WITHOUT
CHARGE TO ANY STOCKHOLDER WHO REQUESTS SUCH REPORTS IN WRITING FROM KENNON R.
PATTERSON, SR., COMMUNITY BANCSHARES, INC., P.O. BOX 1000, BLOUNTSVILLE,
ALABAMA 35031.
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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 10. The terms of the Class III directors expire at the Annual
Meeting. The terms of the Class I and Class II directors will expire in 2003
and 2004, respectively. The Board of Directors is recommending the re-election
of those persons currently serving as Class III directors. Each of the Class
III directors elected at the Annual Meeting will serve three-year terms
expiring at the 2005 annual meeting of stockholders and until his respective
successor is elected and qualified. A director of the Company is elected by the
affirmative vote of the holders of a plurality of the shares of Common Stock
present or represented at the Annual Meeting and entitled to vote.
The Board of Directors has nominated Denny G. Kelly, Kennon R.
Patterson, Sr. and Merritt Robbins for election as Class III directors to hold
office until expiration of their term and until their successors have been
elected and qualified. 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. However, if prior to the Annual Meeting, any person
proposed for election as a director is unavailable to serve or for good cause
cannot serve, the shares of all valid proxies may be voted for the election of
such substitute as the members of the Board of Directors may recommend. The
management of the Company knows of no reason why any nominated person would be
unavailable to serve as a director. 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 2005 (CLASS III)
NAME, AGE AND POSITIONS HELD WITH THE DIRECTOR OF PRINCIPAL OCCUPATION
COMPANY AND ITS SUBSIDIARIES COMPANY SINCE DURING PAST FIVE YEARS
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DENNY G. KELLY (62) 1986 (Retired) President of
Director and Vice Chairman of the Company Community Bank (1993-2002)
and Community Bank; Director of 1st
Community Credit Corporation, Community
Appraisals, Inc., Community Insurance
Corp. and Southern Select Insurance, Inc.
KENNON R. PATTERSON, SR. (59) 1983 Chairman, President and Chief
Chairman, President and Chief Executive Officer Executive Officer of the Company
of the Company; Chairman and Chief Executive (1985-Present); Chairman and
Officer of Community Bank; Chairman of 1st Chief Executive Officer of
Community Credit Corporation, Community Community Bank (1993-Present)
Appraisals, Inc., Community Insurance Corp.
and Southern Select Insurance, Inc.
Merritt M. Robbins (64) 1996 Piggly Wiggly grocery store operator
Director of the Company, Community Bank, and property developer, New Hope, Alabama
Community Insurance Corp. and Southern
Select Insurance, Inc.
3
DIRECTORS WITH TERMS EXPIRING IN 2003 (CLASS I)
DIRECTOR OF
NAME, AGE AND POSITIONS HELD WITH THE COMPANY PRINCIPAL OCCUPATION
COMPANY AND ITS SUBSIDIARIES SINCE DURING PAST FIVE YEARS
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ROY B. JACKSON (68) 1999 (Retired) Owner of Jackson Farm &
Director of the Company, Community Bank, Garden Center, Minor Hill,
Community Appraisals, Inc., Community Tennessee
Insurance Corp. and Southern Select
Insurance, Inc.
KENNON R. PATTERSON, JR. (35) 2000 Ranch Manager of
Director of the Company, Community Heritage Valley Ranch (2000-
Bank and 1st Community Credit Corporation Present); Executive Vice President
of Community Bank (1997-2000); Senior
Vice President of Community Bank
(1996-1997).
ROBERT O. SUMMERFORD (71) 1996 Owner-operator of Summerford
Director of the Company, Community Nursing Home and Summerford Drug
Bank, Community Insurance Corp. and Store, Falkville, Alabama
Southern Select Insurance, Inc.
JIMMIE TROTTER (64) 2000 (Retired) Principal of Mortimer Jordan
Director of the Company, Community Bank, High School, Morris, Alabama
1st Community Credit Corporation and
Community Appraisals, Inc.
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DIRECTORS WITH TERMS EXPIRING IN 2004 (CLASS II)
DIRECTOR OF
NAME, AGE AND POSITIONS HELD WITH THE COMPANY PRINCIPAL OCCUPATION
COMPANY AND ITS SUBSIDIARIES SINCE DURING PAST FIVE YEARS
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GLYNN DEBTER (67) 1996 Owner-operator of Debter Farms
Director of the Company, Community Bank, (cattle breeding), Horton, Alabama
1st Community Credit Corporation,
Community Insurance Corp. and
Southern Select Insurance, Inc.
JOHN J. LEWIS, JR. (54) 1997 Production Planning Manager for
Director of the Company, Community Bank, Tyson Foods, Inc. (food processing),
1st Community Credit Corporation Blountsville, Alabama
and Community Appraisals, Inc.
LOY MCGRUDER (61) 1996 President of Community Bank
Director of the Company; Director and (2002-Present); Executive Vice
President of Community Bank President of Community Bank
(1994-2002); City President of
Community Bank-Blountsville
(1994-1997); Senior Vice President
of Community Bank (1993-1994)
Kennon R. Patterson, Sr. is the father of Kennon R. Patterson, Jr.
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 13 meetings during 2001. 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, Roy
B. Jackson and Merritt Robbins. 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 met two times during 2001.
The Nominating Committee is currently composed of Robert Summerford
(Chairman), Roy B. Jackson (Vice Chairman) and Glynn Debter. 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 2001.
The Executive Compensation Committee reviews the compensation of all
officers of the Company and its subsidiaries. Membership of this committee
currently consists of Merritt M. Robbins (Chairman), Jimmie Trotter (Vice
Chairman), Glynn Debter, Roy B. Jackson, Denny G. Kelly, John J. Lewis, Jr.,
Kennon R. Patterson, Jr. and Robert O. Summerford. The Executive Compensation
Committee did not meet in 2001. The meeting which would normally have been
scheduled for December, 2001, was held in January, 2002.
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 Kennon R. Patterson, Sr. (Chairman), Loy
McGruder and two non-director officers of Community Bank. This committee held
four meetings in 2001.
The Audit Committee reviews the financial and internal operations of
the Company. Members of the Audit Committee are Robert Summerford (Chairman),
Roy B. Jackson (Vice Chairman), Glynn Debter, Denny G. Kelly, John J. Lewis,
Jr., Kennon R. Patterson, Jr., Merritt Robbins and Jimmie Trotter. This
committee met one time during 2001.
5
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors of the Company consists
of eight directors, each of whom is "independent" as defined by the listing
standards of the Nasdaq Stock Market, Inc. except for Denny Kelly and Kennon R.
Patterson, Jr. The Board of Directors of the Company has not adopted a written
charter for the Audit Committee. In fulfilling its responsibilities, the Audit
Committee:
- Reviewed and discussed with management the Company's audited financial
statements for the year ended December 31, 2001;
- Discussed with the Company's independent auditors the matters required
to be discussed under Statement on Auditing Standards No. 61; and
- Received the written disclosures and the letter from the Company's
independent auditors regarding the auditors' independence as required
by Independence Standards Board Standard No. 1, and discussed with the
Company's independent auditors their independence.
Based on the Audit Committee's review of the Company's audited
financial statements for the year ended December 31, 2001 and its discussions
with management and the Company's independent auditors as described above and
in reliance thereon, the Audit Committee recommended to the Company's Board of
Directors that the Company's audited financial statements for the year ended
December 31, 2001 be included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2001 for filing with the Securities and Exchange
Commission.
By the Audit Committee:
Robert Summerford (Chairman) Denny G. Kelly Merritt Robbins
Roy B. Jackson (Vice Chairman) John J. Lewis, Jr. Jimmie Trotter
Glynn Debter Kennon R. Patterson, Jr.
DIRECTOR ATTENDANCE
During 2001, all incumbent directors of the Company attended at least
75% of the total number of meetings of the Board of Directors and meetings of
the committees of which they were members.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 2001.
The Company is not aware of any instance during 2001 in which
directors or executive officers of the Company failed to make timely filings
required by Section 16(a) of the Exchange Act. 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
Community Bank has from time to time made loans to certain of its
directors and executive officers, and members of their immediate families.
Except as noted below, all such loans are made in the ordinary course of
business on substantially the same credit terms, including interest rates and
collateral and do not represent more than a normal risk of collection 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.
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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. The largest aggregate amount of loans to directors and
executive officers of the Company and members of their immediate families
outstanding at any time during 2001 under these two programs was approximately
$5.3 million. As of April 26, 2002, the total outstanding balance of loans
by Community Bank to directors and executive officers of the Company and
members of their immediate families under these two programs was approximately
$2.5 million.
As of April 26, 2002, Community Bank has outstanding two loans to Kennon R.
Patterson, Sr., the Chairman and CEO of the Company:
(i) a farm operating line of credit of $100,000. During 2001, the
highest balance outstanding for this loan was $100,000, and its balance at year
end was $49,780. The loan bears interest at 3.75%.
(ii) a real-estate loan in the amount of $5,150,000. During 2001,
the highest balance outstanding for this loan was $5,150,000, and its balance
at year end was $5,150,000. The loan bears interest at 4.75% and is secured by
real estate having an appraised value in excess of the loan amount.
As of April 26, 2002, Community Bank has outstanding loans to Hodge Patterson,
Executive Vice President of Community Bank:
(i) a real-estate loan of $548,983. During 2001, the highest
balance outstanding for this loan was $561,253, and its balance at year end was
$552,732. The loan bears interest at 5.00%.
(ii) unsecured loans of $124,572. During 2001, the highest balance
outstanding for these loans were $124,572, and their balances at year end were
$124,572. The loans bear interest at 4.75%.
The Company has engaged the accounting firm of Schauer, Taylor, Cox,
Vise and Morgan, P.C. to perform certain accounting services. Doug Schauer, a
member of the firm, is Kennon R. Patterson, Sr.'s son-in-law. Services
performed by Schauer, Taylor, Cox, Vise and Morgan, P.C. for the Company in
2001 have been limited to preparation of the Company's quarterly tax accruals,
preparation and filing the Company's federal and state tax returns and
consultation regarding interpretation and application of accounting standards.
The Company and its subsidiaries paid Schauer, Taylor, Cox, Vise and Morgan,
P.C. $121,707 for services rendered during 2001.
In June 2000, Community Bank loaned $1,696,576 to Debter Properties,
LLC, an Alabama limited liability company of which a director of the Company is
a member, to fund the purchase from Community Bank of the real property in
which Community Bank's Boaz, Alabama office is located. The loan amortizes over
a 20-year period and is collateralized by a first mortgage on the real
property. The loan bears interest that is set by Community Bank from time to
time based on the prime rate as published in The Wall Street Journal. As
adjustments occur in the interest rate on the loan, appropriate increases or
decreases are made to the monthly loan payment. Concurrently with this loan and
the purchase of the real property, Community Bank entered into a lease
agreement, as the tenant, with Debter Properties, LLC to lease back this real
property from Debter Properties, LLC. The term of the lease is 20 years;
provided, however, that in no event shall the term of the lease expire prior to
the time when the loan obtained by the lessor to purchase the leased property
is paid in full. The monthly rent on this lease is an amount equal to the
monthly debt amortization of funds which the lessor borrowed to purchase the
leased property. Because the interest rate on the loan used to purchase the
property adjusts with fluctuation in the prime rate, the monthly lease payments
are subject to change. At December 31, 2001, the amount of the monthly rental
payment was $11,136. Lease payments to Debter Properties, LLC during 2001
totaled approximately $156,651. In addition, Community Bank agreed to pay the
lessor an additional sum to be adjusted periodically to coincide with the cost
to the lessor of the real estate taxes and other items and insurance. Community
Bank is responsible for maintenance, repairs and utilities for the real
property. Community Bank is also responsible for maintaining fire and extended
coverage and general liability insurance coverage for the real property. The
Company has the option to purchase the leased premises from the lessor at any
time during the term of the lease for an amount equal to the lessor's cost in
acquiring and/or constructing such leased premises.
At December 31, 2001, the total outstanding balance of indebtedness
incurred by the ESOP to purchase shares of Common Stock was approximately
$2,382,490. This indebtedness, which is owed to a third party and is secured by
a pledge of 174,267 shares of Common Stock that have not been allocated by the
ESOP, is guaranteed by the Company.
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LEGAL PROCEEDINGS
BACKGROUND
At a meeting of Community Bank's Board of Directors on June 20, 2000,
a director brought to the attention of the Board the total amount of money
Community Bank had paid subcontractors in connection with the construction of a
new Community Bank office. Management of the Company commenced an investigation
of the expenditures. At the request of management, the architects and
subcontractors involved in the construction project made presentations to the
Boards of Directors of the Company and Community Bank on July 15 and July 18,
2000, respectively. At the July 18, 2000 meeting of the Board of Directors of
Community Bank, another director made a presentation alleging that Community
Bank had been overcharged by subcontractors on that construction project and
another current construction project. On July 18, 2000, the Boards of Directors
of the Company and Community Bank appointed a joint committee comprised of
independent directors of the Company and of Community Bank to investigate the
alleged overcharges. The joint committee has informed the Boards of Directors
of the Company and Community Bank of its findings and recommendations. The
joint committee retained legal counsel and an independent accounting firm to
assist the committee in its investigation. Management has also been informed
that the directors of Community Bank who alleged the construction overcharges
have contacted bank regulatory agencies and law enforcement authorities.
Management believes that these agencies and authorities either have conducted
or are currently conducting investigations regarding this matter.
BENSON DERIVATIVE LITIGATION
On July 21, 2000, three shareholders of the Company, M. Lewis Benson,
Doris E. Benson and John M. Packard, Jr., filed a lawsuit in the state Circuit
Court of Marshall County, Alabama against the Company, Community Bank, certain
directors and officers of the Company and Community Bank, an employee of
Community Bank and two construction subcontractors. The plaintiffs purported to
file the lawsuit as a shareholder derivative action, which relates to the
alleged construction overcharges being investigated by the joint committee of
the Boards of Directors of the Company and Community Bank. The complaint
alleges that the directors, officers and employee named as defendants in the
complaint breached their fiduciary duties, failed to properly supervise
officers and agents of the Company and Community Bank, and permitted waste of
corporate assets by allegedly permitting the subcontractor defendants to
overcharge Community Bank in connection with the construction of two new
Community Bank offices, and to perform the construction work without written
contracts, budgets, performance guarantees and assurances of indemnification.
In addition, the complaint alleges that Kennon R. Patterson, Sr., the Chairman,
President and Chief Executive Officer of the Company, breached his fiduciary
duties by allegedly permitting the two named subcontractors to overcharge for
work performed on the two construction projects in exchange for allegedly
discounted charges for work these subcontractors performed in connection with
the construction of Mr. Patterson's residence. The complaint further alleges
that the director defendants knew or should have known of this alleged
arrangement between Mr. Patterson and the subcontractors. The complaint also
alleges that Mr. Patterson, the Community Bank employee and the two
subcontractor defendants made false representations and suppressed information
about the alleged overcharges and arrangement between Mr. Patterson and the
subcontractors.
On August 15, 2000, the plaintiffs filed an amended complaint adding
Andy C. Mann, a shareholder of the Company, as a plaintiff and adding a former
director of the Company and Community Bank as a defendant. The amended
complaint generally reiterates the allegations of the original complaint. In
addition, the amended complaint alleges that Community Bank was overcharged on
all construction projects from January 1997 to the present. The amended
complaint also alleges that the defendants breached their fiduciary duties and
are guilty of gross financial mismanagement, including allegations concerning
the making or approval of certain loans and taking allegedly improper actions
to conceal the fact that certain loans were uncollectible. On September 18,
2000 the plaintiffs filed a second amended complaint. The second amended
complaint generally reiterates the allegations of the original and first
amended complaints. In addition, the second amended complaint alleges that the
plaintiffs were improperly denied their rights to inspect and copy certain
records of the Company and Community Bank. The second amended complaint also
alleges that the directors of the Company abdicated their roles as directors
either by express agreement or as a result of wantonness and gross negligence.
The second amended complaint asserts that the counts involving inspection of
corporate records and director abdication are individual, nonderivative claims.
The second amended complaint seeks, on behalf of the Company, an unspecified
amount of compensatory damages in excess of $1 million, punitive damages,
disgorgement of allegedly improperly paid profits and appropriate equitable
relief. Upon motion of the defendants, the case was transferred to the state
Circuit Court in Blount County, Alabama by order dated September 21, 2000, as
amended on October 12, 2000.
On August 24, 2000, the Board of Directors of the Company designated
the directors of the Company who serve on the joint investigative committee as
8
a special litigation committee to investigate and evaluate the allegations and
issues raised in this lawsuit and to arrive at such decisions and take such
action as the special litigation committee deems appropriate. On June 8, 2001,
the special litigation committee filed its report under seal with the court. On
June 18, 2001, the court entered an order affirming the confidentiality of the
special committee's report. On June 28, 2001, the Company, Community Bank and
various other defendants filed a motion with the court to adopt the report of
the special committee, for partial summary judgment and to realign the Company
and Community Bank as plaintiffs in the lawsuit. Following a hearing on August
29, 2001, the court denied these motions on November 8, 2001. The court also
ruled that the plaintiffs were entitled to conduct discovery except as it
related to one of the subcontractor defendants and granted the plaintiffs'
motion to unseal the report of the special litigation committee. On November
14, 2001, the directors of the Company filed a motion for the court to alter,
amend or vacate its November 8, 2001 rulings. On February 7, 2002, the Company
and Community Bank filed a motion to disqualify Maynard, Cooper & Gale, P.C.,
the law firm representing the plaintiffs, due to conflicts of interest. The
court held a hearing on these motions on February 22, 2002 and the parties are
awaiting a ruling. On February 25, 2002, the Company and Community Bank filed a
motion for limited discovery relating to its motion to disqualify the
plaintiffs' law firm. As a result of the inherent uncertainties of the
litigation process, the Company is unable at this time to predict the outcome
of this lawsuit and its effect on the Company's financial condition and results
of operations. Regardless of the outcome, however, this lawsuit could be
costly, time-consuming and a diversion of management's attention.
TOWNS DERIVATIVE LITIGATION
On November 19, 1998, Mr. William Towns, a shareholder of the Company,
filed a shareholder derivative action against the directors of the Company in
the state Circuit Court of 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 shareholders of the
Company, as additional plaintiffs. The complaint alleged that the directors of
the Company breached their fiduciary duty to the Company and its shareholders,
engaged in fraud, fraudulent concealment, suppression of material fact and
suppression of the plaintiff shareholders, 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.
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
Company's Board of Directors appointed a special Board committee, comprised of
non-employee directors 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 hearing in accordance with the parties' request. On
October 15, 1999, the special 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 August 3, 2000, the Company, Community
Bank and the Company's directors filed a motion to stay the proceedings until
the Company's and Community Bank's joint investigative committee had completed
its investigation of the alleged construction overcharges discussed above. At
the request of the Company and the other defendants in the action, the court
continued a hearing on the motion to dismiss. On February 23, 2001, the court
indicated that there was no reason to continue the stay of this action. The
parties are awaiting a hearing on the defendants' motion to dismiss the case.
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. Regardless of the outcome, however, this
lawsuit could be costly, time-consuming and a diversion of management's
attention.
9
CORR FAMILY LITIGATION
On September 14, 2000, another action was filed in the state Circuit
Court of Blount County, Alabama, against the Company, Community Bank and
certain directors and officers of the Company and Community Bank by Bryan A.
Corr and six other related shareholders of the Company alleging that the
directors actively participated in or ratified the misappropriation of
corporate income. The action was not styled as a shareholder derivative action.
On January 3, 2001, the defendants filed a motion for summary judgment on the
basis that these claims are derivative in nature and cannot be brought on
behalf of individual shareholders. The court has not ruled on the motion. The
Company and its directors believe that this lawsuit is without merit and intend
to defend the action vigorously. Although management currently believes that
this action will not have a material adverse effect on the Company's financial
condition or results of operations, regardless of the outcome, the action could
be costly, time-consuming and a diversion of management's attention.
EMPLOYEE LITIGATION
On November 15, 2000, Michael W. Alred and Michael A. Bean, two former
directors and executive officers of Community Bank, filed suit against
Community Bank in the United States District Court for the Northern District of
Alabama alleging that their employment was wrongfully terminated for allegedly
providing information to bank regulatory and law enforcement authorities
concerning possible violations of laws and regulations, gross mismanagement,
gross waste of funds and abuse of authority by Community Bank, its directors,
officers and employees. According to the complaint, the information which these
two individuals provided to authorities concerned certain bank construction
projects, specific loans, charge-offs, expenses and past due accounts. The
complaint seeks reinstatement of the plaintiffs to their former positions as
officers and directors of Community Bank as well as compensatory and punitive
damages. Community Bank and its directors believe this lawsuit is without merit
and intend to defend the action vigorously. Management of the Company believes
that this action will not have a material adverse effect on the Company's
financial condition or results of operations.
CONSPIRACY LITIGATION
On November 6, 2001 the Company and Community Bank filed a lawsuit in
the United States District Court for the Northern District of Alabama against
Bryan A. Corr, Doris J. Corr, individually and as executrix of the Estate of
R.C. Corr, Jr., Tina M. Corr, Corr, Inc., George M. Barnett, Michael A. Bean,
Michael W. Alred, R. Wayne Washam, M. Lewis Benson, Doris E. Benson, John M.
Packard and Andy Mann seeking damages in excess of $50 million. The complaint
also alleges that, by knowingly making false statements and unsupported
allegations to regulatory and law enforcement authorities and in certain
lawsuits discussed above, the defendants abused the civil legal process to
further their plan to discredit and dislodge the directors and management of
the Company and Community Bank and gain control of those companies. The
complaint further alleges that certain of the defendants who are former
directors and/or executive officers of Community Bank breached their fiduciary
duties to Community Bank by participating in, and taking action in the
furtherance of, the conspiracy. Finally, the complaint alleges that the
defendants failed to make filings which are required by the Federal securities
laws to disclose that the group is acting in concert to acquire control of the
Company. The complaint seeks compensatory and punitive damages as well as an
order barring the defendants from voting their shares of Company stock,
purchasing additional Company stock, soliciting proxies and submitting
shareholder proposals for at least three years.
On December 5, 2001, the Company, Community Bank and R. Wayne Washam
entered into a stipulation pursuant to which Mr. Washam would be dismissed as a
defendant. The court granted the stipulation on December 6, 2001. During the
time between December 3 and December 7, 2001 the other defendants filed various
motions to dismiss, abate or stay the lawsuit. On January 4, 2002, the Company
and Community Bank filed a motion to disqualify Maynard, Cooper & Gale, P.C.
from representing M. Lewis Benson, Doris E. Benson, John M. Packard and Andy
Mann due to a conflict of interest. On January 22, 2002 Maynard, Cooper & Gale,
P.C. filed a motion to withdraw from the suit, which motion was granted by the
court on January 24, 2002. On January 29, 2002 the Company and Community Bank
filed an amended complaint to reflect the dismissal of Wayne Washam as a
defendant and to add a claim for defamation against two of the defendants. As a
result of the inherent uncertainties of the litigation process, the Company is
unable at this time to predict the outcome of this lawsuit and its effect on
the Company's financial condition and results of operations. Regardless of the
outcome, however, this lawsuit could be costly, time-consuming and a diversion
of management's attention.
10
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 2001 to the Chief
Executive Officer and each of the four other most highly compensated executive
officers of the Company at December 31, 2001 (collectively, the "named
executive officers") for the fiscal years ended December 31, 2001, 2000 and
1999.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------- --------------------------------
OTHER ALL
ANNUAL SECURITIES OTHER
SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS/SARS (#) ($)(1)(2)
--------------------------- ---- ------ ----- ------------- ---------------- -------------
Kennon R. Patterson, Sr. 2001 $ 917,000 -- -- 80,000 $ 6,984
Chairman, President 2000 1,017,000 -- -- -- 8,003
and Chief Executive Officer ...... 1999 588,950 309,650 -- 40,000 75,808
Bishop K. Walker, Jr. (3) 2001 $ 428,400 -- -- 10,000 $10,761
Vice Chairman and 2000 476,000 -- -- -- 11,780
General Counsel .................. 1999 421,923 -- -- 15,000 29,087
Denny G. Kelly (3) 2001 $ 337,500 -- -- 10,000 $ 8,784
President - 2000 375,000 -- -- -- 9,803
Community Bank ................... 1999 323,654 -- -- 20,000 30,048
Hodge Patterson, III (4) 2001 $ 234,000 -- -- 10,000 $ 8,784
Executive Vice President - 2000 260,000 -- 29,679 (5) -- 9,803
Community Bank ................... 1999 250,000 -- 29,050 (5) 5,000 8,048
Loy McGruder 2001 $ 220,500 -- -- 10,000 $ 8,784
President - 2000 245,000 -- -- -- 9,803
Community Bank ................... 1999 230,000 -- -- 5,000 8,048
--------------------
(1) Includes director fees paid for service as a director of the Company
and of its subsidiaries during 2001, 2000 and 1999, respectively, as
follows: Kennon R. Patterson, Sr., $0, $0 and $56,250; Bishop K.
Walker, Jr., $0, $0 and $19,000; Denny G. Kelly,$0, $0 and $22,000;
Hodge Patterson, III, $0, $0 and $0; and Loy McGruder, $0, $0 and $0.
(2) Also includes life insurance premiums paid by the Company and
contributions by the Company to the ESOP during 2001, 2000 and 1999,
respectively, as follows: Kennon R. Patterson, Sr., $6,984, $8,003 and
$19,558; Bishop K. Walker, Jr., $10,761, $11,780 and $10,087; Denny G.
Kelly, $8,784, $9,803 and $8,048; Hodge Patterson, III, $8,784, $9,803
and $8,048; and Loy McGruder, $8,784, $9,803 and $8,048. ESOP
contributions for 2001 are estimated because the allocations for the
2001 plan year have not been completed by the plan recordkeeper.
(3) Mr. Walker and Mr. Kelly retired from the Company and Community Bank
as of January, 2002.
(4) Hodge Patterson is the brother of Kennon R. Patterson, Sr. and the
uncle of Kennon R. Patterson, Jr.
(5) Includes for 2001, 2000 and 1999, respectively, $2,550 and $2,265 with
respect to social club dues, $12,146 and $9,703 with respect to usage
of a Company-owned automobile, and $14,983 and $17,082 with respect to
discounted interest rates through participation in the Company's
employee loan programs.
11
STOCK OPTIONS
The following table provides information concerning grants of stock
options by the Company to the named executive officers during 2001:
OPTION GRANTS IN LAST FISCAL YEAR
Individual
Grants Potential
------------------------------------------------------------- realizable value at
Number of Percent of assumed annual rates
securities total options of stock price appreciation
underlying granted to Exercise or for option term
options granted employees in base price Expiration ----------------------------
Name (#) fiscal year ($/sh) Date 5% ($) 10% ($)
------------------------ --------------- ------------- ----------- ----------- ---------- ----------
Kennon R. Patterson. Sr. 80,000 31.75% $10.00 12/17/2006 $221,025 $488,408
Bishop K. Walker, Jr. 10,000 3.97% $10.00 12/17/2006 27,628 61,051
Denny G. Kelly 10,000 3.97% $10.00 12/17/2006 27,628 61,051
Hodge Patterson, III 10,000 3.97% $10.00 12/17/2006 27,628 61,051
Loy McGruder 10,000 3.97% $10.00 12/17/2006 27,628 61,051
---------------
OPTION EXERCISES AND HOLDINGS
The following table provides information concerning the exercise of
stock options during 2001 by the named executive officers and the unexercised
stock options held by them at December 31, 2001.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-money Options/
Shares Options/SARs at FY-End (#) SARs at FY-End ($)(1)
Acquired on Value ------------------------------ ----------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
Kennon R. Patterson, Sr. 27,111 $488,001 120,000 -- -- --
Bishop K. Walker, Jr. 19,140 344,499 25,000 -- -- --
Denny Kelly 10,388 187,000 40,000 -- -- --
Hodge Patterson 10,611 190,998 15,000 -- -- --
Loy McGruder 8,611 155,000 21,667 -- -- --
---------------
(1) Represents market value of underlying shares of Common Stock of $10.00
per share at December 31, 2001, as determined by the Board of
Directors, net of the exercise price of the options.
12
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
Average Annual --------------------------------------------------------------------
Compensation 10 20 30 40
-------------- -------- -------- -------- --------
$ 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
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
compensated, 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 as
of December 31, 2001 are as follows: Kennon R. Patterson, Sr.: 19 years; Bishop
K. Walker, Jr.: 15 years; Denny G. Kelly: 16 years; Hodge Patterson, III: 15
years; and Loy McGruder: 15 years.
COMPENSATION OF DIRECTORS
Non-employee 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.
Non-employee members of the Company's Executive Committee, Nominating
Committee, Executive Compensation Committee and Audit Committee receive a fee
of $500 per meeting. Non-employee directors of the Company who are also
directors of Community Bank or its subsidiaries receive the following monthly
fees: Community Bank - $500; 1st Community Credit Corporation - $250; and
Community Insurance Corp. - $250. Non-employee directors of Community
Appraisals, Inc. receive a quarterly fee of $250. Non-employee members of
Community Bank's committees receive the following fees: Audit Committee and
Asset Quality Committee - $500 per quarter; Compensation Committee and
Personnel Grievance Committee - $500 per meeting; Electronic Data Processing
Committee - $100 per quarter; and Executive Committee, Directors Credit
Committee and Construction Oversight Committee - $100 per meeting. The
non-employee directors of the Company waived payment of the annual retainer for
2001 as part of a plan to reduce noninterest expenses.
13
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 was amended on October 14, 1999
and expires on March 31, 2008. The Employment 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 an annual cash
compensation of at least $898,600, the amount of Mr. Patterson's total cash
compensation for 1999, with increases in his compensation as determined by the
Board of Directors based on the recommendation of the Company's Executive
Compensation Committee. Mr. Patterson's Employment 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.
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 their
terms by the Company's Executive Compensation Committee. In the event of a
change in control (as defined in the agreements) of the Company, 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 and, 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.
The Change in Control Agreements with Bishop K. Walker, Jr. and Denny
G. Kelly were terminated on January 9, 2002.
14
RETIREMENT/CONSULTING AND STOCK PURCHASE AGREEMENTS
On January 9, 2002 the Company entered into agreements with Bishop K.
Walker, Jr. and Denny G. Kelly in connection with the retirement of Mr. Walker
and Mr. Kelly as executive officers of the Company and Community Bank. Pursuant
to these agreements Mr. Walker and Mr. Kelly are to receive payments from
Community Bank of $600,000 and $495,000, respectively, payable in two equal
installments in January, 2002 and January, 2003. In addition, Community Bank
agreed to transfer a bank-owned vehicle to each of Mr. Walker and Mr. Kelly. Mr.
Walker and Mr. Kelly each waived all claims against the Company, Community Bank
and their respective directors, officers and employees, and agreed to provide
consulting services during 2002 and 2003 as requested by management and the
Board of Directors on matters to include, but not be limited to, title insurance
and stock transfer, in the case of Mr. Walker, and shareholder relations,
customer relations and new customer development, in the case of Mr. Kelly. The
Company agreed to purchase approximately 270,000 shares of Common Stock from Mr.
Walker and approximately 77,000 shares of Common Stock from Mr. Kelly at a price
of $12.00 per share subject to any required regulatory approvals. Mr. Walker's
stock is to be purchased no later than January, 2004 and Mr. Kelly's stock is to
be purchased no later than January, 2005. The Change in Control Agreements
between the Company and each of Mr. Walker and Mr. Kelly were terminated. In the
event of a change in control of the Company prior to the consummation of the
stock purchase by the Company, Mr. Walker and Mr. Kelly each have the option to
decline to sell their stock to the Company and to receive the same consideration
being paid to other stockholders of the Company in connection with the change in
control.
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 2001:
Merritt M. Robbins (Chairman) Roy B. Jackson Kennon R. Patterson, Jr.
Jimmie Trotter (Vice Chairman) Denny G. Kelly Robert O. Summerford
Glynn Debter John J. Lewis, Jr.
Denny G. Kelly is a former executive officer of the Company and
Community Bank. Kennon R. Patterson, Jr. is a former executive officer of
Community Bank and the son of Kennon R. Patterson, Sr., the Company's Chief
Executive Officer.
In June 2000, Community Bank sold to, and leased back from, Debter
Properties, LLC, an Alabama limited liability company of which Glynn Debter is
a member, real property in which Community Bank's Boaz, Alabama, office is
located. See "Certain Relationships and Related Transactions" above.
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 or in the
Compensation Committee's review and recommendation 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 2001, the Company's executive compensation program
consisted only of base compensation and long-term incentives. 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.
15
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. is subject to the terms of his employment agreement with the
Company. Mr. Patterson's employment agreement provides for a minimum base
salary, which is subject to annual review in the discretion of the Board of
Directors based upon the recommendation of the Compensation Committee. The base
compensation of Bishop K. Walker, Jr. was formerly subject to the terms of an
employment agreement which expired on March 31, 2001.
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
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.
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 2001, the annual
base compensation for each of the named executive officers was decreased as
follows: Kennon R. Patterson, Sr. to $917,000, Bishop K. Walker, Jr. to
$428,400, Denny G. Kelly to $337,500, Hodge Patterson, III to $234,000 and Loy
McGruder to $220,500. The Board of Directors approved, without material change,
the base compensation recommended by the Compensation Committee for 2001. Each
of the named executive officers agreed to a 10% reduction in his base
compensation for 2001 as part of a program to decrease non-interest expenses at
the Company and because the Compensation Committee believed the reductions more
accurately reflect the Company's performance for the prior year.
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. The Board
of Directors did not award bonuses to any executive officer of the Company for
2001, based on the Board's determination that the officers' base compensation
provided adequate compensation based on individual performance, the Company's
performance and published compensation data for comparable positions at other
financial institutions during 2001.
16
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 2001, 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 2001, 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.
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 was amended on October 14, 1999 and expires on March 31, 2008.
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 2001 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 2001, Mr. Patterson's total cash
compensation was decreased from $1,017,000 to $917,000. Mr. Patterson agreed to
a 10% reduction in his cash compensation for 2001, as part of a program to
decrease non-interest expenses at the Company.
In determining the amount of Mr. Patterson's compensation, the
Compensation Committee considered various qualitative and quantitative criteria
regarding Mr. Patterson's individual performance and that of the Company, as
well as published data regarding compensation paid to the chief executive
officers of other financial institutions. The Compensation Committee did not
establish any target amounts with respect to these criteria, or assign any
particular weights to the criteria considered.
By the Executive Compensation Committee:
Merritt M. Robbins (Chairman) Roy B. Jackson Kennon R. Patterson, Jr.
Jimmie Trotter (Vice Chairman) Denny G. Kelly Robert O. Summerford
Glynn Debter John J. Lewis, Jr.
17
PERFORMANCE GRAPH
Set forth below is a graph comparing the yearly percentage change in
the cumulative total return of the 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 Common Stock and in each index was $100.00 and that all
dividends were reinvested. There is no established trading market for the 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.
[GRAPH]
INDEX 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
----- -------- -------- -------- -------- -------- --------
Community Bancshares, Inc. 100.00 134.69 185.57 229.36 197.11 147.83
AMEX Major Markets 100.00 127.84 154.03 181.38 185.66 176.84
NASDAQ Bank Index* 100.00 167.43 166.35 159.91 182.40 197.48
Source: SNL Financial L.C.
The information provided under the headings "Audit Committee Report,"
"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
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of April 15,
2002, 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.
SHARES OF COMMON STOCK BENEFICIALLY OWNED(1) PERCENTAGE OF
------------------------------------------------------ TOTAL SHARES
PERSON, GROUP OR ENTITY SOLE POWER(2) SHARED POWER(3) AGGREGATE OUTSTANDING
----------------------- ------------- --------------- --------- -------------
I. DIRECTORS, NOMINEES AND
EXECUTIVE OFFICERS
Glynn Debter 22,867(4) 21,611 44,478 *
Roy B. Jackson 16,400(5) 6,600 23,000 *
Denny G. Kelly 57,107(6) 97,464 154,571 3.20%
John J. Lewis, Jr 45,189(7) 1,200 46,389 *
Loy McGruder 32,463(8) 263,894 296,357 6.14
Kennon R. Patterson, Sr. 62,862(9) 768,182 929,044 19.25
Kennon R. Patterson, Jr. 21,700(10) 97,200 118,900 2.46
Merritt M. Robbins 188,427(11) 5,070 193,497 4.01
Robert O. Summerford 45,667(12) 76,200(13) 121,867 2.52
Jimmie Trotter 17,000(14) 4,014 21,014 *
All Company directors,
nominees for directors
and executive officers
as a group (11 persons) 610,682 969,846 1,580,528 32.75
II. OTHERS
U.S. Trust Company, N.A. as
Trustee of the Community
Bancshares, Inc. Employee
Stock Ownership Plan (15) -- 525,924(16) 525,924(16) 10.90
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 (17) 10,468 370,881 381,349 7.90
Bishop K. Walker, Jr. 215,115(18) 56,265 271,380 5.62
---------
* Less than 1%
19
(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 April 15, 2002, 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. The ESOP recordkeeper has not completed the allocation
as of December 31, 2001, so the number of shares shown as allocated to an
individual's account are as of December 31, 2000.
(3) This column may include shares held in the name of, among others, a
spouse, minor children or certain other relatives sharing the same home as the
director, nominee, executive officer or 5% stockholder. In the cases of Messrs.
Kennon R. Patterson, Sr.and Loy McGruder this column includes 199,877 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 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 Kennon R. Patterson, Jr. this column includes
37,256 shares held by Community Investments, a partnership composed of seven
individuals, of which each such individual is a partner.
(4) Includes 21,667 shares which could be acquired within 60 days
following April 15, 2002 pursuant to stock options.
(5) Includes 15,000 shares which could be acquired within 60 days
following April 15, 2002 pursuant to stock options.
(6) Includes 40,000 shares which could be acquired within 60 days
following April 15, 2002 pursuant to stock options and 16,957 shares allocated
to Mr. Kelly's ESOP account as of December 31, 2000.
(7) Includes 21,667 shares which could be acquired within 60 days
following April 15, 2002 pursuant to stock options.
(8) Includes 21,667 shares which could be acquired within 60 days
following April 15, 2002 pursuant to stock options and 10,796 shares allocated
to Mr. McGruder's ESOP account as of December 31, 2000.
(9) Includes 120,000 shares which could be acquired within 60 days
following April 15, 2002 pursuant to stock options and 40,762 shares allocated
to Mr. Kennon R. Patterson, Sr.'s ESOP account as of December 31, 2000.
(10) Includes 15,000 shares which could be acquired within 60 days
following April 15, 2002 pursuant to stock options and 6,600 shares allocated
to Mr. Kennon R. Patterson, Jr.'s ESOP account as of December 31, 2000.
(11) Includes 15,000 shares which could be acquired within 60 days
following April 15, 2002 pursuant to stock options.
(12) Includes 23,667 shares which could be acquired within 60 days
following April 15, 2002 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 15,000 shares which could be acquired within 60 days
following April 15, 2002 pursuant to stock options.
(15) The address of U.S. Trust Company, N.A. is 515 S. Flower Street, Suite
2700, Los Angeles, CA 90071-2291.
(16) Participants in the ESOP have the power to direct the ESOP trustee how
to vote shares allocated to their individual accounts. Any unallocated shares,
and any allocated shares with respect to which voting instructions are not
received from a participant, will be voted by the appropriate ESOP fiduciary in
its discretion.
(17) Information about this group was obtained from a Schedule 13D, and
amendments thereto, filed by such group with the SEC.
(18) Includes 15,271 shares allocated to Mr. Walker's ESOP account as of
December 31, 2000.
20
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company has engaged the accounting firm
of Dudley, Hopton-Jones, Sims & Freeman PLLP ("Dudley, Hopton-Jones") as the
independent accountant of the Company and its subsidiaries for 2002. This firm
served as the Company's independent accountant from 1989 until May 2000.
On May 11, 2000, the Company's Board of Directors determined not to
retain Dudley, Hopton-Jones for the year ended December 31, 2000. During the
two fiscal years and the subsequent interim period preceding the change in
accountants, there were no disagreements between the Company and Dudley,
Hopton-Jones on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure which if not resolved to
the satisfaction of Dudley, Hopton-Jones would have caused Dudley, Hopton-Jones
to make reference to the subject matter of the disagreement in connection with
its report, nor had Dudley, Hopton-Jones in either of the preceding two years
issued an adverse opinion or disclaimer of opinion with respect to the
Company's financial statements or qualified or modified its opinion as to
uncertainty, audit scope or accounting principles. Dudley, Hopton-Jones
submitted letters dated May 16 and May 30, 2000 addressed to the Securities and
Exchange Commission regarding the Company's change in independent accountants
which were filed as exhibits to the Company's current report on Form 8-K dated
May 16, 2000 and an amendment to that current report on Form 8-K/A dated May
30, 2000.
On May 11, 2000 the Company's Board of Directors engaged KPMG LLP
("KPMG") as the Company's independent accountant for the year ending December
31, 2000. KPMG had been consulted by the Company in August 1999 to determine the
proper accounting treatment of certain loans which were made at the Ft. Payne,
Alabama Wal-Mart office of Community Bank. KPMG issued a report on the
appropriate application of generally accepted accounting principles dated
October 14, 1999 to the Company in connection with the consultation, which was
filed as an exhibit to the Company's current reports on Forms 8-K and an
amendment to that current report on Form 8-K/A dated May 16 and 30, 2000,
respectively. KPMG's report addressed three issues identified by the Company:
(1) If the loans were individually evaluated for impairment would the loans be
considered impaired under Statement of Financial Accounting Standards No. 114,
Accounting by Creditors for Impairment of a Loan ("Statement 114"); (2) If the
loans are impaired loans, should the expected insurance proceeds under the
Company's fidelity bond be included in the loans' expected future cash flows in
measuring impairment under Statement 114; (3) If the insurance proceeds should
not be included in measuring impairment, how should the Company record the
effect of the expected reimbursement? KPMG's conclusions, all of which are based
on the facts of the transaction provided by management, were as follows: Issue
(1) - The loans should be considered impaired according to Statement 114; Issue
(2) - The expected insurance proceeds should not be included in the loans'
expected future cash flows in measuring impairment; and Issue (3) - If
management expects to receive a full recovery of the loss from its insurance
carrier, the Company should recognize an asset equal to the expected proceeds,
and the related income statement impact should be included as a component of
non-interest income. The Company had consulted Dudley, Hopton-Jones about these
loans earlier in 1999. Dudley, Hopton-Jones' conclusion at that time was that
the loans should be netted against the insurance proceeds and recorded as a net
transaction. After reviewing KPMG's report, Dudley, Hopton-Jones agreed with the
conclusions of KPMG, which were substantially the same as Dudley, Hopton-Jones'
earlier conclusions.
On September 21, 2000, KPMG informed an officer of the Company that it
was no longer willing to serve as the Company's independent accountant for the
year ending December 31, 2000. KPMG cited concerns about the existence of
certain litigation and ongoing investigations, which were previously disclosed
in the Company's periodic reports filed with the Securities and Exchange
Commission during 2000, and the reassignment of the Company's acting chief
financial officer which KPMG perceived as a break in the Company's continuity of
management. During the two fiscal years and the subsequent interim period
preceding the change in accountants there were no disagreements between the
Company and KPMG on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which, if not resolved to
the satisfaction of KPMG, would have caused KPMG to make a reference to the
subject matter of the disagreement in connection with its reports, nor had KPMG
in either of the preceding two years issued an adverse opinion or disclaimer of
opinion with respect to the Company's financial statements or qualified or
modified its opinion as to uncertainty, audit scope or accounting principles.
KPMG had not issued any written opinions in connection with the Company's
financial statements. The Company provided to KPMG a copy of the disclosures
contained in the Company's current report on Form 8-K dated September 28, 2000
and requested a letter from KPMG addressed to the Securities and Exchange
Commission stating whether it agreed with the disclosures contained within the
report, and, if not, stating the respects in which it did not agree. The letter
from KPMG dated October 4, 2000 stated that KPMG agreed with the Company's
disclosure regarding these matters and was filed as an exhibit to the Company's
current report on Form 8-K filed October 10, 2000.
In November 2000, the Company engaged Dudley, Hopton-Jones to review
the Company's interim financial statements included in the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2000.
21
on November 20, 2000, Dudley, Hopton-Jones provided the Company with a written
report on such review, which stated that, based on its review, Dudley,
Hopton-Jones was not aware of any material modifications that should be made to
such interim financial statements for them to be in conformity with generally
accepted accounting principles. A copy of such written report was filed as an
exhibit to the Company's current report on Form 8-K filed February 15, 2001. The
Company did not consult with KPMG regarding such review.
On February 8, 2001, the Company engaged Dudley, Hopton-Jones as the
Company's independent accountant for the year ended December 31, 2000. As
stated above, Dudley, Hopton-Jones was also engaged to serve as the Company's
independent accountant for 2001.
A representative from Dudley, Hopton-Jones is expected to attend the
Annual Meeting, have an opportunity to make a statement and be available to
respond to appropriate questions.
AUDIT FEES
Dudley, Hopton-Jones has billed the Company a total of $149,490 for
professional services rendered for the audit of the Company's financial
statements as of December 31, 2001 and for the reviews of the financial
statements included in the Company's Quarterly Reports on Form 10-Q filed with
the Securities and Exchange Commission during 2001. Dudley, Hopton-Jones
estimates that it will bill the Company an additional $137,500 in connection
with the audit of the Company's financial statements as of December 31, 2001.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
For the fiscal year ended December 31, 2001, there were no fees billed
by Dudley, Hopton-Jones for professional services rendered for information
technology services relating to financial information systems design and
implementation.
ALL OTHER FEES
Dudley, Hopton-Jones has billed the Company a total of $36,562 for
services rendered other than the services described above under "Audit Fees"
and "Financial Information Systems Design and Implementation Fees" for the
fiscal year ended December 31, 2001. The Company's Audit Committee has
determined that Dudley, Hopton-Jones' provision of such services is compatible
with maintaining its independence.
VOTING PROCEDURES
Under the Delaware General Corporation Law ("DGCL") and the Company's
Bylaws, the presence in person or by proxy of a majority of the outstanding
shares of Common Stock is necessary to constitute a quorum of the stockholders
to take action at the Annual Meeting. For these purposes, shares which are
present or represented by a proxy at the Annual Meeting will be counted for
quorum purposes regardless of whether the holder of the shares or the proxy
abstains from voting on any particular matter or whether a broker with
discretionary authority fails to exercise its discretionary voting authority
with respect to any particular matter. Under the DGCL, once a quorum of the
stockholders is established, (i) the directors standing for election must be
elected by a plurality of the shares of Common Stock present, in person or by
proxy, at the Annual Meeting, and (ii) any other action to be taken must be
approved by the vote of the holders of a majority of the shares of Common Stock
present, in person or by proxy, at the Annual Meeting, unless otherwise
provided in the Company's Certificate of Incorporation or Bylaws. Abstentions
will in effect count as votes against approval of actions to be taken at the
Annual Meeting other than election of directors. Broker non-votes will not have
an effect on the outcome of the election of directors or approval of any other
action the Company is aware is to be taken at the Annual Meeting.
22
MISCELLANEOUS INFORMATION
STOCKHOLDER PROPOSALS
Any proposals by stockholders intended to be presented at the
Company's 2003 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 January 31, 2003, 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 propose other business to be acted upon at the Company's 2002
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. Through notice
to the Company, Bryan A. Corr has been nominated for election to the Company's
Board of Directors as a Class III director. The persons named on the enclosed
proxy card will not vote to elect any person other than the persons nominated
on page 3 of this Proxy Statement, or if any such persons are unavailable to
serve or for good cause cannot serve, then the persons named on the enclosed
proxy card will vote for the election of such substitute as the members of the
Board of Directors may recommend. Instructions given on the enclosed proxy card
to the contrary will not be followed.
In order to give timely notice for the Company's 2003 annual meeting,
a 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 April 3, 2003, nor earlier than March 4, 2003. If the date of the
annual meeting is more than 30 days before or more than 60 days after July 2,
2003, 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
2003 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 2003 annual meeting of
stockholders, unless the Company receives notice of the matter(s) to be
proposed no later than April 3, 2003. 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.
23
PROXY CARD
COMMUNITY BANCSHARES, INC.
PROXY FOR 2002 ANNUAL MEETING OF STOCKHOLDERS
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Gary L. Duke and Gerald N. Player, and
either of them, or such other persons as the Board of Directors of Community
Bancshares, Inc. (the "Company") may designate, 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 the Company to be held at 10:00 a.m., Central Time, on Tuesday, July 2,
2002, at The Heritage Club, 111 Washington Street, N.E., 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 (I) FOR THE ELECTION OF A
PERSON TO THE BOARD OF DIRECTORS IF ANY NOMINEE NAMED HEREIN BECOMES UNABLE TO
SERVE OR FOR GOOD CAUSE WILL NOT SERVE, AND (II) UPON SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE ANNUAL MEETING, INCLUDING MATTERS INCIDENT TO THE
CONDUCT OF THE ANNUAL MEETING.
THIS PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS AND WILL BE
VOTED AS SPECIFIED. IF NOT OTHERWISE SPECIFIED, THE ABOVE NAMED PROXIES WILL
VOTE (1) FOR THE ELECTION AS CLASS III DIRECTORS OF THE NOMINEES NAMED ON THIS
CARD, AND (2) IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS
ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING.
1. Election of Class III Directors Nominees: Denny G. Kelly, Kennon R. Patterson, Sr. and Merritt Robbins
(or, in the event any such person is unable to serve, such nominee(s)
as are designated by the Company's Board of Directors)
[ ] 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.
Dated:_______________________________, 2002
Signature:_________________________________ IMPORTANT: Please sign exactly as your name or names
appear on this proxy card and mail promptly in the
enclosed envelope. If you sign as an agent or in any
Signature:_________________________________ other capacity, please state the capacity in which you sign.
(if held jointly)