-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V/tgbkVN4f22/9GznJEfHawm5qrG5wOB5g6a2iKR3Zf8v5LZ3bPByh1pcfVMwTdC /FeGPmkfsbT7mg2lJPXuoA== 0000741516-02-000005.txt : 20020415 0000741516-02-000005.hdr.sgml : 20020415 ACCESSION NUMBER: 0000741516-02-000005 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020325 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN NATIONAL BANKSHARES INC CENTRAL INDEX KEY: 0000741516 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 541284688 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-12820 FILM NUMBER: 02583888 BUSINESS ADDRESS: STREET 1: 628 MAIN ST CITY: DANVILLE STATE: VA ZIP: 24541 BUSINESS PHONE: 4347925111 MAIL ADDRESS: STREET 1: 628 MAIN STREET STREET 2: P O BOX 191 CITY: DANVILLE STATE: VA ZIP: 24543 DEF 14A 1 proxyfile2001.txt 2001 PROXY STMT-AMERICAN NATIONAL BANKSHARES INC American National Bankshares Inc. 628 Main Street Post Office Box 191 Danville, Virginia 24543 Notice of Annual Meeting of Shareholders To be held April 23, 2002 NOTICE is hereby given that the Annual Meeting of Shareholders of American National Bankshares Inc. (the "Corporation") will be held as follows: Place: The Wednesday Club 1002 Main Street Danville, VA 24541 Date: April 23, 2002 Time: 11:30 a.m. THE ANNUAL MEETING IS BEING HELD FOR THE FOLLOWING PURPOSES: 1. To elect four (4) directors of the Corporation to fill the vacancies created by the expiration of the terms of the Directors of Class III. 2. To transact any other business that may properly come before the meeting or any adjournment thereof. The record date for the determination of shareholders entitled to notice of and to vote at the Annual Meeting is the close of business on March 8, 2002. IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THE MEETING. ACCORDINGLY, PLEASE SIGN, DATE AND MAIL THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. IF YOU DO ATTEND THE ANNUAL MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE YOUR SHARES IN PERSON. Sincerely, /s/Brad E. Schwartz ------------------- Brad E. Schwartz Senior Vice President, Secretary & Treasurer Dated: March 25, 2002 American National Bankshares Inc. 628 Main Street P. O. Box 191 Danville, Virginia 24543 Proxy Statement Annual Meeting of Shareholders To be held April 23, 2002 INTRODUCTION This Proxy Statement is furnished in conjunction with the solicitation by the Board of Directors of American National Bankshares Inc. (the "Corporation") of the accompanying proxy to be used at the Annual Meeting of Shareholders of the Corporation and at any adjournments thereof. The meeting will be held on Tuesday, April 23, 2002, 11:30 a.m., at The Wednesday Club, 1002 Main Street, Danville, Virginia, 24541, for the purposes set forth below and in the Notice of Annual Meeting of Shareholders. Shares represented by properly executed proxy, if such proxies are received in time and not revoked, will be voted at the Annual Meeting as set forth therein. The Corporation will pay the cost of preparing, assembling and mailing this Proxy Statement and the enclosed material. The Corporation and the Bank's officers, without additional compensation, may also solicit proxies personally or by telephone. INFORMATION AS TO VOTING SECURITIES The Board of Directors has set March 8, 2002, as the record date for the determination of shareholders entitled to notice of and to vote at the Annual Meeting. Only shareholders of record on that date will be entitled to vote on the matters described herein. Each outstanding share will entitle the holder to one vote. As of March 8, 2002, the Corporation had 1,374 shareholders of record. The number of shares of the Common Stock, there being no other class of stock, outstanding and entitled to vote at the Annual Shareholders' Meeting is 5,822,356. A majority of the votes entitled to be cast on matters to be considered at the Annual Meeting constitutes a quorum. If a share is represented for any purpose at the Annual Meeting, it is deemed to be present for quorum purposes for all matters considered at the Annual Meeting. Abstentions and shares held of record by a broker or its nominee ("Broker Shares") that are voted on any matter are included in determining the number of votes present or represented at the Annual Meeting. Broker Shares that are not voted on any matter at the Annual Meeting will not be included in determining whether a quorum is present. Directors are elected by a plurality of the votes cast by holders of the Common Stock at a meeting at which a quorum is present. Votes that are withheld and Broker Shares that are not voted in the election of directors will not be included in determining the number of votes cast. This proxy statement and the enclosed form of proxy were first mailed to shareholders on or about March 25, 2002. VOTING OF PROXIES If the enclosed proxy is properly executed, dated, returned and not revoked, it will be voted in accordance with the specification made by the shareholder. If a specification is not made, it will be voted "FOR" the proposals set forth below and in the notice of Annual Meeting of Shareholders. Shareholders may revoke their proxy by delivering a written notice of revocation to the Corporation at its principal office to the attention of Brad E. Schwartz, Secretary, at any time before the proxy is exercised or by attending the meeting and voting in person. Ben J. Davenport, Jr., James A. Motley, or Claude B. Owen, Jr., or any of them, will act as proxies on behalf of the Board of Directors. 1 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires that any person who owns or acquires the beneficial ownership of more than five percent of the Common Stock notify the Securities and Exchange Commission (the "SEC") and the Corporation. Following is certain information, as of December 31, 2001, regarding those persons or groups who held of record or who are known to the Corporation to own beneficially, more than five percent of the outstanding Common Stock: Name and Address of Amount and Nature of Percent Beneficial Owner Beneficial Ownership Of Class ------------------- -------------------- -------- Ambro and Company 1,144,326 19.62% P. O. Box 191 Danville, VA 24543 Ambro and Company is the nominee name in which American National Bank and Trust Company (the "Bank"), the Corporation's banking subsidiary, registers securities it holds in a fiduciary capacity. Only 469,150 of these shares may be voted by the existing co-fiduciaries. The Bank may not vote the remaining shares, but co-fiduciaries may be qualified for the sole purpose of voting all or a portion of the shares at the Annual Meeting. Set forth below is certain information, as of December 31, 2001, regarding those shares of Common Stock owned beneficially by each of the members of the Board of Directors (including nominees for election at the Annual Meeting), and the Chief Executive Officer and the three most highly compensated officers of the Corporation who earned in excess of $100,000 in salary and bonuses in 2001 (collectively, the "Named Executive Officers") and the directors and executive officers of the Corporation as a group.
Sole Voting and Shared Voting and Total Voting and Percentage Name Investment Power Investment Power Investment Power Of Class - ---- ---------------- ----------------- ---------------- ---------- Willie G. Barker, Jr. 28,200 28,200 .4784 Richard G. Barkhouser 164,824 (1) 14,520 179,344 3.0425 Fred A. Blair 4,485 4,485 .0761 Ben J. Davenport, Jr. 20,874 1,372 22,246 .3774 H. Dan Davis (6) 87,400 (1) 40,704 128,104 2.1732 Dabney T. P. Gilliam, Jr. (4) 6,002 6,002 .1018 Jeffrey V. Haley (5) 11,161 1,376 12,872 .2184 (1) 335 Lester A. Hudson, Jr. 9,804 9,804 .1663 E. Budge Kent, Jr. (3) 43,905 (1) 1,296 45,201 .7668 Fred B. Leggett, Jr. 18,995 (1) 12,768 31,763 .5388 Charles H. Majors (2) 53,814 (1) 2,931 56,745 .9627 James A. Motley 10,176 4,444 25,104 .4259 (1) 10,484 Claude B. Owen, Jr. 11,432 (1) 4,200 15,632 .2652 ---------------- ----------------- ---------------- ---------- All current directors (7) 471,072 7,192 565,502 9.5936 and executive officers (1) 87,238 as a group (14) (1) Family relationship. Can exercise no voting or investment power. (2) Includes 42,200 shares that Mr. Majors has the right to acquire through the exercise of stock options. (3) Includes 14,200 shares that Mr. Kent has the right to acquire through the exercise of stock options. (4) Includes 5,850 shares that Mr. Gilliam has the right to acquire through the exercise of stock options. (5) Includes 10,200 shares that Mr. Haley has the right to acquire through the exercise of stock options. (6) Includes 200 shares that Mr. Davis has the right to acquire through the exercise of stock options. (7) Includes 72,650 shares that the directors and officers as a group have the right to acquire through the exercise of options.
2 SECTION 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Corporation's executive officers and directors, and persons who own more than 10% of the Common Stock, to file reports of ownership and changes in ownership on Forms 3, 4, and 5 with the SEC and the NASDAQ National Market. Executive officers, directors, and owners of more than 10% of the Common Stock are required by regulation to furnish the Corporation with copies of all Forms 3, 4, and 5 they file. Based solely on the Corporation's review of the copies of such forms it has received and written representations from certain reporting persons who were not required to file a Form 5 for 2001, the Corporation believes that all of its directors and executive officers complied with the Section 16(a) filing requirements applicable to them with respect to transactions during 2001. To the Corporation's knowledge, there were no owners of more than 10% of the common stock. PROPOSAL ONE - ELECTION OF DIRECTORS The Corporation's Board of Directors is divided into three classes (I, II, and III) of directors. The term of office for Directors of Class III will expire at the Annual Meeting. Four persons named below, each of whom currently serves as a Director of the Corporation, will be nominated to serve as Directors of Class III. If elected, the nominees of Class III will serve until the 2005 Annual Meeting of Shareholders and until their respective successors are duly elected and qualified. The Board of Directors recommends a vote "FOR" the directors nominated to serve as Directors of Class III. Certain information concerning the nominees for election at the Annual Meeting of Shareholders as Directors of Class III is set forth below, as well as certain information about the other Directors of Class I and II, who will continue in office until the 2003 and 2004 Annual Meeting of Shareholders, respectively. NOMINEES Directors of Class III to be elected for a term expiring in 2005
Age on Director Name Principal Occupation 12/31/01 Since - ---- -------------------- -------- -------- Richard G. Barkhouser President, Barkhouser Motors, Inc., 70 1980 Danville, VA, automobile dealership H. Dan Davis Senior Consultant to the Corporation and the Bank 64 1996 since 1998; prior thereto, Executive Vice President of the Corporation and Senior Vice President of the Bank Lester A. Hudson, Jr. Professor of Management, Clemson University, 62 1984 Clemson, SC, since January, 1998; prior thereto, Chairman, H & E Associates, Greenville, SC, investments Charles H. Majors President and Chief Executive Officer of the 56 1981 Corporation and the Bank
DIRECTORS CONTINUING IN OFFICE Directors of Class I to continue in office until 2003
Age on Director Name Principal Occupation 12/31/01 Since - ---- -------------------- -------- -------- Willie G. Barker, Jr. President, Barklea, Inc., Danville, VA, tobacco 64 1996 warehouse Ben J. Davenport, Jr. Chairman, First Piedmont Corporation, Chatham, 59 1992 VA, waste management James A. Motley Retired Chairman and Chief Executive Officer of 73 1975 the Corporation and the Bank
3 Directors of Class II to continue in office until 2004
Age on Director Name Principal Occupation 12/31/01 Since - ---- -------------------- -------- -------- Fred A. Blair President, Blair Construction, Inc., Gretna, VA, 55 1992 commercial building contractor E. Budge Kent, Jr. Executive Vice President of the Corporation and 62 1979 Executive Vice President & Chief Trust & Investment Officer of the Bank Fred B. Leggett, Jr. Retired Chairman and Chief Executive Officer, 64 1994 Leggett Stores, Danville, VA, retail department stores Claude B. Owen, Jr. Retired Chairman & Chief Executive Officer of 56 1984 DIMON Incorporated, Danville, VA, leaf tobacco dealer, since May, 1999; prior thereto, Chairman & Chief Executive Officer of DIMON Incorporated All of the above nominees and directors have been engaged in the occupations listed during the last five years. There exists no family relationship between any director or nominee. Mr. Hudson is a director of American Electric Power Company, Inc. Mr. Davenport is a director of Intertape Polymer Group Inc.
BOARD COMMITTEES AND COMPENSATION The Board of Directors met 14 times during the year 2001. These meetings were either the Corporation Board Meetings and/or the Bank Board Meetings. In addition to meeting as a group to review the Corporation's and the Bank's business, certain members of the Board are appointed to serve on various standing committees. Among those committees are the Audit and Compliance Committee, Human Resources and Compensation Committee, and Corporate Governance and Nominating Committee. All incumbent directors attended more than 75% of the aggregate of all meetings of the Board of Directors and Committees on which they served, except for Mr. Lester A. Hudson, Jr. who attended 72% of the aggregate of all meetings of the Board of Directors and Committees on which he served. The Audit and Compliance Committee met four times in 2001. This Committee currently consists of Messrs. Barker, Blair, and Leggett. The Committee reviews significant audit, accounting, and compliance principles, policies and practices, meets with the Corporation's and Bank's independent auditors to discuss the results of their annual audit and reviews the performance of the internal auditing and compliance functions. The Corporate Governance and Nominating Committee met one time in 2001. Members of the present committee are Messrs. Barkhouser, Owen and Leggett. The Committee's function is to search for potential qualified directors, to review the qualifications of potential directors as suggested by directors, management, shareholders and others, to make recommendations to the entire Board for nominations of such individuals to the shareholders and to provide recommendations to the Board regarding corporate governance. The Human Resources and Compensation Committee met three times in 2001. This Committee currently consists of Messrs. Barkhouser, Davenport, and Hudson. The Human Resources and Compensation Committee approves compensation of certain officers and makes recommendations to the Board of Directors for other officers' compensation and promotions, directors' fees, and related personnel matters. Board Compensation. In 2001, non-officer directors, except Mr. Davis, received a monthly retainer of $500 and attendance fees of $400 for each Board meeting and Committee meeting attended. Mr. Davis was a Named Executive Officer in previous years but elected to retire as an officer and become a senior consultant, effective December 31, 1997. Mr. Davis can receive $5,500 per month through March of 2003 for services as a consultant. No additional compensation is paid to Mr. Davis for service on the Board of Directors or for attending Committee meetings. Non-officer directors are excluded from the Bank's retirement plan and, therefore, do not qualify for pension benefits. Officer members of the Board of Directors are not paid separately for their service on the Board or its Committees. 4 REPORT OF HUMAN RESOURCES AND COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION The Human Resource and Compensation Committee of the Board of Directors, which is composed of three independent outside directors, is responsible for making recommendations to the Board of Directors concerning compensation of the Chief Executive Officer and for approving the compensation of other executive officers. This Committee considers a variety of factors and criteria in arriving at its decisions and recommendations for compensation of executive officers. In making its decisions and recommendations regarding compensation, the Committee attempts to align the interests of the Bank's executive officers with those of the shareholders. The Committee believes that increases in earnings per share, dividends, and net equity improve shareholder market value and, accordingly, compensation should be structured to enhance the profitability of the Corporation and the total return to the shareholders. Executive officer compensation generally consists of salary, participation in the Bank's profit sharing plan, stock options, incentive compensation and benefits. The profit sharing and incentive compensation plans are approved by the Board of Directors, upon recommendation by the Human Resources and Compensation Committee. Executive officers received incentive compensation in 2001 due to the attainment of certain performance and profitability goals. They may be eligible to receive incentive compensation if certain financial goals are attained in 2002. Certain key executive officers are eligible to participate in the Executive Compensation Continuation Plan described below under "Deferred Compensation Plan". The Bank pays all compensation and no officer receives additional compensation from the Corporation. The Committee conducts an annual evaluation of the performance and effectiveness of the Chief Executive Officer. The Committee then recommends the Chief Executive Officer's compensation to the Board of Directors. In considering compensation for the Chief Executive Officer and the other executive officers, the Committee relied on an evaluation of the officers' level of responsibility and performance and on comparative compensation information, including the Virginia Bankers Association's Salary Survey of Virginia Banks. The Committee evaluated the performance of the Chief Executive Officer based on the financial performance of the Corporation, achievements in implementing the strategic plan of the Bank and the Corporation, and the personal observations of the Chief Executive Officer's performance by the members of the Committee. No particular weight was given to any aspect of the performance of the Chief Executive Officer, but his performance in 2001 was evaluated as exceptional, with earnings of the Corporation ranking in the top quartile of its peer group and with significant achievements in implementing the strategic plan. In considering executive officer compensation (other than the Chief Executive Officer), the Committee receives and considers recommendations from the Chief Executive Officer. The Committee's policy on the tax deductibility of compensation for the CEO and other executive officers is to maximize the deductibility, to the extent possible, while preserving the Corporation's flexibility to maintain a competitive compensation program. The Corporation expects all executive compensation paid or awarded during 2001 to be fully deductible. Human Resources and Compensation Committee Richard G. Barkhouser Ben J. Davenport, Jr. Lester A. Hudson, Jr. 5 Comparative Company Performance The following graph compares the Corporation's cumulative total return to its shareholders with the returns of three indexes for the five-year period ended December 31, 2001. The cumulative total return was calculated taking into consideration changes in stock price, cash dividends, stock dividends and stock splits since December 31, 1996. The three indexes are the Standard & Poor's 500 Stock Index, the NASDAQ Index, and the Carson Medlin Company's Independent Bank Index, consisting of 23 independent banks located in the states of Florida, Georgia, North Carolina, South Carolina, Tennessee, Virginia, and West Virginia. 1996 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- ---- AMERICAN NATIONAL BANKSHARES INC. 100 133 146 169 138 184 INDEPENDENT BANK INDEX 100 148 154 140 139 165 S&P 500 INDEX 100 133 171 207 188 166 NASDAQ INDEX 100 122 173 321 193 153 6 Executive Compensation The following tables set forth the annual and long-term compensation paid to the Named Executive Officers of the Corporation and the Bank during 2001, 2000, and 1999. SUMMARY COMPENSATION TABLE
Long-Term Annual Compensation Compensation --------------------------------------------- --------------------- Name and Other Annual Securities Underlying All Other Principal Position Year Salary (1) Bonus (2) Compensation Options/SARS(#)(3) Compensation (4) - ------------------ ---- ---------- --------- ------------ --------------------- ---------------- Charles H. Majors 2001 $ 215,869 $ 35,533 0 0 $ 5,100 President & Chief Executive 2000 197,477 37,932 0 10,000 5,100 Officer of the Corporation and 1999 182,988 37,483 0 20,000 5,000 the Bank E. Budge Kent, Jr. 2001 $ 120,244 $ 19,361 0 3,000 $ 3,502 Executive Vice President of the 2000 110,899 20,895 0 0 3,240 Corporation; Executive Vice 1999 109,088 20,834 0 5,000 3,120 President & Chief Trust & Investment Officer of the Bank Dabney T. P. Gilliam, Jr. 2001 $ 98,709 $ 17,633 0 3,000 $ 2,442 Senior Vice President of the 2000 81,189 14,773 0 3,000 0 Corporation; Senior Vice President and Senior Loan Officer of the Bank Jeffrey V. Haley 2001 $ 85,275 $ 15,185 0 3,000 $ 2,542 Senior Vice President of the 2000 72,286 13,703 0 0 2,160 Corporation; Senior Vice President 1999 66,257 11,504 0 4,000 1,980 & Senior Administrative Officer of the Bank
(1) Includes salary deferrals contributed by the employee to the 401(k) Plan and taxable compensation for term life insurance over $50,000. (2) Includes accrued payments of profit sharing (bonus) and incentive compensation participations. In 2001, the profit-sharing (bonus) plan provided that an amount equal to 6.50% of the Bank's net income (after taxes, but before deducting profit sharing and its related tax effect), less the Bank's 401(k) contributions, be paid to full-time officers and employees employed by the Bank on December 31, 2001. Incentive compensation represented payments to officers based on the Corporation achieving certain financial performance goals and on the individual officer meeting stated strategic goals. The total expense, paid or accrued, for the profit-sharing (bonus) plan and incentive compensation payments for the year 2001 amounted to $689,820. (3) The Corporation grants options pursuant to the Corporation's Stock Option Plan approved by the shareholders at the 1997 annual meeting. Options granted prior to July 1, 1999 have been restated to reflect the impact of a 2-for-1 stock split. (4) Includes matching contributions to the 401(k) Plan made by the Bank. Effective July 1, 1995, the Bank adopted a 401(k) Plan which covers substantially all full-time employees who are 21 years of age or older. An employee may defer a portion of his or her salary, not to exceed the lesser of 15% of compensation or $10,500. After one year of service, the Bank will make a matching contribution in the amount of 50% of the first 6% of compensation so deferred. 7 OPTION GRANTS IN RESPECT OF LAST FISCAL YEAR
Potential Realizable Value Number of % of Total at Assumed Annual Securities Options Exercise Rates of Stock Price Underlying Granted to or Base Appreciation for Options Employees in Price Vesting Expiration Optional Term Name Granted Fiscal Year ($/Share) Date Date 5% ($) 10% ($) - ---- ---------- ------------ --------- ------- ---------- ------- -------- E. Budge Kent, Jr. 3,000 12.61% $ 16.50 12/31/01 3/20/11 $31,130 $78,890 Dabney T. P. Gilliam, Jr. 3,000 12.61% $ 16.50 12/31/01 3/20/11 $31,130 $78,890 Jeffrey V. Haley 3,000 12.61% $16.50 12/31/01 3/20/11 $31,130 $78,890
AGGREGATE OPTIONS EXERCISED IN 2001 AND YEAR-END OPTION VALUES
Number of Securities Value of Unexercised Underlying Unexercised In-The-Money Options at Options at Shares December 31, 2001 (#) December 31, 2001 ($) (a) Acquired on Value --------------------------- --------------------------- Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable ------------ ------------ ----------- ------------- ----------- ------------- Charles H. Majors 0 0 42,200 0 $122,665 0 E. Budge Kent, Jr. 0 0 14,200 0 41,778 0 Dabney T. P. Gilliam, Jr. 150 $488 5,850 0 15,720 0 Jeffrey V. Haley 0 0 10,200 0 32,178 0 (a) Value of unexercised in-the-money options is calculated by multiplying the number of unexercised options at December 31, 2001 by the difference in the closing price of the Corporation's common stock reported on December 31, 2001 ($18.70 per share) and the exercise price of the unexercised in-the-money options.
8 Retirement Plan The Bank's retirement plan is a non-contributory defined benefit pension plan which covers salaried and regular hourly employees of the Bank who are 21 years of age or older and who have had at least one year of service. Advanced funding is accomplished by using the actuarial cost method known as the collective aggregate cost method. As of December 31, 2001, the normal retirement benefit formula was 1.3% per year of service times compensation plus .65% per year of service times compensation in excess of social security covered compensation with years of service limited to 35. At normal retirement, the monthly benefit is calculated based on any consecutive five-year period that will produce the highest average rate of basic monthly compensation. Basic monthly compensation includes salary but excludes incentive and bonus compensation. Annual compensation at December 31, 2001 was also limited to $170,000 by Internal Revenue regulations. Cash benefits under the plan generally commence on retirement at age 65, death, or termination of employment. Partial vesting of the retirement benefits under the plan occurs after three years of service and full vesting occurs after seven years of service. The following table illustrates the estimated annual benefits payable to an employee retiring on December 31, 2001 at normal retirement age in the following specified compensation and years of service classifications: 5 Year Years of Credited Service Average ------------------------------------------------------------ Salary 15 20 25 30 35 -------- -------- -------- -------- -------- -------- $ 50,000 $ 10,997 $ 14,662 $ 18,328 $ 21,994 $ 25,659 75,000 18,309 24,412 30,516 36,619 42,722 100,000 25,622 34,162 42,703 51,244 59,784 125,000 32,934 43,912 54,891 65,869 76,847 150,000 40,247 53,662 67,078 80,494 93,909 175,000 47,559 63,412 79,266 95,119 110,972 200,000 54,872 73,162 91,453 109,744 128,034 225,000 62,184 82,912 103,641 124,369 145,097 250,000 69,497 92,662 115,828 138,994 162,159 275,000 76,809 102,412 128,016 153,619 179,222 As of December 31, 2001, the Named Executive Officers have completed the following years of credited service under the Bank's retirement plan: Charles H. Majors 9 E. Budge Kent, Jr. 35 Dabney T. P. Gilliam, Jr. 2 Jeffrey V. Haley 5 Deferred Compensation Plan The Board of Directors of the Bank adopted the Executive Compensation Continuation Plan, a non-contributory deferred compensation plan, in 1982. Under the plan, certain key executives who, in the opinion of the Board of Directors, are making substantial contributions to the overall growth and success of the Bank and who must be retained in order to expand and continue satisfactory long-term growth are eligible to receive benefits afforded by the plan. Under agreements with eligible key executives pursuant to this plan, if any such executive dies or retires while employed by the Corporation, such executive or his designated beneficiary will receive annual payments commencing at death or retirement and continuing for 10 years. Retirement age under existing agreements begins on or after age 62. As of December 31, 2001, two of the Named Executive Officers were vested participants of the plan. In 2001, the Board of Directors voted that Mr. Charles H. Majors' benefits under this plan should vest, and he or his designated beneficiary will receive an annual benefit of $50,000 per year for ten years commencing at his retirement or death. Mr. E. Budge Kent, Jr., who has reached the age of 62, or his designated beneficiary will receive an annual benefit of $25,000 per year for ten years commencing at his retirement or death. 9 CERTAIN AGREEMENTS WITH EXECUTIVE OFFICERS The Corporation recognizes that, as a publicly held corporation in the financial services industry, there exists the possibility of a change in the control of the Corporation. In order to minimize such uncertainty among senior management and to promote continuity in the event of a change of control transaction, the Corporation has entered into agreements (the "Agreements") with Messrs. Majors, Kent, Gilliam and Haley (the "Executives"). The terms of the Agreements are only effective upon a change in control and for three years thereafter. A "change of control" is defined with reference to a change in the composition of the Board of Directors, a change in the ownership of a majority of the Corporation's voting stock or a sale of a majority of the Corporation's or Bank's assets. The Agreements provide that the Executives' base salary and profit sharing and incentive compensation cannot be reduced during such three year period. The Agreements also provide for the Executives to receive continued salary and benefits if their employment is terminated without cause during the term of the Agreements. If employment is terminated during the first year after a change of control, Mr. Majors will receive continued salary and benefits for twenty-four months thereafter and the other Executives will receive continued salary and benefits until the second anniversary of the change in control. If the termination occurs more than twelve months after the change of control, Mr. Majors will receive continued salary and benefits until the third anniversary of the change of control and the other Executives will receive continued salary and benefits until the earlier of the first anniversary of termination of employment or the third anniversary of the change of control. The Agreements also provide for continued salary and benefits if the Executive resigns under certain circumstances. Beginning in the fourth month after a change of control and through the twelfth month after the transaction, the Executive may resign for any reason and receive continued salary and benefits for twenty-four months (in the case of Mr. Majors) or twelve months (in the case of the other Executives). After the first anniversary of the change of control the Executive may resign and receive continued salary and benefits for the same period (but not beyond the third anniversary of the change of control) if his resignation is on account of a reduction in the Executive's compensation, a required relocation of his office more than thirty miles from Danville, Virginia or a reduction in the duties or title assigned to him as of the first anniversary of the change of control. In all events, the amounts payable under the Agreements are governed by two limitations. First, no amounts will be paid under the Agreements for any period after the Executive attains age sixty-five. Second, no amounts will be paid under the Agreements to the extent that the benefits would exceed the Internal Revenue Code's limit on "parachute" payments. Interest of Management in Certain Transactions Some of the directors and officers of the Corporation and the companies with which they are associated were customers of, and had banking transactions with, the Bank in the ordinary course of the Bank's business during 2001. All loans and commitments to lend included in such transactions 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, in the opinion of the management of the Corporation, do not involve more than a normal risk of collectibility or present other unfavorable features. During the year 2001, the highest aggregate amount of outstanding loans, direct and indirect, to the directors and officers, and the companies with which they are associated was $14,328,394 or 22.31% of equity capital and this peak amount occurred on May 30, 2001. 10 REPORT OF AUDIT AND COMPLIANCE COMMITTEE The primary function of the Audit and Compliance Committee of the Board of Directors is to assist the Board in fulfilling its oversight responsibilities by reviewing the financial information, which will be provided to the shareholders and others, the systems of internal controls, which management and the Board of Directors have established, and the audit and compliance process. The Committee strives to provide an open avenue of communication between the Board of Directors, management, the internal auditors, the compliance officers, and the independent accountants. Each of the three Directors who serve on the Audit and Compliance Committee satisfy the definition of independent director under rules established by the National Association of Securities Dealers, Inc. listing standards. The Committee held four meetings in 2001. The Audit and Compliance Committee has reviewed and discussed with management the Corporation's audited consolidated financial statements as of and for the year ended December 31, 2001. The Committee has discussed with Arthur Andersen, LLP, the Corporation's independent accountants during calendar year 2001, the matters required to be discussed by Statement of Auditing Standards No. 61, Communications with Audit Committees, as amended, by the Auditing Standards Board of the American Institute of Certified Public Accountants. The Committee received from Arthur Andersen, LLP and reviewed the written disclosures and the letter required by Independence Standard No. 1 and has discussed with Arthur Andersen, LLP their independence. Arthur Andersen, LLP audited the Corporation's 2001 annual report and reviewed the Corporation's quarterly reports on Form 10-Q. Other audit-related services included assisting the Corporation in a formal review of internal controls required by FDICIA and various attestation services required by third-party vendors. Other non-audit related services consisted entirely of assistance with annual and quarterly tax filings. The following table sets forth aggregate fees paid or to be paid by the Corporation for the fiscal year ended December 31, 2001. Arthur Andersen, LLP: Audit Fees $ 72,500 Financial Information Systems Design and Implementation Fees 0 All Other Fees: Audit-related Fees 22,500 Other Fees 9,050 -------- $104,050 ======== The Audit and Compliance Committee has considered whether the provision of other services described above is compatible with maintaining the independence of Arthur Andersen, LLP. Based on the reviews and discussions referred to above, the Audit and Compliance Committee recommended to the Board of Directors that the Corporation's audited consolidated financial statements be included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2001 and be filed with the U. S. Securities and Exchange Commission. Audit and Compliance Committee Willie G. Barker, Jr. Fred A. Blair Fred B. Leggett, Jr. Independent Public Accountants The Board of Directors of the Corporation, pursuant to the recommendation of its Audit and Compliance Committee, selected Arthur Andersen, LLP, independent public accountants, to audit the financial statements of the Corporation and the Bank for the year 2001. Arthur Andersen, LLP was first engaged by the Bank in 1978 as its independent public accountant. A representative of Arthur Andersen, LLP will be present at the shareholders' meeting and this representative will have an opportunity to make a statement if they so desire. They will be available to respond to appropriate questions. 11 PROPOSAL TWO OTHER BUSINESS The Board of Directors knows of no other matters that will properly be brought before the Annual Meeting. However, if any other matters should properly come before the Annual Meeting, it is the intention of the persons named in the enclosed form of proxy to vote such proxy in accordance with their best judgment on such matters. SEPARATE COPIES FOR BENEFICIAL OWNERS Institutions that hold shares in street name for two or more beneficial owners with the same address are permitted to deliver a single proxy statement and annual report to that address. Any such beneficial owner can request a separate copy of the Proxy Statement or Annual Report by writing the Corporation at Investor Relations, P.O. Box 191, Danville, Virginia 24543 or by telephoning 1-434-773-2220. SHAREHOLDER PROPOSALS Under the regulations of the Securities and Exchange Commission, any shareholder desiring to make a proposal to be acted upon at next year's annual meeting of shareholders must present such proposal to the Corporation at its principal office in Danville, Virginia, not later than November 25, 2002, in order for such proposal to be considered for inclusion in the Corporation's proxy statement. In addition to any other applicable requirements, for business to be properly brought before next year's Annual Meeting by a shareholder, even if the proposal is not to be included in the Corporation's proxy statement, the Corporation's bylaws provide that the shareholder must give notice in writing to the Secretary of the Corporation not later than January 24, 2003. As to each such matter, the notice must contain (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name, record address of, and number of shares beneficially owned by, the shareholder proposing such business and (iii) any material interest of the shareholder in such business. By Order of the Board of Directors /s/Charles H. Majors -------------------- Charles H. Majors President and Chief Executive Officer March 25, 2002 12 -----END PRIVACY-ENHANCED MESSAGE-----