SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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Citizens Holding Company
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
________________________________________________
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Citizens Holding Company
521 Main Street
Philadelphia, Mississippi 39350
March 21, 2003
Dear Fellow Shareholder:
On behalf of the Board of Directors, we cordially invite you to attend the
2003 Annual Meeting of Shareholders of Citizens Holding Company. The Annual
Meeting will be held beginning at 3:30 p.m. Central time, on Tuesday, April 22,
2003, at the main office of The Citizens Bank of Philadelphia, 521 Main Street,
Philadelphia, Mississippi 39350. The formal notice of the Annual Meeting appears
on the next page.
The Annual Meeting has been called for the following purposes: (1) to set
the number of directors to serve on the board at twelve; (2) to elect four Class
I directors, each for a three-year term; (3) to ratify the Board of Directors'
appointment of the Company's independent accountants for the fiscal year ending
December 31, 2003; and (4) to transact such other business as may properly come
before the Annual Meeting or any adjournments thereof.
The accompanying proxy statement provides detailed information concerning
the matters to be voted on at the Annual Meeting. We urge you to review this
proxy statement and each of the proposals carefully. Regardless of the number of
shares you own, it is important that your views be represented whether or not
you are able to be present at the Annual Meeting. Please take a moment now to
sign, date and mail the enclosed proxy card in the postage prepaid envelope.
Your Board of Directors recommends a vote "FOR" each proposal.
We are gratified by our shareholders' continued interest in Citizens
Holding Company and are pleased that in the past so many of you have voted your
shares either in person or by proxy. We hope that you will continue to do so and
again urge you to return your proxy card as soon as possible.
Sincerely,
/s/ Greg L. McKee
President and Chief Executive Officer
Citizens Holding Company
521 Main Street
Philadelphia, Mississippi 39350
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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TIME ............ 3:30 p.m., Central time, on Tuesday, April 22, 2003
PLACE ........... The Citizens Bank of Philadelphia
521 Main Street
Philadelphia, Mississippi 39350
ITEMS OF BUSINESS (1) To set the number of directors to serve on the board at
twelve.
(2) To elect four Class I directors who will each serve a
three-year term expiring in 2006.
(3) To consider and act upon a proposal to ratify and
approve the selection of Horne CPA Group as the
company's independent accountants for the fiscal year
ending December 31, 2003.
(4) To transact any other business that may properly come
before the annual meeting or any adjournments thereof.
RECORD DATE ..... You can vote if you are a shareholder of record as of the
close of business on March 14, 2003.
ANNUAL REPORT ... Our 2002 annual report, which is not part of the proxy
solicitation material, is enclosed.
PROXY VOTING .... It is important that your shares be represented and voted at
the annual meeting. Please mark, sign, date and promptly
return the enclosed proxy card in the postage paid envelope.
Any proxy may be revoked at any time prior to its exercise
at the annual meeting.
By Order of the Board of Directors
Carolyn K. McKee
Secretary
Philadelphia, Mississippi
March 21, 2003
TABLE OF CONTENTS
Page
----
BOARD OF DIRECTORS ....................................................... 3
General ............................................................. 3
Meetings and Committees of the Board of Directors ................... 5
Compensation of the Board of Directors .............................. 5
PROPOSAL I: NUMBER OF DIRECTORS TO BE ELECTED ............................ 6
Vote Required and Board Recommendation .............................. 6
PROPOSAL II: ELECTION OF CLASS I DIRECTORS .............................. 7
Vote Required and Board Recommendation .............................. 7
SECURITY OWNERSHIP OF DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS ......... 7
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS .......................... 9
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE .................. 9
EXECUTIVE COMPENSATION ................................................... 10
Stock Options ....................................................... 11
Change in Control Agreement ......................................... 12
Report on Executive Compensation .................................... 12
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION .............. 14
Indebtedness of Related Parties ..................................... 14
Interests of the Board of Directors ................................. 14
STOCK PERFORMANCE GRAPH .................................................. 14
PROPOSAL III: APPOINTMENT OF INDEPENDENT ACCOUNTANTS ..................... 16
Vote Required and Board Recommendation .............................. 17
Report of the Audit Committee ....................................... 17
PROPOSALS BY SHAREHOLDERS FOR THE 2004 ANNUAL MEETING .................... 18
OTHER MATTERS ............................................................ 18
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K ............................... 19
CITIZENS HOLDING COMPANY
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PROXY STATEMENT
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ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD TUESDAY, APRIL 22, 2003
This proxy statement is furnished to the shareholders of Citizens Holding
Company, or the company, in connection with the solicitation of proxies by the
board of directors, for use at the annual meeting of shareholders to be held at
3:30 p.m., Central time on Tuesday, April 22, 2003, at the company's main
office, 521 Main Street, Philadelphia, Mississippi 39350, and any adjournments
or postponements. This proxy statement and accompanying proxy card are first
being distributed to our shareholders on or about March 21, 2003.
Proxy Solicitation
The board of directors is soliciting the enclosed proxy so that each
shareholder has the opportunity to vote on the proposals presented at the annual
meeting, whether or not the shareholder attends the meeting. When a proxy card
is returned properly signed and dated, the shares represented by the proxy will
be voted in accordance with the instructions on the card at the annual meeting,
including any adjournments or postponements. If the proxy card is signed but no
instructions are given, the shares represented by the proxy will be voted at the
annual meeting and any adjournments or postponements:
(1) "FOR" setting the number of directors to serve on the board at twelve;
(2) "FOR" the election of nominees Don L. Fulton, Donald L. Kilgore,
Herbert A. King and David P. Webb as Class I directors; and
(3) "FOR" the approval of the appointment of Horne CPA Group as the
company's independent accountants for the fiscal year ending December
31, 2003.
The proxy card gives the individuals named as proxies discretionary
authority to vote the shares represented by the proxy on any matter other than
the proposals that is properly presented for action at the annual meeting.
A shareholder who gives a proxy may revoke it at any time before it is
voted by giving written notice to the secretary of the company before the annual
meeting, by granting a subsequent proxy or if the shareholder, rather than his
or her broker, is a record holder of our stock, by appearing in person and
voting at the annual meeting.
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The company generally bears all costs of soliciting proxies. The company
has retained and pays a fee to American Stock Transfer and Trust Company to act
as its registrar and transfer agent and to assist it in the solicitation of
proxies, but the company pays no identifiable compensation for the solicitation
of proxies. Directors, officers and employees of the company, who will receive
no compensation for their services, may solicit proxies by telephone, mail,
facsimile, via the Internet or overnight delivery service.
Record Date and Voting Rights
The board of directors has fixed the close of business on Friday, March 14,
2003, as the record date for the annual meeting. Only shareholders of record on
that date are entitled to notice of and to vote at the annual meeting. As of
March 14, 2003, the company's only outstanding class of securities was common
stock, $.20 par value per share. As of March 14, 2003, the company had
22,500,000 shares authorized, of which 4,974,578 shares of common stock were
issued and outstanding.
This proxy provides the opportunity for shareholders to specify approval,
disapproval, or abstention for the following proposals:
(1) A proposal to set the number of directors to serve on the board at
twelve;
(2) The election of four Class I directors to serve until the expiration
of their respective three-year term or until their successors are
elected and qualified; and
(3) The appointment of Horne CPA Group as the company's independent
accountants for the fiscal year ending December 31, 2003.
A majority of the votes entitled to be cast at the annual meeting
constitutes a quorum. A share, once represented for any purpose at the annual
meeting, is deemed present for purposes of determining a quorum for the
remainder of the meeting and for any adjournment, unless a new record date is
set for the adjourned meeting. This is true even if the holder of the share
abstains from voting with respect to any matter brought before the annual
meeting.
Shareholders are entitled to one vote for each share held, which may be
given in person (if the shareholder, rather than his or her broker, is the
record holder of our stock) or by proxy, except that shareholders may cumulate
their votes in the election of directors. Cumulative voting entitles a
shareholder to give one nominee a number of votes equal to the number of
directors to be elected multiplied by the number of shares held by that
shareholder, or to distribute the total votes, computed on the same principle,
among as many nominees for election as directors as the shareholder chooses. For
example, if the number of directors to be elected is four, a shareholder owning
ten shares may cast ten votes for each of four nominees, cast forty votes for
one nominee, or allocate the forty votes among several nominees. Directors are
elected by plurality vote, thus, the candidates receiving the highest number of
votes cast, up to the number of directors to be elected, are elected.
2
For all matters brought before the annual meeting, other than the election
of directors, each proposal or other matter is approved if the votes cast
favoring the proposal or other matter exceed the votes cast opposing the
proposal or other matter.
Under Mississippi law and the company's articles of incorporation and
bylaws, an abstention by a shareholder who is either present in person at the
annual meeting or represented by proxy is not a vote "cast" and is counted
neither "for" nor "against" the matter subject to the abstention. Broker
non-votes on matters are treated as shares as to which voting power has been
withheld by the beneficial holders of those shares and therefore, as shares not
entitled to vote.
BOARD OF DIRECTORS
General
Below is information concerning the four nominees for election as Class I
directors and the continuing Class II and Class III directors.
Class I Directors (to be elected at the 2003 annual meeting, terms of office
expire in 2006)
.. Don L. Fulton has been President and General Manager of Nemanco, Inc., a
company primarily engaged in garment manufacturing, since 1977. Mr. Fulton,
who is 56 years old, has been a director of the company since 1994 and is a
member of the audit committee.
.. Donald L. Kilgore, has been engaged in the practice of law for the past
five years as a partner of the law firm of Alford, Thomas and Kilgore. Mr.
Kilgore, who is 53 years old, has been a director of the company since
2001.
.. Herbert A. King has served as an engineer with King Engineering, Inc., a
company primarily engaged in general civil engineering and land surveying,
since 1990. Mr. King, who is 51 years old, has been a director of the
company since 1997 and is a member of the audit committee.
.. David P. Webb has been engaged in the practice of law for the past five
years as a partner of the law firm of Phelps Dunbar, L.L.P. Mr. Webb, who
is 43 years old, has been a director of the company since 1998.
Class II Directors (terms of office expire in 2004)
.. M. G. Bond, who is retired, served as a Mississippi State Senator until
1992. Mr. Bond, who is 70 years old, has been a director of the company
since 1986.
.. Karl Brantley has been Plant Manager of U.S. Electrical Motors, a company
primarily engaged in the manufacture of commercial electric motors, since
1982. Mr. Brantley, who is 66 years old, has been a director since 1992 and
is a member of the audit committee.
3
.. David A. King has been the proprietor of Philadelphia Motor Company, a
company primarily engaged in wholesale and retail auto parts sales, since
1977. Mr. King, who is 48 years old has been a director of the company
since 1997.
.. Greg L. McKee has served as President and Chief Executive Officer of the
company since January, 2003, Chief Executive Officer of The Citizens Bank
of Philadelphia since January, 2003, and President of The Citizens Bank of
Philadelphia since January, 2002; he had served as Executive
Vice-President, Senior Vice-President and Vice President of The Citizens
Bank of Philadelphia in the five years prior. Mr. McKee, who is 41 years
old, has been a director of the company since 2001.
Class III Directors and Nominees (terms of office expire in 2005)
.. Willis W. Dungan has been a partner of McDaniel Timber Company, a company
primarily engaged in timber land development and sales, and a partner in
DPM, Inc., a company primarily engaged in commercial real estate and
equipment rental, for the past five years. Mr. Dungan, who is 69 years old,
has been a director of the company since 1981 (1).
.. George R. Mars, who is retired, was the proprietor of Mars Department Store
until December 1993. Mr. Mars, who is 63 years old, has been a director of
the company since 1977 (1).
.. William M. Mars has been engaged in the practice of law for the past five
years as a partner of the law firm of Mars, Mars, Mars & Chalmers, P.A. Mr.
Mars, who is 65 years old, has been a director of the company since 1977
(1).
.. Steve Webb has served as Chairman of the company and of The Citizens Bank
of Philadelphia since 1997. He served as Chief Executive Officer and
President of the company from 1982 until January, 2003, Chief Executive
Officer of The Citizens Bank of Philadelphia from 1978 until January, 2003,
and President of The Citizens Bank of Philadelphia from 1978 until January,
2002. Mr. Webb, who is 70 years old, has been a director of the company
since 1970 (1).
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(1) This is the year the director was elected to the board of directors of
The Citizens Bank of Philadelphia. These directors were all elected to
the board of the company at the time it was formed in 1982.
There are no family relationships between any director, executive officer
or person nominated to become a director, except that David A. King and Herbert
A. King are brothers and Steve Webb is the father of David P. Webb.
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Meetings and Committees of the Board of Directors
The board meets monthly, generally in a joint session with the board of
directors of The Citizens Bank of Philadelphia, the bank. During the fiscal year
ended December 31, 2002, the board met fourteen times. There were twelve regular
monthly meetings and two special meetings. Each director attended at least 75%
of all meetings held by the board and the committees on which he served. The
board, among other things, (1) approves remuneration arrangements for executive
officers of the company, (2) reviews compensation plans relating to executive
officers and directors, (3) determines other benefits under the company's
compensation plans, and (4) performs general reviews of the company's employee
compensation policies. Any director who also serves as an executive officer of
the company or the bank, does not participate in any board determination
regarding salaries and other compensation for executive officers.
The board has established an audit committee. The board has not formally
established a compensation committee and a nominating committee; however, the
full board generally performs the functions of these committees. The board of
directors will consider nominees recommended by shareholders provided that such
nominations are made in writing and delivered or mailed to the President of the
company not less than 14 nor more than 50 days prior to the annual meeting at
which the election of directors is to be held. The board of the bank also
maintains a trust and loan committee.
Karl Brantley, Don L. Fulton, and Herbert A. King are the members of the
audit committee. Each member of the audit committee is an "independent director"
as defined in Section 121(A) of the American Stock Exchange's listing standards.
The audit committee operates under a written charter adopted by the board of
directors on February 22, 2000. The audit committee is responsible for
compensation and oversight of the company's independent auditors, monitoring the
integrity of the company's financial reporting process and system of internal
controls, monitoring the independence and performance of the company's
independent auditors, reviewing and the establishment of internal policies and
procedures regarding audits, accounting and other financial controls,
pre-approving all auditing services provided by the company's independent
auditors, and providing an avenue of communication among the company's
independent auditors, management and the board of directors. The audit committee
is also responsible for appointing an independent accounting firm to be engaged
as the company's independent auditors. During 2002, the audit committee held
four meetings.
Compensation of the Board of Directors
During 2002, each director of the company received an annual retainer of
$11,100, a year-end bonus of $925 and an additional $125 for each board meeting
attended. Directors that serve on the loan committee received an additional $50
per month and an additional $50 year-end bonus.
The company maintains a stock option plan for the benefit of nonemployee
directors, the 1999 Directors' Stock Compensation Plan. During 2002, each
nonemployee director was granted options to purchase 1,500 shares of common
stock, at an exercise price of $15.00 per share, which
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is the fair market value of the stock on the date of grant. The options become
exercisable six months following the date of grant.
Directors may elect to participate in the Directors' Deferred Fee Plan
maintained by the bank. A participating director may elect to defer all or part
of his director fees for a ten-year period. Benefits are equal to the amount
credited to each director's individual account, including deferred fees and
interest at a stated rate based upon the Moody's Average Corporate Bond Rate.
Benefits are generally payable when a director ceases to serve on the board or
attains age 70. The company has elected to purchase individual life insurance
policies to fund its obligation under the plan.
PROPOSAL I: NUMBER OF DIRECTORS TO BE ELECTED
The company's articles of incorporation provide for a board of directors
consisting of not less than nine nor more than twenty-five directors. The
company's shareholders set the actual number of directors to serve on the board
each year at the annual meeting. The board of directors currently consists of
twelve directors divided into three classes, with members of each class elected
for a three-year term. The terms of the three classes are staggered in a manner
so that only one class is elected by the shareholders annually.
A proposal that the number of directors to serve for the ensuing year
remain fixed at twelve will be submitted for vote by the shareholders at the
annual meeting. If this proposal is approved by the affirmative vote of the
holders of a majority of the shares of common stock voted at the annual meeting,
four Class I directors will be elected, each to serve a three year-term. If this
proposal is not approved and the number of directors to serve on the board is
not set by the shareholders at the annual meeting, the number of directors to
serve on the board will remain at twelve as fixed at the 2002 annual meeting and
four Class I directors will still be elected, each to serve a three-tear term.
Vote Required and Board Recommendation
The affirmative vote by the holders of a majority of the shares of common
stock voted at the annual meeting is required to approve the proposal to set the
number of directors to serve on the board at twelve.
Shares represented by a properly signed and dated proxy card will be voted
in accordance with the instructions on the card at the annual meeting. If the
proxy card is signed but no instructions are given with respect to setting the
number of directors to serve on the board, the proxy holders will vote the
proxies received by them for setting the number of directors to serve on the
board at twelve.
The board of directors unanimously recommends a vote "FOR" setting the
number of directors to serve on the board at twelve.
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PROPOSAL II: ELECTION OF CLASS I DIRECTORS
Four Class I directors will be elected at the annual meeting to each serve
a three-year term. The board has nominated Don L. Fulton, Donald L. Kilgore,
Herbert A. King and David P. Webb for election as Class I directors to serve
until the 2006 annual meeting or until their successors are duly elected and
qualified. Don L. Fulton, Donald L. Kilgore, Herbert A. King and David P. Webb
are currently Class I directors of the company and have been nominated for
re-election as Class I directors.
Vote Required and Board Recommendation
For the election of directors, shareholders are entitled to four votes for
each share held and may cumulate votes. Directors are elected by plurality vote.
Thus, the four Class I nominees receiving the highest number of votes cast will
be elected to serve as Class I directors.
Shares represented by a properly signed and dated proxy card will be voted
in accordance with the instructions on the card at the annual meeting. If the
proxy card is signed but no instructions are given with respect to the election
of directors, the proxy holders will vote the proxies received by them for the
nominees listed above, and reserve the right to cumulate votes and distribute
them among the nominees, in their discretion. If for any reason one or more of
the nominees named above is not available as a candidate for director, an event
that the board of directors does not anticipate, the proxy holders will vote, in
their discretion for another candidate or candidates nominated by the board. If
shareholders attending the annual meeting cumulate their votes such that all of
the nominees above cannot be elected, the proxy holders will cumulate votes to
elect as many of the nominees listed above as possible.
The company's board of directors unanimously recommends a vote "FOR" the
election of each of the nominees for Class I director of the board of directors.
SECURITY OWNERSHIP OF DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
The following table sets forth information about all directors, nominees
and named executive officers, as of December 31, 2002, including their name,
position and beneficial ownership. Unless otherwise noted, the named persons
have sole voting and investment power with respect to the shares indicated
(subject to any applicable community property laws).
Amount and Nature of Beneficial Ownership
-----------------------------------------
Options Percent
Exercisable of
Name Position Direct Within 60 Days Other Class
---- -------- ------ -------------- ----- -----
M.G. Bond Director 49,627 7,950 1.2%
Karl Brantley Director 15,240 7,050 *
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Amount and Nature of Beneficial Ownership
-----------------------------------------
Options Percent
Exercisable of
Name Position Direct Within 60 Days Other Class
---- -------- ------ -------------- ----- -----
Willis W. Dungan Director 8,700 192,870 (1) 4.0%
Don L. Fulton Director 13,791 6,750 *
Donald L. Kilgore Director 2,579 3,000 *
David A. King Director 73,254 6,300 6,128 (2) 1.7%
Herbert A. King Director 73,252 6,300 288,855 (3) 7.4%
George R. Mars Director 140,591 9,300 31,260 (4) 3.6%
William M. Mars Director 25,000 9,300 *
Greg L. McKee President, CEO and Director; 3,010 11,250 *
President of the bank
David P. Webb Director 25,237 6,150 *
Steve Webb Chairman and Director; 10,702 137,505 (5) 3.0%
Chairman of the bank
All directors and 432,283 82,050 656,618 23.2%
executive officers
as a group (12
persons)
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* Less than 1% of the outstanding common stock.
(1) Includes 99,870 shares owned by Mr. Dungan's spouse who exercises sole
voting and investment power with respect to such shares and as to
which Mr. Dungan disclaims beneficial ownership; also includes 93,000
shares held in a limited partnership of which Mr. Dungan is the
managing general partner and as to which he exercises sole voting and
investment power.
(2) Includes 1,358 shares owned by Mr. King's spouse who exercises sole
voting and investment power with respect to such shares and as to
which Mr. King disclaims beneficial ownership; also includes 4,770
shares owned by his children as to which Mr. King shares voting and
investment power with his wife.
(3) Includes 132,868 owned by his children as to which Mr. King shares
voting and investment power with his wife; also includes 155,987
shares held in trust for his
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children as to which Mr. King exercises sole voting power but has no
investment power.
(4) Includes 30,630 shares owned by Mr. Mars' spouse who exercises sole
voting and investment power with respect to such shares and as to
which Mr. Mars disclaims beneficial ownership; also includes 630
shares held in trust for Mr. Mars as to which Mr. Mars has neither
voting nor investment power.
(5) Includes 255 shares owned by Mr. Webb's spouse who exercises sole
voting and investment power with respect to such shares and as to
which Mr. Webb disclaims beneficial ownership; also includes 137,250
shares held in a limited partnership of which Mr. Webb is the managing
general partner and as to which he exercises sole voting and
investment power.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth as of December 31, 2002, each person known
to the company who is a beneficial owner of more than 5% of the outstanding
shares of common stock of the company.
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership Percentage of Class
------------------- -------------------- -------------------
Herbert A. King 368,407 (1) 7.4%
101 Littlejohn Lane
Starkville, MS 39759
The Molpus Company 388,749 7.8%
502 Valley View Drive
Philadelphia, MS 39350
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(1) Includes 132,868 shares owned by Mr. King's children as to which Mr.
King shares voting and investment power with his wife; includes
155,987 shares held in trust for Mr. King's children as to which Mr.
King exercises sole voting power but has no investment power; and
includes 6,300 shares that Mr. King could acquire beneficial ownership
of by the exercise of stock options held by Mr. King.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16(a) of the Securities Exchange Act of 1934, as
amended, the company's directors, executive officers, and any person
beneficially owning more than ten percent of the company's common stock are
required to report their initial ownership of the company's
9
common stock and any subsequent changes in that ownership to the Securities and
Exchange Commission.
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the company during the 2002 fiscal year, and any Form 5 and
amendments thereto furnished to the company with respect to the 2002 fiscal
year, and certain written representations made by the company's directors and
officers, the company has determined that all required filings have been made,
except that William M. Mars did not timely file one report disclosing one
acquisition of common stock. The transaction has been reported in a subsequent
filing made by Mr. Mars.
EXECUTIVE COMPENSATION
The following table sets forth compensation information for Steve Webb, the
company's Chairman, President and Chief Executive Officer during 2002, and Greg
L. McKee, the bank's President and Chief Operating Officer during 2002, for
services rendered for the three fiscal years ended December 31, 2002. No other
executive officer of the bank or the company received total annual salary, bonus
and other compensation awards and payouts in excess of $100,000.
Summary Compensation Table
Long-Term
Annual Compensation Compensation
------------------------------------ ---------------------
Securities All Other
Name and Other Annual Underlying Compen-
Principal Position Year Salary Bonus Compensation(1) Options (#) sation
------------------ ---- ------ ----- ------------ ----------- ------
Steve Webb (2) 2002 $150,000 $35,000 $13,725 1,500 $27,497(3)
President and Chief
Executive Officer of 2001 150,000 35,000 12,875 1,500 28,181
the company
2000 145,000 35,000 12,825 1,500 24,602
Greg L. McKee (2) 2002 $120,000 $20,000 $13,425 1,500 $14,168(4)
President and Chief
Operating Officer of 2001 90,000 12,000 8,775 3,000 8,874
the bank
2000 81,000 6,550 0 750 7,617
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(1) Payment of director fees.
(2) Mr. Webb retired as an employee of the company, effective as of
December 31, 2002. He continues to serve as a member of the board of
directors of the company and the bank. Effective as of January 1,
2003, Mr. McKee became the company's Chief Executive Officer.
(3) Represents company matching and profit sharing contributions in the
amount of $11,295 under the Citizens Bank Profit Sharing and Savings
Plan, split-dollar life
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insurance premiums paid in the amount of $8,024, above-market interest
earned under the Director's Deferred Fee Plan in the amount of $6,720
and the value of the use of a company automobile in the amount of
$1,458.
(4) Represents company matching and profit sharing contributions in the
amount of $10,440 under the Citizens Bank Profit Sharing and Savings
Plan, split-dollar life insurance premiums paid in the amount of
$2,206, and the value of the use of a company automobile in the amount
of $1,522.
Stock Options
The company maintains the 1999 Employees' Long-Term Incentive Plan, which
provides for the grant of stock options and restricted stock to employees of the
company and the bank. The company has reserved for grant or issuance under the
plan shares of common stock not to exceed 7% of the company's issued and
outstanding common stock, as determined from time to time, or 348,220 shares as
of December 31, 2002. As of December 31, 2002, grants representing 65,450 shares
of the company's common stock have been awarded under the plan.
The following table presents information on the stock option grants that
were made under the plan during the fiscal year ended December 31, 2002 to the
named executive officers.
Option Grants in 2002
Individual Grants Potential Realizable Value At
----------------- Assumed Annual Rates of
Stock Price Appreciation For
Number of % of Total Option Term(1)
Securities Options -----------
Underlying Granted to
Option Employees in Exercise or Expiration
Name Granted Fiscal Year Base Price Date 5% 10%
---- ------- ----------- ---------- ---- -- ---
Steve Webb 1,500 3.9% $15.00 4/24/2012 $14,150 $ 35,859
Greg L. McKee 1,500 3.9% $15.00 4/24/2012 $14,150 $ 35,859
6,000 15.8% $14.65 2/26/2012 $55,280 $140,090
----------
(1) Potential realizable value assumes that common stock appreciates at
the rates shown (compounded annually) from the grant date until the
expiration date. The calculation is based upon rates specified by the
Securities and Exchange Commission and does not represent the
estimated growth of the future stock price of the company.
The following table presents information about options exercised during
2002 and year-end option values.
11
Aggregate Option Exercises in 2002
and Year-End Option Values
Number of Securities Value of Unexercised In-the-
Number Underlying Unexercised Money Options at
of Shares Options at December 31, 2002 December 31, 2002(1)
Acquired ---------------------------- --------------------
on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
Steve Webb 10,350 $68,227 0 0 0 0
Greg L. McKee 0 0 11,250 0 $28,103 0
----------
(1) Based upon the closing sales price of the company's common stock as of
December 31, 2002 of $16.00 per share, less the option exercise price
payable per share.
Change in Control Agreement
The bank has entered into a change in control agreement with Greg L. McKee,
effective as of January 1, 2003. The change in control agreement provides that
in the event there is a change in control, then Greg L. McKee will be paid an
amount equal to 2.99 times Greg L. McKee's average annual compensation for the
five calendar years immediately preceding the year in which the change in
control occurs. The payment would be made in 12 equal monthly installments
commencing on the first business day of the month next following the date of the
change in control. Based on the current compensation level of Greg L. McKee, the
aggregate amount of payments to be made over a one-year period would be
$273,473. The term "change in control" generally includes the following events:
.. Any person or group becomes the direct or indirect beneficial owner of more
than 50% of the bank's outstanding voting stock;
.. As a result of a merger or consolidation of the bank, less than 50% of the
surviving corporation's outstanding voting securities are owned by the
Company;
.. A transfer of substantially all of the property of the bank other than to
an entity in which the bank owns at least 50% of the voting stock; or
.. The majority of the bank's board of directors changes without
recommendation or approval of a majority of the incumbent board.
Report on Executive Compensation
The company has not established a separate compensation committee. Instead,
the board is responsible for setting the compensation of executive officers,
developing executive benefit plans, and establishing other employee benefit
plans or programs for the benefit of the company's executive
12
officers. Steve Webb and Greg L. McKee, the sole members of the board who are
also employees of the company or the bank, do not participate in determinations
affecting executive compensation, but do make recommendations to the board with
respect to the amount and form of executive compensation.
Determinations of the board are primarily made on the basis of industry and
peer group standards and regional and national economic considerations. The
board relies upon external legal counsel, when needed from time to time, and
upon survey data produced by independent third parties.
The company's executive compensation program consists of three components:
base salary, short-term incentives, and long-term equity-based incentives. The
board sets executive base salary at levels somewhat below the average of
regional, competitive peer banks. Base salary is reviewed annually and is
subject to adjustment based upon individual performance and changes in the
regional competitive market. Based upon these standards, the board set the base
salary for Steve Webb during 2002 at $150,000. Base salary amounts for other
executives and company employees are set competitive with market rates.
Executives and employees are eligible to receive annual bonuses. Such
bonuses are awarded based upon recommendations made to the board by the Chief
Executive Officer of the company, subject to approval in the board's discretion.
Recommendations are generally based upon individual performance and the
company's performance. There are no preestablished performance goals or
objectives. The board awarded a bonus for services rendered in 2002 to Steve
Webb in the amount of $35,000.
The company has established a long-term incentive plan, called the 1999
Employees' Long-Term Incentive Plan, which was first effective as of January 1,
1999 and was approved by the company's shareholders. The plan permits the grant
of stock options and restricted stock. During 2002, Steve Webb was granted
incentive options to acquire 1,500 shares of company common stock. The grant was
made in recognition of his service as a member of the company's board of
directors. The option exercise price is the fair market value of company common
stock on the date of grant and the options are first exercisable six months
following the date of grant.
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits to
$1 million in a taxable year the deduction a company may claim for compensation
paid to its chief executive and four other highest paid officers, unless certain
performance-based conditions are met. The board has reviewed this provision and
does not anticipate the payment of any compensation to an executive officer that
would be affected by the limit.
The board believes that base salary levels and other short and long-term
incentives are reasonable and sufficiently competitive. The board further
believes that the degree of performance sensitivity in the compensation program
is reasonable, taking into consideration the historical practices of the company
and the bank and the interests of its shareholders.
13
The nonemployee members of the board of directors:
M.G. Bond Karl Brantley Willis W. Dungan
Don L. Fulton Donald L. Kilgore David A. King
Herbert A. King George R. Mars William M. Mars
David P. Webb
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the board of directors who participate in deliberations of
the board of directors concerning executive officer compensation are set forth
above. None of these individuals is a former officer of the company or any of
its subsidiaries.
Indebtedness of Related Parties
Certain directors and officers of the company, businesses with which they
are associated, and members of their immediate families are customers of the
bank and have had transactions with the bank in the ordinary course of the
bank's business. The indebtedness (including unfunded commitments) of the
directors, officers and related parties, to the bank was equal to 4.5% of the
company's shareholders' equity as of December 31, 2002. This indebtedness
comprised 0.8% of the total currently outstanding loans net of unearned interest
made by the bank as of December 31, 2002. In the opinion of the board of
directors, such transactions were made in the ordinary course of business, were
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other persons,
and do not involve more than the normal risk of collectibility or present other
unfavorable features.
Interests of the Board of Directors
For the past several years, the company has employed the legal services of
Phelps Dunbar LLP, of which Mr. David Webb, a current director of the company
and bank, is a partner. Phelps Dunbar LLP has represented the company in various
legal areas, including tax audits, employee benefits, civil lawsuit defense and
general corporate law. The company expects that the firm will continue to
represent the company in similar matters in the future.
STOCK PERFORMANCE GRAPH
The following performance graph compares the performance of the company's
common stock to the AMEX Market Index and to a peer group of 70 other regional
bank holding companies for the company's reporting period. The graph assumes
that the value of the investment in the company's common stock and each index
was $100 at October 19, 1999 (the date trading of the common stock began on the
American Stock Exchange) and that all dividends were reinvested. All information
relating to the company's common stock in the performance graph has been
adjusted to give effect to the three-for-two stock split of the company's common
stock effective January 2, 2002.
14
Performance Graph
October 19, 1999-December 31, 2002
[GRAPH]
10/19/99 12/31/99 12/31/00 12/31/01 12/31/02
Citizens Holding Company $ 100.00 $ 83.38 $ 70.46 $106.45 $105.04
AMEX Market Index $ 100.00 $110.59 $109.23 $112.24 $120.13
Regional-Southeast Banks(1) $ 100.00 $ 87.42 $ 89.25 $104.20 $100.04
----------
(1) The bank holding companies included in the peer group are as follows:
20/20 Web Design Inc., Acadiana Bancshares Inc., Admiralty Bancorp CL
B, Alabama National Bancorp, AmSouth Bancorporation, Area Bancshares
Corp., Auburn National Banc Inc., Banc Corporation, Bancorpsouth Inc.,
Banktrust Financial Group, Bank of the Ozarks Inc., Beach First
National Bankshares, Britton & Koontz Capital Corporation, Capital
Bancorp Inc., Cardinal Financial Corp., Centerstate Banks of FL,
Chesapeake Financial SHS, Citizens First Corp., CNB Florida
Bankshares, Colonial Bancgroup CL A, CommerceSouth Inc., Commonwealth
Bank VA, Community First Bancorp, Community Natl., Community Trust
BNCP Inc., Compass Bancshares Inc., Crescent Banking Company,
Cumberland Bancorp, Eastern Virginia Bankshares, Farmers Capital Bank
CP, Fauquier Bancshares Inc., First Bancshares Inc. MS, First Capital
Bank, First Community Bancshares VA, First M&F Corporation, First
National Bancshares FL, First Security Bancorp, First Tennessee Natl.
CP, Florida Banks Inc, FNB Corporation (FL), FNB Corporation (VA),
Four Oaks Fincorp, Franklin Financial Corp. TN, Globe Bancorp Inc.,
Hancock Holding Co., Heritage Bankshares, Hibernia Corp A, Iberiabank
Corporation, Madison Bancshares Inc.,
15
Midsouth Bancorp, National Commerce FNCL, NB&T Financial Group, NBC
Capital Corporation, Penseco Financial Services Corp., Peoples
Banctrust Co., The Peoples Holding Company, Pinnacle Bancshares,
Pinnacle Financial PARTN, Premier Financial Bancorp, Regions Financial
Corp., Republic Bancorp Inc. CLA, S.Y. Bancorp Inc., Simmons First
Natl. Corp., Southcoast Financial, Southtrust Corp., Trustmark Corp.,
Union Planters Corp., United Financial Holding, United Security
Bancshares, and Whitney Holding Corp.
Source: Media General Financial Services, Richmond Virginia
PROPOSAL III: APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Horne CPA Group, independent certified public accountants, has served as
auditor of the company since December 31, 1998. The board of directors, upon
recommendation of the audit committee, has appointed Horne CPA Group to serve as
auditor for the fiscal year ending December 31, 2003. Although the appointment
of an independent auditor does not require approval by the shareholders, the
board of directors has chosen to submit its selection for ratification by the
shareholders. The board of directors, however, reserves the right to change
independent auditor at any time, notwithstanding shareholder approval. A
representative of Horne CPA Group is expected to attend the annual meeting. If
present, the representative will have the opportunity to make a statement and
will be available to respond to appropriate questions.
Fees billed by Horne CPA Group for professional services rendered for the
fiscal year ending December 31, 2002 were as follows:
Audit Fees - Audit fees of Horne CPA Group for audit of the company's
annual financial statements and the review of those financial statements
included in the company's reports on Form 10-Q are estimated to be $75,000.
Financial Information Systems Design and Implementation Fees - Horne CPA
Group did not render any financial information systems design and
implementation services for the company during the fiscal year ending
December 31, 2002.
All Other Fees - Aggregate fees billed to the company by Horne CPA Group
for all other services rendered for the fiscal year 2002 totaled
approximately $22,500. These fees relate to general consultation, tax
services and employee benefit plan audit fees.
The audit committee has considered the compatibility of the non-audit
services provided by Horne CPA Group with maintaining Horne CPA Group's
independence.
16
Vote Required and Board Recommendation
The affirmative vote by the holders of a majority of the shares of common
stock voted at the annual meeting is required for the ratification of the
appointment of the independent accountants.
Shares represented by a properly signed and dated proxy card will be voted
in accordance with the instructions on the card at the annual meeting. If the
proxy card is signed but no instructions are given with respect to the
ratification of the appointment of the independent accountants, the proxy
holders will vote the proxies received by them for ratification of the
appointment of Horne CPA Group as the company's independent accountants for the
fiscal year 2003.
The board of directors has unanimously approved the appointment of Horne
CPA Group as independent accountants and recommends a vote "FOR" ratification of
the appointment of Horne CPA Group as the company's independent accountants for
the fiscal year 2003.
Report of the Audit Committee
The audit committee oversees the company's financial reporting process on
behalf of the board of directors. Management has the primary responsibility for
the financial statements and the reporting process including the systems of
internal controls. In fulfilling its oversight responsibilities, the committee
reviewed the audited financial statements of the company for the year ended
December 31, 2002, with management, including a discussion of the quality, not
just the acceptability, of the accounting principles, the reasonableness of
significant judgments, and the clarity of disclosures in the financial
statements.
The committee reviewed with the independent auditors, who are responsible for
expressing an opinion on the conformity of those audited financial statements
with generally accepted accounting principles, their judgments as to the quality
of the company's accounting principles and such other matters as are required to
be discussed with the committee under generally accepted auditing standards
including, without limitation, the matters required to be discussed by SAS 61
(Codification of Statements of Auditing Standards, AU (S)380). In addition, the
committee has received the written disclosures and the letter from the
independent auditors required by Independence Standards Board No. 1
(Independence Discussions with Audit Committees), has discussed with the
independent auditors the auditors' independence from management and the company,
and has considered the compatibility of non-audit services with the auditors'
independence.
The committee discussed with the company's internal and independent auditors,
the overall scope and plans for their respective audits. The committee meets
with the internal and independent auditors, with and without management present,
to discuss the results of their examinations, their evaluations of the company's
internal controls, and the overall quality of the company's financial reporting.
The committee held 4 meetings during 2002.
17
In reliance on the reviews and discussions referred to above, the committee
recommended to the board of directors (and the board has approved) that the
audited financial statements be included in the company's Annual Report on Form
10-K for the year ended December 31, 2002 for filing with the Securities and
Exchange Commission.
The members of the audit committee:
Karl Brantley
Don L. Fulton
Herbert A. King
PROPOSALS BY SHAREHOLDERS FOR THE 2004 ANNUAL MEETING
At the annual meeting each year, the board of directors submits to
shareholders its nominees for election as directors. In addition, the board of
directors may submit other matters to the shareholders for action at the annual
meeting. Shareholders of the company may also submit proposals for inclusion in
the proxy materials. Shareholders intending to submit proposals for presentation
at the 2004 annual meeting and inclusion in the proxy statement and form of
proxy for the annual meeting should forward their proposals to Greg L. McKee,
President, Citizens Holding Company, 521 Main Street, Philadelphia, Mississippi
39350. Proposals must be in writing and must be received by the company prior to
November 22, 2003, for inclusion in the company's 2004 proxy materials.
Proposals should be sent to the company by certified mail, return receipt
requested.
Under the bylaws of the company, certain procedures are provided which a
shareholder must follow to introduce any shareholder proposal at a shareholder
meeting or to nominate persons for election as directors. These procedures
provide that shareholders desiring to make nominations of persons for election
as directors or to introduce a shareholder proposal before a meeting must give
written notice to the company's President not less than 14 days or more than 50
days prior to the date of the meeting at which the proposal is to be acted upon
or the election is to be held. However, if less than 21 days' notice of the
meeting is given to shareholders, such proposal or nomination must be mailed or
delivered to the President no later than the close of business on the seventh
day following the day on which the notice of the meeting was mailed. Proposals
and nominations not made in accordance with this procedure may, in the
President's discretion, be disregarded by the chairman of the meeting, and upon
the President's instructions, the inspectors of election may disregard all votes
cast for each such proposal or nominee.
OTHER MATTERS
As of the time this proxy statement was printed, management of the Company
was unaware of any other matters to be brought before the annual meeting other
than those set forth herein. However, if any other matters are properly brought
before the annual meeting, the persons named in the enclosed form of proxy will
have discretionary authority to vote all proxies with respect to such matters in
accordance with their best judgment.
18
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
The annual report to shareholders containing financial statements for the
company's 2002 fiscal year has been mailed to shareholders prior to or with this
proxy statement. However, the annual report does not form any part of the
material for the solicitation of proxies.
Upon the written request of any record holder or beneficial owner of shares
entitled to vote at the annual meeting, the company, without charge, will
provide a copy of the company's annual report for the year ended December 31,
2002 on Form 10-K, as filed with the Securities and Exchange Commission.
Requests should be mailed to Greg L. McKee, President, Citizens Holding Company,
521 Main Street, Philadelphia, Mississippi 39350.
By Order of the Board of Directors,
/s/ Greg L. McKee
March 21, 2003 Greg L. McKee, President and
Chief Executive Officer
19
PROXY
This Proxy is Solicited on Behalf of the Board of Directors of
CITIZENS HOLDING COMPANY
The undersigned does hereby nominate, constitute and appoint STEVE WEBB and
WILLIAM M. MARS, or any of them (each with full power to act alone and with
power of substitution), as their true and lawful attorney, to vote this proxy.
The undersigned also hereby authorizes said individuals to represent the
undersigned, and to vote upon all matters that may properly come before the
Annual Meeting of Shareholders to be held on April 22, 2003 or any
adjournment(s) thereof, including the matters described in the Proxy Statement
furnished herewith, subject to any directions indicated on the reverse side,
with full power to vote all shares of Common Stock of Citizens Holding Company
held of record by the undersigned on March 14, 2003. This proxy shall authorize
the proxies named herein to cumulate all votes which the undersigned is entitled
to cast at the Annual Meeting for, and to allocate such votes among, one or more
of the nominees for director listed on the reverse side as such proxies shall
determine, in their sole and absolute discretion, in order to maximize the
number of such nominees elected to the Company's Board of Directors. I
acknowledge receipt of the Company's notice and accompanying Proxy Statement.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL NOS. I AND III
AND "FOR" EACH OF THE NOMINEES FOR CLASS I DIRECTORS.
IMPORTANT- This proxy must be signed and dated on the reverse side.
Annual Meeting of Shareholders of
CITIZENS HOLDING COMPANY
April 22, 2003
Please date, sign and mail your proxy card
in the envelope provided as soon as possible.
Please detach and mail in the envelope provided.
PROPOSAL NO. I: To set the number of directors to serve on the Board of
Directors at twelve.
[_] FOR [_] AGAINST [_] ABSTAIN
PROPOSAL NO. II: To elect four Class I directors.
[_] FOR ALL NOMINEES [_] WITHHOLD AUTHORITY FOR ALL
NOMINEES
[_] FOR ALL EXCEPT (See instructions below)
Nominees: Don L. Fulton ________
Donald L. Kilgore ________
Herbert A. King ________
David P. Webb ________
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you wish to
withhold, as shown here. If you desire to cumulate your votes, please do so in
the blanks following each name.
PROPOSAL NO. III: To ratify the selection of Horne CPA Group as the Company's
independent auditors for the year 2003.
[_] FOR [_] AGAINST [_] ABSTAIN
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder. If no specific directions are given, your shares
will be voted by the individuals designated on this proxy "FOR" the nominees for
Class I directors and "FOR"
Proposal Nos. I and III. The individuals designated on this proxy will vote in
their discretion on any other matter that may properly come before the meeting.
Signature of Shareholder: _______________________
Date: _____________________________________, 2003
Signature of Shareholder: _______________________
Date: _____________________________________, 2003
NOTE: Please sign name exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee, or guardian please give full title as such. If
the signer is a corporation, please sign full corporate name by duly authorized
officer, giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.