UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.___)
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Check the appropriate box:
[_] Preliminary Proxy Statement
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COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Virginia Capital Bancshares, Inc.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Virginia Capital Bancshares, Inc.
400 George Street
Fredericksburg, Virginia 22404
(540) 899-5500
May 20, 1999
Fellow Shareholders:
You are cordially invited to attend the 1999 annual meeting of shareholders
(the "Annual Meeting") of Virginia Capital Bancshares, Inc. (the "Company"), the
holding company for Fredericksburg Savings Bank (the "Bank"), Fredericksburg,
Virginia, which will be held on June 25, 1999 at 10:00 a.m., Eastern Time, at
the Sheraton Inn, 2801 Plank Road (I-95 and Route 3), Fredericksburg, Virginia.
The attached Notice of the Annual Meeting and the Proxy Statement describe
the business to be transacted at the Annual Meeting. Directors and Officers of
the Company as well as a representative of KPMG LLP, the Company's independent
auditors, will be present at the Annual Meeting to respond to any questions that
our shareholders may have regarding the business to be transacted.
The Board of Directors of the Company has determined that matters to be
considered at the Annual Meeting are in the best interests of the Company and
its shareholders. For the reasons set forth in the Proxy Statement, the Board of
Directors unanimously recommends that you vote "FOR" each of the nominees as
directors specified under Proposal 1, "FOR" approval of the Virginia Capital
Bancshares, Inc., 1999 Stock-Based Incentive Plan (the "Plan") as specified
under Proposal 2, and that you vote "FOR" the ratification of independent
auditors as specified under Proposal 3.
Please sign and return the enclosed proxy card promptly. Your cooperation
is appreciated since a majority of the common stock must be represented, either
in person or by proxy, to constitute a quorum for the conduct of business at the
Annual Meeting.
On behalf of the Board of Directors and all of the employees of the Company
and the Bank, I thank you for your continued interest and support.
Sincerely yours,
/s/ Samuel C. Harding, Jr.
--------------------------------
Samuel C. Harding, Jr.
President
Virginia Capital Bancshares, Inc.
400 George Street
Fredericksburg, Virginia 22404
__________________________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on June 25, 1999
__________________________________
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders (the "Annual
Meeting") of Virginia Capital Bancshares, Inc. (the "Company"), the holding
company for Fredericksburg Savings Bank (the "Bank"), will be held on June 25,
1999 at 10:00 a.m., Eastern Time, at the Sheraton Inn, 2801 Plank Road (I-95 and
Route 3), Fredericksburg, Virginia.
The purpose of the Annual Meeting is to consider and vote upon the
following matters:
1. The election of three directors to a three-year term of office;
2. The approval of the Virginia Capital Bancshares, Inc. 1999 Stock-Based
Incentive Plan;
3. The ratification of the appointment of KPMG LLP as independent
auditors of the Company for the fiscal year ending December 31, 1999;
and
4. Such other matters as may properly come before the meeting and at any
adjournments thereof, including whether or not to adjourn the meeting.
The Board of Directors has established May 6, 1999 as the record date for
the determination of shareholders entitled to receive notice of, and to vote at,
the Annual Meeting and at any adjournments thereof. Only record holders of the
common stock of the Company as of the close of business on such record date will
be entitled to vote at the Annual Meeting or any adjournments thereof. In the
event there are not sufficient votes for a quorum or to approve the foregoing
proposals at the time of the Annual Meeting, the Annual Meeting may be adjourned
in order to permit further solicitation of proxies by the Company. A list of
shareholders entitled to vote at the Annual Meeting will be available at
Virginia Capital Bancshares, Inc., 400 George Street, Fredericksburg, Virginia
22404, for a period of ten days prior to the Annual Meeting and will also be
available at the Annual Meeting itself.
By Order of the Board of Directors
/s/ Peggy J. Newman
------------------------------
Peggy J. Newman
Corporate Secretary
Fredericksburg, Virginia
May 20, 1999
VIRGINIA CAPITAL BANCSHARES, INC.
_______________________
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
June 25, 1999
_______________________
Solicitation and Voting of Proxies
This Proxy Statement is being furnished to shareholders of Virginia Capital
Bancshares, Inc. (the "Company") in connection with the solicitation by the
Board of Directors ("Board of Directors" or "Board") of proxies to be used at
the annual meeting of shareholders (the "Annual Meeting"), to be held on June
25, 1999, at 10:00 a.m., Eastern Time, at the Sheraton Inn, 2801 Plank Road (I-
95 and Route 3), Fredericksburg, Virginia, and at any adjournments thereof. The
1999 Annual Report to Stockholders, including the consolidated financial
statements of the Company for the fiscal year ended December 31, 1998,
accompanies this Proxy Statement which is first being mailed to record holders
on or about May 20, 1999.
Regardless of the number of shares of common stock owned, it is important
that record holders of a majority of the shares be represented by proxy or in
person at the Annual Meeting. Shareholders are requested to vote by completing
the enclosed proxy card and returning it signed and dated in the enclosed
postage-paid envelope. Shareholders are urged to indicate their vote in the
spaces provided on the proxy card. Proxies solicited by the Board of Directors
of the Company will be voted by the Board of Directors in accordance with the
directions given therein. Where no instructions are indicated, signed proxy
cards will be voted "FOR" the election of the nominees for director named in
this Proxy Statement, "FOR" the approval of the Virginia Capital Bancshares,
Inc. 1999 Stock-Based Incentive Plan (the "Incentive Plan"), and "FOR" the
ratification of KPMG LLP as independent auditors of the Company for the fiscal
year ending December 31, 1999.
Other than the matters listed on the attached Notice of Annual Meeting of
Shareholders, the Board of Directors knows of no additional matters that will be
presented for consideration at the Annual Meeting. Execution of a proxy,
however, confers on the designated proxy holders discretionary authority to vote
the shares in accordance with their best judgment on such other business, if
any, that may properly come before the Annual Meeting and at any adjournments
thereof, including whether or not to adjourn the Annual Meeting.
A proxy may be revoked at any time prior to its exercise by filing a
written notice of revocation with the Corporate Secretary of the Company, by
delivering to the Company a duly executed proxy bearing a later date, or by
attending the Annual Meeting and voting in person. However, if you are a
shareholder whose shares are not registered in your own name, you will need
appropriate documentation from your record holder to attend the Annual Meeting
and vote personally at the Annual Meeting.
The cost of solicitation of proxies on behalf of management will be borne
by the Company. In addition to the solicitation of proxies by mail, Kissel-Blake
Inc., a proxy solicitation firm, will assist the Company in soliciting proxies
for the Annual Meeting and will be paid a fee of $5,500, plus out-of-pocket
expenses. Proxies may also be solicited personally or by telephone by directors,
officers and other employees of the Company and its subsidiary, Fredericksburg
Savings Bank (the "Bank"), without additional compensation therefor. The Company
will also request persons, firms and corporations holding shares in their names,
or in the name of their nominees, which are beneficially owned by others, to
send proxy material
to, and obtain proxies from, such beneficial owners, and will reimburse such
holders for their reasonable expenses in doing so.
Voting Securities
The securities which may be voted at the Annual Meeting consist of shares
of common stock of the Company ("Common Stock"), with each share entitling its
owner to one vote on all matters to be voted on at the Annual Meeting, except as
described below.
The close of business on May 6, 1999, has been fixed by the Board of
Directors as the record date (the "Record Date") for the determination of
shareholders of record entitled to notice of, and to vote at, the Annual Meeting
and at any adjournments thereof. The total number of shares of Common Stock
outstanding on the Record Date was 11,404,800 shares.
As provided in the Company's Articles of Incorporation, for voting
purposes, holders of Common Stock who beneficially own in excess of 10% of the
outstanding shares of Common Stock (the "Limit") are not entitled to any vote in
respect of the shares held in excess of the Limit and are not treated as
outstanding for voting purposes. A person or entity is deemed to beneficially
own shares owned by an affiliate of, as well as, by persons acting in concert
with, such person or entity. The Company's Articles of Incorporation authorizes
the Board of Directors (i) to make all determinations necessary to implement and
apply the Limit, including determining whether persons or entities are acting in
concert, and (ii) to demand that any person who is reasonably believed to
beneficially own stock in excess of the Limit to supply information to the
Company to enable the Board of Directors to implement and apply the Limit.
The presence, in person or by proxy, of the holders of at least a majority
of the total number of shares of Common Stock entitled to vote (after
subtracting any shares in excess of the Limit pursuant to the Company's Articles
of Incorporation) is necessary to constitute a quorum at the Annual Meeting. In
the event that there are not sufficient votes for a quorum or to approve or
ratify any proposal at the time of the Annual Meeting, the Annual Meeting may be
adjourned in order to permit the further solicitation of proxies.
As to the election of directors (Proposal 1), the proxy card being provided
by the Board of Directors enables you to vote "FOR" the election of the nominees
proposed by the Board, or to "WITHHOLD" authority to vote for one or more of the
nominees being proposed. Under Virginia law and the Company's Bylaws, directors
are elected by a plurality of votes cast, without regard to either (i) broker
non-votes or (ii) proxies as to which authority to vote for one or more of the
nominees being proposed is withheld.
As to the proposed approval of the Incentive Plan (Proposal 2), submitted
for shareholder action, the proxy card being provided by the Board of Directors
enables a shareholder to check the appropriate box on the proxy card to (i) vote
"FOR" the item, (ii) vote "AGAINST" the item, or (iii) "ABSTAIN" from voting on
such item.
As to the ratification of KPMG LLP as independent auditors of the Company
(Proposal 3) and all other matters that may properly come before the Annual
Meeting, by checking the appropriate box on the proxy card, you may (i) vote
"FOR" the item, (ii) vote "AGAINST" the item, or (iii) "ABSTAIN" from voting on
such item.
Under the Company's Bylaws and Virginia law, an affirmative vote of the
holders of a majority of the votes cast at the Annual Meeting on Proposal 2 and
Proposal 3 is required to constitute shareholder
approval of each such Proposal. Shares underlying broker non-votes or in excess
of the Limit will not be counted as votes cast and will have no effect on the
vote. For further information on the vote required to implement Proposal 2
during the first year following the conversion from mutual to stock form of the
Company's subsidiary, the Bank, which was completed on December 23, 1998 (the
"Conversion"), see the discussion under Proposal 2 herein. For purposes of the
rules and regulations of the Securities and Exchange Commission ("SEC"), shares
as to which the "ABSTAIN" box has been selected on the proxy card with respect
to Proposal 2 have the effect of a vote against Proposal 2.
Proxies solicited hereby are to be returned to the Company's transfer
agent, Registrar and Transfer Company ("RTC"). The Board of Directors has
designated RTC to act as the inspector of election and tabulate the votes at the
Annual Meeting. RTC is not otherwise employed by, or a director of, the Company
or any of its affiliates. After the final adjournment of the Annual Meeting, the
proxies will be returned to the Company.
3
Security Ownership of Certain Beneficial Owners
The following table sets forth information as to those persons believed by
management to be beneficial owners of more than 5% of the Company's outstanding
shares of Common Stock on the Record Date or as disclosed in certain reports
received to date regarding such ownership filed by such persons with the Company
and with the SEC, in accordance with Sections 13(d) and 13(g) of the Securities
Exchange Act of 1934, as amended ("Exchange Act"). Other than those persons
listed below, the Company is not aware of any person, as such term is defined in
the Exchange Act, that owns more than 5% of the Company's Common Stock as of the
Record Date.
Name and Address of Number Percent of
Title of Class Beneficial Owner of Shares Class
- ---------------------------- ------------------------------- ----------------- -------------
Common Stock Fredericksburg Savings Bank 912,384(1) 8.0%
Employee Stock Ownership Plan
and Trust (the "ESOP")
400 George Street
Fredericksburg, Virginia 22404
Common Stock Fredericksburg Savings 844,800(2) 7.4%
Charitable Foundation (the
"Foundation")
400 George Street
Fredericksburg, Virginia
22404
_____________________________
(1) Shares of Common Stock were acquired by the ESOP in the Bank's Conversion.
The trustee for the ESOP (the "ESOP Trustee"), subject to its fiduciary
duty, must vote all allocated shares held in the ESOP in accordance with the
instructions of the participants. As of the Record Date, 11,404 shares had
been allocated under the ESOP. Under the ESOP, unallocated shares and
allocated shares as to which voting instructions are not given by
participants are to be voted by the ESOP Trustee in a manner calculated to
most accurately reflect the instructions received from participants
regarding the allocated stock so long as such vote is in accordance with the
provisions of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
(2) The Foundation was established and funded by the Company in connection with
the Bank's Conversion with an amount of the Company's Common Stock equal to
7.4% of the total amount of Common Stock issued in the Conversion. The
Foundation is a Delaware non-stock corporation and is dedicated to the
promotion of charitable purposes within the communities in which the Bank
operates. The Foundation is governed by a board of directors with five
members, four of whom are directors or officers of the Company or the Bank.
The fifth is an individual from the Bank's local community. Pursuant to the
terms of the contribution of Common Stock, as mandated by the Office of
Thrift Supervision ("OTS"), all shares of Common Stock held by the
Foundation must be voted in the same ratio as all other shares of the
Company's Common Stock on all proposals considered by shareholders of the
Company.
Interest of Certain Persons in Matters to be Acted Upon
After obtaining shareholder approval, the Company and the Bank intend to
grant directors, officers and employees of the Bank and the Company, stock
options and awards in the form of shares of Common Stock under the Incentive
Plan being presented for approval in Proposal 2.
4
PROPOSALS TO BE VOTED ON AT THE ANNUAL MEETING
PROPOSAL 1. ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of nine directors
and is divided into three classes. Each of the nine members of the Board of
Directors also presently serves as a director of the Bank. Directors are elected
for staggered terms of three years each, with the term of office of only one of
the three classes of directors expiring each year. Directors serve until their
successors are elected and qualified.
The three nominees proposed for election at the Annual Meeting are Ronald
G. Beck, William M. Anderson, Jr. and Ernest N. Donahoe, Jr. No person being
nominated as a director is being proposed for election pursuant to any agreement
or understanding between any such person and the Company.
In the event that any such nominee is unable to serve or declines to serve
for any reason, it is intended that proxies will be voted for the election of
the balance of those nominees named and for such other persons as may be
designated by the present Board of Directors. The Board of Directors has no
reason to believe that any of the persons named will be unable or unwilling to
serve. Unless authority to vote for the directors is withheld, it is intended
that the shares represented by the enclosed proxy card will be voted "FOR" the
election of all nominees proposed by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ALL NOMINEES
NAMED IN THIS PROXY STATEMENT.
Information with Respect to Nominees, Continuing Directors and Certain Executive
Officers
The following table sets forth, as of the Record Date, the names of
nominees and continuing directors and the Named Executive Officers (as defined
below), their ages, a brief description of their recent business experience,
including present occupations and employment, the year in which each became a
director of the Bank and the year in which their terms (or, in the case of
nominees, their proposed terms) as director of the Company expire. This table
also sets forth the amount of Common Stock and the percent thereof beneficially
owned by each director and all directors and executive officers as a group as of
the Record Date.
Amount and
Nature of Ownership
Name and Principal Occupation at Director Expiration of Term Beneficial as a Percent
Present and for Past Five Years Age Since(1) as a Director Ownership(2)(3) of Class(4)
- ---------------------------------- ------- ------------ --------------------- ------------------ --------------
NOMINEES
Ronald G. Beck 62 1988 2002 30,000 *
Vice Chairman of the Board;
President of Clayborne C. Beck
& Sons, a furniture grade lumber company
William M. Anderson, Jr. 56 1988 2002 - -
President of Mary Washington
College, Fredericksburg, Virginia
Ernest N. Donahoe, Jr. 61 1982 2002 10,000 *
Engineer and partner with
Sullivan, Donahoe & Ingalls,
P.C. since 1968
5
Amount and
Nature of Ownership
Name and Principal Occupation at Director Expiration of Term Beneficial as a Percent
Present and for Past Five Years Age Since(1) as a Director Ownership(2)(3) of Class(4)
- ---------------------------------- ------- ------------ --------------------- ------------------ --------------
CONTINUING DIRECTORS
Samuel C. Harding, Jr. 57 1987 2000 30,800 *
President of the Company and the Bank
O'Conor Ashby 51 1992 2000 10,000 *
Partner in the law firm of
Willis & Ashby. Currently on
the Board of Directors of
Medicorp Services, Inc.
Charles S. Rowe 73 1956 2000 30,000 *
Retired Editor and co-publisher
of Free Lance-Star,
Fredericksburg, Virginia.
Former director of the Associated Press
H. Smith McKann 84 1955 2001 30,000 *
Chairman of the Board.
President and owner of General
Products Company
Peggy J. Newman 58 1988 2001 30,000 *
Executive Vice President,
Secretary and Treasurer of the
Company and the Bank
DuVal Q. Hicks, Jr. 78 1958 2001 30,000 *
Retired attorney, formerly with
Hicks, Baker and Peterson
All directors and executive
officers as a group (9 persons).......... -- -- -- 200,800 1.76%
__________________
* Does not exceed 1.0% of the Company's voting securities.
(1) Includes years of service as a director of the Bank. All Directors of the
Company were appointed in 1998, the first year of its incorporation.
(2) Each person effectively exercises sole (or shares with spouse or other
immediate family members) voting or dispositive power as to shares reported.
(3) Does not include any options and awards under the Incentive Plan, which is
subject to shareholder approval, as no allocations have been made under the
Incentive Plan. For a discussion of the options and awards that may be
granted under the Incentive Plan, see Proposal 2.
(4) As of the Record Date, there were 11,404,800 shares of Common Stock
outstanding.
Meetings of the Board of Directors and Committees of the Board of Directors
The Board of Directors of the Company and the Board of Directors of the
Bank conduct business through meetings of the Board of Directors and through
activities of their committees. The Board of Directors of the Company and Bank
generally meet on a monthly basis and may have additional meetings as needed.
During the fiscal year ended December 31, 1998, the Board of Directors of the
Company, which was formed on September 4, 1998, held eight (8) meetings
primarily related to organizational and other matters in connection with the
formation of the Company and the acquisition of the Bank through the Conversion.
The Board of Directors of the Bank held twenty-five (25) meetings during fiscal
1998. All of
6
the directors of the Company and Bank attended at least 75% of the total number
of the Company's Board meetings held and committee meetings on which such
directors served during the fiscal year ended December 31, 1998. The Board of
Directors of the Company and Bank maintain committees, the nature and
composition of which are described below:
Audit Committee. The Audit Committees of the Company and the Bank consists
of Messrs. Anderson, Rowe, Ashby, and Harding. This committee generally meets on
a semi-annual basis and is responsible for the review of audit reports and
management's actions regarding the implementation of audit findings and to
review compliance with all relevant laws and regulations. Due to the timing of
the Conversion, the Audit Committee of the Company did not meet in fiscal 1998;
the Audit Committee of the Bank met one (1) time during fiscal 1998.
Nominating Committee. The Company's Nominating Committee for the 1999
Annual Meeting consists of Messrs. McKann, Harding and Ashby. The committee
considers and recommends the nominees for director to stand for election at the
Company's annual meeting of shareholders. The Company's Articles of
Incorporation and Bylaws provide for shareholder nominations of directors. These
provisions require such nominations to be made pursuant to timely notice in
writing to the Secretary of the Company. The shareholder's notice of nomination
must contain all information relating to the nominee which is required to be
disclosed by the Company's Bylaws and by the Exchange Act. See "Additional
Information - Notice of Business to be Conducted at a Special or Annual
Meeting." The Company's nominating committee did not meet in fiscal 1998 due to
the timing of the Company's organization and met one (1) time during fiscal
1999.
Compensation Committee. The Compensation Committees of the Company and the
Bank consists of Messrs. Harding, Beck, Hicks and Donahoe and Ms. Newman. Such
committees are responsible for all matters regarding compensation and fringe
benefits for officers and employees of the Company and the Bank and meet on an
as needed basis. The Compensation Committees of the Company did not meet in
fiscal 1998 due to the timing of the Company's organization and the Compensation
Committee of the Bank met two (2) times in fiscal 1998.
Directors' Compensation
Directors' Fees. Directors of the Company do not receive any fees or
retainer for serving on the Company's Board of Directors. All directors of the
Bank receive a monthly fee of $2,000 for the two regularly scheduled monthly
meetings attended. Additionally Messrs. Beck and Donohoe receive $400 per month
for Loan Committee meetings attended.
Incentive Plan. The Company is presenting the Incentive Plan to
shareholders for approval, under which all directors of the Company and the Bank
are eligible to receive awards. See Proposal 2 for a summary of the material
terms of the Incentive Plan.
Executive Compensation
The report of the Compensation Committee and the stock performance graph
shall not be deemed incorporated by reference by any general statement
incorporating by reference this proxy statement into any filing under the
Securities Act of 1933, as amended (the "Securities Act") or the Exchange Act,
except as to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
Compensation Committee Report on Executive Compensation. Under rules
established by the SEC, the Company is required to provide certain data and
information in regard to the compensation and
7
benefits provided to the Company's President and certain other executive
officers of the Company for the fiscal year ended December 31, 1998. Because the
Company had no significant assets, liabilities or operations until December 23,
1998, the following discussion addresses compensation information relating to
the President and executive officers of the Bank for fiscal 1998 and sets forth
the joint report of the Compensation Committees of the Company and the Bank
(collectively the "Compensation Committee"). The disclosure requirements for the
President and other executive officers include the use of tables and a report
explaining the rationale and considerations that led to fundamental compensation
decisions affecting those individuals. In fulfillment of this requirement, the
Compensation Committee, at the direction of the Board of Directors, has prepared
the following report for inclusion in this proxy statement.
General Policy. The Compensation Committee has the responsibility to
recommend to the Board of Directors the amount and composition of compensation
paid to the executive officers. The Board of Directors has the responsibility to
review the report of the Compensation Committee and act on its recommendations.
It is the policy of the Compensation Committee to review executive compensation
not less than annually and more often if it deems appropriate.
In preparing its analysis with respect to comparative compensation data,
the Compensation Committee considers characteristics of peer institutions such
as asset size, earnings, corporate structure and geographic location. With
respect to analyzing comparative data for individual executive officers at peer
institutions, the Compensation Committee considers the scope and similarity of
officer positions, experience and the complexity of individual officer
responsibilities.
Compensation Committee Considerations for Fiscal 1998. Compensation for
executive officers is generally composed of salary, bonus, participation in
various employee benefit plans, such as the employee stock ownership plan, the
401(k) plan and the pension plan sponsored by the Bank. Executive officers may
also participate in the non-qualified deferred compensation plan sponsored by
the Bank upon designation by the Board of Directors. The benefits provided under
the employee stock ownership plan, 401(k) plan, pension plan, and non-qualified
deferred compensation plan are determined based on the executive's compensation
and years of service with the Bank.
Compensation of the President. The President's compensation was determined
by the overall qualitative performance of the President in managing the Bank
during fiscal 1998 (including his efforts related to the Bank's conversion). The
compensation of the President was not determined for fiscal 1998 using any
specific formula nor did his compensation relate specifically to corporate
performance. The Board of Directors approved the recommendations made by the
Compensation Committee regarding the President's compensation.
The Compensation Committee of the Board of Directors
of the Company and the Bank
Samuel C. Harding, Jr. Ronald G. Beck
Peggy J. Newman Ernest N. Donahoe, Jr.
DuVal Q. Hicks, Jr.
8
Stock Performance Graph. The following graph shows a comparison of total
shareholder return on the Company's Common Stock, based on the market price of
the Common Stock with the cumulative total return of companies on the Nasdaq
National Market and the SNL Thrift Index for the period beginning on December
24, 1998, the day the Company's Common Stock began trading, through December 31,
1998. The graph was derived from a limited period of time and, as a result, may
not be indicative of possible future performance of the Company's Common Stock.
Comparison of Total Returns of Virginia Capital Bancshares, Inc.
Common Stock, All Nasdaq U.S. Stocks and SNL Thrift Index
[GRAPH APPEARS HERE]
- --------------------------------------------------------------------------------
Summary
12/24/98 12/28/98 12/29/98 12/30/98 12/31/98
-------- -------- -------- -------- --------
100.00 100.49 101.46 100.97 104.85
Virginia Capital Bancshares,
Inc.
SNL Thrift Index 100.00 100.19 101.09 103.54 104.71
NASDAQ Market Index 100.00 100.72 100.76 100.12 101.41
Notes:
A. The lines represent annual index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end is not a trading
day, the preceding trading day is used.
D. The index level for all series was set to $100.00 on 12/24/98.
- ------------------------------------------------------------------------------
9
Summary Compensation Table. The following table sets forth the cash
compensation paid by the Company for services rendered in all capacities during
the year ended December 31, 1998 to executive officers of the Company who
received salary and bonus in excess of $100,000 ("Named Executive Officers").
Annual Compensation(1)
----------------------------------
Other
Annual All Other
Name and Salary Bonus Compensation Compensation
Principal Positions Year ($) ($) ($)(2) ($)(3)
- ------------------- ---- ------ ----- ------------ ------------
Samuel C. Harding, Jr............. 1998 $218,775 $25,000 -- $45,515
President (principal
executive officer)
Peggy J. Newman................... 1998 $213,525 $25,000 -- $52,959
Executive Vice President,
Secretary and Treasurer
(principal financial officer)
____________________________
(1) Under Annual Compensation, the column titled "Salary" includes directors'
fees for Mr. Harding and Ms. Newman.
(2) For 1998, there were no (a) perquisites over the lesser of $50,000 or 10% of
the individual's total salary and bonus for the year; (b) payments of above-
market preferential earnings on deferred compensation; (c) payments of
earnings with respect to long-term incentive plans prior to settlement or
maturation; (d) tax payment reimbursements; or (e) preferential discounts on
stock. For 1998, the Company had no restricted stock or stock related plans
in existence.
(3) Includes deferred compensation of $30,663 and $38,107 for Mr. Harding and
Ms. Newman, respectively under the Management Security Plan. Also includes
matching contributions of $4,497 and $4,497 to the accounts of Mr. Harding
and Ms. Newman, respectively, under the Bank's 401(k) Plan. For fiscal
1998, Mr. Harding and Ms. Newman were allocated 767 and 767 shares of Common
Stock, respectively, pursuant to the ESOP. Dollar amounts reflect market
value ($13.50 per share) as of December 31, 1998.
Employment Agreements
The Bank and the Company entered into employment agreements (collectively,
the "Employment Agreements" with Mr. Harding and Ms. Newman (individually, the
"Executive"). The Employment Agreements are intended to ensure that the Bank and
the Company will be able to maintain a stable and competent management base. The
continued success of the Bank and the Company depends to a significant degree on
the skills and competence of both Mr. Harding and Ms. Newman.
The Employment Agreements provide for a three-year term for each
Executive. The Bank Employment Agreements provide that, commencing on the first
anniversary date of the agreement and continuing each anniversary date
thereafter, the Board of Directors of the Bank may extend each of the agreements
for an additional year so that the remaining term shall be three years unless
written notice of non-renewal is given by the Board of Directors after
conducting a performance evaluation of the Executive. The terms of the Company
Employment Agreements shall be extended on a daily basis unless written notice
of non-renewal is given by the Board of Directors of the Company. The Bank and
the Company Employment Agreements provide that the Executive's base salary will
be reviewed annually. The base salaries, which will be effective for such
Employment Agreements for Mr. Harding and Ms. Newman will be $194,775 and
$189,525, respectively. In addition to the base salary, the Employment
Agreements provide for, among other things, participation in various employee
benefit plans and stock-based
10
compensation programs, as well as furnishing certain fringe benefits available
to similarly situated executive personnel. The Employment Agreements provide for
termination by the Bank or the Company for cause (as described in the
agreements) at any time. In the event the Bank or the Company chooses to
terminate the Executive's employment for reasons other than for cause, or in the
event of the Executive's resignation from the Bank and the Company upon (i) the
failure to re-elect the Executive to his/her current offices; (ii) a material
change in the Executive's functions, duties or responsibilities; (iii) a
relocation of the Executive's principal place of employment by more than 25
miles; (iv) liquidation or dissolution of the Bank or the Company; or (v) a
breach of the Employment Agreements by the Bank or the Company; the Executive
or, in the event of death, the Executive's beneficiary would be entitled to
receive an amount generally equal to the remaining base salary and bonus
payments that would have been paid to the Executive during the remaining term of
the Employment Agreements. In addition, the Executive would receive a payment
attributable to the contributions that would have been made on the Executive=s
behalf to any employee benefit plans of the Bank or the Company during the
remaining term of the Employment Agreements, together with the value of certain
stock-based incentives previously awarded to the Executive. The Bank and the
Company would also continue and pay for the Executive's life and disability
coverage for the remaining term of the Employment Agreement, as well as provide
medical and hospitalization coverage until the Executive at least attains
eligible Medicare age. Upon any termination of the Executive, the Executive is
subject to a covenant not to compete with the Company or the Bank for one year.
Under the agreements, if voluntary or involuntary termination follows a
change in control of the Bank or the Company, the Executive or, in the event of
the Executive's death, the Executive's beneficiary would be entitled to a
severance payment generally equal to the greater of: (i) the payments due for
the remaining terms of the agreement, including the value of certain stock-based
incentives previously awarded to the Executive; or (ii) three times the average
of the five preceding taxable years' annual compensation. The Bank and the
Company would also continue the Executive's life, health, and disability
coverage for thirty-six months (except medical and hospitalization would be
provided at least until the Executive attains eligible Medicare age).
Notwithstanding that both Employment Agreements provide for a severance payment
in the event of a change in control, the Executive would only be entitled to
receive a severance payment under one agreement. In the event of a change in
control of the Bank or the Company, the total amount of payments due under the
Agreements, based solely on the base salaries paid to Mr. Harding and Ms. Newman
and excluding any benefits under any employee benefit plan which may be payable,
would equal approximately $1.2 million.
Payments to the Executive under the Bank Employment Agreement will be
guaranteed by the Company in the event that payments or benefits are not paid by
the Bank. Payment under the Company Employment Agreements would be made by the
Company. All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to the Employment
Agreements shall be paid by the Bank or Company, respectively, if the Executive
is successful on the merits pursuant to a legal judgment, arbitration or
settlement. The Employment Agreements also provide that the Bank and Company
shall indemnify the Executive to the fullest extent allowable under federal and
Virginia law, respectively.
Pension Plan. The Bank maintains a tax-qualified defined benefit pension
plan for its employees (the "Pension Plan"). Eligible employees begin
participating in the Pension Plan following the completion of one year of
service (as described in the Plan) and attainment of the age 21. A participant
in the Pension Plan generally becomes vested in his accrued benefit under the
plan upon completing five years of service. Participants also become 100% vested
in their accrual benefit under the Pension Plan upon incurring a disability (as
described in the plan) and upon the attainment of their "normal retirement age"
(as described in the Plan). The Pension Plan is funded solely through
contributions made by the Bank.
11
A participant's accrued benefit under the Pension Plan is actuarially
determined based on his or her years of service with the Bank and his or her
average monthly compensation (as described in the Plan), including average
monthly compensation in excess of an integration to the Social Security Taxable
Wage Base.
The table below reflects the annual pension benefit payable to a
participant in the Pension Plan, assuming various levels of "Average Monthly
Compensation" (as defined in the Pension Plan) and years of service credited as
of the participant's normal retirement age. As of December 31, 1998, Mr. Harding
and Ms. Newman had 26 and 33 years of service with the Bank, respectively, for
purposes of the Pension Plan.
Years of Credited Service
----------------------------------------------------
Average
Annual
Earnings(1) 15 20 25 30 35
---------- -------- -------- -------- -------- --------
$ 50,000 $ 19,833 $ 26,444 $ 33,055 $ 33,055 $ 33,055
$ 75,000 $ 31,271 $ 41,694 $ 52,118 $ 52,118 $ 52,118
$100,000 $ 42,708 $ 56,944 $ 71,180 $ 71,180 $ 71,180
$125,000 $ 54,146 $ 72,194 $ 90,243 $ 90,243 $ 90,243
$150,000 $ 65,583 $ 87,444 $109,305 $109,305 $109,305
$175,000 $ 77,021 $102,694 $128,368 $128,368 $128,368
$200,000 $ 88,458 $117,944 $147,430 $147,430 $147,430
$250,000 $111,333 $148,444 $185,555 $185,555 $185,555
$300,000 $134,208 $178,944 $223,680 $223,680 $223,680
$350,000 $157,083 $209,444 $261,805 $261,805 $261,805
$400,000 $179,958 $239,944 $299,930 $299,930 $299,930
_______________________
(1) Code Section 401(a)(17) limits the amount of compensation the Bank may
consider in computing benefits under the Pension Plan to $150,000, effective
with respect to the Pension Plan for plan years beginning on or after
January 1, 1994, as periodically adjusted ($160,000 for 1998).
Supplemental Executive Retirement Plan. The Code limits the amount of
compensation the Bank may consider in providing benefits under its tax-qualified
retirement plans, such as the 401(k) Plan, the Pension Plan and the ESOP. The
Code further limits the amount of benefit accruals and annual contributions
under such plans on behalf of any employee. The Bank has previously taken action
to separately provide benefits to Mr. Harding and Ms. Newman that would have
accrued under the Pension Plan but for the limitation on compensation the Bank
may consider under the Pension Plan less benefits that actually accrue under the
Pension Plan for the benefit of Mr. Harding and Ms. Newman. Upon Conversion, the
Bank also intends to provide for similar benefits with respect to the 401(k)
Plan and ESOP, as well as benefits otherwise limited by other provisions of the
Code or the terms of the ESOP loan.
To provide for such benefits, the Bank implemented a non-qualified deferred
compensation arrangement known as a "Supplemental Executive Retirement Plan"
("SERP"). The SERP will generally provide benefits to eligible individuals
(designated by the Board of Directors of the Bank or its affiliates) that cannot
be provided under the Pension Plan, 401(k) Plan and/or ESOP as a result of the
limitations imposed by the Code, but that would have been provided under the
Pension Plan, 401(k) Plan and/or ESOP but for such limitations. In addition to
providing for benefits lost under tax-qualified plans as a result of limitations
imposed by the Code, the SERP will also make up lost ESOP benefits to designated
individuals who retire, who terminate employment in connection with a change in
control, or whose participation in the
12
ESOP ends due to termination of the ESOP in connection with a change in control
(regardless of whether the individual terminates employment) prior to the
complete scheduled repayment of the ESOP loan. Generally, upon the retirement of
an eligible individual or upon a change in control of the Bank or the Company
prior to complete repayment of the ESOP Loan, the SERP will provide the
individual with a benefit equal to what the individual would have received under
the ESOP had he remained employed throughout the term of the ESOP or had the
ESOP not been terminated prior to the scheduled repayment of the ESOP loan less
the benefits actually provided under the ESOP on behalf of such individual. An
individual's benefits under the SERP will generally become payable upon the
participant's retirement (in accordance with the standard retirement policies of
the Bank), upon the change in control of the Bank or the Company or as
determined under the applicable tax-qualified retirement plans sponsored by the
Bank.
The Bank may establish a grantor trust in connection with the SERP to
satisfy the obligations of the Bank with respect to the SERP. The assets of the
grantor trust would remain subject to the claims of the Bank's general
creditors in the event of the Bank's insolvency until paid to the individual
pursuant to the terms of the SERP.
Management Security Plan. The Bank sponsors a non-tax qualified deferred
compensation arrangement for approximately ten employees, including Mr. Harding
and Ms. Newman, known as the Fredericksburg Savings and Loan Association, F.A.
Management Security Plan (the "Management Security Plan"). The Management
Security Plan generally provides a payment to each covered individual upon his
or her death, disability, retirement, or termination of employment after five or
more years of service. Benefits under the Management Security Plan are based on
a flat dollar amount (specified for each individual in a separate "Benefit
Agreement") multiplied by the individual's years of service with the Bank.
Participants become fully vested in benefits under the Management Security Plan
after the completion of five years of service with the Bank. The annual
benefits for Mr. Harding and Ms. Newman are $3,685 and $4,000, respectively,
multiplied by each individual's respective years of service with the Bank. As
of December 31, 1998, Mr. Harding and Ms. Newman had completed 27 and 33 years
of service, respectively.
Transactions With Certain Related Persons
All loans made by the Bank to its officers and directors are currently made
in the ordinary course of business, on substantially the same terms, including
collateral, as those prevailing at the time for comparable transactions with
other persons and may not involve more than the normal risk of collectibility or
present other unfavorable features. Prior to the Financial Institution Reform,
Recovery and Enforcement Act ("FIRREA"), the Bank made loans to its executive
officers and Directors which were secured by their primary residences. The rates
of interest charged by the Bank on such loans were the Bank's cost of funds.
Pursuant to FIRREA, in 1989, the Bank discontinued its practice of making such
preferential loans to its officers and Directors. However, all such pre-FIRREA
preferential loans were "grandfathered" under FIRREA. Under current federal
law, the Bank could offer loans to executive officers with preferential terms
not available to the public, but available to all full time employees. The Bank
has no current intention of offering such loans to executive officers. As of
December 31, 1998, the Bank had $573,000 of loans to executive officers or
Directors all of which had balances of less than $60,000 as of December 31, 1998
or were made by the Bank in the ordinary course of business with no favorable
terms and do not involve more than the normal risk of collectibility or present
unfavorable features. Loans made to a Director or executive officer in excess
of the greater of $25,000 or 5% of the Bank'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.
13
Other Transactions With Affiliates
The Bank utilizes the services of the law firm of Willis & Ashby, of which
Mr. Ashby, a director of the Bank and the Company, is a member, for a variety of
legal work relating to the ordinary course of the Bank's business. For the year
ended December 31, 1998, the Bank paid to Willis & Ashby a retainer of $12,000
and fees of $26,400.
PROPOSAL 2. APPROVAL OF THE VIRGINIA CAPITAL BANCSHARES, INC.
1999 STOCK-BASED INCENTIVE PLAN
The Board of Directors of the Company is presenting for shareholder
approval the Virginia Capital Bancshares, Inc. 1999 Stock-Based Incentive Plan
(the "Incentive Plan"), in the form attached hereto as Appendix A. The purpose
of the Incentive Plan is to attract and retain qualified personnel in key
positions, provide officers, employees and non-employee directors ("Outside
Directors") of the Company and any of its affiliates, including the Bank, with a
proprietary interest in the Company as an incentive to contribute to the success
of the Company, promote the attention of management to other shareholder's
concerns, and reward employees for outstanding performance. The following is a
summary of the material terms of the Incentive Plan which is qualified in its
entirety by the complete provisions of the Incentive Plan attached hereto as
Appendix A.
General
The Incentive Plan authorizes the granting of options to purchase Common
Stock of the Company ("Options") and awards of shares of Common Stock ("Stock
Awards") (collectively referred to as "Awards"). Subject to certain adjustments
to prevent dilution of Awards to participants, the maximum number of shares of
Common Stock reserved for Awards under the Incentive Plan is 1,596,672 shares,
consisting of 1,140,480 shares reserved for Options and 456,192 shares reserved
for Stock Awards. All employees and Outside Directors of the Company and its
affiliates, including the Bank, are eligible to receive Awards under the
Incentive Plan. The Incentive Plan will be administered by a committee (the
"Committee") consisting of members of the Company who are not employees of the
Company or its affiliates. Authorized but unissued shares or shares previously
issued and reacquired by the Company may be used to satisfy Awards under the
Incentive Plan. If authorized but unissued shares are used to satisfy Stock
Awards and the exercise of Options granted under the Incentive Plan, it will
result in an increase in the number of shares outstanding and will have a
dilutive effect on the holdings of existing shareholders. The Company currently
anticipates that it will establish a trust (the "Incentive Plan Trust"), under
which the trustee will purchase, with contributions from the Company or the
Bank, previously issued shares to fund the Company's obligation for Stock
Awards. As of the date of this Proxy Statement, no Awards have been granted to
under the Incentive Plan.
Types of Awards
General. The Incentive Plan authorizes the grant of Awards in the form of:
(i) Options intended to qualify as incentive stock options under Section 422 of
the Code (Options which afford certain tax benefits to the recipients upon
compliance with applicable requirements, but which do not result in tax
deductions to the Company), referred to as "Incentive Stock Options"; (ii)
Options that do not so qualify (Options which do not afford the same income tax
benefits to recipients, but which may provide tax deductions to the Company),
referred to as "Non-Statutory Stock Options"; and (iii) grants of restricted
shares of stock ("Stock
14
Awards"). Each type of Award may be subject to certain vesting or service
requirements or other conditions imposed by the Committee.
Options. Subject to the terms of the Incentive Plan and applicable
regulation, the Committee has the authority to determine the amount of Options
granted to any individual and the date or dates on which each Option shall
become exercisable and any other conditions applicable to an Option. The
exercise price of all Options shall be determined by the Committee but shall be
at least 100% of the fair market value of the underlying Common Stock at the
time of grant. The exercise price of any Option may be paid in cash, Common
Stock, or any other form permitted by the Committee at its discretion. See
"Alternate Option Payments." The term of Options shall be determined by the
Committee, but in no event shall an Option be exercisable more than ten years
from the date of grant (or five years from date of grant for a 10% owner with
respect to Incentive Stock Options).
All Options granted under the Incentive Plan to officers and employees may,
at the discretion of the Committee, qualify as Incentive Stock Options to the
extent permitted under Section 422 of the Code. Under certain circumstances,
Incentive Stock Options, may be converted into Non-Statutory Stock Options. In
order to qualify as Incentive Stock Options under Section 422 of the Code, the
Option must generally be granted only to an employee, must not be transferable
(other than by will or the laws of descent and distribution), the exercise price
must not be less than 100% of the fair market value of the Common Stock on the
date of grant, the term of the Option may not exceed ten years from the date of
grant, and no more than $100,000 of options may become exercisable for the first
time in any calendar year. Notwithstanding the foregoing requirements,
Incentive Stock Options granted to any person who is the beneficial owner of
more than 10% of the outstanding voting stock of the Company may be exercised
only for a period of five years from the date of grant and the exercise price
must be at least equal to 110% of the fair market value of the underlying Common
Stock on the date of grant. Each Outside Director of the Company or its
affiliates, as well as employees, will be eligible to receive Non-Statutory
Stock Options.
Unless otherwise determined by the Committee, upon termination of an
optionee's services for any reason other than death, disability or termination
for cause, all then exercisable Options shall remain exercisable for a period of
time (three months in the case of termination from service in general, one year
in the cases of death, disability, retirement or termination following a Change
in Control) following termination and all unexercisable Options shall be
canceled. In the event of the death or disability of an optionee, all
unexercisable Options held by such optionee will become fully exercisable and
remain exercisable for up to one year thereafter. In the event of termination
for cause, all exercisable and unexercisable Options held by the optionee shall
be canceled. In the event of the retirement of an optionee, the Committee
shall, under certain circumstances set forth in the Incentive Plan and subject
to applicable regulation, have the discretion to allow unexercisable Options to
continue to vest or become exercisable in accordance with their original terms.
In the event of termination subsequent to a change in control all unexercisable
Options held by the optionee shall be cancelled.
Under generally accepted accounting principles, compensation expense is
generally not recognized with respect to the award of options to officers and
employees of the Company and its subsidiaries. However, the Financial
Accounting Standards Board recently indicated that it would propose rules during
1999 that would generally require recognition of compensation expense with
respect to awards made to non-employees, including non-employee directors of the
Company, and that the proposed changes would apply to awards made after December
15, 1998 and not fully vested prior to October 1, 1999.
15
Stock Awards. Subject to the terms of the Incentive Plan and applicable
regulation, the Committee has the authority to determine the amounts of Stock
Awards granted to any individual and the dates on which Stock Awards granted
will vest or any other conditions which must be satisfied prior to vesting.
Stock Award recipients any also receive amounts equal to accumulated cash
and stock dividends (if any) with respect thereto plus earnings thereon minus
any required tax withholding amounts. Prior to vesting, recipients of Stock
Awards may direct the voting of shares of Common Stock granted to them and held
in the Incentive Plan Trust. Shares of Common Stock held by the Incentive Plan
trust which have not been allocated or for which voting has not been directed
are voted by the trustee in the same proportion as the awarded shares are voted
in accordance with the directions given by all recipients of Awards.
Unless otherwise determined by the Committee, upon termination of the
services of a holder of a Stock Award for any reason other than death,
disability, retirement or termination for cause, all such holder's rights in
unvested Stock Awards shall be canceled. In the event of the death or
disability of the holder of the Stock Award, all unvested Stock Awards held by
such individual will become fully vested. In the event of termination for cause
of a holder of a Stock Award, all unvested Stock Awards held by such individual
shall be canceled. In the event of retirement of the holder of a Stock Award,
the Committee shall, under certain circumstances set forth in the Incentive Plan
and subject to applicable regulation, have the discretion to determine that all
unvested Stock Awards shall continue to vest in accordance with their original
terms.
Tax Treatment
Options. An optionee will generally not be deemed to have recognized
taxable income upon grant or exercise of any Incentive Stock Option, provided
that shares transferred in connection with the exercise are not disposed of by
the optionee for at least one year after the date the shares are transferred in
connection with the exercise of the Option and two years after the date of grant
of the Option. If these holding periods are satisfied, upon disposal of the
shares, the aggregate difference between the per share Option exercise price and
the fair market value of the Common Stock is recognized as income taxable at
capital gains rates. No compensation deduction may be taken by the Company as a
result of the grant or exercise of Incentive Stock Options, assuming these
holding periods are met.
In the case of the exercise of a Non-Statutory Stock Option, an optionee
will be deemed to have received ordinary income upon exercise of the Option in
an amount equal to the aggregate amount by which the fair market value of the
Common Stock exceeds the exercise price of the Option. In the event shares
received through the exercise of an Incentive Stock Option are disposed of prior
to the satisfaction of the holding periods (a "disqualifying disposition"), the
exercise of the Option will essentially be treated as the exercise of a Non-
Statutory Stock Option, except that the optionee will recognize the ordinary
income for the year in which the disqualifying disposition occurs. The amount
of any ordinary income recognized by an optionee upon the exercise of a Non-
Statutory Stock Option or due to a disqualifying disposition will be a
deductible expense of the Company for federal income tax purposes, subject to
the limitations imposed by Code Section 162(m) (discussed below).
Stock Awards. When shares of Common Stock, as Stock Awards, are
distributed upon vesting, the recipient recognizes ordinary income equal to the
fair market value of such shares at the date of distribution plus any dividends
and earnings on such shares (provided such date is more than six months after
the date of grant) and the Company is permitted a commensurate compensation
expense deduction for income tax purposes.
16
Performance Awards
General. The Incentive Plan provides the Committee with the ability to
condition or restrict the vesting or exercisability of any Award upon the
achievement of performance targets or goals as set forth under the Incentive
Plan. Any Award subject to such conditions or restrictions is considered to be
a "Performance Award." Subject to the express provisions of the Plan and as
discussed in this paragraph, the Committee has discretion to determine the terms
of any Performance Award, including the amount of the award, or a formula for
determining such, the performance criteria and level of achievement related to
these criteria which determine the amount of the award granted, issued,
retainable and/or vested, the period as to which performance shall be measured
for determining achievement of performance (a "performance period"), the timing
of delivery of any awards earned, forfeiture provisions, the effect of
termination of employment for various reasons, and such further terms and
conditions, in each case not inconsistent with the Plan, as may be determined
from time to time by the Committee. The performance criteria upon which
Performance Awards are granted, issued, retained and/or vested may be based on
financial performance and/or personal performance evaluations, except that for
any Performance Award that is intended by the Committee to satisfy the
requirements for "performance based compensation" under Code Section 162(m), the
performance criteria shall be a measure based on one or more Qualifying
Performance Criteria (as defined below). Notwithstanding satisfaction of any
performance goals, the number of Shares granted, issued, retainable and/or
vested under a Performance Award may be adjusted by the Committee on the basis
of such further considerations as the Committee in its sole discretion shall
determine. However, the Committee may not increase the amount earned upon
satisfaction of any performance goal by any Participant who is a "covered
employee" within the meaning of Section 162(m) of the Code.
Qualifying Performance Criteria and Section 162(m) Limits. Subject to
shareholder approval of the Plan, the Performance Criteria for any Performance
Award that is intended to satisfy the requirements for "performance based
compensation" under the Code Section 162(m) shall be based upon any one or more
of the following Performance Criteria, either individually, alternatively or in
any combination, applied to either the Company as a whole or to a business unit
or subsidiary, either individually, alternatively or in any combination, and
measured either on an absolute basis or relative to a pre-established target, to
previous years' results or to a designated comparison group, in each case as
preestablished by the Committee under the terms of the Award: net income, as
adjusted for non-recurring items; cash earnings; earnings per share; cash
earnings per share; return on equity; return on assets; assets; stock price;
total shareholder return; capital; net interest income; market share; cost
control or efficiency ratio; and asset growth.
Maximum Awards. The aggregate amount of Options granted under the Plan
during any 60-month period to any one Participant may not exceed 25% of the
total amount of options available to be granted under the Incentive Plan. The
aggregate amount of shares of Common Stock issuable under a Stock Award granted
under the Plan for any 60-month period to any one Participant may not exceed 25%
of the total amount of Stock Awards available to be granted under the Incentive
Plan.
Alternate Option Payments
Subject to the terms of the Incentive Plan, the Committee has discretion to
determine the form of payment for the exercise of an Option. The Committee may
indicate acceptable forms in the Award Agreement covering such Options or may
reserve its decision to the time of exercise. No Option is to be considered
exercised until payment in full is accepted by the Committee. Any shares of
Common Stock tendered in payment of the exercise price of an Option shall be
valued at the fair market value of the Common Stock on the date prior to the
date of exercise.
17
Amendments
Subject to certain restrictions contained in the Incentive Plan, the Board
of Directors or Committee may amend the Incentive Plan in any respect, at any
time, provided that no amendment may affect the rights of the holder of an Award
without his or her permission and such amendment must comply with applicable law
and regulation. Under federal regulations any stock-based benefit plan, such as
the Incentive Plan, that is adopted by a converted savings institution within
the first year after conversion may not provide for the granting of Awards which
vest or become exercisable in installments at a rate greater than 20% per year
and may not permit the acceleration of vesting or exercisability, except in the
case of death or disability. The Board of Directors intends to amend the
Incentive Plan, to provide for, among other things, the acceleration of vesting
or exercisability of Awards upon the occurrence of a change in control of the
Company or the Bank. It is intended that if the Company amends the Incentive
Plan to provide for such accelerated vesting, such an amended plan would be
submitted to shareholders for ratification.
Adjustments
In the event of any change in the outstanding shares of Common Stock of the
Company by reason of any stock dividend or split, recapitalization, merger,
consolidation, spin-off, reorganization, combination or exchange of shares, or
other similar corporate change, or other increase or decrease in such shares
without receipt or payment of consideration by the Company, or in the event an
extraordinary capital distribution is made, including the payment of an
extraordinary dividend, the Committee may make such adjustments to previously
granted Awards, to prevent dilution, diminution or enlargement of the rights of
the holder; provided, however, that in the case of an extraordinary dividend,
the Committee may be required to obtain OTS approval prior to any such
adjustment. All Awards under this Incentive Plan shall be binding upon any
successors or assigns of the Company.
Nontransferability
Unless determined otherwise by the Committee, Awards under the Incentive
Plan shall not be transferable by the recipient other than by will or the laws
of intestate succession or pursuant to a domestic relations order. With the
consent of the Committee, a recipient may permit transferability or assignment
for valid estate planning purposes of a Non-Statutory Stock Option as permitted
under the Code or Rule 16b-3 under the Exchange Act and a participant may
designate a person or his or her estate as beneficiary of any Award to which the
recipient would then be entitled, in the event of the death of the participant.
Stockholder Approval, Effective Date of Plan and Regulatory Compliance
The Incentive Plan is subject to the regulations of the Office of Thrift
Supervision ("OTS"). The OTS has not endorsed or approved the Incentive Plan.
The Incentive Plan provides that it shall become effective upon the earlier
of: (i) the date that it is approved by a majority of votes eligible to be cast
by the Company's shareholders at a duly called meeting of shareholders; or (ii)
December 23, 1999. Accordingly, if the Incentive Plan is not approved by a
majority of the votes eligible to be cast by shareholders at the Annual Meeting,
the Incentive Plan and any grants thereunder shall become effective on December
23, 1999 without further shareholder approval unless it is terminated by the
Board of Directors. In the absence of the approval of the Incentive Plan by a
majority of shares cast at the Annual Meeting, the Options granted under the
Incentive Plan would not qualify as Incentive Stock Options under the Code and
the Common Stock of the Company may no longer be eligible
18
for listing on the Nasdaq National Market. Additionally, certain federal
regulations may apply to the Incentive Plan with regard to the vesting or
exercisability of Awards.
New Plan Benefits
As of the date of this Proxy Statement, no determination had been made
regarding the granting of Awards under the Incentive Plan.
Unless marked to the contrary, the shares represented by the enclosed proxy
card, if executed and returned, will be voted "FOR" the approval of the Virginia
Capital Bancshares, Inc. 1999 Stock-Based Incentive Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE
VIRGINIA CAPITAL BANCSHARES, INC. 1999 STOCK-BASED INCENTIVE PLAN.
PROPOSAL 3. RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
The Company's Board of Directors has appointed KPMG LLP to be its
independent auditors for the Bank and the Company for the fiscal year ending
December 31, 1999, subject to ratification of such appointment by the
shareholders. Representatives of KPMG LLP will be present at the Annual
Meeting. They will be given an opportunity to make a statement if they desire
to do so and will be available to respond to appropriate questions from
shareholders present at the Annual Meeting.
Cherry, Bekaert & Holland, L.L.P. ("Cherry Bekaert") was previously the
principal accountants for the Company since being organized by the Bank in
connection with the Bank's conversion from mutual to stock form, which was
consummated on December 23, 1998. On March 23, 1999, that firm's appointment as
principal accountants was terminated by the Company. The decision to change
accountants was approved by the Board of Directors. In connection with the
audits of the two fiscal years ended December 31, 1998 and the subsequent period
through March 23, 1999, there were no disagreements with Cherry Bekaert on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures, which disagreements if not resolved to their
satisfaction would have caused them to make reference to the subject matters of
the disagreements in connection with their opinion. In addition, such financial
statements contained no adverse opinion or a disclaimer of opinion, and were not
qualified or modified as to uncertainty, audit scope, or accounting principles.
On March 23, 1999, the Company engaged KPMG LLP as the Company's principal
accountants.
Unless marked to the contrary, the shares represented by the enclosed proxy
card will be voted "FOR" ratification of the appointment of KPMG LLP as the
independent auditors of the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF KPMG LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY.
19
ADDITIONAL INFORMATION
Shareholder Proposals
To be considered for inclusion in the Company's proxy statement and form of
proxy relating to the 2000 Annual Meeting of Shareholders, a shareholder
proposal must be received by the Secretary of the Company at the address set
forth on the Notice of Annual Meeting of Shareholders not later than January 20,
2000 Any such proposal will be subject to 17 C.F.R. (S) 240.14a-8 of the Rules
and Regulations under the Exchange Act.
Notice of Business to be Conducted at a Special or Annual Meeting
The Bylaws of the Company set forth the procedures by which a shareholder
may properly bring business before a meeting of shareholders. Pursuant to the
Bylaws, only business brought by or at the direction of the Board of Directors
may be conducted at a special meeting. The Bylaws of the Company provide an
advance notice procedure for a shareholder to properly bring business before an
annual meeting. The shareholder must give written advance notice to the
Secretary of the Company not less than ninety (90) days before the date
originally fixed for such meeting; provided, however, that in the event that
less than one hundred (100) days notice or prior public disclosure of the date
of the meeting is given or made to shareholders, notice by the shareholder to be
timely must be received not later than the close of business on the tenth day
following the date on which the Company's notice to shareholders of the annual
meeting date was mailed or such public disclosure was made. The advance notice
by shareholders must include the shareholder's name and address, as they appear
on the Company's record of shareholders, a brief description of the proposed
business, the reason for conducting such business at the annual meeting, the
class and number of shares of the Company's capital stock that are beneficially
owned by such shareholder and any material interest of such shareholder in the
proposed business. In the case of nominations to the Board of Directors,
certain information regarding the nominee must be provided. Nothing in this
paragraph shall be deemed to require the Company to include in its proxy
statement or the proxy relating to any Annual Meeting any shareholder proposal
which does not meet all of the requirements for inclusion established by the SEC
in effect at the time such proposal is received.
Other Matters Which May Properly Come Before the Meeting
The Board of Directors knows of no business which will be presented for
consideration at the Annual Meeting other than as stated in the Notice of Annual
Meeting of Shareholders. If, however, other matters are properly brought before
the Annual Meeting, it is the intention of the persons named in the accompanying
proxy to vote the shares represented thereby on such matters in accordance with
their best judgment.
Whether or not you intend to be present at the Annual Meeting, you are
urged to return your proxy card promptly. If you are then present at the Annual
Meeting and wish to vote your shares in person, your original proxy may be
revoked by voting at the Annual Meeting. However, if you are a shareholder
whose shares are not registered in your own name, you will need appropriate
documentation from your recordholder to vote personally at the Annual Meeting.
20
A COPY OF THE FORM 10-K (WITHOUT EXHIBITS) FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998, AS FILED WITH THE SEC, WILL BE FURNISHED WITHOUT CHARGE TO
SHAREHOLDERS OF RECORD UPON WRITTEN REQUEST TO PEGGY J. NEWMAN, VIRGINIA CAPITAL
BANCSHARES, INC., 400 GEORGE STREET, FREDERICKSBURG, VIRGINIA 22404.
By Order of the Board of Directors
/s/ Peggy J. Newman
---------------------------
Peggy J. Newman
Corporate Secretary
Fredericksburg, Virginia
May 20, 1999
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN
PERSON. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL
MEETING, YOU ARE REQUESTED TO SIGN, DATE AND PROMPTLY
RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
21
APPENDIX A
VIRGINIA CAPITAL BANCSHARES, INC.
1999 STOCK-BASED INCENTIVE PLAN
1. DEFINITIONS.
-----------
(a) "Affiliate" means any "parent corporation" or "subsidiary corporation"
of the Holding Company, as such terms are defined in Sections 424(e) and 424(f)
of the Code.
(b) "Award" means, individually or collectively, a grant under the Plan of
Non-Statutory Stock Options, Incentive Stock Options and Stock Awards.
(c) "Award Agreement" means an agreement evidencing and setting forth the
terms of an Award.
(d) "Bank" means Fredericksburg Savings Bank
(e) "Board of Directors" means the board of directors of the Holding
Company.
(f) "Change in Control" of the Holding Company or the Bank shall mean an
event of a nature that: (i) would be required to be reported in response to Item
1(a) of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"); or (ii) results in a Change in Control of the Bank or the
Holding Company within the meaning of the Home Owners' Loan Act of 1933, as
amended, the Federal Deposit Insurance Act, and the Rules and Regulations
promulgated by the Office of Thrift Supervision (or its predecessor agency), as
in effect on the date hereof (provided, that in applying the definition of
change in control as set forth under the rules and regulations of the OTS, the
Board shall substitute its judgment for that of the OTS); or (iii) without
limitation such a Change in Control shall be deemed to have occurred at such
time as (A) any "person" (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of voting securities of the
Bank or the Holding Company representing 20% or more of the Bank's or the
Holding Company's outstanding voting securities or right to acquire such
securities except for any voting securities of the Bank purchased by the Holding
Company and any voting securities purchased by any employee benefit plan of the
Holding Company or its Subsidiaries, or (B) individuals who constitute the Board
on the date hereof (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the date hereof whose election was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board, or whose
nomination for election by the Company's stockholders was approved by a
Nominating Committee solely composed of members which are Incumbent Board
members, shall be, for purposes of this clause (B), considered as though he were
a member of the Incumbent Board, or (C) a plan of reorganization, merger,
consolidation, sale of all or substantially all the assets of the Bank or the
Holding Company or similar transaction occurs or is effectuated in which the
Bank or Holding 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, or (D) a proxy statement
has been distributed soliciting proxies from stockholders of the Holding
Company, by someone other than the current management of the Holding Company,
seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Holding Company or Bank with one or more corporations as a
result of which the outstanding shares of the class of securities then subject
to such plan or transaction are exchanged for or converted into cash or property
or securities not issued by the Bank or the Holding Company shall be
distributed, or (E) a tender offer is made for 20% or more of the voting
securities of the Bank or Holding Company then outstanding.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Committee" means the committee designated by the Board of Directors,
pursuant to Section 2 of the Plan, to administer the Plan.
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(i) "Common Stock" means the Common Stock of the Holding Company, par
value, $.01 per share.
(j) "Date of Grant" means the effective date of an Award.
(k) "Disability" means any mental or physical condition with respect to
which the Participant qualifies for and receives benefits for under a long-term
disability plan of the Holding Company or an Affiliate, or in the absence of
such a long-term disability plan or coverage under such a plan, "Disability"
shall mean a physical or mental condition which, in the sole discretion of the
Committee, is reasonably expected to be of indefinite duration and to
substantially prevent the Participant from fulfilling his duties or
responsibilities to the Holding Company or an Affiliate.
(l) "Effective Date" means the earlier of the date the Plan is approved by
shareholders or December 23, 1999.
(m) "Employee" means any person employed by the Holding Company or an
Affiliate. Directors who are employed by the Holding Company or an Affiliate
shall be considered Employees under the Plan.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(o) "Exercise Price" means the price at which a Participant may purchase a
share of Common Stock pursuant to an Option.
(p) "Fair Market Value" means the market price of Common Stock, determined
by the Committee as follows:
(i) If the Common Stock was traded on the date in question on The
Nasdaq Stock Market then the Fair Market Value shall be equal to
the closing price reported for such date;
(ii) If the Common Stock was traded on a stock exchange on the date
in question, then the Fair Market Value shall be equal to the
closing price reported by the applicable composite transactions
report for such date; and
(iii) If neither of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good
faith on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee
shall be based on the prices reported in The Wall Street Journal. The
-----------------------
Committee's determination of Fair Market Value shall be conclusive and binding
on all persons.
(q) "Holding Company" means Virginia Capital Bancshares, Inc.
(r) "Incentive Stock Option" means a stock option granted to a Participant,
pursuant to Section 7 of the Plan, that is intended to meet the requirements of
Section 422 of the Code.
(s) "Non-Statutory Stock Option" means a stock option granted to a
Participant pursuant to the terms of the Plan but which is not intended to be
and is not identified as an Incentive Stock Option or a stock option granted
under the Plan which is intended to be and is identified as an Incentive Stock
Option but which does not meet the requirements of Section 422 of the Code.
(t) "Option" means an Incentive Stock Option or Non-Statutory Stock Option.
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(u) "Outside Director" means a member of the board(s) of directors of the
Holding Company or an Affiliate who is not also an Employee of the Holding
Company or an Affiliate.
(v) "Participant" means any person who holds an outstanding Award.
(w) "Performance Award" means an Award granted to a Participant pursuant
to Section 9 of the Plan.
(x) "Plan" means this Virginia Capital Bancshares, Inc. 1999 Stock-Based
Incentive Plan.
(y) "Retirement" means retirement from employment with the Holding Company
or an Affiliate in accordance with the then current retirement policies of the
Holding Company or Affiliate, as applicable. "Retirement" with respect to an
Outside Director means the termination of service from the board(s) of directors
of the Holding Company and any Affiliate following written notice to such
board(s) of directors of the Outside Director's intention to retire.
(z) "Stock Award" means an Award granted to a Participant pursuant to
Section 8 of the Plan.
(aa) "Termination for Cause" shall mean, in the case of an Outside
Director, removal from the board(s) of directors of the Holding Company and its
Affiliates in accordance with the applicable by-laws of the Holding Company and
its Affiliates or, in the case of an Employee, as defined under any employment
agreement with the Holding Company or an Affiliate; provided, however, that if
no employment agreement exists with respect to the Employee, Termination for
Cause shall mean termination of employment because of a material loss to the
Holding Company or an Affiliate, as determined by and in the sole discretion of
the Board of Directors or its designee(s).
(bb) "Trust" means a trust established by the Board of Directors in
connection with this Plan to hold Common Stock or other property for the
purposes set forth in the Plan.
(cc) "Trustee" means any person or entity approved by the Board of
Directors or its designee(s) to hold any of the Trust assets.
2. ADMINISTRATION.
--------------
(a) The Committee shall administer the Plan. The Committee shall consist
of two or more disinterested directors of the Holding Company, who shall be
appointed by the Board of Directors. A member of the Board of Directors shall
be deemed to be "disinterested" only if he satisfies (i) such requirements as
the Securities and Exchange Commission may establish for non-employee directors
administering plans intended to qualify for exemption under Rule 16b-3 (or its
successor) under the Exchange Act and (ii) such requirements as the Internal
Revenue Service may establish for outside directors acting under plans intended
to qualify for exemption under Section 162(m)(4)(C) of the Code. The Board of
Directors may also appoint one or more separate committees of the Board of
Directors, each composed of one or more directors of the Holding Company or an
Affiliate who need not be disinterested and who may grant Awards and administer
the Plan with respect to Employees and Outside Directors who are not considered
officers or directors of the Holding Company under Section 16 of the Exchange
Act or for whom Awards are not intended to satisfy the provisions of Section
162(m) of the Code.
(b) The Committee shall (i) select the Employees and Outside Directors who
are to receive Awards under the Plan, (ii) determine the type, number, vesting
requirements and other features and conditions of such Awards, (iii) interpret
the Plan and Award Agreements in all respects and (iv) make all other decisions
relating to the operation of the Plan. The Committee may adopt such rules or
guidelines as it deems appropriate to implement the Plan. The Committee's
determinations under the Plan shall be final and binding on all persons.
(c) Each Award shall be evidenced by a written agreement ("Award
Agreement") containing such provisions as may be required by the Plan and
otherwise approved by the Committee. Each Award Agreement shall
A-3
constitute a binding contract between the Holding Company or an Affiliate and
the Participant, and every Participant, upon acceptance of an Award Agreement,
shall be bound by the terms and restrictions of the Plan and the Award
Agreement. The terms of each Award Agreement shall be in accordance with the
Plan, but each Award Agreement may include any additional provisions and
restrictions determined by the Committee, in its discretion, provided that such
additional provisions and restrictions are not inconsistent with the terms of
the Plan. In particular and at a minimum, the Committee shall set forth in each
Award Agreement: (i) the type of Award granted; (ii) the Exercise Price of any
Option; (iii) the number of shares subject to the Award; (iv) the expiration
date of the Award; (v) the manner, time, and rate (cumulative or otherwise) of
exercise or vesting of such Award; and (vi) the restrictions, if any, placed
upon such Award, or upon shares which may be issued upon exercise of such Award.
The Chairman of the Committee and such other directors and officers as shall be
designated by the Committee is hereby authorized to execute Award Agreements on
behalf of the Company or an Affiliate and to cause them to be delivered to the
recipients of Awards.
(d) The Committee may delegate all authority for: (i) the determination of
forms of payment to be made by or received by the Plan and (ii) the execution of
any Award Agreement. The Committee may rely on the descriptions,
representations, reports and estimates provided to it by the management of the
Holding Company or an Affiliate for determinations to be made pursuant to the
Plan, including the satisfaction of any conditions of a Performance Award.
However, only the Committee or a portion of the Committee may certify the
attainment of any conditions of a Performance Award intended to satisfy the
requirements of Section 162(m) of the Code.
3. TYPES OF AWARDS AND RELATED RIGHTS.
----------------------------------
The following Awards may be granted under the Plan:
(a) Non-Statutory Stock Options.
(b) Incentive Stock Options.
(c) Stock Awards.
4. STOCK SUBJECT TO THE PLAN.
-------------------------
Subject to adjustment as provided in Section 14 of the Plan, the maximum
number of shares reserved for Awards under the Plan is 1,596,672, which number
shall not exceed 14% of the shares of the Common Stock determined immediately as
of the Effective Date. Subject to adjustment as provided in Section 14 of the
Plan, the maximum number of shares reserved hereby for purchase pursuant to the
exercise of Options granted under the Plan is 1,140,480 which number shall not
exceed 10% of the shares of Common Stock as of the Effective Date. The maximum
number of the shares reserved for Stock Awards is 456,192 which number shall not
exceed 4% of the shares of Common Stock as of the Effective Date. The shares of
Common Stock issued under the Plan may be either authorized but unissued shares
or authorized shares previously issued and acquired or reacquired by the Trustee
or the Holding Company, respectively. To the extent that Options and Stock
Awards are granted under the Plan, the shares underlying such Awards will be
unavailable for any other use including future grants under the Plan except
that, to the extent that Stock Awards or Options terminate, expire or are
forfeited without having vested or without having been exercised, new Awards may
be made with respect to these shares.
5. ELIGIBILITY.
-----------
Subject to the terms of the Plan, all Employees and Outside Directors shall
be eligible to receive Awards under the Plan. In addition, the Committee may
grant eligibility to consultants and advisors of the Holding Company or an
Affiliate, as it sees fit.
A-4
6. NON-STATUTORY STOCK OPTIONS.
---------------------------
The Committee may, subject to the limitations of this Plan and the
availability of shares of Common Stock reserved but not previously awarded under
the Plan, grant Non-Statutory Stock Options to eligible individuals upon such
terms and conditions as it may determine to the extent such terms and conditions
are consistent with the following provisions:
(a) Exercise Price. The Committee shall determine the Exercise Price of
--------------
each Non-Statutory Stock Option. However, the Exercise Price shall not be less
than 100% of the Fair Market Value of the Common Stock on the Date of Grant.
(b) Terms of Non-statutory Stock Options. The Committee shall determine
------------------------------------
the term during which a Participant may exercise a Non-Statutory Stock Option,
but in no event may a Participant exercise a Non-Statutory Stock Option, in
whole or in part, more than ten (10) years from the Date of Grant. The
Committee shall also determine the date on which each Non-Statutory Stock
Option, or any part thereof, first becomes exercisable and any terms or
conditions a Participant must satisfy in order to exercise each Non-Statutory
Stock Option. The shares of Common Stock underlying each Non-Statutory Stock
Option may be purchased in whole or in part by the Participant at any time
during the term of such Non-Statutory Stock Option, or any portion thereof, once
the Non-Statutory Stock Option becomes exercisable.
(c) Non-Transferability. Unless otherwise determined by the Committee in
-------------------
accordance with this Section 6(c), a Participant may not transfer, assign,
hypothecate, or dispose of in any manner, other than by will or the laws of
intestate succession, a Non-Statutory Stock Option. The Committee may, however,
in its sole discretion, permit transferability or assignment of a Non-Statutory
Stock Option if such transfer or assignment is, in its sole determination, for
valid estate planning purposes and such transfer or assignment is permitted
under the Code and Rule 16b-3 under the Exchange Act. For purposes of this
Section 6(c), a transfer for valid estate planning purposes includes, but is not
limited to: (a) a transfer to a revocable intervivos trust as to which the
Participant is both the settlor and trustee, (b) a transfer for no consideration
to: (i) any member of the Participant's Immediate Family, (ii) any trust solely
for the benefit of members of the Participant's Immediate Family, (iii) any
partnership whose only partners are members of the Participant's Immediate
Family, and (iv) any limited liability corporation or corporate entity whose
only members or equity owners are members of the Participant's Immediate Family,
or (c) a transfer to the Fredericksburg Savings Charitable Foundation. For
purposes of this Section 6(c), "Immediate Family" includes, but is not
necessarily limited to, a Participant's parents, grandparents, spouse, children,
grandchildren, siblings (including half bothers and sisters), and individuals
who are family members by adoption. Nothing contained in this Section 6(c)
shall be construed to require the Committee to give its approval to any transfer
or assignment of any Non-Statutory Stock Option or portion thereof, and approval
to transfer or assign any Non-Statutory Stock Option or portion thereof does not
mean that such approval will be given with respect to any other Non-Statutory
Stock Option or portion thereof. The transferee or assignee of any Non-
Statutory Stock Option shall be subject to all of the terms and conditions
applicable to such Non-Statutory Stock Option immediately prior to the transfer
or assignment and shall be subject to any other conditions proscribed by the
Committee with respect to such Non-Statutory Stock Option.
(d) Termination of Employment or Service (General). Unless otherwise
----------------------------------------------
determined by the Committee, upon the termination of a Participant's employment
or other service for any reason other than Retirement, Disability or death, a
Change in Control, or Termination for Cause, the Participant may exercise only
those Non-Statutory Stock Options that were immediately exercisable by the
Participant at the date of such termination and only for a period of three (3)
months following the date of such termination.
(e) Termination of Employment or Service (Retirement). In the event of a
-------------------------------------------------
Participant's Retirement, the Participant may exercise only those Non-Statutory
Stock Options that were immediately exercisable by the Participant at the date
of Retirement and only for a period of one (1) year following the date of
Retirement; provided, however, that upon the Participant's Retirement, the
Committee, in its discretion, may determine that all Non-Statutory Stock Options
that were not exercisable by the Participant as of such date shall continue to
become
A-5
exercisable in accordance with the terms of the Award Agreement if the
Participant is immediately engaged by the Holding Company or an Affiliate as a
consultant or advisor or continues to serve the Holding Company or an Affiliate
as a director, advisory director, or director emeritus.
(f) Termination of Employment or Service (Disability or death). Unless
----------------------------------------------------------
otherwise determined by the Committee, in the event of the termination of a
Participant's employment or other service due to Disability or death, all Non-
Statutory Stock Options held by such Participant shall immediately become
exercisable and remain exercisable for a period one (1) year following the date
of such termination.
(g) Termination of Employment or Service (Change in Control). Unless
--------------------------------------------------------
otherwise determined by the Committee, in the event of the termination of a
Participant's employment or service due to a Change in Control, whether such
termination is actual, constructive, or otherwise, the Participant may exercise
only those Non-Statutory Stock Options that were immediately exercisable by the
Participant at the date of such termination and only for a period of one (1)
year following the date of such termination.
(h) Termination of Employment or Service (Termination for Cause). Unless
------------------------------------------------------------
otherwise determined by the Committee, in the event of a Participant's
Termination for Cause, all rights with respect to the Participant's Non-
Statutory Stock Options shall expire immediately upon the effective date of such
Termination for Cause.
(i) Payment. Payment due to a Participant upon the exercise of a Non-
-------
Statutory Stock Option shall be made in the form of shares of Common Stock.
(j) Maximum Individual Award. No individual Employee shall be granted an
------------------------
amount of Non-Statutory Stock Options which exceeds 25% of all Options eligible
to be granted under the Plan within any 60-month period.
7. INCENTIVE STOCK OPTIONS.
-----------------------
The Committee may, subject to the limitations of the Plan and the
availability of shares of Common Stock reserved but unawarded under this Plan,
grant Incentive Stock Options to an Employee upon such terms and conditions as
it may determine to the extent such terms and conditions are consistent with the
following provisions:
(a) Exercise Price. The Committee shall determine the Exercise Price of
--------------
each Incentive Stock Option. However, the Exercise Price shall not be less than
100% of the Fair Market Value of the Common Stock on the Date of Grant;
provided, however, that if at the time an Incentive Stock Option is granted, the
Employee owns or is treated as owning, for purposes of Section 422 of the Code,
Common Stock representing more than 10% of the total combined voting securities
of the Holding Company ("10% Owner"), the Exercise Price shall not be less than
110% of the Fair Market Value of the Common Stock on the Date of Grant.
(b) Amounts of Incentive Stock Options. To the extent the aggregate Fair
----------------------------------
Market Value of shares of Common Stock with respect to which Incentive Stock
Options that are exercisable for the first time by an Employee during any
calendar year under the Plan and any other stock option plan of the Holding
Company or an Affiliate exceeds $100,000, or such higher value as may be
permitted under Section 422 of the Code, such Options in excess of such limit
shall be treated as Non-Statutory Stock Options. Fair Market Value shall be
determined as of the Date of Grant with respect to each such Incentive Stock
Option.
(c) Terms of Incentive Stock Options. The Committee shall determine the
--------------------------------
term during which a Participant may exercise an Incentive Stock Option, but in
no event may a Participant exercise an Incentive Stock Option, in whole or in
part, more than ten (10) years from the Date of Grant; provided, however, that
if at the time an Incentive Stock Option is granted to an Employee who is a 10%
Owner, the Incentive Stock Option granted to such Employee shall not be
exercisable after the expiration of five (5) years from the Date of Grant. The
Committee shall also determine the date on which each Incentive Stock Option, or
any part thereof, first becomes exercisable and any terms or conditions a
Participant must satisfy in order to exercise each Incentive Stock Option. The
shares of
A-6
Common Stock underlying each Incentive Stock Option may be purchased in whole or
in part at any time during the term of such Incentive Stock Option after such
Option becomes exercisable.
(d) Non-Transferability. No Incentive Stock Option shall be transferable
-------------------
except by will or the laws of descent and distribution and is exercisable,
during his lifetime, only by the Employee to whom the Committee grants the
Incentive Stock Option. The designation of a beneficiary does not constitute a
transfer of an Incentive Stock Option.
(e) Termination of Employment (General). Unless otherwise determined by
-----------------------------------
the Committee, upon the termination of a Participant's employment or other
service for any reason other than Retirement, Disability or death, a Change in
Control, or Termination for Cause, the Participant may exercise only those
Incentive Stock Options that were immediately exercisable by the Participant at
the date of such termination and only for a period of three (3) months following
the date of such termination.
(f) Termination of Employment (Retirement). In the event of a
--------------------------------------
Participant's Retirement, the Participant may exercise only those Incentive
Stock Options that were immediately exercisable by the Participant at the date
of Retirement and only for a period of one (1) year following the date of
Retirement; provided however, that upon the Participant's Retirement, the
Committee, in its discretion, may determine that all Incentive Stock Options
that were not otherwise exercisable by the Participant as of such date shall
continue to become exercisable in accordance with the terms of the Award
Agreement if the Participant is immediately engaged by the Holding Company or an
Affiliate as a consultant or advisor or continues to serve the Holding Company
or an Affiliate as a director, advisory director, or director emeritus. Any
Option originally designated as an Incentive Stock Option shall be treated as a
Non-Statutory Stock Options to the extent the Participant exercises such Option
more than three (3) months following the Date of the Participant's Retirement.
(g) Termination of Employment (Disability or Death). Unless otherwise
-----------------------------------------------
determined by the Committee, in the event of the termination of a Participant's
employment or other service due to Disability or death, all Incentive Stock
Options held by such Participant shall immediately become exercisable and remain
exercisable for a period one (1) year following the date of such termination.
(h) Termination of Employment (Change in Control). Unless otherwise
---------------------------------------------
determined by the Committee, in the event of the termination of a Participant's
employment or service due to a Change in Control, the Participant may exercise
only those Incentive Stock Options that were immediately exercisable by the
Participant at the date of such termination and only for a period of three (3)
months following the date of such termination.
(i) Termination of Employment (Termination for Cause). Unless otherwise
-------------------------------------------------
determined by the Committee, in the event of an Employee's Termination for
Cause, all rights under such Employee's Incentive Stock Options shall expire
immediately upon the effective date of such Termination for Cause.
(j) Payment. Payment due to a Participant upon the exercise of an
-------
Incentive Stock Option shall be made in the form of shares of Common Stock.
(k) Maximum Individual Award. No individual Employee shall be granted an
------------------------
amount of Incentive Stock Options which exceeds 25% of all Options eligible to
be granted under the Plan within any 60-month period.
(l) Disqualifying Dispositions. Each Award Agreement with respect to an
--------------------------
Incentive Stock Option shall require the Participant to notify the Committee of
any disposition of shares of Common Stock issued pursuant to the exercise of
such Option under the circumstances described in Section 421(b) of the Code
(relating to certain disqualifying dispositions), within 10 days of such
disposition.
A-7
8. STOCK AWARDS.
------------
The Committee may make grants of Stock Awards, which shall consist of the
grant of some number of shares of Common Stock, to a Participant upon such terms
and conditions as it may determine to the extent such terms and conditions are
consistent with the following provisions:
(a) Grants of the Stock Awards. Stock Awards may only be made in whole
--------------------------
shares of Common Stock. Stock Awards may only be granted from shares reserved
under the Plan and available for award at the time the Stock Award is made to
the Participant.
(b) Terms of the Stock Awards. The Committee shall determine the dates on
-------------------------
which Stock Awards granted to a Participant shall vest and any terms or
conditions which must be satisfied prior to the vesting of any Stock Award or
portion thereof. Any such terms or conditions shall be determined by the
Committee as of the Date of Grant.
(c) Termination of Employment or Service (General). Unless otherwise
----------------------------------------------
determined by the Committee, upon the termination of a Participant's employment
or service for any reason other than Retirement, Disability or death, a Change
in Control, or Termination for Cause, any Stock Awards in which the Participant
has not become vested as of the date of such termination shall be forfeited and
any rights the Participant had to such Stock Awards shall become null and void.
(d) Termination of Employment or Service (Retirement). In the event of a
-------------------------------------------------
Participant's Retirement, any Stock Awards in which the Participant has not
become vested as of the date of Retirement shall be forfeited and any rights the
Participant had to such unvested Stock Awards shall become null and void;
provided however, that upon the Participant's Retirement, the Committee, in its
discretion, may determine that all unvested Stock Awards shall continue to vest
in accordance with the Award Agreement if the Participant is immediately engaged
by the Holding Company or an Affiliate as a consultant or advisor or continues
to serve the Holding Company or an Affiliate as a director, advisory director,
or director emeritus.
(e) Termination of Employment or Service (Disability or death). Unless
----------------------------------------------------------
otherwise determined by the Committee, in the event of a termination of the
Participant's service due to Disability or death all unvested Stock Awards held
by such Participant shall immediately vest as of the date of such termination.
(f) Termination of Employment or Service (Change in Control). Unless
--------------------------------------------------------
otherwise determined by the Committee, in the event of a termination of the
Participant's service due to a Change in Control any Stock Awards in which the
Participant has not become vested as of the date of such termination shall be
forfeited and any rights the Participant had to such unvested Stock Awards shall
become null and void.
(g) Termination of Employment or Service (Termination for Cause). Unless
------------------------------------------------------------
otherwise determined by the Committee, or in the event of the Participant's
Termination for Cause, all Stock Awards in which the Participant had not become
vested as of the effective date of such Termination for Cause shall be forfeited
and any rights such Participant had to such unvested Stock Awards shall become
null and void.
(h) Maximum Individual Award. No individual Employee shall be granted an
------------------------
amount of Stock Awards which exceeds 25% of all Stock Awards eligible to be
granted under the Plan within any 60-month period.
(i) Issuance of Certificates. Unless otherwise held in Trust and
------------------------
registered in the name of the Trustee, reasonably promptly after the Date of
Grant with respect to shares of Common Stock pursuant to a Stock Award, the
Holding Company shall cause to be issued a stock certificate, registered in the
name of the Participant to whom such Stock Award was granted, evidencing such
shares; provided, that the Holding Company shall not cause such a stock
certificate to be issued unless it has received a stock power duly endorsed in
blank with respect to such shares. Each such stock certificate shall bear the
following legend:
A-8
"The transferability of this certificate and the shares of stock
represented hereby are subject to the restrictions, terms and
conditions (including forfeiture provisions and restrictions against
transfer) contained in the Virginia Capital Bancshares, Inc. 1999
Stock-Based Incentive Plan and Award Agreement entered into between
the registered owner of such shares and Virginia Capital Bancshares,
Inc. or its Affiliates. A copy of the Plan and Award Agreement is on
file in the office of the Corporate Secretary of Virginia Capital
Bancshares, Inc. located at 400 George Street, Fredericksburg, VA
22404
Such legend shall not be removed until the Participant becomes vested in such
shares pursuant to the terms of the Plan and Award Agreement. Each certificate
issued pursuant to this Section 8(i), in connection with a Stock Award, shall be
held by the Holding Company or its Affiliates, unless the Committee determines
otherwise.
(j) Non-Transferability. Except to the extent permitted by the Code, the
-------------------
rules promulgated under Section 16(b) of the Exchange Act or any successor
statutes or rules:
(i) The recipient of a Stock Award shall not sell, transfer, assign,
pledge, or otherwise encumber shares subject to the Stock Award
until full vesting of such shares has occurred. For purposes of
this section, the separation of beneficial ownership and legal
title through the use of any "swap" transaction is deemed to be
a prohibited encumbrance.
(ii) Unless determined otherwise by the Committee and except in the
event of the Participant's death or pursuant to a domestic
relations order, a Stock Award is not transferable and may be
earned in his lifetime only by the Participant to whom it is
granted. Upon the death of a Participant, a Stock Award is
transferable by will or the laws of descent and distribution.
The designation of a beneficiary shall not constitute a
transfer.
(iii) If a recipient of a Stock Award is subject to the provisions of
Section 16 of the Exchange Act, shares of Common Stock subject
to such Stock Award may not, without the written consent of the
Committee (which consent may be given in the Award Agreement),
be sold or otherwise disposed of within six (6) months following
the date of grant of the Stock Award.
(k) Accrual of Dividends. To the extent Stock Awards are held in Trust
--------------------
and registered in the name of the Trustee, unless otherwise specified by the
Trust Agreement whenever shares of Common Stock underlying a Stock Award are
distributed to a Participant or beneficiary thereof under the Plan, such
Participant or beneficiary shall also be entitled to receive, with respect to
each such share distributed, a payment equal to any cash dividends and the
number of shares of Common Stock equal to any stock dividends, declared and paid
with respect to a share of the Common Stock if the record date for determining
shareholders entitled to receive such dividends falls between the date the
relevant Stock Award was granted and the date the relevant Stock Award or
installment thereof is issued. There shall also be distributed an appropriate
amount of net earnings, if any, of the Trust with respect to any dividends paid
out on the shares related to the Stock Award.
(l) Voting of Stock Awards. After a Stock Award has been granted but for
----------------------
which the shares covered by such Stock Award have not yet been vested, earned
and distributed to the Participant pursuant to the Plan, the Participant shall
be entitled to vote or to direct the Trustee to vote, as the case may be, such
shares of Common Stock which the Stock Award covers subject to the rules and
procedures adopted by the Committee for this purpose and in a manner consistent
with the Trust agreement.
(m) Payment. Payment due to a Participant upon the redemption of a Stock
-------
Award shall be made in the form of shares of Common Stock.
A-9
9. PERFORMANCE AWARDS.
------------------
(a) The Committee may determine to make any Award under the Plan
contingent upon the satisfaction of any conditions related to the performance of
the Holding Company, an Affiliate of the Participant. Each Performance Award
shall be evidenced in the Award Agreement, which shall set forth the applicable
conditions, the maximum amounts payable and such other terms and conditions as
are applicable to the Performance Award. Unless otherwise determined by the
Committee, each Performance Award shall be granted and administered to comply
with the requirements of Section 162(m) of the Code and subject to the following
provisions:
(b) Any Performance Award shall be made not later than 90 days after the
start of the period for which the Performance Award relates and shall be made
prior to the completion of 25% of such period. All determinations regarding the
achievement of any applicable conditions will be made by the Committee. The
Committee may not increase during a year the amount of a Performance Award that
would otherwise be payable upon satisfaction of the conditions but may reduce or
eliminate the payments as provided for in the Award Agreement.
(c) Nothing contained in the Plan will be deemed in any way to limit or
restrict the Committee from making any Award or payment to any person under any
other plan, arrangement or understanding, whether now existing or hereafter in
effect.
(d) A Participant who receives a Performance Award payable in Common Stock
shall have no rights as a shareholder until the Company Stock is issued pursuant
to the terms of the Award Agreement. The Common Stock may be issued without
cash consideration.
(e) A Participant's interest in a Performance Award may not be sold,
assigned, transferred, pledged, hypothecated, or otherwise encumbered.
(f) No Award or portion thereof that is subject to the satisfaction of any
condition shall be distributed or considered to be earned or vested until the
Committee certifies in writing that the conditions to which the distribution,
earning or vesting of such Award is subject have been achieved.
10. DEFERRED PAYMENTS.
-----------------
The Committee, in its discretion, may permit a Participant to elect to
defer receipt of all or any part of any cash or stock payment under the Plan, or
the Committee may determine to defer receipt by some or all Participants, of all
or part of any such payment. The Committee shall determine the terms and
conditions of any such deferral, including the period of deferral, the manner of
deferral, and the method for measuring appreciation on deferred amounts until
their payout.
11. METHOD OF EXERCISE OF OPTIONS.
-----------------------------
Subject to any applicable Award Agreement, any Option may be exercised by
the Participant in whole or in part at such time or times, and the Participant
may make payment of the Exercise Price in such form or forms permitted by the
Committee, including, without limitation, payment by delivery of cash, Common
Stock or other consideration (including, where permitted by law and the
Committee, Awards) having a Fair Market Value on the day immediately preceding
the exercise date equal to the total Exercise Price, or by any combination of
cash, shares of Common Stock and other consideration, including exercise by
means of a cashless exercise arrangement with a qualifying broker-dealer, as the
Committee may specify in the applicable Award Agreement.
12. RIGHTS OF PARTICIPANTS.
----------------------
No Participant shall have any rights as a shareholder with respect to any
shares of Common Stock covered by an Option until the date of issuance of a
stock certificate for such Common Stock. Nothing contained herein or
A-10
in any Award Agreement confers on any person any right to continue in the employ
or service of the Holding Company or an Affiliate or interferes in any way with
the right of the Holding Company or an Affiliate to terminate a Participant's
services.
13. DESIGNATION OF BENEFICIARY.
--------------------------
A Participant may, with the consent of the Committee, designate a person or
persons to receive, in the event of death, any Award to which the Participant
would then be entitled. Such designation will be made upon forms supplied by
and delivered to the Holding Company and may be revoked in writing. If a
Participant fails effectively to designate a beneficiary, then the Participant's
estate will be deemed to be the beneficiary.
14. DILUTION AND OTHER ADJUSTMENTS.
------------------------------
In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend or split, recapitalization, merger, consolidation,
spin-off, reorganization, combination or exchange of shares, or other similar
corporate change, or other increase or decrease in such shares without receipt
or payment of consideration by the Holding Company, or in the event an
extraordinary capital distribution is made, the Committee may make such
adjustments to previously granted Awards, to prevent dilution, diminution, or
enlargement of the rights of the Participant, including any or all of the
following:
(a) adjustments in the aggregate number or kind of shares of Common Stock
or other securities that may underlie future Awards under the Plan;
(b) adjustments in the aggregate number or kind of shares of Common Stock
or other securities underlying Awards already made under the Plan;
(c) adjustments in the Exercise Price of outstanding Incentive and/or
Non-Statutory Stock Options.
No such adjustments may, however, materially change the value of benefits
available to a Participant under a previously granted Award. All Awards under
this Plan shall be binding upon any successors or assigns of the Holding
Company. Notwithstanding the above, in the event of an extraordinary capital
distribution, any adjustment under this Section 14 shall be subject to required
approval by the Office of Thrift Supervision.
15. TAXES.
-----
(a) Whenever under this Plan, cash or shares of Common Stock are to be
delivered upon exercise or payment of an Award or any other event with respect
to rights and benefits hereunder, the Committee shall be entitled to require as
a condition of delivery (i) that the Participant remit an amount sufficient to
satisfy all federal, state, and local withholding tax requirements related
thereto, (ii) that the withholding of such sums come from compensation otherwise
due to the Participant or from any shares of Common Stock due to the Participant
under this Plan or (iii) any combination of the foregoing provided, however,
that no amount shall be withheld from any cash payment or shares of Common Stock
relating to an Award which was transferred by the Participant in accordance with
this Plan. Furthermore, Participants may direct the Committee to instruct the
Trustee to sell shares of Common Stock to be delivered upon the payment of an
Award to satisfy tax obligations.
(b) If any disqualifying disposition described in Section 7(l) is made
with respect to shares of Common Stock acquired under an Incentive Stock Option
granted pursuant to this Plan, or any transfer described in Section 6(c) is
made, or any election described in Section 16 is made, then the person making
such disqualifying disposition, transfer, or election shall remit to the Holding
Company or its Affiliates an amount sufficient to satisfy all federal, state,
and local withholding taxes thereby incurred; provided that, in lieu of or in
addition to the foregoing, the Holding Company or its Affiliates shall have the
right to withhold such sums from compensation otherwise due to the
A-11
Participant, or, except in the case of any transfer pursuant to Section 6(c),
from any shares of Common Stock due to the Participant under this Plan.
16. NOTIFICATION UNDER SECTION 83(b).
--------------------------------
The Committee may, on the Date of Grant or any later date, prohibit a
Participant from making the election described below. If the Committee has not
prohibited such Participant from making such election, and the Participant
shall, in connection with the exercise of any Option, or the grant of any Stock
Award, make the election permitted under Section 83(b) of the Code, such
Participant shall notify the Committee of such election within 10 days of filing
notice of the election with the Internal Revenue Service, in addition to any
filing and notification required pursuant to regulations issued under the
authority of Section 83(b) of the Code.
17. AMENDMENT OF THE PLAN AND AWARDS.
--------------------------------
(a) Except as provided in paragraph (c) of this Section 17, the Board of
Directors may at any time, and from time to time, modify or amend the Plan in
any respect, prospectively or retroactively; provided however, that provisions
governing grants of Incentive Stock Options shall be submitted for shareholder
approval to the extent required by such law, regulation or otherwise. Failure
to ratify or approve amendments or modifications by shareholders shall be
effective only as to the specific amendment or modification requiring such
ratification. Other provisions of this Plan will remain in full force and
effect. No such termination, modification or amendment may adversely affect the
rights of a Participant under an outstanding Award without the written
permission of such Participant.
(b) Except as provided in paragraph (c) of this Section 17, the Committee
may amend any Award Agreement, prospectively or retroactively; provided,
however, that no such amendment shall adversely affect the rights of any
Participant under an outstanding Award without the written consent of such
Participant.
(c) In no event shall the Board of Directors amend the Plan or shall the
Committee amend an Award Agreement in any manner that has the effect of:
(i) Allowing any Option to be granted with an exercise below the Fair
Market Value of the Common Stock on the Date of Grant.
(ii) Allowing the exercise price of any Option previously granted
under the Plan to be reduced subsequent to the Date of Award.
(d) Notwithstanding anything in this Plan or any Award Agreement to the
contrary, if any Award or right under this Plan would, in the opinion of the
Holding Company's accountants, cause a transaction to be ineligible for pooling
of interest accounting that would, but for such Award or right, be eligible for
such accounting treatment, the Committee, at its discretion, may modify, adjust,
eliminate or terminate the Award or right so that pooling of interest accounting
is available.
18. EFFECTIVE DATE OF PLAN.
----------------------
The Plan shall become effective upon approval by the Holding Company's
shareholders in accordance with OTS and Internal Revenue Service ("IRS")
regulations or December 23, 1999, whichever is earlier. The failure to obtain
shareholder approval will not effect the validity of the Plan and any Awards
made under the Plan; provided, however, that if the Plan is not approved by
stockholders in accordance with IRS regulations, the Plan shall remain in full
force and effect, and any Incentive Stock Options granted under the Plan shall
be deemed to be Non-Statutory Stock Options and any Award intended to comply
with Section 162(m) of the Code shall not comply with Section 162(m) of the
Code.
A-12
19. TERMINATION OF THE PLAN.
-----------------------
The right to grant Awards under the Plan will terminate upon the earlier
of: (i) ten (10) years after the Effective Date; (ii) the issuance of a number
of shares of Common Stock pursuant to the exercise of Options or the
distribution of Stock Awards (is equivalent to the maximum number of shares
reserved under the Plan as set forth in Section 4 hereof. The Board of
Directors has the right to suspend or terminate the Plan at any time, provided
that no such action will, without the consent of a Participant, adversely affect
a Participant's vested rights under a previously granted Award.
20. APPLICABLE LAW.
--------------
The Plan will be administered in accordance with the laws of the state of
Delaware to the extent not pre-empted by applicable federal law.
21. TREATMENT OF UNVESTED, UNEXERCISED, OR NON-EXERCISABLE AWARDS UPON A CHANGE
---------------------------------------------------------------------------
IN CONTROL.
- -----------
In the event of a Change in Control where the Holding Company or the Bank
is not the surviving entity, the Board of Directors of the Holding Company
and/or the Bank, as applicable, shall require that the successor entity take one
of the following actions with respect to all Awards held by Participants at the
date of the Change in Control:
(i) Assume the Awards with the same terms and conditions as granted
to the Participant under this Plan; or
(ii) Replace the Awards with comparable Awards, subject to the same
or more favorable terms and conditions as the Award granted to the
Participant under this Plan, whereby the Participant will be granted
common stock or the option to purchase common stock of the successor
entity; or, only if the Committee determines that neither of the
alternatives set forth in clauses (i) or (ii) are legally available,
(iii) Replace the Awards with a cash payment under an incentive plan,
program, or other arrangement of the successor entity that preserves
the economic value of the Awards and makes any such cash payment
subject to the same vesting or exercisability schedule applicable to
such Awards.
(b) The determination of comparability of Awards offered by a successor
entity under clause (ii) of paragraph (a) above shall be made by the Committee,
and the Committee's determination shall be conclusive and binding.
22. COMPLIANCE WITH OFFICE OF THRIFT SUPERVISION REGULATIONS.
--------------------------------------------------------
Notwithstanding any other provision contained in this Plan:
(a) No Award under the Plan shall be made which would be prohibited by 12
CFR (S)563b.3(g)(4);
(b) Unless the Plan is approved by a majority vote of the outstanding
shares of the total votes eligible to be cast at a duly called meeting
of stockholders to consider the Plan, as required by 12 CFR
(S)563b.3(g)(4)(vii), the Plan shall not become effective or
implemented prior to one year from the date of the Bank's conversion
from mutual to stock form ("Conversion").
(c) No Option or Stock Award granted prior to one year from the date of
the Bank's Conversion shall become vested or exercisable at a rate in
excess of 20% per year of the total number of Stock
A-13
Awards or Options (whichever may be the case) granted to such
Participant, provided, that Awards shall become fully vested or
immediately exercisable in the event of a Participant's termination of
service due to death or Disability;
(d) No Option or Stock Award granted to any individual Employee prior to
one year from the date of the Bank's Conversion may exceed 25% of the
total amount of Stock Awards or Options (whichever may be the case)
which may be granted under the Plan;
(e) No Option or Stock Award granted to any individual Outside Director
prior to one year from the date of the Bank's Conversion may exceed 5%
of the total amount of Stock Awards or Options (whichever may be the
case) which may be granted under the Plan; and
(f) The aggregate amount of Option or Stock Award granted to all Outside
Directors prior to one year from the date of the Bank's Conversion may
not exceed 30% of the total amount of Stock Awards or Options
(whichever may be the case) which may be granted under the Plan.
A-14
REVOCABLE PROXY
VIRGINIA CAPITAL BANCSHARES, INC.
ANNUAL MEETING OF SHAREHOLDERS
June 25, 1999
10:00 a.m. Eastern Time
_______________________________
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints the official proxy committee of the Board
of Directors of Virginia Capital Bancshares, Inc. (the "Company"), each with
full power of substitution, to act as proxy for the undersigned, and to vote all
shares of Common Stock of the Company which the undersigned is entitled to vote
only at the Annual Meeting of Shareholders, to be held on June 25, 1999, at
10:00 a.m. Eastern Time, at the Sheraton Inn, 2801 Plank Road (I-95 and Route
3), Fredericksburg, Virginia, and at any and all adjournments thereof, with all
of the powers the undersigned would possess if personally present at such
meeting as follows:
1. The election as directors of all nominees listed (except as marked to
the contrary below).
Ronald G. Beck William M. Anderson, Jr. Ernest N. Donahoe, Jr.
FOR ALL
FOR VOTE WITHHELD EXCEPT
--- ------------- ------
[_] [_] [_]
INSTRUCTION: To withhold your vote for any individual nominee, mark "FOR
ALL EXCEPT" and write that nominee's name on the line provided below.
________________________________________________________________________________
2. The approval of the Virginia Capital Bancshares, Inc. 1999 Stock-Based
Incentive Plan.
FOR AGAINST ABSTAIN
--- ------- -------
[_] [_] [_]
3. The ratification of the appointment of KPMG LLP as independent
auditors of Virginia Capital Bancshares, Inc. for the fiscal year
ending December 31, 1999.
FOR AGAINST ABSTAIN
--- ------- -------
[_] [_] [_]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSALS.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
This proxy is revocable and will be voted as directed, but if no
instructions are specified, this proxy will be voted FOR each of the proposals
listed. If any other business is presented at the Annual Meeting, including
whether or not to adjourn the meeting, this proxy will be voted by the proxies
in their best judgment. At the present time, the Board of Directors knows of no
other business to be presented at the Annual Meeting.
The above signed acknowledges receipt from the Company prior to the
execution of this proxy of a Notice of Annual Meeting of Shareholders and of a
Proxy Statement dated May 20, 1999 and of the 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, each holder may sign but only one signature
is required.
Dated:___________________________
________________________________
SIGNATURE OF SHAREHOLDER
________________________________
SIGNATURE OF SHAREHOLDER
_____________________________
PLEASE COMPLETE, DATE, SIGN AND PROMPTLY MAIL THIS PROXY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE.