SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934.
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] 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 Pursuant to ss. 240.14a-12
COMMUNITY BANKSHARES, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee Required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
_________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
_________________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
_________________________________________________________________________
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 BANKSHARES, INC.
102 Founders Court
Post Office Box 2086
Orangeburg, South Carolina 29116-2086
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held May 21, 2007
TO THE SHAREHOLDERS:
The Annual Meeting of the Shareholders of Community Bankshares, Inc., a
South Carolina corporation, will be held at the Carolina Room, 1225 Orangeburg
Mall Circle, Orangeburg Mall, Orangeburg, South Carolina at 3:00 p.m., on
Monday, May 21, 2007, for the following purposes:
(1) To elect four directors to each serve three-year terms and one
director to serve a two-year term;
(2) To approve the Community Bankshares, Inc. 2007 Equity Plan; and
(3) To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
You are only entitled to notice of and to vote at the Annual Meeting or
any adjournment thereof if you were a record holder of our common stock at the
close of business on March 15, 2007.
You are cordially invited and urged to attend the Annual Meeting in
person. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE
COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED
ENVELOPE. IF YOU NEED ASSISTANCE IN COMPLETING YOUR PROXY, PLEASE CALL THE
COMPANY AT (803) 535-1060 or (888) 329-1060. IF YOU ARE THE RECORD OWNER OF YOUR
SHARES AND ATTEND THE ANNUAL MEETING AND DESIRE TO REVOKE YOUR PROXY AND VOTE IN
PERSON, YOU MAY DO SO. IN ANY EVENT, A PROXY MAY BE REVOKED BY THE RECORD OWNER
OF SHARES AT ANY TIME BEFORE IT IS EXERCISED.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
APPROVAL OF ALL THE PROPOSALS PRESENTED.
By Order of the Board of Directors
William W. Traynham
President
Orangeburg, South Carolina
April 16, 2007
COMMUNITY BANKSHARES, INC.
102 Founders Court
Post Office Box 2086
Orangeburg, South Carolina 29116-2086
PROXY STATEMENT
For the Annual Meeting of Shareholders
to be Held May 21, 2007
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We are providing this Proxy Statement in connection with the solicitation
of proxies by the Board of Directors of Community Bankshares, Inc. for use at
our Annual Meeting of Shareholders to be held at the Carolina Room, 1225
Orangeburg Mall Circle, Orangeburg Mall, Orangeburg, South Carolina at 3:00 p.m.
on Monday, May 21, 2007, or at any adjournment of the meeting (the "Annual
Meeting"), for the purposes set forth in the accompanying Notice of Annual
Meeting of Shareholders. Throughout this Proxy Statement, we use terms such as
"we", "us", "our" and "our Company" to refer to Community Bankshares, Inc., and
terms such as "you" and "your" to refer to our shareholders.
We may solicit proxies in person or by mail, telephone or other electronic
means through our directors, officers and regular employees, none of whom will
be specially compensated for doing so. We will also ask banking institutions,
brokerage firms, custodians, nominees and fiduciaries to forward solicitation
materials to the beneficial owners of our common stock held of record by such
persons, and we will reimburse the reasonable forwarding expenses. We will pay
all of the costs of solicitation of proxies. We first began mailing this Proxy
Statement to our shareholders on or about April 16, 2007.
Our principal executive offices are located at 102 Founders Court,
Orangeburg, South Carolina 29115, and our telephone number is (803) 535-1060 or
(888) 329-1060.
ANNUAL REPORT
Our Annual Report on Form 10-K covering our fiscal year ended December 31,
2006, including financial statements, constitutes our Annual Report to
Shareholders and is included (without exhibits) with this Proxy Statement. The
Annual Report does not form any part of the material for solicitation of
proxies.
MATTERS TO BE VOTED ON AT THE ANNUAL MEETING OF SHAREHOLDERS
Election of Directors
Our Bylaws provide for a Board of Directors consisting of not less than
nine nor more than twenty-four directors divided into three classes each serving
three-year staggered terms. The number of directors is currently fixed by the
Board at thirteen. Our Board has nominated Samuel L. Erwin, Anna O. Dantzler,
Richard L. Havekost and Samuel F. Reid, Jr. for re-election by the shareholders
at the 2007 Annual Meeting to serve for three-year terms and Charles P.
Thompson, Jr. to serve for a two-year term. All directors serve until their
successors are elected and qualified to serve. All of the nominees are presently
serving as our directors and have served continuously since first becoming
directors. We recommend a vote "FOR" all of the Board's nominees.
If any of the nominees were to become unable or unwilling to serve upon
election, the proxy agents intend to vote for the election, in his or her stead,
of such other person or persons as our Board of Directors may recommend. Our
Board of Directors has no reason to believe that any of the nominees will be
unable or unwilling to serve if elected.
Approval of the Community Bankshares 2007 Equity Plan
At the Annual Meeting, our Board of Directors is also requesting that
shareholders approve the 2007 Community Bankshares Equity Plan. The Plan
authorizes the issuance of up to 350,000 shares of our common stock to employees
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and non-employee directors (including directors and regional directors of
subsidiaries) directly or through the use of options, restricted stock, stock
appreciation rights and other awards. The purpose of the Plan is to provide
financial incentives for selected employees and non-employee directors, thereby
promoting the long-term growth and financial success of the Company by (a)
attracting and retaining employees and non-employee directors of outstanding
ability, (b) strengthening the Company's capability to develop, maintain, and
direct a desirable management team, (c) providing an effective means for
selected employees and non-employee directors to acquire and maintain ownership
of Company Stock, (d) motivating employees to achieve long-range performance
goals and objectives, and (e) providing competitive incentive compensation
opportunities. The Plan is more fully explained under the caption "PROPOSAL TO
ADOPT THE COMMUNITY BANKSHARES, INC. 2007 EQUITY PLAN."
VOTING PROCEDURES AND MATTERS RELATING TO PROXIES
Voting
If you hold your shares of record in your own name, you can vote your
shares by marking the enclosed proxy form, dating it, signing it, and returning
it to us in the enclosed postage-paid envelope. If you are a shareholder of
record, you can also attend the Annual Meeting and vote in person. If you hold
your shares in street name with a broker or other nominee, you can direct your
vote by submitting voting instructions to your broker or nominee in accordance
with the procedure on the voting card provided by your broker or nominee. If you
hold your shares in street name, you may attend the Annual Meeting, but you may
not vote in person without a proxy appointment from a shareholder of record.
Revocation of Proxy
If you are a record shareholder and execute and deliver a proxy, you have
the right to revoke it at any time before it is voted by delivering to William
W. Traynham, President, Community Bankshares, Inc., at 102 Founders Court,
Orangeburg, South Carolina 29115, or by mailing to Mr. Traynham at P.O. Box
2086, Orangeburg, South Carolina 29116-2086, an instrument which by its terms
revokes the proxy. If you are a record shareholder, you may also revoke your
proxy by delivering to us a duly executed proxy bearing a later date. Written
notice of your revocation of a proxy or delivery of a later dated proxy will be
effective when we receive it. Your attendance at the Annual Meeting will not in
itself constitute revocation of a proxy. However, if you are a record
shareholder and desire to do so, you may attend the meeting and vote in person
in which case the proxy will not be used. If you hold your shares in street name
with a broker or other nominee, you may change or revoke your proxy instructions
by submitting new voting instructions to the broker or other nominee.
Quorum, Vote Required and Method of Counting Votes
Our only voting security is our no par value common stock, each share of
which entitles the record holder to one vote on each matter to come before the
Annual Meeting. At the close of business on March 15, 2007, (the "Record Date"),
we had issued and outstanding 4,464,772 shares of common stock, which were held
of record by approximately 2,085 persons. You are only entitled to notice of and
to vote on matters that come before the Annual Meeting if you were our
shareholder of record at the close of business on the Record Date. Although
shares of our common stock may be transferred subsequent to the Record Date, all
votes must be cast in the names of holders of record on the Record Date.
The presence in person or by proxy of the holders of one-third of the
outstanding shares of our common stock entitled to vote at the Annual Meeting is
necessary to constitute a quorum at the Annual Meeting. If a share is
represented for any purpose at the Annual Meeting by the presence of the
registered owner or a person holding a valid proxy for the registered owner, it
is deemed to be present for the purposes of establishing a quorum. Therefore,
valid proxies which are marked "Abstain" or "Withhold" or as to which no vote is
marked, including proxies submitted by brokers that are the record owners of
shares (so-called "broker non-votes"), will be included in determining the
number of votes present or represented at the Annual Meeting. If a quorum is not
present or represented at the meeting, the shareholders entitled to vote,
present in person or represented by proxy, have the power to adjourn the meeting
from time to time, without notice other than an announcement at the meeting,
until a quorum is present or represented. Our directors, officers and regular
employees may solicit proxies for the reconvened meeting in person or by mail,
telephone or other electronic means. At any such reconvened meeting at which a
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quorum is present or represented, any business may be transacted that might have
been transacted at the meeting as originally noticed.
If a quorum is present at the meeting, directors will be elected by a
plurality of the votes cast by shares present and entitled to vote at the
meeting. "Plurality" means that if there are more nominees than positions to be
filled, the individuals who receive the largest number of votes cast for the
positions to be filled will be elected as directors. . Because the number of
nominees for election at the 2007 Annual Meeting is the same as the number of
positions to be filled, we expect that all of the Board of Directors' nominees
will be elected. Votes that are withheld or shares that are not voted in the
election of directors will have no effect on the outcome of election of
directors. Cumulative voting is not permitted.
If a quorum is present, adoption of the Community Bankshares, Inc. 2007
Equity Plan will be approved if a majority of the votes cast are voted in favor
of approval. Abstentions or shares that are not voted with respect to approval
of the plan will have the effect of a vote against approval of the plan. Any
other matters which may be considered and acted upon by our shareholders at the
Annual Meeting will be approved if the votes cast in favor of the proposal
exceed the votes cast against the proposal. Abstentions or shares that are not
voted with respect to any such matter will not have any effect on the outcome of
such vote.
Actions to be taken by the Proxies
Our Board of Directors selected the persons named as proxies in the
accompanying form of proxy. When the form of proxy enclosed is properly executed
and returned, the shares that it represents will be voted at the meeting. Unless
you otherwise specify therein, your proxy will be voted "FOR" the election of
the persons named in this Proxy Statement as the Board of Directors' nominees
for election to the Board of Directors, and "FOR" the approval of the Community
Bankshares, Inc. 2007 Equity Plan. In each case where you have appropriately
specified how the proxy is to be voted, it will be voted in accordance with your
specifications. Our Board of Directors is not aware of any other matters that
may be presented for action at the Annual Meeting of Shareholders, but if other
matters do properly come before the meeting, the persons named in the proxy
intend to vote on such matters in accordance with their best judgment.
SHAREHOLDER PROPOSALS
If you wish to present a proposal for action at the 2008 Annual Meeting of
Shareholders, you must deliver the proposal to our President, William W.
Traynham, at our executive offices, 102 Founders Court, Orangeburg, South
Carolina, or mail it to Mr. Traynham at P.O. Box 2086, Orangeburg, South
Carolina 29116-2086. If you wish for us to include any such proposal in our
proxy statement and form of proxy for the 2008 Annual Meeting of Shareholders,
you must send or deliver the proposal in time for Mr. Traynham to receive it no
later than December 17, 2007. If any shareholder proposal is not received by Mr.
Traynham by March 2, 2008, the persons named as proxies in the proxy materials
relating to that meeting will use their discretion in voting the proxies when
the proposal is raised at the meeting. Only proper proposals that are timely
received will be included in our proxy statement and proxy.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows, as of March 29, 2007, the number and percentage
of outstanding shares beneficially owned by (i) each of our directors and
director nominees, (ii) each person named in the Summary Compensation Table, and
(iii) all of our executive officers and directors as a group. We do not know of
anyone who owns more than 5% of our outstanding common stock.
Amount and Nature of % of Class
Name of Beneficial Owner Beneficial Ownership
------------------------ -------------------- ----------
E. J. Ayers, Jr. .................. 88,280 (1) 1.97%
Gregory G. Burke .................. 8,000 (2) *
Alvis J. Bynum .................... 32,685 (3) *
Martha Rose C. Carson ............. 66,629 (4) 1.49%
Anna O. Dantzler .................. 90,500 (5) 2.02%
Jo H. Davies ...................... 3,500 (6) *
Thomas B. Edmunds ................. 20,000 (7) *
Samuel L. Erwin ................... 32,275 (8) *
Charles E. Fienning ............... 16,535 (9) *
J. M. Guthrie ..................... 170,000 (10) 3.80%
Richard L. Havekost ............... 12,450 (11) *
J. V. Nicholson, Jr. .............. 135,000 (12) 3.02%
Samuel F. Reid, Jr. ............... 53,702 (13) 1.20%
Charles P. Thompson, Jr. .......... 22,522 *
William W. Traynham, Jr. .......... 65,561 (14) 1.46%
Wm. Reynolds Williams ............. 11,627 (15) *
Michael A. Wolfe .................. 56,854 (16) 1.27%
All executive officers and
directors as a group (18)
persons) .......................... 891,120 (18) 19.33%
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*Less than one percent.
(1) Includes 1,680 shares owned by Nancy R. Ayers, Mr. Ayers' wife; 2,030
shares owned by an IRA for the benefit of Nancy R. Ayers; 1,680 shares held
by an IRA for the benefit of Mr. Ayers; and 5,000 shares subject to stock
options which are currently exercisable.
(2) Includes 8,000 stock options which are currently exercisable.
(3) Includes 5,874 shares owned by Marjorie F. Bynum, Mr. Bynum's wife; and
8,150 shares subject to stock options which are currently exercisable.
(4) Includes 10,250 shares subject to stock options which are currently
exercisable and 36,100 shares pledged as collateral.
(5) Includes 10,500 shares held jointly with Charlton Ardis, Mrs. Dantzler's
son; and 10,250 shares subject to stock options which are currently
exercisable.
(6) Includes 3,500 stock options which are currently exercisable.
(7) Includes 10,000 shares held by Lucy Edmunds, Mr. Edmunds' wife.
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(8) Includes 30,000 stock options which are currently exercisable.
(9) Includes 5,070 shares owned by Suzanne S. Fienning, Mr. Fienning's wife.
(10) Includes 159,750 shares owned jointly with Lou D. Guthrie, Mr. Guthrie's
wife; and 10,250 shares subject to stock options which are currently
exercisable.
(11) Includes 4,050 shares subject to stock options which are currently
exercisable.
(12) Includes 67,500 shares owned by Ellen Nicholson, Mr. Nicholson's wife.
(13) Includes 14,052 shares held by Mr. Reid as trustee for his children; 16,800
shares owned by Rosa G. Reid, Mr. Reid's wife; and 10,250 shares subject to
stock options which are currently exercisable.
(14) Includes 18,436 shares owned jointly with Margaret S. Traynham, Mr.
Traynham's wife; 2,180 shares owned jointly with children; 15,250 shares
subject to stock options which are currently exercisable. Of the total
shares shown as beneficially owned by Mr. Traynham, 15,000 shares are
pledged as collateral.
(15) Includes 600 shares owned jointly with Mary T. Williams, Mr. Williams'
wife; and 4,050 shares subject to stock options which are currently
exercisable.
(16) Includes 2,352 shares owned by Mr. Wolfe's wife, Joye McGrady Wolfe, as
custodian for minor children; and 15,250 shares subject to stock options
which are currently exercisable. Of the total shares shown as beneficially
owned by Mr. Wolfe, 13,646 shares are pledged as collateral.
(17) Includes 144,400 shares subject to stock options which are currently
exercisable.
MANAGEMENT
Directors
The table below shows the age, business experience for the past five
years, and term in office for each of our directors. Each of our directors is
also a director of our wholly-owned subsidiary, Community Resource Bank (our
"Bank"). Prior to the merger (the "Merger") of our four former subsidiary banks,
Orangeburg National Bank, Sumter National Bank, Florence National Bank and Bank
of Ridgeway, into Community Resource Bank last year, each of our directors was
also a director of one or more of those banks as shown below. There are no
family relationships among any of our directors or executive officers. Mr.
Thompson was elected by our Board of Directors in February 2007 and has not
previously been elected by our shareholders. Mr. Thompson was nominated for
election to our Board by a non-management director.
Name (and age) Director Since Business Experience During the Past 5 Years
-------------- -------------- -------------------------------------------
Nominees for Election to Serve Until 2010
Samuel L. Erwin (39) 2005 Chief Executive Officer of our Company since January 2005;
Orangeburg, S.C. Senior Vice President and Commercial Relationship Manager
for Carolina National Bank from June 2002 to December 2004;
Senior Vice President and Market President for First Union
National Bank from January 2000 to June 2002.
Anna O. Dantzler (68) 1994 Retired since 1989; former customer service representative
Orangeburg, S.C. for Orangeburg National Bank; director of Orangeburg
National Bank until the Merger.
Richard L. Havekost (67) 1998 Licensed professional engineer; Principal in Raldex, Inc.
Florence S.C. (investor in motel properties); Principal and Secretary of
RDBP, Inc. (retail beverage store); from 1967 to 1993,
employed by Nucor Corp. in various capacities, including
Vice President of Nucor Corp. and General Manager of the
Florence Division; director of Florence National Bank until
the Merger.
Samuel F. Reid, Jr. (59) 1994 Attorney, Horger, Barnwell & Reid; director of Orangeburg
Orangeburg, S.C. National Bank until the Merger.
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Nominee for Election to Serve Until 2009
Charles P. Thompson, Jr. (60) 2007 Pharmacist, developer of medical office parks; director of
Orangeburg, S.C. Orangeburg National Bank for ten years until the Merger;
Director of our Company and our Bank since February 2007.
Current Directors Whose Terms Expire in 2008
Thomas B. Edmunds (69) 2002 Chairman of the Board of Directors of our Company since
Columbia, S.C. January, 2007; retired financial consultant, Merrill Lynch;
director of Community Resource Mortgage; director of Bank of
Ridgeway until the Merger.
Martha Rose C. Carson (71) 1987* President, Marty Rae, Inc. (apparel and furniture
Orangeburg, S.C. retailers); director of Orangeburg National Bank until the
Merger.
J. M. Guthrie (79) 1987* President, Superior Motors, Inc.; Vice President, Superior
Orangeburg, S.C. Honda car dealerships; Chairman of the Board of Directors of
Orangeburg National Bank until the Merger.
Wm. Reynolds Williams (61) 1998 Attorney, Managing Partner, Willcox, Buyck & Williams, P.A.;
Florence, S.C. Chairman of the Board of Directors of Florence National Bank
until the Merger.
Charles E. Fienning (64) 2005 President and Chief Executive Officer of Sumter Packaging
Sumter, S.C. Corporation since 1984; Chairman of the Board of Directors
of Sumter National Bank until the Merger.
Current Directors Whose Terms Expire in 2009
E. J. Ayers, Jr. (74) 1987* Chairman of the Board of Directors of our Company from
Orangeburg, S.C. January, 1999 until January 1, 2007; director of Community
Resource Mortgage; Chief Executive Officer of our Company
from January 1999 until December 2004; director of
Orangeburg National Bank until the Merger.
Avis J. Bynum (69) 1996 Retired President, Cities Supply Co. (waterwork supplies
Sumter, S.C. distributor); director of Community Resource Mortgage;
director of Sumter National Bank until the Merger.
J. V. Nicholson, Jr. (62) 2002 Retired dentist; Chairman of Bank of Ridgeway until the
Ridgeway, S.C. Merger; Chairman of Ridgeway Bankshares from 2001 to June
2002.
--------------------
* Includes service as Director of Orangeburg National Bank prior to formation of
the Company in 1992.
Executive Officers
Information about Mr. Erwin, our Chief Executive Officer is set forth
above under "--Directors." William W. Traynham (age 51) has served as our
President and Chief Financial Officer since 1992. Michael A. Wolfe (age 49) has
served as President of Community Resource Bank since June 2006. Prior to that
time, Mr. Wolfe had been President and Chief Executive Officer of our former
subsidiary, Orangeburg National Bank, since 1992. Gregory G. Burke (age 46) has
served as our Chief Credit Officer since April 2005. Mr. Burke was a senior
credit officer for First Citizens of South Carolina from June 2001 until April
2005. Jo H. Davies (age 43) has served as our Chief Information Officer since
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2002. Ms. Davies was a self-employed systems analyst and information technology
consultant from 1997 until her employment by our Company in 2002.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee
We have a separately designated standing Audit Committee established in
accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. Our
Audit Committee is comprised of Alvis J. Bynum, Anna O. Dantzler, Thomas B.
Edmunds, Charles E. Fienning (chairman), Richard L. Havekost, and J. V.
Nicholson, Jr., all of whom are non-employee directors. Each member of the Audit
Committee is independent as defined in Section 121A of the American Stock
Exchange's listing standards, as modified or supplemented (the "AMEX Rules"),
and also meets the independence standards of the Securities and Exchange
Commission's Rule 10A-3(b). Our Audit Committee is responsible for appointment
of the independent auditors and oversees the internal and external audit
function. The Audit Committee acts pursuant to a written charter adopted by our
Board of Directors, a copy of which is available on our website at
www.communitybanksharesinc.com. The Audit Committee met seven times in 2006.
Compensation Committee
We have a Compensation Committee comprised of Alvis J. Bynum
(chairman), J. M. Guthrie, Charles E. Fienning, J. V. Nicholson and Wm. Reynolds
Williams. Each member of our Compensation Committee is independent as defined in
the AMEX Rules. The Compensation Committee met three times during 2006.
The Compensation Committee reviews our compensation policies and
recommends to the Board the compensation levels and compensation programs for
executive officers and directors. The ultimate decisions about compensation
levels and compensation programs are made by our full Board, which may accept or
reject the recommendations of the Committee. Our Compensation Committee has
delegated to Mr. Erwin, our Chief Executive Officer, authority to set the
amounts and types of compensation to be paid to our executive officers, other
than Mr. Erwin, Mr. Wolfe and Mr. Traynham; provided, however, only our
Compensation Committee or our Board has authority to approve any stock-based
compensation. Mr. Erwin makes recommendations to our Compensation Committee as
to the amounts and types of compensation to be paid to Mr. Wolfe and Mr.
Traynham and the committee makes the final decision with respect to their
compensation. The Compensation Committee does not delegate its authority to any
other persons. However, the Committee does delegate responsibility for
administering parts of our compensation programs to our Human Resources
Department. Neither the Committee nor management uses compensation consultants
to determine or recommend the amount or form of executive officer or director
compensation, except with respect to the proposed Community Bankshares 2007
Equity Plan.
Governance and Nominating Committee
We have a Governance and Nominating Committee comprised of Alvis J.
Bynum, Martha Rose C. Carson, Thomas B. Edmunds, Richard L. Havekost, and Samuel
F. Reid, Jr. (chairman). Each member of our Governance and Nominating Committee
is independent as defined in the AMEX Rules. The Committee operates pursuant to
a charter approved by our Board of Directors, a copy of which is available on
our website at www.communitybanksharesinc.com. The Governance and Nominating
Committee met six times during 2006.
GOVERNANCE MATTERS
Board Member Independence
The American Stock Exchange's Listing Standards require that a majority
of the members of our Board of Directors be independent as defined by the AMEX
Rules. We have determined that the following directors are independent under the
listing standards: Alvis J. Bynum, Martha Rose C. Carson, Anna O. Dantzler,
Thomas B. Edmunds, Charles E. Fienning, J. M. Guthrie, Richard L. Havekost, J.
V. Nicholson, Jr., Samuel F. Reid, Jr., Charles P. Thompson, Jr., and Wm.
Reynolds Williams. As disclosed under "Certain Relationships and Related
Transactions" our independent directors, members of their immediate families and
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some of their affiliates may from time to time have loan and deposit
relationships with our Bank. These relationships are not considered by our Board
to compromise their independence.
Director Nomination Process
In recommending director candidates, our Nominating Committee takes
into consideration such factors as it deems appropriate based on our current
needs. These factors generally include diversity, age, skills such as
understanding of banking and general finance, decision-making ability,
inter-personal skills, experience with businesses and other organizations of
comparable size, community activities and relationships, commitment to a
significant financial investment in our stock, and the interrelationship between
the candidate's experience and business background and our other Board members'
experience and business background, as well as the candidate's ability to devote
the required time and effort to serve on the Board.
The committee will consider candidates recommended by shareholders for
nomination as a Board of Directors' nominee if the shareholders comply with the
following requirements. If you wish to recommend a director candidate to the
committee for consideration as a Board of Directors' nominee, you must submit in
writing to the committee the recommended candidate's name, a brief resume
setting forth the recommended candidate's business and educational background
and qualifications for service, and a notarized consent signed by the
recommended candidate stating the recommended candidate's willingness to be
nominated and to serve. You must deliver this information to our Nominating
Committee at our address and the committee must receive it no later than January
15 in any year for your candidate to be considered as a potential Board of
Directors' nominee at the Annual Meeting of Shareholders for that year. The
committee may request further information if it determines a potential candidate
may be an appropriate nominee. Director candidates recommended by shareholders
that comply with these requirements will receive the same consideration that the
committee's other candidates receive.
Director candidates recommended by shareholders will not be considered
for recommendation by the committee as potential Board of Directors' nominees if
the shareholder recommendations are received later than January 15 in any year.
Nevertheless, shareholders may nominate director candidates for election at the
annual meeting, but no person who is not already a director may be elected at an
annual meeting of shareholders unless that person is nominated in writing at
least 30 days prior to the meeting. Such nominations, other than those made by
or on behalf of our existing management, must be made in writing and must be
delivered or mailed to our President, not less than 30 days prior to any meeting
of shareholders called for the election of directors. The presiding officer of
the meeting may disregard nominations not made in accordance with these
requirements, and upon his instructions, the vote tellers shall disregard all
votes cast for each such nominee.
Attendance at Meetings of the Board of Directors and Shareholder Meetings
Our Board of Directors held 12 meetings during 2006. Each current
director, except Mr. Williams, attended at least 75% of the total number of
meetings of our Board of Directors and committees on which he or she served
during the period in 2006 for which he or she served as director.
We encourage, but do not require, our directors to attend annual
meetings of shareholders. Last year, 12 of our 13 directors attended the annual
meeting of shareholders.
Shareholder Communications with the Board of Directors
If you wish to send communications to the Board of Directors, you
should mail them addressed to the intended recipient by name or position in care
of: Corporate Secretary, Community Bankshares, Inc., P.O. Box 2086, Orangeburg,
South Carolina 29116. Upon receipt of any such communications, the Corporate
Secretary will determine the identity of the intended recipient and whether the
communication is an appropriate shareholder communication. The Corporate
Secretary will send all appropriate shareholder communications to the intended
recipient. An "appropriate shareholder communication" is a communication from a
person claiming to be a shareholder in the communication the subject of which
9
relates solely to the sender's interest as a shareholder and not to any other
personal or business interest.
In the case of communications addressed to the Board of Directors, the
Corporate Secretary will send appropriate shareholder communications to the
Chairman of the Board. In the case of communications addressed to the
independent or outside directors, the Corporate Secretary will send appropriate
shareholder communications to the Chairman of the Audit Committee. In the case
of communications addressed to committees of the Board, the Corporate Secretary
will send appropriate shareholder communications to the Chairman of such
committee.
MANAGEMENT COMPENSATION
Compensation Discussion and Analysis
The following discussion provides information about our compensation
program for all of our executive officers, as well as a specific discussion for
our Chief Executive Officer, our Chief Financial Officer, and each of the other
executive officers named in the Summary Compensation Table that follows this
"Compensation Discussion and Analysis."
Overview of Executive Compensation
The components of compensation for our executive officers include base
salary, cash incentive awards, insurance and other related benefits, and
equity-based awards. The framework of these components is reviewed and approved
annually by the Compensation Committee. Our objectives in setting, and reasons
for paying, each element of executive compensation are:
o To attract, retain and motivate executive officers who are
responsible for carrying out our strategic plans;
o To maintain a compensation structure that is competitive in our
marketplace;
o To promote internal equity as determined by the relative value of
each executive officer's role in executing our strategic plans;
o To link annual incentive cash awards with specific profitability
goals and individual performance results; and
o To provide long-term equity-based incentive awards that help
align the interests of management with the interests of
shareholders.
Compensation is designed to reward our individual executive officers
both for their personal performance and for performance of our Company with
respect to profitability and growth in shareholder value.
Our Compensation Committee has delegated to Mr. Erwin, our Chief
Executive Officer, authority to set the amounts and types of compensation to be
paid to our executive officers, other than Mr. Erwin, Mr. Wolfe and Mr.
Traynham; provided, however, only our Compensation Committee or our Board has
authority to approve any equity-based compensation. Mr. Erwin makes
recommendations to our Compensation Committee as to the amounts and types of
compensation to be paid to Mr. Wolfe and Mr. Traynham and the Committee makes
the final decision with respect to their compensation. Mr. Erwin's base salary,
maximum possible incentive compensation and stock option awards for the first
three years of his employment are provided for in the employment agreement he
entered into with us on January 1, 2005. During those three years, the actual
amount of any incentive compensation and any other elements of compensation not
fixed by the agreement to be paid to Mr. Erwin will be recommended by the
Compensation Committee to the Board and the Board will make the final decision.
After the first three years of his employment agreement, the Compensation
Committee will make recommendations to the Board about the amounts and types of
compensation to be awarded to Mr. Erwin and the Board will make the final
decision.
The Compensation Committee makes its decisions about allocations
between long-term and current compensation, allocations between cash and
non-cash compensation, and allocations among various forms of compensation, in
10
its discretion based on the Committee's subjective assessment of how these
allocations will best meet the Committee's overall compensation goals. Mr. Erwin
makes his decisions and recommendations about these allocations based on the
parameters set by the Committee.
The Committee believes that reasonable levels of base salary and broad
based benefits are necessary for us to remain competitive in hiring and
retaining senior executives. The Committee has designed both short-term cash and
long-term equity-based incentive compensation to motivate our senior executives
to strive for exemplary levels of performance in carrying out our strategic
plans. To date, amounts realizable from prior compensation have not been a
factor in the determination of equity-based awards for senior executives.
Components of 2006 Executive Compensation
During 2006, executive compensation consisted primarily of two key
components: base salary and cash incentive awards. We also provided various
additional benefits to executive officers, including health, life and disability
plans, employment and change of control arrangements, and perquisites. For 2006,
base salary comprised approximately 69% of total executive officer compensation,
incentive compensation comprised approximately 25% of total executive officer
compensation, benefit plans comprised approximately 5% of total executive
officer compensation, and perquisites comprised approximately 1% of total
executive officer compensation. With the exception of a grant of options to Mr.
Erwin as required under his employment agreement with us, we did not grant
options or other equity-based compensation to our executive officers for 2006.
The Compensation Committee based its decision to allocate executive officer
compensation in this manner on its subjective assessment of how such allocation
would meet our goals of remaining competitive with the compensation practices of
a group of surveyed companies and of linking compensation to our corporate
performance and individual executive officer performance.
A more detailed discussion of each of these components of executive
compensation, the reasons for awarding such types of compensation, the
considerations in setting the amounts of each component of compensation, the
amounts actually awarded for the periods indicated, and various other related
matters is set forth in the sections and tables below.
Factors Considered in Setting Compensation
Use of Market Surveys and Peer Group Data
To remain competitive in the executive workforce marketplace, we
believe it is important to consider comparative market information about
compensation paid to executive officers of other financial institutions in our
market area, the State of South Carolina and the Southeastern United States, as
well as compensation paid to other executives with similar levels of skills and
responsibility in those areas. We want to be able to attract and retain highly
skilled and talented executive officers who have the ability to carry out our
short- and long-term goals. To do so, we must be able to compensate them at
levels that are competitive with compensation offered by other companies in our
business or geographic marketplace that seek similarly skilled and talented
executives.
The market survey information we use is derived from publicly available
compilations provided in surveys prepared by the South Carolina Bankers
Association ("SCBA") and the American Bankers Association ("ABA"). The banks
included in the SCBA survey, all of which are located in South Carolina, are:
o Bank of Clarendon o Independence National Bank
o Bank of York o Islands Community Bank
o Capital Bank o Lowcountry National Bank
o Carolina National Bank o Mutual Savings Bank
o Coastal Federal Bank o Peoples National Bank
o Community First Bank o Pickens Savings and Loan Association
o Conway National Bank o Provident Community Bank
o Crescent Bank o Security Federal Bank
o First Bank o South Carolina Bank and Trust
o First Citizens Bank o Synovus Financial Corp.
o First Community Bank o The Bank of South Carolina
11
o First National Bank of the South o The Citizens Bank
o Greer State Bank o Williamsburg First National Bank
o Heritage Community Bank
The SCBA survey reports results by asset size, and we use the results for banks
with greater than $300 million in assets for comparative purposes. The banks in
the ABA survey information we use are not specifically named, but are located in
the Southeast and range in size from $100 million to $1 billion in assets.
We believe the financial institutions included in the market survey
information we consider are an appropriate group to use for compensation
comparisons because they align well with our asset levels, the nature of our
business and workforce, and the talent and skills required for successful
operations. The companies we use for comparisons may change from time to time
based on the factors discussed above.
Other Factors Considered
In addition to considering market survey comparisons, in setting
compensation we consider each executive's knowledge, skills, scope of authority
and responsibilities and job performance, as well as our perception of the
fairness of the compensation paid to each executive in relation to what we pay
our other executive officers. As noted above, the committee also considers
recommendations from our Chief Executive Officer in setting compensation for the
other executive officers.
We review our compensation program and levels of compensation paid to
all of our executive officers annually and make adjustments based on the
foregoing factors as well as other subjective factors.
Timing of Executive Compensation Decisions
We routinely perform annual salary reviews and make incentive pay
decisions in January of each year at the first regularly scheduled Compensation
Committee and Board meetings. Incentive awards are paid and salary increases are
effective in February. We may also make compensation determinations at other
times during the year in the case of newly hired executives or promotions of
existing employees that could not be deferred until the next Board of Directors
meeting. The Committee does not time any form of compensation award, including
equity-based awards, to coincide with the release of material non-public
information.
Base Salaries
The Committee initially sets base salaries at levels believed to be
externally competitive and internally equitable. As noted above, in determining
external competitiveness, we consider peer group comparisons from survey data
for executives with similar levels of skill and responsibility at other
financial institutions of comparable size and complexity in our market area, the
State of South Carolina and the Southeastern United States. In determining
internal equity, we consider criteria such as the executive's knowledge,
experience, skill, scope of decisions to be made, and level of authority.
The Committee determines increases in base salary by the use of formal
salary increase guidelines. These guidelines are based upon individual
performance and the individual's position within the salary range for his or her
position. Performance is evaluated on a scale of 1 (unsatisfactory) to 5
(outstanding), and the current salary level is evaluated as below minimum,
minimum to mid-point, mid-point to maximum, and over maximum. An individual
employee's results on both scales will determine any increase in base salary.
The guidelines for 2006 were primarily influenced by cost of living increases
and resulted in an average 4% increase.
As noted above, the base salaries for each of Mr. Erwin's first three
years of employment were specified in his employment agreement with us. For 2006
and 2007, the agreement set his base salary at $204,250 and $219,570,
respectively. After the initial three years, the contract provides that the
12
Board will periodically review his base salary and may increase (but may not
decrease) his base salary in accordance with our salary administration policies
and procedures.
Base salaries for each of Messrs. Erwin, Traynham, Wolfe, Burke and Ms.
Davies are set forth in the "Salary" column of the Summary Compensation Table.
For 2007, the Committee has set executive officer base salaries at the following
amounts: Mr. Erwin- $219,570 (as specified in his employment agreement); Mr.
Traynham - $160,125; Mr. Wolfe - $181,125; Mr. Burke- $138,075; Ms. Davies -
$133,500.
Incentive Compensation and Bonus
Under our Senior Management Incentive Plan, annual cash incentive
awards are directly linked to performance of our executive officers. Fifty
percent of each executive officer's incentive award is determined by our
financial performance, and the other fifty percent of the award is determined by
the individual executive's performance in achieving goals established at the
beginning of the year. We set an individual incentive award target ranging from
33% to 40% of base salary for each executive officer, and awards can range from
0 to 150% of this target depending on individual performance and our financial
performance. The plan provides that no payments will be made if we fail to earn
at least 75% of our budgeted net income.
For 2006, incentive award targets as a percentage of base salary were
40% of base salary for Mr. Traynham and Mr. Wolfe, and 33% of base salary for
Mr. Burke and Ms. Davies. As noted above, actual awards could range from 0% to
150% of these targets depending on our financial performance and the performance
of the individuals based on goals established at the beginning of the year and
appraised by Mr. Erwin at the end of year.
Our Company's financial goals for 2006 with respect to which executive
compensation was measured were to achieve annual return on assets and return on
equity at levels that would cause us to earn consolidated net income of at least
$5.3 million and to improve our asset quality by reducing charge offs and
nonaccrual loans. Our net income for 2006 was $5,009,000, an increase of
$3,998,000 or 395.5% over our net income for 2005, which was somewhat short of
our goal, but nonetheless, a significant achievement. Additionally, in 2006, our
management made numerous improvements in the lending area, including hiring new
loan personnel, improving our risk management systems, implementing more
extensive external loan reviews, redesigning loan approval processes, increasing
our use of technology, and more actively managing our problem and potential
problem loans. These improvements have already helped us to make significant
progress toward our goals of improving our asset quality, and we expect them to
continue to contribute toward our progress in this area throughout 2007 and
beyond.
In assessing personal performance of our executive officers for 2006,
we took into consideration the following specific contributions to our success.
With respect to Mr. Wolfe, President of our Bank, we took into specific
consideration his leadership in integrating four disparate banks into a unified
community bank poised for substantial growth. With respect to Mr. Traynham, our
President and Chief Financial Officer, we took into specific consideration his
extraordinary commitment of time and attention to matters related to the merging
of our four subsidiary banks into one bank, the time and expertise he devoted to
helping us comply with the complex financial regulatory and reporting
requirements applicable to public companies generally and financial institutions
specifically, and his involvement with the conversion of the management
information systems especially as related to the general ledger system. With
respect to Mr. Burke, our Chief Credit Officer, we took into specific
consideration his success in helping to identify and work toward resolution of
problem loans, his leadership in developing improved credit administration and
loan approval processes, and his efforts toward building a unified, safe and
sound, and coherent credit culture. With respect to Ms. Davies, our Chief
Information Officer, we took into specific consideration her exemplary
leadership in the organization, planning, execution and implementation of a
management information system conversion contemporaneously with a change in the
banks' corporate structure.
Based on its assessments of our financial performance and the
individual performance of our executive officers in 2006, the Committee
recommended cash incentive awards under the Senior Management Incentive Plan for
2006 at the target amounts as follows: Mr. Traynham, $61,000; Mr. Burke,
$43,395; Ms. Davies, $48,819; and Mr. Wolfe, $68,804.
13
As noted above, Mr. Erwin's employment agreement specifies maximum
performance-based incentive awards for each of his first three years of
employment. For 2006 and 2007, the agreement sets the maximum possible awards at
$45,750 and $55,430, respectively. The eligibility criteria for the 2006 and
2007 awards are a high quality performance appraisal by the Board and metrics in
alignment with our strategic plan. The Compensation Committee determines whether
the eligibility criteria have been met, and recommends the actual amount of any
award to the full Board. Based on recommendations of the Committee, the Board
voted to award Mr. Erwin the maximum possible incentive award under the
agreement of $45,750. The Board also voted to pay Mr. Erwin an additional
discretionary bonus award for 2006 of $24,250. These awards are in recognition
of our progress in 2006 and Mr. Erwin's leadership in helping us to achieve this
progress. More specifically, we considered Mr. Erwin's strategic vision in
redefining our Company for future growth, his exemplary leadership in improving
our asset quality and risk management systems, and his leadership in insuring
the conduct of regular banking business for our customers during strategic
changes associated with the merger of our four banks into one bank and our
information systems conversion.
Stock Options
From time to time, we grant stock options to our executive officers. We
set stock option awards at levels we believe to be competitive with other
financial institutions/companies of similar size and to advance our goal of
retaining key executives. Stock option awards provide an incentive that focuses
each executive's attention on managing our Company from the perspective of a
stockholder with an equity stake in the business. Because we set the exercise
price at the fair market value of our common stock on the date of grant, the
economic value of stock options awarded is directly tied to the future
performance of our stock and will provide value to the recipient only when the
price of our stock increases over the exercise price. Stock option awards for
executive officers are approved by the Board of Directors. We believe that the
costs to our Company of granting options as opposed to paying additional cash
compensation, both in terms of the impact on earnings under the new accounting
rules for options and potential dilution of the outstanding common stock, are
far-outweighed by the benefits provided to us in terms of providing incentives
to our executive officers to increase earnings and shareholder value. We do not
award options every year.
Mr. Erwin's employment agreement specified that stock option awards
would be granted to him upon execution of the agreement, and options to purchase
an additional 10,000 shares would be granted on each of the first and second
anniversary of the agreement if, in the sole discretion of our Board, he
completed the year with a high performance appraisal. Based on his performance
evaluation, the Board granted the additional 10,000 shares on each of the
January 2006 and 2007 anniversaries. The 2006 award was actually granted on the
last business day of 2005.
No stock options or other equity-based awards were granted to our other
executive officers during 2006. The Company is proposing a new equity
compensation plan for shareholder approval at the Annual Meeting to replace the
1997 Employee Stock Option Plan that expired in March 2007. See "PROPOSAL TO
ADOPT THE COMMUNITY BANKSHARES, INC. 2007 EQUITY PLAN."
Other Benefits
We provide our executive officers with the same insurance benefits we
provide to all our other employees, and make contributions to our 401(k) plan on
their behalf on the same basis as we make contributions for all other employees.
We also provide supplemental disability insurance coverage for executive
officers and certain other senior officers because our group disability
insurance plan that covers all employees has maximum dollar benefits that limit
the coverage for executive officers. The amount of supplemental disability
coverage we provide to our executive officers is intended to allow them the same
level of benefits as a percentage of base salary as is provided under our group
plan to all other employees.
We also pay country club dues for some of our executives. In addition,
we encourage, and pay for our executives and their spouses, to attend banking
conventions and seminars. The Compensation Committee has determined that these
benefits play an important role in our executive officers' business development
activities on behalf of our Company.
14
Pursuant to the terms of his employment agreement, we provide Mr. Erwin
with a $9,000 annual automobile allowance and life insurance.
All of the foregoing additional elements of compensation awarded to
named executives in 2006 were set at levels believed to be competitive with
other financial institutions in South Carolina. The Compensation Committee has
determined that providing such benefits helps to retain key executives and is an
important factor in keeping our executive compensation packages competitive in
our market area.
Noncompetition, Severance and Employment Agreements
We have entered into employment agreements with each of Messrs. Erwin,
Traynham and Wolfe. These agreements are described under - "Employment
Agreements." As discussed in that section, the agreements provide, among other
things, for payments to our executive officers upon termination of their
employment other than for cause or upon a change of control. The events set
forth as triggering events for the payments were selected because they are
events similar to those provided for in many employment agreements for executive
officers of financial institutions throughout South Carolina. It has become
increasingly common in South Carolina for community financial institutions to
provide for such payments under such conditions in order to retain key
personnel.
Tax and Accounting Considerations
We expense salary, bonus and incentive compensation and benefit costs
as they are incurred for tax and accounting purposes. Salary, bonus and
incentive compensation, and some benefit payments are taxable to the recipient
as ordinary income. The tax and accounting treatment of the various elements of
compensation is not a major factor in our decision making with respect to
executive compensation. To maintain flexibility in compensating executive
officers in a manner designed to promote varying corporate goals, the Committee
has not adopted a policy requiring all compensation to be deductible.
Security Ownership Guidelines and Hedging of Securities
We do not have any formal security ownership guidelines for our
executive officers, but most of our executive officers own a significant number
of shares. We do not have any policies regarding our executive officers' hedging
the economic risk of ownership of our shares.
Financial Restatement
The Board of Directors does not have a policy with respect to adjusting
retroactively any cash or equity based incentive compensation paid to our
executive officers where payment was conditioned on achievement of certain
financial results that were subsequently restated or otherwise adjusted in a
manner that would reduce the size of an award or payment, or with respect to
recovery of any amount determined to have been inappropriately received by an
individual executive. If such a restatement were ever to occur, the Board would
expect to address such matters on a case-by-case basis in light of all of the
relevant circumstances.
Compensation Committee Report
The Compensation Committee has reviewed and discussed the "Compensation
Discussion and Analysis" included in this Proxy Statement with management of our
Company. Based on that review and discussion, the Compensation Committee
recommended to our Board of Directors that the "Compensation Discussion and
Analysis" be included in our 2007 Annual Report on Form 10-K and in this Proxy
Statement.
Alvis J. Bynum (Chairman) J. V. Nicholson, Jr.
Charles E. Fienning Wm. Reynolds Williams
J. M. Guthrie
15
Compensation Committee Interlocks and Insider Participation
The members of our Compensation Committee for the year ended December
31, 2006 were Wm. Reynolds Williams, J. M. Guthrie, Charles E. Fienning, J. V.
Nicholson, Jr. and Alvis J. Bynum (chairman), none of whom is a current or
former officer of our Company.
The law firm of Willcox, Buyck & Williams, P.A., in which Wm. Reynolds
Williams is a member, provided legal services to us in 2006, and is continuing
to provide legal services to us in 2007.
Executive Officer Compensation
The following table summarizes for the year ended December 31, 2006, the
compensation awarded to, earned by or paid to our executive officers and the
chief executive officer of our Bank.
Summary Compensation Table
Name Year Salary Bonus Option Non- All Total
and ($) ($) Awards Equity Other ($)
Principal ($) Incentive Compen-
Position Plan sation
Compen- ($)(5)
sation
($)
-------------------------------- ---- -------- ---------- ------ ----------- ------- ---------
Samuel L. Erwin 2006 $204,250 $24,250(1) (2) $45,750(3) $24,916 $299,166
Chief Executive Officer of
Community Bankshares, Inc.
William W. Traynham 2006 $151,791 -0- -0- $61,000(4) $13,021 $225,812
President of Community
Bankshares
Michael A. Wolfe 2006 $168,916 -0- -0- $68,804(4) $14,510 $252,230
President of Community
Resource Bank
Gregory G. Burke 2006 $130,958 -0- -0- $43,395(4) $10,162 $184,515
Chief Credit Officer of
Community Bankshares, Inc.
Jo H. Davies 2006 $130,142 -0- -0- $48,819(4) $10,071 $189,032
Chief Information Officer
of Community Bankshares,
Inc.
(1) See "--Compensation Discussion and Analysis - Incentive Compensation
and Bonus" for a discussion about the basis for this discretionary
bonus award.
(2) Although we granted options to purchase 10,000 shares to Mr. Erwin for
2006 under the terms of our employment agreement with him, we granted
these options on December 31, 2005, and, accordingly, we did not
recognize any dollar amounts for financial statement reporting purposes
in accordance with Financial Accounting Standard 123R relating to such
options in 2006.
(3) This amount was the maximum incentive award permitted pursuant to Mr.
Erwin's employment agreement. See "--Compensation Discussion and
Analysis - Incentive Compensation and Bonus" for a discussion of this
incentive award
(4) These amounts are incentive awards pursuant to the Senior Management
Incentive Plan. See "--Compensation Discussion and Analysis - Incentive
Compensation and Bonus" for a discussion of these incentive awards.
16
(5) Includes our 2006 contributions to the Bank's 401(k) Plan on behalf of
the named persons, premiums for medical insurance, disability insurance
and life insurance, and automobile allowance in the amounts shown
below:
Name Year 401(k) Medical & dental Disablity Life ins. Auto allow. Club dues Total
---- ---- ------ ---------------- --------- --------- ----------- --------- -----
Mr. Erwin ..................... 2006 $ 8,444 $ 3,584 $ 593 $ 1,075 $ 9,000 $ 2,220 $24,916
Mr. Traynham .................. 2006 $ 6,077 $ 3,584 $ 1,065 $ 495 $ - $ 1,800 $13,021
Mr. Wolfe ..................... 2006 $ 6,799 $ 3,584 $ 1,404 $ 495 $ - $ 2,228 $14,510
Mr. Burke ..................... 2006 $ 5,238 $ 3,584 $ 845 $ 495 $ - $ - $10,162
Ms. Davies .................... 2006 $ 5,205 $ 3,584 $ 787 $ 495 $ - $ - $10,071
2006 Grants of Plan-Based Awards
The following table provides information about 2006 cash incentive
awards under our Senior Management Incentive Plan, and the 2006 cash incentive
award and grant of options to our Chief Executive Officer pursuant to the terms
of our employment agreement with him. We did not grant any equity incentive plan
awards or other stock awards to executive officers other than Mr. Erwin for
2006. See "---Compensation Discussion and Analysis - Incentive Compensation and
Bonus," and "--Stock Options" for more information about these awards.
Name Grant Estimated Possible Future All Other Exercise Grant
Date Payouts Option or Base Date
Under Non-Equity Incentive Awards: Price of Fair
Plan Awards (1) Number Option Value of
of Awards Stock
Securities ($/Sh)(3) and
Under- Option
lying Awards(4)
Options
(#)
---- ----- ------------------------- --------- -------- -----
Threshold Target Maximum
($) ($) ($)
--------- ------ -------
Samuel L. Erwin 12/31/05 10,000(2) $17.00 $32,068
-- $45,750 --
William W. Traynham $0 $61,000 $ 91,500 -- -- --
Michael A. Wolfe $0 $70,000 $105,000 -- -- --
Gregory G. Burke $0 $43,395 $ 65,093 -- -- --
Jo H. Davies $0 $43,395 $ 65,093 -- -- --
(1) Amounts in these columns represent the threshold, target and maximum
amounts that could have been paid pursuant to 2006 incentive awards under
the Senior Management Incentive Plan for each of Messrs. Traynham, Wolfe,
Burke and Ms. Davies, and pursuant to his employment agreement for Mr.
Erwin. As reflected in the Summary Compensation Table, payouts were at or
near the target level.
17
(2) Although they were granted on December 31, 2005, these options relate to
2006. The options vested upon grant and are exercisable for a period of
five years from the date of grant. Because these options were granted in
2005, they are not reflected in our financial statements for 2006.
(3) The closing price of our common stock on the American Stock Exchange on the
date of grants of the options.
(4) The grant date fair value computed in accordance with FAS 123(R).
Employment Agreements
We have entered into employment agreements with our Chief Executive
Officer, Samuel L. Erwin, our President, William W. Traynham, and Michael A.
Wolfe, the President of our Bank. Each agreement was for an initial term of
three years. Beginning on the third anniversary, and on each subsequent annual
anniversary, the agreement is automatically extended for an additional year
unless notice that it will not be extended is given to the employee at least 90
days prior to the anniversary. Each agreement provides for a base salary;
eligibility for bonuses and participation in incentive compensation plans as
determined by the Board; benefits such as club dues, 401(k) plan participation
and contribution matching, health and dental insurance, reimbursement of
employment related expenses, vacation, and participation in other benefits
generally provided to Company employees. In addition, Mr. Erwin's agreement
provides for the granting of stock options, an automobile allowance, and life
insurance. All of these elements of compensation are discussed above under
"--Compensation Discussion and Analysis." The agreements also provide for the
payment of benefits after termination of the executive's employment under the
circumstances discussed below.
If we terminate the executive's employment, or if the executive
terminates his employment, within six months following a change of control of
our Company we are required to pay him a lump sum of twice the amount of his
annual base salary in effect at the date of termination. If, however, this
amount would equal or exceed three times the base amount under Internal Revenue
Code section 280G, it will be adjusted to have a value of three times the base
amount under Section 280G less $100. This provision of the agreements is
initially effective for a period of five years from the effective date of the
agreements. Commencing on the first anniversary after the date of the
agreements, and on each annual anniversary thereafter, effectiveness of this
provision will automatically be extended for an additional year unless we give
notice 30 days prior to the anniversary date that it will not be extended. The
executive is not required to mitigate his loss of income and any income he
receives will not reduce the amounts we are required to pay him. If the
executive dies after a change of control and while we still owe him payments
under this provision of the agreement, we are required to make the payments to
his devisee or designee.
The agreements provide that a "change of control" of our Company will
be deemed to have occurred if either of the following events occurs: (i) any
person or group acting in concert, directly or indirectly, acquires voting
control of us; or (ii) we are merged with or into any other entity and we are
not the surviving entity of the merger.
Based on the provisions of the agreements, the estimated amounts we
would have been required to pay to each of our executive officers if we had
terminated him, or if he had terminated his employment within six months
following a change of control, and if the date of termination were December
29, 2006, would have been as follow: Mr. Erwin - $408,500; Mr. Wolfe -
$350,000; Mr. Traynham - $305,000.
If there has been no change of control and the executive terminates his
employment for good reason or we terminate him other than for cause, we are
required to continue to pay the executive for the remaining term of the
agreement his base salary at the rate in effect immediately prior to the date
of termination, and to continue to provide him with, or pay for him to obtain,
the same, or substantially similar, insurance coverages as those he would have
had had he remained an employee. We must also pay him his base salary through
the end of the month of termination, any bonus awarded but not yet paid, any
benefits to which he is entitled as a result of termination under the terms of
any other plans or arrangements to which he is a party, and any unpaid
expenses we owe him. If a termination under this provision occurs during the
last twelve months of the term of the agreement, the base salary will be paid
and benefits will be provided for twelve months.
The agreements define "good reason" as any of the following: (i) our
failure to comply with any material provision of the agreement or the material
18
diminution or alteration of the executive's authority and duties under the
agreement, provided that the executive gives us written notice of such failure
and such failure is not cured within 30 days; (ii) our failure to obtain the
assumption of our obligations under the agreement by any successor; (iii) our
failure to make the payment required under the agreement; or (iv) any
purported termination of the executive's employment by our action that is not
effected pursuant to a notice of termination in accordance with the
requirements of the agreement.
Based on provisions of the agreements, the estimated amounts, including
salary and all benefits, we would have been required to pay to each of our
executive officers if, in the absence of a change of control, he had
terminated his employment for good reason, or if we had terminated him other
than for cause, and if the date of termination were December 29, 2006, would
have been as follow:
Mr. Erwin Mr. Wolfe Mr. Traynham
--------- --------- ------------
Salary ............................. $408,500 $371,875 $324,063
401k match ......................... $ 16,340 $ 14,875 $ 12,963
Bonus or nonequity incentive ....... $ 70,000 $ 69,111 $ 61,000
Insurance .......................... $ 10,504 $ 11,651 $ 10,931
Other .............................. $ 4,440 $ 4,735 $ 3,825
-------- -------- --------
Total .............................. $509,784 $472,247 $412,781
======== ======== ========
We entered into the agreement with Mr. Erwin January 1, 2005, and entered into
the agreements with each of Messrs. Wolfe and Traynham February 15, 2005.
Accordingly, the automatic annual extensions have not yet commenced, and the
remaining term of Mr. Erwin's agreement at December 29, 2006 would be 23 months
and 30 days, and the remaining terms of Messrs. Wolfe's and Traynham's
agreements would be 25 months plus 13 days.
If we terminate the executive's employment for cause, if the executive
terminates his employment other than for good reason or as a result of death,
disability or retirement, we must also pay him his base salary through the end
of the month of termination, any bonus awarded but not yet paid, any benefits to
which he is entitled as a result of termination under the terms of any other
plans or arrangements to which he is a party, and any unpaid expenses we owe
him. The estimated amounts, including salary and all benefits, we would have
been required to pay to each of our executive officers if we had terminated him
for cause, if he had terminated his employment other than for good reason, or as
a result of death, disability or retirement, and if the date of termination were
December 29, 2006, would have been as follow: Mr. Erwin - $0; Mr. Wolfe - $0;
Mr. Traynham - $0.
The agreements require the executives to abide by all of our rules and
procedures designed to protect our confidential information and to preserve and
maintain all such information in strict confidence during their employment with
us and for as long after termination of employment as the confidential
information remains, in our sole opinion, proprietary and confidential.
Additionally, prior to the later of (i) the end of the term of employment, (ii)
the date of termination or (iii) the completion of base salary payments in the
event of termination by the executive for good reason or by us other than for
cause, the agreements prohibit the executive, within a 25 mile radius of any of
our operating offices (with respect to Mr. Erwin), or within a 25 mile radius of
the location of his office with the Company or any of its subsidiaries (with
respect to Messrs. Traynham and Wolfe), from managing, operating or being
employed by, participating in, or being connected in any manner with the
management, operation, or control of any business engaged in the businesses in
which we are engaged on the date of termination. The agreements also provide
that, regardless of the circumstances of termination of employment, for a period
of 12 months after the termination of his employment, or the completion of base
salary payments in the event of termination by the executive for good reason or
by us other than for cause, the executive will not solicit the business or
patronage, directly or indirectly, from any of our customers, and the executive
will not seek to or assist others to persuade any of our employees engaged in
similar work or related to our work to discontinue employment with us or seek
employment or engage in any business in which we are engaged.
The foregoing descriptions of the Employment Agreements are merely
summaries of such agreements and are qualified in their entirety by reference to
the agreements, which are included in the Company's filings with the Securities
and Exchange Commission.
19
Outstanding Equity Awards at 2006 Fiscal Year-End
The following table provides information about stock options held by
our executive officers at the end of 2006. Our executive officers had no other
forms of equity awards at that time. Mr. Erwin's options were awarded pursuant
to the terms of his employment agreement and our other executives' options were
issued pursuant to our 1997 Stock Option Plan, which is described below under
the caption "--1997 Stock Option Plan."
Name Number Number Option Option
of of Exercise Expiration
Securities Securities Price Date
Underlying Underlying ($)
Unexercised Unexercised
Options Options
(#) (#)
Exercisable Unexercisable
---- ------------ -------------- ---------- ----------
Samuel L. Erwin 10,000 0 $18.00 1/3/10
10,000 0 $17.00 12/30/10
William W. Traynham 4,200 0 $7.62 4/27/07
5,250 0 $12.83 2/17/09
5,000 0 $11.00 2/26/01
5,000 0 $18.85 10/27/13
Michael A. Wolfe 8,400 0 $7.62 4/27/07
5,250 0 $12.83 2/17/09
5,000 0 $11.00 2/26/01
5,000 0 $18.85 10/27/13
Gregory G. Burke 8,000 0 $17.40 3/28/10
Jo H. Davies 3,500 0 $18.85 10/27/13
2006 Option Exercises and Stock Vested
The following table provides information about our executive officers'
exercises of stock options during 2006. There were no outstanding stock awards
in 2006.
Option Awards
-------------
Name Number of Value
Shares Realized
Acquired on
on Exercise
Exercise ($)(1)
(#)
-------- -------
Samuel L. Erwin 0 $ 0
William W. Traynham 4,200 $34,776
Michael A. Wolfe 0 $ 0
Gregory G. Burke 0 $ 0
Jo H. Davies 0 $ 0
(1) The difference between the market price on the date of exercise and the
exercise price.
Pension Benefits and Nonqualified Deferred Compensation
We do not currently provide any retirement or pension plans (other than
our 401(k) plan), or any defined contribution or other plans that provide for
deferral of compensation on a basis that is not tax-qualified.
20
Potential Payments upon Termination or Change of Control
Payments we would be required to make to our executive officers under
their employment agreements in the event of termination of their employment
under various circumstances, including in the event of a change of control of
our Company, are discussed above under the caption "--Employment Agreements."
In addition, under our Senior Management Incentive Plan, if the
executive leaves our Company for reason of death, disability, or retirement, he
or she would be eligible for a pro-rata award from the plan based on the number
of months worked. If employment of our executive officers had terminated for any
of these reasons as of December 29, 2006, we would have been required to pay
them the following amounts under the plan: Mr. Erwin - $45,750; Mr. Traynham -
$61,000; Mr. Wolfe - $68,804; Mr. Burke - $43,395; and Ms. Davies - $48,819.
Director Compensation
Prior to the Merger, we paid directors' fees of $400 per month during
2006 to all outside directors, except the Chairman who received $800 per month.
Subsequent to the Merger, during the fourth quarter of 2006, we paid directors'
fees of $500 per month to all outside directors, except the Chairman, who
received $1,000 per month. Prior to the Merger, Orangeburg National Bank paid
directors' fees of $800 per month during 2006, Sumter National Bank paid
directors' fees of $600 per month during 2006, and Florence National Bank and
the Bank of Ridgeway paid directors' fees of $500 per month during 2006.
Subsequent to the Merger, Community Resource Bank paid directors' fees of $500
per month in 2006. We only pay directors' fees to outside directors. The
directors' fees we paid and our subsidiaries paid in 2006 totaled $287,100. The
table below shows the amount of fees we and our subsidiaries paid to each of our
individual directors, who individually served on the corporate and subsidiary
boards, in 2006. We do not provide any other forms of compensation to our
outside directors.
2006 Director Compensation
Name Fees Total
Earned or
Paid in
Cash ($)
---------------------- ------- ---------
E. J. Ayers, Jr. $18,900 $18,900
Alvis J. Bynum $ 3,500 $ 3,500
Martha Rose C. Carson $13,800 $13,800
Anna O. Dantzler $13,800 $13,800
Thomas B. Edmunds $11,100 $11,100
Charles E. Fienning $ 3,500 $ 3,500
J. M. Guthrie $13,800 $13,800
Richard L. Havekost $11,100 $11,100
J. V. Nicholson, Jr. $11,100 $11,100
Samuel F. Reid, Jr. $13,800 $13,800
J. Otto Warren, Jr. $13,800 $13,800
Wm. Reynolds Williams $11,100 $11,100
1997 Stock Option Plan
Our 1997 Stock Option Plan, as amended, reserved a total of 785,600
shares for issuance under the plan. Options may be granted pursuant to the plan
to persons who are our employees or employees of any of our subsidiaries
(including officers and directors who are employees) at the time of grant. At
21
December 31, 2006, we and our subsidiaries had 195 employees. Our non-employee
directors are also permitted to participate in the plan. Such non-employee
directors are only eligible to be granted non-qualified stock options.
All incentive stock options must have an exercise price not less than
the fair market value of common stock at the date of grant, as determined by our
Board of Directors. Non-qualified options will have such exercise prices as may
be determined by our Board of Directors at the time of grant, and such exercise
prices may be less than fair market value. The Board of Directors may set other
terms for the exercise of the options but may not grant to any one holder more
than $100,000 of incentive stock options (based on the fair market value of the
optioned shares on the date of the grant of the option) which first become
exercisable in any calendar year. Our Board of Directors also selects the
employees to receive grants under the plan and determines the number of shares
covered by options granted under the plan. No options may be exercised after ten
years from the date of grant, options may not be transferred except by will or
the laws of descent and distribution, and options may be exercised only while
the optionee is an employee of our Company, within three months after the date
of termination of employment, or within twelve months of death or disability.
The number of shares reserved for issuance under the plan, the number of shares
covered by outstanding options, the exercise price and the exercise date of
options will be adjusted in the event of changes in the number of outstanding
shares of common stock effected without our receipt of consideration. The Board
of Directors may amend, suspend or terminate the plan, but may not increase
(except as discussed above) the maximum number of shares reserved for issuance
under the plan, or materially modify the eligibility requirements under the Plan
without shareholder approval or ratification. The plan terminated on March 16,
2007, and no options have been granted thereunder after that date.
As of March 31, 2007, there were outstanding incentive options to
purchase 305,387 shares and nonqualified options to purchase 11,400 shares. The
market value of our common stock on March 30, 2007 was $16.20 per share.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In the ordinary course of its business, our Bank makes loans to,
accepts deposits from, and provides other banking services to, certain of our
directors and executive officers, their associates, and members of their
immediate families. Loans are made on substantially the same terms, including
interest rates, collateral and repayment terms, as those prevailing at the time
for comparable transactions with persons not affiliated with the Bank, and do
not involve more than the normal risk of collectibility or present other
unfavorable features. Rates paid on deposits and fees charged for other banking
services, and other terms of these transactions, are also the same as those
prevailing at the time for comparable transactions with other persons. Our Bank
expects to continue to enter into transactions in the ordinary course of
business on similar terms with our directors, officers, principal stockholders,
their associates, and members of their immediate families. Loans outstanding to
such persons at December 31, 2006 totaled $4,051,000. None of such loans have
been on non-accrual status, 90 days or more past due, or restructured at any
time.
From time to time we may also enter into other types of business
transactions or arrangements for services with our directors, officers,
principal shareholders or their associates. These types of transactions or
services might include, among others, purchases of furnishings and provision of
legal services. We only enter into such arrangements if we determine that the
prices or rates offered are comparable to those available to us from
unaffiliated third parties. Our Board approves such transactions on a case by
case basis. We do not have written policies or procedures with respect to such
approvals.
The law firm of Horger, Barnwell & Reid, L.L.P., in which Samuel F.
Reid, Jr., one of our directors, is a partner, provided legal services to us in
2006, and is continuing to provide legal services to us in 2007. The law firm of
Willcox, Buyck & Williams, P.A., in which Wm. Reynolds Williams, also one of our
directors, is a member also provided legal services to us in 2006, and is
continuing to provide legal services to us in 2007.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
As required by Section 16(a) of the Securities Exchange Act of 1934,
our directors, executive officers and certain individuals are required to report
periodically their ownership of our common stock and any changes in ownership to
22
the Securities and Exchange Commission. Based on a review of Forms 3, 4 and 5
and written representations made to us, it appears that all such reports for
these persons were filed in a timely fashion during 2006, except Mr. Traynham
who failed to timely file one report with respect to one transaction. It is our
practice to assist directors with filing of Section 16(a) reports.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our Audit Committee has appointed J. W. Hunt & Company, LLP,
independent certified public accountants, as our independent auditors for the
current fiscal year ending December 31, 2007. A representative of J. W. Hunt &
Company, LLP is expected to be present at the 2007 Annual Meeting and will be
given the opportunity to make a statement on behalf of the firm if he or she so
desires, and will respond to appropriate questions from shareholders.
Fees Billed by Independent Auditors
The following table shows the aggregate fees expected to be billed by,
and billed by J.W. Hunt & Company, LLP, our independent auditors, for audit
services provided to us and to our subsidiaries in connection with our
consolidated financial statements and reports for the fiscal years ended
December 31, 2006 and 2005, and for other services rendered during fiscal years
2006 and 2005, as well as all out-of-pocket costs billed, or expected to be
billed, to us in connection with these services.
Fee Category 2006 % of Total 2005 % of Total
------------ ---- ---------- ---- ----------
Audit Fees ............................ $110,200 80% $112,300 85%
Audit-Related Fees .................... 8,885 7% 8,525 6%
Tax Fees:
Tax compliance/preparation ...... 15,200 11% 11,900 9%
Other tax services .............. 3,200 2% - -
-------- --------
Total tax fees .............. 18,400 13% 11,900 9%
-------- --------
All Other Fees ........................ - - - -
-------- --------
Total Fees ............................ $137,485 100% $132,725 100%
======== ========
Audit Fees: Audit fees include fees billed to us for professional
services provided in connection with the audit of our consolidated financial
statements and review of the interim condensed consolidated financial statements
included in our quarterly reports, and services that are normally provided by
our independent auditor in connection with statutory and regulatory filings or
engagements, and attest services, except those not required by statute or
regulation.
Audit-Related Fees: Audit-related fees include fees billed to us for
assurance and related services that are reasonably related to the performance of
the audit or review of our consolidated financial statements and are not
reported under "Audit Fees." These services include employee benefit plan
audits, attest services that are not required by statute or regulation,
consultations concerning financial accounting and reporting standards, and
agreed upon procedures required by various government agencies, such as the
Federal Home Loan Bank or the Department of Housing and Urban Development.
Tax Fees: Tax fees include fees for tax compliance/preparation and
other tax services. Tax compliance/preparation fees include fees billed to us
for professional services related to federal and state tax compliance.
All Other Fees: All other fees would include fees for services other
than those reported above. J.W. Hunt & Company, LLP did not provide us with any
other services in either year.
23
In making its decision to appoint J.W. Hunt & Company, LLP as our
independent auditors for the fiscal year ending December 31, 2007, our Audit
Committee considered whether services other than audit and audit-related
services provided by that firm are compatible with maintaining the independence
of J.W. Hunt & Company, LLP.
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of
Independent Auditors
Our Audit Committee pre-approves all audit and permitted non-audit
services (including the fees and terms thereof) provided by our independent
auditors, subject to possible limited exceptions for non-audit services
described in Section 10A of the Securities Exchange Act of 1934, which are
approved by the Audit Committee prior to completion of the audit. The Committee
may delegate to one or more designated members of the Committee the authority to
pre-approve audit and permissible non-audit services, provided such pre-approval
decision is presented to the full Committee at its next scheduled meeting.
General pre-approval of certain audit, audit-related and tax services
is granted by our Audit Committee at the first quarter Audit Committee meeting.
The Committee subsequently reviews fees paid. Specific pre-approval is required
for all other services, of which there were none during the year. During 2006,
all audit and permitted non-audit services were pre-approved by the Committee.
AUDIT COMMITTEE REPORT
The Audit Committee of our Board of Directors has reviewed and
discussed with our management our audited financial statements for the year
ended December 31, 2006. Our Audit Committee has discussed with our independent
auditors, J. W. Hunt & Company, LLP, the matters required to be discussed by
Statement on Accounting Standards No. 61, as amended (AICPA, Professional
Standards, Vol. 1 AU section 380), as adopted by the Public Company Accounting
Oversight Board in Rule 3200T. Our Audit Committee has also received the written
disclosures and the letter from J. W. Hunt & Company, LLP, required by
Independence Standards Board Standard No. 1, (Independence Standards Board
Standard No. 1, Independence Discussions with Audit Committees), as adopted by
the Public Company Accounting Oversight Board in Rule 3600T, and has discussed
with J. W. Hunt & Company, LLP, their independence. Based on the review and
discussions referred to above, our Audit Committee recommended to our Board of
Directors that the audited financial statements be included in our Annual Report
on Form 10-K for the year ended December 31, 2006 for filing with the Securities
and Exchange Commission.
Alvis J. Bynum Richard L. Havekost
Anna O. Dantzler J. V. Nicholson, Jr.
Charles E.Fienning, Chairman Thomas B. Edmunds
PROPOSAL TO ADOPT
THE COMMUNITY BANKSHARES, INC. 2007 EQUITY PLAN
Introduction
We are seeking approval of the Community Bankshares, Inc. 2007 Equity
Plan. Our 1997 Stock Option Plan expired in March 2007. The Community
Bankshares, Inc. 2007 Equity Plan (the "2007 Equity Plan") authorizes the
issuance of 350,000 shares of our common stock and allows the use of a broad
range of equity based compensation arrangements. We believe that the 2007 Equity
Plan will support our objective of paying for performance and aligning
management's interests with those of shareholders.
The following description of the material terms of the 2007 Equity Plan
is qualified in its entirety by reference to the terms of the 2007 Equity Plan,
a copy of which is attached to this proxy statement as Appendix A.
24
Description of the Plan
Purpose
The purpose of the 2007 Equity Plan is to provide financial incentives
for selected employees and non-employee directors, thereby promoting the
long-term growth and financial success of our Company by (a) attracting and
retaining employees and non-employee directors of outstanding ability, (b)
strengthening our capability to develop, maintain, and direct a desirable
management team, (c) providing an effective means for selected employees and
non-employee directors to acquire and maintain ownership of our stock, (d)
motivating employees to achieve long-range performance goals and objectives, and
(e) providing competitive incentive compensation opportunities.
Eligible Individuals
Directors, officers and employees of our Company and its subsidiaries
(including regional directors of subsidiaries) are eligible to participate in
the 2007 Equity Plan. As of April 3, 2007, there are 35 directors (including
regional directors of subsidiaries) and 50 non-director officers who are
eligible to participate in the plan. Officers and employees will be selected for
participation in the discretion of the committee administering the plan.
Participation by our directors will be determined by the Board of Directors. The
amount of benefits that will be received has not been allocated to any
individuals or groups and is not presently determinable.
Administration
The 2007 Equity Plan is administered by the Compensation Committee of
the Board, except with respect to grants to non-employee directors of our
Company, which will be administered by the Board of Directors. The body
administering the plan will be referred to in this description as the
"Committee." The Committee will determine the eligible individuals to whom, and
the time or times at which, awards will be granted, the number of shares subject
to awards to be granted to any eligible individual, the duration of any award
cycle, and any other terms and conditions of the grant, in addition to those
contained in the plan. Each grant under the plan will be confirmed by and
subject to the terms of an award agreement.
Authorized Shares
The maximum number of shares of common stock that may be issued to
participants and their beneficiaries under the 2007 Equity Plan is 350,000. The
maximum number of shares that may be issued as unrestricted stock awards or as
restricted stock is limited to 175,000. Shares subject to an award under the
plan shall be our Company's authorized and unissued shares. The closing price of
our common stock as of March 30, 2007 was $16.20.
If any award is forfeited, terminates, expires or lapses without being
exercised, or if any stock appreciation right is exercised for cash, shares of
common stock subject to such awards will again be available for distribution in
connection with awards under the plan. If the option price of any option or the
exercise price of any other award is satisfied by delivering shares of common
stock to us (by either actual delivery or by attestation), only the number of
shares of common stock delivered to the participant net of the shares of common
stock delivered to us or attested to will be deemed delivered for purposes of
determining the maximum number of shares of common stock available for delivery
under the plan. If we use the cash proceeds of the exercise of an option to
acquire shares of our common stock on the open market, an equal number of shares
will not be deemed to have been delivered for purposes of determining the
maximum number of shares of common stock available for delivery under the plan.
To the extent any shares of our common stock subject to an award are not
delivered to a participant because such shares are used to satisfy an applicable
tax-withholding obligation, such shares will not be deemed to have been
delivered for purposes of determining the maximum number of shares of common
stock available for delivery under the plan.
In the event of certain types of corporate transactions or
restructurings, such as stock splits, mergers, consolidations, separations,
spin-offs, reorganizations, liquidations, reorganizations, or other
distributions, the Committee or the Board shall make adjustments in the
25
aggregate number and kind of shares reserved for issuance under the 2007 Equity
Plan, in the maximum share limitations upon stock options, incentive stock
options, stock appreciation rights and other awards to be granted to any
individual, in the number, kind and option price or exercise price of
outstanding stock options and stock appreciation rights, in the number and kind
of shares subject to other outstanding awards granted under the plan, and any
other equitable substitutions or adjustments that Committee or the Board
determine to be appropriate in their sole discretion.
Performance Goals
Performance goals relating to the payment or vesting of an award that
is intended to qualify as "performance-based compensation" under Section 162(m)
of the Internal Revenue Code will be comprised of one or more of the following
performance criteria as the Committee may deem appropriate:
o Earnings per share (actual or targeted growth);
o Net income after capital costs;
o Net income (before or after taxes);
o Return measures (including, but not limited to, return on average
assets, risk-adjusted return on capital, or return on average equity);
o Efficiency ratio;
o Full-time equivalency control;
o Stock price (including, but not limited to, growth measures and total
shareholder return);
o Noninterest income compared to net interest income ratio;
o Expense targets;
o Operating efficiency;
o EVA(R);
o Credit quality measures;
o Customer satisfaction measures;
o Loan growth;
o Deposit growth;
o Net interest margin;
o Fee income; and
o Operating expense.
Any of the performance criteria listed may be applied solely with
reference to our Company and/or any subsidiary or relatively between our Company
and/or any subsidiary and one or more unrelated entities. In addition, different
performance criteria may be applied to individual participants or to groups of
participants and, as specified by the Committee, may be based on results
achieved (i) separately by our Company or any subsidiary, (ii) any combination
of our Company and the subsidiaries or (iii) any combination of business units
or divisions of our Company and the subsidiaries. With respect to each
performance period, the Committee will establish the performance goals in
writing no later than the earlier of 90 days after the beginning of the
performance period or expiration of 25 percent of the performance period.
Performance goals for awards not intended to comply with Section 162(m) may
include the performance criteria listed above but may use other criteria as
well.
Stock Options
Stock options may be granted alone or in addition to other awards.
Stock options may be "incentive stock options" (within the meaning of Section
422 of the Internal Revenue Code) or nonqualified stock options, as designated
by the Committee and specified in the option agreement setting forth the terms
and provisions of the options. The term of each stock option will be fixed by
the Committee but no incentive stock option may be exercised more than 10 years
after the date it is granted. The exercise price per share of common stock
purchasable under a stock option will be determined by the Committee but may not
be less than the fair market value of the common stock on the date of grant.
Options granted under the plan cannot be repriced.
Except as otherwise provided in the plan, stock options will be
exercisable at the time or times and subject to the terms and conditions
determined by the Committee, and the Committee may at any time accelerate the
26
exercisability of a stock option. A participant exercising an option may pay the
exercise price in cash or, if approved by the Committee, with previously
acquired shares of common stock or a combination of cash and stock. The
Committee, in its discretion, may allow the cashless exercise of options through
the use of a broker-dealer, to the extent permitted by applicable law, or for
payment of the exercise price by withholding from the shares issuable upon
exercise a number of shares having a fair market value on the date of exercise
equal to the aggregate exercise price. The plan contains provisions, which apply
unless otherwise determined by the Committee, regarding the vesting and
post-termination exercisability of options held by optionees whose employment
with us terminates by reason of death, disability, retirement, or otherwise.
Stock Appreciation Rights
Stock appreciation rights ("SAR") represent the right to receive
payment of an amount equal to the amount by which the fair market value of one
share of common stock on the trading day immediately preceding the date of
exercise exceeds the exercise price multiplied by the number of shares covered
by the SAR. SARs may be exercised only when the fair market value of the stock
exceeds the exercise price. The Committee may prescribe the other terms and
conditions for the exercise of a SAR including requiring the payment of some or
all of the amount to which the participant is entitled to be made in common
stock valued at its fair market value on the date of exercise. SARs expire on
the date set by the Committee at the time of the award.
Restricted Stock
The 2007 Equity Plan authorizes the Committee to grant restricted stock
to individuals with such restriction periods as the Committee may designate. The
Committee may also provide at the time of grant that restricted stock cannot
vest unless applicable performance goals are satisfied.
The provisions of restricted stock awards (including any applicable
performance goals) need not be the same with respect to each participant. During
the restriction period, the stock certificates evidencing restricted shares
shall be held by us. Restricted stock may not be sold, assigned, transferred,
pledged or otherwise encumbered. Restricted stock is forfeited upon termination
of employment or breach of terms and conditions provided by the Committee. Other
than these restrictions on transfer and any other restrictions the Committee may
impose, the participant will have all the rights of a holder of stock holding
the class or series of stock that is the subject of the restricted stock award.
Unrestricted Stock
The Committee may make awards of unrestricted common stock to employees
on such term and conditions as the Committee may prescribe.
Performance Units
Performance units may be granted either alone or in addition to other
awards granted under the 2007 Equity Plan. Performance units may be
performance-based stock awards or performance-based cash awards. Performance
units may be granted subject to the attainment of performance goals and/or the
continued service of the participant. Performance units can be "qualified
performance-based awards." At the conclusion of the award cycle, the Committee
will evaluate the degree to which any applicable performance goals have been
achieved and the performance amounts earned, and will cause to be delivered the
amount earned in either cash or shares, at the election of the Committee. Except
to the extent otherwise provided in the plan or determined by the Committee, all
rights to receive cash or stock in settlement of performance units will be
forfeited upon termination of a participant's employment for any reason during
the award cycle or before any applicable performance goals are satisfied.
Termination of Service
Except as specifically provided in an award agreement or by the change
in control provisions of the 2007 Equity Plan, the termination of an award
recipient's service with us will have the following effects on awards
outstanding following the termination: (a) if the termination is due to the
27
death, disability or retirement of the award recipient, the awards will become
fully vested and exercisable; (b) in every other case, any awards that are not
vested and/or exercisable on the date of termination will immediately terminate
and be of no further force and effect; (c) if the recipient's termination is for
any reason other than death, disability, retirement or discharge for cause (as
defined in the plan), the recipient's options or SARs that are exercisable on
the date of termination shall be exercisable until the earlier of three months
from the date of termination or the expiration date of such option or SAR; (d)
upon termination of an award recipient for cause, any unexercised options or
SARs of the recipient shall expire immediately and any non-vested restricted
stock awarded to such recipient shall be forfeited; (e) upon the award
recipient's death any options or SARs that are then exercisable shall be
exercisable by the decedent's personal representative until the earlier of one
year from the date of death or the expiration date of the award; (f) upon
termination due to disability, the award recipient may exercise any options or
SARs which are exercisable on the date of termination until the earlier of one
year from the date of termination or the expiration date of the award; (g) upon
termination due to retirement, the award recipient may exercise any options or
SARs that are exercisable on the date of retirement until the earlier of one
year from the date of termination or the expiration date of the award but, if
the recipient dies before exercising all of the options or SARs, the decedent's
personal representative may exercise such remaining options or SARs before the
earlier of one year from the date of death or the expiration date of the award;
and (h) a performance unit award shall terminate if there is a termination of
service of the award recipient before the end of the applicable performance
period.
Change in Control
Unless provided otherwise by the Committee, in the event of a change in
control (as defined in the plan), if we are not the surviving corporation and
the survivor or acquiror does not assume outstanding awards or substitute
equivalent awards or if the award recipient is terminated without cause within
24 months following a change in control, then all outstanding awards will become
immediately exercisable or vested or unrestricted and, in the case of
performance awards, will be deemed to be fully earned.
Effectiveness, Amendments and Expiration
The 2007 Equity Plan will be effective as of the time it is approved by
a majority of the votes cast by our shareholders with respect to its approval.
The Board of Directors may at any time amend, suspend, or discontinue the plan
but may not impair the rights of a holder of outstanding awards without the
holder's consent except for an amendment made to comply with applicable law,
stock exchange rules or accounting rules. No amendment may be made without the
approval of our shareholders to increase the shares issuable under the plan,
expand the types of awards grantable, materially expand the class of employees
eligible to participate, materially change the method of determining the
exercise price of options, delete or limit the prohibition of repricing options,
extend the expiration date of the plan, or to the extent such approval is
required by applicable law or stock exchange rules. The Committee may amend the
terms of any outstanding stock option or other award but no such amendment may
cause a "qualified performance-based award" to cease to qualify for the Section
162(m) exemption or impair the rights of any holder without the holder's consent
except an amendment made to cause the plan or award to comply with applicable
law, stock exchange rules or accounting rules.
Federal Income Tax Consequences
The following is a summary of the federal income tax rules relevant to
participants in the 2007 Equity Plan who receive options, based upon the
Internal Revenue Code as currently in effect. These rules are highly technical
and subject to change in the future. The following summary relates only to the
federal income tax treatment of the awards and the state, local and foreign tax
consequences may be substantially different.
Stock options granted under the plan may be either nonqualified options
or incentive options for federal income tax purposes.
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Nonqualified Options
Generally, the optionee does not recognize any taxable income at the
time of grant of a nonqualified option. Upon the exercise of the nonqualified
option the optionee will recognize ordinary income, equal to the excess of the
fair market value of the common stock acquired on the date of exercise over the
exercise price, and will be subject to wage and employment tax withholding. We
will generally be entitled to a deduction equal to such ordinary income at the
time that the employee recognizes such income. The optionee will have a capital
gain or loss upon the subsequent sale of the stock in an amount equal to the
sale price less the fair market value of the common stock on the date of
exercise. The capital gain or loss will be long-term or short-term depending on
whether the stock was held for more than one year after the exercise date. We
will not be entitled to a deduction for any capital gain realized. Capital
losses on the sale of common stock acquired upon an option's exercise may be
used to offset capital gains.
Incentive Stock Options
Generally, the optionee will not recognize any taxable income at the
time of grant or exercise of an option that qualifies as an incentive option
under Section 422 of the Internal Revenue Code. However, the excess of the
stock's fair market value at the time of exercise over the exercise price will
be included in the optionee's alternative minimum taxable income and thereby may
cause the optionee to be subject to an alternative minimum tax. The optionee
will recognize long-term capital gain or loss, measured by the difference
between the stock sale price and the exercise price, when the shares are sold.
In order to qualify for the incentive option tax treatment described in
the preceding paragraph, the optionee must be employed by us continuously from
the time of the option's grant until three months before the option's exercise
and the optionee must not sell the shares until more than one year after the
option's exercise date and more than two years after its grant date. If the
optionee does not satisfy these conditions, the optionee will recognize taxable
ordinary income when the optionee sells the shares in an amount equal to the
difference between the option exercise price and the lesser of (i) the fair
market value of the stock on the exercise date and (ii) the sale price. If the
sale price exceeds the fair market value on the exercise date, the excess will
be taxable to the optionee as long-term or short-term capital gain depending on
whether the optionee held the stock for more than one year. Notwithstanding the
foregoing, incentive stock options will not be treated as incentive stock
options to the extent that the aggregate fair market value of stock (determined
as of the date of grant) with respect to which the options are first exercisable
during any calendar year exceeds $100,000. We will not be entitled to any
deduction by reason of the grant or exercise of the incentive option or the sale
of stock received upon exercise after the required holding periods have been
satisfied. If the optionee does not satisfy the required holding periods before
selling the shares and consequently recognizes ordinary income, we will be
allowed a deduction corresponding to the optionee's ordinary income.
Withholding Taxes
Because the amount of ordinary income the optionee recognizes with
respect to the receipt or exercise of an award may be treated as compensation
that is subject to applicable withholding of federal, state and local income
taxes and Social Security taxes, we may require the optionee to pay the amount
required to be withheld by us before delivering to the individual any shares or
other payment to be received under the plan. Arrangements for payment may
include deducting the amount of any withholding or other tax due from other
compensation, including salary or bonus, otherwise payable to the individual.
Equity Compensation Plan Information
The following table sets forth information as of December 31, 2006
about all of our compensation plans (including individual compensation
arrangements) under which our equity securities are authorized for issuance.
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Number of securities Number of securities remaining
to be issued upon Weighted-average available for future issuance
exercise of exercise price of under equity compensation plans
outstanding options, outstanding options, (excluding securities reflected
Plan Category warrants and rights warrants and rights in column (a))
(a) (b) (c)
-------------------- ----------------- --------------------- --------------------------------
Equity compensation
plans approved by
security holders ........ 437,981(1) $ 14.41 347,619(1)
Equity compensation
plans not approved by
security holders ........ NA NA NA
------- ------ --------
Total ................... 437,981(1) $14.41 347,619(1)
(1) Issuable pursuant to the 1997 Employee Stock Option Plan which expired in
March, 2007.
Vote Required
The Community Bankshares 2007 Equity Plan will be approved if the
number of shares of common stock voted in favor of adoption of the plan exceed
the number of shares of common stock voted against adoption of the plan.
Abstentions and broker non-votes will have no effect upon the vote on this
matter.
Recommendation
Our Board of Directors unanimously recommends a vote "FOR" approval of
the Community Bankshares 2007 Equity Plan.
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
We are providing you a copy of our Annual Report on Form 10-K for the
year ended December 31, 2006, including financial statements (but not including
exhibits), free of charge, with this Proxy Statement. You may obtain copies of
exhibits to the Form 10-K by making a written request to William W. Traynham,
President, Community Bankshares, Inc., Post Office Box 2086, Orangeburg, South
Carolina 29116. We will charge you 20(cent) per page for copies of the exhibits.
You may also download copies of the Form 10-K and exhibits from the Securities
and Exchange Commission website at http://www.sec.gov. The 10-K is also
available on our website at www.communitybanksharesinc.com.
REFERENCES TO OUR WEBSITE ADDRESS
References to our website address throughout this Proxy Statement and
the accompanying materials are for informational purposes only, or to fulfill
specific disclosure requirements of the Securities and Exchange Commission's
rules or the American Stock Exchange. These references are not intended to, and
do not, incorporate the contents of our website by reference into this Proxy
Statement or the accompanying materials.
INCORPORATION BY REFERENCE
Neither the Compensation Committee Report nor the Audit Committee
Report shall be deemed to be filed with the Securities and Exchange Commission,
nor deemed incorporated by reference into any of our prior or future filings
under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, except to the extent we specifically incorporate such
information by reference.
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OTHER BUSINESS
We do not know of any other business to be presented at the Annual
Meeting. If any other matters are properly brought before the Annual Meeting,
however, the persons named in the accompanying proxy intend to vote such proxy
in accordance with their best judgment.
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APPENDIX A
COMMUNITY BANKSHARES, INC. 2007 EQUITY PLAN
THIS PLAN is made as of the 21st day of May, 2007, by Community
Bankshares, Inc., a South Carolina corporation (the "Company").
ARTICLE I
PURPOSE AND EFFECTIVE DATE
1.1 Purpose. The purpose of the Plan is to provide financial incentives for
selected Employees and Non-Employee Directors, thereby promoting the long-term
growth and financial success of the Company by (a) attracting and retaining
Employees and Non-Employee Directors of outstanding ability, (b) strengthening
the Company's capability to develop, maintain, and direct a desirable management
team, (c) providing an effective means for selected Employees and Non-Employee
Directors to acquire and maintain ownership of Company Stock, (d) motivating
Employees to achieve long-range Performance Goals and objectives, and (e)
providing competitive incentive compensation opportunities.
1.2 Effective Date and Expiration of Plan. The Plan will be effective upon
its approval by affirmative vote of the Shareholders required under applicable
rules and procedures, including those prescribed under Sections 162(m) and 422
of the Code and applicable stock exchange rules. Unless earlier terminated by
the Board pursuant to Section 12.2, the Plan shall terminate on the tenth
anniversary of its Effective Date. No Award shall be made pursuant to the Plan
after its termination date, but Awards made prior to the termination date may
extend beyond that date. Notwithstanding the foregoing, no Incentive Stock
Options may be granted more than ten years after the earlier of (a) the adoption
of this Plan by the Board or (b) the Effective Date.
ARTICLE II
DEFINITIONS
The following words and phrases, as used in the Plan, shall have the
meanings set forth in this section. When applying these definitions and any
other word, term or phrase used in this Plan, the form of any word, term or
phrase will include any and all of its other forms.
2.1 Award means, individually or collectively, any Option, SAR, Restricted
Stock, Restricted Performance Stock, unrestricted Company Stock or Performance
Unit Award.
2.2 Award Agreement means the written agreement between the Company and each
Participant that describes the terms and conditions of each Award. If there is a
conflict between the terms of the Plan and the Award Agreement, the terms of the
Plan will govern.
2.3 Board means the Board of Directors of the Company.
2.4 Cause with respect to any Participant, means: (a) Gross negligence or gross
neglect of duties; or (b) Commission of a felony or of a gross misdemeanor
involving moral turpitude in connection with the Participant's employment or
service, as the case may be, with the Company or any of its Subsidiaries; or (c)
Fraud, disloyalty, dishonesty or willful violation of any law or significant
Company policy committed in connection with the Participant's employment or
provision of services, as the case may be; or (d) Issuance of an order for
removal of the Participant by any agency which regulates the activities of the
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Company or any of its Subsidiaries. Any determination of "Cause" under this Plan
shall be made by the Committee in its sole discretion.
2.5 Company means Community Bankshares, Inc., a South Carolina corporation.
2.6 Company Director means a non-employee member of the Board.
2.7 Company Stock means shares of the Company's common stock, without par value
per share.
2.8 Code means the Internal Revenue Code of 1986, as amended or superseded after
the Effective Date, and any applicable rulings or regulations issued thereunder.
2.9 Committee means the Compensation Committee of the Board or a subcommittee
thereof.
2.10 Disability means: (a) with respect to an Incentive Stock Option, "disabled"
within the meaning of Section 22(e)(3) of the Code; (b) with respect to any
Award subject to Section 409A of the Code, "disabled" as defined under Section
409A of the Code; and (c) with respect to any Award not described in subsections
(a) and (b) of this Section 2.10, a long-term disability as defined by the
Company's or Subsidiary's group disability insurance plan, or any successor plan
that is applicable to such Participant at the time of his or her Termination, or
in the absence of such a plan, "disabled" within the meaning of Section 22(e)(3)
of the Code.
2.11 Effective Date means the date on which the Plan is approved by the
Shareholders of the Company, as provided in Section 1.2.
2.12 Employee means any person who, on any applicable date, is a common law
employee of the Company or any Subsidiary. A worker who is classified as other
than a common law employee but who is subsequently reclassified as a common law
employee of the Company or any Subsidiary for any reason and on any basis will
be treated as a common law employee only from the date that reclassification
occurs and will not retroactively be reclassified as an Employee for any purpose
of this Plan.
2.13 Exchange Act means the Securities Exchange Act of 1934, as amended.
2.14 Exercise Price means the amount, if any, that a Participant must pay to
exercise an Award (other than an Option).
2.15 Fair Market Value means, as of any specified date, an amount equal to the
reported closing price on the specified date of a share of Company Stock on any
established stock exchange or quotation system on which the Company Stock is
then listed or traded or, if no shares of Company Stock have been traded on such
date, the closing price of a share of Company Stock on such established stock
exchange or quotation system as reported on the first day prior thereto on which
shares of Company Stock were so traded. If the preceding sentence does not
apply, Fair Market Value shall be determined in good faith by the Committee
using other reasonable means.
2.16 Fiscal Year means the fiscal year of the Company, which is the year ending
on December 31.
2.17 Incentive Stock Option means an option within the meaning of Section 422 of
the Code.
2.18 Non-Employee Director means either a Company Director or a Subsidiary
Director.
2.19 Nonqualified Stock Option means an option granted under the Plan other than
an Incentive Stock Option.
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2.20 Option means either a Nonqualified Stock Option or an Incentive Stock
Option to purchase Company Stock.
2.21 Option Price means the price at which Company Stock may be purchased under
an Option.
2.22 Participant means an Employee or a Non-Employee Director to whom an Award
has been made under the Plan.
2.23 Performance Goals means goals established by the Committee pursuant to
Section 4.4.
2.24 Performance Period means a period of time over which performance is
measured.
2.25 Performance Unit means the unit of measure determined under Article IX by
which the value of a Performance Unit Award is expressed.
2.26 Performance Unit Award means an Award granted under Article IX.
2.27 Personal Representative means the person or persons who, upon the death,
Disability, or incompetency of a Participant, shall have acquired, by will or by
the laws of descent and distribution or by other legal proceedings, the right to
exercise an Option or SAR or the right to any Restricted Stock Award or
Performance Unit Award theretofore granted or made to such Participant.
2.28 Plan means the Community Bankshares 2007 Equity Plan.
2.29 Predecessor Plans means the Community Bankshares 2004 Stock Option Plan, as
amended.
2.30 Restricted Performance Stock means Company Stock subject to Performance
Goals.
2.31 Restricted Stock means Company Stock subject to the terms and conditions
provided in Article VI and including Restricted Performance Stock.
2.32 Restricted Stock Award means an Award granted under Article VI.
2.33 Restriction Period means a period of time determined under Section 6.2
during which Restricted Stock is subject to the terms and conditions provided in
Section 6.3.
2.34 Retirement means any normal or early retirement by a Participant pursuant
to the terms of any pension plan or policy of the Company or any Subsidiary that
is applicable to such Participant at the time of the Participant's Termination.
2.35 SAR means a stock appreciation right granted under Section 5.7.
2.36 Shareholders mean the shareholders of the Company.
2.37 Subsidiary means a corporation or other entity the majority of the voting
stock of which is owned directly or indirectly by the Company.
2.39 Subsidiary Director means a non-employee member of the board of directors
or regional board of directors of a Subsidiary who is not also a Company
Director.
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2.39 Termination means a "separation from service" as defined under Section 409A
of the Code.
ARTICLE III
ADMINISTRATION
3.1 Committee to Administer. The Plan shall be administered by the Committee;
provided, however, that the Board has the authority to grant Awards to Company
Directors.
3.2 Powers of Committee.
(a) The Committee and the Board shall have full power and authority to interpret
and administer the Plan and to establish and amend rules and regulations for its
administration. Any action or decision by the Board or the Committee shall be
final, binding and conclusive with respect to the interpretation of the Plan and
any Award made under it.
(b) Subject to the provisions of the Plan, the Committee or the Board, as the
case may be, shall have authority, in its discretion, to determine those
Employees and Non-Employee Directors who shall receive an Award; the time or
times when such Award shall be made; the vesting schedule, if any, for the
Award; and the type of Award to be granted, the number of shares of Company
Stock to be subject to each Option and Restricted Stock Award, the value of each
Performance Unit and all other terms and conditions of any Award.
(c) The Committee or the Board, as the case may be, shall determine and set
forth in an Award Agreement the terms of each Award, including such terms,
restrictions, and provisions as shall be necessary to cause certain Options to
qualify as Incentive Stock Options. The Committee or the Board, as the case may
be, may correct any defect or supply any omission or reconcile any inconsistency
in the Plan or in any Award Agreement, in such manner and to the extent the
Committee or the Board, as appropriate, shall determine in order to carry out
the purposes of the Plan. The Committee or the Board, as the case may be, may,
in its discretion, accelerate (i) the date on which any Option or SAR may be
exercised, (ii) the date of termination of the restrictions applicable to a
Restricted Stock Award, or (iii) the end of a Performance Period under a
Performance Unit Award, if the Committee or the Board, as appropriate,
determines that to do so will be in the best interests of the Company and the
Participants in the Plan.
ARTICLE IV
AWARDS
4.1 Awards. Awards under the Plan shall consist of Incentive Stock Options,
Nonqualified Stock Options, SARs, Restricted Stock, Restricted Performance
Stock, unrestricted Company Stock and Performance Units. All Awards shall be
subject to the terms and conditions of the Plan and to such other terms and
conditions consistent with the Plan as the Committee or the Board, as the case
may be, deems appropriate. Awards under a particular section of the Plan need
not be uniform and Awards under two or more sections may be combined in one
Award Agreement. Any combination of Awards may be granted at one time and on
more than one occasion to the same Employee or Non-Employee Director. Awards of
Performance Units and Restricted Performance Stock shall be earned solely upon
attainment of Performance Goals and the Committee shall have no discretion to
increase such Awards.
4.2 Eligibility for Awards. An Award may be made to any Employee selected by the
Committee. In making this selection and in determining the form and amount of
the Award, the Committee may give consideration to the functions and
responsibilities of the respective Employee, his or her present and potential
contributions to the success of the Company or any of its Subsidiaries, the
value of his or her services to the Company or any of its Subsidiaries, or other
factors deemed relevant by the Committee. Non-Employee Directors are eligible to
receive Awards pursuant to Article VII.
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4.3 Shares Available Under the Plan.
(a) The Company Stock to be issued under the Plan pursuant to Options, SARs,
Performance Unit Awards, Restricted Performance Stock and Restricted Stock and
unrestricted Company Stock Awards shall be authorized but unissued Company Stock
not reserved for any other purpose. Subject to adjustment under Section 12.2, an
aggregate of 350,000 shares of Company Stock are hereby reserved for issuance
pursuant to Awards under the Plan (as adjusted pursuant to Section 12.2, the
"Section 4.3 Limit").
(b) Any shares of Company Stock issued as Restricted Stock or unrestricted
Company Stock Awards shall not exceed 50% of the total shares available under
the Plan and the maximum number of shares of Company Stock that may be issued
pursuant to Incentive Stock Options is the Section 4.3 Limit. The Section 4.3
Limit shall not have counted against it: (i) the number of shares of Company
Stock subject to an Option or any other Award which is equal to the number of
shares of Company Stock tendered by a Participant to the Company in payment of
the Option Price of such Option or the Exercise Price of such other Award, as
applicable; (ii) shares of Company Stock subject to an Award which for any
reason terminates by expiration, forfeiture, cancellation or otherwise without
having been exercised or paid; (iii) shares of Company Stock withheld from any
Award to satisfy a Participant's tax withholding obligations or, if applicable,
to pay the Option Price of an Option or the Exercise Price of any other Award;
(iv) if an SAR is settled in whole or in part by the issuance of shares of
Company Stock, the number of shares of Company Stock which represents the
difference between (A) the number of shares of Company Stock which remain
subject to such SAR on the date of such settlement and (B) the number of shares
of Company Stock actually issued upon settlement of such SAR; or (v) the number
of shares of Company Stock subject to an Option which is equal to the number of
shares of Common Stock acquired by the Company on the open market using the cash
proceeds received by the Company from the exercise of such Option; provided,
however, that such number of shares of Company Stock shall in no event be
greater than the number which is determined by dividing (A) the amount of cash
proceeds received by the Company from the Participant upon the exercise of such
Option by (B) the Fair Market Value of a share of the Company Stock on the date
of exercise of such Option.
(c) No awards shall be granted under any Predecessor Plan on and after the date
on which the Plan is approved by the Shareholders.
4.4 General Performance Goals.
(a) Performance Goals relating to the payment or vesting of an Award that is
intended to qualify as "performance-based compensation" under Section 162(m) of
the Code will be comprised of one or more of the following performance criteria
as the Committee may deem appropriate:
(i) Earnings per share (actual or targeted growth);
(ii) Net income after capital costs;
(iii) Net income (before or after taxes);
(iv) Return measures (including, but not limited to, return on average
assets, risk-adjusted return on capital, or return on average equity);
(v) Efficiency ratio;
(vi) Full-time equivalency control;
(vii) Stock price (including, but not limited to, growth measures and total
shareholder return);
(viii) Noninterest income compared to net interest income ratio;
(ix) Expense targets;
(x) Operating efficiency;
(xi) EVA(R);
(xii) Credit quality measures;
(xiii) Customer satisfaction measures;
(xiv) Loan growth;
(xv) Deposit growth;
(xvi) Net interest margin;
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(xvii) Fee income; and
(xviii) Operating expense.
(b) For any Awards not intended to qualify as "performance-based compensation"
under Section 162(m) of the Code, the Committee may establish Performance Goals
based on the performance criteria listed in Section 4.4(a) or other performance
criteria as it deems appropriate.
(c) Any of the performance criteria listed in Section 4.4(a) may be applied
solely with reference to the Company and/or any Subsidiary or relatively between
the Company and/or any Subsidiary and one or more unrelated entities. In
addition, different performance criteria may be applied to individual
Participants or to groups of Participants and, as specified by the Committee,
may be based on results achieved (i) separately by the Company or any
Subsidiary, (ii) any combination of the Company and the Subsidiaries or (iii)
any combination of business units or divisions of the Company and the
Subsidiaries.
(d) With respect to each Performance Period, the Committee will establish the
Performance Goals in writing no later than the earlier of (i) 90 days after the
beginning of the Performance Period or (ii) expiration of 25 percent of the
Performance Period.
(e) Except as otherwise provided in the Plan or the Award Agreement, as of the
end of each Performance Period, the Committee will certify in writing the extent
to which a Participant has or has not met the Participant's Performance Goal. To
the extent permitted under Section 162(m) of the Code, if applicable, the
Committee may disregard or offset the effect of any special charges or gains or
cumulative effect of a change in accounting in determining the attainment of
Performance Goals.
(f) To the extent permitted under Section 162(m) of the Code, if applicable, the
Committee shall make (i) appropriate adjustments to performance criteria to
reflect the effect on any performance criteria of any stock dividend or stock
split affecting Company Stock, recapitalization, merger, consolidation,
combination, spin-off, distribution of assets to Shareholders, exchange of
shares or similar corporate change and (ii) similar adjustments to any portion
of performance criteria that is not based on Company Stock but which is affected
by an event having an effect similar to those just described.
ARTICLE V
OPTIONS AND STOCK APPRECIATION RIGHTS
5.1 Award of Options. The Committee may, from time to time, and on such terms
and conditions as the Committee may prescribe, award (a) Incentive Stock
Options, subject to Section 5.5, to any eligible Employee of the Company or any
parent or subsidiary corporation (as permitted under Sections 422 and 424 of the
Code) and (b) Nonqualified Stock Options to any Employee.
5.2 Period of Option.
(a) An Option granted under the Plan shall be exercisable only in accordance
with the vesting schedule approved by the Committee. The Committee may in its
discretion prescribe additional conditions, restrictions or terms on the vesting
of an Option, including the full or partial attainment of Performance Goals
pursuant to Section 4.4. After the Option vests, the Option may be exercised at
any time during the term of the Option, in whole or in installments, as
specified in the related Award Agreement. Subject to Article X and except as
provided in Section 5.5, the duration of each Option shall not be more than ten
years from the date of grant.
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(b) Except as provided in Article X, a Participant may not exercise an Option
unless such Participant is then, and continually (except for sick leave,
military service, or other approved leave of absence) after the grant of the
Option, has been, an Employee or Non-Employee Director.
5.3 Award Agreement. Each Option shall be evidenced by an Award Agreement. The
Award Agreement shall specify whether the Option is intended to be an Incentive
Stock Option or a Nonqualified Stock Option.
5.4 Option Price, Exercise and Payment.
(a) Except as provided in Section 5.5, the Option Price of Company Stock under
each Option shall be determined by the Committee but shall be a price not less
than 100 percent of the Fair Market Value of Company Stock at the date such
Option is granted.
(b) Subject to Section 12.2, the Committee may not (i) amend an Option to reduce
its Option Price, (ii) cancel an Option and regrant an Option with a lower
Option Price than the original Option Price of the cancelled Option, or (iii)
take any other action (whether in the form of an amendment, cancellation or
replacement grant) that has the effect of "repricing" an Option, as defined
under applicable rules of the established stock exchange or quotation system on
which the Company Stock is then listed or traded.
(c) Vested Options may be exercised from time to time by giving written notice
to the Chief Financial Officer of the Company, or his or her designee,
specifying the number of shares to be purchased. The notice of exercise shall be
accompanied by payment in full of the Option Price in cash or the Option Price
may be paid in whole or in part through the transfer to the Company of shares of
Company Stock in accordance with procedures established by the Committee from
time to time. In addition, in accordance with the rules and procedures
established by the Committee for this purpose, an Option may also be exercised
through a cashless exercise procedure involving a broker or dealer, that affords
Participants the opportunity to sell immediately some or all of the shares
underlying the exercised portion of the Option in order to generate sufficient
cash to pay the Option Price and/or to satisfy withholding tax obligations
related to the Option.
(d) In the event such Option Price is paid, in whole or in part, with shares of
Company Stock, the portion of the Option Price so paid shall be equal to the
value, as of the date of exercise of the Option, of such shares. The value of
such shares shall be equal to the number of such shares multiplied by the Fair
Market Value of such shares on the trading day coincident with the date of
exercise of such Option (or the immediately preceding trading day if the date of
exercise is not a trading day). The Company shall not issue or transfer Company
Stock upon exercise of an Option until the Option Price is fully paid.
5.5 Limitations on Incentive Stock Options. Each provision of the Plan and each
Award Agreement relating to an Incentive Stock Option shall be construed so that
each Incentive Stock Option shall be an incentive stock option as defined in
Section 422 of the Code, and any provisions of the Award Agreement thereof that
cannot be so construed shall be disregarded. No Incentive Stock Option may be
granted to any Employee who, at the time of such grant, owns stock possessing
more than 10 percent of the total combined voting power of all classes of stock
of the Company or of its parent or subsidiary corporation (as determined under
Sections 422 and 424 of the Code), unless (a) the Option Price for such
Incentive Stock Option is at least 110 percent of the Fair Market Value of a
share of Company Stock on the date the Incentive Stock Option is granted and (b)
such Incentive Stock Option may not be exercised more than five years after it
is granted. Notwithstanding anything in the Plan to the contrary, to the extent
required by the Code, the exercise of Incentive Stock Options granted under the
Plan shall be subject to the $100,000 calendar year limit as set forth in
Section 422 of the Code; provided that, to the extent any grant exceeds such
$100,000 calendar year limit, the portion of such granted Option shall be deemed
a Nonqualified Stock Option in accordance with Section 422 of the Code.
5.6 Rights and Privileges. A Participant shall have no rights as a Shareholder
with respect to any shares of Company Stock covered by an Option until the
issuance of such shares to the Participant.
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5.7 Award of SARs.
(a) The Committee may, from time to time, and on such terms and conditions as
the Committee may prescribe, award SARs to any Employee.
(b) A SAR shall represent the right to receive payment of an amount equal to (i)
the amount by which the Fair Market Value of one share of Company Stock on the
trading day immediately preceding the date of exercise of the SAR exceeds the
Exercise Price multiplied by (ii) the number of shares covered by the SAR.
Payment of the amount to which a Participant is entitled upon the exercise of a
SAR shall be made in cash, Company Stock, or partly in cash and partly in
Company Stock at the discretion of the Committee. The shares shall be valued at
their Fair Market Value on the date of exercise.
(c) SARs awarded under the Plan shall be evidenced by an Award Agreement between
the Company and the Participant.
(d) The Committee may prescribe conditions and limitations on the exercise of
any SAR. SARs may be exercised only when the Fair Market Value of a share of
Company Stock exceeds the Exercise Price.
(e) A SAR shall be exercisable only by written notice to the Chief Financial
Officer of the Company or his or her designee.
(f) To the extent not previously exercised, all SARs shall automatically be
exercised on the last trading day prior to their expiration, so long as the Fair
Market Value of a share of Company Stock exceeds the Exercise Price, unless
prior to such day the holder instructs the Chief Financial Officer or his or her
designee otherwise in writing.
(g) Subject to Article X, each SAR shall expire on a date determined by the
Committee at the time of grant.
ARTICLE VI
RESTRICTED STOCK
6.1 Award of Restricted Stock. The Committee may make a Restricted Stock Award
to any Employee, subject to this Article VI and to such other terms and
conditions as the Committee may prescribe.
6.2 Restriction Period. At the time of making a Restricted Stock Award, the
Committee shall establish the Restriction Period applicable to such Award. The
Committee may establish different Restriction Periods from time to time and each
Restricted Stock Award may have a different Restriction Period, in the
discretion of the Committee. Restriction Periods, when established for a
Restricted Stock Award, shall not be changed except as permitted by Section 6.3.
6.3 Other Terms and Conditions. Company Stock, when awarded pursuant to a
Restricted Stock Award, will be represented in a book entry account in the name
of the Participant who receives the Restricted Stock Award. The Participant
shall be entitled to receive dividends during the Restriction Period and shall
have the right to vote such Restricted Stock and shall have all other
Shareholder rights, with the exception that (i) unless otherwise provided by the
Committee, if any dividends are paid in shares of Company Stock, those shares
will be subject to the same restrictions as the shares of Restricted Stock with
respect to which they were issued, (ii) the Participant will not be entitled to
delivery of any stock certificate evidencing the Company Stock underlying the
Restricted Stock Award during the Restriction Period, (iii) the Company will
retain custody of the Restricted Stock during the Restriction Period, and (iv) a
breach of a restriction or a breach of the terms and conditions established by
the Committee pursuant to the Restricted Stock Award will cause a forfeiture of
the Restricted Stock Award. The Committee may, in addition, prescribe additional
restrictions, terms, or conditions upon or to the Restricted Stock Award
including the attainment of Performance Goals in accordance with Section 4.4.
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6.4 Restricted Stock Award Agreement. Each Restricted Stock Award shall be
evidenced by an Award Agreement.
6.5 Payment for Restricted Stock. Restricted Stock Awards may be made by the
Committee under which the Participant shall not be required to make any payment
for the Company Stock or, in the alternative, under which the Participant, as a
condition to the Restricted Stock Award, shall pay all (or any lesser amount
than all) of the Fair Market Value of the Company Stock, determined as of the
date the Restricted Stock Award is made. If the latter, such purchase price
shall be paid in cash, or otherwise, as provided in the Award Agreement.
ARTICLE VII
AWARDS FOR NON-EMPLOYEE DIRECTORS
7.1 Awards to Non-Employee Directors. The Board shall determine all Awards to
Company Directors and the Committee shall determine all Awards to Subsidiary
Directors. The Board or the Committee, as the case may be, retains the
discretionary authority to make Awards to Non-Employee Directors and any type of
Award (other than Incentive Stock Options) may be granted to Non-Employee
Directors under this Plan. All such Awards shall be subject to the terms and
conditions of the Plan and to such other terms and conditions consistent with
the Plan as the Board or the Committee, as the case may be, deems appropriate.
7.2 No Right to Continuance as a Director. None of the actions of the Company in
establishing the Plan, the actions taken by the Company, the Board, or the
Committee under the Plan, or the granting of any Award under the Plan shall be
deemed (i) to create any obligation on the part of the Board or the board of
directors of the applicable Subsidiary to nominate any Non-Employee Director for
reelection or (ii) to be evidence of any agreement or understanding, express or
implied, that the Non-Employee Director has a right to continue as a
Non-Employee Director for any period of time or at any particular rate of
compensation.
ARTICLE VIII
UNRESTRICTED COMPANY STOCK AWARDS FOR EMPLOYEES
8.1 The Committee may make awards of unrestricted Company Stock to Employees on
such terms and conditions as the Committee may prescribe.
ARTICLE IX
AWARD OF PERFORMANCE UNITS
9.1 Award of Performance Units. The Committee may award Performance Units to any
Employee. Each Performance Unit shall represent the right of a Participant to
receive an amount equal to the value of the Performance Unit, determined in the
manner established by the Committee at the time of Award.
9.2 Performance Period. At the time of each Performance Unit Award, the
Committee shall establish, with respect to each such Award, a Performance Period
during which performance shall be measured. There may be more than one
Performance Unit Award in existence at any one time, and Performance Periods may
differ.
9.3 Performance Measures. Performance Units shall be awarded to a Participant
and earned contingent upon the attainment of Performance Goals in accordance
with Section 4.4.
9.4 Performance Unit Value. Each Performance Unit shall have a maximum dollar
value established by the Committee at the time of the Award. Performance Units
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earned will be determined by the Committee in respect of a Performance Period in
relation to the degree of attainment of Performance Goals. The measure of a
Performance Unit may, in the discretion of the Committee, be equal to the Fair
Market Value of one share of Company Stock.
9.5 Award Criteria. In determining the number of Performance Units to be granted
to any Participant, the Committee shall take into account the Participant's
responsibility level, performance, potential, cash compensation level, other
incentive awards, and such other considerations as it deems appropriate.
9.6 Payment.
(a) Following the end of the applicable Performance Period, a Participant
holding Performance Units will be entitled to receive payment of an amount, not
exceeding the maximum value of the Performance Units, based on the achievement
of the Performance Goals for such Performance Period, as determined by the
Committee.
(b) Awards may be paid in cash or stock, or any combination thereof, as
determined by the Committee. Payment shall be made in a lump sum or in
installments and shall be subject to such other terms and conditions as shall be
determined by the Committee.
9.7 Performance Unit Award Agreements. Each Performance Unit Award shall be
evidenced by an Award Agreement.
ARTICLE X
GENERAL TERMINATION PROVISIONS
10.1 Termination. Subject to Article XI and unless otherwise specified in the
applicable Award Agreement, the following provisions will govern the treatment
of a Participant's outstanding Awards following a Participant's Termination.
(a) If the Participant's Termination is due to death, Disability or Retirement,
all of the Participant's outstanding Options, SARs or Restricted Stock Awards
shall become fully vested and, if applicable, exercisable. Upon the
Participant's Termination for any other reason, any Awards that are not vested
and/or exercisable on the date of such Termination will immediately terminate
and be of no further force and effect.
(b) If the Participant's Termination is for any reason other than (i) death,
(ii) Disability, (iii) Retirement or (iv) discharge for Cause, such
Participant's outstanding SARs or Options may be exercised at any time within
three months after such Termination, to the extent of the number of shares
covered by such Options or SARs which are exercisable at the date of such
Termination; except that an Option or SAR shall not be exercisable on any date
beyond the expiration date of such Option or SAR.
(c) Upon a Termination for Cause, any Options or SARs held by the Participant
(whether or not then exercisable) shall expire and any rights thereunder shall
terminate immediately. Any non-vested Restricted Stock Awards of such
Participant shall immediately be forfeited and any rights thereunder shall
terminate.
(d) Upon a Termination due to the Participant's death, any SARs or Options that
are then exercisable may be exercised by the Participant's Personal
Representative at any time before the earlier of (i) one year after the
Participant's death or (ii) the expiration date of the Award.
(e) Upon a Termination due to the Participant's Disability or Retirement, any
SARs or Options that are then exercisable may be exercised by the Participant at
any time before the earlier of (i) one year after the date of such Termination
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or (ii) the expiration date of the Award; provided, however, that an Option
which is intended to qualify as an Incentive Stock Option will only be treated
as such to the extent it complies with the requirements of Section 422 of the
Code.
(f) If a Participant whose Termination is due to Retirement dies prior to
exercising all of his or her outstanding Options or SARs, then such Options or
SARs may be exercised by the Participant's Personal Representative at any time
before the earlier of (i) one year after the Participant's death or (ii) the
expiration date of the Award; provided, however, that, an Option which is
intended to qualify as an Incentive Stock Option will only be treated as such to
the extent it complies with the requirements of Section 422 of the Code.
(g) Subject to Article XI, a Performance Unit Award shall terminate for all
purposes if the Participant's Termination is at any time during the applicable
Performance Period, except as may otherwise be determined by the Committee. In
the event that the Termination of a Participant holding a Performance Unit
occurs following the end of the applicable Performance Period but prior to full
payment according to the terms of the Performance Unit Award, the Performance
Unit Award shall terminate except when the termination event is due to death,
Disability or Retirement.
ARTICLE XI
CHANGE IN CONTROL OF THE COMPANY
11.1 Contrary Provisions. Notwithstanding anything contained in the Plan to the
contrary, the provisions of this Article XI shall govern and supersede any
inconsistent terms or provisions of the Plan.
11.2 Definitions
(a) Change in Control. For purposes of this Plan, "Change in Control" shall mean
a change in the ownership or effective control of the Company or in the
ownership of a substantial portion of the assets of the Company (within the
meaning of Section 409A of the Code).
(i) Change in Actual Control shall mean the acquisition by any one
person, or more than one person acting as a group (as defined in
Section 11.2(a)(iv), below) of ownership of stock of the Company that,
together with stock held by such person or group, constitutes more than
50 percent of the total fair market value or total voting power of the
stock of the Company. However, if any one person, or more than one
person acting as a group, is considered to own more than 50 percent of
the total fair market value or total voting power of the stock of the
Company, the acquisition of additional stock by the same person or
persons is not considered to cause a Change in Actual Control of the
Company (or to cause a Change in Effective Control of the Company
(within the meaning of Section 11.2(a)(ii)). An increase in the
percentage of stock owned by any one person, or persons acting as a
group, as a result of a transaction in which the Company acquires its
stock in exchange for property will be treated as an acquisition of
stock for purposes of this Section 11.2(a)(i).
(ii) Change in Effective Control shall mean:
(A) The acquisition by any one person, or more than one person
acting as a group (as defined in Section 11.2(a)(iv), below), during
any 12-month period of ownership of stock of the Company possessing 35
percent or more of the total voting power of the stock of the Company;
or
(B) The replacement of a majority of members of the Board
during any 12-month period by directors whose appointment or election
is not endorsed by a majority of the members of the Board prior to the
date of the appointment or election in accordance with Treasury
Regulation ss. 1.409A-1(g)(5)(vi)(A)(2).
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Notwithstanding the foregoing, if any one person, or more than one
person acting as a group, is considered to effectively control the
Company (within the meaning of this Section 11.2(a)(ii)), the
acquisition of additional control of the Company by the same person or
persons is not considered to cause a Change in Control.
(iii) Change in the Ownership of the Company's Assets shall mean the
acquisition by any one person, or more than one person acting as a
group (as defined in Section 11.2(a)(iv), below), during any 12-month
period of assets from the Company that have a total gross fair market
value equal to or more than 40 percent of the total gross fair market
value of all of the assets of the Company immediately prior to such
acquisition or acquisitions. Notwithstanding the foregoing, there is no
change in control event under this Section 11.2(a) when there is a
transfer to an entity that is controlled by the Shareholders
immediately after the transfer.
(iv) Persons acting as a group. For purposes of this Section 11.2(a),
persons will not be considered to be acting as a group solely because
they purchase or own stock of the same corporation at the same time, or
as a result of the same public offering. However, persons will be
considered to be acting as a group if they are owners of a corporation
that enters into a merger, consolidation, purchase or acquisition of
stock, or similar business transaction with the corporation. If a
person, including an entity, owns stock in both corporations that enter
into a merger, consolidation, purchase or acquisition of stock, or
similar transaction, such shareholder is considered to be acting as a
group with other shareholders in a corporation only with respect to the
ownership in that corporation prior to the transaction giving rise to
the change and not with respect to the ownership interest in the other
corporation.
11.3 Effect of Change in Control on Certain Awards. Unless otherwise specified
in the applicable Award Agreement, the following provisions will govern the
treatment of a Participant's outstanding Awards following a change in control.
(a) If the Company is not the surviving corporation following a Change in
Control, and the surviving corporation following such Change in Control or the
acquiring corporation (such surviving corporation or acquiring corporation is
hereinafter referred to as the "Acquiror") does not assume the outstanding
Options, SARs, Restricted Stock, Restricted Performance Stock or Performance
Units or does not substitute equivalent equity awards relating to the securities
of such Acquiror or its affiliates for such Awards, then all such Awards shall
become immediately and fully exercisable (or in the case of Restricted Stock,
fully vested and all restrictions will immediately lapse). In the case of
Restricted Performance Stock and Performance Units, the target payout
opportunities under all outstanding Awards of Restricted Performance Stock and
Performance Units shall be deemed to have been fully earned based on targeted
performance being attained as of the effective date of the Change in Control. In
addition, the Board or its designee may, in its sole discretion, provide for a
cash payment to be made to each Participant for the outstanding Options,
Restricted Stock, Restricted Performance Stock, SARs or Performance Units upon
the consummation of the Change in Control, determined on the basis of the fair
market value that would be received in such Change in Control by the holders of
the Company's securities relating to such Awards. Notwithstanding the foregoing,
any Option intended to be an Incentive Stock Option under Section 422 of the
Code shall be adjusted in a manner to preserve such status.
(b) If the Company is the surviving corporation following a Change in Control,
or the Acquiror assumes the outstanding Options, SARs, Restricted Stock,
Restricted Performance Stock or Performance Units or substitutes equivalent
equity awards relating to the securities of such Acquiror or its affiliates for
such Awards, then all such Awards or such substitutes therefor shall remain
outstanding and be governed by their respective terms and the provisions of the
Plan.
(c) If (i) a Participant's Termination is without Cause within twenty-four (24)
months following a Change in Control, and (ii) the Company is the surviving
corporation following such Change in Control, or the Acquiror assumes the
outstanding Options, SARs, Restricted Stock, Restricted Performance Stock or
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Performance Units or substitutes equivalent equity awards relating to the
securities of such Acquiror or its affiliates for such Awards, then all
outstanding Options, SARs, Restricted Stock, Restricted Performance Stock or
Performance Units shall become immediately and fully exercisable (or in the case
of Restricted Stock, fully vested and all restrictions will immediately lapse).
In the case of Restricted Performance Stock and Performance Units, the target
payout opportunities under all outstanding Awards of Restricted Performance
Stock and Performance Units shall be deemed to have been fully earned based on
targeted performance being attained. (d) If (i) the employment of a Participant
with the Company and its Subsidiaries is terminated for Cause within twenty-four
(24) months following a Change in Control and (ii) the Company is the surviving
corporation following such Change in Control, or the Acquiror assumes the
outstanding Options, SARs, Restricted Stock, Restricted Performance Stock, or
Performance Units or substitutes equivalent equity awards relating to the
securities of such Acquiror or its affiliates for such Awards, then any Options
or SARs of such Participant shall expire, and any non-vested Restricted Stock,
Restricted Performance Stock or Performance Units shall be forfeited, and any
rights under such Awards shall terminate immediately.
(e) Outstanding Options or SARs which vest in accordance with Section 11.3, may
be exercised by the Participant in accordance with Article X; provided, however,
that a Participant whose Options or SARs become exercisable in accordance with
Section 11.3(c) may exercise such Options or SARs at any time within one year
after such Termination, except that an Option or SAR shall not be exercisable on
any date beyond the expiration date of such Option or SAR.
In the event of a Participant's death after such Termination, the exercise of
Options and SARs shall be treated in the same manner as determined for
retirement in Section 10.1(e).
11.4 Amendment or Termination. This Article XI shall not be amended or
terminated at any time if any such amendment or termination would adversely
affect the rights of any Participant under the Plan.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 Adjustments Upon Changes in Stock. In case of any reorganization,
recapitalization, reclassification, stock split, stock dividend, distribution,
combination of shares, merger, consolidation, rights offering, or any other
changes in the corporate structure or shares of the Company, appropriate
adjustments shall be made by the Committee or the Board, as the case may be, (or
if the Company is not the surviving corporation in any such transaction, the
board of directors of the surviving corporation) in the aggregate number and
kind of shares subject to the Plan, and the number and kind of shares and the
Option Price per share subject to outstanding Options or which may be issued
under outstanding Restricted Stock Awards or pursuant to unrestricted Company
Stock Awards. Appropriate adjustments shall also be made by the Committee or the
Board, as the case may be, in the terms of any Awards under the Plan, subject to
Article XI, to reflect such changes and to modify any other terms of outstanding
Awards on an equitable basis. Any such adjustments made by the Committee or the
Board pursuant to this Section 12.1 shall be conclusive and binding for all
purposes under the Plan.
12.2 Amendment, Suspension, and Termination of Plan.
(a) The Board may suspend or terminate the Plan or any portion thereof at any
time, and may amend the Plan from time to time in such respects as the Board may
deem advisable in order that any Awards thereunder shall conform to any change
in applicable laws or regulations or in any other respect the Board may deem to
be in the best interests of the Company; provided, however, that no such
amendment shall, without Shareholder approval, (i) except as provided in Section
12.1, increase the number of shares of Company Stock which may be issued under
the Plan, (ii) expand the types of awards available to Participants under the
Plan, (iii) materially expand the class of employees eligible to participate in
the Plan, (iv) materially change the method of determining the Option Price of
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Options; (v) delete or limit the provision in Section 5.4 prohibiting the
repricing of Options; (vi) extend the termination date of the Plan or (vii) be
made to the extent that Shareholder approval is required to satisfy applicable
law, regulation or any securities stock exchange, market or other quotation
system on or through which the Company Stock is listed or traded. No such
amendment, suspension, or termination shall materially adversely alter or impair
any outstanding Options, SARs, shares of Restricted Stock, or Performance Units
without the consent of the Participant affected thereby.
(b) The Committee may amend or modify any outstanding Options, SARs, Restricted
Stock Awards, or Performance Unit Awards in any manner to the extent that the
Committee would have had the authority under the Plan initially to award such
Options, SARs, Restricted Stock Awards, or Performance Unit Awards as so
modified or amended, including without limitation, to change the date or dates
as of which such Options or SARs may be exercised, to remove the restrictions on
shares of Restricted Stock, or to modify the manner in which Performance Units
are determined and paid.
(c) Notwithstanding the foregoing, the Plan and any Award Agreements may be
amended without any additional consideration to affected Participants to the
extent necessary to comply with, or avoid penalties under, Section 409A of the
Code, even if those amendments reduce, restrict or eliminate rights granted
prior to such amendments.
12.3 Nonuniform Determinations. The Committee's (or, if applicable, the Board's)
determinations under the Plan, including without limitation, (a) the
determination of the Employees and Non-Employee Directors to receive Awards, (b)
the form, amount, and timing of any Awards, (c) the terms and provisions of any
Awards and (d) the Award Agreements evidencing the same, need not be uniform and
may be made by it selectively among Employees and/or Non-Employee Directors who
receive, or who are eligible to receive, Awards under the Plan, whether or not
such Employees and/or Non-Employee Directors are similarly situated.
12.4 General Restriction. Each Award under the Plan shall be subject to the
condition that, if at any time the Committee shall determine that (a) the
listing, registration, or qualification of the shares of Company Stock subject
or related thereto upon any established stock exchange, market or quotation
system or under any state or federal law, (b) the consent or approval of any
government or regulatory body, or (c) an agreement by the Participant with
respect thereto, is necessary or desirable, then such Award shall not become
exercisable in whole or in part unless such listing, registration,
qualification, consent, approval, or agreement shall have been effected or
obtained free of any conditions not acceptable to the Committee.
12.5 No Right To Employment. None of the actions of the Company in establishing
the Plan, the actions taken by the Company, the Board or the Committee under the
Plan, or the granting of any Award under the Plan shall be deemed (a) to create
any obligation on the part of the Company or any Subsidiary to retain any person
in the employ of, or continue the provision of services to, the Company or any
Subsidiary, or (b) to be evidence of any agreement or understanding, express or
implied, that the person has a right to continue as an employee for any period
of time or at any particular rate of compensation.
12.6 Governing Law. The provisions of the Plan shall take precedence over any
conflicting provision contained in an Award Agreement. All matters relating to
the Plan or to Awards granted hereunder shall be governed by and construed in
accordance with the laws of the State of South Carolina without regard to the
principles of conflict of laws.
12.7 Trust Arrangement. All benefits under the Plan represent an unsecured
promise to pay by the Company. The Plan shall be unfunded and the benefits
hereunder shall be paid only from the general assets of the Company resulting in
the Participants having no greater rights than the Company's general creditors;
provided, however, nothing herein shall prevent or prohibit the Company from
establishing a trust or other arrangement for the purpose of providing for the
payment of the benefits payable under the Plan.
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12.8 No Impact on Benefits. Awards are not compensation for purposes of
calculating a Participant's rights under any employee benefit plan that does not
specifically require the inclusion of Awards in calculating benefits.
12.9 Beneficiary Designation. Each Participant may name a beneficiary or
beneficiaries to receive or exercise any vested Award that is unpaid or
unexercised at the Participant's death. Unless otherwise provided in the
beneficiary designation, each designation will revoke all prior designations
made by the same Participant, must be made on a form prescribed by the Committee
and will be effective only when filed in writing with the Committee. If a
Participant has not made an effective beneficiary designation, the deceased
Participant's beneficiary will be the Participant's surviving spouse or, if
none, the deceased Participant's estate. The identity of a Participant's
designated beneficiary will be based only on the information included in the
latest beneficiary designation form completed by the Participant and will not be
inferred from any other evidence.
12.10 Tax Withholding. The Company shall have the power and the right to deduct
or withhold, or require a Participant to remit to the Company, the minimum
statutory amount to satisfy federal, state and local taxes required by law or
regulation to be withheld with respect to any taxable event arising as a result
of the Plan. With respect to withholding required upon any taxable event arising
as a result of an Award granted hereunder, a Participant may elect, subject to
the approval of the Committee, to satisfy the withholding requirement, in whole
or in part, by having the Company withhold shares of Company Stock having a Fair
Market Value on the date the tax is to be determined equal to the minimum
statutory total tax that could be imposed on the transaction. All such elections
shall be irrevocable, made in writing and signed by the Participant, and shall
be subject to any restrictions or limitations that the Committee, in its sole
discretion, deems appropriate.
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PROXY
COMMUNITY BANKSHARES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS - Monday, May 21, 2007
Michael A. Wolfe and William W. Traynham or either of them, with full power
of substitution, are hereby appointed as agent(s) of the undersigned to vote as
proxies all of the shares of Common Stock of Community Bankshares, Inc. held of
record by the undersigned on the Record Date at the Annual Meeting of
Shareholders to be held on May 21, 2007, and at any adjournment thereof, as
follows:
1. Election of [ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY
Directors. below to vote for all nominees
listed below
[ ] WITHHOLD AUTHORITY only on the following nominees:____
_______________________________________________________
_______________________________________________________
Instructions: To withhold authority to vote for any
individual(s), write the nominee's(s') name(s) on the line
above.
NOMINEES: Three Year Terms: Samuel L. Erwin, Anna O. Dantzler, Richard L.
Havekost and Samuel F. Reid, Jr.
Two Year Term: Charles P. Thompson, Jr.
2. Approval of the Community Bankshares, Inc. 2007 Equity Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. And, in the discretion of said agents, upon such other business as may
properly come before the meeting, and matters incidental to the conduct of
the meeting. (Management at present knows of no other business to be
brought before the meeting.)
THIS PROXY WILL BE VOTED AS INSTRUCTED. IF NO CHOICE IS INDICATED WITH RESPECT
TO A MATTER WHERE A CHOICE IS PROVIDED, THIS PROXY WILL BE VOTED "FOR" SUCH
MATTER.
Please sign exactly as name appears below. When signing as attorney, executor,
administrator, trustee, or guardian, please give full title. If more than one
trustee, all should sign. All joint owners must sign.
Dated: _______, 2007
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