-----------------------------
COASTAL FINANCIAL CORPORATION
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DECEMBER 18, 2006
Dear Shareholder:
You are cordially invited to attend the annual meeting of Shareholders
of Coastal Financial Corporation. The meeting will be held at Ocean Reef Resort,
7100 North Ocean Boulevard, Myrtle Beach, South Carolina, on Monday, January 29,
2007 at 2:00 p.m., Eastern Standard Time.
The Notice of Annual Meeting and Proxy Statement appearing on the
following pages describe the formal business to be transacted at the meeting.
During the meeting, we will also report on the operations of the Corporation.
Directors and Officers of the Corporation, as well as a representative of KPMG
LLP, the Corporation's independent registered public accounting firm, will be
present to respond to appropriate questions of Shareholders.
It is important that your shares are represented at this meeting,
whether or not you attend the meeting in person and regardless of the number of
shares you own. To make sure your shares are represented, we urge you to
complete and mail the enclosed proxy card. If you attend the meeting, you may
vote in person even if you have previously mailed a proxy card.
We look forward to seeing you at the meeting.
Sincerely,
/s/ Michael C. Gerald
Michael C. Gerald
President and
Chief Executive Officer
COASTAL FINANCIAL CORPORATION
2619 OAK STREET
MYRTLE BEACH, SOUTH CAROLINA 29577
(843) 205-2000
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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The annual meeting of Shareholders of Coastal Financial Corporation
("Corporation") will be held at Ocean Reef Resort, 7100 North Ocean Boulevard,
Myrtle Beach, South Carolina, on Monday, January 29, 2007, at 2:00 p.m., Eastern
Standard Time, for the following purposes:
1. To elect three directors of the Corporation;
2. To approve the Coastal Financial Corporation 2007 Equity
Incentive Plan; and
3. To transact any other business that may properly come before
the meeting.
NOTE: The Board of Directors is not aware of any other business to come
before the meeting.
Shareholders of record at the close of business on November 30, 2006
are entitled to receive notice of the meeting and to vote at the meeting and any
adjournment or postponement of the meeting.
Please complete and sign the enclosed form of proxy, which is solicited
by the Board of Directors, and mail it promptly in the enclosed envelope. The
proxy will not be used if you attend the meeting and vote in person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Susan J. Cooke
Susan J. Cooke
Corporate Secretary
Myrtle Beach, South Carolina
December 18, 2006
IMPORTANT: The prompt return of proxies will save the Corporation the expense of
further requests for proxies in order to ensure a quorum. A self-addressed
envelope is enclosed for your convenience. No postage is required if mailed in
the United States.
PROXY STATEMENT
OF
COASTAL FINANCIAL CORPORATION
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ANNUAL MEETING OF SHAREHOLDERS
January 29, 2007
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This proxy statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Coastal Financial Corporation ("Coastal
Financial," "Corporation" or "we") to be used at the Annual Meeting of
Shareholders of the Corporation. The Corporation is the holding company for
Coastal Federal Bank. The meeting will be held at Ocean Reef Resort, 7100 North
Ocean Boulevard, Myrtle Beach, South Carolina, on Monday, January 29, 2007 at
2:00 p.m., Eastern Standard Time. This Proxy Statement and the enclosed proxy
card are being first mailed on or about December 18, 2006 to Shareholders of
record.
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VOTING AND PROXY PROCEDURE
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Who Can Vote at the Meeting
You are entitled to vote your Coastal Financial common stock if the
records of the Corporation show that you held your shares as of the close of
business on November 30, 2006. As of the close of business on that date, a total
of 21,701,967 shares of Coastal Financial's common stock were outstanding. Each
share of common stock has one vote. As provided in the Corporation's Certificate
of Incorporation, record holders of the Corporation's common stock who
beneficially own, either directly or indirectly, in excess of 10% of the
Corporation's outstanding shares are not entitled to any vote with respect to
the shares held in excess of the 10% limit.
Attending the Meeting
If you are a beneficial owner of Coastal Financial common stock held by
a broker, bank or other nominee (i.e., in "street name"), you will need proof of
ownership to be admitted to the meeting. A recent brokerage statement or letter
from a bank or broker are examples of proof of ownership. If you want to vote
your shares of Coastal Financial common stock held in street name in person at
the meeting, you will have to get a written proxy in your name from the broker,
bank or other nominee, which holds your shares.
Vote Required
The meeting will be held only if there is a quorum. A quorum exists if
a majority of the outstanding shares of common stock entitled to vote is
represented for the transaction of business at the meeting. If you return valid
proxy instructions or attend the meeting in person, your shares will be counted
for purposes of determining whether there is a quorum, even if you abstain from
voting. Broker non-votes also will be counted for purposes of determining the
existence of a quorum. A broker non-vote occurs when a broker, bank or other
nominee holding shares for a beneficial owner does not vote on a particular
proposal because the nominee does not have discretionary voting power with
respect to that item and has not received voting instructions from the
beneficial owner.
In voting on the election of directors, you may vote in favor of all
nominees, withhold votes as to all nominees, or withhold votes as to specific
nominees. There is no cumulative voting for the election of directors. Directors
must be elected by a plurality of the votes cast at the annual meeting. This
means that the nominees receiving the greatest number of votes will be elected
up to the maximum number of directors to be elected at the meeting. The maximum
number of directors to be elected at the meeting is three. Votes that are
withheld and broker non-votes will have no effect on the outcome of the
election.
In voting on the proposal to approve the Coastal Financial Corporation
2007 Equity Incentive Plan, you may vote in favor of the proposal, vote against
the proposal or abstain from voting. This matter will be decided by the
affirmative vote of a majority of the votes cast at the meeting. On this
proposal, abstentions and broker non-votes will have no effect on the outcome of
the voting.
1
Voting by Proxy
This proxy statement is being sent to you by the Board of Directors of
Coastal Financial for the purpose of requesting that you allow your shares of
Coastal Financial common stock to be represented at the meeting by the persons
named in the enclosed proxy card. All shares of Coastal Financial common stock
represented at the meeting by properly executed and dated proxies will be voted
in accordance with the instructions indicated on the proxy card. If you sign,
date and return a proxy card without giving voting instructions, your shares
will be voted as recommended by the Corporation's Board of Directors. The Board
of Directors unanimously recommends that you vote "FOR" each of the nominees as
director and "FOR" approval of the 2007 Equity Incentive Plan.
If any matters not described in this proxy statement are properly
presented at the meeting, the persons named in the proxy card will use their own
judgment to determine how to vote your shares. This includes a motion to adjourn
or postpone the meeting in order to solicit additional proxies. If the meeting
is postponed or adjourned, your Coastal Financial common stock may be voted by
the persons named in the proxy card on the new meeting date as well, unless you
have revoked your proxy. The Corporation does not know of any other matters to
be presented at the meeting.
You may revoke your proxy at any time before the vote is taken at the
meeting. To revoke your proxy you must either advise the Secretary of the
Corporation in writing before your shares have been voted at the meeting,
deliver a later dated proxy, or attend the meeting and vote your shares in
person. Attendance at the meeting will not in itself constitute revocation of
your proxy.
If your Coastal Financial common stock is held in street name, you will
receive instructions from your broker, bank or other nominee that you must
follow in order to have your shares voted. Your broker may allow you to deliver
your voting instructions via the telephone or the Internet. Please see the
instruction form provided by your broker, bank or other nominee that accompanies
this proxy statement for further information regarding telephone and Internet
voting. If you wish to change your voting instructions after you have returned
your voting instruction form to your broker or bank, you must contact your
broker or bank.
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CORPORATE GOVERNANCE
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The Corporation periodically reviews its corporate governance policies
and procedures to ensure that the Corporation meets the highest standards of
ethical conduct, reports results with accuracy and transparency and maintains
full compliance with the laws, rules and regulations that govern its operations.
As part of this periodic review, the Board of Directors reviews and adopts best
corporate governance policies and practices for the Corporation.
Code of Business Conduct
The Corporation has adopted a Code of Business Conduct that is designed
to ensure that the Corporation's directors, executive officers and Associates
meet the highest standards of ethical conduct. The Code of Business Conduct
requires that the Corporation's directors, executive officers and Associates
avoid conflicts of interest, comply with all laws and other legal requirements,
conduct business in an honest and ethical manner and otherwise act with
integrity and in the Corporation's best interest. Under the terms of the Code of
Business Conduct, directors, executive officers and Associates are required to
report any conduct that they believe in good faith to be an actual or apparent
violation of the Code of Business Conduct.
As a mechanism to encourage compliance with the Code of Business
Conduct, the Corporation has established procedures to receive, retain and treat
complaints received regarding accounting, internal accounting controls or
auditing matters. These procedures ensure that individuals may submit concerns
regarding questionable accounting or auditing matters in a confidential and
anonymous manner. The Code of Business Conduct also prohibits the Corporation
from retaliating against any director, executive officer or Associate who
reports actual or apparent violations of the Code of Business Conduct.
2
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STOCK OWNERSHIP
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The following table provides information, as of November 30, 2006,
about the shares of Coastal Financial common stock that may be considered to be
beneficially owned by each person known to the Corporation to beneficially own
more than 5% of its outstanding common stock, each Named Executive Officer (as
defined in footnote 3 to the table), each director or nominee for director of
the Corporation and by all directors and executive officers of the Corporation
as a group. Unless otherwise indicated, each of the named individuals has sole
voting power and sole investment power with respect to the shares shown. A
person may be considered to beneficially own any share of common stock over
which he or she has, directly or indirectly, sole or shared voting or investing
power. The table reflects adjustments for the 10% stock dividend paid on
September 29, 2006.
3
Number of Shares
Number of That May Be Acquired Percent of
Shares Owned Within 60 Days By Common Stock
(Excluding Options) (1) Exercising Options Outstanding (2)
------------------- ------------------ ---------------
Named Executive Officers (3)
Michael C. Gerald, President, 152,428 433,197 2.65
Chief Executive Officer and
Director
Jimmy R. Graham, Executive
Vice President 155,599 270,378 1.94
Jerry L. Rexroad, Executive Vice
President and Chief Financial 51,260 (4) 264,770 1.44
Officer
Steven J. Sherry, Executive Vice
President 21,866 164,877 0.85
Phillip G. Stalvey, Executive Vice
President 42,446 268,490 1.42
Directors of the Corporation
(Excluding Named Executive
Officers)
E. Lawton Benton 596,279 (5) 13,116 2.81
G. David Bishop 760,345 (6) 18,961 3.59
J. Robert Calliham 2,396 (7) 13,116 0.07
James T. Clemmons 437,689 (8) 27,579 2.14
James P. Creel 1,070,326 (9) 63,904 5.21
James H. Dusenbury 69,290 (10) 22,858 0.42
William O. Marsh 5,610 (11) -0- 0.03
Frank A. Thompson, II 18,419 (12) 28,703 0.22
W. Cecil Worsley, III 687 (13) -0- 0.00
Executive Officers and
Directors as a Group (14 persons) 3,384,640 1,589,949 21.36
4
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(1) Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, a person
is deemed to be the beneficial owner, for purposes of this table, of any
shares of the Corporation's Common Stock if he or she has voting and/or
investment power with respect to such security or has a right to acquire,
through the exercise of outstanding options or otherwise, beneficial
ownership at any time within 60 days from November 30, 2006. The table
includes certain shares owned by spouses, other immediate family members in
trust, shares held in retirement accounts or funds for the benefit of the
named individuals, and other forms of ownership, over which shares the
named persons possess voting and/or investment power.
(2) Based on 21,701,967 shares of Common Stock of the Corporation outstanding
and entitled to vote at the Meeting, plus the number of shares that may be
acquired within 60 days by each individual (or group of individuals) by
exercising options.
(3) Under Securities and Exchange Commission regulations, the term "Named
Executive Officer" is defined to include the chief executive officer
regardless of compensation level, and the four most highly compensated
executive officers, other than the chief executive officer, whose total
annual salary and bonus for the last completed fiscal year exceeded
$100,000.
(4) Includes 23,903 shares owned by Jerry L. Rexroad; 21,827 shares owned by
Robin E. Rexroad; 5,530 shares in the Coastal Financial 401-K Plan for
Jerry L. Rexroad.
(5) Includes 557,885 shares owned by RCEE, Inc. of which Mr. Benton is Vice
President; 6 shares owned by Edward Lawton Benton; 576 shares owned by
Edward Lawton Benton - IRA; 37,812 shares owned by Edward Lawton Benton and
Elizabeth Benton.
(6) Includes 54,982 shares owned by G. David Bishop; 285,391 shares owned by G.
J. Bishop Trust, G. David Bishop, Trustee; 89,140 shares owned by Mary Ann
Bishop; 330,832 shares owned by Bishop Investment Company.
(7) Includes 218 shares owned by James R. Calliham; 1,210 shares owned by
Justin Calliham; 726 shares owned by Flo Berry Calliham, and 242 shares
owned by James R. Calliham - Retirement Account.
(8) Includes 37,732 shares owned by J. T. Clemmons; 64,968 shares owned by
Helen W. Clemmons; 3,546 shares owned by J. T. Clemmons - IRA; 416 shares
owned by Helen W. Clemmons - IRA; 331,027 shares owned by Nipaw, LLC.
(9) Includes 577,683 shares owned by Creel Outdoor Advertising, Inc.; 202,019
shares owned by Creel Corporation; 196,366 shares owned by Creel Outdoor
Advertising, Inc. Profit Sharing Plan; 44,128 shares owned by Carolyn W.
Creel; 1,316 shares owned by Carolyn W. Creel & James P. Creel, Jr.; 1,316
shares owned by Carolyn W. Creel & C. Alicia Creel; 9,829 shares owned by
Carolyn W. Creel, James P. Creel, Jr. & Alicia Creel Bame; 19,767 shares
owned by James P. Creel; 968 shares owned by Alicia Creel Bame & Carolyn W.
Creel; 16,934 shares owned by Sun Graphics, Inc., Carolyn W. Creel,
President.
(10) Includes 36,290 shares owned by James H. Dusenbury; 33,000 shares owned by
James H. Dusenbury - IRA.
(11) Includes 1,210 shares owned by William O. Marsh; 4,400 shares owned by
Palmetto Chevrolet Employee Profit Sharing Trust.
(12) Includes 1,466 shares owned by Frank A. Thompson, II; 12,211 shares owned
by Frank A. Thompson, II - SEP; 1,969 shares owned by Frank A. Thompson,II
- IRA; 2,773 shares owned by Sharon Thompson - IRA.
(13) Includes 687 shares owned by W. Cecil Worsley, III.
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PROPOSAL 1 - ELECTION OF DIRECTORS
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The Corporation's Board of Directors consists of ten members. Nine are
independent directors in accordance with the listing standards of the NASDAQ
Stock Market and one is a member of management. The Board is divided into three
classes with three-year staggered terms with approximately one-third of the
directors elected each year. Three directors will be elected at the meeting to
serve for a three-year term, or until their respective successors have been
elected and qualified. The nominees are J. Robert Calliham, James H. Dusenbury,
and Michael C. Gerald, each of whom currently is a director of the Corporation
and Coastal Federal Bank.
It is intended that the proxies solicited by the Board of Directors
will be voted for the election of the nominees named above. If any nominee is
unable to serve, the persons named in the proxy card would vote your shares to
approve the election of any substitute proposed by the Board of Directors.
Alternatively, the Board of Directors may adopt a resolution to reduce the size
of the Board. At this time, the Board of Directors knows of no reason why any
nominee might be unable to serve.
The Corporation's Bylaws provide that a director may not continue to
serve as a director beyond the annual meeting immediately following the date on
which the director attains age 72. Mr. Dusenbury will turn age 72 in 2007 after
the upcoming annual meeting.
5
The Board of Directors unanimously recommends a vote "FOR" the election of all
of the nominees.
Information regarding the nominees and the directors continuing in
office is provided below. Unless otherwise stated, each individual has held his
current occupation for the last five years. The age indicated in each
individual's biography is as of September 30, 2006. The indicated period for
service as a director includes service as a director of Coastal Federal Bank.
Nominees for Election as Directors
The directors standing for election are:
J. Robert Calliham. Mr. Calliham is the President and Chief Executive
Officer of Smith, Sapp, Bookhout, Crumpler & Calliham, P.A. Age 53.
Director since 2004.
James H. Dusenbury. Mr. Dusenbury is a retired attorney, was a partner
in the Dusenbury and Clarkson Law Firm. He has been affiliated with the
Bank since 1965 and has served in the capacities of General Counsel,
Director, and Advisory Director. Age 71. Director since 1997 and from
1973 to 1978. Advisory Director from 1978 to 1997.
Michael C. Gerald. Mr. Gerald is the President and Chief Executive
Officer of the Corporation and Coastal Federal Bank. Age 57. Director
since 1986.
Directors Continuing in Office
The following directors have terms ending in 2008.
E. Lawton Benton. Mr. Benton is President of C. L. Benton & Sons, Inc.
Age 46. Director since 2004
James P. Creel. Mr. Creel is President of Creel Corporation. Age 67.
Director since 1990.
W. Cecil Worsley, III. Mr. Worsley is President and Chief Executive
Officer of Worsley Companies. Age 43. Director since September 2005.
The following directors have terms ending in 2009.
G. David Bishop. Mr. Bishop is Managing Director of White Harvest
Trading Co., LLC. Age 53. Director since 1991.
James T. Clemmons. Mr. Clemmons is the retired President of Coastal
Federal Bank. Age 68. Director since 1979.
William O. Marsh. Mr. Marsh is the President of Palmetto Chevrolet. Age
43. Director since September 2005.
Frank A. Thompson, II. Mr. Thompson is the President of Peoples
Underwriters, Inc. Age 49. Director since 1999.
6
Meetings and Committees of the Board of Directors
The Boards of Directors of the Corporation and Coastal Federal Bank
conduct their business through meetings of the Boards and through their
committees. During the fiscal year ended September 30, 2006, the Board of
Directors of the Corporation held sixteen (16) meetings and the Board of
Directors of Coastal Federal Bank held twenty-three (23) meetings. No director
attended fewer than 75% of the total meetings of the Boards of Directors and
committees on which he served.
The Executive Committee of the Board of Directors, consisting of
Directors Clemmons, Creel, Dusenbury and Gerald, meets as necessary between
meetings of the full Board of Directors. The Executive Committee met two (2)
times during the fiscal year ended September 30, 2006.
The Board of Directors of the Company has an Audit Committee,
consisting of Directors Calliham, Creel, Dusenbury, and Marsh, which is
responsible for developing and monitoring the Company's audit program. Each
member of the Audit Committee satisfies the standards for independence for audit
committee members as defined in the listing standards of the NASDAQ Stock
Market. The Board of Directors has determined that J. Robert Calliham is an
"audit committee financial expert" as such term is defined under the rules and
regulations of the Securities and Exchange Commission. The Audit Committee
selects the Corporation's independent registered public accounting firm and
meets with them to discuss the results of the annual audit and any related
matters. The Audit Committee also receives and reviews the reports and findings
and other information presented to them by Coastal Federal Bank's officers
regarding financial reporting policies and practices. The Audit Committee met
five (5) times during the fiscal year ended September 30, 2006. The Audit
Committee operates under a written charter, a copy of which is attached as
Appendix A to this proxy statement.
The Compensation and Benefits Committee, consisting of Directors
Clemmons, Creel, and Dusenbury, is responsible for all matters regarding the
Corporation's and Coastal Federal Bank's Associate compensation and benefit
programs. Each member of the Compensation and Benefits Committee is independent
as independence for compensation committee members is defined under the listing
standards of the NASDAQ Stock Market. This committee met one (1) time during the
fiscal year ended September 30, 2006.
Directors Benton, Bishop, Marsh, Thompson, and Worsley act as the
Nominating/Corporate Governance Committee for selecting the nominees for
election as directors. The Nominating/Corporate Governance Committee also
recommends to the board of directors corporate governance policies and
guidelines applicable to the Corporation and monitors compliance with these
policies and guidelines. The Nominating/Corporate Governance Committee met two
(2) times during the fiscal year ended September 30, 2006. Each member of the
Nominating/Corporate Governance Committee is independent as independence for
Nominating Committee members is defined under the listing standards of the
NASDAQ Stock Market. The Nominating/Corporate Governance Committee acts under a
written charter adopted by the Board of Directors, a copy of which was included
as an appendix to the Corporation's 2005 Annual Meeting Proxy Statement filed
with the Securities and Exchange Commission on December 17, 2004. The
Corporation's Bylaws provide for Shareholder nomination of directors. See
"Shareholder Proposals and Nominations".
Directors' Compensation
Members of the Board of Directors of Coastal Federal Bank receive a fee
of $12,000 annually, except for the Chairman of the Board, who receives $19,500
annually. Members of the Board of Directors of Coastal Financial receive $2,500
annually. Honorary Directors of Coastal Financial receive $1,000 annually.
Non-Associate directors who are members of the Coastal Federal Bank's Loan
Committee receive $50 per committee meeting.
7
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EXECUTIVE COMPENSATION
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Summary Compensation Table
The following information is furnished for the Chief Executive Officer
and the four other Named Executive Officers.
======================================================================================================
SUMMARY COMPENSATION TABLE (1)
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Annual Compensation
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Long-Term
Compensation
-------------------------------
Awards
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Securities
Name and Year Salary Bonus Other Annual Underlying All Other
Principal ($)(1) ($)(2) Compensation Options Compensation
Position ($)(3) (4) ($)(5)
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Michael C. Gerald, 2006 275,000 172,333 18,745 -0- 7,385
President, Chief 2005 260.400 198,895 18,775 85,827 9,538
Executive Officer 2004 248,000 252,982 18,375 38,293 13,000
& Director
Jimmy R. Graham, 2006 160,000 98,100 -0- -0- 7,906
Executive Vice 2005 151,200 111,756 -0- 60,533 9,375
President 2004 144,000 143,615 -0- 26,308 11,632
Jerry L. Rexroad, 2006 217,000 127,170 4,245 -0- 10,810
Executive Vice 2005 204,750 145,492 4,520 60,533 9,324
President & Chief 2004 195,000 187,094 4,270 26,308 12,474
Financial Officer
Steven J. Sherry, 2006 168,500 102,435 -0- -0- 9,393
Executive Vice 2005 160,387 117,544 -0- 60,533 9,407
President 2004 152,750 150,732 -0- 26,308 12,133
Phillip G. Stalvey, 2006 201,000 119,010 850 -0- 8,107
Executive Vice 2005 190,575 136,562 850 60,533 9,304
President 2004 181,500 176,114 850 26,308 12,290
======================================================================================================
- --------------
(1) Except for directors' fees paid for service on the Board of Directors
of the Corporation, Coastal Federal Bank pays all compensation,
including fringe benefits.
(2) Reflects bonuses awarded for the fiscal year but which were paid in
subsequent fiscal year.
(3) Reflects directors' fees received during the fiscal year for service on
the Board of Directors of the Corporation and/or its subsidiaries. Does
not include perquisites, which did not exceed, in the aggregate, the
lesser of $50,000 or 10% of salary and bonus.
(4) Reflects adjustments for 10% stock dividend paid on September 29, 2006.
(5) Consists of employer contributions to the 401k Profit Sharing Plan &
Trust of Coastal Financial Corporation and any unpaid PTO.
8
Option Grants
The Corporation did not grant any stock options under the 2000 Stock
Option Plan to the individuals named in the Summary Compensation Table during
the fiscal year ended September 30, 2006.
Option Exercise And Fiscal Year End Option Value Table
The following table shows stock option exercises by the individuals
named in the Summary Compensation Table during the fiscal year ended September
30, 2006. In addition, this table includes the number of shares covered by both
exercisable and non-exercisable options as of September 30, 2006. Also reported
are the values for "in-the-money" options, which represent the positive spread
between the exercise price of any such existing options and the year-end price
of Coastal Financial's common stock. The table reflects adjustments for 10%
stock dividend paid on September 29, 2006.
==============================================================================================================
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
- --------------------------------------------------------------------------------------------------------------
Dollar Value of
Number of Unexercised
Unexercised In-the-Money
Number of Options at Options at
Shares FY-End FY-End
Acquired Dollar
on Value Exercisable/ Exercisable/
Name Exercise Realized ($) Unexercisable Unexercisable ($)
- --------------------------------------------------------------------------------------------------------------
Michael C. Gerald 19,943 200,518 427,226/5,971 2,488,948/47,351
Jimmy R. Graham 46,870 511,179 265,506/4,870 1,430,150/38,620
Jerry L. Rexroad 45,561 435,200 259,898/4,870 1,408,237/38,620
Phillip G. Stalvey 24,200 186,279 263,619/4,870 1,448,553/38,620
Steven J. Sherry 13,310 138,393 160,007/4,870 569,177/38,620
==============================================================================================================
Employment Agreements
Coastal Federal Bank and the Corporation entered into employment
agreements with Messrs. Gerald, Graham, Rexroad, Sherry and Stalvey effective as
of October 24, 2005. The agreements with Messrs. Gerald, Rexroad and Stalvey
have a term of three years and the agreements with Messrs. Graham and Sherry
have a one-year term. The agreements are renewed automatically on a daily basis
for an additional day beyond their current expiration dates, unless one of the
parties gives at least sixty days' notice of non-renewal. The agreements provide
for annual base salaries of $288,750 for Mr. Gerald, $168,000 for Mr. Graham,
$227,850 for Mr. Rexroad, $176,925 for Mr. Sherry, and $211,000 for Mr. Stalvey.
The agreements address certain payments to be made upon an executive's
death, disability, retirement, voluntary termination or termination with just
cause (as defined in the agreement). Upon an executive's death, his estate
receives any compensation due him through the last day of the calendar month of
his death. If the executive becomes disabled for more than one hundred eighty
days, he will continue to receive seventy-five percent of his monthly base
salary through the earliest of the date of his death, his sixty-fifth birthday
or the third anniversary of his termination date (first anniversary of
termination for Messrs. Graham and Sherry). Upon retirement or other voluntary
termination of employment, the executive receives any compensation and vested
employee benefits payable through his termination date. If the Corporation or
Coastal Federal Bank terminates the executive's employment for just cause, the
executive receives no further compensation or benefits following his termination
date.
The executives also receive payments upon a termination by the
Corporation or Coastal Federal Bank without just cause or upon a voluntary
termination without good reason. Good reason, as defined under the agreement,
includes the following: a material reduction in responsibility or authority or a
change in reporting relationship; assignment of duties inconsistent with the
executive's skills and experience; a reduction in salary or benefits (other than
a general reduction affecting all benefit plan participants) or, following a
change in control, a
9
reduction in salary or benefits from those provided prior to the change in
control; a termination of incentive and benefit plans resulting in a material
reduction in their aggregate value to the executive or the required relocation
of the executive's principal business office or place of residence by more than
35 miles from their current locations. Good reason for termination also includes
a voluntary termination of employment for any reason during the period beginning
three months prior to a change in control and ending twelve months after a
change in control. Upon termination without just cause or with good reason, the
executive receives base salary and cash bonus, continued employer contributions
under employee benefit plans and health and welfare benefits for the remaining
term of the agreement.
The executives receive a change in control benefit under their
agreements if they are terminated without just cause or voluntarily terminate
employment with good reason during the period beginning three months prior to a
change in control and ending twelve months after a change in control. The change
in control benefit equals three times (one time in the case of Messrs. Graham
and Sherry) the sum of the executive's current base salary and his highest cash
bonus paid or accrued during the three fiscal years preceding the change in
control. The executives also receive continued employer contributions to
employee benefit plans and continued health and welfare coverage for a period of
thirty-six months (twelve months in the case of Messrs. Graham and Sherry)
following termination of employment in connection with a change in control.
The Corporation and Coastal Federal Bank have agreed to provide a tax
"gross-up" payment to indemnify the executives in the event any change in
control payments they receive under the agreements are subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code on excess parachute
payments, as determined pursuant to Section 280G of the Internal Revenue Code.
The Corporation and Coastal Federal Bank have also agreed to provide standard
legal indemnification and liability insurance, in accordance with applicable
laws and regulations.
For a period of one year following a termination of employment without
just cause or with good reason in the ordinary course of business, the
executives agree not to serve as officers, directors or employees of competing
financial institutions or interfere with the Corporation's or Coastal Federal
Bank's existing employment relationships.
Notwithstanding anything to the contrary set forth in any of the
Corporation's previous filings under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this proxy statement, in whole or in part, the following
Report of the Compensation and Benefits Committee, the Stock Performance Graph
and the Audit Committee Report shall not be incorporated by reference into any
such filings.
Report of the Compensation and Benefits Committee. The Compensation and
Benefits Committee of the Board of Directors of the Corporation is responsible
for establishing, implementing and monitoring all compensation policies of the
Corporation and its primary operating subsidiary, Coastal Federal Bank. The
Compensation and Benefits Committee is also responsible for evaluating the
performance of the Chief Executive Officer of the Corporation and recommending
appropriate compensation levels. The Chief Executive Officer evaluates the
performance of executive officers of the Corporation and recommends individual
compensation levels to the Compensation and Benefits Committee.
The Compensation and Benefits Committee believes that a compensation
plan for executive officers, including the Chief Executive Officer, should take
into account management skills, long-term performance results and Shareholder
returns. Compensation policies must be maintained to promote: 1) the attraction
and retention of highly qualified executives; 2) motivation of executives that
is related to the performance of the individual and the Corporation; 3) current
and long-term performance; and 4) a financial interest in the success of the
Corporation similar to the interest of its Shareholders.
The Corporation's current compensation plan involves a combination of
salary and bonus to reward short-term performance and grants of stock options to
encourage long-term performance. The salary levels of the executive officers,
including the Chief Executive Officer, are designed to be competitive within the
financial services industry. Compensation surveys are utilized to determine
appropriate salary adjustments.
A 401(k) plan, in which all executive officers, including the Chief
Executive Officer, and Associates of Coastal Financial may participate, has been
designed to align their interest with those of the Shareholders of the
Corporation. Matching contributions to the 401(k) plan are paid based upon the
attainment of established levels of the Corporation's return on average
Shareholders' equity.
The Corporation's Executive Bonus Plan, which includes the Chief
Executive Officer, provides for the payment of a bonus on a graduated scale if
the Corporation's consolidated return on average equity, excluding accumulated
unrealized gains or losses on the securities portfolio, equals or exceeds 13.5%.
Non-recurring items and
10
non-operational items, such as gain (losses) on investments securities and early
prepayment penalties on Federal Home Loan Bank advances, as determined by the
Corporation's Board of Directors, are excluded from net income in computing the
Corporation's return on average Stockholders' equity ("Return on Equity"). The
Corporation's Return on Equity, adjusted as discussed above, in fiscal 2006 was
18.07%. This compares to a Return on Equity, adjusted as discussed above, in
fiscal 2005 of 19.16%. The Executive Bonus Plan escalates upon the attainment of
higher levels of Return on Equity.
Stock options are the Corporation's primary long-term compensation
program designed to reward the Chief Executive Officer and executives
performance consistent with performance that benefits Shareholders. Awards of
stock options are intended to provide the Chief Executive Officer and other
executives with increased motivation and incentive to exert their best effort on
behalf of the Corporation by enlarging their personal stake in its success
through the opportunity to increase their stock ownership in the Corporation.
Options issued to the Chief Executive Officer and other executives are at a
price equal to the closing price of the Corporation's stock on the date of grant
in order to ensure that any value derived from the grant is realized by
Shareholders generally. The amount of options granted to the Chief Executive
Officer and to each other Executive Officer is based upon the Corporation's
performance, the Officer's performance and relative responsibilities within the
Corporation.
Compensation of the Chief Executive Officer. During the fiscal year
ended September 30, 2006, the base compensation of Michael C. Gerald, President
and Chief Executive Officer of the Corporation, was $275,000. In addition, he
received a performance bonus, based on the above referenced criteria, of
$172,333 and other compensation totaling $26,130 as set forth in the Summary
Compensation Table appearing earlier in this proxy statement. This resulted in
total compensation of $473,463. The Compensation and Benefits Committee believes
that Mr. Gerald's compensation is appropriate based upon his performance in
managing the Corporation and the Corporation's financial performance during the
2006 fiscal year.
The Compensation and J. T. Clemmons - Chairman
- --------------------
Benefits Committee James P. Creel James H. Dusenbury
- ------------------
Compensation Committee Interlocks and Insider Participation. There are
no interlocks or insider participation with respect to the Compensation and
Benefits Committee of the Board of Directors of the Corporation.
11
Performance Graph. The following graph compares the Corporation's cumulative
Shareholder return on its common stock with the return on the Nasdaq Composite
Index and a peer group, the Nasdaq Bank Index. All cumulative returns assume the
investment of $100 in each of the Corporation's Shares of common stock, the
Nasdaq Bank Index and the Nasdaq Composite Index on September 30, 2001.
[GRAPH OMITTED]
9/30/2001 9/30/2002 9/30/2003 9/30/2004 9/30/2005 9/30/2006
Corporation $ 100.00 $ 137.59 $ 172.15 $ 215.25 $ 246.21 $ 250.01
NASDAQ Bank Index $ 100.00 $ 105.71 $ 123.01 $ 143.57 $ 150.02 $ 163.97
NASDAQ Composite Index $ 100.00 $ 78.77 $ 120.00 $ 127.48 $ 145.50 $ 153.45
12
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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 any registered class of the Corporation's equity securities, to
file reports of ownership and changes in ownership with the Securities Exchange
Commission. Executive officers, directors and greater than 10% Shareholders are
required by regulation to furnish the Corporation with copies of all Section
16(a) reports they file.
Based solely on its review of the copies of the reports it has received
and written representation provided to the Corporation from the individuals
required to file the reports, the Corporation believes that each of the
Corporation's executive officers and directors has complied with applicable
reporting requirements for transactions in Coastal Financial common stock during
the fiscal year ended September 30, 2006.
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TRANSACTIONS WITH MANAGEMENT
- --------------------------------------------------------------------------------
The Sarbanes-Oxley Act of 2002 generally prohibits loans by the
Corporation to its executive officers and directors. However, the Sarbanes-Oxley
Act contains a specific exemption from such prohibition for loans by Coastal
Federal Bank to its executive officers and directors in compliance with federal
banking regulations. Federal regulations require that all loans or extensions of
credit to executive officers and directors of insured financial institutions
must be made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons, except for loans made pursuant to programs generally available to
all employees, and must not involve more than the normal risk of repayment or
present other unfavorable features. Coastal Federal Bank is therefore prohibited
from making any new loans or extensions of credit to executive officers and
directors at different rates or terms than those offered to the general public,
except for loans made pursuant to programs generally available to all employees,
and has adopted a policy to this effect. In addition, loans made to a director
or executive officer in an amount that, when aggregated with the amount of all
other loans to such person and his or her related interests, are in excess of
the greater of $25,000 or 5% of the institution's capital and surplus (up to a
maximum of $500,000) must be approved in advance by a majority of the
disinterested members of the Board of Directors.
- --------------------------------------------------------------------------------
PROPOSAL 2 - APPROVAL OF THE COASTAL FINANCIAL CORPORATION 2007
EQUITY INCENTIVE PLAN
- --------------------------------------------------------------------------------
On November 22, 2006, our Board of Directors adopted, subject to
stockholder approval at the annual meeting, the Coastal Financial Corporation
2007 Equity Incentive Plan (the "2007 Plan"). The Plan will become effective as
of the date it is approved by our Shareholders.
Our Board of Directors has determined that the ability to provide key
personnel and outside directors with equity-based compensation is an important
element of our overall compensation strategy and that equity-based compensation
will allow us to attract and retain qualified directors, officers and employees.
As of November 22, 2006 104,895 shares remain available for the grant of options
under our existing stock plans. Accordingly, and subject to adjustment as
provided in the 2007 Plan, the maximum number of shares that we may issue
pursuant to awards granted under the 2007 Plan is one million one hundred
thousand (1,100,000). The Board of Directors believes that the additional shares
authorized by the 2007 Plan are needed to ensure the continued availability of
equity-based compensation.
The essential features of the 2007 Plan are summarized below. This
summary does not purport to be a complete description of all the provisions of
the 2007 Plan. A copy of the 2007 Plan is attached to this Proxy Statement as
Appendix B and is incorporated herein by reference. The following summary of the
2007 Plan is qualified in its entirety by reference to Appendix B.
13
Summary of the Plan
Purpose. The purpose of the 2007 Plan is to encourage and enable
selected employees, outside directors and independent contractors to acquire or
increase their holdings of common stock and other proprietary interests in the
Corporation in order to promote a closer identification of their interests with
the interests of our stockholders, thereby further stimulating their efforts to
enhance our efficiency, soundness, profitability, growth and stockholder value.
Eligibility. All employees, outside directors and selected independent
contractors are eligible to participate in the 2007 Plan.
Administration. The 2007 Plan will be administered by the Compensation
Committee of our Board of Directors. The committee will have the authority to:
designate participants; determine the type or types of awards to be granted to
each participant and the number, terms and conditions thereof; establish, adopt
or revise any rules and regulations it deems advisable to administer the 2007
Plan; and make all other decisions and determinations that may be required under
the 2007 Plan. All decisions made by the committee shall be made in the sole
discretion of the committee and will be binding on the Corporation and the 2007
Plan participants.
Shares Available for Awards/Limitations on Awards. Subject to
adjustment as provided in the 2007 Plan, the maximum aggregate number of shares
of Company common stock available for issuance pursuant to awards granted under
the 2007 Plan is one million one hundred thousand (1,100,000).
The maximum number of shares of Company common stock that we may issue
under the 2007 Plan pursuant to the grant of incentive stock options is one
million (1,000,000). The maximum number of shares that we may issue under the
2007 Plan as restricted stock awards is one hundred thousand (100,000). In
addition, no participant whose compensation may be subject to the limitations on
deductibility under Internal Revenue Code Section 162(m) (See "Certain Federal
Tax Effects," below) may receive awards valued at more than one million dollars
in any one fiscal year.
The following will not reduce the remaining shares available for
issuance pursuant to awards under the 2007 Plan: (i) dividends, (ii) any shares
subject to an award under the 2007 Plan that is forfeited, cancelled,
terminated, expires or lapses for any reason and (iii) shares subject to an
award that we repurchase or reacquire.
Permissible Awards. We may grant incentive stock options, nonqualified
stock options and restricted stock awards under the 2007 Plan.
Options. Incentive and nonqualified stock options granted under the
2007 Plan are exercisable for shares of common stock. Incentive stock options
may only be granted to our employees. The committee will determine the option
price at which a participant may exercise an option, and the option price must
be no less than 100% of the fair market value per share of our common stock on
the date of grant, or 110% of the fair market value with respect to incentive
stock options granted to an employee who owns stock representing more than 10%
of the total voting power of all classes of our stock.
Unless an individual award agreement provides otherwise, a participant
may pay the option exercise price in the form of cash or cash equivalent. In
addition, if applicable laws, rules and regulations permit, the committee may
permit a participant to make payment:
o by delivery of shares of common stock by the participant, if
acceptable to the committee;
o by means of shares of common stock withheld upon exercise;
o by delivery of written notice of exercise to the corporate
secretary of the Corporation and irrevocable instructions to a
broker to deliver to the Corporation the funds to pay the option
price;
o by such other payment methods as the committee may approve and
which are acceptable under applicable law; or
o by any combination of the above payment methods.
At the time of the option grant, the committee will determine the term
and conditions of the option, the period or periods during which a participant
may exercise an option and the option term (which may not exceed 10 years for
incentive and non-qualified stock options, or five years for incentive stock
options issued to an employee
14
who owns stock that possesses more than 10% of the total combined voting power
of all classes of our stock). Options are also subject to certain restrictions
on exercise if the participant terminates employment or service. The committee
also may establish other terms and conditions related to options.
Restricted Stock Awards. Subject to the limitations of the 2007 Plan,
the committee may, in its sole discretion, grant restricted stock awards to
eligible individuals in such numbers, upon such terms and at such times as the
committee shall determine. Restricted stock awards may be subject to certain
conditions, which must be met in order for the restricted stock award to vest
and no longer be subject to forfeiture. Restricted stock awards are payable in
shares of common stock, in accordance with the terms of the 2007 Plan and the
committee's discretion.
The committee has authority to determine the nature, length and
starting date of the vesting period during which a participant may earn a
restricted stock award and will determine the conditions that must be met in
order for a restricted stock award to vest. These conditions may include: (i)
attainment of performance objectives; (ii) continued service or employment for a
certain period of time or a combination of attainment of performance objectives
and continued service; (iii) retirement; (iv) disability; (v) death; or (vi) any
combination of the preceding conditions. Subject to the terms of the 2007 Plan
and the requirements of Internal Revenue Code Section 409A, the committee may
accelerate the vesting date of a particular restricted stock award, without any
obligation to accelerate the vesting of any other restricted stock awards.
Unless the committee determines otherwise in an individual award agreement, a
participant will forfeit unvested restricted stock awards upon termination of
employment or service.
Effect of a Change in Control. Unless the committee provides otherwise
in an award agreement, upon a change in control (as defined in the 2007 Plan),
outstanding awards granted under the Plan will automatically vest and become
fully exercisable and all restrictions on all outstanding awards granted under
the Plan will lapse. The committee may provide in a participant's award
agreement that all options outstanding as of the change in control will remain
exercisable through the expiration of the option term, without regard to the
participant's employment or service status. The committee shall also have
discretion to determine in individual award agreements that acceleration of
outstanding awards due to a change in control shall be subject to the occurrence
of both a change in control event and termination of employment or service.
Adjustments. The plan provides for the automatic proportionate
adjustment of the share authorization limits under the plan, and the number of
shares subject to each outstanding award, in the event of a stock split, a
dividend payable in shares of common stock, or a combination or consolidation of
the common stock into a lesser number of shares. The plan also provides for the
proportionate adjustment of the share authorization limits if the Corporation is
involved in another corporate transaction or event that affects the common
stock, such as an extraordinary cash dividend, recapitalization, reorganization,
merger, consolidation, split-up, spin-off, combination or exchange of shares. In
addition, the committee may adjust the plan and outstanding awards as necessary
to preserve the benefits or potential benefits of the awards.
Termination and Amendment. The Board of Directors may, at any time and
from time to time, terminate or amend the plan. However, the 2007 Plan requires
stockholder approval for any amendment to the 2007 Plan that would materially
increase the number of shares of stock issuable under the plan, expand the types
of awards provided under the plan, expand the class of participants eligible to
participate in the plan, extend the term of the plan or otherwise constitute a
material amendment requiring stockholder approval under applicable stock
exchange listing requirements, laws, policies or regulations. The Board of
Directors may also condition the adoption of a plan amendment on the approval of
the Corporation's Shareholders for any other reason. No termination or amendment
of the 2007 Plan may adversely affect any award previously granted under the
2007 Plan without the written consent of the participant.
The committee may amend or terminate outstanding awards; however, such
amendments may require the consent of the participant and, unless approved by
the Corporation's Shareholders or otherwise permitted by the anti-dilution
provisions of the plan, the committee may not reduce, directly or indirectly,
the exercise price of an outstanding option or extend the original term of an
option.
Certain Federal Tax Effects
Under current federal laws, in general, recipients of grants of
nonqualified stock options and restricted stock awards under the 2007 Plan are
taxed upon their actual or constructive receipt of common stock with respect to
such awards or grants (i.e., upon exercise of nonqualified stock options and
upon vesting of the restricted stock). Subject to Section 162(m) of the Internal
Revenue Code and certain reporting requirements, we would receive an income tax
deduction with respect to the amount of ordinary income recognized by the
participant. Under Sections 421 and 422 of the Internal Revenue Code, recipients
of incentive stock options are generally not taxed on their receipt of common
15
stock upon the exercise of incentive stock options, if they hold the common
stock for specified minimum holding periods; therefore, we would not receive an
income tax deduction unless a participant failed to satisfy the minimum holding
periods. Assuming the required holding periods are met, an incentive stock
option recipient would recognize a capital gain.
Internal Revenue Code Section 409A Requirements. The 2007 Plan is
intended to comply with Section 409A of the Internal Revenue Code. To the extent
that Section 409A is deemed to apply to the 2007 Plan or any award, the 2007
Plan and all awards will, to the extent practicable, be construed in accordance
with Section 409A. Section 409A imposes certain requirements on compensation
that is deemed to involve deferred compensation. If these requirements are not
met, a 2007 Plan participant would recognize ordinary income on the amounts
deemed subject to Section 409A in the year of non-compliance. The participant
also would be subject to an additional tax of 20 percent on all amounts
includible as income and interest charges under Section 409A.
Performance-Based Compensation--Section 162(m) Requirements. The 2007
Plan is also structured to comply with the requirements imposed by Section
162(m) of the Internal Revenue Code and related regulations in order to
preserve, to the extent practicable, our tax deduction for awards made under our
2007 Plan to covered employees. Section 162(m) of the Internal Revenue Code
generally denies an employer a deduction for compensation in excess of
$1,000,000 paid to covered employees of a publicly held corporation (generally
the named executive officers), unless the compensation is exempt from the
$1,000,000 limitation because it is performance-based compensation.
Section 83(b) Elections. Participants may elect, under Section 83(b) of
the Code, within 30 days of a grant of restricted stock, to recognize taxable
ordinary income on the date of grant, rather than on the date of vesting. If a
participant makes an election under Section 83(b), the holding period will
commence on the date of grant, the participant's tax basis will equal the fair
market value of the shares on the grant date (determined without regard to
restrictions), and the Company will be entitled to a deduction equal to the
amount that is taxable as ordinary income to the participant.
Prohibition on Repricing
Under the 2007 Plan, outstanding stock options cannot be repriced,
directly or indirectly, without the prior consent of the Corporation's
Shareholders. We acknowledge that the following actions are considered to be
indirect repricing, and therefore, would require the prior consent of our
stockholders:
o The exchange of an underwater option (i.e., an option having an
exercise price in excess of the current market value of the
underlying stock) for another award;
o Canceling options and granting lower priced options;
o Canceling options and replacing the canceled awards with a
full-value award; and
o Cashing out an option.
New Benefits to Named Executive Officers and Others
As of the date of this proxy statement, no awards have been granted
under the 2007 Plan. The committee will have sole discretion regarding awards to
be made under the 2007 Plan. Therefore, we cannot presently determine the
benefits or amounts that will be received by any individual or group pursuant to
the 2007 Plan in the future, or the benefits or amounts that would have been
received by any individuals or groups for the last completed fiscal year if the
2007 Plan had been in effect.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE 2007
EQUITY INCENTIVE PLAN.
16
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AUDIT COMMITTEE REPORT
- --------------------------------------------------------------------------------
The Audit Committee of the Corporation's Board of Directors is
comprised of four directors and operates under a written charter adopted by the
Board of Directors. The Board of Directors has determined that each Audit
Committee member is independent in accordance with the listing standards of the
NASDAQ Stock Market, Inc.
The Corporation's management is responsible for the preparation and
presentation of the Corporation's consolidated financial statements, its overall
financial reporting process and for maintaining appropriate internal controls
and procedures that provide for compliance with accounting standards. The
independent registered public accounting firm is responsible for performing an
independent audit of the Corporation's consolidated financial statements and
issuing an opinion on the conformity of those financial statements with United
States generally accepted accounting principles and annually auditing
management's assessment of the effectiveness of internal controls over financial
reporting. The Audit Committee oversees the Corporation's internal control over
financial reporting on behalf of the Board of Directors.
In this context, the Audit Committee has met and held discussions with
management and the independent registered public accounting firm. Management has
represented to the Audit Committee that the Corporation's consolidated financial
statements were prepared in accordance with generally accepted accounting
principles and the Audit Committee has reviewed and discussed the consolidated
financial statements with management and the independent registered public
accounting firm. The Audit Committee has discussed with the independent
registered public accounting firm matters required to be discussed by Statement
on Auditing Standards No. 61 (Communication With Audit Committees), including
the quality, not just the acceptability, of the accounting principles, the
reasonableness of significant judgments, and the clarity of the disclosures in
the financial statements.
In addition, the Audit Committee has received the written disclosures
and the letter from the independent registered public accounting firm required
by the Independence Standards Board Standard No. 1 (Independence Discussions
With Audit Committees) and has discussed with the independent registered public
accounting firm their independence from the Corporation and its management. In
concluding that the independent registered public accounting firm is
independent, the Audit Committee considered, among other factors, whether the
non-audit services provided by the independent registered public accounting firm
were compatible with its independence.
The Audit Committee discussed with the Corporation's independent
registered public accounting firm the overall scope and plans for their audit.
The Audit Committee meets with the independent registered public accounting
firm, with and without management present, to discuss the results of their
examination, their evaluation of the Corporation's internal control over
financial reporting, and the overall quality of the Corporation's financial
reporting process.
In performing all of these functions, the Audit Committee acts only in
an oversight capacity. In its oversight role, the Audit Committee relies on the
work and assurances of the Corporation's management, which has the primary
responsibility for financial statements and reports, and of the independent
registered public accounting firm who, in their report, express an opinion on
the conformity of the Corporation's financial statements to United States
generally accepted accounting principles. The Audit Committee's oversight does
not provide it with an independent basis to determine that management has
maintained appropriate accounting and financial reporting principles or
policies, or appropriate internal control over financial reporting designed to
assure compliance with accounting standards and applicable laws and regulations.
Furthermore, the Audit Committee's considerations and discussions with
management and the independent registered public accounting firm do not assure
that the Corporation's financial statements are presented in accordance with
generally accepted accounting principles, that the audit of the Corporation's
financial statements has been carried out in accordance with the standards of
the Public Company Accounting Oversight Board (United States) or that the
Corporation's independent registered public accounting firm is in fact
"independent."
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors, and the Board has approved,
that the Corporation's audited consolidated financial statements be included in
the Corporation's Annual Report on Form 10-K for the year ended September 30,
2006 for filing with the Securities and Exchange Commission.
17
Members of the Audit Committee:
J. Robert Calliham - Chairman
James P. Creel
James H. Dusenbury
William O. Marsh
- --------------------------------------------------------------------------------
AUDITING AND RELATED FEES
- --------------------------------------------------------------------------------
Independent Registered Public Accounting Firm
KPMG LLP was the Corporation's independent registered public accounting
firm for the 2006 fiscal year. The Audit Committee expects to appoint KPMG LLP
to be the Corporation's independent registered public accounting firm for the
2007 fiscal year. A representative of KPMG LLP is expected to be present at the
annual meeting to respond to appropriate questions from Shareholders and will
have the opportunity to make a statement should he or she desires to do so.
Audit Fees and Non-Audit Fees
The following table sets forth the fees billed to the Corporation for
the fiscal years ended September 30, 2006 and 2005 by KPMG LLP:
2005 2006
---- ----
Audit fees (1) $301,181 $247,500
Additional fees (2) 0 13,500
Tax fees (3) 34,975 52,170
(1) Audit fees consisted primarily of audit of the Corporation's
annual financial statements, reviews of the financial statements
included in the Corporation's quarterly reports on Form 10-Q and
for procedures performed related to the Audit of Internal Control
over Financial Reporting and of Management's Assessment of
Internal Control over Financial Reporting.
(2) Additional fees billed for procedures performed related to
non-routine transactions.
(3) Consists of tax filing and tax-related compliance.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Registered Public Accounting Firm
The Audit Committee is responsible for appointing and overseeing the
work of the independent registered public accounting firm and setting the
independent registered public accounting firm's compensation. In accordance with
its charter, the Audit Committee approves, in advance, all audit and permissible
non-audit services to be performed by the independent registered public
accounting firm. This approval process is intended to ensure that the
independent registered public accounting firm does not provide any non-audit
services to the Corporation that are prohibited by law or regulation.
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NOMINATING/CORPORATE GOVERNANCE COMMITTEE PROCEDURES
- --------------------------------------------------------------------------------
General
It is the policy of the Nominating/Corporate Governance Committee of
the Board of Directors of the Corporation to consider director candidates
recommended by Shareholders who appear to be qualified to serve on the
Corporation's Board of Directors. The Nominating/Corporate Governance Committee
may choose not to consider an
unsolicited recommendation if no vacancy exists on the Board of Directors and
the Nominating/Corporate Governance Committee does not perceive a need to
increase the size of the Board of Directors. In order to avoid the unnecessary
use of the Nominating/Corporate Governance Committee's resources, the
Nominating/Corporate
18
Governance Committee will consider only those director candidates recommended in
accordance with the procedures set forth below. The Nominating/Corporate
Governance Committee acts under a written charter adopted by the Board of
Directors on June 1, 2004.
Procedures To Be Followed By Shareholders
To submit a recommendation of a director candidate to the
Nominating/Corporate Governance Committee, a Shareholder should submit the
following information in writing, addressed to the Chairman of the
Nominating/Corporate Governance Committee, care of the Corporate Secretary, at
the main office of the Corporation:
1. The name of the person recommended as a director candidate;
2. All information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors
pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended;
3. The written consent of the person being recommended as a director
candidate to being named in the proxy statement as a nominee and
to serving as a director if elected;
4. As to the Shareholder making the recommendation, the name and
address, as they appear on the Corporation's books, of such
Shareholder; provided, however, that if the Shareholder is not a
registered holder of the Corporation's common stock, the
Shareholder should submit his or her name and address along with
a current written statement from the record holder of the shares
that reflects ownership of the Company's common stock; and
5. A statement disclosing whether such Shareholder is acting with or
on behalf of any other person and, if applicable, the identity of
such person.
In order for a director candidate to be considered for nomination at
the company's annual meeting of Shareholders, the recommendation must be
received by the Nominating/Corporate Governance Committee at least 120 calendars
days prior to the date the Company's proxy statement was released to
Shareholders in connection with the previous year's annual meeting, advanced by
one year.
Minimum Qualifications
The Nominating/Corporate Governance Committee has adopted a set of
criteria that it considers when it selects individuals to be nominated for
election to the Board of Directors. A candidate must meet any qualification
requirements set forth in any Board or committee governing documents.
The Nominating/Corporate Governance Committee will consider the
following criteria in selecting nominees; financial, regulatory and business
experience; familiarity with and participation in the local community;
integrity, honesty and reputation; dedication to the Corporation and its
Shareholders; independence; and any other relevant factors, including age,
diversity, size of the Board of Directors and regulatory disclosure obligations.
In addition prior to nominating an existing director for re-election to
the Board of Directors, the Nominating/Corporate Governance Committee will
consider and review an existing director's Board and committee attendance and
performance; length of Board service; experience, skills and contributions that
the existing director brings to the Board; and independence.
Process For Identifying and Evaluating Nominees
The process that the Nominating/Corporate Governance Committee follows
when it identifies and evaluates individuals to be nominated for election to the
Board of Directors is as follows:
Identification. For purposes of identifying nominees for the Board of
Directors, the Nominating/Corporate Governance Committee relies on personal
contacts of the committee members and other members of the Board of Directors,
as well as their knowledge of members of the communities served by Coastal
Financial. The Nominating/Corporate Governance committee also will consider
director candidates recommended by Shareholders in accordance with the policy
and procedures set forth above. The Nominating/Corporate Governance Committee
has not previously used an independent search firm to identify nominees.
19
Evaluation. In evaluating potential nominees, the Nominating/Corporate
Governance Committee determines whether the candidate is eligible and qualified
for service on the Board of Directors by evaluating the candidate under the
selection criteria set forth above. In addition, the Nominating/Corporate
Governance Committee will conduct a check of the individual's background and
interview the candidate.
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BOARD POLICIES REGARDING SHAREHOLDER COMMUNICATIONS AND ATTENDANCE AT
ANNUAL MEETINGS
- --------------------------------------------------------------------------------
The Corporation encourages Shareholder communications to the Board of
Directors and/or individual directors. Shareholders who wish to communicate with
the Board of Directors or an individual director should send their communication
to the care of Susan J. Cooke, Corporate Secretary, Coastal Financial
Corporation, 2619 Oak Street, Myrtle Beach, South Carolina 29577. Communications
regarding financial or accounting policies should be sent to the attention of
the Chairman of the Audit Committee. All other communications should be sent to
the attention of the Chairman of the Nominating/Corporate Governance Committee.
Directors are expected to prepare themselves for and to attend all
Board meetings, the Annual Meeting of Shareholders and the meetings of the
committees on which they serve, with the understanding that on occasion a
director may be unable to attend a meeting. All of the Corporation's directors
attended the Corporation's 2006 Annual Meeting of Shareholders.
- --------------------------------------------------------------------------------
SHAREHOLDER PROPOSALS AND NOMINATIONS
- --------------------------------------------------------------------------------
Proposals that Shareholders seek to have included in the proxy
statement for the Corporation's next annual meeting must be received by the
Corporation no later than August 20, 2007. If next year's annual meeting is held
on a date more than 30 calendar days from January 29, 2008, a Shareholder
proposal must be received by a reasonable time before the Corporation begins to
print and mail its proxy solicitation for such annual meeting. Any such
proposals will be subject to the requirements of the proxy rules adopted by the
Securities and Exchange Commission.
The Company's Bylaws provide that in order for a Shareholder to make
nominations for the election of directors or proposals for business to be
brought before the annual meeting, a Shareholder must deliver notice of such
nominations and/or proposals to the Corporate Secretary not less than 30 nor
more than 60 days prior to the date of the annual meeting; provided that if less
than 40 days' notice of the annual meeting is given to Shareholders, such notice
must be delivered not later than the close of the tenth day following the day on
which notice of the annual meeting was mailed to Shareholders. A copy of the
Bylaws may be obtained from the Corporation.
- --------------------------------------------------------------------------------
MISCELLANEOUS
- --------------------------------------------------------------------------------
The Corporation will pay the cost of this proxy solicitation. The
Corporation will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of Coastal Financial common stock. In addition to
soliciting proxies by mail, directors, officers and regular associates of the
Corporation may solicit proxies personally or by telephone. None of these
persons will receive additional compensation for these activities.
The Corporation's Annual Report to Shareholders has been mailed to
Shareholders of record as of the close of business on November 30, 2006. Any
Shareholder who has not received a copy of the Annual Report may obtain a copy
by writing to the Corporate Secretary of the Corporation. The Annual Report is
not to be treated as part of the proxy solicitation material or as having been
incorporated in this proxy statement by reference.
If a Shareholder and others who share the Shareholder's address own
shares in "street name", the Shareholder's broker or other holder of record may
be sending only one Annual Report and Proxy Statement to the Shareholder's
address. This practice, known as "householding," is designed to reduce printing
and postage costs. However, if a Shareholder residing at such an address wishes
to receive a separate Annual Report or Proxy Statement in the future, the
Shareholder should contact the broker or other holder of record. If a
Shareholder owns shares in
20
"street name" and is receiving multiple copies of the Annual Report and Proxy
Statement, the Shareholder may request householding by contacting its broker or
other holder of record.
A copy of the Corporation's Form 10-K, as filed with the Securities
Exchange Commission for the fiscal year ended September 30, 2006, may be
obtained or viewed on www.coastalfederal.com by clicking on Investor Services.
----------------------
If you do not have access to the Internet, you may also obtain a copy of the
Form 10-K (without exhibits) without charge by writing to Susan J. Cooke,
Corporate Secretary, Coastal Financial Corporation, 2619 Oak Street, Myrtle
Beach, South Carolina 29577.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Susan J. Cooke
Susan J. Cooke
Corporate Secretary
Myrtle Beach, South Carolina
December 18, 2006
21
Appendix A
COASTAL FINANCIAL CORPORATION
AUDIT COMMITTEE CHARTER
REVIEWED & ACCEPTED BY THE AUDIT COMMITTEE - OCTOBER 23, 2006
ADOPTED BY THE BOARD OF DIRECTORS - OCTOBER 25, 2006
I. Audit Committee Purpose
The Audit Committee is appointed by the Board of Directors to assist in
fulfilling its oversight responsibilities. The Audit Committee's
primary responsibilities are to:
o Monitor the integrity of the Company's financial reporting system of
internal controls and disclosure procedures regarding finance,
accounting, and legal and regulatory compliance.
o Monitor the independence and performance of the Company's
independent registered public accountants and the Internal Audit
Group.
o Monitor the Company's auditing, accounting and financial reporting
processes.
o Serve as an avenue of communication among the independent registered
public accountants, the Executive Resource Group, the Internal Audit
Group, and the Board of Directors.
o Review an annual plan prepared by the Internal Audit Group to review
the risk areas of the Company and monitor the Executive Resource
Group's competency in controlling such risks.
o Prepare the report required by the rules of the Securities and
Exchange Commission to be included in the Company's annual meeting
proxy statement.
The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and has direct access
to the independent registered public accountants, the Internal Audit
Group, and anyone else in the organization. The Audit Committee has the
ability to retain, at the Company's expense, special legal, accounting,
or other consultants or experts it deems necessary or appropriate in
the performance of its responsibilities.
II. Audit Committee Composition and Meetings
The Audit Committee will be comprised of three or more directors. Audit
Committee members, and the Audit Committee Chairman, shall be appointed
by the Board on the recommendation of the Nominating/Corporate
Governance Committee on an annual basis. Members shall serve until
their successors are duly appointed. The full Board of Directors shall
appoint the Audit Committee Chairman or, if it fails to do so, the
Committee members shall elect the Audit Committee Chairman. Each Audit
Committee member shall satisfy the definition of independent director
as defined in the qualitative listing requirements for Nasdaq Stock
Market, Inc. issuers and the applicable SEC rules and regulations. All
members of the Audit Committee must be financially literate at time of
appointment meaning they must have the ability to read and understand
fundamental financial statements, including the Company's balance
sheet, income statement and cash flow statement. In addition, at least
one member of the Audit Committee shall have past employment in finance
or accounting, requisite professional certification in accounting, or
any other comparable experience or background which results in the
individual's financial sophistication, including being or having been a
chief executive officer, chief financial officer or other senior
officer with financial oversight responsibilities.
The Audit Committee shall meet at least four times annually, or more
frequently as circumstances dictate. When the Audit Committee has an
odd number of appointed members, a quorum of the Audit Committee shall
be declared when a majority of its appointed members are in attendance.
When the Audit Committee has an even number of appointed members, a
quorum of the Audit Committee shall be declared when one-half of the
appointed members are in attendance. The Audit Committee Chairman shall
approve an agenda, which shall be consistent with this charter, in
advance of each meeting. The Audit Committee shall meet privately in
executive session at least annually with the Chief Executive Officer
(CEO) and the Chief Financial Officer (CFO), the independent registered
public accountants, and as a committee to discuss any
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matters that the Audit Committee believes should be discussed. The
Audit Committee shall meet privately with the Internal Audit Group
Leader at each meeting, or the Audit Committee Chairman shall meet with
the Internal Audit Group Leader at least quarterly. The Audit Committee
may ask members of Leadership or others to attend meetings and provide
pertinent information as necessary. The Audit Committee shall meet with
independent registered public accountants and Senior Officers (CEO and
CFO) at least quarterly to review the Company's financial statements.
In meetings attended by the independent registered public accountants
or by regulatory examiners, a portion of the meeting will be reserved
for the Audit Committee to meet in closed session with these parties.
III. Responsibilities
Audit Committee Review Procedures
1. The Audit Committee shall review and assess the adequacy of this
Charter at least annually. The charter shall be submitted to the
Board of Directors for approval and the document shall be
published in the Company's annual proxy statement at least every
three years in accordance with SEC regulations.
2. The Audit Committee shall review the Company's annual audited
financial statements prior to filing or distribution. The review
should include discussion with the CEO, CFO and independent
registered public accountants of significant issues and/or
changes regarding accounting principles, practices, and
judgments.
3. At least annually, the Audit Committee shall, in consultation
with the CEO, CFO, the independent registered public accountants,
and the Internal Audit Group Leader:
o Consider the integrity of the Company's financial reporting
processes and controls.
o Discuss significant financial risk exposures and the steps
Leadership has taken to monitor, control, and report such
exposures.
o Review significant concerns of the independent registered
public accountants and the Internal Audit Group Leader,
together with Leadership's responses, including the status
of previous recommendations.
o Discuss any significant changes to the Company's accounting
principles and any items required to be communicated by the
independent registered public accountants in accordance with
SAS 61. Items to be communicated include:
|_| The independent registered public accountant's
responsibility under Generally Accepted Auditing
Standards;
|_| Significant accounting policies;
|_| Leadership judgments and accounting estimates;
|_| Other information in documents containing audited
financial statements;
|_| Disagreements with Leadership;
|_| Consultation with other accountants by Leadership.
Independent Registered Public Accountants
-----------------------------------------
4. The Audit Committee shall review the independence and performance
of the independent registered public accountants. The Audit
Committee shall be directly responsible for the appointment,
compensation, retention and oversight of the work of the
independent registered public accountants (including resolution
of disagreements between the Executive Resource Group and the
independent registered public accountants regarding financial
reporting) for the purpose of preparing or issuing an audit
report or related work, and the independent registered public
accountants shall report directly to the Audit Committee.
5. The Audit Committee shall review and approve, in advance,
requests for all engagements to be performed by the independent
registered public accounting firm. The Audit Committee shall
ensure that the independent registered public accountants do not
provide any non-audit services to the Company that are prohibited
by law or regulation, including: bookkeeping or other services
related to the accounting records or financial statements of the
Company; financial information systems design and implementation;
appraisal or valuation services, fairness opinions, or
contribution-in-kind reports; actuarial services; internal audit
outsourcing services; management functions or human resources;
broker
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or dealer, investment adviser, or investment banking services;
legal services; and expert services unrelated to the audit.
6. On an annual basis, the Audit Committee shall review and discuss
with the independent registered public accountants all
relationships that their organization has with the Company or any
of its Directors or Principal Executive Officers that could
impair the independent registered public accountants'
independence or create an appearance of a conflict. The Audit
Committee shall receive from the independent registered public
accountants a formal written statement delineating all such
relationships, consistent with Independence Standards Board
Standard 1, and shall engage in active dialogue with the
independent registered public accountants with respect to any
disclosed relationships or services that may impact the
objectivity and independence of the independent registered public
accountants. The Audit Committee shall take appropriate action to
oversee the independence of the independent registered public
accountants.
7. Determine that the Company has established clear policies for
hiring employees or former employees of the independent
registered public accountants.
8. The Audit Committee shall review the independent registered
public accountants' audit plan and discuss with the independent
registered public accountants the audit scope, qualifications of
the independent registered public accountants' staffing for the
engagement, reliance upon Leadership and internal audit, and the
general audit approach. The Audit Committee should review the
independent registered public accountants' audit plan to see that
it is sufficiently detailed and covers any significant areas of
concern that the Audit Committee may have.
9. The Audit Committee shall engage the independent registered
public accountants to conduct limited quarterly reviews of
interim financial information in accordance with SAS 100 or its
successor and the independent registered public accountants will
discuss the results of their review with the Audit Committee, or
at least the Audit Committee Chairman.
10. Prior to releasing the Company's annual report to Shareholders,
the Audit Committee shall:
o Discuss the results of the audit with the independent
registered public accountants and ensure that the
independent registered public accountants discuss with the
Audit Committee their judgment about the quality, not just
the acceptability, of the Company's accounting principles as
applied in the financial statements. Inquire about changes
to the audit plan, restrictions on scope of activities, and
observations of control weaknesses.
o Discuss with the CEO, CFO, Internal Audit Group Leader and
the independent registered public accountants the quality of
the accounting principles and underlying estimates used in
the preparation of the Company's financial statements.
o Discuss with the independent registered public accountants
the clarity of the financial disclosure practices used or
proposed by the Company.
o Inquire as to the independent registered public accountants'
views about whether Leadership's choices of accounting
principles appear reasonable from the perspective of income,
asset and liability recognition, and whether those
principles are common practices or are minority practices.
o Discuss with the independent registered public accountants
all material alternative accounting treatments of financial
information with GAAP that have been discussed with the
Company's Leadership, including the ramifications of the use
of such alternative treatments and disclosures and the
treatment preferred by the independent registered public
accountants.
o Discuss with the independent registered public accountants
other material written communications between the
independent registered public accountants and the Company's
Senior Officers.
o Discuss any important conclusions concerning the year-end
audit well in advance of the public release of the annual
audited financial statements.
11. Arrange for the independent registered public accountants to be
available to the full Board of Directors at least annually to
discuss the results of the annual audit and the financial
statements that are a part of the annual report to Shareholders.
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Internal Audit Group
- --------------------
12. The Audit Committee shall annually review the budget and the
annual audit plan of the Internal Audit Group.
13. The Audit Committee shall periodically review changes in the
budget and the annual audit plan, and the activities,
organizational structure and qualifications of the Internal Audit
Group.
14. The Internal Audit Group Leader shall communicate regularly with
the CEO, but have a direct reporting responsibility to the Audit
Committee Chairman. If the Internal Audit Group identifies
significant issues relative to the overall Board of Directors
responsibility that have been communicated to the Company's
Leadership but, in their judgment, have not been adequately
addressed, they shall communicate these issues to the Audit
Committee, and the Audit Committee shall inform the full Board of
Directors, if after its consideration, the Audit Committee
concurs with the judgment of the Internal Audit Group.
15. The Audit Committee shall review the appointment, performance,
compensation, and replacement of the Internal Audit Group Leader
and any external independent audit group providing internal audit
services.
16. The Audit Committee shall review reports presented by the
Internal Audit Group, together with Leadership's response and
follow-up to these reports.
17. The Audit Committee shall receive periodic regulatory compliance
reports from the Compliance Officer on the Company's compliance
with all applicable laws, rules and regulations.
18. The Audit Committee shall receive Suspicious Activity Reports
filed by Coastal Federal Bank. The Audit Committee shall report
this information to the Board of Directors at the next regularly
scheduled meeting of the Board.
19. The Audit Committee shall have in place procedures for 1)
receiving, retaining and treating complaints regarding
accounting, internal accounting controls, or auditing matters,
and 2) the confidential, anonymous submission by Associates of
concerns regarding questionable accounting or auditing matters.
Other Audit Committee Responsibilities
- --------------------------------------
20. The Audit Committee shall annually prepare a report to
Shareholders as required by the Securities and Exchange
Commission. The report must be included in the Company's annual
proxy statement, and should indicate that the Audit Committee has
accomplished the following:
o Reviewed and discussed the audited financial
statements with the Senior Officers;
o Discussed with the independent registered
public accountants the matters required to be
discussed by SAS 61; and
o Received certain disclosures from the
independent registered public accountants
regarding their independence as required by
the Independence Standards Board (ISB).
o Discussed with the independent registered
public accountants their independence; and
o Based on the review and discussion of the
audited financial statements with the Senior
Officers and the independent registered
public accountants, has recommended to the
full Board of Directors that the audited
financial statements be included in the
Company's Annual Report on Form 10-K.
21. The report appearing in the proxy statement shall avail itself of
the safe harbors in paragraph (c) of Item 306 of Regulation S-K
and paragraph (e)(v) of Schedule 14A under the Securities
Exchange Act of 1934, as amended (Exchange Act) unless the full
Board of Directors has determined, after being fully informed,
that the report, or any portion thereof, be treated as
"soliciting material" or "filed" under Regulation 14A or 14C or
be incorporated into a document filed under the Securities Act of
1933, as amended, or the Exchange Act.
22. The Company shall also disclose in its proxy statement the
independence of the Audit Committee.
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23. The Audit Committee shall be authorized to retain independent
counsel and other advisors, as it deems necessary to carry out
its duties and to assist it in the conduct of any investigation,
and be provided by the Company with appropriate funding as
determined by the Audit Committee for payment of compensation to
the independent registered public accountants for preparing or
issuing an audit report or performing other audit, review or
attest services for the Company, payment of compensation to any
other advisors, and payment of ordinary administrative expenses
that are necessary or appropriate in carrying out the Audit
Committee's duties.
24. The Audit Committee shall maintain minutes of meetings and submit
a report to the full Board at a regularly scheduled meeting of
the full Board. The Audit Committee may elect not to maintain
minutes when it meets in executive session.
25. Review and approve all "related-party transactions".
Related-party transactions shall refer to transactions required
to be disclosed pursuant to SEC Regulation S-K, item 404.
26. The Audit Committee shall perform any other activities consistent
with this Charter, the Company's by-laws, and governing law, as
the Audit Committee or the Board deems necessary or appropriate.
While the Audit Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Audit Committee to plan or conduct audits or
to determine that the Company's financial statements are complete and accurate
and in accordance with generally accepted accounting principles. This is the
responsibility of Leadership and the independent registered public accountants.
A-5
Appendix B
Coastal Financial Corporation
2007 Equity Incentive Plan
1. DEFINITIONS
In addition to other terms defined herein, the following terms shall
have the meanings given below:
Administrator means the Committee.
Affiliate means any Subsidiary of the Company, and also includes any
other business entity which is controlled by, under common control with or
controls the Company; provided, however, that the term "Affiliate" shall be
construed in accordance with the registration provisions of applicable federal
securities laws and as permitted under Code Section 409A.
Award means, individually or collectively, a grant under the Plan of an
Option (including an Incentive Option or Nonqualified Option) or a Restricted
Stock Award.
Award Agreement means an agreement (which may be in written or
electronic form, in the Administrator's discretion, and which includes any
amendment or supplement thereto) between the Company and a Participant
specifying the terms, conditions and restrictions of an Award granted to the
Participant. An Agreement may also state such other terms, conditions and
restrictions, including, but not limited to terms, conditions and restrictions
applicable to shares or any other benefit underlying an Award, as may be
established by the Administrator.
Board or Board of Directors means the Board of Directors of the
Company.
Cause shall mean termination because of the Participant's personal
dishonesty; incompetence; willful misconduct; any breach of fiduciary duty
involving personal profit; intentional failure to perform stated duties; willful
violation of any law, rule, or regulation (other than traffic violations or
similar offenses); or material breach of any provision of this Agreement. The
determination of "Cause" shall be made by the Administrator and its
determination shall be final and conclusive.
Change in Control means any of the following:
For purposes of this Plan, a "Change in Control" shall mean an event
deemed to occur if and when (a) an offeror other than the Company purchases
shares of the stock of the Company pursuant to a tender or exchange offer for
such shares, (b) any person (as such term is used in Sections 13(d) and 14(d)(2)
of the Exchange Act) is or becomes the beneficial owner, directly or indirectly,
of securities of the Company representing twenty-five percent (25%) or more of
the combined voting power of the Company's then outstanding securities, (c) the
membership of the board of directors of the Company changes as the result of a
contested election, such that individuals who were directors at the beginning of
any twenty-four (24) month period (whether commencing before or after the date
of adoption of this Plan) do not constitute a majority of the Board at the end
of such period, or (d) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Company or similar transaction occurs
or is effectuated in which the Company is not the resulting entity; provided,
however, that such an event listed above will be deemed to have occurred or to
have been effectuated upon the receipt of all required federal regulatory
approvals not including the lapse of any statutory waiting periods
Code means the Internal Revenue Code of 1986, as amended. Any reference
herein to a specific Code section shall be deemed to include all related
regulations or other guidance with respect to such Code section.
Committee means (a) with respect to the application of this Plan to
Employees, a committee or subcommittee of the Board appointed from time to time
by the Board, which committee or subcommittee shall consist of two or more
non-employee directors, each of whom shall be (i) a "non-employee director" as
defined in Rule 16b-3 under the Exchange Act and (b) with respect to the
application of this Plan to non-employee directors, (i) the Board or (ii) a
committee or subcommittee (which may differ from the committee or subcommittee
established for the grant of Awards to Employees) comprised of two or more
"non-employee directors" as defined under Rule 16b-3 of the Exchange Act. To the
extent that no Committee exists that has the authority to administer this Plan,
the functions of the Committee shall be exercised by the Board. If for any
reason the appointed Committee does not meet the requirements of Rule 16b-3,
such noncompliance shall not affect the validity of Awards, grants,
interpretations or
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other actions of the Committee.
Common Stock means the common stock of Coastal Financial Corporation,
$0.01 par value.
Company means Coastal Financial Corporation, a Delaware corporation,
together with any successor thereto.
Covered Employee shall have the meaning given the term in Section
162(m) of the Code.
Director means a member of the Board of directors of the Company.
Disability shall, except as may be otherwise determined by the
Administrator or required or permitted under Code Section 409A, have the meaning
given in any employment agreement, consulting agreement or other similar
agreement, if any, to which a Participant is a party, or, if there is no such
agreement (or if any such agreement does not address the effect of termination
due to disability), "Disability" shall mean the inability to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death, or which has lasted
or can be expected to last for a continuous period of not less than 12 months.
The Administrator shall have discretion to determine if a termination due to
Disability has occurred.
Effective Date means the effective date of the Plan, as provided in
Section 4.
Employee means any person who is an employee of the Company or any
Affiliate (including entities which become Affiliates after the Effective Date
of the Plan). For this purpose, an individual shall be considered to be an
Employee only if there exists between the individual and the Company or an
Affiliate the legal and bona fide relationship of employer and employee (subject
to any requirements imposed under Code Section 409A); provided, however, that,
with respect to Incentive Options, "Employee" means any person who is considered
an employee of the Company or any Affiliate for purposes of Treas. Reg. Section
1.421-1(h) (or any successor provision related thereto).
Exchange Act means the Securities Exchange Act of 1934, as amended.
Fair Market Value means, unless otherwise required by any applicable
provision of the Code or any regulations issued thereunder, as of any date and
except as provided below, the last sales price reported for the Common Stock on
the applicable date: (a) as reported on the principal national securities
exchange in the United States on which it is then traded; or (b) if not traded
on any such national securities exchange, as quoted on an automated quotation
system sponsored by the National Association of Securities Dealers, Inc. or if
the Common Stock shall not have been reported or quoted on such date, on the
first day prior thereto on which the Common Stock was reported or quoted. For
purposes of the grant of any Award, the applicable date shall be the trading day
immediately prior to the date on which the Award is granted. For purposes of the
exercise of any Award, the applicable date shall be the date a notice of
exercise is received by the Committee or, if not a day on which the applicable
market is open, the next day that it is open.
Incentive Option means an Option that is designated by the
Administrator as an Incentive Option pursuant to Section 7 and intended to meet
the requirements of incentive stock options under Code Section 422.
Independent Contractor means an independent contractor, consultant or
advisor providing services to the Company or an Affiliate.
Nonemployee Director means a Director who is not an Employee of the
Company or an Affiliate.
Nonqualified Option means an Option granted under Section 7 that does
not or is not intended to qualify as an incentive stock option under Code
Section 422.
Option means a an incentive or nonqualified stock option granted under
Section 7 that entitles the holder to purchase from the Company a stated number
of shares of Common Stock at the price set forth in an Award Agreement.
Option Period means the term of an Option, as provided in Section 7(d).
Option Price means the price at which an Option may be exercised, as
provided in Section 7(b).
Participant means an individual employed by, or providing services to,
the Company or an Affiliate who satisfies the requirements of Section 6 and is
selected by the Administrator to receive an Award under the Plan.
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Plan means this Coastal Financial Corporation 2007 Equity Incentive
Plan, as it may be hereafter amended and/or restated.
Restricted Stock Award means shares of Common Stock awarded to a
Participant under Section 8. Shares of Common Stock subject to a Restricted
Stock Award shall cease to be restricted when, in accordance with the terms of
the Plan and the terms and conditions established by the Administrator, the
shares vest and become transferable and free of substantial risks of forfeiture.
Retirement shall, as applied to any Participant, be as defined in any
employment agreement, consulting agreement or other similar agreement, if any,
to which the Participant is a party, or, if there is no such agreement (or if
any such agreement does address the effect of termination due to retirement),
"Retirement" shall mean retirement in accordance with the retirement policies
and procedures established by the Company, as determined by the Administrator
and, where applicable, in accordance with Code Section 409A.
Securities Act means the Securities Act of 1933, as amended.
Subsidiary means a "subsidiary corporation," whether now or hereafter
existing, as defined in Section 424(f) of the Code.
Termination Date means the date of termination of a Participant's
employment or service for any reason, as determined by the Administrator in its
discretion.
2. PURPOSE
The purpose of the Plan is to encourage and enable selected Employees,
Directors and Independent Contractors of the Company and its Affiliates to
acquire or to increase their holdings of Common Stock of the Company in order to
promote a closer identification of their interests with those of the Company and
its stockholders, thereby further stimulating their efforts to enhance the
efficiency, soundness, profitability, growth and stockholder value of the
Company. This purpose will be carried out through the granting of Awards to
selected Employees, Independent Contractors and Directors, including the
granting to selected Participants of Options in the form of Incentive Stock
Options and Nonqualified Options and Restricted Stock Awards.
3. ADMINISTRATION OF THE PLAN
(a) Except as otherwise provided by the Plan, the Plan shall be
administered by the Committee. For the purposes of the Plan, the term
"Administrator" shall refer to the Committee.
(b) Subject to the provisions of the Plan, the Administrator shall have
full and final authority in its discretion to take any action with
respect to the Plan including, without limitation, the authority (i) to
determine all matters relating to Awards, including selection of
individuals to be granted Awards, the types of Awards, the number of
shares of the Common Stock, if any, subject to an Award, and all terms,
conditions, restrictions and limitations of an Award; (ii) to prescribe
the form or forms of Award Agreements evidencing any Awards granted
under the Plan; (iii) to establish, amend and rescind rules and
regulations for the administration of the Plan; and (iv) to construe
and interpret the Plan, Awards and Award Agreements made under the
Plan, to interpret rules and regulations for administering the Plan and
to make all other determinations deemed necessary or advisable for
administering the Plan. Except to the extent otherwise required under
Code Section 409A, (i) the Administrator shall have the authority, in
its sole discretion, to accelerate the date that any Award which was
not otherwise exercisable, vested or earned shall become exercisable,
vested or earned in whole or in part without any obligation to
accelerate such date with respect to any other Award granted to any
recipient; and (ii) the Administrator also may in its sole discretion
modify or extend the terms and conditions for exercise, vesting or
earning of an Award. The Administrator may determine that a
Participant's rights, payments and/or benefits with respect to an Award
(including but not limited to any shares issued or issuable and/or cash
paid or payable with respect to an Award) shall be subject to
reduction, cancellation, forfeiture or recoupment upon the occurrence
of certain specified events, in addition to any otherwise applicable
vesting or performance conditions of an Award. In addition, the
Administrator shall have the authority and discretion to establish
terms and conditions of Awards (including but not limited to the
establishment of subplans) as the Administrator determines to be
necessary or appropriate to conform to the applicable requirements or
practices of jurisdictions outside of the United States. In addition to
action by meeting in accordance with applicable laws, any action of the
Administrator with respect to the Plan may be taken by a written
instrument signed by all of the members of the Board or Committee, as
appropriate, and any such action so taken by written consent shall be
as fully effective as if it had been taken by a majority of the members
at a meeting duly held and called. No member of the Board or Committee,
as applicable, shall be liable while acting as Administrator for any
action or determination made
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in good faith with respect to the Plan, an Award or an Award Agreement.
The members of the Board or Committee, as applicable, shall be entitled
to indemnification and reimbursement in the manner provided in the
Company's certificate of incorporation and bylaws and/or under
applicable law.
(c) Notwithstanding the other provisions of Section 3, the
Administrator may delegate to one or more officers of the Company the
authority to grant Awards, and to make any or all of the determinations
reserved for the Administrator in the Plan and summarized in Section
3(b) with respect to such Awards (subject to any restrictions imposed
by applicable laws, rules and regulations and such terms and conditions
as may be established by the Administrator); provided, however, that,
to the extent required by Section 16 of the Exchange Act or Section
162(m) of the Code, the Participant, at the time of said grant or other
determination, (i) is not deemed to be an officer or director of the
Company within the meaning of Section 16 of the Exchange Act; and (ii)
is not deemed to be a Covered Employee as defined under Section 162(m)
of the Code. To the extent that the Administrator has delegated
authority to grant Awards pursuant to this Section 3(c) to one or more
officers of the Company, references to the Administrator shall include
references to such officer or officers, subject, however, to the
requirements of the Plan, Rule 16b-3, Section 162(m) of the Code and
other applicable laws, rules and regulations.
4. EFFECTIVE DATE; TERM
The Effective Date of the Plan shall be the date of shareholder
approval of the Plan. Awards may be granted under the Plan on and after the
Effective Date, but not after the date that is the tenth anniversary less one
day after the Effective Date. Awards that are outstanding at the end of the Plan
term or such earlier termination date as may be established by the Board
pursuant to Section 12(a) shall continue in accordance with their terms, unless
otherwise provided in the Plan or an Award Agreement.
5. SHARES OF STOCK SUBJECT TO THE PLAN; AWARD LIMITATIONS
(a) Shares of Stock Subject to the Plan: Subject to adjustments as
provided in Section 5(d), the aggregate number of shares of Common Stock that
may be issued pursuant to Awards granted under the Plan shall not exceed one
million one hundred thousand (1,100,000). Any shares granted as Options shall be
counted against this number as one share for every one share granted, regardless
of the number of shares that may be issued upon exercise. Shares delivered under
the Plan shall be authorized but unissued shares, treasury shares or shares
purchased on the open market or by private purchase. The Company hereby reserves
sufficient authorized shares of Common Stock to meet the grant of Awards
hereunder.
(b) Award Limitations: Notwithstanding any provision in the Plan to the
contrary, the following limitations shall apply to Awards granted under the
Plan, in each case subject to adjustments pursuant to Section 5(d):
(i) The maximum number of shares of Common Stock that may
be issued under the Plan pursuant to the grant of
Incentive Options shall not exceed one million
(1,000,000) shares; and
(ii) The maximum number of shares of Common Stock that may
be issued under the Plan pursuant to the grant of
Restricted Stock Awards shall not exceed one hundred
thousand (100,000) shares.
(iii) No officer of the Company or other person whose
compensation may be subject to the limitations on
deductibility under Section 162(m) of the Code shall
be eligible to receive awards pursuant to the Plan in
excess of one million dollars ($1,000,000) in any
fiscal year.
(c) Shares Not Subject to Limitations: The following will not be
applied to the share limitations of Section 5(a) above: (i) dividends; (ii) any
shares subject to an Award under the Plan which Award is forfeited, cancelled,
terminated, expired or lapsed for any reason; and (iii) any shares subject to an
Award which shares are repurchased or reacquired by the Company.
(d) Adjustments: If there is any change in the outstanding shares of
Common Stock because of a merger, consolidation or reorganization involving the
Company or an Affiliate, or if the Board of Directors of the Company declares a
stock dividend, stock split distributable in shares of Common Stock, reverse
stock split, combination or reclassification of the Common Stock, or if there is
a similar change in the capital stock structure of the Company or an Affiliate
affecting the Common Stock, the number of shares of Common Stock reserved for
issuance under the Plan shall be correspondingly adjusted, and the Administrator
shall make such adjustments to Awards and to any provisions of this Plan as the
Administrator deems equitable to prevent dilution or enlargement of Awards or as
may be otherwise advisable.
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6. ELIGIBILITY
An Award may be granted only to an individual who satisfies all of the
following eligibility requirements on the date the Award is granted:
(a) The individual is either (i) an Employee, (ii) a Director, or (iii)
an Independent Contractor.
(b) With respect to the grant of Incentive Options, the individual is
otherwise eligible to participate under Section 6, is an Employee of the Company
and does not own, immediately before the time that the Incentive Option is
granted, stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company. Notwithstanding the foregoing, an Employee
who owns more than 10% of the total combined voting power of the Company may be
granted an Incentive Option if the Option Price is at least 110% of the Fair
Market Value of the Common Stock, and the Option Period does not exceed five
years. For this purpose, an individual will be deemed to own stock which is
attributable to him under Section 424(d) of the Code.
(c) The individual, being otherwise eligible under this Section 6, is
selected by the Administrator as an individual to whom an Award shall be granted
(as defined above, a "Participant").
7. OPTIONS.
(a) Grant of Options: Subject to the limitations of the Plan, the
Administrator may in its sole and absolute discretion grant Options to eligible
individuals in such numbers, subject to such terms and conditions, and at such
times as the Administrator shall determine. Both Incentive Options and
Nonqualified Options may be granted under the Plan, as determined by the
Administrator; provided, however, that Incentive Options may only be granted to
Employees of the Company or a Subsidiary. To the extent that an Option is
designated as an Incentive Option but does not qualify as such under Section 422
of the Code, the Option (or portion thereof) shall be treated as a Nonqualified
Option.
(b) Option Price: The Option Price shall be established by the
Administrator and stated in the Award Agreement evidencing the grant of the
Option; provided, however, that the Option Price of an Option shall be no less
than 100% of the Fair Market Value per share of the Common Stock as determined
on the date the Option is granted.
(c) Date of Grant: An Incentive Option shall be considered to be
granted on the date that the Administrator acts to grant the Option. A
Nonqualified Option shall be considered to be granted on the date the
Administrator acts to grant the Option.
(d) Option Period and Limitations on the Right to Exercise Options:
(i) The Option Period shall be determined by the
Administrator at the time the Option is granted and
shall be stated in the Award Agreement, however,
except as provided in Section 7(d)(iii)(B) of this
Plan, the Option Period shall not extend more than 10
years from the date on which the Option is granted
(or five years with respect to Incentive Options
granted to an Employee who owns stock possessing more
than 10% of the total combined voting power of all
classes of stock of the Company, as provided in
Section 6(b)). Any Option or portion thereof not
exercised before expiration of the Option Period
shall terminate. The period or periods during which,
and conditions pursuant to which, an Option may
become exercisable shall be determined by the
Administrator in its discretion, subject to the terms
of the Plan.
(ii) An Option may be exercised by giving written notice
to the Company in form acceptable to the
Administrator at such place and subject to such
conditions as may be established by the Administrator
or its designee. Such notice shall specify the number
of shares to be purchased pursuant to an Option and
the aggregate purchase price to be paid therefor and
shall be accompanied by payment of the purchase
price. The total number of shares that may be
acquired upon exercise of an Option shall be rounded
down to the nearest whole share. Unless an Award
Agreement provides otherwise, such payment shall be
in the form of cash or cash equivalent; provided
that, where permitted by the Administrator and
applicable laws, rules and regulations (and subject
to such terms and conditions as may be established by
the Administrator), payment may also be made:
(A) By delivery (by either actual delivery or
attestation) of shares of Common Stock owned
by the Participant for such time period, if
any, as may be determined by the
Administrator and otherwise acceptable to
the Administrator;
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(B) By shares of Common Stock withheld upon
exercise;
(C) By delivery of written notice of exercise to
the Company and delivery to a broker of
written notice of exercise and irrevocable
instructions to promptly deliver to the
Company the amount of sale proceeds to pay
the Option Price;
(D) By such other payment methods as may be
approved by the Administrator and which are
acceptable under applicable law; or
(E) By any combination of the foregoing methods.
Shares tendered or withheld in payment on the
exercise of an Option shall be valued at their Fair
Market Value on the date of exercise.
(iii) Unless the Administrator determines otherwise, no Option granted to a
Participant who was an Employee at the time of grant shall be exercised
unless the Participant is, at the time of exercise, an Employee as
described in Section 6(a), and has been an Employee continuously since the
date the Option was granted, subject to the following:
(A) The employment relationship of a Participant
shall be treated as continuing intact for
any period that the Participant is on
military or sick leave or other bona fide
leave of absence, provided that the period
of such leave does not exceed 90 days, or,
if longer, as long as the Participant's
right to reemployment is guaranteed either
by statute or by contract. The employment
relationship of a Participant shall also be
treated as continuing intact while the
Participant is not in active service because
of Disability. The Administrator shall have
sole authority to determine whether a
Participant is disabled and, if applicable,
the Participant's Termination Date.
(B) Unless the Administrator determines
otherwise (subject to any requirements
imposed under Code Section 409A), if the
employment of a Participant is terminated
because of Disability or death, the Option
may be exercised only to the extent
exercisable on the Participant's Termination
Date, except that the Administrator may, in
its sole discretion (subject to any
requirements imposed under Code Section
409A), accelerate the date for exercising
all or any part of the Option which was not
otherwise exercisable on the Termination
Date. The Option must be exercised, if at
all, prior to the close of the one-year
period following the Termination Date (or
such other period stated in the Award
Agreement), regardless of the remaining term
of the Option Period. Options shall be
exercisable by such person or persons as
shall have acquired the right to exercise
the Option by will or by the laws of
intestate succession.
(C) Unless the Administrator determines
otherwise (subject to any requirements
imposed under Code Section 409A), if the
employment of the Participant is terminated
for any reason other than Disability, death
or for "Cause," his Option may be exercised
to the extent exercisable on his Termination
Date, except that the Administrator may in
its sole discretion (subject to any
requirements imposed under Code Section
409A) accelerate the date for exercising all
or any part of the Option which was not
otherwise exercisable on the Termination
Date. The Option must be exercised, if at
all, prior to the first to occur of the
following, whichever shall be applicable:
(X) the close of the period of three months
next succeeding the Termination Date (or
such other period stated in the Award
Agreement); or (Y) the close of the Option
Period. If the Participant dies following
such termination of employment and prior to
the earlier of the dates specified in (X) or
(Y) of this subparagraph (C), the
Participant shall be treated as having died
while employed under subparagraph (B)
(treating for this purpose the Participant's
date of termination of employment as the
Termination Date). In the event of the
Participant's death, such Option shall be
exercisable by such person or persons as
shall have acquired the right to exercise
the Option by will or by the laws of
intestate succession.
(D) Unless the Administrator determines
otherwise (subject to any requirements
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imposed under Code Section 409A), if the
employment of the Participant is terminated
for "Cause," his Option shall lapse and no
longer be exercisable as of his Termination
Date, as determined by the Administrator.
(E) Notwithstanding the foregoing, the
Administrator may, in its sole discretion
(subject to any requirements imposed under
Code Section 409A), accelerate the date for
exercising all or any part of an Option
which was not otherwise exercisable on the
Termination Date, extend the period during
which an Option may be exercised, modify the
terms and conditions of exercise, or any
combination of the foregoing.
(iv) Unless the Administrator determines otherwise
(subject to any requirements imposed under Code
Section 409A), an Option granted to a Participant who
was a Director but who was not an Employee at the
time of grant may be exercised only to the extent
exercisable on the Participant's Termination Date
(unless the termination was for Cause), and must be
exercised, if at all, prior to the first to occur of
the following, as applicable: (X) the close of the
period of six months next succeeding the Termination
Date (or such other period stated in the Award
Agreement); or (Y) the close of the Option Period. If
the services of a Participant are terminated for
Cause, his Option shall lapse and no longer be
exercisable as of the Termination Date, as determined
by the Administrator. Notwithstanding the foregoing,
the Administrator may, in its sole discretion
(subject to any requirements imposed under Code
Section 409A), accelerate the date for exercising all
or any part of an Option which was not otherwise
exercisable on the Termination Date, extend the
period during which an Option may be exercised,
modify the other terms and conditions to exercise, or
any combination of the foregoing.
(v) Unless the Administrator determines otherwise
(subject to any requirements imposed under Code
Section 409A), an Option granted to a Participant who
was an Independent Contractor at the time of grant
(and who does not thereafter become an Employee, in
which case he shall be subject to the provisions of
Section 7(d)(iii)) may be exercised only to the
extent exercisable on the Participant's Termination
Date (unless the termination was for Cause), and must
be exercised, if at all, prior to the first to occur
of the following, as applicable: (X) the close of the
period of three months next succeeding the
Termination Date (or such other period stated in the
Award Agreement); or (Y) the close of the Option
Period. If the services of a Participant are
terminated for Cause, his Option shall lapse and no
longer be exercisable as of his Termination Date, as
determined by the Administrator. Notwithstanding the
foregoing, the Administrator may, in its sole
discretion (subject to any requirements imposed under
Code Section 409A), accelerate the date for
exercising all or any part of an Option which was not
otherwise exercisable on the Termination Date, extend
the period during which an Option may be exercised,
modify the other terms and conditions to exercise, or
any combination of the foregoing.
(e) Notice of Disposition: If shares of Common Stock acquired upon
exercise of an Incentive Option are disposed of within two years following the
date of grant or one year following the transfer of such shares to a Participant
upon exercise, the Participant shall, promptly following such disposition,
notify the Company in writing of the date and terms of such disposition and
provide such other information regarding the disposition as the Administrator
may reasonably require.
(f) Limitation on Incentive Options: In no event shall there first
become exercisable by an Employee in any one calendar year Incentive Options
granted by the Company or any Parent or Subsidiary with respect to shares having
an aggregate Fair Market Value (determined at the time an Incentive Option is
granted) greater than $100,000. To the extent that any Incentive Options are
first exercisable by a Participant in excess of such limitation, the excess
shall be considered a Nonqualified Option.
(g) Nontransferability: Incentive Options shall not be transferable
(including by sale, assignment, pledge or hypothecation) other than by will or
the laws of intestate succession or, in the Administrator's discretion, as may
otherwise be permitted in accordance with Treas. Reg. Section 1.421-1(b)(2) or
any successor provision thereto. Nonqualified Options shall not be transferable
(including by sale, assignment, pledge or hypothecation) other than by will or
the laws of intestate succession, except as may be permitted by the
Administrator in a manner consistent with the registration provisions of the
Securities Act. An Option shall be exercisable during the Participant's lifetime
only by him, by his guardian or legal representative or by a transferee in a
transfer permitted by this Section 7(g). The designation of a beneficiary in
accordance with Section 16(g) does not constitute a transfer.
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8. RESTRICTED STOCK AWARDS
(a) Grant of Restricted Stock Awards: Subject to the limitations of the
Plan, the Administrator may in its sole and absolute discretion grant Restricted
Stock Awards in such numbers, upon such terms and at such times as the
Administrator shall determine. Restricted Stock Awards may be granted subject to
certain conditions, which conditions must be met in order for the Restricted
Stock Award to vest and be earned (in whole or in part) and no longer subject to
forfeiture. Restricted Stock Awards shall be payable in shares of Common Stock.
The Administrator shall determine the nature, length and starting date of the
period, if any, during which a Restricted Stock Award may be earned (the
"Restriction Period"), and shall determine the conditions which must be met in
order for a Restricted Stock Award to be granted or to vest or be earned (in
whole or in part), which conditions may include, but are not limited to,
attainment of performance objectives, continued service or employment for a
certain period of time (or a combination of attainment of performance objectives
and continued service), Retirement, Disability, death, or any combination of
such conditions. In the case of Restricted Stock Awards based upon performance
criteria, or a combination of performance criteria and continued service, the
Administrator shall determine the Performance Measures applicable to such
Restricted Stock Awards.
(b) Vesting of Restricted Stock Awards: Subject to the terms of the
Plan and Code Section 409A, the Administrator shall have sole authority to
determine whether and to what degree Restricted Stock Awards have vested and
been earned and are payable and to establish and interpret the terms and
conditions of Restricted Stock Awards. The Administrator may (subject to any
restrictions imposed under Code Section 409A) accelerate the date that any
Restricted Stock Award granted to a Participant shall be deemed to be vested or
earned in whole or in part, without any obligation to accelerate such date with
respect to other Restricted Stock Awards granted to any Participant.
(c) Forfeiture of Restricted Stock Awards: Unless the Administrator
determines otherwise, if the employment or service of a Participant shall be
terminated for any reason and all or any part of a Restricted Stock Award has
not vested or been earned pursuant to the terms of the Plan and the individual
Award, such Award, to the extent not then vested or earned, shall be forfeited
immediately upon such termination and the Participant shall have no further
rights with respect thereto.
(d) Dividend and Voting Rights; Share Certificates: The Administrator
shall have sole discretion to determine whether a Participant shall have
dividend rights, voting rights or other rights as a stockholder with respect to
shares subject to a Restricted Stock Award which has not yet vested or been
earned. If the Administrator so determines, a certificate or certificates for
shares of Common Stock subject to a Restricted Stock Award may be issued in the
name of the Participant as soon as practicable after the Award has been granted;
provided, however, that, notwithstanding the foregoing, the Administrator shall
have the right to retain custody of certificates evidencing the shares subject
to a Restricted Stock Award and to require the Participant to deliver to the
Company a stock power, endorsed in blank, with respect to such Award, until such
time as the Restricted Stock Award vests (or is forfeited) and is no longer
subject to a substantial risk of forfeiture.
(e) Nontransferability: Unless the Administrator determines otherwise,
Restricted Stock Awards that have not vested shall not be transferable
(including by sale, assignment, pledge or hypothecation) other than by will or
the laws of intestate succession, and the recipient of a Restricted Stock Award
shall not sell, transfer, assign, pledge or otherwise encumber shares subject to
the Award until the Restriction Period has expired and until all conditions to
vesting have been met. The designation of a beneficiary in accordance with
Section 16(g) does not constitute a transfer.
9. NO RIGHT OR OBLIGATION OF CONTINUED EMPLOYMENT OR SERVICE
Neither the Plan, the grant of an Award nor any other action related to
the Plan shall confer upon the Participant any right to continue in the service
of the Company or an Affiliate as an Employee, Director or Independent
Contractor or to interfere in any way with the right of the Company or an
Affiliate to terminate the Participant's employment or service at any time.
10. AMENDMENT AND TERMINATION OF THE PLAN
(a) Amendment and Termination of Plan: The Plan may be amended, altered
and/or terminated at any time by the Board; provided, however, that (i) approval
of an amendment to the Plan by the stockholders of the Company shall be required
to the extent, if any, that stockholder approval of such amendment is required
by applicable law, rule or regulation; and (ii) except for adjustments made
pursuant to Section 5(d), the Option Price for any outstanding Option may not be
decreased after the date of grant, nor may any outstanding Option be surrendered
to the Company as consideration for the grant of a new Option with a lower
Option Price than the original Option, as the case may be, without stockholder
approval of any such action.
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(b) Amendment of Awards: The Administrator may amend, alter or
terminate any Award granted under the Plan, prospectively or retroactively, but
such amendment, alteration or termination of an Award shall not, without the
consent of the recipient of an outstanding Award, materially adversely affect
the rights of the recipient with respect to the Award.
(c) Unilateral Authority of Administrator to Modify Plan and Awards:
Notwithstanding Section 12(a) and Section 12(b) herein, the following provisions
shall apply:
(i) The Administrator shall have unilateral authority to
amend the Plan and any Award (without Participant
consent and without stockholder approval, unless such
stockholder approval is required by applicable laws,
rules or regulations) to the extent necessary to
comply with applicable laws, rules or regulations or
changes to applicable laws, rules or regulations
(including but not limited to Code Section 409A, Code
Section 422 and federal securities laws).
(ii)The Administrator shall have unilateral authority to make adjustments
to the terms and conditions of Awards in recognition of unusual or
nonrecurring events affecting the Company or any Affiliate, or the
financial statements of the Company or any Affiliate, or of changes in
accounting principles, if the Administrator determines that such
adjustments are appropriate in order to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available under the
Plan or necessary or appropriate to comply with applicable accounting
principles.
11. RESTRICTIONS ON AWARDS AND SHARES
The Company may impose such restrictions on Awards, shares and any
other benefits underlying Awards hereunder as it may deem advisable, including,
without limitation, restrictions under the federal securities laws, the
requirements of any stock exchange or similar organization and any blue sky,
state or foreign securities laws applicable to such securities. Notwithstanding
any other Plan provision to the contrary, the Company shall not be obligated to
issue, deliver or transfer shares of Common Stock under the Plan, make any other
distribution of benefits under the Plan, or take any other action, unless such
delivery, distribution or action is in compliance with all applicable laws,
rules and regulations (including, but not limited to, the requirements of the
Securities Act). The Company may cause a restrictive legend to be placed on any
certificate issued pursuant to an Award hereunder in such form as may be
prescribed from time to time by applicable laws and regulations or as may be
advised by legal counsel.
12. CHANGE IN CONTROL
Except as otherwise provided by the Administrator in connection with
the grant of an Award, in the event of a Change in Control of the Company, the
unvested portion of all outstanding Awards granted under the Plan shall
automatically become fully vested and exercisable and all restrictions on
outstanding Awards granted under the Plan shall immediately lapse and, if so
provided in a Participant's Award Agreement, all Options shall remain
exercisable through the expiration of the Option Period without regard to the
Participant's employment or service status. The Administrator shall have
discretion to determine that acceleration or any other effect of a Change in
Control on an Award shall be subject to both the occurrence of a Change in
Control event and termination of employment or service of the Participant. Any
such determination of the Administrator shall be stated in an individual Award
Agreement.
13. COMPLIANCE WITH CODE SECTION 409A
Notwithstanding any other provision in the Plan or an Award to the
contrary, if and to the extent that Section 409A of the Code is deemed to apply
to the Plan or any Award granted under the Plan, it is the general intention of
the Company that the Plan and all such Awards shall, to the extent practicable,
comply with Code Section 409A, and the Plan and any such Award shall, to the
extent practicable, be construed in accordance therewith. Without in any way
limiting the effect of the foregoing, in the event that Code Section 409A
requires that any special terms, provisions or conditions be included in the
Plan or any Award, then such terms, provisions and conditions shall, to the
extent practicable, be deemed to be made a part of the Plan or Award, as
applicable. Further, in the event that the Plan or any Award shall be deemed not
to comply with Code Section 409A, then neither the Company, the Administrator
nor its or their designees or agents shall be liable to any Participant or other
person for actions, decisions or determinations made in good faith.
14. GENERAL PROVISIONS
(a) Stockholder Rights: Except as otherwise determined by the
Administrator (and subject to the provisions of Section 8 regarding Restricted
Stock Awards), a Participant and his legal representative, legatees or
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distributees shall not be deemed to be the holder of any shares subject to an
Award and shall not have any rights of a stockholder unless and until
certificates for such shares have been issued and delivered to him or them under
the Plan. A certificate or certificates for shares of Common Stock acquired upon
exercise of an Option shall be promptly issued in the name of the Participant
(or his beneficiary) and distributed to the Participant (or his beneficiary) as
soon as practicable following receipt of notice of exercise and, with respect to
Options, payment of the Option Price (except as may otherwise be determined by
the Company in the event of payment of the Option Price pursuant to Section
7(d)(ii)(C)). Except as otherwise provided in Section 8(d) regarding Restricted
Stock Awards, a certificate for any shares of Common Stock issuable pursuant to
a Restricted Stock Award shall be promptly issued in the name of the Participant
(or his beneficiary) and distributed to the Participant (or his beneficiary)
after the Award (or portion thereof) has vested or been earned. In no event will
the issuance of certificates pursuant to the exercise of Options or vesting of
Restricted Stock Awards otherwise exempt from Code Section 409A be delayed in a
manner that would cause the Award to be construed to involve the deferral of
compensation under Code Section 409A, unless such deferral is in compliance with
Code Section 409A.
(b) Withholding: The Company shall withhold all required local, state,
federal, and other taxes and any other amount required to be withheld by any
governmental authority or law from any amount payable with respect to an Award.
Prior to the delivery or transfer of any certificate for shares or any other
benefit conferred under the Plan, the Company shall require any recipient of an
Award to pay to the Company in cash the amount of any tax or other amount
required by any governmental authority to be withheld and paid over by the
Company to such authority for the account of such recipient. Notwithstanding the
foregoing, the Administrator may establish procedures to permit a recipient to
satisfy such obligation in whole or in part, and any local, state, federal, or
other income tax obligations relating to such an Award, by electing (the
"election") to have the Company withhold shares of Common Stock from the shares
to which the recipient is entitled. The number of shares to be withheld shall
have a Fair Market Value as of the date that the amount of tax to be withheld is
determined as nearly equal as possible to (but not exceeding) the amount of such
obligations being satisfied. Each election must be made in writing to the
Administrator in accordance with election procedures established by the
Administrator.
(c) Section 16(b) Compliance: To the extent that any Participants in
the Plan are subject to Section 16(b) of the Exchange Act, it is the general
intention of the Company that transactions under the Plan shall comply with Rule
16b-3 under the Exchange Act and that the Plan shall be construed in favor of
such Plan transactions meeting the requirements of Rule 16b-3 or any successor
rules thereto. Notwithstanding anything in the Plan to the contrary, the
Administrator, in its sole and absolute discretion, may bifurcate the Plan so as
to restrict, limit or condition the use of any provision of the Plan to
Participants who are officers or directors subject to Section 16 of the Exchange
Act without so restricting, limiting or conditioning the Plan with respect to
other Participants.
(d) Code Section 162(m) Performance-Based Compensation. To the extent
to which Section 162(m) of the Code is applicable, the Company intends that
compensation paid under the Plan to Covered Employees will, to the extent
practicable, constitute "qualified performance-based compensation" within the
meaning of Section 162(m), unless otherwise determined by the Administrator.
Accordingly, Awards granted to Covered Employees which are intended to qualify
for the performance-based exception under Code Section 162(m) shall be deemed to
include any such additional terms, conditions, limitations and provisions as are
necessary to comply with the performance-based compensation exemption of Section
162(m), unless the Administrator, in its discretion, determines otherwise.
(e) Unfunded Plan; No Effect on Other Plans:
(i) The Plan shall be unfunded, and the Company shall not be required to
create a trust or segregate any assets that may at any time be represented
by Awards under the Plan. The Plan shall not establish any fiduciary
relationship between the Company and any Participant or other person.
Neither a Participant nor any other person shall, by reason of the Plan,
acquire any right in or title to any assets, funds or property of the
Company or any Affiliate, including, without limitation, any specific
funds, assets or other property which the Company or any Affiliate, in
their discretion, may set aside in anticipation of a liability under the
Plan. A Participant shall have only a contractual right to the Common Stock
or other amounts, if any, payable under the Plan, unsecured by any assets
of the Company or any Affiliate. Nothing contained in the Plan shall
constitute a guarantee that the assets of such entities shall be sufficient
to pay any benefits to any person.
(ii) The amount of any compensation deemed to be received
by a Participant pursuant to an Award shall not
constitute compensation with respect to which any
other employee benefits of such Participant are
determined, including, without limitation, benefits
under any bonus, pension, profit sharing, life
insurance or salary continuation plan, except as
otherwise specifically provided by the terms of such
plan or as may be determined by the Administrator.
(iii) The adoption of the Plan shall not affect any other
stock incentive or other compensation
B-10
plans in effect for the Company or any Affiliate, nor
shall the Plan preclude the Company from establishing
any other forms of stock incentive or other
compensation for employees or service providers of
the Company or any Affiliate.
(f) Applicable Law: The Plan shall be governed by and construed in
accordance with the laws of the State of South Carolina, without regard to the
conflict of laws provisions of any state, and in accordance with applicable
federal laws of the United States.
(g) Beneficiary Designation: The Administrator may permit a Participant
to designate in writing a person or persons as beneficiary, which beneficiary
shall be entitled to any benefit to which the Participant is otherwise entitled
in the event of death. In the absence of such designation by a Participant, and
in the event of the Participant's death, the estate of the Participant shall be
treated as beneficiary for purposes of the Plan, unless the Administrator
determines otherwise. The Administrator shall have sole discretion to approve
and interpret the form or forms of such beneficiary designation. A beneficiary,
legal guardian, legal representative or other person claiming any rights
pursuant to the Plan is subject to all terms and conditions of the Plan and any
Award Agreement applicable to the Participant, except to the extent that the
Plan and/or Award Agreement provide otherwise, and to any additional
restrictions deemed necessary or appropriate by the Administrator.
(h) Gender and Number: Except where otherwise indicated by the context,
words in any gender shall include any other gender, words in the singular shall
include the plural and words in the plural shall include the singular.
(i) Severability: If any provision of the Plan shall be held illegal or
invalid for any reason, such illegality or invalidity shall not affect the
remaining parts of the Plan, and the Plan shall be construed and enforced as if
the illegal or invalid provision had not been included.
(j) Rules of Construction: Headings are given to the sections of this
Plan solely as a convenience to facilitate reference. The reference to any
statute, regulation or other provision of law shall be construed to refer to any
amendment to or successor of such provision of law.
(k) Successors and Assigns: The Plan shall be binding upon the Company,
its successors and assigns, and Participants, their executors, administrators
and permitted transferees and beneficiaries.
(l) Right of Offset: Notwithstanding any other provision of the Plan or
an Award Agreement, the Company may reduce the amount of any payment or benefit
otherwise payable to or on behalf of a Participant by the amount of any
obligation of the Participant to the Company that is or becomes due and payable.
(m) Effect of Changes in Status: Unless otherwise provided in an Award
Agreement, determined by the Administrator or required by Code Section 409A, an
Award shall not be affected by any change in the terms, conditions or status of
the Participant's employment or service, provided that the Participant continues
to be in the employ of, or in service to, the Company or an Affiliate. Without
limiting the foregoing, the Administrator has sole discretion to determine,
subject to Code Section 409A, at the time of grant of an Award or at any time
thereafter, the effect, if any, on Awards granted to a Participant if the
Participant's status as an Employee, Director or Independent Contractor changes,
including but not limited to a change from full-time to part-time, or vice
versa, or if other similar changes in the nature or scope of the Participant's
employment or service occur.
(n) Fractional Shares: Except as otherwise provided by the Plan or the
Administrator, (i) the total number of shares issuable pursuant to the exercise
or vesting of an Award shall be rounded under general rounding principles to the
nearest whole share (except where rounding down is required in order to preserve
intended tax treatment or otherwise required by applicable law, rule or
regulation), (ii) no fractional shares shall be issued, and (iii) no
consideration shall be paid for any such fractional shares.
B-11
[_] PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE COASTAL FINANCIAL CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
JANUARY 29, 2007
The undersigned hereby appoints the official proxy committee, consisting of
all of the members of the Board of Directors of Coastal Financial Corporation,
Myrtle Beach, South Carolina, with full powers of substitution to act as
attorneys and proxies for the undersigned, to vote all shares of Common Stock of
Coastal Financial Corporation which the undersigned is entitled to vote at the
Annual Meeting of Shareholders, to be held at Ocean Reef Resort, 7100 North
Ocean Boulevard, Myrtle Beach, South Carolina, on Monday, January 29, 2007, at
2:00 p.m., Eastern Standard Time, and at any and all adjournments thereof, as
indicated to the right:
With- For All
For hold Except
1. The election as directors of all [_] [_] [_]
nominees listed (except as marked to
the contrary below):
For a Three Year Term: J. Robert Calliham, James H. Dusenbury, Michael C. Gerald
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.
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For Against Abstain
2. The approval of the Coastal Financial [_] [_] [_]
Corporation 2007 Equity Incentive
Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE LISTED PROPOSALS.
THIS PROXY, PROPERLY SIGNED AND DATED, WILL BE VOTED AS DIRECTED, BUT IF NO
INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE PROPOSALS STATED.
IF ANY OTHER BUSINESS IS PRESENTED AT THE MEETING, THIS PROXY WILL BE VOTED BY
THOSE NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD
OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING. THIS
PROXY ALSO CONFERS DISCRETIONARY AUTHORITY ON THE OFFICIAL PROXY COMMITTEE TO
VOTE WITH RESPECT TO THE ELECTION OF ANY PERSON AS DIRECTOR WHERE THE NOMINEE IS
UNABLE TO SERVE OR FOR GOOD CAUSE WILL NOT SERVE, AND MATTERS INCIDENT TO THE
CONDUCT OF THE 2007 ANNUAL MEETING.
--------------------------
Please be sure to sign below and | Date
date this Proxy in the box provided. |
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- ----Shareholder sign above-------------------Co-holder (if any) sign above------
- --------------------------------------------------------------------------------
Detach above card, sign, date and mail in postate paid envelope provided.
COASTAL FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
Should the undersigned be present and elect to vote at the Annual Meeting
or at any adjournment thereof and after notification to the Secretary of the
Corporation at the Meeting of the Shareholder's decision to terminate this
proxy, then the power of said attorneys and proxies shall be deemed terminated
and of no further force and effect.
The above signed acknowledges receipt from the Corporation prior to the
execution of this proxy, of a notice of the Meeting, a proxy statement dated
December 18, 2006 and the 2006 Annual Report to Shareholders.
Please sign exactly as your name appears on this card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, only one signature is required.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
- --------------------------------------------------------------------------------
IF YOUR ADDRESS HAS CHANGED, PLEASE CORRECT THE ADDRESS IN THE SPACE PROVIDED
BELOW AND RETURN THIS PORTION WITH THE PROXY IN THE ENVELOPE PROVIDED.
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