Annex B
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Virginia Beach Federal Financial Corporation
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (set forth the amount on which the filing
fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0- 11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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March 20, 1998
Dear Fellow Stockholder:
On behalf of the Board of Directors and management of Virginia Beach
Federal Financial Corporation (the "Corporation"), I cordially invite you to
attend the 1998 Annual Meeting of Stockholders to be held at the Clarion Hotel,
4453 Bonney Road, Virginia Beach, Virginia on April 29, 1998 at 2:00 p.m. The
attached Notice of Annual Meeting and Proxy Statement describe the formal
business to be transacted at the Meeting. During the Meeting, I will also report
on the operations of the Corporation. Directors and officers of the Corporation,
as well as representatives of KPMG Peat Marwick LLP, the Corporation's
independent accountants, will be present to respond to any questions
stockholders may have.
Whether or not you plan to attend the Meeting, please sign and date the
enclosed Proxy Card and return it in the accompanying postage-paid return
envelope as promptly as possible. This will not prevent you from voting in
person, but will assure that your vote is counted if you are unable to attend
the Meeting. YOUR VOTE IS VERY IMPORTANT.
Sincerely,
/s/ John A.B. Davies, Jr.
John A.B. Davies, Jr.
President
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VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION
2101 PARKS AVENUE
VIRGINIA BEACH, VIRGINIA 23451
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held on April 29, 1998
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NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of Virginia Beach Federal Financial Corporation ("Corporation"), will
be held at the Clarion Hotel, 4453 Bonney Road, Virginia Beach, Virginia at 2:00
p.m. on Wednesday, April 29, 1998.
A Proxy Card and a Proxy Statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. The election of four directors of the Corporation;
2. The ratification of the adoption of the 1998 Stock Option
Plan;
3. The approval of the amendment to Article I of the
Corporation's Restated Articles of Incorporation changing the
name of the Corporation to "First Coastal Bankshares, Inc.";
and
4. The transaction of such other matters as may properly come
before the Meeting or any adjournments thereof. The Board of
Directors is not aware of any other business to come before
the Meeting.
Any action may be taken on the foregoing proposals at the Meeting on the
date specified above or on any date or dates to which, by original or later
adjournment, the Meeting may be adjourned. Stockholders of record at the close
of business on March 13, 1998, are the stockholders entitled to vote at the
Meeting and any adjournments thereof.
You are requested to complete and sign the enclosed Proxy Card which is
solicited by the Board of Directors and to return it promptly in the enclosed
envelope. The proxy will not be used if you attend and vote at the Meeting in
person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Allene S. Cheatham
ALLENE S. CHEATHAM
SECRETARY
Virginia Beach, Virginia
March 20, 1998
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IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE CORPORATION THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO INSURE A QUORUM AT THE MEETING. A
SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED
IF MAILED IN THE UNITED STATES.
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PROXY STATEMENT
OF
VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION
2101 PARKS AVENUE
VIRGINIA BEACH, VIRGINIA 23451
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ANNUAL MEETING OF STOCKHOLDERS
April 29, 1998
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GENERAL
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This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Virginia Beach Federal Financial
Corporation ("Corporation) to be used at the Annual Meeting of Stockholders of
the Corporation which will be held at the Clarion Hotel, 4453 Bonney Road,
Virginia Beach, Virginia on Wednesday, April 29, 1998 at 2:00 p.m., local time.
The accompanying Notice of Meeting and this Proxy Statement are being first
mailed to stockholders on or about March 20, 1998. The Corporation is the parent
holding company for First Coastal Bank (the "Bank').
At the Meeting, shareholders will consider and vote upon (i) the election
of four directors, (ii) the ratification of the adoption of the 1998 Stock
Option Plan (the "1998 Stock Option Plan"), (iii) the approval of the amendment
to Article I of the Corporation's Articles of Incorporation changing the name of
the Corporation to "First Coastal Bankshares, Inc."; and (iv) such other matters
as may properly come before the Meeting or any adjournments thereof. The Board
of Directors of the Corporation (the "Board" or the "Board of Directors") knows
of no additional matters that will be presented for consideration at the
Meeting. Execution of a proxy, however, confers on the designated proxy holder
discretionary authority to vote the shares represented by such proxy in
accordance with their best judgment on such other business, if any, that may
properly come before the Meeting or any adjournment thereof.
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VOTING AND REVOCABILITY OF PROXIES
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Stockholders who execute proxies retain the right to revoke them at any
time. Unless so revoked, the shares represented by such proxies will be voted at
the Meeting and all adjournments thereof. Proxies may be revoked by written
notice to the Secretary of the Corporation at the address above or by the filing
of a later dated proxy prior to a vote being taken on a particular proposal at
the Meeting. A proxy will not be voted if a stockholder attends the Meeting and
votes in person. Proxies solicited by the Board of Directors of the Corporation
will be voted in accordance with the directions given therein. Where no
instructions are indicated, executed proxies will be voted "FOR" the nominees
for directors set forth below and "FOR" for the other listed proposals. The
proxy confers discretionary authority on the persons named therein to vote with
respect to the election of any person as a director where the nominee is unable
to serve, or for good cause will not serve, and matters incident to the conduct
of the Meeting.
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VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
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Stockholders of record as of the close of business on March 13, 1998, are
entitled to one vote for each share of Common Stock of the Corporation ("Common
Stock") then held. As of March 13, 1998, the Corporation had 4,981,874 shares of
Common Stock issued and outstanding.
The presence in person or by proxy of at least a majority of the
outstanding shares of Common Stock entitled to vote is necessary to constitute a
quorum at the Meeting. For purposes of determining the votes cast with respect
to any matter presented for consideration at the Meeting only those votes cast
"FOR" or "AGAINST" are included. Abstentions and broker non-votes (i.e., shares
held by brokers on behalf of their customers, which may not be voted on certain
matters because the brokers have not received specific voting instructions from
their customers with respect to such matters) will be counted solely for the
purpose of determining whether a quorum is present. In the event there are not
sufficient votes for a quorum or to ratify any proposals at the time of the
Meeting, the Meeting may be adjourned in order to permit the further
solicitation of proxies.
As to the election of directors (Proposal I), the proxy card being provided
by the Board of Directors enables a stockholder 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. 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 ratification of the 1998 Stock Option Plan set forth in Proposal
II, by checking the appropriate box, a shareholder may: (i) vote "FOR" the item,
(ii) vote "AGAINST" the item, or (iii) vote to "ABSTAIN" on such item.
Shareholder approval of Proposal II will be determined by a majority of votes
cast on the matter at the Meeting, in person or by proxy, and entitled to vote
without regard to Broker Non-Votes.
As to the approval of the amendment to Article I of the Corporation's
Restated Articles of Incorporation changing the name of the Corporation to
"First Coastal Bankshares, Inc." set forth in Proposal III, by checking the
appropriate box, a shareholder may: (i) vote "FOR" the item, (ii) vote "AGAINST"
the item, or (iii) vote to "ABSTAIN" on such item. Shareholder approval of
Proposal III will require the affirmative vote of two-thirds of the outstanding
shares entitled to vote generally in the election of directors at the Meeting,
in person or by proxy. Abstention from voting and broker non-votes will count as
a vote against Proposal III. Unless otherwise required by law, all other matters
shall be determined by a majority of votes cast affirmatively or negatively
without regard to (a) Broker Non-Votes or (b) proxies marked "ABSTAIN" as to
that matter.
Persons and groups owning in excess of 5% of the Corporation's Common Stock
are required to file certain reports regarding such ownership pursuant to the
Securities Exchange Act of 1934, as amended ("Exchange Act"). Based upon such
reports and information provided by the Corporation's Stock Transfer Agent, the
following table sets forth, as of March 13, 1998, certain information as to
those persons who were beneficial owners of more than 5% of the outstanding
shares of Common Stock and the Common Stock beneficially owned by all executive
officers and directors of the Corporation as a group. Management knows of no
person other than those set forth below who owns more than 5% of the
Corporation's outstanding shares of Common Stock at March 13, 1998.
2
Amount and Nature Percent of Shares of
of Beneficial Common Stock
Name and Beneficial Owner Ownership (1) Outstanding
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Dimensional Fund Advisors, Inc. (2)
1299 Ocean Avenue, Suite 650
Santa Monica, California 90401 348,900 7.0%
Floyd E. Kellam, Jr.
2408 Princess Anne Road
Virginia Beach, Virginia 23456 304,844 (3)(4) 6.1%
All Executive Officers and Directors
as a Group (12 persons) 1,295,777 (5) 24.3%
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(1) Includes shares of Common Stock held directly as well as by spouses or
minor children, in trust and other indirect ownership, over which
shares the individuals effectively exercise sole or shared voting and
investment power, unless otherwise indicated.
(2) As reported to the Corporation, Dimensional Fund Advisors Inc.
("Dimensional"), a registered investment advisor, is deemed to have
beneficial ownership of 348,900 shares of Corporation Common Stock as
of December 31, 1997, all of which shares are held in portfolios of DFA
Investment Dimensions Group Inc., a registered open-end investment
company, or in series of the DFA Investment Trust Company, a Delaware
business trust, or the DFA Group Trust and DFA Participation Group
Trust, investment vehicles for qualified employee benefit plans, all of
which Dimensional Fund Advisors Inc. serves as investment manager.
Dimensional disclaims beneficial ownership of all such shares.
(3) Includes 217,250 shares over which Mr. Kellam exercises sole voting and
investment power and 66,469 shares over which Mr. Kellam exercises
shared voting and investment power as either co-trustee or co-executor.
Excludes shares of Common Stock over which Mr. Kellam disclaims
beneficial ownership (161,738 shares of Common Stock held by his
mother, Mrs. Annie B. Kellam). Includes 21,125 shares which maybe
received upon exercise of stock options which are immediately
exercisable.
(4) Excludes 9,975 shares of Common Stock of the Corporation owned by Sea
Realty Corporation and 47,016 shares of Common Stock of the Corporation
owned by Beachland, Inc. for which Mr. Kellam serves as director of
each corporation and as such shares voting and dispositive power over
such shares.
(5) Includes 353,333 shares which may be received by executive officers and
directors upon the exercise of stock options which are immediately
exercisable. Does not include 1,667 shares subject to options which
were not exercisable within 60 days of March 13, 1998. For more
detailed information regarding the beneficial ownership of shares of
Corporation Common Stock by the directors and named officers, see
"Election of Directors." Includes 8,560 shares allocated under the
Employee Stock Ownership Plan and 4,640 shares owned under the Employee
Stock Purchase Plan.
3
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INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
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Directors, officers and employees of the Corporation have an interest
in certain matters being presented for stockholder ratification. Such
individuals are eligible to be granted stock options pursuant to the 1998 Stock
Option Plan subject to ratification thereof by the shareholders of the
Corporation. The ratification of the 1998 Stock Option Plan is being presented
as "Proposal II - Ratification of the adoption of the 1998 Stock Option Plan."
See "Proposal I - Election of Directors" for information regarding the voting
control of shares of Common Stock held by executive officers and directors.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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The Common Stock of the Corporation is registered pursuant to Section
12(g) of the Exchange Act. The executive officers and directors of the
Corporation and beneficial owners of greater than 10% of the Corporation's
Common Stock ("10% beneficial owners") are required to file reports on Forms 3,
4 and 5 with the Securities and Exchange Commission ("SEC") disclosing changes
in beneficial ownership of the Common Stock. Based on the Corporation's review
of such ownership reports, no executive officer, director or 10% beneficial
owner of the Corporation failed to file such ownership reports on a timely basis
during the period from January 1, 1997, through December 31, 1997.
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PROPOSAL I - ELECTION OF DIRECTORS
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The Corporation's Restated Articles of Incorporation require that
directors be divided into three classes, as nearly equal in number as possible,
each class to serve for a three year period, with approximately one-third of the
directors elected each year. The Board of Directors currently consists of nine
members. Four directors will be elected at the Meeting, each to serve for a
three-year term, as noted below, or until his successor has been elected and
qualified.
Robert H. Deford, Jr., Charles P. Fletcher, Rufus S. Kight, Jr. and
George R. C. McGuire have been nominated by the Board of Directors to serve as
directors. All such nominees are currently members of the Board. It is intended
that the persons named in the proxies solicited by the Board will vote for the
election of the named nominees. If any nominee is unable to serve, the shares
represented by all valid proxies will be voted for the election of such
substitute as the Board of Directors may recommend or the size of the Board may
be reduced to eliminate the vacancy. At this time, the Board knows of no reason
why any nominee might be unavailable to serve.
The following table sets forth the nominees, their name, age, the year
they first became a director of the Corporation or the Bank, the expiration date
of their current term as a director, and the number and percentage of shares of
the Corporation's Common Stock beneficially owned. Each director of the
Corporation is also a member of the Board of Directors of the Bank. Such table
also presents the stock ownership of the executive officers of the Corporation.
4
Age at Year First Current Shares of Common
December 31, Elected or Term to Stock Beneficially Percent
Name 1997 Appointed(1) Expire Owned (2)(3) of Class
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BOARD NOMINEES FOR TERMS TO EXPIRE IN 2001
Robert H. DeFord, Jr. 65 1979 1998 180,707 3.6%
Charles P. Fletcher 71 1973 1998 148,317 3.0%
Rufus S. Kight, Jr. 85 1951 1998 32,138 0.7%
George R. C. McGuire 64 1979 1998 141,125 2.8%
DIRECTORS CONTINUING IN OFFICE
John A.B. Davies, Jr. 46 1991 1999 87,396(4) 1.7%
Betty Anne Huey 52 1987 1999 124,562(5)(6) 2.5%
Edward E. Brickell 71 1975 2000 95,738 1.9%
Floyd E. Kellam, Jr. 68 1967 2000 304,844(5)(6)(7)(8) 6.1%
Ivan D. Mapp 78 1974 2000 42,713 0.9%
OTHER EXECUTIVE OFFICERS
Dennis R. Stewart
Executive Vice 48 45,951(9) 0.9%
President and Chief
Financial Officer
John M. Chattleton
Executive Vice 49 51,391(9) 1.0%
President of the Bank
John M. Reddecliff 36
Senior Vice President of
the Bank 40,895(9) 0.8%
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(1) Refers to the year the individual first became a director of the Bank. All
of the directors became directors of the Corporation when it was
incorporated in February 1989, except John A. B. Davies, Jr., who was
appointed a director of the Corporation in June 1991.
(2) Includes shares of Common Stock held directly as well as by spouses or
minor children, in trust and other indirect ownership, over which shares
the individuals effectively exercise sole or shared voting and investment
power, unless otherwise indicated. Also includes immediately exercisable
stock options covering a total of 169,000 shares of Common Stock granted to
non-employee directors during fiscal 1993, 1994, 1995, 1996 and 1997.
(3) Beneficial ownership as of March 13, 1998.
5
(4) Includes 3,264 shares of Common Stock held under the Employee Stock
Ownership Plan and 832 shares of Common Stock held under the Employee Stock
Purchase Plan for such individual's benefit. Includes 75,000 shares which
may be received upon the exercise of stock options which are immediately
exercisable.
(5) Directors Floyd E. Kellam, Jr., and Betty Anne Huey are first cousins.
(6) Excludes 9,975 shares of Common Stock owned by Sea Realty Corporation and
47,016 shares of Common Stock owned by Beachland, Inc. for which Floyd E.
Kellam, Jr. and Betty Anne Huey serve as director of each corporation.
Includes 13,152 shares of Common Stock owned by a trust for the benefit of
Ms. Huey's children for which trust Ms. Huey serves as Trustee and over
which shares she has voting and dispositive powers.
(7) Includes 66,469 shares over which Mr. Kellam exercises shared voting and
investment power as either a co-trustee or a co-executor.
(8) Excludes 161,738 shares of Common Stock owned by Mrs. Annie B. Kellam, his
mother, for which he disclaims beneficial ownership.
(9) Includes stock options exercisable within 60 days of Voting Record Date.
Excludes 1,667 stock options held by Mr. Chattleton, which are not
exercisable within 60 days.
The principal occupation of each nominee and director of the Corporation
for the last five years is set forth below.
Robert H. DeFord, Jr. is a land developer.
Charles P. Fletcher serves as Chairman of the Board and is a Dentist.
Rufus S. Kight, Jr. is the former Chief Lending Officer of Virginia Beach
Federal Savings Bank who retired in 1977.
George R.C. McGuire is an Orthodontist who retired in 1992.
John A. B. Davies, Jr. has served as President, Chief Executive Officer and
a Director of the Corporation since June 1991. Previously, he was employed with
First American Bank of Virginia as a Senior Vice President/Retail
Administration.
Betty Anne Huey is a real estate investor.
Edward E. Brickell has served as President of the Eastern Virginia Medical
School in Norfolk since August 1988. President, BMS, Ltd., from 1987 to July
1988. Prior thereto, he was Superintendent of Schools, City of Virginia Beach,
Virginia.
Floyd E. Kellam, Jr. serves as Vice-Chairman of the Board and is an
Attorney in Virginia Beach, Virginia.
Ivan D. Mapp is the former Commissioner of the Revenue for the City of
Virginia Beach, who retired in 1984.
Meetings and Committees of the Board of Directors
The Board of Directors of the Corporation conducts its business through
meetings of the Board and through its committees. All committees act for both
the Corporation and the Bank. During the fiscal year ended December 31, 1997,
the Board of Directors held 13 meetings. No director of the Corporation attended
fewer than 75% of the total meetings of the Board of Directors and committees on
which such Board member served during this period.
6
The Corporation's full Board of Directors acts as a nominating committee
for the annual selection of its nominees for election as directors. While the
Board of Directors will consider nominees recommended by stockholders, it has
not actively solicited recommendations from the Corporation's stockholders for
nominees nor, subject to the procedural requirements set forth in the
Corporation's Restated Articles of Incorporation and Bylaws, established any
procedures for this purpose. The Board of Directors held 1 meeting in 1997 in
its capacity as the nominating committee.
The Corporation's Audit and Ethics Committee is composed of Directors
Brickell, Fletcher, Kellam, DeFord, Huey, Mapp, and McGuire. The primary
functions of this committee are to evaluate audit performance, handle relations
with the Corporation's independent accountants and evaluate policies and
procedures relating to internal auditing functions. The Audit and Ethics
Committee held 6 meetings during 1997.
The Corporation's Human Resources and Finance Committee is composed of
Directors Kellam, Fletcher, Brickell, DeFord, Huey, Mapp, McGuire and Davies.
This committee reviews interest rate risk management, annual budget proposals,
compensation of officers and employees, certain capital expenditure proposals
and human resources programs. During 1997, the Human Resources and Finance
Committee held 6 meetings.
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DIRECTOR AND EXECUTIVE OFFICER COMPENSATION
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Directors' Compensation
Each non-employee director of the Corporation and the Bank receives $500
per Board meeting ($300 during 1997) and an annual retainer of $14,000. The
Chairman of the Board receives $700 per meeting ($400 during 1997). Directors,
except full-time employees of the Bank, receive $100 per committee meeting
except for the Chairman who receives $200 per committee meeting. The Corporation
paid a total of $186,100 in directors' and committee fees for the fiscal year
ended December 31, 1997. Additionally, options to purchase 3,125 shares of
Common Stock at $16.25 per share were awarded to each non-employee director
during fiscal year 1997.
Executive Compensation
Summary Compensation Table. The following table sets forth for the fiscal
years ended December 31, 1997, 1996 and 1995, certain information as to the
total compensation received by the individuals listed. No other executive
officer of the Corporation who continued to serve as an executive officer as of
December 31, 1997 received total cash compensation in excess of $100,000 during
such periods.
7
Annual Compensation
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Other Securities All
Name and Principal Annual Underlying Other
Position Year Salary Bonus(1) Compensation(2) Options Compensation(3)
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John A.B. Davies, Jr. 1997 $202,588 $26,750 $ 758 25,000 $ 6,551
President and CEO 1996 180,992 -0- 1,106 -0- 5,409
1995 155,000 25,000 993 25,000 6,954
Dennis R. Stewart 1997 $130,149 $46,495 $ 9,000 13,000 $ 5,735
Executive Vice President 1996 122,740 -0- 9,000 -0- 4,531
and CFO 1995 115,000 9,520 9,375 10,000 6,100
John M. Chattleton 1997 $111,574 $16,881 $ 7,000 13,000 $ 5,158
Executive Vice President 1996 105,051 -0- 7,000 5,000 3,854
of the Bank 1995 100,708 8,093 7,000 12,000 5,007
John M. Reddecliff 1997 $106,459 $14,179 $ 3,500 24,000 $ 4,619
Executive Vice President of
the Bank
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(1) Includes bonuses accrued during 1996 and paid in 1997 of $26,750, $18,374,
$16,881, and $14,179 to Mr. Davies, Stewart, Chattleton, and Reddecliff,
respectively. Includes $28,121 accrued and paid to Mr. Stewart during 1997.
Excludes bonuses accrued during 1997 and paid in 1998 of $52,519, $24,147,
and $21,991 to Messrs. Davies, Chattleton and Reddecliff, respectively.
(2) Excludes value of perquisites and other benefits which aggregate value did
not exceed the lesser of $50,000 or 10% of total salary and bonus.
(3) Includes amounts allocated to individual's account under the Employee Stock
Ownership Plan and Corporation matching contributions under the 401(k)
Plan.
Employment Agreements
The Corporation, through the Bank, has entered into employment agreements
with John A.B. Davies, Jr., President and Chief Executive Officer of the
Corporation, Dennis R. Stewart, Executive Vice President and Chief Financial
Officer of the Corporation, John M. Chattleton, Executive Vice President of the
Bank, and John M. Reddecliff, Executive Vice President of the Bank. Each
employment agreement is for a two year term, with an annual base salary of
$203,000 for Mr. Davies, $138,258 for Mr. Stewart, $117,600 for Mr. Chattleton,
and $110,164 for Mr. Reddecliff. Each agreement provides for a salary review by
the Board of Directors not less often than annually with the Board to consider
increases to be made upon satisfactory performance, as well as participation in
any customary fringe benefits and vacation and sick leave. The agreement
terminates upon death, and is terminable by the Corporation for "just cause" as
defined in the agreement. If the Corporation terminates the employee without
just cause, the employee is entitled to a continuation of his salary from the
date of termination for a period of twelve (12) months, without regard to the
remaining term of the agreement. The employee is able to terminate the agreement
by providing not less than 60 days written notice to the Board of Directors.
Each agreement may be renewed annually by the Board of Directors upon a
determination of satisfactory performance and a determination to extend such
agreement within the Board's sole judgment.
Upon the disability of an executive officer under an employment agreement,
such individual will receive not less than 100% of base salary for a period of
12 months and 60% for the remainder of the term of the agreement, reduced by
benefits from other disability insurance in effect for Bank employees or
payments received under the Federal Social Security Acts.
8
Each employment agreement contains a provision stating that in the event of
involuntary termination of employment in connection with, or within one year
after, any change in control of the Bank or the Corporation, the employee will
be paid in a lump sum an amount equal to 200% of the employee's prior calendar
year's W-2 compensation in the case of Messrs. Stewart, Chattleton and
Reddecliff and 299% of the employee's prior calendar year's W-2 compensation in
the case of Mr. Davies. "Control" generally refers to the ownership, holding or
power to vote more than 25% of the Bank's or the Corporation's voting stock, the
control of the election of a majority of directors of the Bank or Corporation,
or the exercise of a controlling influence over the management or policies of
the Bank or the Corporation by any person or group. The employee may also be
entitled to receive the foregoing termination payment following a change in
control in the event the officer is required to relocate more than 35 miles from
the Corporation's main office, duties are materially diminished, existing
employee benefit plans are not maintained, or in the case of Mr. Davies, if he
is not re-elected to the Board of Directors of the Bank or the Corporation. Had
a change of control occurred based upon compensation as of December 31, 1997,
Mr. Davies, Mr. Stewart, Mr. Chattleton and Mr. Reddecliff would have been
entitled to lump sum payments of approximately $512,000, $353,000, $271,000 and
$233,000, respectively.
Long Term Incentive Plans
The Corporation does not presently sponsor any long-term incentive
plans.
Compensation Committee Interlocks and Insider Participation
The Corporation's Human Resources and Finance Committee serves as a
compensation committee for the executive officers of the Corporation and the
Bank. The members of this committee are Directors Kellam, Fletcher, Brickell,
DeFord, Huey, Mapp, McGuire and Davies. Mr. Davies is the President and CEO of
the Corporation and the Bank.
Report of the Compensation Committee on Executive Compensation
The executive officers of the Corporation and the Bank consist of Mr.
John A.B. Davies, Jr. (President and Chief Executive Officer), Dennis R. Stewart
(Executive Vice President and Chief Financial Officer), John M. Chattleton
(Executive Vice President of the Bank) and John M. Reddecliff (Executive Vice
President of the Bank).
The Corporation's Human Resources and Finance Committee meets
throughout the year and, when appropriate, reviews compensation paid to
executive officers and determines the level of any increases in the salary
budget for executive officers to take effect during the following year. The
committee reviews various published surveys of compensation paid to executives
performing similar duties for depository institutions and their holding
companies, with a particular focus on the level of compensation paid by
comparable institutions in and around the Corporation's market area. Although
the committee does not set compensation levels for executive officers based on
whether particular financial goals have been achieved by the Corporation, the
committee does consider the overall profitability of the Corporation when making
these decisions. With respect to each particular executive officer, that
individual's particular contributions to the Corporation over the past year are
also evaluated.
During 1997, the committee reviewed the annual compensation paid to
chief executive officers of financial institutions in the Commonwealth of
Virginia and surrounding states with assets of between $400 million to $1.0
billion in consideration of its specific salary increase decision with respect
to
9
compensation to be paid to Mr. Davies. His salary was increased from $200,000 to
$203,000 during 1997. Mr. Davies did not participate in committee decisions
regarding his own compensation.
The Human Resources and Finance Committee consists of the following
directors of the Corporation:
Floyd E. Kellam, Jr.
Charles P. Fletcher
Edward E. Brickell
John A.B. Davies, Jr.
Robert H. DeFord, Jr.
Betty Anne Huey
Ivan D. Mapp
George R.C. McGuire
Performance Graph
Set forth below is a performance graph comparing the yearly cumulative
total shareholder return on the Corporation's Common Stock with (a) the yearly
cumulative total shareholder return on stocks included in the Nasdaq Stock
Market index and (b) the yearly cumulative total shareholder return on stocks
included in the Nasdaq Stock Market bank index as prepared for the Nasdaq Stock
Market by the Center for Research in Securities Prices ("CRSP") at the
University of Chicago. The graph assumes the investment of $100 as of January 1,
1993 in each of the three investment alternatives. All of these cumulative total
returns are computed assuming the reinvestment of dividends at the frequency
with which dividends were paid during the applicable years. The years compared
are the Corporation's fiscal years beginning January 1, and ending December 31,
1993, 1994, 1995, 1996, and 1997.
There can be no assurance that the Corporation's stock performance will
continue into the future with the same or similar trends depicted in the graph
below. The Corporation will not make nor endorse any predictions as to future
stock performance. In addition, the report of the Human Resources and Finance
Committee and the stock performance graph included herein shall not be deemed to
be incorporated by reference into any filing made by the Corporation under the
Securities Act of 1933, as amended, or the Exchange Act, unless the Corporation
specifically incorporates such information by reference in such filings, and
shall not otherwise be deemed filed under such Acts.
10
[GRAPHIC OMITTED]
=============================================================================================================================
12/31/92 12/31/93 12/30/94 12/29/95 12/30/96 12/31/97
- -----------------------------------------------------------------------------------------------------------------------------
Nasdaq CRSP U.S. 100.00 $114.80 $112.21 $158.70 $195.20 $239.53
- -----------------------------------------------------------------------------------------------------------------------------
Nasdaq CRSP Bank 100.00 $114.04 $113.63 $169.22 $223.41 $377.43
- -----------------------------------------------------------------------------------------------------------------------------
Virginia Beach FFC 100.00 $116.16 $94.98 $125.03 $155.29 $307.16
=============================================================================================================================
Other Benefits
Health and Life Insurance. The Corporation's employees are provided
with health care and life insurance and long-term disability policies under
group plans available generally and on the same basis to all full-time
employees. Hospitalization, medical and major medical plans are subject to
employee contributions for dependent coverage.
401(k) Savings Plan. The Bank sponsors a contributory 401(k) Savings
Plan for eligible employees. This plan is a qualified trust under Section 401 of
the Internal Revenue Code of 1986 (the "Code"). Employees are eligible to
participate in the savings plan after they have completed one year of service
and reach age 21. Participants may elect to save between 1% and 10% of their
compensation on a pre-tax basis under the savings plan. The first 6% of employee
savings is matched $.50 for each $1.00 of employee savings. Distributions under
the savings plan are made following termination of employment, retirement,
death, and in the event of permanent and total disability. Total Bank
contributions to the savings plan for the fiscal year ended December 31, 1997,
amounted to $114,048.
11
Employee Stock Ownership Plan. The Bank maintains a non-contributory
tax-qualified Employee Stock Ownership Plan ("ESOP") for eligible employees.
Employees are eligible to participate in the ESOP after they have reached age
21. Benefits under the ESOP are allocated based upon participant compensation
for a plan year as a percentage of total compensation of all ESOP participants.
ESOP assets are primarily invested in Common Stock. Distributions under the plan
are made following termination of employment, retirement, death, and in the
event of permanent and total disability. The Company contributed $0 to the ESOP
for the fiscal year ended December 31, 1997.
Employee Stock Purchase Plan. Effective April 1, 1994, the Bank
implemented an Employee Stock Purchase Plan ("ESPP"). This Plan permits
employees to increase their ownership of shares of the Common Stock. Once an
employee is enrolled as a Participant in the Plan, payroll deductions are made
and such funds are used to purchase Common Stock under the terms of the Plan.
Participation in the Plan is strictly voluntary by the employee, and the
employee pays 95% of the purchase price of the Common Stock purchased under the
Plan. The Participant pays no brokerage commissions or service charges for
purchases made under the Plan. Such charges are paid by the Company. Total Bank
contributions to the ESPP for the fiscal year ended December 31, 1997 amounted
to $3,749.
Stock Option Plans. Prior to its expiration in August 1990, the
Virginia Beach Federal Savings Bank 1981 Stock Option Plan, as amended (the
"1981 Stock Option Plan"), provided for the granting of options to purchase
shares of the Bank's common stock to officers and employees of the Bank and its
subsidiaries. Upon the reorganization transaction by which the Corporation
acquired all of the common stock of the Bank, stock options under the 1981 Stock
Option Plan became options to purchase Common Stock of the Corporation. As of
December 31, 1997, options to purchase 4,250 shares were outstanding and remain
exercisable under the 1981 Stock Option Plan, including options to purchase
2,000 shares of Common Stock held by all executive officers as a group. The
shares that may be issued under the 1981 Stock Option Plan is subject to
adjustment for stock dividends or stock splits, mergers, recapitalization or
similar changes in the number or kinds of shares of stock of the Corporation. No
option will be exercisable after the expiration of ten years from the date that
it is granted, and an option may be exercised only during the period of
employment with the Corporation and its subsidiaries, except in the event of the
optionee's death, and cannot be transferred or assigned other than by will or in
accordance with the laws of descent and distribution. When an optionee exercises
an option, the Corporation will receive a cash payment equal to the exercise
price from the optionee in exchange for shares issued.
In August 1990, the Bank's Board of Directors adopted the 1991 Stock
Option Plan, which plan was ratified by stockholders in 1991. The 1991 Stock
Option Plan provides for the grant of up to 499,432 options for the purchase of
Common Stock on such terms and conditions consistent with the 1991 Stock Option
Plan as the Stock Option Committee administering the 1991 Stock Option Plan may
determine.
At the Corporation's Annual Meeting of Stockholders held on April 28,
1993, stockholders of the Corporation ratified the adoption by the Board of
Directors of an amendment to the 1991 Stock Option Plan. Under the 1991 Stock
Option Plan, as amended, an award of options to purchase 10,000 shares of Common
Stock was made to each director of the Corporation who was not otherwise an
employee as of February 25, 1993, the date of Board adoption of the amendment.
Additionally, the amendment to the 1991 Stock Option Plan provided that each
such director be awarded an option to purchase 2,000 shares of Common Stock at
the first meeting of the Board of Directors following the 1994 Annual Meeting of
Stockholders, and annually thereafter for the next four years, at the then fair
market value of such Common Stock. Pursuant to the 1991 Stock Option Plan, as
amended, options to purchase a maximum of 160,000 shares of Common Stock in the
aggregate may be awarded to such directors. All options granted to directors do
not qualify as incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended. Options granted to each non-employee
director pursuant to the 1991 Stock Option Plan are exercisable for a period of
ten years from the date of grant,
12
but only while the optionee is a director, or within three years after
termination of such service as a director. As of December 31, 1997, options
covering 144,000 shares of Common Stock have been awarded to non-employee
directors of the Corporation and were immediately exercisable pursuant to the
1991 Stock Option Plan. During 1997, 186,000 options were granted to executive
officers of the Corporation, of which 184,333 options were immediately
exercisable and the balance were exercisable in equal installments on the first
and second anniversary dates of the award.
The following tables set forth additional information concerning
options granted and exercised under the option plans during the prior fiscal
year.
OPTION GRANTS TABLE
Option Grants in Last Fiscal Year
---------------------------------
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Option Term
--------------
Individual Grants
- ----------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
Number of % of Total
Securities Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ------------ ----------- ----------- -------- ------ -------- --------
John A.B. Davies, Jr. 5,000 23.7 10.875 5/8/07 34,196 86,660
President and CEO 2,000 16.250 12/11/07 204,391 517,966
Dennis R. Stewart 1,000 12.3 13.125 6/26/07 8,254 20,918
Executive Vice President 12,000 16.250 12/11/07 122,634 310,780
and CFO
John M. Chattleton 1,000 12.3 13.125 6/26/07 8,254 20,918
Executive Vice President 12,000 16.250 12/11/07 122,634 310,780
of the Bank
John M. Reddecliff 6,500 22.8 10.000 2/13/07 40,878 103,593
Executive Vice President 3,500 13.125 6/26/07 28,890 73,213
of the Bank 14,000 16.250 12/11/07 143,074 362,576
13
OPTION EXERCISES AND YEAR END VALUE TABLE
Aggregated Option Exercises in Last Fiscal Year, and FY-End Option Value
------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options
Options at FY-End (#) at FY-End ($)(1)
Shares Acquired
Name on Exercise (#) Value Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ---------------- ----------------- ------------------------- -------------------------
John A.B. Davies, Jr. 0 $0 75,000 / 0 586,250 / 0
President and CEO
Dennis R. Stewart 0 0 37,000 / 0 291,500 / 0
Executive Vice
President and CFO
John M. Chattleton 0 0 35,333 / 1,667 266,705 / 19,171
Executive Vice
President of the Bank
John M. Reddecliff 0 0 37,000 / 0 231,938 / 0
Executive Vice
President of the Bank
- ----------------------
(1) Based upon a market price of $18.375 as of December 31, 1997.
- --------------------------------------------------------------------------------
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------------------------------
Transactions with Management and Others
The Bank leases its branch office located at 2400 Princess Anne Road,
Virginia Beach, from the trustees of a trust under the will of Floyd E. Kellam.
Floyd E. Kellam, Jr., a director of the Corporation, serves as a co-trustee of
this trust. The original lease term began during 1975, and its last renewal
expired at the end of November 1989. The Bank entered into a new lease agreement
at the beginning of December 1989 which provides for an initial ten-year term
and two five-year renewal options at a specified rental fee for each period. The
annual rental was $22,392 for the first year, increasing by 3% per year during
the initial term and by 5% per year during any renewal. Leasehold improvements
may be credited against rental payments due. In January 1994, the Bank executed
an addendum to the original lease for an additional 810 square feet of space
adjacent to the original leased premises. The terms and conditions of the lease
addendum run concurrent with and are the same as the original lease. The Bank's
total rental payments under the lease, net of leasehold improvements, during
fiscal 1997 were $38,256.
The Bank makes loans to its directors, officers and other employees.
The Board of Directors must approve all loans to officers. Except for the waiver
of loan closing fees for certain non-executive officers and employees, these
loans are made in the ordinary course of business and on substantially the same
terms and collateral as those of comparable transactions with the general public
prevailing at the time and do not involve more than the normal risk of
collectibility or present other unfavorable features. Since 1989, the Bank's
loans to directors and executive officers have been made on substantially the
same terms, including interest rates and origination fees, as those available to
the public for comparable transactions, and such loans do not involve more than
the normal risk of non-payment or present other unfavorable features. Loans to
executive officers and directors of the Company and the Bank, and their
affiliates, amounted to approximately $5.0 million or 11.3% of the Bank's
stockholders' equity at
14
December 31, 1997. All such loans were performing in accordance with their terms
as of December 31, 1997.
The Bank purchases property and casualty insurance through
Kellam-Eaton-Huey Insurance Agency, Inc. (the "Agency"). During fiscal 1997, the
Bank purchased $118,292 of insurance through the Agency. Betty Anne Huey, a
director of the Bank, and her husband together own half of the stock of the
Agency, of which she is a director and her spouse is the Executive Vice
President, Secretary and a director.
- --------------------------------------------------------------------------------
PROPOSAL II - RATIFICATION OF THE ADOPTION OF THE
1998 STOCK OPTION PLAN
- --------------------------------------------------------------------------------
General
The Corporation's Board of Directors adopted the 1998 Stock Option Plan
(the "Plan") on January 29, 1998. The Plan is subject to approval by the
Corporation's shareholders. Pursuant to the Plan, an aggregate of 490,500 shares
of Common Stock are to be reserved for issuance by the Corporation upon exercise
of stock options to be granted to employees, officers and directors of the
Corporation and each present or future subsidiary corporation of the
Corporation. The purpose of the Plan is to encourage these individuals to invest
in the Corporation's stock and thereby acquire a proprietary interest in the
business of the Corporation and so an increased personal interest in it's
continued success and progress, to the mutual benefit of shareholders and
themselves.
The Plan, which will become effective upon the date of it's adoption by
the Board, subject to ratification by the shareholders of the Corporation
("Effective Date"), provides for a term of ten years, after which time no awards
may be made. The following summary of the material features of the Plan is
qualified in its entirety by reference to the complete provisions of the Plan,
attached hereto as Exhibit A.
The Plan will be administered by the Corporation's Board of Directors
or a committee of not less than two non-employee directors appointed by the
Board and serving at the pleasure of the Board (the "Option Committee"). Members
of the Option Committee shall be deemed "Non-Employee Directors" within the
meaning of Rule 16b-3 pursuant to the Exchange Act. The Option Committee shall
select those individuals to whom options are to be granted, the number of
options to be granted, whether the option shall be an incentive stock option or
a nonqualified stock option, and the specific terms of such awards. A majority
of the members of the Option Committee shall constitute a quorum and the vote or
written consent of a majority of the members of the Option Committee shall
constitute the action of the Option Committee.
Employees, officers and directors who are designated by the Option
Committee will be eligible to receive, at no cost to them, options under the
Plan (the "Optionees"). Options granted under the Plan will constitute either
incentive stock options (options that afford favorable tax treatment to
recipients upon compliance with certain restrictions pursuant to Section 422 of
the Internal Revenue Code ("Code") and that do not normally result in tax
deductions to the Corporation) or nonqualified stock options (options that do
not afford recipients favorable tax treatment under Code Section 422). Option
shares may be paid for in cash, shares of Common Stock, or a combination of
both. The Corporation will receive no consideration other than the option
exercise price per share for Common Stock issued to Optionees upon the exercise
of those Options.
15
Shares issuable under the Plan may be from authorized but unissued
shares or they may be reacquired shares. An Option which expires, becomes
unexercisable or is forfeited for any reason prior to its exercise will again be
available for issuance under the Plan.
Stock Options
The Option Committee may grant both an incentive stock option and a
nonqualified stock option. The option price for both incentive stock options and
nonqualified stock options issued under this Plan shall equal not less than the
fair market value of the Common Stock as of the date of the grant of the option.
If an Optionee ceases to serve as an employee of the Corporation for
any reason other than disability or death, an exercisable incentive stock option
may continue to be exercisable for three months but in no event after the
expiration date of the option, except as may otherwise be determined by the
Option Committee at the time of the award. Nonqualified stock options expire ten
years after the date they are granted, unless terminated earlier under the
option terms. These are determined by the Option Committee, in its sole
discretion at the time of grant.
For purposes of determining the Fair Market Value of the Common Stock,
if the Common Stock is traded otherwise than on a national securities exchange
at the time of the granting of an Option, then the exercise price per share of
the Option shall be not less than the mean between the last bid and ask price on
the date the Option is granted or, if there is no bid and ask price on said
date, then on the immediately prior business day on which there was a bid and
ask price. If no such bid and ask price is available, then the exercise price
per share shall be determined in good faith by the Option Committee. If the
Common Stock is listed on a national securities exchange (including the Nasdaq
National Market) at the time of the granting of an Option, then the exercise
price per share of the Option shall be not less than the average of the highest
and lowest selling price of the Common Stock on such exchange on the date such
Option is granted or, if there were no sales on said date, then the exercise
price shall be not less than the mean between the last bid and ask price on such
date. If an officer or employee owns Common Stock representing more than ten
percent of the outstanding Common Stock at the time an incentive stock option is
granted, then the exercise price shall not be less than one hundred and ten
percent (110%) of the Fair Market Value of the Common Stock at the time the
incentive stock option is granted. No more than $100,000 of incentive stock
options can become exercisable for the first time in any one year for any one
person. The Option Committee may impose additional conditions upon the right of
an Optionee to exercise any Option granted hereunder which are not inconsistent
with the terms of the Plan or the requirements for qualification as an incentive
stock option, if such Option is intended to qualify as an incentive stock
option.
Upon the exercise of an Option by an Optionee (or the Optionee's
personal representative), the Option Committee, in its sole and absolute
discretion, may make a cash payment to the Optionee, in whole or in part, in
lieu of the delivery of shares of Common Stock. Such cash payment to be paid in
lieu of delivery of Common Stock shall be equal to the difference between the
Fair Market Value of the Common Stock on the date of the Option exercise and the
exercise price per share of the Option. Such cash payment shall be in exchange
for the cancellation of such Option. Such cash payment shall not be made in the
event that such transaction would result in liability to the Optionee and the
Corporation under Section 16(b) of the Exchange Act, and regulations promulgated
thereunder.
Awards Under the Plan
The Board or the Option Committee shall from time to time in its sole
discretion determine who are the officers, employees, directors and advisory
directors of the Corporation and each present and future subsidiary corporation
of the Corporation eligible to receive options under this Plan, which of these
16
individuals shall in fact be granted an option or options, whether the option
shall be an incentive stock option or a nonqualified stock option, the time or
times at which the options shall be granted, the rate of option exercisability,
and, pursuant to the Plan, the price at which each of the options is exercisable
and the duration of the option. As of the Record Date, no determination as to
the award of any Options under the Plan has been made. In no event, however, may
awards to any one individual exceed more than 50% of the total shares authorized
for issuance under the Plan.
Dividend Equivalent Rights
The Option Committee, in its sole discretion, may include as a term of
any Option, the right of the Optionee to receive Dividend Equivalent Rights.
Such rights shall provide that upon the payment of a dividend on the Common
Stock, the holder of such Options shall receive payment of compensation in an
amount equivalent to the dividend payable as if such Options had been exercised
and such Common Stock held as of the dividend record date. Such rights shall
expire upon the expiration or exercise of such underlying Options. Such rights
are nontransferable and shall attach to Options whether or not such Options are
immediately exercisable. The dividend equivalent payments associated with
Options that are not yet immediately exercisable shall be paid within 30 days of
the related dividend payment date. All Options granted to non-employee Directors
of the Corporation or the Bank as of the Effective Date in accordance with the
Plan are intended to have Dividend Equivalent Rights associated with such
Options.
Effect of Mergers, Change of Control and Other Adjustments
Subject to any required action by the shareholders of the Corporation,
within the sole discretion of the Option Committee, the aggregate number of
shares of Common Stock for which Options may be granted hereunder or the number
of shares of Common Stock represented by each outstanding Option will be
proportionately adjusted for any increase or decrease in the number of issued
and outstanding shares of Common Stock resulting from a subdivision or
consolidation of shares or the payment of a stock dividend or any other increase
or decrease in the number of shares of Common Stock effected without the receipt
or payment of consideration by the Corporation. Subject to any required action
by the shareholders of the Corporation, in the event of any change in control,
recapitalization, merger, consolidation, exchange of shares, spin-off,
reorganization, tender offer, partial or complete liquidation or other
extraordinary corporate action or event, the Option Committee, in its sole
discretion, shall have the power, prior to or subsequent to such action or
events, to (i) appropriately adjust the number of shares of Common Stock subject
to each Option, the exercise price per share of such Option, and the
consideration to be given or received by the Corporation upon the exercise of
any outstanding Options; (ii) cancel any or all previously granted Options,
provided that appropriate consideration is paid to the Optionee in connection
therewith; and/or (iii) make such other adjustments in connection with the Plan
as the Option Committee, in its sole discretion, deems necessary, desirable,
appropriate or advisable. However, no action may be taken by the Option
Committee which would cause incentive stock options granted pursuant to the Plan
to fail to meet the requirements of Section 422 of the Code without the consent
of the Optionee. Upon the payment of a special or non-recurring cash dividend
that has the effect of a return of capital to the shareholders, the Option
exercise price per share shall be adjusted proportionately.
The Option Committee will at all times have the power to accelerate the
exercise date of all Options granted under the Plan. In the case of a Change in
Control of the Corporation as determined by the Option Committee, all
outstanding options shall become immediately exercisable. A Change in Control is
defined to include (i) the sale of all, or a material portion, of the assets of
the Corporation; (ii) the merger or recapitalization of the Corporation whereby
the Corporation is not the surviving entity; (iii) a change in control of the
Corporation as otherwise defined or determined by the Office of Thrift
Supervision or its regulations; or (iv) the acquisition, directly or indirectly,
of the beneficial ownership (within the meaning of Section 13(d) of the Exchange
Act and rules and regulations promulgated
17
thereunder) of 25% or more of the outstanding voting securities of the
Corporation by any person, trust, entity, or group. This limitation shall not
apply to the purchase of shares by underwriters in connection with a pubic
offering of Corporation stock or the purchase of shares of up to 25% of any
class of securities of the Corporation by a tax-qualified employee stock benefit
plan which is exempt from the approval requirements in effect, or as may
hereafter be amended.
In the event of such a Change in Control, the Option Committee and the
Board of Directors will take one or more of the following actions to be
effective as of the date of such Change in Control: (i) provide that such
Options shall be assumed, or equivalent options shall be substituted,
("Substitute Options") by the acquiring or succeeding corporation (or an
affiliate thereof), provided that: (A) any such Substitute Options exchanged for
incentive stock options shall meet the requirements of Section 424(a) of the
Code, and (B) the shares of stock issuable upon the exercise of such Substitute
Options shall constitute securities registered in accordance with the Securities
Act or such securities shall be exempt from such registration in accordance with
Sections 3(a)(2) or 3(a)(5) of the Securities Act, (collectively, "Registered
Securities"), or in the alternative, if the securities issuable upon the
exercise of such Substitute Options shall not constitute Registered Securities,
then the Optionee will receive upon consummation of the Change in Control
transaction a cash payment for each Option surrendered equal to the difference
between (1) the Fair Market Value of the consideration to be received for each
share of Common Stock in the Change in Control transaction times the number of
shares of Common Stock subject to such surrendered Options, and (2) the
aggregate exercise price of all such surrendered Options, or (ii) in the event
of a transaction under the terms of which the holders of the Common Stock of the
Corporation will receive upon consummation thereof a cash payment (the "Merger
Price") for each share of Common Stock exchanged in the Change in Control
transaction, to make or to provide for a cash payment to the Optionees equal to
the difference between (A) the Merger Price times the number of shares of Common
Stock subject to such Options held by each Optionee (to the extent then
exercisable at prices not in excess of the Merger Price) and (B) the aggregate
exercise price of all such surrendered Options in exchange for such surrendered
Options.
The power of the Option Committee to accelerate the exercise of Options
and the immediate exercisability of Options in the case of a Change in Control
of the Corporation could have an anti-takeover effect by making it more costly
for a potential acquiror to obtain control of the Corporation due to the higher
number of shares outstanding following such exercise of Options. The power of
the Option Committee to make adjustments in connection with the Plan, including
adjusting the number of shares subject to Options and canceling Options, prior
to or after the occurrence of an extraordinary corporate action, allows the
Option Committee to adapt the Plan to operate in changed circumstances, to
adjust the Plan to fit a smaller or larger company, and to permit the issuance
of Options to new management following such extraordinary corporate action.
However, this power of the Option Committee also has an anti-takeover effect, by
allowing the Option Committee to adjust the Plan in a manner to allow the
present management of the Corporation to exercise more options and hold more
shares of the Corporation's Common Stock, and to possibly decrease the number of
Options available to new management of the Corporation.
Although the Plan may have an anti-takeover effect, the Corporation's
Board of Directors did not adopt the Plan specifically for anti-takeover
purposes. The Plan could render it more difficult to obtain support for
shareholder proposals opposed by the Corporation's Board and management in that
recipients of Options could choose to exercise such Options and thereby increase
the number of shares for which they hold voting power. In addition, the exercise
of such Options could increase the cost of an acquisition by a potential
acquiror.
18
Amendment and Termination of the Plan
The Board of Directors may at any time, and from time to time, modify
or amend the Plan, or suspend or terminate it, effective as of such date, which
date may be either before or after the taking of the action, provided that
options granted prior to the actual date on which such action occurred, will not
be affected.
Possible Dilutive Effects of the Plan
The Common Stock to be issued upon the exercise of Options awarded
under the Plan may either be authorized but unissued shares of Common Stock or
shares purchased in the open market. Because the stockholders of the Corporation
do not have preemptive rights, to the extent that the Corporation funds the
Plan, in whole or in part, with authorized but unissued shares, the interests of
current stockholders will be diluted. If upon the exercise of all of the
Options, the Company delivers newly issued shares of Common Stock (i.e., 490,500
shares of Common Stock), then the dilutive effect to current stockholders would
be approximately 9%.
Federal Income Tax Consequences
Under present federal tax laws, awards under the Plan will have the
following consequences:
1. The grant of an Option will not by itself result in the
recognition of taxable income to an Optionee nor entitle the
Corporation to a tax deduction at the time of such grant.
2. The exercise of an Option which is an "Incentive Stock Option"
within the meaning of Section 422 of the Code generally will
not, by itself, result in the recognition of taxable income to
an Optionee nor entitle the Corporation to a deduction at the
time of such exercise. However, the difference between the
Option exercise price and the Fair Market Value of the Common
Stock on the date of Option exercise is an item of tax
preference which may, in certain situations, trigger the
alternative minimum tax for an Optionee. An Optionee will
recognize capital gain or loss upon resale of the shares of
Common Stock received pursuant to the exercise of Incentive
Stock Options, provided that such shares are held for at least
one year after transfer of the shares or two years after the
grant of the Option, whichever is later. Generally, if the
shares are not held for that period, the Optionee will
recognize ordinary income upon disposition in an amount equal
to the difference between the Option exercise price and the
Fair Market Value of the Common Stock on the date of exercise,
or, if less, the sales proceeds of the shares acquired
pursuant to the Option.
3. The exercise of a Non-Incentive Stock Option will result in
the recognition of ordinary income by the Optionee on the date
of exercise in an amount equal to the difference between the
exercise price and the Fair Market Value of the Common Stock
acquired pursuant to the Option.
4. The Corporation will be allowed a tax deduction for federal
tax purposes equal to the amount of ordinary income recognized
by an Optionee at the time the Optionee recognizes such
ordinary income, including the receipt of cash paid related to
Dividend Equivalent Rights.
5. In accordance with Section 162(m) of the Code, the
Corporation's tax deductions for compensation paid to the most
highly paid executives named in the Corporation's Proxy
Statement may be limited to no more than $1 million per year,
excluding certain
19
"performance-based" compensation. The Company intends for the
award of Options under the Plan to comply with the requirement
for an exception to Section 162(m) of the Code applicable to
stock option plans so that the Company's deduction for
compensation related to the exercise of Options would not be
subject to the deduction limitation set forth in Section
162(m) of the Code.
Accounting Treatment
The Company expects to use the "intrinsic value based method" as
prescribed by APB Opinion 25. Accordingly, neither the grant nor the exercise of
an Option under the Plan currently requires any charge against earnings under
generally accepted accounting principles. Common Stock issuable pursuant to
outstanding Options which are exercisable under the Plan will be considered
outstanding for purposes of calculating earnings per share on a diluted basis.
Stockholder Approval
Stockholder approval of the Plan is being sought in order to qualify
the Plan for the granting of incentive stock options in accordance with the
Code, to enable Optionees to qualify for certain exemptive treatment from the
short-swing profit recapture provisions of Section 16(b) of the Exchange Act, to
meet the requirements for the tax-deductibility of certain compensation items
under Section 162(m) of the Code, and to meet the requirements for continued
listing of the Common Stock under the Nasdaq National Market. An affirmative
vote of the holders of a majority of the total votes cast at the Meeting on the
matter, in person or by proxy, is required to constitute stockholder approval of
this Proposal II.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE 1998
STOCK OPTION PLAN, WHICH IS ATTACHED HERETO AS EXHIBIT A.
- --------------------------------------------------------------------------------
PROPOSAL III - THE AMENDMENT OF THE RESTATED
ARTICLES OF INCORPORATION
- --------------------------------------------------------------------------------
General
The Corporation's Board of Directors has adopted a resolution amending
Article I of the Corporation's Restated Articles of Incorporation to change the
name of the Corporation to "First Coastal Bankshares, Inc." The Board took this
action in view of the recent change to the name of the Bank to "First Coastal
Bank." The Board of Directors believes that the name of the Corporation should
be more closely aligned with the name of the Bank to avoid confusion and for
ease of recognition by the Bank's customers and the Corporation's stockholders.
There will be no changes to the Corporation or the Bank, including the
operations, structure, directors, management, employees and finances of each
institution, other than the renaming of the Corporation, the incurring of
various expenses commonly associated with a change of name and any other changes
that may result from implementation of the name change.
Stockholder Approval
Article I of the Restated Articles of Incorporation may not be amended
without the approval of the stockholders of the Corporation. Pursuant to the
Restated Articles of Incorporation, the affirmative vote of at least two-thirds
of the stockholders, in person or by proxy, is required to constitute
stockholder approval of Proposal III.
20
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
APPROVAL OF THE AMENDMENT OF THE RESTATED ARTICLES OF INCORPORATION, WHICH IS
ATTACHED HERETO AS EXHIBIT B.
- --------------------------------------------------------------------------------
OTHER MATTERS
- --------------------------------------------------------------------------------
The Board of Directors is not aware of any business to come before the
Meeting other than those matters described above in this Proxy Statement.
However, if any other matters should properly come before the Meeting, it is
intended that proxies in the accompanying form will be voted in respect thereof
in accordance with the judgment of the person or persons voting such proxies.
- --------------------------------------------------------------------------------
MISCELLANEOUS
- --------------------------------------------------------------------------------
The cost of soliciting proxies will be borne by the Corporation. The
Corporation will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of Common Stock. In addition to solicitations by mail,
directors, officers and regular employees of the Corporation may solicit proxies
personally or by telephone without additional compensation. The Corporation may
retain a proxy solicitor to assist in the solicitation of proxies at a cost of
approximately $3,000, plus reimbursement of certain incurred expenses.
The Corporation's 1997 Annual Report to Stockholders, including
financial statements, has been mailed to all stockholders of record as of the
close of business on March 13, 1998. Any stockholder who has not received a copy
of such Annual Report may obtain a copy by writing to the Secretary of the
Corporation. Such Annual Report is not to be treated as a part of the proxy
solicitation material or as having been incorporated herein by reference.
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
The Board of Directors has previously selected the accounting firm of
KPMG Peat Marwick LLP, independent public accountants, to be the Corporation's
independent accountants for the fiscal year ending December 31, 1998. A
representative of KPMG Peat Marwick LLP is expected to be present at the
Meeting, will have the opportunity to make a statement at the meeting if he or
she desires to do so, and will be available to respond to appropriate questions.
Under the Corporation's Restated Articles of Incorporation and Bylaws,
stockholders are not required to ratify or confirm the selection of independent
accountants made by the Board of Directors.
21
- --------------------------------------------------------------------------------
STOCKHOLDER PROPOSALS
- --------------------------------------------------------------------------------
In order to be eligible for inclusion in the Corporation's proxy
materials for next year's Annual Meeting of Stockholders, any stockholder
proposal to take action at such meeting must be received at the Corporation's
executive offices at 2101 Parks Avenue, Virginia Beach, Virginia 23451, no later
than November 23, 1998. Any such proposals shall be subject to the requirements
of the proxy rules adopted under the Exchange Act.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Allene S. Cheatham
ALLENE S. CHEATHAM
SECRETARY
Virginia Beach, Virginia
March 20, 1998
- --------------------------------------------------------------------------------
FORM 10-K
- --------------------------------------------------------------------------------
A COPY OF THE CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1997, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WILL BE
FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE RECORD DATE UPON WRITTEN
REQUEST TO THE SECRETARY, VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION, 2101
PARKS AVENUE, VIRGINIA BEACH, VIRGINIA 23451.
- --------------------------------------------------------------------------------
22
EXHIBIT A
VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION
1998 STOCK OPTION PLAN
1. Purpose of the Plan. The Plan shall be known as the Virginia Beach
Federal Financial Corporation ("Company") 1998 Stock Option Plan (the "Plan").
The purpose of the Plan is to attract and retain qualified personnel for
positions of substantial responsibility and to provide additional incentive to
officers, directors, key employees and other persons providing services to the
Company, or any present or future parent or subsidiary of the Company to promote
the success of the business. The Plan is intended to provide for the grant of
"Incentive Stock Options," within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") and Non-Incentive Stock Options,
options that do not so qualify. The provisions of the Plan relating to Incentive
Stock Options shall be interpreted to conform to the requirements of Section 422
of the Code.
2. Definitions. The following words and phrases when used in this Plan
with an initial capital letter, unless the context clearly indicates otherwise,
shall have the meaning as set forth below. Wherever appropriate, the masculine
pronoun shall include the feminine pronoun and the singular shall include the
plural.
(a) "Award" means the grant by the Committee of an Incentive Stock
Option or a Non-Incentive Stock Option, or any combination thereof, as provided
in the Plan.
(b) "Board" shall mean the Board of Directors of the Company, or any
successor or parent corporation thereto.
(c) "Change in Control" shall mean: (i) the sale of all, or a
material portion, of the assets of the Company; (ii) the merger or
recapitalization of the Company whereby the Company is not the surviving entity;
(iii) a change in control of the Company, as otherwise defined or determined by
the Office of Thrift Supervision or regulations promulgated by it; or (iv) the
acquisition, directly or indirectly, of the beneficial ownership (within the
meaning of that term as it is used in Section 13(d) of the Securities Exchange
Act of 1934 and the rules and regulations promulgated thereunder) of twenty-five
percent (25%) or more of the outstanding voting securities of the Company by any
person, trust, entity or group. This limitation shall not apply to the purchase
of shares by underwriters in connection with a public offering of Company stock,
or the purchase of shares of up to 25% of any class of securities of the Company
by a tax-qualified employee stock benefit plan which is exempt from the approval
requirements, set forth under 12 C.F.R. ss.574.3(c)(1)(vi) as now in effect or
as may
A-1
hereafter be amended. The term "person" refers to an individual or a
corporation, partnership, trust, association, joint venture, pool, syndicate,
sole proprietorship, unincorporated organization or any other form of entity not
specifically listed herein. The decision of the Committee as to whether a Change
in Control has occurred shall be conclusive and binding.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended,
and regulations promulgated thereunder.
(e) "Committee" shall mean the Board or the Stock Option Committee
appointed by the Board in accordance with Section 5(a) of the Plan.
(f) "Common Stock" shall mean the common stock of the Company, or
any successor or parent corporation thereto.
(g) "Company" shall mean the Virginia Beach Federal Financial
Corporation, the parent corporation of the Savings Bank, or any successor or
Parent thereof.
(h) "Continuous Employment" or "Continuous Status as an Employee"
shall mean the absence of any interruption or termination of employment with the
Company or any present or future Parent or Subsidiary of the Company. Employment
shall not be considered interrupted in the case of sick leave, military leave or
any other leave of absence approved by the Company or in the case of transfers
between payroll locations, of the Company or between the Company, its Parent,
its Subsidiaries or a successor.
(i) "Director" shall mean a member of the Board of the Company, or
any successor or parent corporation thereto.
(j) "Director Emeritus" shall mean a person serving as a director
emeritus, advisory director, consulting director, or other similar position as
may be appointed by the Board of Directors of the Savings Bank or the Company
from time to time.
(k) "Disability" means (a) with respect to Incentive Stock Options,
the "permanent and total disability" of the Employee as such term is defined at
Section 22(e)(3) of the Code; and (b) with respect to Non-Incentive Stock
Options, any physical or mental impairment which renders the Participant
incapable of continuing in the employment or service of the Savings Bank or the
Parent in his then current capacity as determined by the Committee.
(l) "Dividend Equivalent Rights" shall mean the rights to receive a
cash payment in accordance with Section 12 of the Plan.
(m) "Effective Date" shall mean the date specified in Section 15
hereof.
A-2
(n) "Employee" shall mean any person employed by the Company or any
present or future Parent or Subsidiary of the Company.
(o) "Fair Market Value" shall mean: (i) if the Common Stock is
traded otherwise than on a national securities exchange, then the Fair Market
Value per Share shall be equal to the mean between the last bid and ask price of
such Common Stock on such date or, if there is no bid and ask price on said
date, then on the immediately prior business day on which there was a bid and
ask price. If no such bid and ask price is available, then the Fair Market Value
shall be determined by the Committee in good faith; or (ii) if the Common Stock
is listed on a national securities exchange (including the NASDAQ National
Market), then the Fair Market Value per Share shall be not less than the average
of the highest and lowest selling price of such Common Stock on such exchange on
such date, or if there were no sales on said date, then the Fair Market Value
shall be not less than the mean between the last bid and ask price on such date.
(p) "Incentive Stock Option" or "ISO" shall mean an option to
purchase Shares granted by the Committee pursuant to Section 8 hereof which is
subject to the limitations and restrictions of Section 8 hereof and is intended
to qualify as an incentive stock option under Section 422 of the Code.
(q) "Non-Incentive Stock Option" or "Non-ISO" shall mean an option
to purchase Shares granted pursuant to Section 9 hereof, which option is not
intended to qualify under Section 422 of the Code.
(r) "Option" shall mean an Incentive Stock Option or Non-Incentive
Stock Option granted pursuant to this Plan providing the holder of such Option
with the right to purchase Common Stock.
(s) "Optioned Stock" shall mean stock subject to an Option granted
pursuant to the Plan.
(t) "Optionee" shall mean any person who receives an Option or Award
pursuant to the Plan.
(u) "Parent" shall mean any present or future corporation which
would be a "parent corporation" as defined in Sections 424(e) and (g) of the
Code.
(v) "Participant" means any director, officer or key employee of the
Company or any Parent or Subsidiary of the Company or any other person providing
a service to the Company who is selected by the Committee to receive an Award,
or who by the express terms of the Plan is granted an Award.
A-3
(w) "Plan" shall mean the Virginia Beach Federal Financial
Corporation 1998 Stock Option Plan.
(x) "Retirement" shall mean termination of service in all capacities
as an Employee, Director and Director Emeritus following attainment of not less
than age 55 and completion of not less than ten years of service to the Company
or the Savings Bank. Service to the Company or the Savings Bank rendered prior
to the Effective Date shall be recognized in determining eligibility to meet the
requirements of Retirement under the Plan.
(y) "Savings Bank" shall mean First Coastal Bank, Virginia Beach,
Virginia, or any successor corporation thereto.
(z) "Share" shall mean one share of the Common Stock.
(aa) "Subsidiary" shall mean any present or future corporation which
constitutes a "subsidiary corporation" as defined in Sections 424(f) and (g) of
the Code.
3. Shares Subject to the Plan. Except as otherwise required by the
provisions of Section 13 hereof, the aggregate number of Shares with respect to
which Awards may be made pursuant to the Plan shall not exceed *490,500 Shares.
Such Shares may either be from authorized but unissued shares or shares
purchased in the market for Plan purposes. If an Award shall expire, become
unexercisable, or be forfeited for any reason prior to its exercise, new Awards
may be granted under the Plan with respect to the number of Shares as to which
such expiration has occurred.
4. Six Month Holding Period.
------------------------
Subject to vesting requirements, if applicable, except in the event
of death or Disability of the Optionee or a Change in Control of the Company, a
minimum of six months must elapse between the date of the grant of an Option and
the date of the sale of the Common Stock received through the exercise of such
Option.
5. Administration of the Plan.
--------------------------
(a) Composition of the Committee. The Plan shall be administered by
the Board of Directors of the Company or a Committee which shall consist of not
less than two Directors of the Company appointed by the Board and serving at the
pleasure of the Board. All persons designated as members of the Committee shall
meet the requirements of a "Non-Employee Director" within the meaning of Rule
16b-3 under the Securities Exchange Act of 1934, as amended, as found at 17 CFR
ss.240.16b-3.
- --------------------------
* Approximately 10% of shares outstanding as of date of Board adoption.
A-4
(b) Powers of the Committee. The Committee is authorized (but only
to the extent not contrary to the express provisions of the Plan or to
resolutions adopted by the Board) to interpret the Plan, to prescribe, amend and
rescind rules and regulations relating to the Plan, to determine the form and
content of Awards to be issued under the Plan and to make other determinations
necessary or advisable for the administration of the Plan, and shall have and
may exercise such other power and authority as may be delegated to it by the
Board from time to time. A majority of the entire Committee shall constitute a
quorum and the action of a majority of the members present at any meeting at
which a quorum is present shall be deemed the action of the Committee. In no
event may the Committee revoke outstanding Awards without the consent of the
Participant.
The President of the Company and such other officers as shall be
designated by the Committee are hereby authorized to execute written agreements
evidencing Awards on behalf of the Company and to cause them to be delivered to
the Participants. Such agreements shall set forth the Option exercise price, the
number of shares of Common Stock subject to such Option, the expiration date of
such Options, and such other terms and restrictions applicable to such Award as
are determined in accordance with the Plan or the actions of the Committee.
(c) Effect of Committee's Decision. All decisions, determinations
and interpretations of the Committee shall be final and conclusive on all
persons affected thereby.
6. Eligibility for Awards and Limitations.
--------------------------------------
(a) The Committee shall from time to time determine the
officers, Directors, key employees and other persons who shall be granted Awards
under the Plan, the number of Awards to be granted to each such persons, and
whether Awards granted to each such Participant under the Plan shall be
Incentive and/or Non-Incentive Stock Options. In selecting Participants and in
determining the number of Shares of Common Stock to be granted to each such
Participant, the Committee may consider the nature of the prior and anticipated
future services rendered by each such Participant, each such Participant's
current and potential contribution to the Company and such other factors as the
Committee may, in its sole discretion, deem relevant. Participants who have been
granted an Award may, if otherwise eligible, be granted additional Awards.
A-5
(b) The aggregate Fair Market Value (determined as of the date
the Option is granted) of the Shares with respect to which Incentive Stock
Options are exercisable for the first time by each Employee during any calendar
year (under all Incentive Stock Option plans, as defined in Section 422 of the
Code, of the Company or any present or future Parent or Subsidiary of the
Company) shall not exceed $100,000. Notwithstanding the prior provisions of this
Section 6, the Committee may grant Options in excess of the foregoing
limitations, provided said Options shall be clearly and specifically designated
as not being Incentive Stock Options.
(c) In no event shall Shares subject to Options granted to any
individual Participant exceed more than 50% of the total number of Shares
authorized for delivery under the Plan.
7. Term of the Plan. The Plan shall continue in effect for a term of ten
(10) years from the Effective Date, unless sooner terminated pursuant to Section
18 hereof. No Option shall be granted under the Plan after ten (10) years from
the Effective Date.
8. Terms and Conditions of Incentive Stock Options. Incentive Stock
Options may be granted only to Participants who are Employees. Each Incentive
Stock Option granted pursuant to the Plan shall be evidenced by an instrument in
such form as the Committee shall from time to time approve. Each Incentive Stock
Option granted pursuant to the Plan shall comply with, and be subject to, the
following terms and conditions:
(a) Option Price.
(i) The price per Share at which each Incentive Stock Option
granted by the Committee under the Plan may be exercised shall not, as to any
particular Incentive Stock Option, be less than the Fair Market Value of the
Common Stock on the date that such Incentive Stock Option is granted.
(ii) In the case of an Employee who owns Common Stock
representing more than ten percent (10%) of the outstanding Common Stock at the
time the Incentive Stock Option is granted, the Incentive Stock Option exercise
price shall not be less than one hundred and ten percent (110%) of the Fair
Market Value of the Common Stock on the date that the Incentive Stock Option is
granted.
(b) Payment. Full payment for each Share of Common Stock purchased
upon the exercise of any Incentive Stock Option granted under the Plan shall be
made at the time of exercise of each such Incentive Stock Option and shall be
paid in cash (in United States Dollars), Common Stock or a combination of cash
and Common Stock. Common Stock utilized in full or partial payment of the
exercise price shall be valued at the Fair Market Value at the date of exercise.
The Company shall accept full or partial payment
A-6
in Common Stock only to the extent permitted by applicable law. No Shares of
Common Stock shall be issued until full payment has been received by the
Company, and no Optionee shall have any of the rights of a stockholder of the
Company until Shares of Common Stock are issued to the Optionee.
(c) Term of Incentive Stock Option. The term of exercisability of
each Incentive Stock Option granted pursuant to the Plan shall be not more than
ten (10) years from the date each such Incentive Stock Option is granted,
provided that in the case of an Employee who owns stock representing more than
ten percent (10%) of the Common Stock outstanding at the time the Incentive
Stock Option is granted, the term of exercisability of the Incentive Stock
Option shall not exceed five (5) years.
(d) Exercise Generally. Except as otherwise provided in Section 10
hereof, no Incentive Stock Option may be exercised unless the Optionee shall
have been in the employ of the Company at all times during the period beginning
with the date of grant of any such Incentive Stock Option and ending on the date
three (3) months prior to the date of exercise of any such Incentive Stock
Option. The Committee may impose additional conditions upon the right of an
Optionee to exercise any Incentive Stock Option granted hereunder which are not
inconsistent with the terms of the Plan or the requirements for qualification as
an Incentive Stock Option. Except as otherwise provided by the terms of the Plan
or by action of the Committee at the time of the grant of the Options, all
Options granted will be first exercisable as of the date of grant.
(e) Cashless Exercise. Subject to vesting requirements, if
applicable, an Optionee who has held an Incentive Stock Option for at least six
months may engage in the "cashless exercise" of the Option. Upon a cashless
exercise, an Optionee shall give the Company written notice of the exercise of
the Option together with an order to a registered broker-dealer or equivalent
third party, to sell part or all of the Optioned Stock and to deliver enough of
the proceeds to the Company to pay the Option exercise price and any applicable
withholding taxes. If the Optionee does not sell the Optioned Stock through a
registered broker-dealer or equivalent third party, the Optionee can give the
Company written notice of the exercise of the Option and the third party
purchaser of the Optioned Stock shall pay the Option exercise price plus any
applicable withholding taxes to the Company.
(f) Transferability. An Incentive Stock Option granted pursuant to
the Plan shall be exercised during an Optionee's lifetime only by the Optionee
to whom it was granted and shall not be assignable or transferable otherwise
than by will or by the laws of descent and distribution.
9. Terms and Conditions of Non-Incentive Stock Options. Each
Non-Incentive Stock Option granted pursuant to the Plan shall
A-7
be evidenced by an instrument in such form as the Committee shall from time to
time approve. Each Non-Incentive Stock Option granted pursuant to the Plan shall
comply with and be subject to the following terms and conditions.
(a) Option Price. The exercise price per Share of Common Stock for
each Non-Incentive Stock Option granted pursuant to the Plan shall be at such
price as the Committee may determine in its sole discretion, but in no event
less than the Fair Market Value of such Common Stock on the date of grant as
determined by the Committee in good faith.
(b) Payment. Full payment for each Share of Common Stock purchased
upon the exercise of any Non-Incentive Stock Option granted under the Plan shall
be made at the time of exercise of each such Non-Incentive Stock Option and
shall be paid in cash (in United States Dollars), Common Stock or a combination
of cash and Common Stock. Common Stock utilized in full or partial payment of
the exercise price shall be valued at its Fair Market Value at the date of
exercise. The Company shall accept full or partial payment in Common Stock only
to the extent permitted by applicable law. No Shares of Common Stock shall be
issued until full payment has been received by the Company and no Optionee shall
have any of the rights of a stockholder of the Company until the Shares of
Common Stock are issued to the Optionee.
(c) Term. The term of exercisability of each Non-Incentive Stock
Option granted pursuant to the Plan shall be not more than ten (10) years from
the date each such Non-Incentive Stock Option is granted.
(d) Exercise Generally. The Committee may impose additional
conditions upon the right of any Participant to exercise any Non-Incentive Stock
Option granted hereunder which is not inconsistent with the terms of the Plan.
Except as otherwise provided by the terms of the Plan or by action of the
Committee at the time of the grant of the Options, the Options will be first
exercisable as of the date of grant.
(e) Cashless Exercise. Subject to vesting requirements, if
applicable, an Optionee who has held a Non-Incentive Stock Option for at least
six months may engage in the "cashless exercise" of the Option. Upon a cashless
exercise, an Optionee shall give the Company written notice of the exercise of
the Option together with an order to a registered broker-dealer or equivalent
third party, to sell part or all of the Optioned Stock and to deliver enough of
the proceeds to the Company to pay the Option exercise price and any applicable
withholding taxes. If the Optionee does not sell the Optioned Stock through a
registered broker-dealer or equivalent third party, the Optionee can give the
Company written notice of the exercise of the Option and the third
A-8
party purchaser of the Optioned Stock shall pay the Option exercise price plus
any applicable withholding taxes to the Company.
(f) Transferability. Any Non-Incentive Stock Option granted pursuant
to the Plan shall be exercised during an Optionee's lifetime only by the
Optionee to whom it was granted and shall not be assignable or transferable
otherwise than by will or by the laws of descent and distribution.
10. Effect of Termination of Employment, Disability, Death and Retirement
on Incentive Stock Options.
(a) Termination of Employment. In the event that any Optionee's
employment with the Company shall terminate for any reason, other than
Disability or death, all of any such Optionee's Incentive Stock Options, and all
of any such Optionee's rights to purchase or receive Shares of Common Stock
pursuant thereto, shall automatically terminate on (A) the earlier of (i) or
(ii): (i) the respective expiration dates of any such Incentive Stock Options,
or (ii) the expiration of not more than three (3) months after the date of such
termination of employment; or (B) at such later date as is determined by the
Committee at the time of the grant of such Award based upon the Optionee's
continuing status as a Director or Director Emeritus of the Savings Bank or the
Company, but only if, and to the extent that, the Optionee was entitled to
exercise any such Incentive Stock Options at the date of such termination of
employment, and further that such Award shall thereafter be deemed a
Non-Incentive Stock Option. In the event that a Subsidiary ceases to be a
Subsidiary of the Company, the employment of all of its employees who are not
immediately thereafter employees of the Company shall be deemed to terminate
upon the date such Subsidiary so ceases to be a Subsidiary of the Company.
(b) Disability. In the event that any Optionee's employment with the
Company shall terminate as the result of the Disability of such Optionee, such
Optionee may exercise any Incentive Stock Options granted to the Optionee
pursuant to the Plan at any time prior to the earlier of (i) the respective
expiration dates of any such Incentive Stock Options or (ii) the date which is
one (1) year after the date of such termination of employment, but only if, and
to the extent that, the Optionee was entitled to exercise any such Incentive
Stock Options at the date of such termination of employment.
(c) Death. In the event of the death of an Optionee, any Incentive
Stock Options granted to such Optionee may be exercised by the person or persons
to whom the Optionee's rights under any such Incentive Stock Options pass by
will or by the laws of descent and distribution (including the Optionee's estate
during the period of administration) at any time prior to the earlier of (i) the
respective expiration dates of any such Incentive Stock Options or (ii) the date
which is two (2) years after the date of
A-9
death of such Optionee but only if, and to the extent that, the Optionee was
entitled to exercise any such Incentive Stock Options at the date of death. For
purposes of this Section 10(c), any Incentive Stock Option held by an Optionee
shall be considered exercisable at the date of his death if the only unsatisfied
condition precedent to the exercisability of such Incentive Stock Option at the
date of death is the passage of a specified period of time. At the discretion of
the Committee, upon exercise of such Options the Optionee may receive Shares or
cash or a combination thereof. If cash shall be paid in lieu of Shares, such
cash shall be equal to the difference between the Fair Market Value of such
Shares and the exercise price of such Options on the exercise date.
(d) Incentive Stock Options Deemed Exercisable. For purposes of
Sections 10(a), 10(b) and 10(c) above, any Incentive Stock Option held by any
Optionee shall be considered exercisable at the date of termination of
employment if any such Incentive Stock Option would have been exercisable at
such date of termination of employment without regard to the Disability or death
of the Participant.
(e) Termination of Incentive Stock Options; Vesting Upon Retirement.
Except as may be specified by the Committee at the time of grant of an Option,
to the extent that any Incentive Stock Option granted under the Plan to any
Optionee whose employment with the Company terminates shall not have been
exercised within the applicable period set forth in this Section 10, any such
Incentive Stock Option, and all rights to purchase or receive Shares of Common
Stock pursuant thereto, as the case may be, shall terminate on the last day of
the applicable period. Notwithstanding the foregoing, the Committee may
authorize at the time of the grant of an Option that such Award shall be
immediately 100% exercisable upon the Retirement of the Optionee.
11. Effect of Termination of Employment, Disability, Death or Retirement
on Non-Incentive Stock Options. The terms and conditions of Non-Incentive Stock
Options relating to the effect of the Retirement or other termination of an
Optionee's employment or service, Disability of an Optionee or his death shall
be such terms and conditions as the Committee shall, in its sole discretion,
determine at the time of termination of service, unless specifically provided
for by the terms of the Agreement at the time of grant of the Award.
12. Dividend Equivalent Rights. The Committee, in its sole discretion, may
include as a term of any Option, the right of the Optionee to receive Dividend
Equivalent Rights. Such rights shall provide that upon the payment of a cash
dividend on the Common Stock, the holder of such Options shall receive payment
of compensation in an amount equivalent to the dividend payable as if such
Options had been exercised and such Common Stock held as of the dividend record
date. Such rights shall expire upon the
A-10
expiration or exercise of such underlying Options. Such rights are
non-transferable and shall attach to Options whether or not such Options are
immediately exercisable. The dividend equivalent payments associated with
Options shall be paid to the Option holder within 30 days of the dividend
payment date of the Common Stock.
13. Recapitalization, Merger, Consolidation, Change in Control and Other
----------------------------------------------------------------------
Transactions.
- ------------
(a) Adjustment. Subject to any required action by the stockholders
of the Company, within the sole discretion of the Committee, the aggregate
number of Shares of Common Stock for which Options may be granted hereunder, the
number of Shares of Common Stock covered by each outstanding Option, and the
exercise price per Share of Common Stock of each such Option, shall all be
proportionately adjusted for any increase or decrease in the number of issued
and outstanding Shares of Common Stock resulting from a subdivision or
consolidation of Shares (whether by reason of merger, consolidation,
recapitalization, reclassification, split-up, combination of shares, or
otherwise) or the payment of a stock dividend (but only on the Common Stock) or
any other increase or decrease in the number of such Shares of Common Stock
effected without the receipt or payment of consideration by the Company (other
than Shares held by dissenting stockholders).
(b) Change in Control. All outstanding Awards shall become
immediately exercisable in the event of a Change in Control of the Company. In
the event of such a Change in Control, the Committee and the Board of Directors
will take one or more of the following actions to be effective as of the date of
such Change in Control:
(i) provide that such Options shall be assumed, or equivalent
options shall be substituted, ("Substitute Options") by the acquiring or
succeeding corporation (or an affiliate thereof), provided that: (A) any such
Substitute Options exchanged for Incentive Stock Options shall meet the
requirements of Section 424(a) of the Code, and (B) the shares of stock issuable
upon the exercise of such Substitute Options shall constitute securities
registered in accordance with the Securities Act of 1933, as amended, ("1933
Act") or such securities shall be exempt from such registration in accordance
with Sections 3(a)(2) or 3(a)(5) of the 1933 Act, (collectively, "Registered
Securities"), or in the alternative, if the securities issuable upon the
exercise of such Substitute Options shall not constitute Registered Securities,
then the Optionee will receive upon consummation of the Change in Control
transaction a cash payment for each Option surrendered equal to the difference
between (1) the Fair Market Value of the consideration to be received for each
share of Common Stock in the Change in Control transaction times the number of
shares of Common Stock subject to such surrendered Options, and (2) the
aggregate exercise price of all such surrendered Options, or
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(ii) in the event of a transaction under the terms of which the
holders of the Common Stock of the Company will receive upon consummation
thereof a cash payment (the "Merger Price") for each share of Common Stock
exchanged in the Change in Control transaction, to make or to provide for a cash
payment to the Optionees equal to the difference between (A) the Merger Price
times the number of shares of Common Stock subject to such Options held by each
Optionee (to the extent then exercisable at prices not in excess of the Merger
Price) and (B) the aggregate exercise price of all such surrendered Options in
exchange for such surrendered Options.
(c) Extraordinary Corporate Action. Notwithstanding any provisions
of the Plan to the contrary, subject to any required action by the stockholders
of the Company, in the event of any Change in Control, recapitalization, merger,
consolidation, exchange of Shares, spin-off, reorganization, tender offer,
partial or complete liquidation or other extraordinary corporate action or
event, the Committee, in its sole discretion, shall have the power, prior or
subsequent to such action or event to:
(i) appropriately adjust the number of Shares of Common Stock
subject to each Option, the Option exercise price per Share of Common Stock, and
the consideration to be given or received by the Company upon the exercise of
any outstanding Option;
(ii) cancel any or all previously granted Options, provided
that appropriate consideration is paid to the Optionee in connection therewith;
and/or
(iii) make such other adjustments in connection with the Plan
as the Committee, in its sole discretion, deems necessary, desirable,
appropriate or advisable; provided, however, that no action shall be taken by
the Committee which would cause Incentive Stock Options granted pursuant to the
Plan to fail to meet the requirements of Section 422 of the Code without the
consent of the Optionee.
(d) Acceleration. The Committee shall at all times have the power to
accelerate the exercise date of Options previously granted under the Plan.
Except as expressly provided in Sections 13(a) or 13(b) hereof, no
Optionee shall have any rights by reason of the occurrence of any of the events
described in this Section 13.
14. Time of Granting Options. The date of grant of an Option under the
Plan shall, for all purposes, be the date on which the Committee makes the
determination of granting such Option. Notice of the grant of an Option shall be
given to each individual to whom
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an Option is so granted within a reasonable time after the date of such grant in
a form determined by the Committee.
15. Effective Date. The Plan shall become effective upon the date of
approval of the Plan by the stockholders of the Company. The Committee may make
a determination related to Awards prior to the Effective Date with such Awards
to be effective upon the date of stockholder approval of the Plan.
16. Approval by Stockholders. The Plan shall be approved by stockholders
of the Company within twelve (12) months before or after the date the Plan is
approved by the Board.
17. Modification of Options. At any time and from time to time, the Board
may authorize the Committee to direct the execution of an instrument providing
for the modification of any outstanding Option, provided no such modification,
extension or renewal shall confer on the holder of said Option any right or
benefit which could not be conferred on the Optionee by the grant of a new
Option at such time, or shall not materially decrease the Optionee's benefits
under the Option without the consent of the holder of the Option, except as
otherwise permitted under Section 18 hereof.
18. Amendment and Termination of the Plan.
-------------------------------------
(a) Action by the Board. The Board may alter, suspend or discontinue
the Plan, except that no action of the Board may increase (other than as
provided in Section 13 hereof) the maximum number of Shares permitted to be
optioned under the Plan, materially increase the benefits accruing to
Participants under the Plan or materially modify the requirements for
eligibility for participation in the Plan unless such action of the Board shall
be subject to approval or ratification by the stockholders of the Company.
(b) Change in Applicable Law. Notwithstanding any other provision
contained in the Plan, in the event of a change in any federal or state law,
rule or regulation which would make the exercise of all or part of any
previously granted Option unlawful or subject the Company to any penalty, the
Committee may restrict any such exercise without the consent of the Optionee or
other holder thereof in order to comply with any such law, rule or regulation or
to avoid any such penalty.
19. Conditions Upon Issuance of Shares; Limitations on Option Exercise;
---------------------------------------------------------------------
Cancellation of Option Rights.
- -----------------------------
(a) Shares shall not be issued with respect to any Option granted under
the Plan unless the issuance and delivery of such Shares shall comply with all
relevant provisions of applicable law, including, without limitation, the
Securities Act of 1933, as amended, the rules and regulations promulgated
thereunder, any
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applicable state securities laws and the requirements of any stock exchange upon
which the Shares may then be listed.
(b) The inability of the Company to obtain any necessary authorizations,
approvals or letters of non-objection from any regulatory body or authority
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares issuable hereunder shall relieve the Company of any liability with
respect to the non-issuance or sale of such Shares.
(c) As a condition to the exercise of an Option, the Company may require
the person exercising the Option to make such representations and warranties as
may be necessary to assure the availability of an exemption from the
registration requirements of federal or state securities law.
(d) Notwithstanding anything herein to the contrary, upon the termination
of employment or service of an Optionee by the Company or its Subsidiaries for
"cause" as defined at 12 C.F.R. 563.39(b)(1) as determined by the Board of
Directors, all Options held by such Participant shall cease to be exercisable as
of the date of such termination of employment or service.
(e) Upon the exercise of an Option by an Optionee (or the Optionee's
personal representative), the Committee, in its sole and absolute discretion,
may make a cash payment to the Optionee, in whole or in part, in lieu of the
delivery of shares of Common Stock. Such cash payment to be paid in lieu of
delivery of Common Stock shall be equal to the difference between the Fair
Market Value of the Common Stock on the date of the Option exercise and the
exercise price per share of the Option. Such cash payment shall be in exchange
for the cancellation of such Option. Such cash payment shall not be made in the
event that such transaction would result in liability to the Optionee or the
Company under Section 16(b) of the Securities Exchange Act of 1934, as amended,
and regulations promulgated thereunder.
20. Reservation of Shares. During the term of the Plan, the Company will
reserve and keep available a number of Shares sufficient to satisfy the
requirements of the Plan.
21. Unsecured Obligation. No Participant under the Plan shall have any
interest in any fund or special asset of the Company by reason of the Plan or
the grant of any Option under the Plan. No trust fund shall be created in
connection with the Plan or any grant of any Option hereunder and there shall be
no required funding of amounts which may become payable to any Participant.
22. Withholding Tax. The Company shall have the right to deduct from all
amounts paid in cash with respect to the cashless exercise of Options and
Dividend Equivalent Rights under the Plan any taxes required by law to be
withheld with respect to such cash
A-14
payments. Where a Participant or other person is entitled to receive Shares
pursuant to the exercise of an Option, the Company shall have the right to
require the Participant or such other person to pay the Company the amount of
any taxes which the Company is required to withhold with respect to such Shares,
or, in lieu thereof, to retain, or to sell without notice, a number of such
Shares sufficient to cover the amount required to be withheld.
23. No Employment Rights. No Director, Employee or other person shall have
a right to be selected as a Participant under the Plan. Neither the Plan nor any
action taken by the Committee in administration of the Plan shall be construed
as giving any person any rights of employment or retention as an Employee,
Director or in any other capacity with the Company, the Savings Bank or other
Subsidiaries.
24. Governing Law. The Plan shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia, except to the extent
that federal law shall be deemed to apply.
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EXHIBIT B
Set forth below is Article I of the Corporation's Restated Articles of
Incorporation as it currently exists:
ARTICLE I
Name
The name of the corporation is Virginia Beach Federal Financial
Corporation (herein the "Corporation").
Set forth below is Article I of the Corporation's Restated Articles of
Incorporation as proposed to be amended with the changes in italics:
ARTICLE I
Name
The name of the corporation is First Coastal Bankshares, Inc. (herein
the "Corporation").
B-1
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VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION
2101 PARKS AVENUE
VIRGINIA BEACH, VIRGINIA 23451
(757) 428-9331
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ANNUAL MEETING OF STOCKHOLDERS
April 29, 1998
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The undersigned hereby appoints the Board of Directors of Virginia
Beach Federal Financial Corporation ("Corporation"), or its designee, with full
powers of substitution, to act as attorneys and proxies for the undersigned, to
vote all shares of Common Stock of the Corporation which the undersigned is
entitled to vote at the Annual Meeting of Stockholders (the "Meeting"), to be
held at the Clarion Hotel located at 4453 Bonney Road, Virginia Beach, Virginia
on Wednesday, April 29, 1998, at 2:00 p.m., and at any and all adjournments
thereof, as follows:
WITHHOLD
FOR VOTE
1. The election as director of all nominees listed |_| |_|
below for three-year terms (except as marked
to the contrary).
Robert H. DeFord, Jr.
Charles P. Fletcher
Rufus S. Kight, Jr.
George R.C. McGuire
INSTRUCTIONS: To withhold your vote for any individual nominee, insert
that nominee's name on the line provided below:
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FOR AGAINST ABSTAIN
2. Ratification of the adoption of the 1998 |_| |_| |_|
Stock Option Plan
3. Approval of the amendment to Article I of |_| |_| |_|
the Corporation's Restated Articles of
Incorporation changing the name of the
Corporation to "First Coastal Bankshares,
Inc."
The Board of Directors recommends a vote "FOR" the listed propositions.
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THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR THE PROPOSITIONS STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT THE MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY
IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
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THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elects to vote at the Meeting or
at any adjournments thereof and after notification to the Secretary of the
Corporation at the Meeting of the stockholder's decision to terminate this
proxy, then the power of said attorneys and proxies shall be deemed terminated
and of no further force and effect. The undersigned may also revoke this proxy
by filing a subsequently dated proxy or by notifying the Secretary of the
Corporation of his or her decision to terminate this proxy.
The undersigned acknowledges receipt from the Corporation prior to the
execution of this proxy of Notice of the Meeting, a Proxy Statement dated March
20, 1998, and a 1997 Annual Report to Stockholders.
Dated:
--------------------------------
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PRINT NAME OF STOCKHOLDER
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SIGNATURE OF STOCKHOLDER
---------------------------------------
PRINT NAME OF STOCKHOLDER
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SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on this Proxy Card. When
signing as attorney, executor, administrator, trustee or guardian, please give
your full title. If shares are held jointly, each holder must sign.
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PLEASE COMPLETE, DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN
THE ENCLOSED POSTAGE-PAID ENVELOPE.
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