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 Section 240.14a-12
CAROLINA NATIONAL CORPORATION
(Name of Registrant as Specified In Its Charter)
(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:
2) Aggregate number of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11:
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5) Total fee paid
[ ] 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:
2) Form, Schedule or Registration Statement No.:
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4) Date Filed:
<Page>
CAROLINA NATIONAL CORPORATION
1350 Main Street
Columbia, South Carolina 29201
(803) 779-0411
Dear Shareholder:
You are cordially invited to attend the 2007 Annual Shareholders'
Meeting of Carolina National Corporation, to be held at The Marriott Hotel, 1200
Hampton Street, Columbia, South Carolina on Monday, May 7, 2007 at 11:00 a.m.
Eastern Daylight Time. Notice of the meeting is enclosed.
Proposals to elect five directors to serve until the 2010 Annual
Shareholders' Meeting and to adopt a proposed long term incentive plan will be
presented at the meeting. The nominees described in this Proxy Statement and the
proposed Carolina National Corporation Long Term Incentive Plan have been
approved unanimously by your Board of Directors and are recommended by the Board
to you for approval.
[GRAPHIC We hope that you will be able to join us and let us give you a review
of 2006. Whether you own a few or many shares of stock and whether or not you
plan to attend in person, it is important that your shares be voted on matters
that come before the meeting. To make sure your shares are represented, we urge
you to complete and mail the enclosed proxy card promptly.
Sincerely,
Roger B. Whaley
President and Chief Executive Officer
Columbia, South Carolina
April 4, 2007
CAROLINA NATIONAL CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO OUR SHAREHOLDERS:
NOTICE IS HEREBY GIVEN THAT the Annual Meeting of the Shareholders of Carolina
National Corporation will be held at The Marriott Hotel, 1200 Hampton Street,
Columbia, South Carolina on Monday, May 7, 2007 at 11:00 a.m., for the following
purposes:
(1) To elect five directors to each serve a three-year term;
(2) To vote on the proposed Carolina National Corporation Long Term
Incentive Plan; and
(3) To act upon other such matters as may properly come before the meeting
or any adjournment thereof.
Only shareholders of record at the close of business on March 27, 2007,
are entitled to notice of and to vote at the meeting. In order that the meeting
can be held, and a maximum number of shares can be voted, whether or not you
plan to be present at the meeting in person, please fill in, date, sign and
promptly return the enclosed form of proxy. The Company's Board of Directors
unanimously recommends a vote FOR approval of the proposals presented.
Returning the signed proxy will not prevent a record owner of shares from
voting in person at the meeting.
Included with this notice are the Company's 2007 Proxy Statement and the
Company's 2006 Annual Report to Shareholders.
By Order of the Board of Directors
April 4, 2007 Roger B. Whaley
President and Chief Executive Officer
CAROLINA NATIONAL CORPORATION
1350 Main Street
Columbia, South Carolina 29201
(803) 779-0411
PROXY STATEMENT
We are providing this proxy statement in connection with the solicitation
of proxies by the Board of Directors of Carolina National Corporation for use at
the 2007 Annual Meeting of Shareholders. The Annual Meeting will be held at
11:00 a.m. on Monday, May 7, 2007, at The Marriott Hotel, 1200 Hampton Street,
Columbia, South Carolina. A Notice of Annual Meeting is attached, and a form of
proxy is enclosed. We first began mailing this statement to shareholders on or
about April 4, 2007. We are paying the cost of this solicitation. The only
method of solicitation we plan to use, other than use of the proxy statement, is
personal contact, including contact by telephone or other electronic means, by
our directors and regular employees.
Throughout this Proxy Statement, we use terms such as "we", "us", "our"
and "our Company" to refer to Carolina National Corporation, the term "our Bank"
to refer to our wholly-owned subsidiary, Carolina National Bank & Trust Company,
and terms such as "you" and "your" to refer to our shareholders.
ANNUAL REPORT
Our Annual Report to Shareholders covering our fiscal year ended December
31, 2006, including financial statements, is enclosed. The Annual Report to
Shareholders does not form any part of the material for the solicitation of
proxies.
VOTING PROCEDURES
Voting
If you hold your shares of record in your own name, you can vote your
shares by marking the enclosed proxy form, dating it, signing it, and returning
it to us in the enclosed postage-paid envelope. If you are a shareholder of
record, you can also attend the Annual Meeting and vote in person. If you hold
your shares in street name with a broker or other nominee, you can direct your
vote by submitting voting instructions to your broker or nominee in accordance
with the procedure on the voting card provided by your broker or nominee. If you
hold your shares in street name, you may attend the Annual Meeting, but you may
not vote in person without a proxy appointment from a shareholder of record.
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REVOCATION OF PROXY
If you are a record shareholder and execute and deliver a proxy, you have
the right to revoke it at any time before it is voted in any of the following
ways:
o by mailing or delivering to Roger B. Whaley, President and Chief
Executive Officer, Carolina National Corporation, 1350 Main Street,
Columbia, South Carolina 29201, written instructions revoking the
proxy;
o by mailing or delivering to Mr. Whaley at the above addresses a duly
executed proxy bearing a later date; or
o by voting in person at the meeting.
Your attendance at the Annual Meeting will not in itself constitute
revocation of a proxy. However, if you are a record shareholder and desire to do
so, you may attend the meeting and vote in person in which case the proxy will
not be used. If you hold your shares in street name with a broker or other
nominee, you may change or revoke your proxy instructions by submitting new
voting instructions to the broker or other nominee.
QUORUM AND VOTING
At the close of business on March 1, 2007, we had outstanding 2,578,503
shares of our common stock (no par value). Each share outstanding will be
entitled to one vote upon each matter submitted at the meeting. You are only
entitled to notice of and to vote at the meeting if you were a shareholder of
record at the close of business on March 27, 2007 (the "Record Date").
A majority of the shares entitled to be voted at the annual meeting
constitutes a quorum. If a share is represented for any purpose at the annual
meeting by the presence of the registered owner or a person holding a valid
proxy for the registered owner, it is deemed to be present for purposes of
establishing a quorum. Therefore, valid proxies which are marked "Abstain" or
"Withhold" and shares that are not voted, including proxies submitted by brokers
that are the record owners of shares (so-called "broker non-votes"), will be
included in determining the number of votes present or represented at the annual
meeting. If a quorum is not present or represented at the meeting, those of you
entitled to vote, present in person or represented by proxy, have the power to
adjourn the meeting from time to time. If the meeting is to be reconvened within
thirty days, no notice of the reconvened meeting will be given other than an
announcement at the adjourned meeting. If the meeting is to be adjourned for
thirty days or more, notice of the reconvened meeting will be given as provided
in the Bylaws. At any reconvened meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
If a quorum is present at the Annual Meeting, directors will be elected by
a plurality of the votes cast by shares present and entitled to vote at the
annual meeting. "Plurality" means that if there are more nominees than positions
to be filled, the individuals who receive the largest number of votes cast for
the positions to be filled will be elected as directors. Cumulative voting is
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not permitted. Votes that are withheld or that are not voted in the election of
directors will have no effect on the outcome of election of directors. If a
quorum is present, all other matters that may be considered and acted upon at
the Annual Meeting will be approved if the number of shares of Common Stock
voted in favor of the matter exceed the number of shares of Common Stock voted
against the matter.
ACTIONS TO BE TAKEN BY THE PROXIES
Our Board of directors has selected the persons named as proxies in the
form of proxy. When the form of proxy enclosed is properly executed and
returned, the shares that it represents will be voted at the meeting. Unless you
otherwise specify therein, your proxy will be voted "FOR" the election of the
persons named in this Proxy Statement as the Board of Directors' nominees for
election to the Board of Directors. In each case where you have appropriately
specified how the proxy is to be voted, it will be voted in accordance with your
specifications. Our Board of Directors is not aware of any other matters that
may be presented for action at the Annual Meeting of Shareholders, but if other
matters do properly come before the meeting, the persons named in the proxy
intend to vote on such matters in accordance with their best judgment.
SHAREHOLDER PROPOSALS
If you wish to submit proposals for the consideration of the shareholders
at the 2008 Annual Meeting, you may do so by delivering them in writing to Roger
B. Whaley, President, Carolina National Corporation, 1350 Main Street, Columbia,
South Carolina 29201. In addition to other applicable requirements, for business
to be properly brought before the 2008 Annual Meeting of Shareholders, you must
give timely notice of the matter to be presented at the meeting in a proper
written form to the Secretary. To be timely, notice of any matter proposed by
any person other than the Board of Directors or the President must be given to
the President at the above address not less than 70 days prior to the annual
meeting. All proposals must comply with the requirements of the Bylaws. We must
receive such written proposals prior to December 5, 2007, if you want us to
include them, if otherwise appropriate, in our 2008 Proxy Statement and form of
Proxy relating to that meeting. If we do not receive notice of a shareholder
proposal prior to February 18, 2008, the persons named as proxies in the proxy
materials relating to that meeting will use their discretion in voting the
proxies when the proposal is raised at the meeting.
ELECTION OF DIRECTORS
Our Articles of Incorporation provide that our Board of Directors may be
divided into three classes with each group to be as nearly equal in number as
possible. The number of directors has currently been set by the Board at
thirteen.
At the Annual Meeting, five directors are to be elected to hold office for
the next three years, with their terms expiring at the 2010 Annual Meeting of
Shareholders. All directors serve until their successors are duly elected and
qualified. The Executive Committee (excluding Mr. Roger B. Whaley) serves as a
nominating committee to recommend nominees to the Board of Directors. The Board
has nominated the persons listed under "Management" to serve for the terms
specified. Any other nominations must be made in writing and delivered to our
President in accordance with the procedures set forth below under "--Committees
of the Board of Directors."
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The persons named in the enclosed form of proxy intend to vote for the
election as directors of the persons named as nominees in the "Management"
section below. Unless you indicate a contrary specification, your proxy will be
voted FOR each such nominee. In the event that a nominee is not available by
reason of any unforeseen contingency, the persons acting under the proxy intend
to vote for the election, in his stead, of such other person as our Board of
Directors may recommend. Our Board of Directors has no reason to believe that
any nominee will be unable or unwilling to serve if elected.
The Board of Directors recommends a vote FOR all nominees.
MANAGEMENT
Directors
Each of the nominees is currently one of our directors and, except Mr.
Whaley, has been determined by our Board of Directors to be independent. Our
directors are also the directors of our Bank. Set forth below is information
about the business experience for the past five years of each of our directors.
Each director has been one of our directors since 2001.
Nominees for Election to Serve Until 2010
William P. Cate, age 62, is co-owner and manager of Buckeye Ag
Services, LLC (agriculture and real estate services). He is also a farmer and
represents Milliken Forestry Co. in timberland and farm land sales. Mr. Cate
retired in 2001 as Chairman and Chief Executive Officer of Cate-McLaurin Co.,
Inc., a commercial tire sales and retreading business.
Angus B. Lafaye, age 63, has been President of Milliken Forestry Co.,
Inc., a forestry consulting business, since 1998. Mr. Lafaye was Vice President
and Treasurer of Milliken Forestry Co. from 1985 to 1998.
Leon Joseph Pinner, Jr., age 72, has been in radio and television since
1950 and has been with WIS-TV since 1963. In January 2001, he semi-retired from
WIS and became a freelance broadcaster.
Joe E. Taylor, Jr., age 48, has been the Secretary of the South
Carolina Department of Commerce since March 1, 2006 and is a private investor.
He was the President and Chief Executive Officer of Southland Log Homes, Inc.
from 1980 until its sale in 2005.
Roger B. Whaley, age 60, has served as a director, President and Chief
Executive Officer of our Company since November, 2001, and of Carolina National
Bank and Trust Company since 2002. Mr. Whaley was employed by an investment firm
from November of 2000 until November, 2001. From 1971 until his retirement in
August of 2000, Mr. Whaley was with Bank of America, where for the last four
years of employment he served as President of Bank of America, Oklahoma, and, in
1999, also assumed responsibilities as Small Business Banking Executive for the
Midwest (Arkansas, Illinois, Iowa, Kansas, Missouri and Oklahoma).
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Directors whose terms of office continue until the Annual Meeting of
Shareholders in 2009
Charlotte J. Berry, age 75, is a philanthropist active in numerous
local and national charitable organizations.
I. S. Leevy Johnson, age 64, has been an attorney with Johnson, Toal &
Battiste, P.A. since 1976. Mr. Johnson is also an owner of Leevy Johnson Funeral
Home, Inc.
C. Whitaker Moore, age 59, has been a real estate broker with Coldwell
Banker Realty since 1970. Mr. Moore sold his interest in the firm in 1999.
William H. Stern, age 50, has been President of Stern & Stern and
Associates, a commercial real estate development company, since 1984. Mr. Stern
currently serves as Chairman of the South Carolina State Ports Authority.
Directors whose terms of office continue until the Annual Meeting of
Shareholders in 2008
Kirkman Finlay III, age 36, has been Chief Executive Officer and an
owner and director of Rising High Natural Bread Co., Inc., a bakery and
restaurant, since 1996. Mr. Finlay is also an officer and an owner of a number
of companies involved in real estate and farming. He is also the Chairman of the
Board of Directors of Quickfarm, Inc., an internet service developer for
agricultural businesses.
R. C. McEntire, Jr., age 63, has been President and operator of each of
McEntire Produce, Inc. (produce processing and sales), R.C. McEntire Trucking,
Inc. (produce hauling), Lands Inn, Inc. (hotels) and Long Branch Farm, Inc.
(tree nursery) since before 2000.
Joel A. Smith, III, age 61, has been Dean of the Moore School of
Business since October of 2000. From June of 1998 until August of 2000, Mr.
Smith was President of the East Region of Bank of America. Prior to that time,
from 1991 through June of 1998, Mr. Smith was President of NationsBank
Carolinas. Additionally, he serves on the Board of Directors and the Audit and
Governance Committees of Avanex Corporation, and the Board of Directors and on
the Executive Committee for NETBANK, Inc., chairing the Compensation Committee.
Robert E. Staton, Sr., age 60, has been Executive Vice President
External Relations for Presbyterian College since January 2007, served as
President of the United Way of South Carolina from May of 2002 until December of
2005 and was Chairman, President and Chief Executive Officer of Colonial Life &
Accident Insurance Company from 1994 until his retirement in July of 2001.
Attendance at Meetings of the Board of Directors and Meetings of Shareholders
During the last full fiscal year, ending December 31, 2006, the Board
of Directors met five times, including regular and special meetings. Each
incumbent director and director nominee attended at least 75% of the total
number of meetings of the Board of Directors and committees of which he or she
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was a member, with the exception of Angus B. Lafaye, Joel A. Smith, III and Joe
E. Taylor, Jr.
We encourage, but do not require, our directors to attend annual
meetings of shareholders. Last year, ten of our directors attended the annual
meeting of shareholders.
Committees of the Board of Directors
Audit Committee
We have a separately-designated standing Audit Committee established in
accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 (the
"Exchange Act"). The Audit Committee selects the independent auditors, reviews
our financial statements and the internal financial reporting systems and
controls with management and the independent auditors, recommends resolutions
for any dispute between management and the auditors, and reviews other matters
relating to our relationship with our auditors. The Audit Committee is comprised
of Messrs. Smith, Cate, Johnson and Lafaye, each of whom is independent as
defined in The Nasdaq Stock Market, Inc. Marketplace Rules, as modified or
supplemented. The Audit Committee met three times in 2006. The Audit Committee
operates pursuant to a written charter, which is attached to this Proxy
Statement as Appendix A.
Nominating Committee
The Executive Committee of the Board of Directors, excluding Mr. Roger B.
Whaley, acts as nominating committee to make recommendations to the Board of
Directors. Based on our size, the small geographic area in which we do business
and the desirability of our directors being a part of the communities we serve
and familiar with our customers, the Board of Directors does not believe we
would derive any significant benefit from a separate nominating committee with
sole authority to make nominations. The members of the Executive Committee,
excluding Mr. Whaley, are Mr. Staton, Mr. Cate, Mr. Finlay, Mr. Smith, Mr. Stern
and Mr. Taylor, each of whom is independent as defined in The Nasdaq Stock
Market, Inc. Marketplace Rules, as modified or supplemented. Mr. Whaley has been
excluded from the nominating committee because he is not independent under this
standard. The Executive Committee, excluding Mr. Whaley, met as a nominating
committee one time during 2006. We do not have a Nominating Committee charter.
Compensation Committee
The Compensation Committee reviews our compensation policies and recommends to
the Board the compensation levels and compensation programs for executive
officers and directors. The ultimate decisions about compensation levels and
compensation programs are made by our full Board, which may accept or reject the
recommendations of the Committee. The Compensation Committee may not delegate
its authority to make recommendations to any other person or persons. Our Chief
Executive Officer makes recommendations relating to the elements and amounts of
his compensation and that of the other executive officers, as well as
recommendations with respect to the elements and amounts of director
compensation. The Committee may take these recommendations into consideration in
its deliberations. The Committee and management does from time to time use
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compensation consultants to determine or recommend the amount or form of
executive officer or director compensation. For further discussion of the role
of consultants, see "Management Compensation - Compensation Discussion and
Analysis." Members of the Compensation Committee are William H. Stern, (Chair),
William P. Cate, and Joe E. Taylor, Jr., each of whom is independent as defined
in the Nasdaq Stock Market, Inc., Marketplace Rules, as modified or
supplemented. The Compensation Committee does not have a written charter. The
Compensation Committee met two times during 2006.
GOVERNANCE MATTERS
Director Independence
We are required by the Nasdaq Stock Market, Inc. Marketplace Rules to have
a majority of independent directors. Our Board of Directors has determined that
none of our directors, except our President, Roger B. Whaley, has a relationship
which, in the opinion of our Board of Directors, would interfere with the
exercise of independent judgment in carrying out the responsibilities of a
director and that each is independent under these rules. As disclosed under
"Certain Relationships and Related Transactions" each of our independent
directors and some of their affiliates have loan and deposit relationships with
our Bank. These relationships are not considered by our Board to compromise
their independence.
Director Nomination Process
In recommending director candidates, the committee takes into
consideration such factors as it deems appropriate based on our current needs.
These factors may include diversity, age, skills such as understanding of
banking and general finance, decision-making ability, inter-personal skills,
experience with businesses and other organizations of comparable size, community
activities and relationships, and the interrelationship between the candidate's
experience and business background, and other Board members' experience and
business background, as well as the candidate's ability to devote the required
time and effort to serve on the Board.
The committee will consider for nomination by the Board director
candidates you recommend if you comply with the following requirements. If you
wish to recommend a director candidate to the Board for consideration as a Board
of Directors' nominee, you must submit in writing to the committee the
recommended candidate's name, a brief resume setting forth the recommended
candidate's business and educational background and qualifications for service,
and a notarized consent signed by the recommended candidate stating the
recommended candidate's willingness to be nominated and to serve. This
information must be delivered to our Chairman at our address and must be
received no later than January 15 in any year to be considered as a potential
Board of Directors' nominee at the Annual Meeting of Shareholders for that year.
The Board may request further information if it determines a potential candidate
may be an appropriate nominee. Director candidates you recommend that comply
with these requirements will receive the same consideration that the committee's
candidates receive.
Director candidates you recommend will not be considered for
recommendation by the committee as potential Board of Directors' nominees if
your recommendation is received later than January 15 in any year. However, you
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may nominate director candidates for election at the annual meeting, but no
person who is not already a director may be elected at an annual meeting of
shareholders unless that person is nominated in writing at least 70 days prior
to the meeting. Such nominations, other than those made by or on behalf of our
existing management, must be made in writing and must be delivered or mailed to
our President, not less than 70 days prior to any meeting of Shareholders called
for the election of Directors. Such notification must contain the following
information to the extent known to you: (a) the name and address of each
proposed nominee; (b) the principal occupation of each proposed nominee; (c) the
total number of shares of our capital stock that will be voted for each proposed
nominee; (d) your name and residence address; and (e) any other information
required by Regulation 14A under the Exchange Act. Nominations not made in
accordance with these requirements may be disregarded by the presiding officer
of the meeting, and upon his instructions, the vote tellers shall disregard all
votes cast for each such nominee.
Shareholder Communications with the Board of Directors
If you wish to send communications to the Board of Directors you should
mail them addressed to the intended recipient by name or position in care of:
Corporate Secretary, Carolina National Corporation, 1350 Main Street, Columbia,
South Carolina 29201. Upon receipt of any such communications, the Corporate
Secretary will determine the identity of the intended recipient and whether the
communication is an appropriate shareholder communication. The Corporate
Secretary will send all appropriate shareholder communications to the intended
recipient. An "appropriate shareholder communication" is a communication from a
person claiming to be a shareholder in the communication the subject of which
relates solely to the sender's interest as a shareholder and not to any other
personal or business interest.
In the case of communications addressed to the Board of Directors, the
Corporate Secretary will send appropriate shareholder communications to the
Chairman of the Board. In the case of communications addressed to the
independent or outside directors, the Corporate Secretary will send appropriate
shareholder communications to the Chairman of the Audit Committee. In the case
of communications addressed to committees of the board, the Corporate Secretary
will send appropriate shareholder communications to the Chairman of such
committee.
Executive Officers
Information about Roger B. Whaley, our Chief Executive Officer, is set
forth above under "Management - Directors." Harry R. Brown, age 62, has served
as our Chief Financial Officer since May, 2006. Mr. Brown previously served as
Senior Officer, Director of General Accounting and Accounting Systems for
NetBank, Inc. from November 1998 until April 2006. From January1992 until
November 1998, Mr. Brown was chief financial officer and chief operating officer
of ComSouth Bankshares, Inc. a South Carolina based bank holding company with
two community bank subsidiaries. W. Jack McElveen, Jr., age 44, has served as
Executive Vice President, Chief Operating Officer of our Bank since February
2007 and Senior Vice President and Senior Credit Officer of our Bank since May
2002. Mr. McElveen served as Mid-Atlantic Sales Manager and Senior Underwriter,
Community Development Lending, First Union from September 2000 through April
2001.
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SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information about the beneficial
ownership of our common stock as of March 1, 2007, by each current director, the
Chief Executive Officer, Chief Financial Officer, Bank's Chief Operating Officer
and all directors and executive officers as a group. Management knows of no
person who beneficially owns more than 5% of our common stock.
Number of Shares of Common Stock
Name Beneficially Owned(1) Outstanding
Charlotte J. Berry 20,625(2) *
William P. Cate 28,125(3) 1.09
Kirkman Finlay, III 83,858(4) 3.25
I. S. Leevy Johnson 19,792 *(5)
Angus B. Lafaye 19,667(6) *
R. C. McEntire, Jr. 63,000 2.44(7)
C. Whitaker Moore 30,625(8) 1.18
Leon Joseph Pinner, Jr. 6,667 *(9)
Joel A. Smith, III 30,000(10) 1.16
Robert E. Staton, Sr. 25,833(11) 1.00
William H. Stern 119,033(12) 4.61
Joe E. Taylor, Jr. 124,033(13) 4.81
Roger B. Whaley 106,864(14) 4.15
Harry R. Brown - *
W. Jack McElveen, Jr. 4,800(15) *
All directors and executive 682,922(16) 26.50
officers as a group (15 persons)
- ----------------------
*less than 1%
(1) Includes for each director warrants to purchase two shares for every three
shares purchased in our prior stock offerings, one third of which vested in
each of July 2003, July 2004 and July 2005. See " - Management Compensation
-- Director Compensation."
(2) Includes 500 shares held by Mrs. Berry as custodian for her grandchildren,
and 7,000 vested warrants.
(3) Includes 10,000 vested warrants.
(4) Includes 33,333 vested warrants. Does not include 34,475 shares held in a
trust of which Mr. Finlay is a contingent beneficiary but over which he
does not have voting power or investment power. Mr. Finlay has pledged
50,525 shares to secure obligations.
(5) Includes 2,000 shares owned by Mr. Johnson's wife, and 6,667 vested
warrants.
(6) Includes 6,667 vested warrants.
(7) Includes 4,208 shares owned in an IRA for the benefit of Mr. McEntire's
wife, 1,000 shares owned by each of Mr. McEntire's three children, and
18,000 vested warrants.
(8) Includes 10,000 vested warrants.
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(9) Includes 1,000 shares owned jointly with Mr. Pinner's wife, and 1,667
vested warrants.
(10) Includes 10,000 vested warrants.
(11) Includes 2,500 shares owned jointly with Mr. Staton's wife, and 8,333
vested warrants.
(12) Includes 7,500 shares held by Mr. Stern as custodian for his sons, and
33,333 vested warrants.
(13) Includes 33,333 vested warrants and 5,000 shares held in a trust of which
Mr. Taylor is a Co-Trustee.
(14) Includes currently exercisable options to purchase 64,701 shares, 13,333
vested warrants, and 750 shares owned by a family member over which shares
Mr. Whaley holds a power of attorney..
(15) Includes 4,800 currently exercisable options..
(16) Includes 69,501 currently exercisable options and 191,666 vested warrants.
MANAGEMENT COMPENSATION
Compensation Discussion and Analysis
Overview of Executive Compensation
Our Board of Directors administers our executive officer compensation
program based on recommendations from the Compensation Committee. The Board has
historically followed an informal policy of providing our executive officers
with a total compensation package consisting of salary, bonuses, insurance and
other benefits, and stock options. The committee's objectives in setting
executive compensation are:
o to set salaries and benefits and, from time to time, award options, at
competitive levels designed to encourage our executive officers to
perform at their highest levels in order to increase earnings and
value to shareholders;
o where appropriate, to award bonuses and increase salaries to reward
our executive officers for performance; and
o to retain our key executives.
Compensation is designed to reward our individual executive officers
both for their personal performance and for performance of our Company with
respect to growth in assets and earnings, expansion and increases in shareholder
value. The Board has not historically set specific advance goals for personal or
corporate performance. The Board makes its decisions about allocations between
long-term and current compensation, allocations between cash and non-cash
compensation, and allocations among various forms of compensation, in its
discretion based on the Board's subjective assessment of how these allocations
will best meet the Board's overall compensation goals outlined above.
In 2006, the Board of Directors of the Company, prior to the formation
of the Compensation Committee, engaged the services of Matthews, Young &
Associates, Inc. to review the existing compensation package provided to the
executive officers of the Company. The engagement requested that the consultant
review the current compensation of our executive officers to determine if the
existing package was within the range of executive compensation packages offered
by other entities of similar size, complexity and geographic location.
Additionally, the board requested guidance on the development of performance
measurements (scorecards), currently being used in similar companies to be used
as a basis for the development of a plan for the bonus component of the
executive compensation plan.
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The following provides an overview of our compensation program for our
Chief Executive Officer, our Chief Financial Officer, and our Bank's Chief
Operating Officer.
Components of Executive Compensation
During 2006, executive compensation consisted primarily of three key
components: base salary, bonuses and option awards. We also provide various
additional benefits to executive officers, including health, life and disability
plans, retirement plans, employment and change of control arrangements, and
perquisites. For 2006, base salary comprised approximately 78% of total
executive officer compensation, bonuses comprised approximately 13% of total
executive officer compensation, option awards comprised approximately 1% of
total executive officer compensation, plan benefits comprised approximately 0%
of total executive officer compensation, and perquisites comprised approximately
8% of total executive officer compensation. The Board based its decision to
allocate executive officer compensation in this manner on its subjective
assessment of how such allocation would meet our goals of remaining competitive
with the compensation practices of a group of surveyed companies and of linking
compensation to our corporate performance and individual executive officer
performance.
A more detailed discussion of each of these components of executive
compensation, the reasons for awarding such types of compensation, the
considerations in setting the amounts of each component of compensation, the
amounts actually awarded for the periods indicated, and various other related
matters is set forth in the sections below.
Factors Considered in Setting Compensation
Use of Market Surveys and Peer Group Data
To remain competitive in the executive workforce marketplace, we
believe it is important to consider comparative market information about
compensation paid to executive officers of other financial institutions in our
market area, the State of South Carolina and the Southeastern United States, as
well as compensation paid to other executives with similar levels of skills and
responsibility in those areas. We want to be able to attract and retain highly
skilled and talented executive officers who have the ability to carry out our
short- and long-term goals. To do so, we must be able to compensate them at
levels that are competitive with compensation offered by other companies in our
business or geographic marketplace that seek similarly skilled and talented
executives. The market survey information we use is derived from publicly
available compilations prepared by regional investment banking firms and
associations in the southeast.
11
Some of the financial institutions included in the most recent market
survey data the Board considered included the following:
Bank of York First Citizens Bank
First Community Bank First National Bank of South Carolina
Pickens Savings and Loan Assoc. Security Federal Bank
South Carolina Bank and Trust Synovus Bank
The Bank of South Carolina
We believe the financial institutions included in our market survey are
an appropriate group to use for compensation comparisons because they align well
with the nature of our business and workforce, the talent and skills required
for successful operations and, in some cases, our assets level. The companies we
use for comparisons may change from time to time based on the factors discussed
above.
Other Factors Considered
In addition to considering market survey comparisons, in setting
compensation we consider each executive's knowledge, skills, scope of authority
and responsibilities, job performance and tenure with us as an executive
officer, as well as our perception of the fairness of the compensation paid to
each executive in relation to what we pay our other executive officers. The
Board also considers recommendations from our Chief Executive Officer in setting
his compensation and compensation for the other executive officers.
We review our compensation program and levels of compensation paid to
all of our executive officers annually and make adjustments based on the
foregoing factors as well as other subjective factors.
Timing of Executive Compensation Decisions
Annual salary reviews and adjustments and bonus and option awards are
routinely made during the budgeting process in the fourth quarter of each year.
Compensation determinations may also be made at other times during the year in
the case of newly hired executives or promotions of existing employees that
could not be deferred until the next Compensation Committee meeting. The Board
does not time any form of compensation award, including equity-based awards, to
coincide with the release of material non-public information.
Base Salaries and Bonuses
We believe it is appropriate to set base salaries at a reasonable level
that will provide executives with a predictable income base on which to
structure their personal budgets. As noted above, in setting salaries, the Board
reviews market data about salaries paid to executives of other financial
institutions. The Board also takes into consideration the overall condition of
our Company, its level of success in recent years and its goals and budget for
the current year. The Board then makes a subjective determination of the salary
level for each executive officer.
12
The Board sets bonuses for executive officers taking into account our
overall success, increase in market share, performance relative to budget and
the individual executive's contribution to our success. Additionally, our
employment agreement with Mr. Whaley entitles him to receive an annual cash
bonus if our Company and Bank achieve certain performance levels established by
the Board of Directors from time to time.
The Board set total salaries for our executives in 2006 approximately
6% higher than annualized 2005 levels reflecting the executives' increased
responsibility for a significantly larger company operating in a more complex
environment, coupled with the demonstrated ability of the executives to deliver
a high level of success. Mr. Whaley's and Mr. McElveen's bonus (non-equity
incentive plan award) for 2006 was based on criteria defined in the Senior
Management Team Scorecard. Specific targets were established with defined
percentage payments for each category. The following is a summary of the
established criteria: Achieve Pre-Tax Earnings of $1,900,000, grow average loans
outstanding by 50%, grow average core deposits by 45%, open planned full service
branch by time indicated in 2006 budget with no variance from budgeted expense,
limit non-performing loans to .75% of total loans, limit charge-offs to .50% of
total loans, reduce certain loan file documentation exceptions to 30% or less of
total loans, and maintain the Bank's current regulatory rating. All criteria
were met with the exception of the growth in average loans outstanding and the
growth in average core deposits. Mr. Whaley's maximum bonus is 50% of his total
base salary. Mr. Brown did not qualify for a bonus in 2006 under the terms of
his employment. Mr. McElveen's maximum bonus is 35% of his total base salary.
In setting the chief executive officer's salary for 2006, the Board
specifically took note of the facts that (i) we began 2006 67% larger in total
assets than we had begun 2005 and total assets were expected to increase
substantially in size in 2006, (ii) regulatory changes are continuing to
increase the complexity and challenges of operating the business, and (iii) our
chief executive officer has continued to provide personal leadership and
business skills that are critical to us. The Board also considered information
it had regarding salary levels of other chief executive officers of financial
institutions in the Southeast and set a salary level that the Board believed was
fair to the chief executive officer and to our Company. In setting the level of
our chief executive officer's bonus for 2006, the Board used a defined scorecard
developed with the assistance of an outside compensation consultant, The Board
also noted that the chief executive officer had a high level of personal
responsibility for several elements of the increases in earnings. The Board thus
arrived at a bonus of $42,969.00 or approximately 27.5% of his annual salary for
2006.
In setting 2006 salaries and bonuses for executive officers other than
our chief executive officer, the Board took into consideration the
recommendations of the chief executive officer and the following specific
contributions. For Mr. Brown, who became our chief financial officer in May,
2006, the Board took into specific consideration his experience with accounting
matters relating to financial institutions, the time and expertise required to
comply with the complex financial regulatory and reporting requirements
applicable to public companies generally and financial institutions
specifically. Additionally, his salary and bonus was set as a result of current
rates paid for persons of similar skills and experience in the local market at
hiring date. For Mr. Ingram, who served as our chief financial officer until
February, 2006, the board took into specific consideration the same factors used
in setting Mr. Brown's salary and bonus. For Mr. McElveen, who serves as our
Bank's Chief Operating Officer, the board took into specific consideration his
experience in and expertise in bank operations, loan review and credit
13
underwriting. In addition, his salary and bonus was set as a result of current
rates paid for persons of similar skills and experience in the local market.
For 2007, the Board has set Mr. Whaley's salary at $162,500, Mr.
Brown's salary at $150,000 and Mr. McElveen's salary at $150,000. In addition,
Mr. Whaley is eligible for up to a 50% non-equity incentive award of his annual
base salary, Messrs. Brown and McElveen are eligible for up to a 35% non-equity
incentive award of their annual base salary based on meeting goals set in the
2007 Senior Management Team Scorecard.
Stock Options
Stock option awards are also set by the Board at levels believed to be
competitive with other financial institutions of similar size and to advance our
goal of retaining key executives, as well as levels believed to appropriately
align the interests of management with the interests of shareholders. Since
options are granted with exercise prices set at fair market value of our common
stock on the date of grant, executives can only benefit from the options if the
price of our stock increases. The Board believes the costs to our Company of
granting options as opposed to paying additional cash compensation, both in
terms of the impact on earnings under the new accounting rules for options and
potential dilution of the outstanding common stock, are far-outweighed by the
benefits provided to us in terms of providing incentives to our executive
officers to increase earnings and shareholder value. The Board does not award
options every year. Stock options are normally awarded at the recommendation of
the Chief Executive Officer, if options are to be awarded to the Chief Executive
Officer, they will be recommended by the Compensation Committee. On occasion,
stock option's may be granted during the hiring for selected key positions.
No options were awarded to any executive officers during 2006.
Other Benefits
We also provide our executive officers with insurance benefits
including group life insurance provided to all other employees and make
contributions to our 401(k) plan on their behalf on the same basis as
contributions are made for all other employees. Mr. Whaley maintains health
insurance provided by a former employee and is paid $7,211 annually to pay
premiums for this plan Mr. Brown maintains health insurance provided by his
spouse through the State of South Carolina and is paid an equal amount monthly
that would have been paid to a third party if he had elected to be covered by
the company's health insurance plan. Mr. Brown was paid $1,973 in 2006 for
health insurance premiums.
We also pay country club and dining club dues for our chief executive
officer and provide him an automobile allowance of $9,000 per year for business
and personal use. In addition, we encourage, and pay for our executives and
their spouses, to attend banking conventions and seminars. The Board has
determined that these benefits play an important role in our executive officers'
business development activities on behalf of our Company. The Board has also
determined that providing such benefits helps to retain key executives and is an
important factor in keeping our executive compensation packages competitive in
our market area.
All of the foregoing other elements of compensation awarded to named
executives in 2006 were set at levels believed to be competitive with other
employers in South Carolina.
14
We have entered into an employment agreement with our chief executive
officer and a change of control agreement with our chief financial officer.
These agreements are described under - "Employment Agreement and Change of
Control Agreement." As discussed in that section, the agreements provide, among
other things, for payments to Messrs. Whaley and Brown upon termination under a
number of different circumstances. The events set forth as triggering events for
the payments were selected because they are events similar to those provided for
in many employment agreements for executive officers of financial institutions
throughout South Carolina. It has become increasingly common in South Carolina
for community financial institutions to provide for such payments under such
conditions. We believe these arrangements are an important factor in attracting
and retaining our executive officers by assuring them financial and employment
status protections in the event control of our Company changes. We believe such
assurances of financial and employment protections help free executives from
personal concerns over their futures, and, thereby, can help to align their
interests more closely with those of shareholders in dealing with possible
transactions that could result in a change of control.
Tax and Accounting Considerations
We expense salary, bonus and benefit costs as they are incurred for tax
and accounting purposes. Salary, bonus and some benefit payments are taxable to
the recipients as ordinary income. Stock options granted create items of expense
for accounting purposes as more fully described in the notes to our audited
financial statements, but not for tax purposes. The tax and accounting treatment
of the various elements of compensation is not a major factor in our decision
making with respect to compensation.
Security Ownership Guidelines and Hedging
We do not have any formal security ownership guidelines for our
executive officers or any policies regarding our executive officers' hedging the
economic risk of ownership of our shares.
Financial Restatement
The Board of Directors does not have a policy with respect to adjusting
retroactively any cash or equity based incentive compensation paid to our
executive officers where payment was conditioned on achievement of certain
financial results that were subsequently restated or otherwise adjusted in a
manner that would reduce the size of an award or payment, or with respect to
recovery of any amount determined to have been inappropriately received by an
individual executive. If such a restatement were ever to occur, the Board would
expect to address such matters on a case-by-case basis in light of all of the
relevant circumstances.
15
Executive Officer Compensation
The following table sets forth information about compensation awarded
to, earned by or paid to our Chief Executive Officer, Chief Financial Officer
and our Bank's Chief Operating Officer for the year ended December 31, 2006. No
other executive officers earned $100,000 or more during the year ended December
31, 2006.
Summary Compensation Table
Name Year Salary Bonus Stock Option Non- Change in All Total
and ($) ($) Awards Awards Equity Pension Other ($)
Principal ($) ($) Incentive Value and Compen-
Position Plan Nonquali- sation
Compen- satified ($)(2)
($) Deferred
Compensa-
tion
Earnings
($)
---- ------ ------ ------ -------- --------- --------- -------- ---------
Roger B. Whaley ..................... 2006 $156,250 0 0 0 $ 42,969 0 $ 28,266 $227,485
President and Chief
Executive Officer
Harry R. Brown, ..................... 2006 $100,000 0 0 0 0 0 $ 5,032 $105,032
Executive Vice President and
Chief Financial Officer (1)
Rollo F. Ingram ..................... 2006 $ 19,211 0 0 0 0 0 0 $ 19,211
Former Executive Vice
President and Chief Financial
Officer (1)
W. Jack McElveen, Jr ................ 2006 $115,448 0 0 0 $ 22,224 0 $ 4,611 $142,283
Chief Operating Officer
of the Bank
(1) Mr. Ingram served as our Chief Financial Officer until February, 2006.
We employed Mr. Brown to be our Chief Financial Officer in May, 2006.
(2) Includes our 2006 contributions to the Bank's 401(k) Plan on behalf of
the named persons, premiums for medical insurance, disability
insurance and life insurance, and directors' fees in the amounts
shown: Also, included and automobile allowance for Mr. Whaley of
$9,000 for 2006 and club dues of $4,346 in 2006.
401(k) Medical Disability Life Director's Fees
------ ------- ---------- ---- ---------------
Mr. Whaley ........................... 2006 $7,311 $7,211 n/a n/a n/a
Mr. Brown ............................ 2006 $3,059 $1,973 n/a n/a n/a
Mr. Ingram ........................... 2006 n/a n/a n/a n/a n/a
Mr. McElveen ......................... 2006 $4,611 n/a n/a n/a n/a
16
Employment Agreement and Change of Control Agreement
The following are merely summaries of certain provisions of our
Employment Agreement with Mr. Whaley and our Change of Control Agreement with
Mr. Brown, and are qualified in their entirety by reference to such Agreements,
which are filed with the Securities and Exchange Commission. Such summaries do
not create any rights in any person.
Employment Agreement with Mr. Whaley
We have entered into an employment agreement with Mr. Whaley, which
provides for his employment as President and Chief Executive Officer of our
Company and Carolina National Bank and Trust Company. The agreement commenced on
the date of the opening of the Bank, July 15, 2002, and was for an initial term
of two years. Beginning on the day following the opening of the Bank, and on
each day thereafter, the term of the Agreement will automatically be extended
for an additional day unless, prior to such extension, Mr. Whaley, our Company
or our Bank gives written notice to the other parties that the Agreement will
not be extended.
The Agreement provides for payment to Mr. Whaley of an annual base
salary, which the Board of Directors of the Bank will periodically review and
may (but is not required to) increase. Mr. Whaley will also be entitled to
receive an annual cash bonus if our Company and Carolina National Bank and Trust
Company achieve certain performance levels established by the Board of Directors
from time to time. We also provided Mr. Whaley with stock options for a number
of shares of our common stock equal to 5% of the common stock subscribed for in
the initial public offering. The options provide for an exercise price of $10.00
per share, termination ten years after the date of grant, and vesting one-fifth
at the time of grant and one-fifth on each anniversary thereafter. If Mr. Whaley
terminates his employment without good reason (as defined below) or if we
terminate him with cause (as defined below) the options will terminate 30 days
after the date of termination of employment. We also provide Mr. Whaley with
group medical, dental, disability and life insurance; an automobile allowance;
dining club dues and country club dues; and such other benefits as the Bank
provides to its employees generally.
If we terminate Mr. Whaley's employment for cause during the term of
the Agreement, if he terminates his employment not for good reason, or if his
employment is terminated as a result of death, disability or retirement, we are
required to pay Mr. Whaley his base salary through the last day of the month in
which termination occurs at the annual rate then in effect, together with any
bonus that has been awarded prior to the date of termination, any benefits to
which he may be entitled as a result of the termination under terms and
conditions of plans or arrangements then in effect, and any automobile expenses
or club dues due to him as of the date of termination of the Agreement. If Mr.
Whaley's employment had been terminated under any of these circumstances as of
December 29, 2006, we would have been required to pay him $0 of salary, $42,969
of bonus.
If Mr. Whaley 's employment is terminated during the term of the
Agreement other than by death, disability or retirement, and (i) by action of
Mr. Whaley for good reason, or (ii) by our action other than for cause, we are
required to pay Mr. Whaley all of the compensation provided for in the paragraph
immediately above. In addition, for a period of two years after the date of
termination, we are required to continue to pay Mr. Whaley his base salary in
17
effect at the date of termination; to continue to pay his automobile allowance;
and to continue to provide him with insurance coverage. Additionally, all
unexercised stock options granted to him will immediately vest and become
exercisable. If, however, such payments, either alone or together with other
payments Mr. Whaley has the right to receive from us would constitute a
parachute payment as defined in Section 280G of the Internal Revenue Code, they
will be reduced to the extent necessary to cause them not to be parachute
payments. If Mr. Whaley's employment had been terminated under any of these
circumstances as of December 29, 2006, we would have been required to pay him
$325,000 of salary, $49,969 of bonus, an $18,000 automobile allowance and
$14,422 for insurance coverage.
The Agreement defines "cause" as: (i) Mr. Whaley's breach of any
material provision of the Agreement, that is not cured within 30 days after
notice of the breach; (ii) his willful and continued failure to substantially
perform his duties under the Agreement (other than his inability to perform,
with or without reasonable accommodation, resulting from his incapacity due to
physical or mental illness or impairment), after we deliver a demand for
substantial performance to him that specifically identifies the manner in which
he is alleged to have not substantially performed his duties; (iii) his willful
engaging in misconduct (criminal, immoral or otherwise) which is materially
injurious to our Bank; (iv) his conviction of a felony; (v) his commission in
the course of his employment of an act of fraud, embezzlement, theft or proven
dishonesty, or any other illegal act or practice, which would constitute a
felony, (whether or not resulting in criminal prosecution or conviction), or any
act or practice which has resulted in his becoming unbondable under our
"banker's blanket bond;" (vi) his failure to comply with clear provisions of law
and regulations applicable to our Bank which is materially injurious to our
Bank; or (vii) his removal or permanent prohibition from participating in the
affairs of our Bank by an order or consent issued under Section 8(e)(4) or
(g)(1) of the Federal Deposit Insurance Act.
The agreement defines "good reason" as any of the following: (i) our
failure or our Bank's failure to comply with any material provision of the
Agreement that is not cured within 30 days after notice of such failure is
provided; (ii) our Bank's failure to obtain, by operation of law or contract,
the assumption of its obligations under the Agreement by any successor; (iii)
our Bank's failure to comply with its payment obligations under the Agreement;
(iv) any purported termination of Mr. Whaley's employment by action of our Bank
which is not effected in accordance with the requirements of the Agreement; (v)
imposition of a requirement that Mr. Whaley report to any person or group of
persons, other than our Board or the Board of our Bank; or (vi) termination of
his employment by us, but not the Bank, other than for cause.
The provisions of the Agreement are subject to certain limitations if
required by the provisions of the Federal Deposit Insurance Act. Mr. Whaley
agrees to abide by the Bank's and our Company's rules and procedures designed to
protect our confidential information (as defined in the Agreement) and to
preserve and maintain such information in strict confidence during his
employment and as long thereafter as the confidential information remains, in
the sole opinion of the Bank or our Company, proprietary and confidential.
Mr. Whaley agrees that (i) for a period of 12 months after termination
of the Agreement by him other than for good reason, or (ii) during the
continuation of any base salary payments to him, whichever is later, he will not
manage, operate or be employed by, participate in, or be connected in any manner
18
with the management, operation, or control of any banking business conducted
within a 25 mile radius of any of our operating offices or those of any of our
subsidiaries. Mr. Whaley further agrees that for a period of 12 months after
termination of his employment by him other than for good reason or the
completion of base salary payments, whichever is later, he will not solicit the
business of, or patronage from, any of our customers or those of our
subsidiaries, and he will not seek to, or assist others to, persuade any
employee of our Bank to discontinue employment with the Bank or seek employment
or engage in any business of our Bank. Any controversies or claims arising out
of or relating to the Employment Agreement are required to be settled by binding
arbitration.
Change of Control Agreement with Mr. Brown
We have entered into a Change of Control Agreement with our Chief
Financial Officer, Mr. Brown. The agreement provides that, if within five years
after May 1, 2006, we are subject to a change of control, Mr. Brown will be
entitled to the benefits described below. The agreement defines "change of
control" as any of the following events: (i) acquisition, directly or
indirectly, of voting control of our Company by any person or group acting in
concert, (ii) our merger with or into any other entity and we are not the
surviving entity of the merger, (iii) acquisition, directly or indirectly, by
any person or group acting in concert, of voting control of any of our
subsidiaries, by which subsidiary Mr. Brown is principally employed, or (iv)
merger of any of our subsidiaries by which Mr. Brown is principally employed
with or into another entity which is not also one of our subsidiaries and such
subsidiary is not the surviving entity of the merger.
If at any time within the six months following the effective date of a
change of control, (i) Mr. Brown terminates his employment with us following a
reduction in his compensation, a substantial change in his duties or status, or
his being required to relocate, or (ii) we terminate Mr. Brown's employment,
then upon such termination Mr. Brown will be entitled to a lump sum payment
equal to his annual salary in effect at the date of termination. The agreement
further provides that any amount paid thereunder will be deemed severance pay,
and Mr. Brown will not be under any duty to mitigate damages and no income
received by him thereafter will reduce the amount we owe him under the
agreement. If we had been subject to a change of control and Mr. Brown's
employment had been terminated as of December 29, 2006, by Mr. Brown or by us as
provided above, Mr. Brown would have been entitled to a lump sum payment of
$150,000.
19
Outstanding Equity Awards At 2006 Fiscal Year-End
The following table provides information about stock options, including
warrants, held by our named executive officers at the end of 2006.
Option Awards Stock Awards
------------- ------------
Name Number Number Equity Option Option Number Market Equity Equity
of of Incentive Exercise Expiration of Value of Incentive Incentive
Securities Securities Plan Price Date Shares Shares or Plan Plan
Underlying Underlying Awards: ($) or Units Units of Awards: Awards:
Unexercised Unexercised Number of Stock Number Market or
Options Options of Stock That Have of Payout
(#) (#) Securities That Not Unearned Value
Exercisable Unexercisable Underlying Have Vested Shares, of
Unexercised Not ($) Units or Unearned
Unearned Vested Other Shares,
Options (#) Rights Units or
(#) That Have Other
Not Rights
Vested That Have
(#) Not
Vested
($)
------ ------ ------ ------ ---------- ------ ------ ------ ------
Roger B. Whaley ............. 64,701 0 0 $ 10.00 07/15/2012 n/a n/a n/a n/a
Roger B. Whaley ............. 13,333 0 0 $ 10.00 12/31/2012 n/a n/a n/a n/a
(warrants)
Harry R. Brown .............. 0 0 0 n/a n/a n/a n/a n/a n/a
Rollo F. Ingram ............. 0 0 0 n/a n/a n/a n/a n/a n/a
W. Jack McElveen, Jr. (1) ... 4,800 3,200 0 $ 10.00 07/15/2012 n/a n/a n/a n/a
W. Jack McElveen, Jr. (2) ... 0 2,000 0 $ 13.50 04/27/2015 n/a n/a n/a n/a
(1) Options for 3,200 shares will vest on 7/15/2007.
(2) Options for 600 shares will vest on 4/27/2008, for 600 shares will
vest on 4/27/2009 and for 800 shares will vest on 4/27/2010.
20
Compensation of Directors
Set forth in the table and narrative discussion below is information
about compensation we provide to our directors for their service to the Company
and the Bank. Information about director's fees paid to Mr. Whaley is included
in the Summary Compensation Table. In 2006, our directors received $500 for each
meeting of the Board of Directors attended. Committee chairmen for the following
committees received $300 for each committee meeting while each member received
$200 for each committee attended: Asset/Liability Committee, Audit and
Compliance Committee, Long Range Planning Committee, Executive Committee and
Compensation Committee. The chairman of the Loan Committee received a fee of
$400 for each meeting while the members received a fee of $300. The Chairman of
the Board received an additional annual fee of $10,000, which was paid on a
quarterly basis. All of our directors serve as directors of the bank and the
corporation.
2006 Director Compensation
Name Fees Stock Option Non-Equity Change in All Other Total
Earned Awards Awards Incentive Plan Pension Compensation ($)
or ($) ($) Compensation Value and ($)
Paid in ($) Nonqualified
Cash Deferred
($) Compensation
Earnings
---- ----- ------ ---------- --------- --------- -----
Charlotte J. Berry ...................... $ 2,500 0 0 0 0 0 $ 2,500
William P. Cate ......................... $ 5,100 0 0 0 0 0 $ 5,100
Kirkman Finlay, III ..................... $ 4,700 0 0 0 0 0 $ 4,700
I. S. Leevy Johnson ..................... $ 3,900 0 0 0 0 0 $ 3,900
Angus B. Lafaye ......................... $ 2,500 0 0 0 0 0 $ 2,500
R. C. McEntire, Jr ...................... $ 1,900 0 0 0 0 0 $ 1,900
C. Whitaker Moore ....................... $ 3,700 0 0 0 0 0 $ 3,700
Leon Joseph Pinner, Jr .................. $ 2,400 0 0 0 0 0 $ 2,400
Joel A. Smith, III ...................... $ 4,500 0 0 0 0 0 $ 4,500
Robert E. Staton, Sr .................... $12,500 0 0 0 0 0 $12,500
William H. Stern ........................ $ 9,000 0 0 0 0 0 $ 9,000
Joe E. Taylor, Jr ....................... $ 5,600 0 0 0 0 0 $ 5,600
Upon the opening of our Bank we granted stock warrants to the directors
to compensate them for: (a) their time and efforts as organizers and directors;
(b) their purchase of and subscription to purchase our common stock to fund the
operating expenses during the organizational period of Carolina National Bank
and Trust Company and to provide capital for the Bank; and (c) their continued
service as directors. Directors received two stock warrants for every three
shares they purchased prior to the opening of Carolina National Bank and Trust
Company. One-third of the warrants vested and became exercisable on each of the
first three anniversaries of the opening of the Bank (July 15, 2002).
Accordingly, all of the warrants are now vested. Vested warrants expire on the
21
earlier of 90 days after termination of the director's status as a director (one
year after death or disability) or ten years after opening of the Bank and have
an exercise price of $10.00 per share.
Our Board of Directors has adopted a new Director Compensation Plan to
be effective on July 1, 2007. Each director of the Company will be compensated
for service as a director for each July 1 through June 30 period under the terms
of this new plan. This compensation will be a combination of stock options and
cash payments.
Each director shall be granted on the first business day of July of
each year options to purchase 1,000 shares of the Company's common stock. Each
member of the Executive Committee of the Board of Directors shall be granted at
the same time additional options for 1,000 shares of common stock.
The options shall have a term of ten years and an exercise price equal
to the closing price of the stock on the date of grant or, if no shares were
traded on the date of grant, the closing price on the most recent previous
trading day. The options shall be unexercisable and subject to forfeiture until
the first anniversary of the grant date. In the case of any director who does
not attend, in person or by telephone, at least 75% of the board and committee
meetings, such director's option compensation shall be forfeited. Forfeiture
determinations for the period shall be made on the first business day in July of
the following year. Unforfeited options will vest and become exercisable 20% on
each anniversary of the grant date. The options shall be issued pursuant to the
Carolina National Corporation Long Term Incentive Plan (subject to approval of
the Plan by the shareholders), shall not be assignable and shall be evidenced by
a written stock option agreement.
In addition to options, each non-employee member of the Board of
Directors, excluding the Chairman, shall be paid $500 in cash for each quarter.
The Chairman of the Board of Directors shall be paid $1,375 in cash each
quarter. Each member of the Executive Committee shall be paid an additional $500
in cash for each quarter.
2003 STOCK OPTION PLAN
At the 2003 Annual Meeting, the shareholders approved the 2003 Stock
Option Plan, which reserves 129,402 shares of Common Stock for issuance pursuant
to the exercise of options which may be granted pursuant to the 2003 Stock
Option Plan. The Plan is administered by the Board of Directors or a Committee
appointed by the Board of Directors. Options awarded under the Plan may be
"incentive stock options" within the meaning of the Internal Revenue Code or
non-qualified options. Options may be granted pursuant to the 2003 Stock Option
Plan to persons who are directors, officers or key employees of our Company or
any subsidiary (including officers who are employees) at the time of grant. The
Board of Directors or the Committee selects the persons to receive grants under
the 2003 Stock Option Plan and determines the number of shares covered by
options granted under the 2003 Stock Option Plan. All stock options will have
such exercise prices as may be determined by the Board of Directors or the
Committee at the time of grant, but in the case of incentive stock options, such
prices may not be less than the fair market value of the Common Stock (as
determined in accordance with the Plan) at the date of grant. The Board of
Directors or the Committee may set other terms for the exercise of the options
but may not grant to any one holder more than $100,000 of incentive stock
options (based on the fair market value of the optioned shares on the date of
the grant of the option) which first become exercisable in any calendar year. No
options may be exercised after ten years from the date of grant, and options may
not be transferred except by will or the laws of descent and distribution.
22
Incentive stock options may be exercised only while the optionee is our
employee, within three months after the date of termination of employment, or
within twelve months of death or disability, but only to the extent the option
has not expired.
The number of shares reserved for issuance under the Plan, the number
of shares covered by outstanding options and the exercise price of options will
be adjusted in the event of changes in the number of outstanding shares of
common stock effected without our receipt of consideration. All outstanding
options will become immediately exercisable in the event of a change of our
control, or imminent change of our control, (both as defined in the Plan). In
the event of an extraordinary corporate action (as described in the Plan),
subject to any required shareholder approval, the Board of Directors or the
Committee, in its sole discretion, may also cancel and pay for outstanding
options. The Board or Committee also has the power to accelerate the exercise
date of outstanding options at any time. The Board of Directors may alter,
suspend or discontinue the Plan, but may not increase (except as discussed
above) the maximum number of shares reserved for issuance under the Plan,
materially increase benefits to participants under the Plan, or materially
modify the eligibility requirements under the Plan without your approval or
ratification. The 2003 Stock Option Plan will terminate on February 26, 2013,
and no options will be granted thereunder after that date.
COMPENSATION COMMITTEE REPORT
Our Compensation Committee has reviewed and discussed the "Compensation
Discussion and Analysis" included in this Proxy Statement with management of our
Company. Based on that review and discussion, the Compensation Committee
recommended to our Board of Directors that the "Compensation Discussion and
Analysis" be included in our 2007 Annual Report on Form 10-K and in this Proxy
Statement.
William P. Cate
Joe E. Taylor, Jr.
William H. Stern
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Carolina National Bank and Trust Company, in the ordinary course of its
business, makes loans to and has other transactions with directors, officers,
principal shareholders, and their associates. Loans are made on substantially
the same terms, including rates and collateral, as those prevailing at the time
for comparable transactions with other persons and do not involve more than the
normal risk of collectibility or present other unfavorable features. The Bank
expects to continue to enter into transactions in the ordinary course of
business on similar terms with directors, officers, principal stockholders, and
their associates. The aggregate dollar amount of such loans outstanding at
December 31, 2006 was $3,830,686. None of such loans are classified as
nonaccrual, past due, restructured or problem loans. During 2006, $892,038 of
new advances were made and repayments totaled $534,727.
We lease space, on a month to month basis, from an entity with which
William H. Stern, one of our directors, is affiliated. Monthly lease payments
are $437.50.
23
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
As required by Section 16(a) of the Securities Exchange Act of 1934,
our directors, executive officers and certain individuals are required to report
periodically their ownership of our Common Stock and any changes in ownership to
the Securities and Exchange Commission. Based on a review of Section 16(a)
reports available to us and any representations made to us, all such reports for
2006 were filed on a timely basis except that Mr. Whaley filed a late report on
a Form 4 regarding a gift of shares to his children.
CAROLINA NATIONAL CORPORATION
LONG TERM INCENTIVE PLAN
Introduction
We are seeking approval of our Long Term Incentive Plan. Our existing
2003 Stock Option Plan only has 35,101 shares remaining to be issued and does
not allow for the issuance of stock appreciation rights, restricted stock and
other equity based compensation arrangements which may be useful to the Company.
The Long Term Incentive Plan authorizes the issuance of 227,100 shares in
addition to those authorized for the 2003 Stock Option Plan and allows the use
of a broad range of equity based compensation arrangements. It is our belief
that the Long Term Incentive Plan supports the Company's objective of paying for
performance, which increases shareholder value.
The following description of the material terms of the Long Term
Incentive Plan is qualified in its entirety by reference to the terms of the
Long Term Incentive Plan, a copy of which is attached to this proxy statement as
Appendix B.
Description of the Plan
Purpose
The purpose of the Plan is to give the Company a competitive advantage
in attracting, retaining and motivating officers, employees, directors and
consultants and to provide the Company and its subsidiaries and affiliates with
a stock plan providing incentives directly linked to the profitability of the
Company's businesses and increases in the Company's shareholder value.
Eligible Individuals
Directors, officers, employees and consultants of, and prospective
employees and consultants of, the Company and its subsidiaries and affiliates
are eligible to participate in the Plan. As of March 23, 2007, there are
thirteen directors, five non-director officers and thirty- seven employees who
are not officers eligible to participate in the Plan. Officers and employees
will be selected for participation in the discretion of the committee
administering the Plan. Beginning July 1, 2007 and continuing until modified or
discontinued by the Board of Directors, directors of the Company will receive
24
options to purchase either 1,000 or 2,000 shares of stock for each July 1
through June 30 period served on the Board of Directors (see "MANAGEMENT
COMPENSATION - Compensation of Directors").
Administration
The Plan is administered by the Compensation Committee of the Board,
except with respect to grants to non-employee Directors, which will be
administered by the Board of Directors. The body administering the Plan will be
referred to in this description as the "Committee". The Committee is authorized
to delegate certain administrative responsibilities to individuals selected by
it in its discretion. The Committee will determine the eligible individuals to
whom and the time or times at which awards will be granted, the number of shares
subject to awards to be granted to any eligible individual, the duration of any
award cycle, and any other terms and conditions of the grant, in addition to
those contained in the Plan. Each grant under the Plan will be confirmed by and
subject to the terms of an award agreement.
Authorized Shares
The maximum number of shares of common stock that may be delivered to
participants and their beneficiaries under the Plan is 227,100. No participant
may be granted awards covering in excess of 30,000 shares of common stock in any
calendar year. Shares subject to an award under the Plan shall be the Company's
authorized and unissued shares. The closing price of the Company Common Stock as
of March 23, 2007 was $17.70.
If any award is forfeited, or if any option (or SAR, if any)
terminates, expires or lapses without being exercised, or if any SAR is
exercised for cash, shares of common stock subject to such awards will again be
available for distribution in connection with awards under the Plan. If the
option price of any option or the strike price of any freestanding SAR is
satisfied by delivering share of common stock to the Company (by either actual
delivery or by attestation), only the number of shares of common stock delivered
to the participant net of the shares of common stock delivered to the Company or
attested to will be deemed delivered for purposes of determining the maximum
numbers of shares of common stock available for delivery under the Plan. To the
extent any shares of common stock subject to an award are not delivered to a
participant because such shares are used to satisfy an applicable
tax-withholding obligation, such shares will not be deemed to have been
delivered for purposes of determining the maximum number of shares of common
stock available for delivery under the Plan.
In the event of certain types of corporate transactions or
restructurings, such as stock splits, mergers, consolidations, separations,
spin-offs, reorganizations, liquidations, reorganizations, or other
distributions of stock or property of the Company (including an extraordinary
stock or cash dividend), the Committee or the Board may make adjustments in the
aggregate number and kind of shares reserved for issuance under the Plan, in the
maximum share limitations upon stock options, incentive stock options, stock
appreciation rights and other awards to be granted to any individual, in the
25
number, kind and option price or strike price of outstanding stock options and
stock appreciation rights, in the number and kind of shares subject to other
outstanding awards granted under the Plan, and any other equitable substitutions
or adjustments that Committee or the Board determine to be appropriate in their
sole discretion.
Stock Options
Stock options may be granted alone or in addition to other awards.
Stock options may be "incentive stock options" (within the meaning of Section
422 of the Internal Revenue Code) or nonqualified stock options, as designated
by the Committee and specified in the option agreement setting forth the terms
and provisions of the options. The term of each stock option will be fixed by
the Committee but no incentive stock option may be exercised more than 10 years
after the date it is granted. The exercise price per share of common stock
purchasable under a stock option will be determined by the Committee but, except
in the case of stock options granted in lieu of foregone compensation, may not
be less than the fair market value of the common stock on the date of grant.
Options granted under the Plan cannot be repriced without shareholder approval.
Except as otherwise provided in the Plan, stock options will be
exercisable at the time or times and subject to the terms and conditions
determined by the Committee, and the Committee may at any time accelerate the
exercisability of a stock option. A participant exercising an option may pay the
exercise price in cash or, if approved by the Committee, with previously
acquired shares of common stock or a combination of cash and stock. The
Committee, in its discretion, may allow the cashless exercise of options through
the use of a broker-dealer, to the extent permitted by applicable law, or for
payment of the exercise price by withholding from the shares issuable upon
exercise a number of shares having a fair market value on the date of exercise
equal to the aggregate exercise price. The Plan contains provisions, which apply
unless otherwise determined by the Committee, regarding the vesting and
post-termination exercisability of options held by optionees whose employment
with the Company terminates by reason of death, disability, retirement, or
otherwise. The Plan provides that the Committee may establish procedures
permitting an optionee to elect to defer to a later time the receipt of shares
issuable upon the exercise of a stock option and/or to receive cash at such
later time in lieu of the deferred shares.
Stock Appreciation Rights
Stock appreciation rights may be granted separately or in tandem with
all or part of any stock option granted under the Plan. A stock appreciation
right granted separately from any stock option under the Plan is called a
freestanding SAR. A stock appreciation right granted in tandem with a stock
option under the Plan is called a tandem SAR. A tandem SAR will terminate and
will no longer be exercisable upon the termination or exercise of the related
stock option. A tandem SAR may be exercised by an optionee, at the time or times
and to the extent the related stock option is exercisable, by surrendering the
applicable portion of the related stock option in accordance with procedures
established by the Committee. Upon exercise, a tandem SAR permits the optionee
to receive cash, shares of common stock, or a combination of cash or stock, as
26
determined by the Committee. The amount of cash or the value of the shares is
equal to the excess of the fair market value of a share of common stock on the
date of exercise over the
per share exercise price of the related stock option, multiplied by the number
of shares with respect to which the tandem SAR is exercised.
A freestanding SAR may have a term of up to ten years. Except in the
case of freestanding SARs granted in lieu of compensation, the strike price
cannot be lower than the fair market value of the stock on the grant date. The
strike price cannot be repriced without shareholder approval. The Committee can
determine exercisability restrictions on freestanding SARs at the time of grant.
Upon exercise, a freestanding SAR permits the holder to receive cash, shares of
common stock, or a combination of cash or stock, as determined by the Committee.
The amount of cash or the value of the shares is equal to the excess of the fair
market value of a share of common stock on the date of exercise over the strike
price, multiplied by the number of shares with respect to which the freestanding
SAR is exercised. The Plan contains provisions, which apply unless otherwise
determined by the Committee, regarding the vesting and post-termination
exercisability of freestanding SARs held by an individual whose employment with
the Company terminates by reason of death, disability, retirement or otherwise.
The Committee may also establish procedures permitting the holder of a
freestanding SAR to defer to a later time the receipt of shares issuable upon
the exercise of a freestanding SAR and/or to receive cash at such later time in
lieu of the deferred shares.
Restricted Stock
The Plan authorizes the Committee to grant restricted stock to
individuals with such restriction periods as the Committee may designate. The
Committee may also provide at the time of grant that restricted stock cannot
vest unless applicable performance goals are satisfied.
If the grant is intended to be a "qualified performance based award,
"these goals must be based on the attainment of specified levels of one or more
of the following measures: revenue growth; earnings before interest, taxes,
depreciation, and amortization; earnings before interest and taxes; operating
income; pre- or after- tax income; earnings per share; cash flow; cash flow per
share; return on equity; return on invested capital; return on assets; economic
value added (or an equivalent metric); share price performance; total
shareholder return; improvement in or attainment of expense levels; improvement
in or attainment of working capital levels. These goals may be established on a
corporate-wide basis or with respect to one or more business units, divisions,
or subsidiaries. Measurement of performance against goals may exclude impact of
charges for restructurings, discontinued operations, extraordinary items, and
other unusual or non-recurring items, and the cumulative effects of accounting
changes, each as defined by generally accepted accounting principles and as
identified in the financial statements, notes to the financial statements, or
management's discussion and analysis within the Company's annual report.
A "qualified performance-based award" is a grant of restricted stock or
performance units designated as such by the Committee at the time of grant based
upon a determination that (1) the recipient is or may be a "covered employee"
within the meaning of Section 162(m)(3) of the Internal Revenue Code in the year
in which the Company would expect to be able to claim a tax deduction with
respect to such performance unit awards, and (2) the Committee wishes such grant
27
to qualify for the exemption from the limitation on deductibility of
compensation with respect to any covered employee imposed by Section 162(m) of
the Internal Revenue Code. The Committee will specify the performance goals to
which any "qualified performance-based award" will be subject.
The provisions of restricted stock awards (including any applicable
performance goals) need not be the same with respect to each participant. During
the restriction period, the Committee may require that the stock certificates
evidencing restricted shares be held by the Company. Restricted stock may not be
sold, assigned, transferred, pledged or otherwise encumbered. Restricted stock
is forfeited upon termination of employment, unless otherwise provided by the
Committee. Other than these restrictions on transfer and any other restrictions
the Committee may impose, the participant will have all the rights of a holder
of stock holding the class or series of stock that is the subject of the
restricted stock award.
Performance Units
Performance units may be granted either alone or in addition to other
awards granted under the Plan. Performance units may be performance-based stock
awards or performance-based cash awards. Performance units may be granted
subject to the attainment of performance goals and/or the continued service of
the participant. As noted above, performance units can be "qualified
performance-based awards." At the conclusion of the award cycle, the Committee
will evaluate the degree to which any applicable performance goals have been
achieved and the performance amounts earned, and will cause to be delivered the
amount earned in either cash or shares, at the election of the Committee.
Except to the extent otherwise provided in the applicable Performance
unit agreement or the Plan, all rights to receive cash or stock in settlement of
Performance units will be forfeited upon a participant's termination of
employment for any reason during the award cycle or before any applicable
performance goals are satisfied, unless the Committee, in its discretion, waives
any or all remaining payment limitations with respect to such participant's
performance units. However, the Committee may not waive the satisfaction of the
applicable performance goals in the case of performance units that are
"qualified performance-based awards "unless the participant's employment is
terminated by reason of death or disability or is terminated by the Company
without cause or by the participant for good reason.
Other Stock-Based Awards
Other awards of common stock and other awards that are valued by
reference to, or otherwise based upon common stock, including(without
limitation) dividend equivalents and convertible debentures, may also be granted
under the Plan, either alone or in conjunction with other awards.
Transferability of Awards
Awards are nontransferable other than by will or the laws of descent
and distribution. However, in the discretion of the Committee, nonqualified
stock options and stock appreciation rights may be transferred as expressly
permitted by the Committee, including pursuant to a transfer to members of the
holder's immediate family. The transfer may be made directly or indirectly or by
28
means of a trust or partnership or otherwise. Stock options and stock
appreciation rights may be exercised only by the initial holder, any such
permitted transferee or a guardian, legal representative or beneficiary.
Repricing Policy
Options and stock appreciation rights granted under the Plan cannot be
repriced without shareholder approval.
Change in Control
Unless provided otherwise by the Committee, in the event of a change in
control (as defined in the Plan), any option or stock appreciation right that is
not then exercisable and vested will become fully exercisable and vested, any
restrictions on shares of restricted stock will lapse, and performance units
will be deemed earned and payable in full in cash. In addition, unless otherwise
determined by the Committee, if a stock option or stock appreciation right
holder's employment is terminated by the Company other than for cause, death or
disability or if such holder voluntarily resigns for good reason during the
two-year period following a change in control, such holder may exercise the
option or stock appreciation right until at least the first anniversary of such
termination, unless the term of the option expires first.
If the Committee so provides, in the event of a change in control, a
holder of a nonqualified stock option or a freestanding stock appreciation right
may have the right, for 60 days after the change in control, to surrender all or
part of the stock option or stock appreciation right and receive cash for the
excess of (A) the greater of (i) the fair market value of a share of common
stock at the time of surrender or (ii) the highest trading price of a share of
common stock during the 60-day period preceding the change in control (or, under
some circumstances, the value of the consideration for each share of common
stock paid in the change of control, if higher) over (B) the exercise price of
the stock option or strike price of the stock appreciation right, whichever is
applicable.
Effectiveness, Amendments and Termination
The Plan will be effective as of the time it is approved by a majority
of the votes cast by the Company's shareholders with respect to its approval.
The Board of Directors may at anytime amend, alter, or discontinue the Plan but
may not impair the rights of a holder of outstanding awards without the holder's
consent except for an amendment made to comply with applicable law, stock
exchange rules or accounting rules. No amendment may be made without the
approval of the Company's shareholders to the extent such approval is required
by applicable law or stock exchange rules. The Committee may amend the terms of
any outstanding stock option or other award but no such amendment may cause a
"qualified performance-based award" to cease to qualify for the Section 162(m)
exemption or impair the rights of any holder without the holder's consent except
an amendment made to cause the Plan or award to comply with applicable law,
stock exchange rules or accounting rules. The Committee's authority to amend any
award is subject to the condition that the Committee may not cause any such
award to cease to qualify as a "qualified performance-based award."
29
Federal Income Tax Consequences
The following is a summary of the federal income tax rules relevant to
participants in the Plan who receive options, based upon the Internal Revenue
Code as currently in effect. These rules are highly technical and subject to
change in the future. The following summary relates only to the federal income
tax treatment of the awards and the state, local and foreign tax consequences
may be substantially different.
Stock options granted under the Plan may be either nonqualified options
or incentive options for federal income tax purposes.
Nonqualified Options
Generally, the optionee does not recognize any taxable income at the
time of grant of a nonqualified option. Upon the exercise of the nonqualified
option the optionee will recognize ordinary income, equal to the excess of the
fair market value of the common stock acquired on the date of exercise over the
exercise price, and will be subject to wage and employment tax withholding. The
Company will generally be entitled to a deduction equal to such ordinary income
at the time that the employee recognizes such income. The optionee will have a
capital gain or loss upon the subsequent sale of the stock in an amount equal to
the sale price less the fair market value of the common stock on the date of
exercise. The capital gain or loss will be long-term or short-term depending on
whether the stock was held for more than one year after the exercise date. The
Company will not be entitled to a deduction for any capital gain realized.
Capital losses on the sale of common stock acquired upon an option's exercise
may be used to offset capital gains.
Incentive Stock Options
Generally, the optionee will not recognize any taxable income at the
time of grant or exercise of an option that qualifies as an incentive option
under Section 422 of the Internal Revenue Code. However, the excess of the
stock's fair market value at the time of exercise over the exercise price will
be included in the optionee's alternative minimum taxable income and thereby may
cause the optionee to be subject to an alternative minimum tax. The optionee
will recognize long-term capital gain or loss, measured by the difference
between the stock sale price and the exercise price, when the shares are sold.
In order to qualify for the incentive option tax treatment described in
the preceding paragraph, the optionee must be employed by the Company
continuously from the time of the option's grant until three months before the
option's exercise and the optionee must not sell the shares until more than one
year after the option's exercise date and more than two years after its grant
30
date. If the optionee does not satisfy these conditions, the optionee will
recognize taxable ordinary income when the optionee sells the shares in an
amount equal to the difference between the option exercise price and the lesser
of (i) the fair market value of the stock on the exercise date and (ii) the sale
price. If the sale price exceeds the fair market value on the exercise date, the
excess will be taxable to the optionee as long-term or short-term capital gain
depending on whether the optionee held the stock for more than one year.
Notwithstanding the foregoing, incentive stock options will not be treated as
incentive stock options to the extent that the aggregate fair market value of
stock (determined as of the date of grant) with respect to which the options are
first exercisable during any calendar year exceeds $100,000. The Company will
not be entitled to any deduction by reason of the grant or exercise of the
incentive option or the sale of stock received upon exercise after the required
holding periods have been satisfied. If the optionee does not satisfy the
required holding periods before selling the shares and consequently recognizes
ordinary income, the Company will be allowed a deduction corresponding to the
optionee's ordinary income.
Withholding Taxes
Because the amount of ordinary income the optionee recognizes with
respect to the receipt or exercise of an award may be treated as compensation
that is subject to applicable withholding of federal, state and local income
taxes and Social Security taxes, the Company may require the optionee to pay the
amount required to be withheld by the Company before delivering to the
individual any shares or other payment to be received under the Plan.
Arrangements for payment may include deducting the amount of any withholding or
other tax due from other compensation, including salary or bonus, otherwise
payable to the individual.
Plan Benefits to Directors
Our Board of Directors has approved a new Director Compensation Plan to
be effective on July 1, 2007. This Director Compensation Plan is described in
detail above under "MANAGEMENT COMPENSATION - Compensation of Directors." If the
Carolina National Corporation Long Term Incentive Plan is approved by the
shareholders, the stock options to be granted to directors pursuant to the new
Director Compensation Plan will be granted under the Long Term Incentive Plan.
31
The total benefits to the directors under the Long Term Incentive Plan
are not determinable, but if the Director Compensation Plan and the Long Term
Incentive Plan had been in effect during 2006, the following table sets forth
the benefits that the directors would have received.
NEW PLAN BENEFITS
Carolina National Corporation Long Term Incentive Plan
Name and Position Dollar Value ($) Number of Units
Roger B. Whaley, CEO ................... $13,158 2,000 shares
Harry R. Brown, CFO .................... - -
W. Jack McElveen, Jr., Secretary ....... - -
Executive Group ........................ - -
Non-Executive Director Group ........... $148,366 18,000 shares
Non-Executive Officer Employee Group ... - -
32
Equity Compensation Plan Information
The following table sets forth information as of December 31, 2006
about all of the Company's compensation plans (including individual compensation
arrangements) under which equity securities of the Company are authorized for
issuance.
Number of securities Number of securities remaining
to be issued upon Weighted-average available for future issuance
exercise of exercise price of under equity compensation plans
outstanding options, outstanding options, (excluding securities reflected
Plan Category warrants and rights warrants and rights in column (a))
(a) (b) (c)
- ------------- ------------------- ------------------- -------------------------------
Equity compensation
plans approved by
security holders 94,301 $ 10.55 35,101
Equity compensation
plans not approved by
security holders (1) 200,555 $ 10.00 -
------- ------
Total 294,856 35,101
======= ======
(1) Represents warrants issued to directors of the holding company and
organizers of the Bank. The Company granted stock warrants to the directors to
compensate them for: (a) their time and efforts as organizers and directors; (b)
their purchase of and subscription to purchase the Company's common stock to
fund the operating expenses during the organizational period of the Bank and to
provide capital for the Bank; and (c) their continued service as directors.
Directors received two stock warrants for every three shares they purchased
prior to the opening of the Bank. One-third of the warrants vested and became
exercisable on each of the first three anniversaries of the opening of the Bank
(July 15, 2002). Vested warrants expire on the earlier of 90 days after
termination of the director's status as a director (one year after death or
disability) or ten years after opening of the Bank and have an exercise price of
$10.00 per share.
Vote Required
The Long Term Incentive Plan will be approved if the number of shares
of Common Stock voted in favor of adoption of the Plan exceed the number of
shares of Common Stock voted against adoption of the Plan. Abstentions and
broker non-votes will have no effect upon the vote on this matter.
33
Recommendation
Our Board of Directors unanimously recommends a vote "FOR" approval of
the Carolina National Corporation Long Term Incentive Plan.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board has selected Elliott Davis, LLC, Certified Public
Accountants, to serve as our independent certified public accountants for 2007.
It is expected that representatives from this firm will be present and available
to answer appropriate questions at the annual meeting, and will have the
opportunity to make a statement if they so desire.
Fees Paid to Independent Auditors
Set forth below is information about fees billed by Elliott Davis, LLC,
our independent auditors for audit services rendered in connection with the
consolidated financial statements and reports for the years ended December 31,
2006 and 2005, and for other services rendered during such years, on our behalf
and on behalf of the Bank, as well as all out-of-pocket expenses incurred in
connection with these services, which have been billed to us.
Year Ended Year Ended
December 31, 2006 December 31, 2005
----------------- -----------------
Audit Fees ...................... $38,995 $37,272
Audit-Related Fees .............. - 0
Tax Fees ........................ 3,125 2,775
All Other Fees .................. - 22,730
------- ------
Total ......................... $41,120 $62,777
======= =======
Audit Fees
Audit fees include fees billed for professional services rendered for
the audit of our consolidated financial statements and review of the interim
condensed consolidated financial statements included in quarterly reports, and
services that are normally provided by our independent auditor in connection
with statutory and regulatory filings or engagements, and attest services,
except those not required by statute or regulation.
Audit-Related Fees
Audit-related fees include fees billed for assurance and related
services that are reasonably related to the performance of the audit or review
of our consolidated financial statements and are not reported under "Audit
Fees."
34
Tax Fees
Tax fees include fees for tax compliance/preparation and other tax
services. Tax compliance/preparation include fees billed for professional
services related to federal, state and international tax compliance. Other tax
services include fees billed for other miscellaneous tax consulting and
planning.
All Other Fees
All other fees include fees for all other services other than those
reported above. These services include preparation of employee benefit plan
returns. For 2005, such fees also included services provided in connection with
our secondary stock offering.
In making its decision to recommend ratification of its appointment of
Elliott Davis, LLC as our independent auditors for the fiscal year ending
December 31, 2007, the Audit Committee considered whether services other than
audit and audit-related services provided by that firm are compatible with
maintaining the independence of Elliott Davis, LLC.
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of
Independent Auditors
Our Audit Committee pre-approves all audit and permitted non-audit
services (including the fees and terms thereof) provided by the independent
auditors, subject to limited exceptions for non-audit services described in
Section 10A of the Securities Exchange Act of 1934, which are approved by the
Audit Committee prior to completion of the audit. The Committee may delegate to
one or more designated members of the Committee the authority to pre-approve
audit and permissible non-audit services, provided such pre-approval decision is
presented to the full Committee at its next scheduled meeting.
General pre-approval of certain audit, audit-related and tax services
is granted by the Committee at the first quarter Committee meeting. The
Committee subsequently reviews fees paid. Specific pre-approval is required for
all other services. During 2006, all audit and permitted non-audit services were
pre-approved by the Committee.
AUDIT COMMITTEE REPORT
The Audit Committee of our Board of Directors has reviewed and
discussed with our management our audited financial statements for the year
ended December 31, 2006. Our Audit Committee has discussed with our independent
auditors, Elliott Davis, LLC, the matters required to be discussed by Statement
on Accounting Standards 61, as amended (AICPA, Professional Standards, Vol. 1 AU
section 380), as adopted by the Public Company Accounting Oversight Board in
Rule 3200T. Our Audit Committee has also received the written disclosures and
the letter from Elliott Davis, LLC, required by Independence Standards Board
Standard No. 1, (Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees), as adopted by the Public Company Accounting
Oversight Board in Rule 3600T, and has discussed with Elliott Davis, LLC, their
independence. Based on the review and discussions referred to above, our Audit
35
Committee recommended to our Board of Directors that the audited financial
statements be included in our Annual Report on Form 10-K for the year ended
December 31, 2006 for filing with the Securities and Exchange Commission.
Joel A. Smith, III I. S. Leevy Johnson
William P. Cate Angus B. Lafaye
INCORPORATION BY REFERENCE
Neither the Compensation Committee Report nor the Audit Committee
Report shall be deemed to be filed with the Securities and Exchange Commission,
nor deemed incorporated by reference into any of our prior or future filings
under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, except to the extent we specifically incorporate such
information by reference.
OTHER MATTERS
The Board of Directors knows of no other business to be presented at
the meeting of shareholders. If matters other than those described herein should
properly come before the meeting, it is the intention of the persons named in
the enclosed form of proxy to vote at such meeting in accordance with their best
judgment on such matters.
AVAILABILITY OF ANNUAL REPORT ON FORM 10-KSB
You may obtain copies of our Annual Report on Form 10-KSB required to
be filed with the Securities and Exchange Commission for the year ended December
31, 2006, free of charge by requesting such form in writing from Roger B.
Whaley, President, Carolina National Corporation, 1350 Main Street, Columbia,
South Carolina 29201. Copies may also be downloaded from the Securities and
Exchange Commission website at http://www.sec.gov.
36
Appendix A
CAROLINA NATIONAL CORPORATION
CHARTER
OF
THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Organization
The Board of Directors of the Corporation has heretofore established an audit
committee as a committee of the Board of Directors. The audit committee shall
hereafter be composed of directors, designated from time to time by the Board of
Directors, who are not employees of the Corporation or its subsidiaries and are
free of any relationship that, in the opinion of the Board of Directors, would
interfere with their exercise of independent judgment as members of the
committee and are otherwise independent and meet the requirements for audit
committee membership set forth in Rule 4350(d)(2) of the Nasdaq Marketplace
Rules. Members of the audit committee shall also have the ability to read and
understand fundamental financial statements. Members of the audit committee
shall be subject to the same standards of conduct as every member of the Board
of Directors and nothing contained in this Charter shall be deemed to have added
to or increased those standards.
Delegation of Authority
The Board of Directors hereby delegates to the audit committee the authority to
do the following and all things incidental thereto:
1) To appoint the independent auditors to be engaged by the Corporation
who shall report directly to the committee, to establish the audit fees
of the independent auditors and to pre-approve any non-audit services
provided by the independent auditors, including tax services, before
the services are rendered.
2) To require from the independent auditors a formal written statement
delineating all relations between the independent auditors and the
Corporation, consistent with Independence Standards Board Standard 1,
and to actively engage in a dialogue with the independent auditors with
respect to any disclosed relationships or services that may impact the
objectivity and independence of the independent auditors and to take
appropriate action to oversee the independence of the independent
auditors.
3) To review the scope of the proposed audit for the current year, the
audit procedures to be used, and, at the conclusion thereof, to meet
with the independent auditors and financial management to review such
audit, including any comments or recommendations of the independent
auditors.
37
4) To resolve any disagreements between management and the independent
auditors regarding financial reporting.
5) To review and evaluate the performance of the independent auditors, to
review with the full Board of Directors any proposed discharge of the
independent auditors and, after such review with the full Board of
Directors, to discharge the independent auditors.
6) To oversee the accounting and financial reporting processes of the
Corporation and the audits of the financial statements of the
Corporation.
7) To oversee the internal audit function of the Corporation and to review
and approve the proposed internal audit plan for the coming year and
the coordination of such plan with the independent auditors.
8) To review summaries of findings from completed internal audits along
with management's responses thereto, and to review progress reports on
the current internal audit plan along with explanations for any
deviations from the original plan.
9) To review and concur in the appointment, replacement, reassignment, or
dismissal of any director of internal auditing or person with similar
functions.
10) To review with the independent auditors and management the adequacy of
the Corporation's internal controls and any significant findings and
recommendations of the independent auditors and internal auditors
together with management's responses thereto.
11) To review the financial statements contained in the annual report to
shareholders with management and the independent auditors to determine
that the independent auditors are satisfied with the disclosure and
content of the financial statements to be presented to the shareholders
and filed with the Securities and Exchange Commission.
12) To review with the independent auditors and management any changes in
accounting principles, any serious difficulties or disputes with
management encountered during the audit and any matters required to be
discussed by the independent auditors pursuant to SAS No. 61.
13) To establish and implement procedures for: (a) the receipt and
investigation of complaints regarding accounting, internal accounting
controls or auditing matters; and (b) the confidential, anonymous
submission by employees of concerns regarding questionable accounting
or auditing matters.
14) To investigate any matter brought to its attention within the scope of
its authority.
15) To hire outside counsel, accountants or other consultants as the audit
committee may determine will be necessary or useful to it in connection
with the use of its authority.
16) To consult with management regarding any aspect of the Corporation's
financial information, recordkeeping and reporting.
38
17) To make recommendations to the full Board of Directors regarding any
aspect of the Corporation's financial information, recordkeeping and
reporting.
18) To direct the payment of compensation of registered public accounting
firms, counsel or consultants engaged by the committee as well as the
ordinary administrative expenses of the committee that are necessary or
appropriate to carrying out its functions.
Meetings
1) The audit committee shall meet at such times and such places as it
shall from time to time determine. All meetings may be conducted by
telephone or other legally permissible means. A majority of the members
of the audit committee shall constitute a quorum.
2) The audit committee may ask members of management or others to attend
any part of any of its meetings and provide pertinent information as it
may request.
3) The audit committee will prepare minutes of any actions taken by it for
inclusion in the minutes of the Board of Directors.
Continuing Education
Members of the audit committee are encouraged to enhance their knowledge of
accounting and related matters by participating in continuing education
programs. The Corporation will reimburse the reasonable costs of participating
in such programs.
Amendment or Repeal of Charter
The Board of Directors may amend or repeal this charter and the authority of the
audit committee at any time.
39
Appendix B
CAROLINA NATIONAL CORPORATION LONG TERM INCENTIVE PLAN
SECTION 1. Purpose; Definitions
The purpose of the Plan is to give the Company a competitive advantage in
attracting, retaining and motivating officers, employees, directors and/or
consultants and to provide the Company and its Subsidiaries and Affiliates with
a stock plan providing incentives directly linked to the profitability of the
Company's businesses and increases in Company shareholder value.
Certain terms used herein have definitions given to them in the first
place in which they are used. In addition, for purposes of the Plan, the
following terms are defined as set forth below:
(a) "Affiliate" means a corporation or other entity controlled by,
controlling or under common control with the Company.
(b) "Award" means a Stock Appreciation Right, Stock Option,
Restricted Stock, Performance Unit, or other stock-based award granted
pursuant to the terms of the Plan.
(c) "Award Agreement" means any written agreement, contract or
other instrument or document evidencing the grant of an Award.
(d) "Award Cycle" means a period of consecutive fiscal years or
portions thereof designated by the Committee over which Performance Units
are to be earned.
(e) "Board" means the Board of Directors of the Company.
(f) "Cause" means, unless otherwise provided by the Committee in an
Award Agreement, (i) "Cause" as defined in any Individual Agreement to
which the Participant is a party, or (ii) if there is no such Individual
Agreement or if it does not define Cause: (A) conviction of the
Participant for committing a felony under federal law or the law of the
state in which such action occurred, (B) dishonesty in the course of
fulfilling the Participant's employment duties, (C) willful and deliberate
failure on the part of the Participant to perform his or her employment
duties in any material respect, or (D) prior to a Change in Control, such
other events as shall be determined by the Committee. The Committee shall,
unless otherwise provided in an Individual Agreement with the Participant
have the sole discretion to determine whether "Cause" exists, and its
determination shall be final.
(g) "Change in Control" and "Change in Control Price" have the
meanings set forth in Sections 11(b) and (c), respectively.
(h) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
(i) "Commission" means the Securities and Exchange Commission or
any successor agency.
(j) "Committee" means the Committee referred to in Section 2.
(k) "Common Stock" means common stock, par value $1.00 per share,
of the Company.
40
(l) "Company" means Carolina National Corporation, a South Carolina
corporation.
(m) "Covered Employee" means a Participant designated prior to the
grant of Restricted Stock or Performance Units by the Committee who is or
may be a "covered employee" within the meaning of Section 162(m)(3) of the
Code in the year in which Restricted Stock or Performance Units are
expected to be taxable to such Participant.
(n) "Disability" means, unless otherwise provided by the Committee,
(i) "Disability" as defined in any Individual Agreement to which the
Participant is a party, or (ii) if there is no such Individual Agreement
or it does not define "Disability," permanent and total disability as
determined under the Company's Long Term Disability Plan applicable to the
Participant.
(o) "Early Retirement" means retirement from active employment with
the Company, a Subsidiary or Affiliate pursuant to the early retirement
provisions of the applicable pension plan of such employer.
(p) "Effective Date" shall have the meaning set forth in Section
16.
(q) "Eligible Individuals" mean directors, officers, employees and
consultants of the Company or any of its Subsidiaries or Affiliates, and
prospective employees and consultants who have accepted offers of
employment or consultancy from the Company or its Subsidiaries or
Affiliates, who are or will be responsible for or contribute to the
management, growth or profitability of the business of the Company, or its
Subsidiaries or Affiliates.
(r) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor thereto.
(s) "Fair Market Value" means, except as otherwise provided by the
Committee, as of any given date, the average of the highest and lowest
per-share sales prices for a share of Common Stock during normal business
hours on the NASDAQ or such other national securities market or exchange
as may at the time be the principal market for the Common Stock, or if the
shares were not traded on such national securities market or exchange on
such date, then on the next preceding date on which such shares of Common
Stock were traded, all as reported by such source as the Committee may
select.
(t) "Incentive Stock Option" means any Stock Option designated as,
and qualified as, an "incentive stock option" within the meaning of
Section 422 of the Code.
(u) "Individual Agreement" means an employment, consulting or
similar written agreement between a Participant and the Company or one of
its Subsidiaries or Affiliates.
(v) "Involuntary Termination" means a Termination of Employment by
reason of an Involuntary Termination as defined in an Individual Agreement
to which the Participant is a party that is then in effect. If a
Participant is not party to an Individual Agreement, or if it does not
define "Involuntary Termination," no Termination of Employment of that
Participant shall be considered to be an Involuntary Termination.
(w) "NonQualified Stock Option" means any Stock Option that is not
an Incentive Stock Option.
(x) "Normal Retirement" means retirement from active employment
with the Company, a Subsidiary or Affiliate at or after age 65.
41
(y) "Option Price" shall have the meaning set forth in Section
5(d).
(z) "Outside Director" means a director who qualifies as an
"independent director" within the meaning of Rule 4200 of the National
Association of Securities Dealers, as an "outside director" within the
meaning of Section 162(m) of the Code, and as a "non-employee director"
within the meaning of Rule 16b-3 promulgated under the Exchange Act.
(aa) "Performance Goals" means the performance goals established by
the Committee in connection with the grant of Restricted Stock or
Performance Units. In the case of Qualified Performance-Based Awards, (i)
such goals shall be based on the attainment of specified levels of one or
more of the following measures: specified levels of the Company's stock
price, market share, sales, asset quality, non-performing assets, earnings
per share, return on equity, costs, operating income, marketing-spending
efficiency, return on operating assets, return on assets, core
non-interest income and/or levels of cost savings and (ii) such
Performance Goals shall be set by the Committee within the time period
prescribed by Section 162(m) of the Code and related regulations.
(bb) "Performance Units" means an Award granted under Section 8.
(cc) "Plan" means Carolina National Corporation Long Term Incentive
Plan, as set forth herein and as hereinafter amended from time to time.
(dd) "Qualified Performance-Based Award" means an Award of
Restricted Stock or Performance Units designated as such by the Committee
at the time of grant, based upon a determination that (i) the recipient is
or may be a "covered employee" within the meaning of Section 162(m)(3) of
the Code in the year in which the Company would expect to be able to claim
a tax deduction with respect to such Restricted Stock or Performance Units
and (ii) the Committee wishes such Award to qualify for the Section 162(m)
Exemption.(2)
(ee) "Restricted Stock" means an Award granted under Section 7.
(ff) "Retirement" means Normal or Early Retirement.
(gg) "Rule 16b-3" means Rule 16b-3, as promulgated by the
Commission under Section 16(b) of the Exchange Act, as amended from time
to time.
(hh) "Section 162(m) Exemption" means the exemption from the
limitation on deductibility imposed by Section 162(m) of the Code that is
set forth in Section 162(m)(4)(C) of the Code.
(ii) "Stock Appreciation Right" means an Award granted under
Section 6.
(jj) "Stock Option" means an Award granted under Section 5.
(kk) "Subsidiary" means any corporation, partnership, joint venture
or other entity during any period in which at least a 50% voting or
profits interest is owned, directly or indirectly, by the Company or any
successor to the Company.
(ll) "Termination of Employment" means the termination of the
Participant's employment with, or performance of services for, the Company
and any of its Subsidiaries or Affiliates. An Participant employed by, or
performing services for, a Subsidiary or an Affiliate shall also be deemed
to incur a Termination of Employment if the Subsidiary or Affiliate ceases
to be such a Subsidiary or an Affiliate, as the case may be, and the
Participant does not immediately thereafter become an employee of, or
service-provider for, the Company or another Subsidiary or Affiliate.
Temporary absences from employment because of illness, vacation or leave
42
of absence and transfers among the Company and its Subsidiaries and
Affiliates shall not be considered Terminations of Employment.
SECTION 2. Administration
(a) The Plan shall be administered by the Compensation Committee or such
other committee of the Board as the Board may from time to time designate (the
"Committee"), which shall be composed of not less than three Outside Directors,
and shall be appointed by and serve at the pleasure of the Board, except with
respect to Awards to non-employee directors, which shall be administered by the
Board. All references to the "Committee" with respect to grants to non-employee
directors shall refer to the Board.
(b) The Committee shall have plenary authority to grant Awards pursuant to
the terms of the Plan to Participants.
(c) Among other things, the Committee shall have the authority, subject to
the terms of the Plan:
(i) To select the Participants to whom Awards may from time to time
be granted;
(ii) To determine whether and to what extent any type of Award is
to be granted hereunder;
(iii) To determine the number of shares of Common Stock to be
covered by each Award granted hereunder;
(iv) To determine the terms and conditions of any Award granted
hereunder (including, but not limited to, the Option Price (subject to
Section 5(a)), any vesting condition, restriction or limitation (which may
be related to the performance of the Participant, the Company or any
Subsidiary or Affiliate) and any vesting acceleration or forfeiture waiver
regarding any Award and the shares of Common Stock relating thereto, based
on such factors as the Committee shall determine;
(v) Subject to the terms of the Plan, including without limitation
Section 13, to modify, amend or adjust the terms and conditions of any
Award, at any time or from time to time, including but not limited to
Performance Goals; provided, however, that the Committee may not adjust
upwards the amount payable with respect to a Qualified Performance-Based
Award or waive or alter the Performance Goals associated therewith in a
manner that would violate Section 162(m) of the Code;
(vi) To determine to what extent and under what circumstances Common
Stock and other amounts payable with respect to an Award shall be
deferred; and
(vii) To determine under what circumstances an Award may be settled
in cash or Common Stock under Sections 5(k), 6(b)(ii) and 8(b)(iv).
(d) The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall
from time to time deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any agreement relating thereto)
and to otherwise supervise the administration of the Plan.
(e) The Committee may act only by a majority of its members then in
office. Except to the extent prohibited by applicable law or the applicable
rules of a stock exchange, the Committee may (i) allocate all or any portion of
43
its responsibilities and powers to any one or more of its members and (ii)
delegate all or any part of its responsibilities and powers to any person or
persons selected by it, provided that no such delegation may be made that would
cause Awards or other transactions under the Plan to cease to be exempt from
Section 16(b) of the Exchange Act or cause an Award designated as a Qualified
Performance-Based Award not to qualify for, or to cease to qualify for, the
Section 162(m) Exemption. Any such allocation or delegation may be revoked by
the Committee at any time.
(f) Any determination made by the Committee with respect to any Award
shall be made in the sole discretion of the Committee at the time of the grant
of the Award or, unless in contravention of any express term of the Plan, at any
time thereafter. All decisions made by the Committee or any appropriately
delegated officer pursuant to the provisions of the Plan shall be final and
binding on all persons, including the Company, its Affiliates, Subsidiaries,
shareholders and Participants.
(g) Any authority granted to the Committee may also be exercised by the
full Board, except to the extent that the grant or exercise of such authority
would cause any Award or transaction to become subject to (or lose an exemption
under) the short-swing profit recovery provisions of Section 16 of the Exchange
Act or cause an Award designated as a Qualified Performance-Based Award not to
qualify for, or to cease to qualify for, the Section 162(m) Exemption. To the
extent that any permitted action taken by the Board conflicts with action taken
by the Committee, the Board action shall control.
SECTION 3. Common Stock Subject to Plan
(a) The maximum number of shares of Common Stock that may be delivered to
Participants and their beneficiaries under the Plan shall be 227,100. No
Participant may be granted Stock Options and Stock Appreciation Rights covering
in excess of 10,000 shares of Common Stock in any calendar year. Shares subject
to an Award under the Plan may be authorized and unissued shares.
(b) If any Award is forfeited, or if any Stock Option (or Stock
Appreciation Right, if any) terminates, expires or lapses without being
exercised, or if any Stock Appreciation Right is exercised for cash, shares of
Common Stock subject to such Awards shall again be available for distribution in
connection with Awards under the Plan. If the Option Price of any Stock Option
or the Strike Price of any Freestanding Stock Appreciation Right is satisfied by
delivering shares of Common Stock to the Company (by either actual delivery or
by attestation), only the number of shares of Common Stock delivered to the
Participant net of the shares of Common Stock delivered to the Company or
attested to shall be deemed delivered for purposes of determining the maximum
numbers of shares of Common Stock available for delivery under the Plan. To the
extent any shares of Common Stock subject to an Award are not delivered to a
Participant because such shares are used to satisfy an applicable
tax-withholding obligation, such shares shall not be deemed to have been
delivered for purposes of determining the maximum number of shares of Common
Stock available for delivery under the Plan.
(c) In the event of any change in corporate capitalization (including, but
not limited to, a change in the number of shares of Common Stock outstanding),
such as a stock split or a corporate transaction, such as any merger,
consolidation, separation, including a spin-off, or other distribution of stock
or property of the Company (including any extraordinary cash or stock dividend),
44
any reorganization (whether or not such reorganization comes within the
definition of such term in Section 368 of the Code) or any partial or complete
liquidation of the Company, the Committee or Board may make such substitution or
adjustments in the aggregate number and kind of shares reserved for issuance
under the Plan, and the maximum limitation upon Stock Options and Stock
Appreciation Rights and other Awards to be granted to any Participant, in the
number, kind and Option Price and Strike Price of shares subject to outstanding
Stock Options and Stock Appreciation Rights, in the number and kind of shares
subject to other outstanding Awards granted under the Plan and/or such other
equitable substitution or adjustments as it may determine to be appropriate in
its sole discretion (including, without limitation, an amount in cash
therefore); provided, however, that the number of shares subject to any Award
shall always be a whole number. Such adjusted Option Price shall also be used to
determine the amount payable by the Company upon the exercise of any Stock
Appreciation Right associated with any Stock Option.
SECTION 4. Eligibility
Awards may be granted under the Plan to Eligible Individuals.
SECTION 5. Stock Options
(a) Stock Options may be granted alone or in addition to other Awards
granted under the Plan and may be of two types: Incentive Stock Options and
NonQualified Stock Options. Any Stock Option granted under the Plan shall be in
such form as the Committee may from time to time approve.
(b) The Committee shall have the authority to grant any Participant
Incentive Stock Options, NonQualified Stock Options or both types of Stock
Options (in each case with or without Stock Appreciation Rights); provided,
however, that grants hereunder are subject to the limits on grants set forth in
Section 3. Incentive Stock Options may be granted only to employees of the
Company and its subsidiaries or parent corporation (within the meaning of
Section 424(f) of the Code). To the extent that any Stock Option is not
designated as an Incentive Stock Option or even if so designated does not
qualify as an Incentive Stock Option on or subsequent to its grant date, it
shall constitute a NonQualified Stock Option.
(c) Stock Options shall be evidenced by Award Agreements, the terms and
provisions of which may differ. An Award Agreement shall indicate on its face
whether it is intended to be an agreement for an Incentive Stock Option or a
NonQualified Stock Option. The grant of a Stock Option shall occur on the date
the Committee by resolution selects a Participant to receive a grant of a Stock
Option, determines the number of shares of Common Stock to be subject to such
Stock Option to be granted to such Participant and specifies the terms and
provisions of the Stock Option. The Company shall notify a Participant of any
grant of a Stock Option, and a written Award Agreement shall be duly executed
and delivered by the Company to the Participant. Such agreement or agreements
shall become effective upon execution by the Company and the Participant.
(d) Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions as
the Committee shall deem desirable:
(i) Option Price. The Committee shall determine the option price per
share of Common Stock purchasable under a Stock Option (the "Option
45
Price"). The Option Price per share of Common Stock subject to a Stock
Option shall not be less than the Fair Market Value of the Common Stock
subject to such Stock Option on the date of grant, other than with respect
to Stock Option granted in lieu of foregone compensation, unless the
Committee determines otherwise. Except for adjustments pursuant to Section
3(c), in no event may any Stock Option granted under this Plan be amended
to decrease the Option Price thereof, cancelled in conjunction with the
grant of any new Stock Option with a lower Option Price, or otherwise be
subject to any action that would be treated, for accounting purposes, as a
"repricing" of such Stock Option, unless such amendment, cancellation, or
action is approved by the Company's shareholders in accordance with
applicable law and stock exchange rules.
(ii) Option Term. The term of each Stock Option shall be fixed by
the Committee, but no Incentive Stock Option shall be exercisable more
than 10 years after the date the Stock Option is granted.
(iii) Exercisability. Except as otherwise provided herein, Stock
Options shall be exercisable at such time or times and subject to such
terms and conditions as shall be determined by the Committee. If the
Committee provides that any Stock Option is exercisable only in
installments, the Committee may at any time waive such installment
exercise provisions, in whole or in part, based on such factors as the
Committee may determine. In addition, the Committee may at any time
accelerate the exercisability of any Stock Option.
(iv) Method of Exercise. Subject to the provisions of this Section
5, Stock Options may be exercised, in whole or in part, at any time during
the option term by giving written notice of exercise to the Company
specifying the number of shares of Common Stock subject to the Stock
Option to be purchased. Such notice shall be accompanied by payment in
full of the Option Price by certified or bank check or such other
instrument as the Company may accept. If approved by the Committee,
payment, in full or in part, may also be made in the form of unrestricted
Common Stock (by delivery of such shares or by attestation) already owned
by the Participant of the same class as the Common Stock subject to the
Stock Option (based on the Fair Market Value of the Common Stock on the
date the Stock Option is exercised); provided, however, that, in the case
of an Incentive Stock Option, the right to make a payment in the form of
already owned shares of Common Stock of the same class as the Common Stock
subject to the Stock Option may be authorized only at the time the Stock
Option is granted and provided, further, that such already owned shares
have been held by the Participant for at least six months at the time of
exercise or had been purchased on the open market. If approved by the
Committee, to the extent permitted by applicable law, payment in full or
in part may also be made by delivering a properly executed exercise notice
to the Company, together with a copy of irrevocable instructions to a
broker to deliver promptly to the Company the amount of sale or loan
proceeds necessary to pay the Option Price, and, if requested, the amount
of any federal, state, local or foreign withholding taxes. To facilitate
the foregoing, the Company may enter into agreements for coordinated
procedures with one or more brokerage firms. No shares of Common Stock
shall be delivered until full payment therefore has been made. Except as
otherwise provided in Section 5(m) below, a Participant shall have all of
the rights of a shareholder of the Company holding the class or series of
Common Stock that is subject to such Stock Option (including, if
applicable, the right to vote the shares and the right to receive
dividends), when the Participant has given written notice of exercise, has
46
paid in full for such shares and, if requested by the Company, has given
the representation described in Section 15(a).
(e) Nontransferability of Stock Options. No Stock Option shall be
transferable by the Participant other than (i) by will or by the laws of descent
and distribution or any other testamentary distribution; or (ii) in the case of
a NonQualified Stock Option, unless otherwise determined by the Committee, to
such Participant's children or family members, whether directly or indirectly or
by means of a trust or partnership or otherwise. For purposes of this Plan,
unless otherwise determined by the Committee, "family member" shall have the
meaning given to such term in General Instructions A.1(a)(5) to Form S-8 under
the Securities Act of 1933 as amended, or any successor thereto. All Stock
Options shall be exercisable, subject to the terms of this Plan, only by the
Participant, the guardian or legal representative of the Participant, or any
person to whom such option is transferred pursuant to this paragraph, it being
understood that the term "holder" and "Participant" include such guardian, legal
representative and other transferee; provided, however, that Termination of
Employment shall continue to refer to the Termination of Employment of the
original Participant.
(f) Termination by Death. Unless otherwise determined by the Committee, if
a Participant incurs a Termination of Employment by reason of death, any Stock
Option held by such Participant may thereafter be exercised, to the extent then
exercisable, or on such accelerated basis as the Committee may determine, until
the expiration of the stated term of such Stock Option, except in the case of an
Incentive Stock Option, which shall be exercisable for (i) a period of one year
from the date of such death or (ii) the expiration of the stated term of the
Incentive Stock Option, whichever period is the shorter.
(g) Termination by Reason of Disability. Unless otherwise determined by
the Committee, if a Participant incurs a Termination of Employment by reason of
Disability, any Stock Option held by such Participant (or the appointed
fiduciary of such Participant) may thereafter be exercised by the Participant
(or the appointed fiduciary of such Participant), to the extent it was
exercisable at the time of termination, or on such accelerated basis as the
Committee may determine, for a period of one year (or such other period as the
Committee may specify in the Award Agreement) from the date of such Termination
of Employment or until the expiration of the stated term of such Stock Option,
whichever period is the shorter; provided, however, that if the Participant dies
within such period, any unexercised Stock Option held by such Participant shall,
notwithstanding the expiration of such period, continue to be exercisable to the
extent to which it was exercisable at the time of death until the expiration of
the stated term of such Stock Option. In the event of Termination of Employment
by reason of Disability, if an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of Section 422 of the
Code, such Stock Option will thereafter be treated as a NonQualified Stock
Option.
(h) Termination by Reason of Retirement. Unless otherwise determined by
the Committee, if a Participant incurs a Termination of Employment by reason of
Retirement, any Stock Option held by such Participant may thereafter be
exercised by the Participant, to the extent it was exercisable at the time of
such Retirement, or on such accelerated basis as the Committee may determine,
for a period of one year (or such other period as the Committee may specify in
the Award Agreement) from the date of such Termination of Employment or until
47
the expiration of the stated term of such Stock Option, whichever period is the
shorter; provided, however, that if the Participant dies within such period any
unexercised Stock Option held by such Participant shall, notwithstanding the
expiration of such period, continue to be exercisable to the extent to which it
was exercisable at the time of death for until the expiration of the stated term
of such Stock Option, except in the case of an Incentive Stock Option, which
shall be exercisable for (i) a period of one year from the date of such death or
(ii) the expiration of the stated term of the Incentive Stock Option, whichever
period is the shorter. In the event of Termination of Employment by reason of
Retirement, if an Incentive Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Section 422 of the Code, such
Stock Option will thereafter be treated as a NonQualified Stock Option.
(i) Other Termination. Unless otherwise determined by the Committee: (A)
if a Participant incurs a Termination of Employment for Cause, all Stock Options
held by such Participant shall thereupon terminate; and (B) if a Participant
incurs a Termination of Employment for any reason other than death, Disability,
Retirement or for Cause, any Stock Option held by such Participant, to extent it
was then exercisable at the time of termination, or on such accelerated basis as
the Committee may determine, may be exercised for the lesser of three months
from the date of such Termination of Employment or the balance of such Stock
Option's term; provided, however, that if the Participant dies within such
three-month period, any unexercised Stock Option held by such Participant shall,
notwithstanding the expiration of such three-month period, continue to be
exercisable to the extent to which it was exercisable at the time of death until
the expiration of the stated term of such Stock Option, except in the case of an
Incentive Stock Option, which shall be exercisable for (i) a period of one year
from the date of such death or (ii) the expiration of the stated term of the
Incentive Stock Option, whichever period is the shorter.
(j) Change of Control Termination. Notwithstanding any other provision of
this Plan to the contrary, in the event a Participant incurs a Termination of
Employment during the 24-month period following a Change in Control other than
(i) by the Company for Cause, (ii) by reason of death, (iii) by reason of
Disability or (iv) by voluntary resignation other than by reason of an
Involuntary Termination, any Stock Option held by such Participant may
thereafter be exercised by the Participant, to the extent it was exercisable at
the time of termination, or on such accelerated basis as the Committee may
determine, for (A) the longer of one year from such date of termination or (2)
such other period as may be provided in the Plan for such Termination of
Employment or as the Committee may provide in the Award Agreement or Individual
Agreement, or (B) until expiration of the stated term of such Stock Option,
whichever period is the shorter. If an Incentive Stock Option is exercised after
the expiration of the post-termination exercise periods that apply for purposes
of Section 422 of the Code, such Stock Option will thereafter be treated as a
NonQualified Stock Option.
(k) Cashing Out of Stock Option. On receipt of written notice of exercise,
the Committee may elect to cash out all or part of the portion of the shares of
Common Stock for which a Stock Option is being exercised by paying the
Participant an amount, in cash or Common Stock, equal to the excess of the Fair
Market Value of the Common Stock over the Option Price times the number of
shares of Common Stock for which the Option is being exercised on the effective
date of such cash-out.
48
(l) Change in Control Cash-Out. Notwithstanding any other provision of the
Plan, during the 60-day period from and after a Change in Control (the "Exercise
Period"), if the Committee shall determine at the time of grant or thereafter, a
Participant shall have the right, whether or not the Stock Option is fully
exercisable and in lieu of the payment of the Option Price for the shares of
Common Stock being purchased under the Stock Option and by giving notice to the
Company, to elect (within the Exercise Period) to surrender all or part of the
Stock Option to the Company and to receive cash, within 30 days of such
election, in an amount equal to the amount by which the Change in Control Price
per share of Common Stock on the date of such election shall exceed the Option
Price per share of Common Stock under the Stock Option (the "Spread") multiplied
by the number of shares of Common Stock granted under the Stock Option as to
which the right granted under this Section 5(l) shall have been exercised.
(m) Deferral of Option Shares. The Committee may from time to time
establish procedures pursuant to which a Participant may elect to defer, until a
time or times later than the exercise of a Stock Option, receipt of all or a
portion of the shares of Common Stock subject to such Stock Option and/or to
receive cash at such later time or times in lieu of such deferred shares, all on
such terms and conditions as the Committee shall determine. If any such
deferrals are permitted, then notwithstanding Section 5(d) above, a Participant
who elects such deferral shall not have any rights as a shareholder with respect
to such deferred shares unless and until shares are actually delivered to the
Participant with respect thereto, except to the extent otherwise determined by
the Committee.
SECTION 6. Stock Appreciation Rights
(a) Grant and Exercise. Stock Appreciation Rights may be granted alone
("Freestanding Stock Appreciation Rights") or in conjunction with all or part of
any Stock Option granted under the Plan ("Tandem Stock Appreciation Rights").
(b) Terms and Conditions of Tandem Stock Appreciation Rights. Tandem Stock
Appreciation Rights shall be subject to such terms and conditions as shall be
determined by the Committee, including the following:
(i) Relationship to Related Stock Option. A Stock Appreciation Right
issued in conjunction with a NonQualified Stock Option may be granted
either at or after the time of grant of such Stock Option. A Stock
Appreciation Right issued in conjunction with an Incentive Stock Option
may be granted only at the time of grant of such Stock Option. Tandem
Stock Appreciation Rights shall be exercisable only at such time or times
and to the extent that the Stock Options to which they relate are
exercisable in accordance with the provisions of Section 5.
(ii) Settlement. Upon the exercise of a Tandem Stock Appreciation
Right, a Participant shall be entitled to receive an amount in cash,
shares of Common Stock or a combination of cash and shares, equal to (A)
the excess of the Fair Market Value of one share of Common Stock over the
Option Price per share specified in the related Stock Option multiplied by
(B) the number of shares of Common Stock in respect of which such Stock
Appreciation Right shall have been exercised, with the Committee having
the right to determine the form of payment. The Committee may from time to
time establish procedures pursuant to which a Participant may elect to
further defer receipt of cash or shares in settlement of Tandem Stock
49
Appreciation Rights for a specified period or until a specified event, all
on such terms and conditions as the Committee shall determine.
(iii) Nontransferability. Tandem Stock Appreciation Rights shall be
transferable only to the extent that the underlying Stock Option is
transferable pursuant to Section 5(e).
(iv) Method of Exercise. A Tandem Stock Appreciation Right may be
exercised by a Participant by surrendering the applicable portion of the
related Stock Option in accordance with procedures established by the
Committee. Upon such exercise and surrender, the Participant shall be
entitled to receive an amount determined in the manner prescribed by
Section 6(b)(ii). Stock Options which have been so surrendered shall no
longer be exercisable to the extent the related Stock Appreciation Rights
have been exercised. Any Tandem Stock Appreciation Right shall terminate
and no longer be exercisable upon the termination or exercise of the
related Stock Option.
(c) Terms and Conditions of Freestanding Stock Appreciation Rights.
Freestanding Stock Appreciation Rights shall be subject to such terms and
conditions as shall be determined by the Committee, including the following:
(i) Term. The Committee shall determine the stated term of each
Freestanding Stock Appreciation Right granted under this Plan.
(ii) Strike Price. Unless provided otherwise by the Committee, the
strike price (the "Strike Price") per share of Common Stock subject to a
Freestanding Stock Appreciation Right shall be the Fair Market Value of
the Common Stock on the date of grant, except with respect to Freestanding
Stock Appreciation Rights granted in lieu of foregone compensation. Except
for adjustments pursuant to Section 3(c), in no event may any Stock
Appreciation Right granted under this Plan be amended to decrease the
Strike Price thereof, cancelled in conjunction with the grant of any new
Stock Appreciation Right with a lower Strike Price, or otherwise be
subject to any action that would be treated, for accounting purposes, as a
"repricing" of such Stock Appreciation Right, unless such amendment,
cancellation, or action is approved by the Company's shareholders in
accordance with applicable law and stock exchange rules.
(iii) Exercisability. Except as otherwise provided herein,
Freestanding Share Appreciation Rights shall be exercisable at such time
or times and subject to such terms and conditions as shall be determined
by the Committee, and the Committee may at any time accelerate the
exercisability of any Stock Appreciation Right. If the Committee provides
that any Stock Appreciation Right is exercisable only in installments, the
Committee may at any time waive such installment exercise provisions, in
whole or in part, based on such factors as the Committee may determine.
(iv) Settlement. Upon the exercise of a Freestanding Stock
Appreciation Right, a Participant shall be entitled to receive an amount
in cash, shares of Common Stock or a combination of cash and shares, equal
to (A) the excess of the Fair Market Value of one share of Common Stock
over the applicable Strike Price multiplied by (B) the number of shares of
Common Stock in respect of which the Freestanding Stock Appreciation Right
shall have been exercised, with the Committee having the right to
determine the form of payment.
(v) Nontransferability. No Freestanding Stock Appreciation Right
shall be transferable by a Participant other than by will or by the laws
50
of descent and distribution or as otherwise expressly permitted by the
Committee, including, if so permitted, pursuant to a transfer to such
Participant's children or family members, whether directly or indirectly
or by means of a trust or partnership or otherwise. For purposes of this
Plan, unless otherwise determined by the Committee, "family member" shall
have the meaning given to such term in General Instructions A.1(a)(5) to
Form S-8 under the Securities Act of 1933 as amended, and any successor
thereto. All Freestanding Stock Appreciation Rights shall be exercisable,
subject to the terms of this Plan, only by the Participant, the guardian
or legal representative of the Participant, or any person to whom such
Freestanding Stock Appreciation Right is transferred pursuant to this
paragraph, it being understood that the terms "holder" and "Participant"
include such guardian, legal representative and other transferee;
provided, however, that the term "Termination of Employment" shall
continue to refer to the Termination of Employment of the original
Participant.
(vi) Termination by Death. Unless otherwise determined by the
Committee, if a Participant incurs a Termination of Employment by reason
of death, any Freestanding Stock Appreciation Right held by such
Participant may thereafter be exercised, to the extent then exercisable,
or on such accelerated basis as the Committee may determine, until the
expiration of the stated term of such Freestanding Stock Appreciation
Right.
(vii) Termination by Reason of Disability. Unless otherwise
determined by the Committee, if a Participant incurs a Termination of
Employment by reason of Disability, any Freestanding Stock Appreciation
Right held by such Participant may thereafter be exercised by the
Participant, to the extent it was exercisable at the time of termination,
or on such accelerated basis as the Committee may determine, for a period
of one year (or such other period as the Committee may specify in the
Award Agreement) from the date of such Termination of Employment or until
the expiration of the stated term of such Freestanding Stock Appreciation
Right, whichever period is the shorter; provided, however, that if the
Participant dies within such period, any unexercised Freestanding Stock
Appreciation Right held by such Participant shall, notwithstanding the
expiration of such period, continue to be exercisable to the extent to
which it was exercisable at the time of death until the expiration of the
stated term of such Freestanding Stock Appreciation Right.
(viii) Termination by Reason of Retirement. Unless otherwise
determined by the Committee, if a Participant incurs a Termination of
Employment by reason of Retirement, any Freestanding Stock Appreciation
Right held by such Participant may thereafter be exercised by the
Participant, to the extent it was exercisable at the time of such
Retirement, or on such accelerated basis as the Committee may determine,
for a period of one year (or such other period as the Committee may
specify in the Award Agreement) from the date of such Termination of
Employment or until the expiration of the stated term of such Freestanding
Stock Appreciation Right, whichever period is the shorter; provided,
however, that if the Participant dies within such period any unexercised
Freestanding Stock Appreciation Right held by such Participant shall,
notwithstanding the expiration of such period, continue to be exercisable
to the extent to which it was exercisable at the time of death until the
expiration of the stated term of such Freestanding Stock Appreciation
Right.
(ix) Other Termination. Unless otherwise determined by the
Committee: (A) if a Participant incurs a Termination of Employment for
Cause, all Freestanding Stock Appreciation Rights held by such Participant
51
shall thereupon terminate; and (B) if a Participant incurs a Termination
of Employment for any reason other than death, Disability, Retirement or
for Cause, any Freestanding Stock Appreciation Right held by such
Participant, to extent it was then exercisable at the time of termination,
or on such accelerated basis as the Committee may determine, may be
exercised for the lesser of three months from the date of such Termination
of Employment or the balance of such Freestanding Stock Appreciation
Right's term; provided, however, that if the Participant dies within such
three-month period, any unexercised Freestanding Stock Appreciation Right
held by such Participant shall, notwithstanding the expiration of such
three-month period, continue to be exercisable to the extent to which it
was exercisable at the time of death until the expiration of the stated
term of such Freestanding Stock Appreciation Right.
(x) Change of Control Termination. Notwithstanding any other
provision of this Plan to the contrary, in the event a Participant incurs
a Termination of Employment during the 24-month period following a Change
in Control other than (i) by the Company for Cause, (ii) by reason of
death or (iii) by reason of Disability or (iv) by voluntary resignation
other than by reason of an Involuntary Termination, any Freestanding Stock
Appreciation Right held by such Participant may thereafter be exercised by
the Participant, to the extent it was exercisable at the time of
termination, or on such accelerated basis as the Committee may determine,
for (A) the longer of one year from such date of termination or (2) such
other period as may be provided in the Plan for such Termination of
Employment or as the Committee may provide in the Award Agreement, or (B)
until expiration of the stated term of such Freestanding Stock
Appreciation Right, whichever period is the shorter.
(xi) Change in Control Cash-Out. Notwithstanding any other provision
of the Plan, during the 60-day period from and after a Change in Control
(the "Exercise Period"), if the Committee shall determine at the time of
grant or thereafter, a holder of a Freestanding Stock Appreciation Right
shall have the right, whether or not such Stock Appreciation Right is
fully exercisable, to surrender all or part of such Stock Appreciation
Right to the Company and to receive cash, within 30 days of such election,
in an amount equal to (A) the amount by which the Change in Control Price
per share of Common Stock on the date of such election shall exceed the
Strike Price under such Stock Appreciation Right multiplied by (B) the
number of shares of Common Stock subject to the Stock Appreciation Right
as to which the right granted under this Section 6(c)(xi) shall have been
exercised.
(xii) Deferral. The Committee may from time to time establish
procedures pursuant to which a Participant may elect to further defer
receipt of cash or shares in settlement of Freestanding Stock Appreciation
Rights for a specified period or until a specified event, subject in each
case to the Committee's approval and to such terms as are determined by
the Committee.
SECTION 7. Restricted Stock
(a) Administration. Shares of Restricted Stock may be awarded either alone
or in addition to other Awards granted under the Plan. The Committee shall
determine the Participants to whom and the time or times at which grants of
Restricted Stock will be awarded, the number of shares to be awarded to any
Participant, the conditions for vesting, the time or times within which such
52
Awards may be subject to forfeiture and any other terms and conditions of the
Awards, in addition to those contained in Section 7(c).
(b) Awards and Certificates. Shares of Restricted Stock shall be evidenced
in such manner as the Committee may deem appropriate, including book-entry
registration or issuance of one or more stock certificates. Any certificate
issued in respect of shares of Restricted Stock shall be registered in the name
of such Participant and shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Award, substantially in the
following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of Carolina National Corporation Long Term Incentive Plan and an
Award Agreement. Copies of such Plan and Agreement are on file at the offices of
Carolina National Corporation, 1350 Main Street, Columbia, SC 29201."
The Committee may require that the certificates evidencing such shares be
held in custody by the Company until the restrictions thereon shall have lapsed
and that, as a condition of any Award of Restricted Stock, the Participant shall
have delivered a stock power, endorsed in blank, relating to the Common Stock
covered by such Award.
(c) Terms and Conditions. Shares of Restricted Stock shall be subject to
the following terms and conditions:
(i) The Committee may, prior to or at the time of grant, designate
an Award of Restricted Stock as a Qualified Performance-Based Award, in
which event it shall condition the grant or vesting, as applicable, of
such Restricted Stock upon the attainment of Performance Goals. If the
Committee does not designate an Award of Restricted Stock as a Qualified
Performance-Based Award, it may also condition the grant or vesting
thereof upon the attainment of Performance Goals. Regardless of whether an
Award of Restricted Stock is a Qualified Performance-Based Award, the
Committee may also condition the grant or vesting thereof upon the
continued service of the Participant. The conditions for grant or vesting
and the other provisions of Restricted Stock Awards (including without
limitation any applicable Performance Goals) need not be the same with
respect to each recipient. The Committee may at any time, in its sole
discretion, accelerate or waive, in whole or in part, any of the foregoing
restrictions; provided, however, that in the case of Restricted Stock that
is a Qualified Performance-Based Award, the applicable Performance Goals
have been satisfied.
(ii) Subject to the provisions of the Plan and the Award Agreement
referred to in Section 7(c)(vi), during the period, if any, set by the
Committee, commencing with the date of such Award for which such
Participant's continued service is required (the "Restriction Period"),
and until the later of (A) the expiration of the Restriction Period and
(B) the date the applicable Performance Goals (if any) are satisfied, the
Participant shall not be permitted to sell, assign, transfer, pledge or
otherwise encumber shares of Restricted Stock; provided that, to the
extent permitted by applicable law, the foregoing shall not prevent a
Participant from pledging Restricted Stock as security for a loan, the
sole purpose of which is to provide funds to pay the Option Price for
Stock Options.
(iii) Except as provided in this paragraph (iii) and Sections
7(c)(i) and 7(c)(ii) and the Award Agreement, the Participant shall have,
with respect to the shares of Restricted Stock, all of the rights of a
53
shareholder of the Company holding the class or series of Common Stock
that is the subject of the Restricted Stock, including, if applicable, the
right to vote the shares and the right to receive any cash dividends. If
so determined by the Committee in the applicable Award Agreement and
subject to Section 15(e) of the Plan, (A) cash dividends on the class or
series of Common Stock that is the subject of the Restricted Stock Award
shall be automatically deferred and reinvested in additional Restricted
Stock, held subject to the vesting of the underlying Restricted Stock, or
held subject to meeting Performance Goals applicable only to dividends,
and (B) dividends payable in Common Stock shall be paid in the form of
Restricted Stock of the same class as the Common Stock with which such
dividend was paid, held subject to the vesting of the underlying
Restricted Stock, or held subject to meeting Performance Goals applicable
only to dividends.
(iv) Except to the extent otherwise provided in the applicable Award
Agreement or Section 7(c)(i), 7(c)(ii), 7(c)(v) or 11(a)(ii), upon a
Participant's Termination of Employment for any reason during the
Restriction Period or before the applicable Performance Goals are
satisfied, all shares still subject to restriction shall be forfeited by
the Participant; provided, however, that the Committee shall have the
discretion to waive, in whole or in part, any or all remaining
restrictions (other than, in the case of Restricted Stock with respect to
which a Participant is a Covered Employee, satisfaction of the applicable
Performance Goals unless the Participant's employment is terminated by
reason of death or Disability by the Company without Cause or by the
Participant for "Good Reason" (as defined in any applicable Individual
Agreement)) with respect to any or all of such Participant's shares of
Restricted Stock.
(v) If and when any applicable Performance Goals are satisfied and
the Restriction Period expires without a prior forfeiture of the
Restricted Stock, unlegended certificates for such shares shall be
delivered to the Participant upon surrender of the legended certificates.
(vi) Each Award shall be confirmed by, and be subject to, the terms
of an Award Agreement.
SECTION 8. Performance Units
(a) Administration. Performance Units may be awarded either alone or in
addition to other Awards granted under the Plan. The Committee shall determine
the Participants to whom and the time or times at which Performance Units shall
be awarded, the number of Performance Units to be awarded to any Participant),
the duration of the Award Cycle and any other terms and conditions of the Award,
in addition to those contained in Section 8(b).
(b) Terms and Conditions. Performance Units Awards shall be subject to
the following terms and conditions:
(i) The Committee may, prior to or at the time of the grant,
designate Performance Units as Qualified Performance-Based Awards, in
which event it shall condition the settlement thereof upon the attainment
of Performance Goals. If the Committee does not designate Performance
Units as Qualified Performance-Based Awards, it may also condition the
settlement thereof upon the attainment of Performance Goals. Regardless of
whether Performance Units are Qualified Performance-Based Awards, the
Committee may also condition the settlement thereof upon the continued
service of the Participant. The provisions of such Awards (including
without limitation any applicable Performance Goals) need not be the same
with respect to each recipient. Subject to the provisions of the Plan and
54
the Award Agreement referred to in Section 8(b)(v), Performance Units may
not be sold, assigned, transferred, pledged or otherwise encumbered during
the Award Cycle. No more than 20,000 shares of Common Stock may be subject
to Qualified Performance Based Awards granted to any Eligible Individual
in any fiscal year of the Company.
(ii) Except to the extent otherwise provided in the applicable Award
Agreement or Section 8(b)(ii) or 11(a)(iii), upon a Participant's
Termination of Employment for any reason during the Award Cycle or before
any applicable Performance Goals are satisfied, all rights to receive cash
or stock in settlement of the Performance Units shall be forfeited by the
Participant; provided, however, that the Committee shall have the
discretion to waive, in whole or in part, any or all remaining payment
limitations (other than, in the case of Performance Units that are
Qualified Performance-Based Awards, satisfaction of the applicable
Performance Goals unless the Participant's employment is terminated by
reason of death or Disability by the Company without Cause or by the
Participant for Good Reason) with respect to any or all of such
Participant's Performance Units.
(iii) An Participant may elect to further defer receipt of cash or
shares in settlement of Performance Units for a specified period or until
a specified event, subject in each case to the Committee's approval and to
such terms as are determined by the Committee. Subject to any exceptions
adopted by the Committee, such election must generally be made prior to
commencement of the Award Cycle for the Performance Units in question.
(iv) At the expiration of the Award Cycle, the Committee shall
evaluate the Company's performance in light of any Performance Goals for
such Award, and shall determine the number of Performance Units granted to
the Participant which have been earned, and the Committee shall then cause
to be delivered (A) a number of shares of Common Stock equal to the number
of Performance Units determined by the Committee to have been earned, or
(B) cash equal to the Fair Market Value of such number of shares of Common
Stock to the Participant, as the Committee shall elect (subject to any
deferral pursuant to Section 8(b)(iii)).
(v) Each Award shall be confirmed by, and be subject to, the terms
of an Award Agreement.
SECTION 9. Tax Offset Bonuses
At the time an Award is made hereunder or at any time thereafter, the
Committee may grant to the Participant receiving such Award the right to receive
a cash payment in an amount specified by the Committee, to be paid at such time
or times (if ever) as the Award results in compensation income to the
Participant, for the purpose of assisting the Participant to pay the resulting
taxes, all as determined by the Committee and on such other terms and conditions
as the Committee shall determine.
SECTION 10. Other Stock-Based Awards
Other Awards of Common Stock and other Awards that are valued in whole or in
part by reference to, or are otherwise based upon, Common Stock, including
(without limitation) dividend equivalents and convertible debentures, may be
granted either alone or in conjunction with other Awards granted under the Plan.
55
SECTION 11. Change in Control Provisions
(a) Impact of Event. Notwithstanding any other provision of the Plan to
the contrary, unless otherwise provided by the Committee in any Award Agreement,
in the event of a Change in Control:
(i) Any Stock Options and Stock Appreciation Rights outstanding as
of the date such Change in Control, and which are not then exercisable and
vested, shall become fully exercisable and vested.
(ii) The restrictions and deferral limitations applicable to any
Restricted Stock shall lapse, and such Restricted Stock shall become free
of all restrictions and become fully vested.
(iii) All Performance Units shall be considered to be earned and
payable in full, and any deferral or other restriction shall lapse and
such Performance Units shall be settled in cash as promptly as is
practicable.
(b) Definition of Change in Control. For purposes of the Plan, a "Change in
Control" shall mean the happening of any of the following events:
(i) An acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (1) the then outstanding
shares of common stock of the Company (the "Outstanding Company Common
Stock") or (2) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); excluding,
however, the following: (1) Any acquisition directly from the Company,
other than an acquisition by virtue of the exercise of a conversion
privilege unless the security being so converted was itself acquired
directly from the Company, (2) Any acquisition by the Company, (3) Any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any entity controlled by the Company, or (4)
Any acquisition pursuant to a transaction which complies with clauses (1),
(2) and (3) of subsection (iii) of this Section 11(b); or
(ii) A change in the composition of the Board such that the
individuals who, as of the Effective Date, constitute the Board (such
Board shall be hereinafter referred to as the "Incumbent Board") cease for
any reason to constitute at least a majority of the Board; provided,
however, for purposes of this Section 11(b), that any individual who
becomes a member of the Board subsequent to the Effective Date, whose
election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of those individuals who are
members of the Board and who were also members of the Incumbent Board (or
deemed to be such pursuant to this proviso) shall be considered as though
such individual were a member of the Incumbent Board; but, provided,
further, that any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board shall not be so considered as a member of the
Incumbent Board; or
(iii) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company ("Corporate Transaction"); excluding, however, such a Corporate
56
Transaction pursuant to which (1) all or substantially all of the
individuals and entities who are the beneficial owners, respectively, of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Corporate Transaction will
beneficially own, directly or indirectly, more than 50% of, respectively,
the outstanding shares of common stock, and the combined voting power of
the then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Corporate Transaction (including, without limitation, a
corporation which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly or through
one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Corporate Transaction, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (2) no Person (other than the Company, any
employee benefit plan (or related trust) of the Company or such
corporation resulting from such Corporate Transaction) will beneficially
own, directly or indirectly, 20% or more of, respectively, the outstanding
shares of common stock of the corporation resulting from such Corporate
Transaction or the combined voting power of the outstanding voting
securities of such corporation entitled to vote generally in the election
of directors except to the extent that such ownership existed prior to the
Corporate Transaction, and (3) individuals who were members of the
Incumbent Board will constitute at least a majority of the members of the
board of directors of the corporation resulting from such Corporate
Transaction; or
(iv) The approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
(c) Change in Control Price. For purposes of the Plan, "Change in Control
Price" means the higher of (i) the highest reported sales price, regular way, of
a share of Common Stock in any transaction reported on the Nasdaq (or such other
national securities exchange as may at the time be the principal market for the
Common Stock) during the 60-day period prior to and including the date of a
Change in Control or (ii) if the Change in Control is the result of a tender or
exchange offer or a Corporate Transaction, the highest price per share of Common
Stock paid in such tender or exchange offer or Corporate Transaction; provided,
however, that in the case of Incentive Stock Options and Tandem Stock
Appreciation Rights relating to Incentive Stock Options, the Change in Control
Price shall be in all cases the Fair Market Value of the Common Stock on the
date such Incentive Stock Option or Tandem Stock Appreciation Right is
exercised. To the extent that the consideration paid in any such transaction
described above consists all or in part of securities or other noncash
consideration, the value of such securities or other noncash consideration shall
be determined in the sole discretion of the Board.
SECTION 12. Forfeiture of Awards
Notwithstanding anything in the Plan to the contrary, the Committee shall have
the authority under the Plan to provide in any Award Agreement that in the event
of serious misconduct by a Participant (including, without limitation, any
misconduct prejudicial to or in conflict with the Company or its Subsidiaries or
Affiliates, or any Termination of Employment for Cause), or any activity of a
Participant in competition with the business of the Company or any Subsidiary or
Affiliate, any outstanding Award granted to such Participant shall be cancelled,
in whole or in part, whether or not vested or deferred. The determination of
57
whether a Participant has engaged in a serious breach of conduct or any activity
in competition with the business of the Company or
any Subsidiary or Affiliate shall be determined by the Committee in good faith
and in its sole discretion. This Section 12 shall have no application following
a Change in Control.
SECTION 13. Term, Amendment and Termination
The Plan will terminate on the tenth anniversary of the Effective Date.
Under the Plan, Awards outstanding as of such date shall not be affected or
impaired by the termination of the Plan.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would impair the rights of a
Participant under a Stock Option or a recipient of a Stock Appreciation Right,
Restricted Stock Award, Performance Unit Award or other Award theretofore
granted without the Participant's or recipient's consent, except such an
amendment made to comply with applicable law, stock exchange rules or accounting
rules. In addition, no such amendment shall be made without the approval of the
Company's shareholders to the extent such approval is required by applicable law
or stock exchange rules.
The Committee may amend the terms of any Stock Option or other Award
theretofore granted, prospectively or retroactively, but no such amendment shall
cause a Qualified Performance-Based Award to cease to qualify for the Section
162(m) Exemption or impair the rights of any holder without the holder's consent
except such an amendment made to cause the Plan or Award to comply with
applicable law, stock exchange rules or accounting rules.
Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting rules as
well as other developments, and to grant Awards which qualify for beneficial
treatment under such rules without shareholder approval.
SECTION 14. Unfunded Status of Plan
It is presently intended that the Plan constitute an "unfunded" plan for
incentive and deferred compensation. The Committee may authorize the creation of
trusts or other arrangements to meet the obligations created under the Plan to
deliver Common Stock or make payments; provided, however, that unless the
Committee otherwise determines, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.
SECTION 15. General Provisions
(a) Representation. The Committee may require each person purchasing or
receiving shares pursuant to an Award to represent to and agree with the Company
in writing that such person is acquiring the shares without a view to the
distribution thereof. The certificates for such shares may include any legend
which the Committee deems appropriate to reflect any restrictions on transfer.
Notwithstanding any other provision of the Plan or agreements made pursuant
thereto, the Company shall not be required to issue or deliver any certificate
or certificates for shares of Common Stock under the Plan prior to fulfillment
of all of the following conditions:
(i) Listing or approval for listing upon notice of issuance, of such
shares on NASDAQ, or such other securities exchange as may at the time be
the principal market for the Common Stock;
(ii) Any registration or other qualification of such shares of the
Company under any state or federal law or regulation, or the maintaining
in effect of any such registration or other qualification which the
58
Committee shall, in its absolute discretion upon the advice of counsel,
deem necessary or advisable; and
(iii) Obtaining any other consent, approval, or permit from any
state or federal governmental agency which the Committee shall, in its
absolute discretion after receiving the advice of counsel, determine to be
necessary or advisable.
(b) No Limit of Other Arrangements. Nothing contained in the Plan shall
prevent the Company or any Subsidiary or Affiliate from adopting other or
additional compensation arrangements for its employees.
(c) No Contract of Employment. The Plan shall not constitute a contract of
employment, and adoption of the Plan shall not confer upon any employee any
right to continued employment, nor shall it interfere in any way with the right
of the Company or any Subsidiary or Affiliate to terminate the employment of any
employee at any time.
(d) Tax Withholding. No later than the date as of which an amount first
becomes includible in the gross income of the Participant for federal income tax
purposes with respect to any Award under the Plan, the Participant shall pay to
the Company, or make arrangements satisfactory to the Company regarding the
payment of, any federal, state, local or foreign taxes of any kind required by
law to be withheld with respect to such amount. Unless otherwise determined by
the Company, withholding obligations may be settled with Common Stock, including
Common Stock that is part of the Award that gives rise to the withholding
requirement; provided, that not more than the legally required minimum
withholding may be settled with Common Stock. The obligations of the Company
under the Plan shall be conditional on such payment or arrangements, and the
Company and its Affiliates shall, to the extent permitted by law, have the right
to deduct any such taxes from any payment otherwise due to the Participant. The
Committee may establish such procedures as it deems appropriate, including
making irrevocable elections, for the settlement of withholding obligations with
Common Stock.
(e) Dividends. Reinvestment of dividends in additional Restricted Stock at
the time of any dividend payment shall only be permissible if sufficient shares
of Common Stock are available under Section 3 for such reinvestment (taking into
account then outstanding Stock Options and other Awards).
(f) Death Beneficiary. The Committee shall establish such procedures as it
deems appropriate for a Participant to designate a beneficiary to whom any
amounts payable in the event of the Participant's death are to be paid or by
whom any rights of the Participant, after the Participant's death, may be
exercised.
(g) Subsidiary Employees. In the case of a grant of an Award to any
employee of a Subsidiary of the Company, the Company may, if the Committee so
directs, issue or transfer the shares of Common Stock, if any, covered by the
Award to the Subsidiary, for such lawful consideration as the Committee may
specify, upon the condition or understanding that the Subsidiary will transfer
the shares of Common Stock to the employee in accordance with the terms of the
Award specified by the Committee pursuant to the provisions of the Plan. All
shares of Common Stock underlying Awards that are forfeited or canceled should
revert to the Company.
59
(h) Governing Law. The Plan and all Awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws of the
State of South Carolina, without reference to principles of conflict of laws.
(i) Nontransferability. Except as otherwise provided in Section 5(e) or
6(b)(iii) or by the Committee, Awards under the Plan are not transferable except
by will or by laws of descent and distribution.
(j) In the event an Award is granted to Participant who is employed or
providing services outside the United States and who is not compensated from a
payroll maintained in the United States, the Committee may, in its sole
discretion, modify the provisions of the Plan as they pertain to such individual
to comply with applicable foreign law.
SECTION 16. Effective Date of Plan
The Plan shall be effective as of May 7, 2007 (the "Effective Date"),
provided that it is approved by the stockholders of the Company in accordance
with all applicable laws, regulations and stock exchange rules and listing
standards.
60
PROXY
CAROLINA NATIONAL CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS - 11:00 A.M, May 7, 2007
Roger B. Whaley or W. Jack McElveen, Jr. or either of them, with full
power of substitution, are hereby appointed as agent(s) of the undersigned to
vote as proxies for the undersigned at the Annual Meeting of Shareholders to be
held on May 7, 2007, and at any adjournment thereof, as follows:
1. ELECTION OF [ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY
DIRECTORS below (except any I have to vote for all nominees
written below) below
Three year Terms: William P. Cate, Angus B. Lafaye, Leon Joseph Pinner, Jr., Joe
E. Taylor, Jr. and Roger B. Whaley
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL(S) WRITE THE
NOMINEE'S(S') NAME(S) ON THE LINE BELOW.
2. ADOPTION OF THE CAROLINA [ ] FOR [ ] AGAINST [ ] ABSTAIN
NATIONAL CORPORATION LONG
TERM IMCENTIVE PLAN
3. And, in the discretion of said agents, upon such other business as may
properly come before the meeting, and matters incidental to the conduct
of the meeting. (Management at present knows of no other business to be
brought before the meeting.)
THE PROXIES WILL BE VOTED AS INSTRUCTED. IF NO CHOICE IS INDICATED WITH RESPECT
TO A MATTER WHERE A CHOICE IS PROVIDED, THIS PROXY WILL BE VOTED "FOR" SUCH
MATTER.
Please sign exactly as name appears below. When signing as attorney, executor,
administrator, trustee, or guardian, please give full title. If more than one
trustee, all should sign. All joint owners must sign.
Dated: _________, 2007 ---------------------------
---------------------------