March 15, 2000
Dear Fellow Stockholder:
We cordially invite you to attend the Annual Meeting of Stockholders of
National Bankshares, Inc. The meeting will be held at the Best Western Red
Lion Inn, at the intersection of Route 460 Bypass and Prices Fork Road,
Blacksburg, Virginia, on Tuesday, April 11, 2000, at 3:00 p.m.
The attached Notice of Annual Meeting and Proxy Statement describe the
formal business to be transacted at the meeting. During the meeting, we will
also report on the operations of Bankshares.
YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. On
behalf of the Board of Directors, we urge you to please sign, date and return
the Proxy in the enclosed postage-paid envelope as soon as possible, even if
you currently plan to attend the meeting. This will not prevent you from
voting in person, but will assure that your vote is counted if you are unable
to attend the meeting.
Thank you for your interest and investment in National Bankshares, Inc.
Very truly yours,
James G. Rakes
President and
Chief Executive Officer
NOTICE OF 2000 ANNUAL MEETING OF STOCKHOLDERS
---------------------------------------------
To the Stockholders of National Bankshares, Inc.:
This is your notice that the 2000 Annual Meeting of Stockholders of
National Bankshares, Inc. ("Bankshares") will be held at the Best Western Red
Lion Inn at the intersection of Route 460 Bypass and Prices Fork Road,
Blacksburg, Virginia, on Tuesday, April 11, 2000, at 3:00 p.m. The Meeting is
for the purpose of considering and acting upon:
1. The election of three Class 1 directors for a term of three years
each.
2. The transaction of such other business as may properly come before
the Meeting or any adjournments thereof.
NOTE: The Board of Directors is not aware of any other business to
come before the Meeting.
Only stockholders of record at the close of business on March 10, 2000
are entitled to receive notice of and to vote at the Meeting, or at any
adjournments of the Meeting.
Your attention is directed to the Proxy Statement accompanying this
Notice for a more complete statement of the matters proposed to be acted upon
at the Meeting.
To assure that your shares are represented at the meeting, please
complete, date, sign and mail promptly the enclosed proxy, for which a return
envelope is provided. The proxy will not be used if you attend and vote in
person at the meeting. You may revoke your proxy prior to actual voting of
the proxy.
BY ORDER OF THE BOARD OF DIRECTORS
Marilyn B. Buhyoff
Secretary
Blacksburg, Virginia
March 15, 2000
PROXY STATEMENT
OF
NATIONAL BANKSHARES, INC.
101 HUBBARD STREET
BLACKSBURG, VA 24060
P.O. BOX 90002
BLACKSBURG, VA 24062-9002
540/951-6300
--------------
ANNUAL MEETING OF STOCKHOLDERS
TUESDAY, APRIL 11, 2000
This Proxy Statement is furnished in connection with the solicitation
of proxies by and on behalf of the Board of Directors (the "Board") of
National Bankshares, Inc. ("Bankshares" or the "Company") to be used at the
2000 Annual Meeting of Stockholders to be held at the Best Western Red Lion
Inn, at the intersection of Route 460 Bypass and Prices Fork Road, Blacksburg,
Virginia, at 3:00 p.m., on Tuesday, April 11, 2000, and at any adjournments of
the Meeting. The approximate mailing date of the Proxy Statement, the Notice
of Annual Meeting and the accompanying Proxy is March 15, 2000.
REVOCATION OF PROXIES
---------------------
Stockholders who execute proxies retain the right to revoke them at
any time prior to the actual voting of the proxies. Proxies may be revoked by
written notice received prior to the Meeting, by attending the Meeting and
voting in person or by submitting a signed proxy with a later date. A written
notice revoking a previously executed proxy should be sent to National
Bankshares, Inc., P.O. Box 90002, Blacksburg, Virginia 24062-9002, Attention:
James G. Rakes. Unless revoked, the shares represented by properly executed
proxies will be voted at the Meeting according to the instructions contained
in the proxy. Where no instructions are given, proxies will be voted for the
nominees for directors set forth in Proposal No. 1.
An Annual Report to Stockholders, including the financial statements
for the year ended December 31, 1999, is being mailed to you at the same time
as this Proxy Statement, but should not be considered proxy solicitation
material.
VOTING SECURITIES AND STOCK OWNERSHIP
-------------------------------------
As of March 10, 2000, Bankshares had 3,516,977 shares of Common Stock
($2.50 par value) issued and outstanding. Each of the shares is entitled to
one vote at the Annual Meeting. Only those stockholders of record at the
close of business on March 10, 2000 will be entitled to vote at the Meeting or
at any adjournments.
A majority of 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 purposes of
establishing a quorum. Abstentions and shares held of record by a broker or
its nominee ("Broker Shares") which 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 will not be included in
determining whether a quorum is present. If a quorum is established,
1
directors will be elected by a plurality of votes cast by shares entitled to
vote at the Annual Meeting. Votes that are withheld and Broker Shares that
are not voted on any matter will not be included in determining the number of
votes cast.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
--------------------------------------------
As of March 10, 2000, no single person or group was known to
Bankshares to be the beneficial owner of more than 5% of the outstanding
Common Stock of the Company.
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
---------------------------------------------------
The following table sets forth, as of March 10, 2000, certain
information regarding the beneficial ownership of Bankshares' Common Stock by
each director and nominee and each named executive officer and by all
directors and executive officers as a group. Unless otherwise noted in the
footnotes to the table, the individuals have sole voting and investment power
with respect to all outstanding shares of Common Stock shown as beneficially
owned by them.
Shares of Common Percentage
Name of Stock Beneficially Of
Beneficial Owner Owned as of March 10, 2000 Class
---------------- -------------------------- ----------
Charles L. Boatwright 8,819 *
L. Allen Bowman 13,999 *
Alonzo A. Crouse 52,853(1) 1.50
James A. Deskins, Sr. 6,693(2) *
Paul A. Duncan 12,862(3) *
Cameron L. Forrester 645 *
William T. Peery 49,953(4) 1.42
James G. Rakes 20,563(5) *
Jeffrey R. Stewart 24,000 *
All current Directors and
Executive Officers as a Group
(12 persons) 202,601 5.76
* Represents less than 1% of the Company's outstanding Common Stock.
1. Includes 26,750 shares owned by spouse, 495 owned by spouse jointly with
child, 200 shares owned by spouse as custodian for grandchildren, 700
shares owned jointly with spouse and grandchildren and 1,008 shares owned
by a partnership in which Mr. Crouse is a general partner.
2. Includes 1,089 shares owned by spouse.
3. Includes 1,253 shares owned by spouse and 1,088 shares owned by spouse as
custodian for grandchildren.
4. Includes 399 shares owned by spouse, 10,950 shares owned as fiduciary and
3,630 shares owned in corporate name.
5. Includes 5,600 shares owned jointly with spouse and 8,150 shares owned
through National Bankshares, Inc. Employee Stock Ownership Plan.
2
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
--------------------------------------
Bankshares' Articles of Incorporation provide that the directors shall
be divided into three classes (1, 2 and 3) with each class as nearly equal in
number as possible and the term of office of each class ending in successive
years. The Articles of Incorporation also provide that the number of directors
shall be set by the Bylaws, but shall not be less than nine, nor more than
twenty-six. For the purpose of the election of directors at the Annual
Meeting, the number of directors set forth in the Bylaws is nine. The current
term of office of the Class 1 directors expires at this 2000 Annual Meeting of
Stockholders. The terms of Class 2 and Class 3 directors will expire in 2001
and 2002, respectively.
The current Class 1 directors, L. Allen Bowman, Paul A. Duncan and
Cameron L. Forrester, have each been nominated by the Board of Directors to
serve a three year term to expire at the Annual Meeting of Stockholders in
2003.
It is the intention of the persons named as proxies, unless instructed
otherwise, to vote for the election of the three nominees for Class 1
director. Each nominee has agreed to serve if elected. If any of the
nominees shall unexpectedly be unable to serve, the shares represented by all
valid proxies will be voted for the remaining nominees and such other person
or persons as may be designated by the Board. At this time, the Board knows
of no reason why any nominee might be unable to serve.
The following information is provided with respect to the three
nominees to serve as Class 1 director and the six incumbent directors who will
be continuing in office following the Annual Meeting. All information is
provided as of March 10, 2000. Incumbent director James A. Deskins, Sr.
retired and resigned as President of Deskins Supermarket, Inc. on September
12, 1999. On October 13, 1999 Deskins Supermarket, Inc. filed for protection
under Federal bankruptcy laws. No director or nominee is related by blood,
marriage or adoption to any other director, nominee or executive officer. No
director or nominee serves as a director of any company which has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934, or is subject to the requirements of Section 15(d) of the Exchange Act,
or of any company registered as an investment company under the Investment
Company Act of 1940. Each director or nominee currently serves as a director
of either or both of the wholly owned subsidiaries of Bankshares, The National
Bank of Blacksburg ("NBB") and Bank of Tazewell County ("BTC").
Principal Occupation
Name and Age; (for the past five years unless
Director of Bankshares Since otherwise noted)
---------------------------- -------------------------------
NOMINEES
CLASS 1 DIRECTORS
-----------------
(Serving Until 2003 Annual Meeting)
L. Allen Bowman (67) Retired; prior thereto President,
1999 Poly-Scientific Division of Litton
Industries
Vice Chairman of the Board of NBB
Blacksburg, VA
3
Paul A. Duncan (69) Automobile Dealer, President,
1986 Holiday Motor Corp.
NBB Board Member
Blacksburg, VA
Cameron L. Forrester (51) President and CEO of BTC; prior
1999 thereto Vice President of First
Virginia Bank, Clinch Valley
(formerly Premier Bank, N.A.)
BTC Board Member
Tazewell, VA
DIRECTORS CONTINUING IN OFFICE
CLASS 2 DIRECTORS
-----------------
(Serving until 2001 Annual Meeting)
Alonzo A. Crouse (60) Executive Vice President and
1996 Cashier, BTC
BTC Board Member and Secretary
Tazewell, VA
James G. Rakes (55) President and CEO of Bankshares
1986 and NBB
Chairman of the Board of
Bankshares
NBB and BTC Board Member
Blacksburg, VA
Jeffrey R. Stewart (67) Educational Consultant; prior
1986 thereto Professor of Business
Education, Virginia Polytechnic
Institute and State University
Chairman of the Board of NBB
Blacksburg, VA
CLASS 3 DIRECTORS
-----------------
(Serving until 2002 Annual Meeting)
Charles L. Boatwright (74) Physician, Carilion Family
1986 Medicine,
C. L. Boatwright Clinic
Vice Chairman of the Board of
Bankshares
NBB Board Member
Blacksburg, VA
James A. Deskins, Sr. (68) Retired; prior thereto President,
1999 Deskins Supermarket, Inc.
and President, Deskins Dry Goods
Company
BTC Board Member
Tazewell, VA
William T. Peery (76) President, Cargo Oil, Inc.
1996 Chairman of the Board of BTC
Tazewell, VA
The Board of Directors recommends that the stockholders vote for the nominees
for Class 1 director.
4
BOARD OF DIRECTORS MEETINGS,
----------------------------
COMMITTEES, COMPENSATION AND ATTENDANCE
---------------------------------------
Board of Directors Meetings
---------------------------
In fiscal year 1999, the Board of Directors of Bankshares held six
regular meetings and one special meeting. The Board meets bi-monthly, on the
second Wednesday in January, March, May, July, September and November.
Board Committees
----------------
The Bankshares Board has standing audit and compensation committees,
comprised of directors Boatwright, Bowman, Deskins, Duncan, Peery and Stewart.
The audit committee met twice and the compensation committee met once in 1999.
There is no standing nominating committee.
Board Compensation
------------------
Members of the Board of Directors of Bankshares are paid a $300
(increased from $200 in 1999) fee for each regular or special Board meeting
they attend.
Dr. Boatwright, Mr. Bowman, Mr. Duncan, Mr. Rakes and Dr. Stewart,
Bankshares directors who are also directors of NBB, receive a semi-annual
retainer fee of $2,500 for their service on the NBB Board. They receive an
NBB Board meeting attendance fee of $500 and they are paid $250 for each
committee meeting they attend.
In 1999 three NBB directors, Dr. Boatwright, Mr. Bowman and Mr.
Duncan, received payments from an NBB Board of Directors deferred compensation
plan in which they participated from 1985 to 1989. Dr. Boatwright received
$3,324, Mr. Bowman was paid $5,822 and Mr. Duncan received $5,231 during
fiscal year 1999.
Mr. Crouse, Mr. Deskins, Mr. Forrester, Mr. Rakes and Mr. Peery,
directors of Bankshares who are also members of the Board of Directors of BTC,
are paid a semi-annual retainer of $1,000 and they receive a fee of $300 per
meeting for their attendance at regular and special BTC Board meetings and
committee meetings.
Board Attendance
----------------
During fiscal year 1999, each incumbent director attended 75% or more
of the total number of meetings of the Board of Directors of Bankshares and of
the Board committees on which he served.
EXECUTIVE COMPENSATION
----------------------
Bankshares, NBB and BTC are organized in a holding company/subsidiary
bank structure. Bankshares has no employees, except for officers, and it
conducts substantially all of its operations through the subsidiary banks.
5
All compensation paid to Bankshares' employees is paid by NBB, except for fees
paid by Bankshares and BTC to Chairman, President and Chief Executive Officer
James G. Rakes for his service as a director of the Company and of BTC.
Executive Compensation Summary Table
------------------------------------
The following table sets forth information concerning total
compensation earned or paid to James G. Rakes, Chairman, President and Chief
Executive Officer of Bankshares and President and Chief Executive Officer of
NBB, for all services rendered to Bankshares, NBB and BTC during each of the
last three fiscal years. Mr. Rakes was the only individual serving as an
executive officer during 1999 whose total salary and bonus were in excess of
$100,000 during any of the past three years.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
------------------ ------------
Number of
Stock
Options All Other
Name and Principal (Shares) Compensation
Position Year Salary($)(1) Bonus($)(2) Granted(3) ($)(4)
- ------------------ ---- ------------ ----------- ---------- ------------
James G. Rakes 1999 204,400 89,650 2,500 8,850
Chairman,
President and CEO
of Bankshares
President and CEO 1998 194,200 87,750 --- 22,500
of NBB
1997 179,300 103,500 --- 18,470
1. Includes amounts received by Mr. Rakes as directors' fees from
Bankshares, NBB and BTC, as well as amounts deposited by Mr. Rakes into the
National Bank of Blacksburg Retirement Accumulation Plan, a 401(k) plan.
2. Discretionary bonuses were paid to Mr. Rakes for performance in 1997,
1998 and 1999. In addition, contributions for Mr. Rakes' benefit were made to
the Capital Accumulation Plan (described under "Employment Agreement and
Change in Control Agreement" below) as awards for Mr. Rakes' performance in
those years. Mr. Rakes is not yet irrevocably entitled to receive all sums
held in the Capital Accumulation Plan.
3. The National Bankshares, Inc. 1999 Stock Option Plan was adopted by
the Board of Directors on March 10, 1999 and approved by the stockholders on
April 13, 1999. Mr. Rakes was granted Incentive Stock Options on November 10,
1999.
4. For 1997, includes amounts contributed on Mr. Rakes behalf as a
matching contribution under The National Bank Retirement Accumulation Plan and
amounts contributed on his behalf to The National Bankshares, Inc. Employee
Stock Ownership Plan. For fiscal year 1998, includes a matching contribution
to the Retirement Accumulation Plan and a special taxable payment that was
made pro-rata to participants in the ESOP in lieu of a 1998 plan year
6
contribution. For 1999, includes only $8,850 as a matching contribution under
the Retirement Accumulation Plan, since the 1999 Company contribution to the
ESOP has not yet been allocated among the participants.
The following table shows all grants of stock options to Mr. Rakes in
1999:
Individual Grants
-----------------
% of Total
Options
Granted to Exercise Potential Realizable
Options Employees or Base Value at Assumed Rate of
Granted in Fiscal Price Expiration Stock Price Appreciation
Name (#)1. Year ($/SH) Date for Option Term($)
---------- --------- ---------- --------- ----------- ------------------------
James G. Rakes 2,500 45.5% 22.00 11/09/09 5% 10%
34,589 87,655
1. Vesting is as follows: One-fourth by November 10, 2000; one-half by
November 10, 2001; three-fourths by November 10, 2002; and 100% by November
10, 2003.
No stock options were exercised or were exercisable during 1999.
EMPLOYEE BENEFIT PLANS
----------------------
National Bankshares and its subsidiaries maintain several qualified
and non-qualified employee benefit plans for employees. These benefit plans
are described below.
Retirement Plans
----------------
NBB maintains a tax-qualified, noncontributory defined benefit
retirement plan for qualified employees called The National Bank of Blacksburg
Retirement Income Plan (the "NBB Plan"). The NBB Plan became effective on
February 1, 1984, when NBB amended and restated its previous pension plan.
This plan covers all officers and employees who have reached age twenty-one
and have had one year of eligible service on the January 1 or July 1
enrollment dates. Employee benefits are fully vested after five years of
service, with no partial vesting. Retirement benefits at the normal
retirement age of sixty-five are calculated at 2 2/3% of the employee's
average monthly compensation multiplied by the number of years of service, up
to a maximum of twenty-five years. The average monthly compensation is
determined by averaging compensation over the five highest paid consecutive
years in the employee's final ten years of employment. Retirement benefits
under the plan are normally payable in the form of a straight life annuity,
with ten years guaranteed; but other payment options may be elected under
certain circumstances. Amounts payable are not offset by Social Security
payments. The compensation covered by the NBB Plan includes the total of all
amounts paid to a participant by NBB for personal services reported on the
participant's federal income tax withholding statement (Form W-2), except that
earnings were limited to $200,000, indexed for the cost of living, until 1994.
In 1994, the earnings limit was decreased to $150,000, which is indexed for
7
the cost of living after 1994. For 1999, covered compensation for Mr. Rakes
is $160,000. The Retirement Plan continues a special transition rule in order
to protect the retirement benefit of any participant who is affected by the
1994 indexed compensation limit. This transition rule provides that the
retirement benefit of any such participant will be the greater of (1) the
participant's retirement benefit calculated under the formula at the
applicable time after 1993 or (2) the sum of the participant's benefit
calculated as of December 31, 1993, plus the participant's retirement benefit
calculated under the benefit formula based on post-1993 service.
The following table shows the estimated annual benefits payable from
the NBB Plan upon retirement based on specific compensation and years of
credited service classifications, assuming continuation of the present plan
and retirement on January 1, 2000, at age sixty-five.
NBB PENSION PLAN TABLE
Years of Service
-------------------------------------------------
Remuneration 15 20 25 30 35
------------ ------ ------ ------ ------ ------
$125,000 50,000 66,667 83,333 83,333 83,333
150,000 60,000 80,000 100,000 100,000 100,000
175,000 64,000 85,333 106,667 106,667 106,667
200,000 64,000 85,333 106,667 106,667 106,667
The benefit amounts listed in the table are computed as straight life
annuity.
On January 1, 2000, President and Chief Executive Officer, James G.
Rakes, had eighteen years of credited service in the NBB Retirement Income
Plan, and at normal retirement he will have twenty-eight years of credited
service.
BTC maintains a tax-qualified non-contributory defined benefit
retirement plan for qualified employees under the Bank of Tazewell County
Employee Pension Plan (the "BTC Plan"). The BTC Plan was initially effective
on October 20, 1965, but was amended in its entirety effective October 20,
1989. The BTC Plan covers all officers and employees who, as of April 20 or
October 20 of any year, have reached the age of twenty-one and who have had
one year of service. Employee benefits are fully vested after five years,
with no partial vesting. Benefits generally commence on the later of a
participant reaching age 65 or the date on which the participant completes
five years of participation in the BTC Plan. The normal form of benefit is a
monthly pension payable during the participant's lifetime with a minimum of
120 monthly payments, but other payment options may be elected under certain
circumstances. In general, the standard monthly pension benefit is equal to
the sum of (1) 1.5% of "plan compensation" multiplied by the years of credited
service (but not in excess of 35 years) at normal retirement date, plus (2)
.59% of "plan compensation" in excess of $800 multiplied by the years of
credited service (but not in excess of 35 years). "Plan compensation" is
equal to the highest monthly average obtained from the sum of any of a
participant's five annual compensation amounts divided by the number of months
such participant was compensated during such period. For purposes of such
calculation, annual compensation may not exceed $200,000. In 1994, the
8
earnings limit was decreased to $150,000, which is indexed for the cost of
living after 1994.
The following table shows the estimated annual benefits payable from
the BTC Plan upon retirement for specific compensation and years of service
classifications, assuming continuation of the BTC Plan in its present form and
retirement on January 1, 2000.
BTC PENSION PLAN TABLE
Years of Service
-------------------------------------------------
Remuneration 15 20 25 30 35
------------ ------ ------ ------ ------ ------
$ 25,000 6,988 9,317 11,647 13,976 16,305
50,000 14,825 19,767 24,709 29,651 34,593
75,000 22,663 30,217 37,772 45,326 52,880
100,000 30,500 40,667 50,834 61,001 71,168
Other Plans
-----------
National Bankshares, Inc. Employee Stock Ownership Plan. National
Bankshares, Inc. sponsors a non-contributory Employee Stock Ownership Plan
(the "ESOP"), in which NBB is the sole participating employer. All full-time
employees who are over the age of 21 and who have been employed for one year
are eligible to participate. Contributions under the ESOP are discretionary
with the Board of Directors, and participants are not permitted to make
contributions to the plan. Contributions are allocated to a participant s
account based upon a participant s covered compensation, which is regular
salary plus up to $1,000 of bonus pay. The contributions are fully vested
after five years. The contribution for 1999 has not yet been allocated among
participants.
The National Bank of Blacksburg Retirement Accumulation Plan. The
National Bank of Blacksburg sponsors the NBB Retirement Accumulation Plan
which qualifies under IRS Code Section 401(k) (the "401(k) plan"). As of
January 1, 2000, BTC became a participating employer in the 401(k) plan. All
full-time employees who have one year of service and who are over the age of
21 are eligible to participate. Participants may contribute up to 10% of
their total annual compensation to the plan. Employee contributions are
matched by the bank employer at 100% for the first 4% of salary contributed
and at 50% of the next 2% of salary contributed. Employees are fully vested
at all times in contribution and bank match sums.
Deferred Compensation Plan. From 1985 to 1989 NBB maintained a
voluntary deferred compensation plan for its directors, which permitted a
director to defer receipt of a portion of his directors fees for a period of
five years. NBB purchased life insurance on all of the participants in
amounts that, in the aggregate, actuarially fund its future liabilities under
the program. While the insurance policies were purchased under the directors
deferred compensation plan, there is no obligation to use any insurance funds
from policy loans or death benefits to curtail the deferred compensation
liability. Under the terms of the plan, at age 65, a participant or his
beneficiary receives 120 monthly benefit payments. The plan also provides for
120 monthly payments to the participant s beneficiary in the event of the
9
participant s death prior to age 65. Mr. Rakes is entitled to receive 120
months of payments of $1,610.50 at age 65.
Employment Agreement and Change in Control Arrangement
------------------------------------------------------
On May 7, 1992, Bankshares and Mr. Rakes entered into an employment
agreement (the Agreement ) providing for the continued employment of Mr.
Rakes as President and Chief Executive Officer of Bankshares and of NBB at an
annual base salary of at least $120,000, plus incentive compensation and other
employee and executive benefits. Pursuant to a lease arrangement between
Bankshares and NBB, NBB leases Mr. Rakes' services from Bankshares and has
agreed to pay his base salary and discretionary bonus, fund the Capital
Accumulation Plan (described below) and furnish employee and executive
benefits under the Agreement.
The Agreement provides that if Mr. Rakes' employment is terminated by
Bankshares for reasons other than death, disability or cause (all as defined
in the Agreement), or by Mr. Rakes for good reason (as defined in the
Agreement), Bankshares will pay Mr. Rakes, for a twenty-four month period
following the date of termination, an amount equal to the highest monthly rate
of base salary paid to Mr. Rakes at any time under the Agreement. If the
parties agree, this amount may also be paid in a lump-sum payment. During the
period that the above payments are being made, Mr. Rakes also will be entitled
to participate in Bankshares' and NBB's employee benefit plans or to receive
substantially similar benefits.
The Agreement also establishes a Capital Accumulation Plan ("CAP") for
the benefit of Mr. Rakes. The CAP is funded through annual contributions made
by NBB under an agreement with Bankshares. The amount that NBB contributes to
the CAP each year is based on (1) return on assets as a percentage of the
target established in the three-year performance goals adopted by the Board of
Directors of NBB and (2) net income before tax expense as a percentage of that
target. A minimum of 85% must be achieved in each target area in order for a
contribution to be made. Contributions are made in multiples of units, with
250 units to be funded each year. The unit value will vary between $50 and
$200 depending on what percentages of the targets are actually achieved.
Contributions for achievements for any given calendar year must be made prior
to February 28th of the next year.
Benefits under the CAP are payable beginning on the later of January
1, 2002, or January 1 of the year following any year in which Mr. Rakes leaves
Bankshares' employment, or in the case of hardship as determined by the Board
upon written request. Mr. Rakes has an irrevocable right to CAP contributions
and earnings as follows: 20% of all contributions and earnings thereon are
irrevocably his after six years of service in the CAP, and he is irrevocably
entitled to receive an additional 20% each year thereafter until 100% is
achieved after ten years of service. However, if Mr. Rakes' employment is
terminated within thirty-six months following a change in control, for any
reason other than for cause, Mr. Rakes' interest in the CAP will be
irrevocable at that time. In the event of termination, except where
termination occurs within the thirty-six months following a change in control,
and including termination for disability, Mr. Rakes shall be deemed to be
entitled to receive at least 20% of the CAP. The value of NBB's contribution
to the CAP with respect to 1999 performance is included in the "Bonus" column
of the "Summary Compensation Table" above.
10
COMPENSATION COMMITTEE REPORT ON COMPENSATION
---------------------------------------------
OF EXECUTIVE OFFICERS OF THE COMPANY
------------------------------------
The Compensation Committee of the Bankshares Board (the "Bankshares
Committee") is ultimately responsible for administering the policies governing
the annual compensation paid to executive officers, including the Chief
Executive Officer, of Bankshares. The Bankshares Committee is made up of the
six members of the Board of Directors who are not officers or employees of the
Company or of its subsidiaries, NBB and BTC. Because substantially all
compensation paid to Mr. Rakes and the other executive officers of Bankshares
is paid by NBB, the Bankshares Committee relies heavily on reports submitted
by the Salary and Personnel Committee of the NBB Board. The NBB Salary and
Personnel Committee is made up of four directors who are not officers or
employees of NBB or Bankshares.
Executive Officer Compensation
------------------------------
Except in the case of Mr. Rakes and except for Stock Options granted
pursuant to the 1999 Stock Option Plan, which are described above, the sole
component of the compensation of executive officers of Bankshares is salary
paid by NBB. NBB's program for executive officers (other than for the Chief
Executive Officer) currently does not include any bonus or other incentive
program directly linking executive compensation to the performance of NBB or
Bankshares, except that any contributions to the National Bankshares, Inc.
Employee Stock Ownership Plan made on behalf of participating employees,
including executive officers, have been based upon a percentage of NBB's net
profits.
The NBB Salary and Personnel Committee (the "NBB Committee")
establishes annual salary ranges for each executive officer position (not
including the position of Chief Executive Officer) after considering a salary
survey published annually by the Virginia Bankers Association of commercial
banks of similar asset size located in central and southwest Virginia,
reviewing salary information about comparable local jobs and evaluating the
economic conditions which may be unique to the locations in which NBB does
business. In establishing salary ranges, the NBB Committee balances the need
to offer salaries which are competitive with peers with the need to maintain
careful control of salary and benefits expense. Individual salaries, within
the salary ranges established by the NBB Committee, are determined by the
Chief Executive Officer, based on his subjective assessment in each case of
the nature of the position, as well as the contribution, performance,
experience and tenure of the executive officer. The Chief Executive Officer
reports to the NBB Committee on compensation of executive officers at least
annually.
Compensation of Chief Executive Officer
---------------------------------------
As Chairman, President and Chief Executive Officer, Mr. Rakes is
compensated pursuant to an employment agreement (the "Agreement"), which is
described under "Employment Agreement and Change in Control Arrangement"
above. An independent consultant retained by the Board of Directors of
Bankshares provided significant guidance in the design of the compensation
package contained in the Agreement and also reviewed the base level of
11
compensation contemplated, prior to the Board's approval of the Agreement in
1992.
The principal components of Mr. Rakes' compensation under the
Agreement are salary, incentive bonus and Company contributions to a Capital
Accumulation Plan for his benefit. This compensation package is intended to
promote the continued success and growth of Bankshares by creating incentives
based on the overall performance of the Company and to help assure Mr. Rakes'
continued service at NBB and Bankshares by offering him an opportunity to earn
competitive levels of total cash compensation.
Since the inception of the Capital Accumulation Plan, Mr. Rakes'
compensation through the CAP has been substantially related to Bankshares'
performance, because until May 31, 1996, NBB was the sole subsidiary of
Bankshares and it remains the largest subsidiary. In 1997, the NBB Committee
recommended, and the Bankshares Board Compensation Committee agreed, that CAP
contributions should continue to be determined using NBB's operating results.
The CAP contribution for Mr. Rakes' benefit is calculated using a specific
formula that is based upon NBB achieving previously defined levels of return
on assets and net income before taxes. The Plan encourages advance budget
planning by establishing rolling three-year performance goals. 1999 budget
performance goal targets established in 1996 were to achieve net income before
taxes of $6.06 million and return on assets of 1.89%. In 1999, NBB net
earnings before taxes reached a record of $6.64 million, and return on assets
was 1.79%. The net earnings before taxes total was 109.6% of the target goal,
and return on assets was 94.7% of the target.
In making its recommendation to the Bankshares Compensation Committee
concerning the other important elements of Mr. Rakes' annual compensation,
salary and incentive bonus, the NBB Committee considered several factors. The
Committee made a subjective assessment of Mr. Rakes' contribution to NBB, and
it conducted a review of salaries paid to other individuals holding similar
positions. In researching comparable salaries, the Committee consulted the
Virginia Bankers Association Annual Salary Survey and other available public
documents. The Bankshares Compensation Committee considered Mr. Rakes' job
performance as holding company Chairman, President and Chief Executive Officer
and his contributions to the continued success of National Bankshares, Inc.
These factors, as well as a comparison of the performance of Bankshares to
local and national peers, are all reflected in the Compensation Committee's
approval of the amounts of Mr. Rakes' 1999 salary and incentive bonus.
Members of the Compensation Committee
C. L. Boatwright
L. A. Bowman
J. A. Deskins, Sr.
P. A. Duncan
W. T. Peery
J. R. Stewart
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
-----------------------------------------------------------
Directors Boatwright, Bowman, Deskins, Duncan, Peery and Stewart make
up the Compensation Committee of Bankshares. None of these individuals is
now, or has in the past been, an officer or employee of Bankshares or of
Bankshares' subsidiaries, NBB and BTC. Dr. Boatwright, Mr. Bowman and Mr.
Duncan serve on the Salary and Personnel Committee of NBB. Mr. Deskins and
12
Mr. Peery are members of the Board of Directors of BTC, which serves as BTC's
compensation committee after excluding inside directors. No executive officer
of Bankshares, NBB or BTC served as a director of another entity which had an
executive officer serving on the Bankshares Compensation Committee. No
executive officer of Bankshares, NBB or BTC served as a member of the
compensation committee of another entity which had an executive officer who
served as a director of Bankshares, since Mr. Rakes does not participate in
BTC Board of Directors compensation committee matters. None of the members of
the Bankshares Compensation Committee, or any business organizations or
persons with whom they may be associated, has had any transactions with
Bankshares or its subsidiaries, except as explained in "Certain Transactions
with Officers and Directors" below.
PERFORMANCE GRAPH
-----------------
The following graph compares the yearly percentage change in the
cumulative total of shareholder return on Bankshares Common Stock with the
cumulative return on Standard & Poor's 500 Stock Index (the "S&P 500") and a
peer group index comprised of southeastern independent community banks and
bank holding companies for the five-year period commencing on December 31,
1994, and ending on December 31, 1999. These comparisons assume the
investment of $100 in Bankshares Common Stock and in each of the indices on
December 31, 1994, and the reinvestment of dividends.
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
NATIONAL BANKSHARES, INC. 100 105 125 126 125 105
INDEPENDENT BANK INDEX 100 122 155 235 246 222
S&P 500 INDEX 100 138 169 225 290 351
The peer group Independent Bank Index is the compilation of the total
return to stockholders over the past five years of the following group of
twenty-three independent community banks and bank holding companies located in
the southeastern states of Florida, Georgia, North Carolina, Tennessee,
Virginia and West Virginia:
United Securities Bancshares, Inc., TIB Financial Corp., Seacoast
Banking Corp., Capital City Bank Group, Inc., Fidelity National Corp.,
Southwest Georgia Financial Corp., PAB Bankshares, Inc., Four Oaks
Fincorp, Inc., Bank of Granite Corp., FNB Financial Services Corp.,
First Bancorp, CNB Corporation, Palmetto Bancshares, Inc., Carolina
Southern Bank, First Pulaski National Corporation, National Bankshares,
Inc., FNB Corporation, Virginia Commonwealth Financial Corp., American
National Bankshares, Inc., Central Virginia Bankshares, Inc., Virginia
Financial Corp., C & F Financial Corporation and First Century
Bankshares, Inc.
CERTAIN TRANSACTIONS WITH OFFICERS AND DIRECTORS
------------------------------------------------
Both NBB and BTC extend credit in the ordinary course of business to
Bankshares' directors and executive officers and corporations, business
organizations and persons with whom Bankshares' directors and executive
officers are associated at interest rates prevailing for comparable
transactions with the general public at the time credit is extended. These
13
extensions of credit are made with the same requirements as to collateral as
those prevailing at the time for comparable transactions with other persons.
In the opinion of management, none of such presently outstanding transactions
with directors and executive officers involve a greater than normal risk of
collectibility or present other unfavorable features.
SELECTION OF AUDITORS
---------------------
KPMG LLP has performed independent year-end audits of Bankshares since
the Company's formation in 1986. Each year, generally late in the calendar
year, the Board of Directors selects an audit firm to perform an independent
audit. That selection has not yet been made for 2000.
A representative of KPMG LLP is expected to be present at the Annual
Meeting. That representative will have the opportunity to make a statement at
the Meeting and will be available to respond to appropriate questions.
EXPENSES OF SOLICITATION
------------------------
The cost of solicitation of proxies will be borne by Bankshares. In
addition to solicitations by mail, directors, officers and regular employees
of Bankshares and of NBB and BTC may solicit proxies personally or by
telephone or telegraph without additional compensation. It is contemplated
that brokerage houses and nominees will be requested to forward proxy
solicitation material to the beneficial owners of the stock held of record by
such persons, and Bankshares may reimburse them for their charges and expenses
in this connection.
2000 STOCKHOLDER PROPOSALS
--------------------------
In order to be considered for inclusion in the proxy materials of
Bankshares for the 2001 Annual Meeting of Stockholders, a stockholder proposal
intended to be presented at the Meeting must be delivered to Bankshares'
headquarters at 101 Hubbard Street, Blacksburg, Virginia, 24060, or received
by mail at P.O. Box 90002, Blacksburg, Virginia 24062-9002, no later than
November 16, 2000. Bankshares' Bylaws include provisions setting forth
specific conditions under which business may be transacted at an annual
meeting of stockholders.
OTHER BUSINESS
--------------
All properly executed proxies received by Bankshares will be voted at
the Annual Meeting following the instructions contained in the proxies.
The Board of Directors does not know of any other matters to be
presented for action at the Annual Meeting other than those listed in the
Notice of Meeting and referred to in this Proxy Statement. The enclosed proxy
does however, give authority to the persons named in the proxy to use their
discretion to vote on any other matters that may properly come before the
meeting, and it is the intention of the persons named in the proxy to use
their judgement if they are called upon to vote on any matter of this type.
14
BY ORDER OF THE BOARD OF DIRECTORS
Marilyn B. Buhyoff
Secretary
Blacksburg, Virginia
March 15, 2000
A COPY OF BANKSHARES' ANNUAL REPORT ON FORM 10-K AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF
THE RECORD DATE UPON WRITTEN REQUEST TO: MARILYN B. BUHYOFF, SECRETARY,
NATIONAL BANKSHARES, INC., P.O. BOX 90002, BLACKSBURG, VIRGINIA 24062-9002.
15
NATIONAL BANKSHARES, INC. THIS PROXY IS SOLICITED ON BEHALF
101 Hubbard Street OF THE BOARD OF DIRECTORS
Blacksburg, VA 24060 The undersigned hereby appoints
P.O. Box 90002 Lindsay Coleman, of Blacksburg,
Blacksburg, VA 24062-9002 Virginia and Howard H. Hale of
Bluefield, West Virginia, or each of
them, as Proxies, each with the power
to appoint his substitute, and hereby
authorizes them to represent and to
vote as designated below, all the
PROXY shares of Common Stock of National
Bankshares, Inc. held of record by
the undersigned on March 10, 2000, at
the Annual Meeting of Stockholders to
be held on April 11, 2000, or at any
- ------------------------------------ adjournments thereof.
1. Election of Directors
___ FOR all nominees listed below ___ WITHHOLD AUTHORITY
(except as marked to the to vote for all
contrary below) nominees listed below
(INSTRUCTION: To withhold authority to vote for any individual
nominee, strike a line through the nominee's name in the list below.)
L. ALLEN BOWMAN
PAUL A. DUNCAN
CAMERON L. FORRESTER
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournments
thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL 1 SET
FORTH ABOVE.
The undersigned acknowledges receipt of the Proxy Statement dated March
15, 2000.
Please sign exactly as your name appears below. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If partnership, please sign in partnership name by
authorized person.
Date: Signature
_____________________ ________________________________
Signature if held jointly
________________________________
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
PROMPTLY USING THE ENCLOSED POSTAGE-PAID ENVELOPE.