SCHEDULE 14A
(Rule 14a-101)
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
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Securities Exchange Act of 1934
(Amendment No. )
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FIRST NATIONAL CORPORATION
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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FIRST NATIONAL CORPORATION
112 West King Street
Strasburg, Virginia 22657
Dear Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders
of First National Corporation ("First National"), which will be held on Tuesday,
April 3, 2001, at 11:00 a.m., at the Travelodge, 160 Front Royal Pike,
Winchester, Virginia.
At the Meeting, you will be asked to approve a proposed amendment to
First National's Articles of Incorporation to create a classified Board of
Directors with staggered three year terms. In addition, you will be asked to
elect 11 directors to the Board of Directors.
Whether or not you plan to attend in person, it is important that your
shares be represented at the meeting. Please complete, sign, date and return
promptly the form of proxy that is enclosed in the envelope provided in this
mailing. If you later decide to attend the Meeting and vote in person, or if you
wish to revoke your proxy for any reason prior to the vote at the Meeting, you
may do so and your proxy will have no further effect.
The Board of Directors and management of First National appreciate your
continued support and look forward to seeing you at the Annual Meeting.
Sincerely yours,
/s/ HARRY S. SMITH
HARRY S. SMITH
President and
Chief Executive Officer
Strasburg, Virginia
March 2, 2001
FIRST NATIONAL CORPORATION
112 West King Street
Strasburg, Virginia 22657
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on April 3, 2001
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of First
National Corporation ("First National") will be held at the Travelodge, 160
Front Royal Pike, Winchester, Virginia, on April 3, 2001, at 11:00 a.m., for the
following purposes:
(1) To approve a proposed amendment to First National's Articles
of Incorporation to create a classified Board of Directors
with staggered three year terms;
(2) To elect 11 directors to the Board of Directors; and
(3) To transact such other business as may properly come before
the Annual Meeting. Management is not aware of any other
business, other than procedural matters incident to the
conduct of the Annual Meeting.
If stockholders approve the proposed amendment to First National's
Articles of Incorporation to create a classified Board of Directors with
staggered three year terms, the directors that the stockholders elect to the
Board of Directors will serve for staggered terms, as disclosed in the Proxy
Statement. If stockholders do not approve the proposed amendment, the directors
that the stockholders elect to the Board of Directors will serve for a term of
one year, or until their respective successors are elected and qualified.
The Board of Directors has fixed the close of business on February 20,
2001, as the record date for the determination of stockholders entitled to
notice of, and to vote at, the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Douglas C. Arthur
Douglas C. Arthur
Secretary
Strasburg, Virginia
March 2, 2001
FIRST NATIONAL CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
April 3, 2001
GENERAL INFORMATION
This Proxy Statement is furnished to holders of common stock, $5.00 par
value per share ("Common Stock"), of First National Corporation ("First
National") in connection with the solicitation of proxies by the Board of
Directors (the "Board") of First National to be used at the Annual Meeting of
Stockholders to be held on April 3, 2001 at 11:00 a.m. at the Travelodge, 160
Front Royal Pike, Winchester, Virginia, and any adjournment thereof (the "Annual
Meeting").
The principal executive offices of First National are located at 112
West King Street, Strasburg, Virginia. The approximate date on which this Proxy
Statement, the accompanying proxy card and Annual Report to Stockholders (which
is not part of First National's soliciting materials) are being mailed to First
National's stockholders is March 2, 2001. The cost of soliciting proxies will be
borne by First National.
The proxy solicited hereby, if properly signed and returned to First
National and not revoked prior to its use, will be voted in accordance with the
instructions contained thereon. If no contrary instructions are given, each
proxy received will be voted "for" the proposals described herein. Any
stockholder giving a proxy has the power to revoke it at any time before it is
exercised by (i) filing written notice thereof with the Secretary of First
National (Douglas C. Arthur, Secretary, First National Corporation, 112 West
King Street, Strasburg, Virginia 22657); (ii) submitting a duly executed proxy
bearing a later date; or (iii) appearing at the Annual Meeting or at any
adjournment thereof and giving the Secretary notice of his or her intention to
vote in person. Proxies solicited hereby may be exercised only at the Annual
Meeting and any adjournment thereof and will not be used for any other meeting.
Only stockholders of record at the close of business on February 20,
2001 (the "Record Date") will be entitled to vote at the Annual Meeting. On the
Record Date, there were 790,031 shares of Common Stock issued and outstanding
and approximately 720 record holders. Each share of Common Stock is entitled to
one vote at the Annual Meeting. First National had no other class of equity
securities outstanding at the Record Date.
Unless authority is withheld in the proxy, each proxy executed and
returned by a stockholder will be voted for the proposed amendment to First
National's Articles of Incorporation and the election of the nominees described
in this Proxy Statement. The proxy also confers discretionary authority upon the
persons named therein, or their substitutes, with respect to any other matter
that may properly come before the Annual Meeting.
PROPOSAL ONE
AMENDMENT TO ARTICLES OF INCORPORATION
General Information on the Amendment
The Board has unanimously approved and recommended that the
stockholders of First National approve an amendment to First National's Articles
of Incorporation. The proposed amendment provides for the classification of the
Board into three classes of directors with staggered terms of office (the
"Amendment"). A copy of the Amendment is attached to this Proxy Statement as
Exhibit A.
Virginia law permits First National to include a provision in its
Articles of Incorporation that provides for a classified board of directors with
staggered three year terms. Absent such a provision, Virginia law provides that
all directors serve a one year term and until their successors are duly elected
and qualified. The proposed classified board amendment to First National's
Articles of Incorporation would provide that directors will be classified into
three classes, as nearly equal in number as possible. The initial terms of one
class will expire at First National's 2002 annual meeting, the initial terms of
the second class will expire at First National's 2003 annual meeting, and the
initial terms of the third class will expire at First National's 2004 annual
meeting. At each Annual Meeting following this initial classification and
election, the successors to the class of directors whose terms expire at that
meeting would be elected for a term of office to expire at the third succeeding
Annual Meeting after their election, and until their successors have been duly
elected and qualified. Under Virginia law, directors chosen to fill vacancies on
the classified board would hold office until the next stockholders meeting at
which directors were elected, even if a new director was filling an unexpired
term in a class with more than one year remaining in its term.
If the classified board proposal is adopted, the election procedure
described above would be applicable to every election of directors. If the
proposed amendment to create a classified board is not adopted by stockholders,
11 directors will be elected to serve a one-year term until First National's
2002 Annual Meeting of Stockholders. First National's Articles of Incorporation
do not authorize cumulative voting for directors, and the proposed amendments
would not change the requirement that any directors standing for reelection must
be elected by a plurality of votes cast.
The proposal is not intended as a takeover-resistive measure in
response to a specific threat, but rather is being recommended to assure fair
treatment of First National's stockholders in takeover situations. Although the
Board may review other possible anti-takeover programs, the Board has no present
intention of proposing additional amendments to the Articles of Incorporation
that would affect the ability of a third party to change control of First
National.
Advantages of the Amendment
The Board has observed that certain tactics, including the accumulation
of substantial stock positions as a prelude to an attempted takeover or
significant corporate restructuring, have become relatively common in corporate
takeover practice. The Board is of the opinion that such tactics can be highly
disruptive to a company and can result in dissimilar treatment of a company's
stockholders. The Amendment will, by making it more time consuming and difficult
for a substantial stockholder or stockholders to gain control of the Board
without its consent, ensure some continuity in the management of the business
and affairs of First National and provide the Board with sufficient time to
review both takeover proposals and appropriate alternatives. The Board also
believes that the Amendment will serve to encourage any person intending to
attempt a takeover to negotiate in advance with the Board, which in turn would
allow the Board to protect better the interests of First National's
stockholders.
Disadvantages of the Amendment
Stockholders should be aware that the proposed classified board will
extend the time required to effect a change in control of the Board and may
discourage hostile takeover bids for First National, even if such a bid might
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be deemed by stockholders to be in their best interests. If stockholders approve
the Amendment, it will take at least two annual meetings for a majority of
stockholders to effectuate a change in control of the Board. Currently, a
majority of stockholders could effectuate a change in control of the Board at
one stockholder meeting. Because of the additional time required to change
control of the Board, and the limitation on the removal of directors, the
Amendment will tend to perpetuate present management. The Board also believes
that the Amendment (i) will significantly reduce the possibility that a third
party could affect a sudden or surprise change in majority control of the Board
without the support of the incumbent Board, and (ii) will have significant
effects on the ability of First National's stockholders to cause immediate
changes in the composition of the Board and otherwise to exercise their voting
power to affect the composition of the Board.
In addition, since the Amendment is designed to discourage
accumulations of large blocks of Common Stock by purchasers whose objective is
to have such stock repurchased by First National at a premium, adoption of the
Amendment could tend to reduce any temporary fluctuations in the market price of
the Common Stock that are caused by such accumulations. Accordingly,
stockholders could be deprived of certain opportunities to sell their stock at a
temporarily higher market price. Because the Amendment will increase the amount
of time required for a takeover bidder to obtain control of First National
without the cooperation of the Board, even if the takeover bidder were to
acquire a majority of First National's outstanding stock, a classified board may
tend to discourage certain tender offers that would otherwise allow stockholders
the opportunity to realize a premium over the market price of their stock. The
Amendment will also make it more difficult for First National's stockholders to
change the composition of the Board even if the stockholders believe such a
change would be desirable based on the performance of directors and First
National.
Vote Required to Approve Amendments
Under Virginia law, any amendment to the Articles of Incorporation must
be approved by more than two-thirds of the votes entitled to be cast on the
amendment. As a result, the affirmative vote of two-thirds of the outstanding
shares of Common Stock is required to approve the Amendment. Abstentions and
broker non-votes will not be considered a vote for, or a vote against, a
director.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED
AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO CREATE A CLASSIFIED
BOARD OF DIRECTORS WITH STAGGERED THREE YEAR TERMS.
PROPOSAL TWO
ELECTION OF DIRECTORS
Election of Directors
There are currently 11 directors serving on the Board, and 11 directors
are to be elected at the Annual Meeting to serve until the election and
qualification of their respective successors. If the Amendment is approved, the
Board of Directors will be divided into three classes, as such directors are
elected at the Annual Meeting. The initial terms of one class will expire at
First National's 2002 annual meeting, the initial terms of the second class will
expire at First National's 2003 annual meeting, and the initial terms of the
third class will expire at First National's 2004 annual meeting. Commencing with
the 2002 annual meeting, directors will be elected to serve for three year terms
and until their successors are duly elected and qualified. The following table
sets forth the composition of the board of directors following the approval of
the Amendment.
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Class I Class II Class III
(Term Expiring in 2002) (Term Expiring in 2003) (Term Expiring in 2004)
Noel M. Borden Douglas C. Arthur Byron A. Brill
Elizabeth H. Cottrell Charles E. Maddox, Jr. Christopher E. French
James A. Davis Henry L. Shirkey W. Allen Nicholls
Alson H. Smith, Jr. Harry S. Smith
If the Amendment is not approved, all 11 nominees to serve as
directors will be nominated and elected to serve for a one year term.
Proxies distributed in conjunction herewith may not be voted for
persons other than the nominees named thereon. If any person named as nominee
should be unable or unwilling to stand for election at the time of the Annual
Meeting, the proxy holders will nominate and vote for a replacement nominee or
nominees recommended by the Board. At this time, the Board knows no reason why
any of the nominees listed below may not be able to serve as a director if
elected. In the election of directors, those receiving the greatest number of
votes will be elected even if they do not receive a majority. Abstentions and
broker non-votes will not be considered a vote for, or a vote against, a
director.
Nominees
There is set forth hereafter the name of each nominee and, as to each
of the nominees, certain information including age and principal occupation as
of February 1, 2001. The date shown for first election as a director in the
information below represents the year in which the nominee or continuing
director was first elected to the Board of First National or previously to the
Board of First Bank (the "Bank"). Unless otherwise indicated, the business
experience and principal occupations shown for each nominee or continuing
director has extended five or more years.
Douglas C. Arthur, 58, has been a director since 1972.
Mr. Arthur is Vice Chairman and Secretary of the Board of First
National and Vice Chairman and Secretary of the Board of the Bank. He
is the senior and business partner in Arthur and Allamong, a general
practice law firm with locations in Strasburg and Front Royal,
Virginia. Mr. Arthur has been engaged in the practice of law since
1970. He is a director of Shenandoah Telecommunications Company. Mr.
Arthur also serves on the Shenandoah County School Board.
Noel M. Borden, 64, has been a director since 1962.
Mr. Borden has served as the Chairman of the Board of First National
and Chairman of the Board of the Bank since 1986. Mr. Borden is
currently retired and was President of H.L. Borden Lumber Co., a
building supply company located in Strasburg, Virginia, from 1960 to
2000. He also is a director and Vice President of Shenandoah
Telecommunications Company.
Byron A. Brill, 53, has been a director since 1980.
Dr. Brill is a periodontist who has been in practice since 1975.
Elizabeth H. Cottrell, 50, has been a director since 1992.
Mrs. Cottrell is owner of Riverwood Technologies, a technical writing
and desktop publishing concern, and has held that position since 1992.
James A. Davis, 55, has been a director since 1998.
Dr. Davis is President of Shenandoah University located in Winchester,
Virginia, a position that he has held since 1982. Dr. Davis is a member
of the Board of Directors of the Winchester Medical Center, Chairman of
the Board of Directors of Westminster Canterbury and former member of
the Virginia House of Delegates.
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Christopher E. French, 42, has been a director since 1996.
Mr. French has served as President of Shenandoah Telecommunications
Company, a telecommunications company headquartered in Edinburg,
Virginia, since 1988. He is also a director of that company.
Charles E. Maddox, Jr., 54, has been a director since 1996.
Mr. Maddox is Principal Engineer of G. W. Clifford & Associates for
western Virginia, West Virginia and Maryland operations. Mr. Maddox is
on the Board of Trustees of Shenandoah University and also serves as
the Chairman of the Shenandoah County Economic Development Partnership.
W. Allen Nicholls, 54, has been a director since 1987.
Mr. Nicholls is President of Nicholls Construction, Inc., a home
builder located in Front Royal, Virginia, a position that he has held
for 30 years.
Henry L. Shirkey, 58, has been a director since 1994.
Mr. Shirkey is a customer service representative with Holtzman Oil
Corp., an oil jobber, a position that he has held since 1993. Mr.
Shirkey was previously a banker in Shenandoah County with Farmers Bank,
Dominion Bank and First Union Bank and was involved in all phases of
community bank management for 33 years until his retirement.
Alson H. Smith, Jr., 73, has been a director since 1998.
Mr. Smith is Chairman of the Board of Shenandoah Foods, Inc., located
in Winchester, Virginia. Mr. Smith retired from the Virginia House of
Delegates after 20 years of service. Mr. Smith is a member of the
Boards of Directors of Shenandoah University, the Durell Foundation and
the Virginia Environmental Endowment.
Harry S. Smith, 47, has been a director since 2000.
Mr. Smith has been President and CEO of First National and the Bank
since June 3, 1998. Prior to that date, Mr. Smith was Vice President
and Secretary of First National and Executive Vice President, Secretary
and Cashier of the Bank since 1985.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE NOMINEES BE ELECTED AS
DIRECTORS.
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SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
Security Ownership of Management
The following table sets forth information as of February 1, 2001,
regarding the number of shares of Common Stock beneficially owned by all
directors and nominees, by the executive officer named in the Summary
Compensation Table herein and by all directors and executive officers as a
group. Beneficial ownership includes shares, if any, held in the name of the
spouse, minor children or other relatives of the director or executive officer
living in such person's home, as well as shares, if any, held in the name of
another person under an arrangement whereby the director or executive officer
can vest title in himself at once or at some future time, plus shares held in
certain trust relationships which may be deemed to be beneficially owned by the
nominees under the rules and regulations of the Securities and Exchange
Commission (the "SEC"); however, the inclusion of such shares does not
constitute an admission of beneficial ownership.
Name Beneficially Owned (1) Percent of Class
---- ---------------------- ----------------
Douglas C. Arthur 4,225 *
Noel M. Borden 13,902 (2) 1.76%
Byron A. Brill 13,528 1.71%
Elizabeth H. Cottrell 1,548 (2) *
James A. Davis 594 *
Christopher E. French 4,601 *
Charles E. Maddox, Jr. 1,913 *
W. Allen Nicholls 567 *
Henry L. Shirkey 325 *
Alson H. Smith, Jr. 275 *
Harry S. Smith 1,586 (2) *
All executive officers and
directors as a group (15 persons) 41,250 5.22%
______________
* Indicates that holdings amount to less than 1% of the issued and
outstanding Common Stock.
(1) For purposes of this table, beneficial ownership has been
determined in accordance with the provisions of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
under which, in general, a person is deemed to be the beneficial
owner of a security if he has or shares the power to vote or
direct the voting of the security or the power to dispose of or
direct the disposition of the security, or if he has the right to
acquire beneficial ownership of the security within 60 days.
(2) Amounts presented include 1,000 shares of Common Stock held in the
First National Corporation Employee Stock Ownership Plan and Trust
(the "ESOP"). Ms. Cottrell and Messrs. Borden and Smith serve as
trustees of the ESOP and have certain voting and dispositive
powers with respect to such shares.
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Security Ownership of Certain Beneficial Owners
The following table sets forth certain information as to those persons
believed by management to be beneficial owners of more than 5% of the
outstanding shares of Common Stock as of February 1, 2001.
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership Percent of Class
------------------- -------------------- ----------------
James L. Bowman 72,634 9.15%
P.O. Box 6
Stephens City, Virginia
________________________
(1) For purposes of this table, beneficial ownership has been
determined in accordance with the provisions of Rule 13d-3 of the
Exchange Act, under which, in general, a person is deemed to be
the beneficial owner of a security if he has or shares the power
to vote or direct the voting of the security or the power to
dispose of or direct the disposition of the security, or if he has
the right to acquire beneficial ownership of the security within
60 days.
The Board of Directors and its Committees
Meetings of the Board are held twice each month, and there is also an
organizational meeting following the conclusion of each Annual Meeting of
Stockholders. The Board held 24 meetings in the year ended December 31, 2000.
For the year ended December 31, 2000, none of First National's directors
attended fewer than 75% of the aggregate number of Board meetings and meetings
of committees of which the respective directors are members during their term.
The Board has an Audit Committee and a Personnel and Benefits
Committee. There is no Nominating Committee.
The Audit Committee consists of Messrs. Arthur, French, Davis and
Shirkey and Mrs. Cottrell. The responsibilities of the Audit Committee are
discussed below under "Audit Information." The Audit Committee met five times
during the year ended December 31, 2000.
The Personnel and Benefits Committee, which reviews and recommends the
levels and types of compensation of officers and employees, is composed of Mrs.
Cottrell and Messrs. Arthur, Borden, Davis and French. The Personnel and
Benefits Committee met 11 times during the year ended December 31, 2000.
The Bank has a loan policy committee, which makes all determinations
with respect to the loan policies of the Bank. Loans that require approval
authority above the management level of the Bank, however, are approved by the
Board as a whole.
Executive Officers Who Are Not Directors
Dennis A. Dysart (age 29) has served as Senior Vice President of
Administration since 1999 and had previously served as the Vice President of
Operations since 1996. He has been employed by the Bank since 1993.
J. Andrew Hershey (age 47) has served as Senior Vice President - Loan
Administrator since April 2000 and had previously served as Vice President and
Business Development Officer since 1998. Mr. Hershey was been in the banking
industry for over 23 years, most recently with Jefferson National Bank and
Wachovia Bank.
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John Norton (age 53) has served as Vice President - Human Resources
and Marketing since April 2000 and had previously served as Director of Human
Resources and Marketing since 1998. Prior to joining the Bank, Mr. Norton was a
management consultant in private practice for six years and an army officer for
23 years.
Stephen C. Pettit (age 58) has served as Controller and Chief
Financial Officer of First National and Senior Vice President and Controller of
the Bank since 1999. Mr. Pettit was in practice as a Certified Public Accountant
from 1993 until 1999. Prior to 1993, he had served as a Vice President and
Manager of Accounting with a regional bank for ten years.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires First National's directors
and executive officers, and any persons who own more than 10% of the outstanding
shares of Common Stock, to file with the SEC reports of ownership and changes in
ownership of Common Stock. Officers and directors are required by SEC
regulations to furnish First National with copies of all Section 16(a) forms
that they file. Based solely on review of the copies of such reports furnished
to First National or written representation that no other reports were required,
First National believes that, during fiscal year 2000, all filing requirements
applicable to its officers and directors were satisfied.
REMUNERATION
Summary of Cash and Certain Other Compensation
The following table shows, for the fiscal years ended December 31,
2000, 1999 and 1998, the cash compensation paid by the Bank, as well as certain
other compensation paid or accrued for those years, to the named Executive
Officer in all capacities in which he served. The named Executive Officer does
not receive any compensation from First National.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------- ----------------------
Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary ($) Bonus ($) Compensation ($) Options (#) Compensation ($)(a)
- ------------------------------------------------------------------------------------------------------------------
Harry S. Smith 2000 120,000 -0- 12,000 (c) -0- 3,960
President and CEO (b) 1999 110,000 -0- 12,000 (c) -0- 3,660
1998 95,000 2,500 * -0- 3,047
__________________
* The value of perquisites and other personal benefits did not exceed the
lesser of $50,000 or 10% of total annual salary and bonus.
(a) "All Other Compensation" represents matching contributions by First
National in its 401(k) Plan.
(b) Mr. Smith became President and CEO of First National and the Bank on
June 3, 1998. Prior to that date, Mr. Smith was Vice President and
Secretary of First National and Executive Vice President, Secretary and
Cashier of the Bank
(c) Amounts presented represent an allowance for automobile and related
expenses.
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Stock Options
First National does not have a stock option plan, and no stock options
were granted to, or exercised by, the named Executive Officer during the fiscal
year ended December 31, 2000. There are no stock options currently outstanding.
Directors' Fees
Directors received monthly fees of $500 and $350 for each meeting of
the Board attended during 2000. The Chairman of the Board received monthly fees
of $650 and $350 for each meeting of the Board attended, and the Vice Chairman
of the Board received monthly fees of $550 and $350 for each meeting of the
Board attended. Harry S. Smith, President and CEO of First National, does not
receive monthly fees for his service on the Board.
Indebtedness of Management
No loans to directors or officers involve more than the normal risks of
collectibility or present other unfavorable features. None of the loans was
non-accrual, past-due, restricted or potential problem loans, as of January 31,
2001. All such loans were originated on substantially the same terms, including
interest rates, as those prevailing at the time for comparable transactions with
other persons.
AUDIT INFORMATION
The Board of Directors has adopted a written charter for the Audit
Committee that is set forth in Exhibit B to this Proxy Statement. The five
members of the Audit Committee are independent as that term is defined in the
listing standards of the National Association of Securities Dealers.
Fees of Independent Public Accountants
Audit Fees
The aggregate amount of fees billed by Yount, Hyde & Barbour, P.C. for
professional services rendered for the audit of First National's annual
financial statements for the fiscal year ended December 31, 2000, and the review
of the financial statements included in First National's Quarterly Reports on
Form 10-Q for that fiscal year was $35,987.
Financial Information System Design and Implementation Fees
There were no fees billed by Yount, Hyde & Barbour, P.C. for
professional services rendered to First National for the fiscal year ended
December 31, 2000, for the design and implementation of financial information
systems.
All Other Fees
The aggregate amount of fees billed by Yount, Hyde & Barbour, P.C. for
all other non-audit services rendered to First National for the fiscal year
ended December 31, 2000 was $50,273.
Leased Employees
Yount, Hyde & Barbour, P.C. has informed First National that none of
the hours expended on its engagement to audit First National's financial
statements for the fiscal year ended December 31, 2000, was attributed to work
performed by persons other than full time, permanent employees.
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Audit Committee Report
Management is responsible for First National's internal controls,
financial reporting process and compliance with laws and regulations and ethical
business standards. The independent auditor is responsible for performing an
independent audit of First National's consolidated financial statements in
accordance with generally accepted auditing standards and issuing a report
thereon. The Audit Committee's responsibility is to monitor and oversee these
processes on behalf of the Board of Directors.
In this context, the Audit Committee has reviewed and discussed with
management and the independent auditors the audited financial statements. The
Audit Committee has discussed with the independent auditors the matters required
to be discussed by Statement on Auditing Standards No. 61 (Communication with
Audit Committees). In addition, the Audit Committee has received from the
independent auditors the written disclosures required by Independence Standards
Board No. 1 (Independence Discussions with Audit Committees) and discussed with
them their independence from First National and its management. Moreover, the
Audit Committee has considered whether the independent auditor's provision of
other non-audit services to First National is compatible with maintaining the
auditor's independence.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in First National's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000, for filing with the Securities and Exchange
Commission. By recommending to the Board of Directors that the audited financial
statements be so included, the Audit Committee is not opining on the accuracy,
completeness or presentation of the information contained in the audited
financial statements.
Audit Committee
Douglas C. Arthur, Chairman
Elizabeth H. Cottrell
James A. Davis
Christopher E. French
Henry L. Shirkey
Strasburg, Virginia
February 7, 2001
Appointment of Independent Public Accountants
The Board of Directors has appointed Yount, Hyde & Barbour, P.C. to
perform the audit of First National's financial statements for the year ending
December 31, 2001. Yount, Hyde & Barbour, P.C. has acted as First National's and
the Bank's auditors for the past 14 years and has reported on financial
statements during that period. Representatives from Yount, Hyde & Barbour, P.C.
are expected to be present at the Annual Meeting, will have the opportunity to
make a statement if they desire to do so, and are expected to be available to
respond to appropriate questions from stockholders.
STOCKHOLDER PROPOSALS
Any proposal that a stockholder wishes to have presented at the next
annual meeting of stockholders must be received no later than November 2, 2001.
If such proposal complies with all of the requirements of Rule 14a-8 of the
Exchange Act, it will be included in the Proxy Statement and set forth in the
form of proxy issued for the next Annual Meeting of Stockholders. It is urged
that any such proposals be sent by certified mail, return receipt requested.
First National's receipt of notice of a stockholder's intent to submit a
proposal at the next Annual Meeting of Stockholders outside the requirements of
Rule 14a-8 after January 16, 2002 will be considered untimely.
10
ANNUAL REPORT AND FINANCIAL STATEMENTS
A copy of First National's Annual Report to Stockholders for the year
ended December 31, 2000 accompanies this Proxy Statement. Additional copies may
be obtained by written request to the Secretary of First National at the address
indicated below. The Annual Report is not part of the proxy solicitation
materials.
UPON RECEIPT OF A WRITTEN REQUEST OF ANY PERSON WHO, ON THE RECORD
DATE, WAS RECORD OWNER OF SHARES OF COMMON STOCK OR WHO REPRESENTS IN GOOD FAITH
THAT HE OR SHE WAS ON SUCH DATE THE BENEFICIAL OWNER OF SHARES OF COMMON STOCK
ENTITLED TO VOTE AT THE ANNUAL MEETING OF STOCKHOLDERS, FIRST NATIONAL WILL
FURNISH TO SUCH PERSON, WITHOUT CHARGE, A COPY OF ITS ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 AND ITS QUARTERLY REPORTS ON FORM
10-Q AND THE EXHIBITS THERETO REQUIRED TO BE FILED WITH THE SEC UNDER THE
EXCHANGE ACT. ANY SUCH REQUEST SHOULD BE MADE IN WRITING TO HARRY S. SMITH,
PRESIDENT, FIRST NATIONAL CORPORATION, 112 WEST KING STREET, STRASBURG, VIRGINIA
22657. THE ANNUAL REPORT ON FORM 10-K AND THE QUARTERLY REPORTS ON FORM 10-Q ARE
NOT PART OF THE PROXY SOLICITATION MATERIALS.
OTHER MATTERS
The Board of Directors of First National is not aware of any other
matters that may come before the Annual Meeting. However, the proxies may be
voted with discretionary authority with respect to any other matters that may
properly come before the Annual Meeting.
11
Exhibit A
PROPOSED AMENDMENT TO
ARTICLES OF INCORPORATION
RESOLVED, that the Articles of Incorporation shall be amended by
deleting section 5 of the Articles of Incorporation in its entirety and
substituting therefor the following:
Commencing with the 2001 annual meeting of shareholders, the
directors shall be divided, with respect to the time for which they
severally hold office, into three classes, as nearly equal in number as
possible, with the term of office of the first class, which will
consist of Noel M. Borden, Elizabeth H. Cottrell and James A. Davis, to
expire at the 2002 annual meeting of shareholders, the term of office
of the second class, which will consist of Douglas C. Arthur, Charles
E. Maddox, Jr., Henry L. Shirkey and Alson H. Smith, Jr., to expire at
the 2003 annual meeting of shareholders, and the term of office of the
third class, which will consist of Byron A. Brill, Christopher E.
French, W. Allen Nicholls and Harry S. Smith, to expire at the 2004
annual meeting of shareholders, with each director to hold office until
his successor shall have been duly elected and qualified. At each
annual meeting of shareholders commencing with the 2002 annual meeting
of shareholders, directors elected to succeed those directors whose
terms then expire shall be elected for a term of office to expire at
the third succeeding annual meeting of shareholders after their
election, with each director to hold office until his successor shall
have been duly elected and qualified.
A-1
Exhibit B
FIRST NATIONAL CORPORATION
AUDIT COMMITTEE CHARTER
-----------------------
The Board of Directors of First National Corporation, hereby constitutes and
establishes an Audit Committee with authority, responsibility, and specific
duties as described below.
Composition
-----------
The First National Corporation Audit Committee serves as the audit committee for
the corporation and subsidiaries. The Audit Committee shall be comprised of five
(5) Directors who are independent of management and operating executives. One of
the members shall be appointed Committee Chairman by the Audit Committee.
Authority
---------
The Audit Committee is granted the authority to investigate any activity of the
Company, and all employees are directed to cooperate as requested by members of
the Committee. The Committee is empowered to retain persons having special
competence as necessary to assist the Committee in fulfilling its
responsibility.
Responsibility
--------------
The Audit Committee is to serve as a focal point for communication between
noncommittee directors, the independent accountants, internal audit, and First
National Corporation, Inc.'s management, as their duties relate to financial
accounting, reporting, and controls. The Audit Committee is to assist the Board
of Directors in fulfilling its fiduciary responsibilities as to accounting
policies and reporting practices of First National Corporation and all
subsidiaries and the sufficiency of auditing relative thereto. It is to be the
Board's principal agent in assuring the independence of the Corporation's
outside accountants, the integrity of management, and the adequacy of
disclosures to stockholders. The opportunity for the independent accountants to
meet with the entire Board as needed is not to be restricted.
Meetings
--------
The Audit Committee is to meet at least twice annually and as many additional
times as necessary as determined by the committee Chairman and Senior Vice
President/Controller.
Attendance
----------
Members of the Audit Committee are expected to be present at all meetings. As
necessary or desirable, the Chairman may request that members of management, the
Senior Vice President/Controller, and representatives of the independent
accountants be present at meeting of the Committee.
Agenda & Minutes
----------------
Advance agenda material and minutes of each meeting are to be prepared by the
Senior Vice President/Controller and sent to Committee members. The Secretary to
First National Corporation shall serve as Secretary of the Committee and
maintain minutes and agenda material for permanent filing. The Senior Vice
President/Controller will provide to the Committee copies of audit reports and
corresponding replies for all audits completed since the previous Audit
Committee meeting. Reports of Audit Committee meetings will also be provided to
the Committee.
B-1
Specific Duties
The Audit Committee is to:
1. Inform the independent accountants and management that the accountants
and the Committee may communicate directly with each other; and the
Committee Chairman may call a meeting whenever he deems it necessary.
2. Review with the Company's management, independent accountants, and
Senior Vice President/Controller, the Company's general policies and
procedures to reasonably assure the adequacy of internal accounting and
financial reporting controls.
3. Have familiarity, through the individual efforts of its members, with
the accounting and reporting principles and practices applied by the
Company in preparing its financial statements. Further, the Committee
is to make, or cause to be made, all necessary inquiries of management
and the independent accountants concerning established standards of
corporate conduct and performance, and deviations therefrom.
4. Review, prior to the annual audit, the scope and general extent of the
independent accountants' audit examination, including their engagement
letter. The auditor's fee is to be arranged with management and
annually summarized for Committee review. The Committee's review should
entail an understanding from the independent accountant of the factors
considered by the accountant in determining the audit scope, including:
o Industry and business risk characteristics of the Company.
o External reporting requirements.
o Materiality of the various segments of the Company's
activities.
o Quality of internal accounting controls.
o Extent of involvement of Internal Audit in the audit
examination.
o Other areas to be covered during the audit engagement.
5. Review the extent of nonaudit services provided by the independent
accountants in relation to the objectivity needed in the audit.
6. Review with management and the independent accountants, upon completion
of their audit, financial results for the year prior to their release
to the public. This review is to encompass:
o The Company's Annual Report to Shareholders and Form 10-K,
including the financial statements, and supplemental
disclosures required by generally accepted accounting
principles and the Securities and Exchange Commission.
o Significant transactions which are not a normal part of the
Company's operations.
o Changes, if any, during the year in the Company's accounting
principles or their application.
o Significant adjustments proposed by the independent
accountants.
7. Evaluate the cooperation received by the independent accountants during
their audit examination, including their access to all requested
records, data, and information. Also, elicit the comments of
B-2
management regarding the responsiveness of the independent accountants
to the Company's needs. Inquire of the independent accountants whether
there have been any disagreements with management which if not
satisfactorily resolved would have caused them to issue a nonstandard
report on the Company's financial statements.
8. Discuss with the independent accountants the quality of the company's
financial and accounting personnel, and any relevant recommendations
(including those in their "letter of comments and recommendations").
Topics to be considered during this discussion include improving
internal financial controls, the selection of accounting principles,
and management reporting systems. Review written responses of
management to "letter of comments and recommendations" from the
independent accountants.
9. Discuss with Company management the scope and quality of internal
accounting and financial reporting controls in effect.
10. Apprise the Board of Directors, through minutes and special
presentations as necessary, of significant developments in the course
of performing the above duties.
11. Recommend to the Board of Directors any appropriate extensions or
changes in the duties of the Committee.
12. Recommend to the Board of Directors the retention or nonretention of
the independent accountants, and provide a written summary of the basis
for the recommendations.
13. Annually, in conjunction with management, review and approve the budget
of the internal audit function.
14. Annually approve the internal audit function as the internal auditors
for all subsidiaries of the Company in order to comply with regulatory
requirements.
B-3
|X| PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE FIRST NATIONAL CORPORATION FXNC-BB
ANNUAL MEETING OF STOCKHOLDERS
April 3, 2001
The undersigned hereby appoints the official proxy committee,
consisting of Douglas C. Arthur, Byron A. Brill and W. Allen
Nicholls, with full powers of substitution, to act as attorneys and
proxies for the undersigned to vote all shares of Common Stock of
First National Corporation that the undersigned is entitled to vote at
the Annual Meeting of Stockholders (the "Annual Meeting"), to be held
at the Travelodge, 160 Front Royal Pike, Winchester, VA on April 3,
2001 at 11:00 A.M. The official proxy committee is authorized to cast
all votes to which the undersigned is entitled as follows:
1. The approval of a proposed amendment to the Articles of Incorporation to
create a classified Board of Directors with staggered three year terms.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. The election as directors of all nominees listed (except as marked to the
contrary below):
DIRECTORS:
Douglas C. Arthur Charles E. Maddox, Jr.
Noel M. Borden W. Allen Nicholls
Byron A. Brill Henry L. Shirkey
Elizabeth H. Cottrell Alson H. Smith, Jr.
James A. Davis Harry S. Smith
Christopher E. French
[ ] FOR [ ] WITHHOLD [ ] FOR ALL EXCEPT
INSTRUCTION: To withhold authority to vote for any individual nominee, mark
"For All Except" and write that nominee's name in the space provided below.
----------------------------------------------------------------------------
PLEASE MARK BOX IF YOU PLAN TO ATTEND THE MEETING -> [ ]
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF ALL DIRECTORS AND FOR ANY
PROPOSITIONS STATED ABOVE. IF ANY OTHER BUSINESS IS PRESENTED AT SUCH ANNUAL
MEETING, THIS PROXY WILL BE VOTED BY THE MAJORITY OF THE PROXY COMMITTEE. AT
THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE
PRESENTED AT THE ANNUAL MEETING.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
------------------------------------
Please be sure to sign and date Date
this Proxy in the box below.
- ------------------------------------------- ------------------------------------
- -------- Shareholder sign above --------- Co-holder (if any) sign above --------
- --------------------------------------------------------------------------------
Detach above card, sign, date and mail in postage paid envelope provided.