<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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 Sections 240.14a-11(c) or
Sections 240.14a-12
VIRGINIA GAS COMPANY
--------------------
(Name of Registrant as Specified in Its Charter)
VIRGINIA GAS COMPANY
--------------------
(Name of Person(s) Filing Proxy Statement)
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:
--------------------------------------------------------------
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
--------------------------------------------------------------
<PAGE>
4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------
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 the filing.
1) Amount Previously Paid:
--------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------
3) Filing Party:
--------------------------------------------------------------
4) Date Filed:
--------------------------------------------------------------
2
<PAGE>
VIRGINIA GAS COMPANY
200 EAST MAIN STREET
ABINGDON, VIRGINIA 24210
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS TO BE
HELD JULY 21, 1999
---------------------------------------------------
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Virginia Gas Company (the "Company") to be held on July 21, 1999, at 10:00 a.m.,
Eastern Daylight Time, at the Camberly's Martha Washington Inn, 150 West Main
Street, Abingdon, Virginia 24210, for the following purposes:
1. To elect one person to the Board of Directors of the Company.
2. To ratify and approve the 1998 Stock Option Plan.
3. To ratify the appointment of Arthur Andersen, LLP, independent
public accountants, as auditors of the Company for its 1999 fiscal year.
4. The transaction of such other business as may properly come before
the meeting or any adjournment thereof.
Only those stockholders of record as of the close of business on June
1, 1999, shall be entitled to vote at the meeting.
In order that your shares may be represented at the Annual Meeting,
please date and sign the enclosed proxy card and return it promptly in the
accompanying envelope.
By Order of the Board of Directors,
Robert C. Bright
Corporate Secretary
June 2, 1999
3
<PAGE>
VIRGINIA GAS COMPANY
PROXY STATEMENT
This Proxy Statement and the accompanying proxy are being furnished to
stockholders of Virginia Gas Company (the "Company") in connection with the
solicitation of the enclosed proxy by or on behalf of the Board of Directors for
use at the Annual Meeting of Stockholders to be held on July 21, 1999, at 10:00
a.m. Eastern Daylight Time, at the Camberly's Martha Washington Inn, 150 West
Main Street, Abingdon, Virginia 24210. This Proxy Statement and the accompanying
proxy will be first mailed to shareholders on or about June 4, 1999.
Proxies in the form enclosed herewith are solicited by management at
the direction of the Board of Directors of the Company. If the enclosed proxy is
properly signed and returned to the Company, the shares represented thereby will
be voted at the Annual Meeting in accordance with its terms.
ABOUT THE MEETING
WHAT IS THE PURPOSE OF THE ANNUAL MEETING?
At the Company's annual meeting, shareholders will act upon the matters
described in the accompanying notice of meeting. This includes the election of
one director, ratification of the Company's independent auditors and the
approval of the 1998 Stock Option Plan (and grants issued thereunder). In
addition, the Company's management will report on the performance of the Company
during fiscal 1998 and respond to questions from shareholders.
WHO IS ENTITLED TO VOTE?
Only shareholders of record at the close of business on the record
date, June 1, 1999, are entitled to receive notice of and to vote at the
meeting, or any postponement or adjournment of the meeting. Each outstanding
share entitles its holder to cast one vote on each matter to be voted upon.
WHO CAN ATTEND THE MEETING?
All shareholders as of the record date, or their duly appointed
proxies, may attend the meeting. Cameras, recording devices and other electronic
devices will not be permitted at the meeting.
4
<PAGE>
WHAT CONSTITUTES A QUORUM?
The presence at the meeting, in person or by proxy, of the holders of a
majority of the shares of common stock of the Company outstanding on the record
date will constitute a quorum. A quorum is required for business to be conducted
at the meeting. If you submit a properly executed proxy card, even if you
abstain from voting, then you will be considered part of the quorum. However,
abstentions are not counted in the tally of votes FOR or AGAINST a proposal. A
WITHHELD vote is the same as an abstention.
HOW DO I VOTE?
Sign and date each proxy card you receive and return it in the prepaid
envelope. If you return your signed proxy card but do not mark the boxes showing
how you wish to vote, your shares will be voted FOR items 1, 2 and 3.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. Even after you have submitted your proxy, you may change your vote
at any time before the proxy is exercised at the meeting. Regardless of the way
in which you submitted your original proxy, you may change it by:
(1) Returning a later-dated signed proxy card;
(2) Delivering a written notice of revocation to First Union
National Bank, 1525 West W.T. Harris Boulevard, 3C3,
Charlotte, North Carolina 28288-1153; or
(3) Voting in person at the meeting.
WHAT ARE THE BOARD'S RECOMMENDATIONS?
The Board's recommendations are set forth after the description of each
item in this Proxy Statement. In summary, the Board recommends a vote:
- FOR election of the nominated directors (see Item 1 on page
10);
- FOR approval of the 1998 Stock Option Plan (see Item 2 on page
17); and
- FOR ratification of the appointment of Arthur Andersen, LLP
as the Company's independent auditors for fiscal 1999 (see
Item 3 on page 19);
Unless you give other instructions on your proxy card, the persons
named as proxy holders on the proxy card will vote in accordance with the
recommendations of the Board of Directors.
5
<PAGE>
With respect to any other matter that properly comes before the
meeting, the proxy holders will vote as recommended by the Board of Directors
or, if no recommendation is given, in their own discretion.
WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?
For Items 1, 2 and 3, the affirmative vote of the holders of a majority
of the shares of common stock represented in person or by proxy and entitled to
vote on the item will be required for approval. A properly executed proxy marked
"ABSTAIN" with respect to any item will not be voted, although it will be
counted for purposes of determining whether there is a quorum. Accordingly,
an abstention will have the effect of a negative vote.
If you hold your shares in "street name" through a broker or other
nominee, your broker or nominee may not be permitted to exercise voting
discretion with respect to some of the items to be acted upon. Thus, if you do
not give your broker or nominee specific instructions, your shares may not be
voted on those items and will not be counted in determining the number of shares
necessary for approval for Items 1, 2 and 3. Shares represented by such "broker
non-votes" will, however, be counted in determining whether there is a quorum.
WHO WILL COUNT THE VOTE?
Representatives of First Union, our independent stock transfer agent,
will count the votes and act as the inspector of election.
WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?
If your shares are registered differently and are in more than one
account, you may receive more than one proxy card. To ensure that all your
shares are voted, sign and return all proxy cards. We encourage you to have
all accounts registered in the same name and address (whenever possible). You
can accomplish this by contacting our transfer agent, First Union, at
(704) 590-7382.
HOW WILL VOTING ON ANY OTHER BUSINESS BE CONDUCTED?
Although we do not know of any business to be considered at the 1999
Annual Meeting other than the proposals described in this Proxy Statement, if
any other business is presented at the Annual Meeting, your proxy gives
authority to Michael L. Edwards and Karen K. Edwards to vote on such matters at
their discretion.
6
<PAGE>
WHO PAYS FOR THIS PROXY SOLICITATION?
The entire expense of preparing, assembling, printing and mailing the
form of proxy and Proxy Statement will be paid by the Company. Such expenses may
also include the charges and expenses of banks, brokerage houses and other
custodians or fiduciaries to transmit the proxy material to the beneficial
owners of shares. Some officers and employees may solicit proxies personally, by
telephone, or by mail, and will not be additionally compensated. The Company
does not intend to cause a solicitation to be made by specially engaged
employees or other paid solicitors.
STOCK OWNERSHIP
WHO ARE THE LARGEST OWNERS OF THE COMPANY'S STOCK?
As of April 30, 1999, the following persons beneficially owned 5% or
more of the Company's outstanding shares of common stock:
<TABLE>
<S> <C>
Dr. James T. Martin 14.53%
Michael L. and Karen K. Edwards 13.67%
</TABLE>
HOW MUCH STOCK DO THE COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS OWN?
The following table sets forth the beneficial ownership of common stock
by the Company's directors and executive officers as of April 30, 1999, as well
as additional information about beneficial owners of 5% or more of the Company's
common stock based upon filings with the Securities and Exchange Commission and
to the Company's knowledge.
<TABLE>
<CAPTION>
Name and Address (1) Amount of Percent of
of Beneficial Owner Ownership Class
- ------------------- --------- -----
<S> <C> <C>
Dr. James T. Martin 800,058 14.53%
Eagle Top Long Road
Waitesville, Vermont 05673
Michael L. and Karen K. Edwards 752,576(2) 13.67%
Michael L. Edwards 6,000 *
Karen K. Edwards 9,900 *
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Name and Address (1) Amount of Percent of
of Beneficial Owner Ownership Class
- ------------------- ---------------- -----
<S> <C> <C>
G. Lee Crenshaw, II 14,250.434(3) *
707 East Main Street, 20th Floor
Richmond, Virginia 23219
Everette G. Allen, Jr. 75,000(4) 1.36%
Federal Reserve Bank Building
701 East Byrd Street
Richmond, Virginia 23219
Glenn B. Rogers 2,000(5) *
605 Westover Drive
Nashville, Tennessee 37209
James E. Talkington, III 12,000(6) *
Timothy L. Ferguson 900(7) *
Bradley L. Swanson 4,363(8) *
G. Scott Hill 4,041.83(9) *
Robert C. Withrow, Jr. 1,500 *
----------------
All executive officers and directors as 1,682,589.264 30.57%
a group
</TABLE>
* Less than 1%.
(1) Except as otherwise noted, the address of the holder is in care of the
Company.
(2) Includes 363,663 shares which may be issued to Mr. and Mrs. Edwards
upon exercise of a warrant.
8
<PAGE>
(3) Mr. Crenshaw hold options to acquire an additional 60,000 shares
which may be issued to Mr. Crenshaw upon exercise as follows:
20,000 shares exercisable on each of October 1, 1999, October 1,
2000 and October 1, 2001.
(4) Mr. Allen holds options to acquire an additional 60,000 shares which
may be issued to Mr. Allen upon exercise as follows: 20,000 shares
exercisable on each of October 1, 1999, October 1, 2000 and
October 1, 2001.
(5) Mr. Rogers holds options to acquire an additional 60,000 shares which
may be issued to Mr. Rogers upon exercise as follows: 20,000 shares
exercisable on each of October 1, 1999, October 1, 2000 and
October 1, 2001.
(6) Includes 10,000 shares which may be issued to Mr. Talkington upon
exercise of a warrant. Mr. Talkington holds options to acquire
15,000 shares which may be issued to Mr. Talkington upon exercise
as follows: 5,000 shares exercisable on each of October 1, 1999,
October 1, 2000 and October 1, 2001.
(7) Mr. Ferguson holds options to acquire an additional 20,000 shares
which may be issued to Mr. Ferguson upon exercise as follows:
6,666 2/3 shares exercisable on each of October 1, 1999, October 1,
2000 and October 1, 2001.
(8) Mr. Swanson holds options to acquire an additional 15,000 shares
which may be issued to Mr. Swanson upon exercise as follows: 5,000
shares exercisable on each of October 1, 1999, October 1, 2000 and
October 1, 2001.
(9) Mr. Hill holds options to acquire an additional 15,000 shares which
may be issued to Mr. Hill upon exercise as follows: 5,000 shares
exercisable on each of October 1, 1999, October 1, 2000 and
October 1, 2001.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and any persons who own more than
10% of the Company's common stock, to file reports of ownership and changes in
ownership of the Company's common stock with the Securities and Exchange
Commission. Based solely upon a review of the forms furnished to the Company and
the representations made by the reporting persons to the Company during
9
<PAGE>
and with respect to its most recent fiscal year, the Company believes that
during 1998 its directors, officers and 10% stockholders complied with all
filing requirements under Section 16(a) of the Securities Exchange Act with the
exception of the following: (1) the Form 3 and Form 4 for 500 shares purchased
in October by Timothy L. Ferguson were filed late by approximately two months;
and (2) the Form 4 for 1,000 shares purchased in November by Bradley L. Swanson
was filed late by several days.
VOTING ITEM 1.
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes of directors,
with each serving staggered three year terms. The Board of Directors
currently consists of five directors. The director nominated for election at
the 1999 Annual Meeting is Michael L. Edwards. The nominee, if elected, will
serve until the Annual Meeting of stockholders held in 2002 and until his
respective successor is elected and qualified. To be elected as a director,
the nominee must receive the favorable vote of a majority of the shares
represented and entitled to vote at the meeting. Although the nominee
currently intends to serve on the Board, if the nominee should decline or be
unable to serve, the Board will designate a substitute nominee. The Company
has no reason to believe that the nominee will decline or be unable to serve.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE ELECTION OF THE NOMINEE
Set forth below for the nominee is information regarding his age,
the period during which he has served as a director, his business experience
during at least the past five years and other directorships currently held by
the nominee.
Michael L. Edwards, age 46, has served as President and Director of
the Company since its formation in 1987 and Chairman from 1987 to April 1999.
He also serves as President of Virginia Gas Exploration Company, Virginia Gas
Pipeline Company, Virginia Gas Marketing Company, Virginia Gas Propane
Company, Virginia Gas Storage Company and Virginia Gas Distribution Company.
From 1983 to 1986 Mr. Edwards served as Executive Vice President and Director
of Petroleum Development Corporation. Mr. Edwards is a Phi Beta Kappa
graduate of the University of California, Berkeley and he received an MBA
from the Stanford University School of Business. He is the husband of Karen
K. Edwards.
CONTINUING DIRECTORS
10
<PAGE>
Set forth below is information regarding the Company's continuing
Directors, their ages, the period during which they have served as a Director,
their business experience during at least the past five years and other
directorships currently held by them.
Glenn B. Rogers, age 60, served as Senior Vice President of Marketing
and Gas Supply for United Cities Gas Company from 1970 until his retirement in
October 1997. In this position, he was responsible for the propane operations of
United Cities Gas Company. From 1979 to 1987, Mr. Rogers served United Cities
Gas Company as Group Vice President of Gas Supply, Marketing and Rates and from
1976 to 1979 he served as Vice President of Gas Supply. Mr. Rogers is a past
president of the Southeastern Gas Association. He also serves as a director of
Vietti Food Corporation. Mr. Rogers holds a B.S. degree in mathematics from
Peabody College and a Master's degree in mathematics from Southeast Oklahoma
State College. Mr. Rogers' term as a Director expires in 2001. Mr. Rogers was
elected Chairman of the Board in April 1999.
Karen K. Edwards, age 41, has served as Vice President and Director
of the Company since its formation in 1987. She served as Treasurer until
September 1995 and as Secretary until March 1998. Ms. Edwards received an MBA
from the Colgate Darden Graduate School of Business at the University of
Virginia and a Bachelor's degree in Business Administration from the
University of Colorado. Ms. Edwards' term as a Director expires in 2001. She
is the wife of Michael L. Edwards.
Everette G. Allen, Jr., age 58, has served as a Director of the Company
since January 1998. He has served as Chairman of Hirschler, Fleischer, Weinberg,
Cox & Allen, a law firm located in Richmond, Virginia since 1986, and has been
employed by that firm since 1970. Mr. Allen is a director of Hersha Hospitality
Trust, a publicly traded real estate investment trust registered on the American
Stock Exchange. Mr. Allen has served as a member of the Board of Trustees for
Randolph-Macon College and is a Fellow with the American College of Trial
Lawyers. He is a Phi Beta Kappa graduate of Randolph-Macon College and a
graduate of the University of Virginia Law School. Mr. Allen's term as Director
expires in 2000.
G. Lee Crenshaw, II, age 40, has served as a Director of the Company
since January 1998. He has served as a Director and Senior Vice President of
Anderson & Strudwick, Inc. since 1994. From 1991 to 1994 he was employed at
Scott & Stringfellow as Vice President. Mr. Crenshaw was employed as a
stockbroker at Wheat, First Securities, Inc. from 1982 to 1991. He is a graduate
of Virginia Commonwealth University. Mr. Crenshaw's term as a Director
expires in 2000.
ADDITIONAL INFORMATION ABOUT THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors held nine meetings during 1998. Each incumbent
Director attended more than 75% of the aggregate number of meetings of the Board
of Directors and committees of the Board of Directors on which such Director
served in 1998.
Committees of the Board of Directors currently consist of an Executive
Committee, Audit Committee, Nominating Committee and Compensation Committee. The
Executive Committee, created in March 1998, is composed of Michael L. Edwards,
Everette G. Allen, Jr. and G. Lee Crenshaw, II. With certain limitations, it
functions in place of the Board during intervals between regular Board of
Directors meetings. The Executive Committee met three times during 1998.
11
<PAGE>
The Audit Committee, composed of Michael L. Edwards, Everette G. Allen,
Jr. and G. Lee Crenshaw, II, recommends the independent public accountants to be
appointed by the Board of Directors as auditor of the Company, its subsidiaries
and affiliated companies. The Audit Committee also reviews the results, findings
and recommendations of audits performed by the independent public accountants,
the significant accounting policies of the Company and the system of internal
controls. It reports to the Board of Directors and makes such investigations as
it deems appropriate. The Audit Committee met one time during 1998.
The Nominating Committee, created in March 1998, is composed of Michael
L. Edwards, Karen K. Edwards and Everette G. Allen, Jr. This committee reviews
the qualifications of persons recommended for membership to the Board of
Directors of the Company and nominates such persons for election by the
stockholders of the Company. The committee also considers nominees for directors
recommended by stockholders. Such recommendations, with relevant supporting
data, should be submitted to William L. Clear, Chief Financial Officer.
The Compensation Committee, created in June 1998, is composed of
Michael L. Edwards, Robert C. Bright and Glenn B. Rogers. The committee reviews
compensation paid to employees, officers and directors of the Company and
presents recommendations to the Board of Directors regarding compensation. The
Compensation Committee met three times during 1998.
COMPENSATION OF DIRECTORS
Directors of the Company receive $2,500 for attending each Board of
Directors meeting. Directors also receive an additional $2,500 for serving on
the Audit Committee. Directors are eligible to participate in the Company's 1998
Stock Option Plan. The Board adopted the 1998 Stock Option Plan on June 10,
1998, subject only to approval by a majority of the outstanding shareholders of
the Company. The 1998 Stock Option Plan is discussed in greater detail in Item
2, page 17.
EXECUTIVE OFFICERS
The executive officers are elected to serve annual terms at the
first Board of Directors meeting following the annual meeting of the
stockholders. Executive officers are eligible to participate in the Company's
1998 Stock Option Plan. Certain information concerning the Company's
executive officers as of April 30, 1999 is set forth below, except that
information concerning Mr. and Mrs. Edwards is presented above.
James E. Talkington, III, age 39, has served as Vice President, Land
and Legal Affairs of the Company since April 1998. He has been employed by the
Company since 1994 as land manager. Prior to his affiliation with the Company,
Mr. Talkington was an independent land manager for Ashland Exploration Company
in 1994. From 1989 to 1993 Mr. Talkington was employed by Continental Reserves
Oil Company as land manager.
12
<PAGE>
Bradley L. Swanson, age 52, has served as Vice President, Marketing and
Government Affairs of the Company since April 1998. He has been employed by the
Company since 1987 with responsibility for land leasing, right of way purchases,
legal matters and government relations. From 1983 to 1987 Mr. Swanson was the
owner and operator of Home Town Properties, a residential and commercial real
estate firm.
G. Scott Hill, age 42, has served as Vice President, Operations of the
Company since April 1998. He has been employed by the Company since March 1997
with responsibility for gas storage and pipeline operations. From 1985 to 1996
Mr. Hill was employed by Columbia Natural Resources as a drilling engineer.
Robert C. Bright, age 56, has served as Secretary of the Company since
April 1998. He has served as President and Director of Bright & Bryant, a
Professional Corporation, a law firm located in Oklahoma City, Oklahoma since
1992. From 1979 to 1992 Mr. Bright served as President and Director of Bright &
Nichols, an Oklahoma City law firm.
Robert C. Withrow, Jr., age 51, has served as Treasurer of the Company
since April 1998. He has been employed by the Company since February 1998 as
director of accounting. From 1981 to 1997 Mr. Withrow was employed as Vice
President of Finance of The Dosco Corporation. From 1979 to 1980 he was employed
by American Electric Power Company as internal audit manager. Mr. Withrow was
employed by Deloitte & Touche from 1972 to 1979 as senior auditor. He is a
certified public accountant.
William L. Clear, age 28, has served as Chief Financial Officer of the
Company beginning in December 1998 and Assistant Secretary of the Company since
April 1998. He has been employed by the Company since March 1998 as accounting
manager. Mr. Clear also serves as Secretary and Treasurer of Virginia Gas
Distribution Company, Virginia Gas Storage Company, Virginia Gas Marketing
Company, Virginia Gas Pipeline Company, Virginia Gas Propane Company and
Virginia Gas Exploration Company. From 1993 to February 1998 Mr. Clear was
employed by Coopers and Lybrand L.L.P. as a business assurance senior associate
specializing in audits of utility companies. He received a B.S. in accounting
from Emory & Henry College and an M.A. in accounting from the University of
Tennessee, Knoxville. Mr. Clear is a certified public accountant.
Timothy L. Ferguson, age 34, has served as Senior Vice President of the
Company since November 1998. He has been employed by the Company since March
1998 with responsibility primarily for pipeline and storage operations. Mr.
Ferguson also serves as Senior Vice President of Operations for Virginia Gas
Pipeline Company, Virginia Gas Storage Company, Virginia Gas Distribution
Company, Virginia Gas Exploration Company and Virginia Gas Propane Company.
Prior to his affiliation with the Company, Mr. Ferguson was employed by Palmer
Engineering Company, as an engineering project manager between 1994 and 1998,
and by Tenneco Gas, as a project engineer from 1989 to 1994.
13
<PAGE>
EXECUTIVE COMPENSATION
The following table presents information concerning the annual
compensation of the Chief Executive Officer and each executive officer of the
Company whose salary and bonus were greater than $100,000 in 1998. This table
presents compensation for services rendered in all capacities to the Company in
1998, 1997 and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Stock
Options
Name and Principal and Other
Position(1) Year Salary(2) Bonus(2) Warrants Comp.(3)
----------- ---- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Michael L. Edwards 1998 $155,000 $31,802 - $32,441
President and Chief 1997 157,917 50,000 - 32,837
Executive Officer 1996 150,000 727 - 2,889
James E. Talkington, III 1998 70,000 11,754 37,800(4) 8,924
Vice President of Land and 1997 55,930 20,000 38,000(5) 9,237
Legal Affairs 1996 51,299 - - 9,240
Bradley L. Swanson 1998 75,000 10,000 37,800(4) 9,350
Vice President of Marketing 1997 68,039 2,548 - 7,425
and Government Affairs 1996 61,057 26,242 - 9,240
G. Scott Hill 1998 83,054 - 37,800(4) 9,075
Vice President of Operations 1997 50,876 5,500 - 1,733
1996 - - - -
Timothy L. Ferguson 1998 66,484 1,729 50,400(6) 4,819
Senior Vice President of 1997 - - - -
Operations 1996 - - - -
</TABLE>
(1) Allan R. Poole, a prior director, officer and employee terminated
employment with the Company in 1998 and received total compensation in
1998 in excess of $100,000, which included a severance payment.
(2) Amounts include cash compensation earned and received by the named
officer as well as amounts deferred under a 401(k) Savings Plan.
(3) Amounts shown include Company contributions to a 401(k) Savings Plan,
vehicle allowances and directors' fees.
14
<PAGE>
(4) Amounts include value of stock options for purchase of 15,000 shares
issued under 1998 Stock Option Plan, subject to shareholder approval.
Options vest over a three-year term from the date of grant at 33% per
year commencing October 1, 1999. Value of stock options was determined
as set forth in stock option grant charts below.
(5) Amount includes value of warrant to purchase 10,000 shares.
(6) Amounts include value of stock options for purchase of 20,000 shares
issued under 1998 Stock Option Plan, subject to shareholder approval.
Options vest over a three-year term from the date of grant at 33% per
year commencing October 1, 1999. Value of stock options was determined
as set forth in stock option grant charts below.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information regarding the grant of stock
options during the 1998 fiscal year under the 1998 Stock Option Plan to the
named directors and executive officers:
EMPLOYEE GRANTS OF STOCK OPTIONS IN 1998
<TABLE>
<CAPTION>
Number % of Total
of Options
Securities Granted to Exercise Grant
Underlying Employees Price Date
Option in Fiscal Per Expiration Dollar
Name Granted(1) Year Share Date Value(2)
---- ---------- ---- ----- ---- --------
<S> <C> <C> <C> <C> <C>
Timothy L. Ferguson 20,000 25% $4.125 10/1/2008 $50,400
James E. Talkington, III 15,000 18.75% $4.125 10/1/2008 37,800
Bradley L. Swanson 15,000 18.75% $4.125 10/1/2008 37,800
G. Scott Hill 15,000 18.75% $4.125 10/1/2008 37,800
William L. Clear 15,000 18.75% $4.125 10/1/2008 37,800
</TABLE>
NON-EMPLOYEE GRANTS OF STOCK OPTIONS IN 1998
<TABLE>
<CAPTION>
% of Total
Number Options
of Granted to
Securities Non- Exercise Grant
Underlying Employees Price Date
Option in Fiscal Per Expiration Dollar
Name Granted(1) Year Share Date Value(2)
---- ---------- ---- ----- ---- --------
<S> <C> <C> <C> <C> <C>
Everette G. Allen, Jr. 60,000 28.57% $4.125 10/1/2008 $151,200
</TABLE>
15
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Glenn B. Rogers 60,000 28.57% $4.125 10/1/2008 151,200
G. Lee Crenshaw, II 60,000 28.57% $4.125 10/1/2008 151,200
Robert C. Bright 30,000 14.29% $4.125 10/1/2008 75,600
</TABLE>
(1) All options will vest over three years on the anniversary date of the
grant at 33% per year between October 1, 1999 and October 1, 2001 and have a
10-year term. None of these options outstanding as of April 30, 1999 are
currently exercisable.
(2) These values were established using the Black-Scholes stock option valuation
model. Assumptions used to calculate the grant date present value of option
shares granted during 1998 were in accordance with SFAS 123, as follows:
EXPECTED VOLATILITY: The standard deviation of the continuously
compounded rates of return calculated on the average daily stock price over a
period of time immediately preceding the grant and equal in length to the
expected life. The volatility was 50%.
RISK-FREE INTEREST RATE: The risk-free interest rate was 4.16%.
DIVIDEND YIELD: The expected annual dividend yield was .71% based on
the historical dividend yield over the expected term of the option.
EXPECTED LIFE: The expected life of the grant was 10 years.
PER SHARE VALUE: The per share value for these grants was $2.52.
EMPLOYEE STOCK PURCHASE LOANS
On May 17, 1996, the Board of Directors of the Company approved a plan
whereby the Company made available to certain key employees five year
interest-free loans for the purpose of purchasing a total of 40,000 shares of
the Company's common stock at a purchase price of $6.00 per share, which was the
fair market value of the shares on that date. In the event an employee who has
been given a loan pursuant to this plan terminates his employment with the
Company at any time prior to the due date of the loan, the loan is then
immediately due and payable, with interest from the date of the loan at prime
rate plus 2%, compounded monthly. All certificates for shares issued under this
plan to a key employee shall be held by the Company as security until the loan
is paid in full. Pursuant to this plan, on July 31, 1996, the Company made a
loan of $90,000 to Michael L. and Karen K. Edwards to purchase 15,000 shares.
EMPLOYMENT AGREEMENT
On May 23, 1996, the Company entered into a ten-year employment
agreement with Michael L. Edwards which provides for an annual salary of
$155,000. Mr. Edwards will also receive annual bonuses computed on the basis of
10% of the Company's pre-tax earnings on all amounts from $1,000,000 to
$1,999,999 and 15% of the Company's pre-tax earnings on all
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amounts in excess of $2,000,000. The bonus for 1996 was $50,000 and was paid in
1997. The bonus for 1997 was $31,802 and was paid in 1998. In the event Mr.
Edwards' employment is terminated by the Company for any reason other than for
cause during the term of the employment agreement, at the election of Mr.
Edwards the Company will be obligated to purchase all or a portion of the shares
held by him and/or his wife at a price equal to 150% of the market value of the
Company's shares on the date of termination. In addition, the Company will be
obligated to pay Mr. Edwards in a lump sum all salary amounts payable to Mr.
Edwards through the term of the employment agreement plus an additional
$2,000,000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Crenshaw, Senior Vice President of Anderson & Strudwick, Inc.
serves as a director of the Company. He receives $2,500 for each meeting of the
Board of Directors he attends and $2,500 for each meeting of the Audit Committee
he attends.
Anderson & Strudwick Incorporated received a fee of $348,028 as a
result of the sale of the Company's common stock to Dr. Martin and has
underwritten four tax exempt bond offerings through which the Company has
borrowed $20,100,000. A fee equal to 0.25% of the outstanding principal amount
of the bonds is paid to Anderson & Strudwick Incorporated and one of its senior
officers for bondholder services. Anderson & Strudwick Incorporated received
commissions totaling $610,375 from the two bond offerings which closed during
1997 and 1996. In addition Anderson & Strudwick Incorporated served as
underwriter for the Company's initial public offering of its common stock in
1996 for which it received fees of $735,840 and warrants exercisable for 153,300
shares at an exercise price of $9.90 per share, which are subject to a shelf
registration statement. In 1998, Anderson & Strudwick received compensation of
$29,402 from the Company.
Mr. Bright, Secretary of the Company, is a stockholder in Bright &
Bryant, a Professional Corporation ("Bright & Bryant"), which provides certain
legal services to the Company. During 1997 and 1998 and for the three months
ended March 31, 1999, Bright & Bryant received legal fees from the Company of
approximately $142,000, $300,000 and $38,000, respectively. It is anticipated
that Bright & Bryant will continue to provide legal services to the Company.
Mr. Allen, a Director of the Company, is a stockholder in Hirschler,
Fleischer, Weinberg, Cox & Allen, a Professional Corporation ("HFWCA"), which
provides certain legal services to the Company. HFWCA was selected as general
counsel for the Company in 1998. During 1998 and for the three months ended
March 31, 1999, HFWCA received legal fees from the Company of approximately
$5,600 and $10,400, respectively. It is anticipated that HFWCA will continue to
provide legal services to the Company.
VOTING ITEM 2.
APPROVAL OF THE ISSUANCE OF THE 1998 STOCK
OPTION PLAN OF THE COMPANY
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The Board of Directors of the Company proposes the approval of the 1998
Stock Option Plan (the "Plan") for the Company. The Board of Directors adopted
the Plan on June 10, 1998 subject to stockholder approval. The following summary
of the Plan is qualified in its entirety by reference to the complete text of
the Plan which is attached as Exhibit A to this Proxy Statement.
PURPOSE: The primary purpose of the Plan is to attract and retain the
best available personnel for positions of substantial responsibility with the
Company. In particular, the shares reserved for issuance under the Plan have
been used for grants to the non-employee directors and senior executive officers
of the Company. The Board of Directors believes that such grants are necessary
to attract and retain critical executive personnel to the Company.
SHARES ISSUABLE: The Company has reserved 290,000 shares for issuance
under the Plan. As of April 30, 1999, no shares have been issued under the Plan.
Shares of common stock that are subject to outstanding options that expire or
terminate prior to exercise will be available for future issuance under the
Plan.
ELIGIBILITY: Under the Plan, employees, directors and consultants may
be awarded options to purchase shares of common stock. Accordingly, all current
directors and officers of the Company will be eligible to participate in the
Plan. Options may be incentive stock options under Section 422 of the Internal
Revenue Code, if issued to employees, or non-statutory stock options not
designed to meet such requirements.
ADMINISTRATION: The Plan shall be administered by either the Board of
Directors or the Option Committee, which shall be a committee composed solely of
two or more non-employee disinterested directors. The Option Committee has the
discretionary authority to determine to whom options are granted, the number of
options granted and the terms of any options granted. Options granted to
employees may have a term of up to ten years from the date of grant.
EXERCISE: The Plan permits exercise of stock options by payment through
check, promissory note and certain cashless exercises, including payment through
other shares of the Company's capital stock and a withholding of the number of
shares subject to the option that have a fair market value on the date of
exercise equal to the exercise price for the total number of shares for which
the option is exercised.
ACCELERATION: Upon a change in control, unless otherwise expressly
provided in an option agreement, any and all outstanding options not fully
vested and exercisable shall fully vest and be immediately exercisable, and any
other restrictions on such options shall terminate. Generally, a change of
control includes the acquisition of 80% or more of the voting power of the
Company and a reorganization, merger or other consolidation, except where more
than 60% of the then outstanding shares of common stock of the entity resulting
from such transaction is beneficially owned by substantially all of the
individuals or entities which are the beneficial owners of the common stock of
the Company immediately prior to such transaction.
AMENDMENTS: The Board of Directors may amend or terminate the Plan at
any time. Any such amendment or termination shall not affect previously granted
options. Amendments or
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terminations may be subject to stockholder approval to the extent required by
applicable laws.
FEDERAL INCOME TAX CONSEQUENCES
INCENTIVE STOCK OPTIONS. Certain stock options granted under the
Plan may be designated as "incentive stock options" within Section 422 of the
Internal Revenue Code. The grantee of an incentive stock option will not
realize taxable income upon the grant or the exercise of such option, and the
Company will not receive an income tax deduction at either such time. If the
optionee does not sell the stock acquired upon exercise within either: (i)
two years after the grant of the incentive stock option; or (ii) one year
after the date of exercise of the incentive stock option, the gain upon a
subsequent sale of the stock will be taxed as a long-term capital gain. If
the optionee, within either of the above periods, disposes of the stock
acquired upon exercise of the incentive stock option, the optionee will then
recognize as ordinary income an amount equal to the lesser of: (i) the gain
realized upon the disposition; or (ii) the difference between the exercise
price and the fair market value of the shares on the date of exercise. In
such event, the Company is entitled to a corresponding income tax deduction
equal to the amount recognized as ordinary income by the optionee. An
optionee also may have alternative minimum tax consequences from the exercise
of any incentive stock option.
NON-QUALIFIED STOCK OPTIONS. Upon exercise of non-qualified stock
options under the Plan, the optionee will recognize ordinary income in an amount
equal to the excess of the fair market value of the stock received over the
exercise price of such stock. That amount will increase the optionee's tax basis
in the stock acquired, and upon a subsequent sale of such stock, the optionee
will recognize gain or loss depending upon his holding period for the stock and
any additional appreciation or depreciation in the market value of the stock.
The Company will be allowed a federal income tax deduction for the amount
recognized as ordinary income by the optionee upon his or her exercise of the
option.
BOARD OF DIRECTORS RECOMMENDATION
The affirmative vote of a majority of the issued and outstanding shares
of common stock is required to approve the issuance of the 1998 Stock Option
Plan of the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL
OF THE 1998 STOCK OPTION PLAN.
VOTING ITEM 3.
APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors, upon recommendation by the Audit Committee, has
approved and recommended the appointment of Arthur Andersen, LLP, independent
public accountants, as auditors to examine the Company's financial statements
for 1999. Neither such firm nor any of its associates has any relationship with
the Company except in their capacity as auditors. The persons named in the
accompanying proxy will vote in accordance with the choice specified
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thereon, or, if no choice is properly indicated, in favor of the designation of
Arthur Andersen, LLP as auditors of the Company.
A representative of Arthur Andersen, LLP is expected to attend the
Annual Meeting and to be available to respond to appropriate questions raised
during the Annual Meeting. The representative also will have an opportunity to
make a statement if the representative so desires.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
APPOINTMENT OF ARTHUR ANDERSEN, LLP, INDEPENDENT PUBLIC ACCOUNTANTS, AS
AUDITORS OF THE COMPANY FOR ITS 1999 FISCAL YEAR.
STOCKHOLDER PROPOSALS
Stockholder proposals submitted for inclusion in the Proxy Statement
for the 2000 Annual Meeting must comply with the requirements of the Securities
and Exchange Commission. A stockholder proposal generally will be voted on only
if the stockholder or the stockholder's representative attends the Annual
Meeting and presents the proposal. Proposals of stockholders intended to be
presented at the Company's 2000 Annual Meeting must be received by the Secretary
of Virginia Gas Company, 200 East Main Street, Abingdon, Virginia 24210, no
later than January 10, 2000, in order to be considered for inclusion in the
Company's Proxy Statement related to that meeting.
OTHER MATTERS
Management does not know of any matters to be presented at the Annual
Meeting of Stockholders other than those set forth above. However, if any other
matters properly come before the meeting, proxies received pursuant to this
solicitation will be voted thereon in the discretion of the proxyholder.
ANNUAL REPORT ON FORM 10-KSB
Copies of the Company's Annual Report on Form 10-KSB as filed with the
Securities and Exchange Commission will be furnished without charge upon written
request of any stockholder of record. Requests for this report should be
directed to Angela Funk, Virginia Gas Company, 200 East Main Street, Abingdon,
Virginia 24210.
By Order of the Board of Directors
Robert C. Bright
Corporate Secretary
June 2, 1999
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VIRGINIA GAS COMPANY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD JULY 21, 1998
The undersigned, having received the Annual Report to Stockholders and
the accompanying Notice of Annual Meeting of Stockholders and Proxy Statement
dated April 30, 1999, hereby appoints Michael L. Edwards and Karen K. Edwards as
proxies, with full power of substitution, to vote all shares of stock of the
Company held by the undersigned on June 1, 1999 which are entitled to be voted
at the Annual Meeting of Stockholders to be held at the Camberly's Martha
Washington Inn, 150 West Main Street, Abingdon, Virginia 24210 on July 21, 1999
at 10:00 a.m. and any adjournments thereof, on all matters coming before said
meeting as shown on the reverse side of this card. The undersigned acknowledges
receipt of the 1998 Annual Report and the Notice of Meeting and Proxy Statement
dated April 30, 1999.
Please mark your votes as in this example using dark ink only. /X/
The Board of Directors recommends a vote "FOR" Proposals 1, 2 and 3.
ITEM NO. 1:
ELECTION OF DIRECTORS: / / FOR the nominee listed / / WITHHOLD
below (except as marked to vote for the
to the contrary below) nominee listed
below)
Michael L. Edwards
(INSTRUCTION: To withhold authority to vote for any individual nominee, print
that nominee's name below)
--------------------------------
ITEM NO. 2: To approve the 1998 Stock Option Plan of the Company as
described in the Proxy Statement dated April 30, 1999.
/ / FOR / / AGAINST / / ABSTAIN
ITEM NO. 3: To ratify the appointment of Arthur Andersen, LLP,
independent public accountants, as auditors of the
Company for its 1999 fiscal year.
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/ / FOR / / AGAINST / / ABSTAIN
ITEM NO. 4: In their discretion, on any other business which may properly
come before the meeting.
The shares represented by this proxy will be voted as specified. If no
choice is specified such shares will be voted "FOR" Proposals 1, 2 and 3.
Place an X here if you plan to attend the meeting. / /
Date: __________________________, 1999
--------------------------------------
Signature
--------------------------------------
Signature
NOTE: Please mark, date and sign as your name appears above and promptly
return in the prepaid return envelope provided. When signing as
attorney, administrator, executor, guardian or trustee, please give
full title as such.
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EXHIBIT A
1998 STOCK OPTION PLAN
VIRGINIA GAS COMPANY
1998 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this 1998 Stock Option
Plan are to attract and retain the best available personnel
for positions of substantial responsibility, to provide
additional incentive to Employees and Consultants of the
Company and its Subsidiaries and to promote the success of the
Company's business. Options granted under this Plan may be
incentive stock options (as defined under Section 422 of the
Code) or nonqualified stock options, as determined by the
Option Committee at the time of grant of an option and subject
to the applicable provisions of Section 422 of the Code, as
amended, and the regulations promulgated thereunder.
2. DEFINITIONS. As used herein, the following definitions shall
apply:
2.1 OPTION COMMITTEE means the committee designated by
the Board to administer the Plan.
2.2 BOARD means the Board of Directors of the Company.
2.3 CODE means the Internal Revenue Code of 1986, as
amended.
2.4 COMPANY means Virginia Gas Company, a Delaware
corporation.
2.5 CONSULTANT means any consultant or advisor to the
Company or any Parent or Subsidiary and any director
of the Company whether compensated for such services
or not, but not including any Employee.
2.6 CONTINUOUS STATUS AS AN EMPLOYEE means the absence of
any interruption or termination of the employment
relationship by the Company or any Subsidiary.
Continuous Status as an Employee shall not be
considered interrupted in the case of: (i) any leave
of absence approved by the Board, including sick
leave, military leave, or any other personal leave;
provided, however, that for purposes of Incentive
Stock Options, such leave is for a period of not more
than 90 days, unless reemployment upon the expiration
of such leave is guaranteed by contract or statute,
or unless provided otherwise pursuant to Company
policy adopted from time to time; or (ii) in
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the case of transfers between locations of the
Company or between the Company, its Subsidiaries or
its successor.
2.7 EMPLOYEE means any person, including officers and
directors, employed by the Company or any Parent or
Subsidiary of the Company. The payment of a
director's fee by the Company shall not be sufficient
to constitute "employment" by the Company.
2.8 EXCHANGE ACT means the Securities Exchange Act of
1934, as amended.
2.9 FAIR MARKET VALUE means, as of any date, the value of
Stock determined as follows:
(i) If the Stock is listed on any established stock
exchange or a national market system including
without limitation the National Market System of the
National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair
Market Value shall be the closing sales price for
such stock (or the closing bid, if no sales were
reported, as quoted on such system or exchange or the
exchange with the greatest volume of trading in Stock
for the last market trading day prior to the time of
determination) as reported in the Wall Street Journal
or such other source as the Option Committee deems
reliable;
(ii) If the Stock is quoted on the NASDAQ System (but not
on the National Market System thereof) or regularly
quoted by a recognized securities dealer but selling
prices are not reported, its Fair Market Value shall
be the mean between the high and low asked prices for
the Stock; or
(iii) In the absence of an established market for the
Stock, the Fair Market Value thereof shall be
determined in good faith by the Option Committee.
2.10 INCENTIVE STOCK OPTION means an Option intended to
qualify as an incentive stock option within the
meaning of Section 422 of the Code.
2.11 NONQUALIFIED STOCK OPTION means an Option not
intended to qualify as an Incentive Stock Option.
2.12 OPTION means a stock option granted pursuant to the
Plan.
2.13 OPTIONED STOCK means the Stock subject to an Option.
2.14 OPTIONEE means an Employee or Consultant who receives
an Option.
2.15 PARENT means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of
the Code.
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2.16 PLAN means this 1998 Stock Option Plan.
2.17 SHARE means a share of the Stock, as adjusted in
accordance with Section 13 of the Plan.
2.18 STOCK means the Common Stock, par value $.001 per
share, of the Company.
2.19 SUBSIDIARY means a "subsidiary corporation," whether
now or hereafter existing, as defined in Section
424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Section 13 of the Plan, the maximum number of shares of Stock
which may be optioned and sold under the Plan is 290,000
shares. The shares may be authorized, but unissued, or
reacquired Stock. If an Option should expire or become
unexercisable for any reason without having been exercised in
full, the unpurchased Shares which were subject thereto shall,
unless the Plan shall have been terminated, become available
for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
4.1 ADMINISTRATION BY BOARD OR COMMITTEE. The Plan shall
be administered by (a) the Board or (b) the Option
Committee, which committee shall be constituted in
such a manner as to permit the Plan to comply with
Rule 16b-3 promulgated under the Exchange Act or any
successor thereto ("Rule 16b-3") with respect to a
plan intended to qualify thereunder as a
discretionary plan. Once appointed, the Option
Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From
time to time the Board may increase the size of the
Option Committee and appoint additional members
thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill
vacancies, however caused, and remove all members of
the Option Committee and thereafter directly
administer the Plan, all to the extent permitted by
Rule 16b-3 with respect to a plan intended to qualify
thereunder as a discretionary plan.
4.2 LIMITATION ON ADMINISTRATION BY BOARD.
Notwithstanding the foregoing, the Plan shall not be
administered by the Board if (a) the Company and its
officers and directors are then subject to the
requirements of Section 16 of the Exchange Act and
(b) the Board's administration of the Plan would
prevent the Plan from complying with Rule 16b-3.
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<PAGE>
4.3 MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule
16b-3, the Plan may be administered by different
bodies with respect to directors, non-director
officers and Employees who are neither directors nor
officers.
4.4 POWERS OF THE OPTION COMMITTEE. Subject to the
provisions of the Plan and in, the case of a
committee, the specific duties delegated by the Board
to such committee, the Option Committee shall have
the authority, in its discretion:
(i) to determine whether and to what extent Options shall
be granted hereunder;
(ii) to select the officers, Consultants and Employees to
whom Options may from time to time be granted
hereunder;
(iii) to determine the number of shares of Stock to be
covered by each such award granted hereunder;
(iv) to determine the Fair Market Value of the Stock, in
accordance with Section 2.9 of the Plan;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions of any Option
granted hereunder not inconsistent with the terms of
the Plan, including, but not limited to, the per
share exercise price for the Shares to be issued,
vesting periods, restrictions or limitations, or any
vesting acceleration or waiver of forfeiture;
(vii) to determine whether and under what circumstances an
Option may be bought-out for cash under subsection
10.4;
(viii) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with
respect to an award under this Plan shall be deferred
either automatically or at the election of the
Optionee (including providing for and determining the
amount, if any, of any deemed earnings on any
deferred amount during any deferral period); and
(ix) to reduce the exercise price of any Option to the
then current Fair Market Value if the Fair Market
Value of the Stock covered by such Option shall have
declined since the date the Option was granted.
4.5 EFFECT OF OPTION COMMITTEE'S DECISION. All decisions,
determinations and interpretations of the Option
Committee shall be final and binding on all Optionees
and any other holders of any Options. Neither the
Board, the Option Committee nor any member thereof
shall be liable for any act,
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<PAGE>
omission, interpretation, construction or
determination made in connection with the Plan in
good faith, and the members of the Board and of the
Option Committee shall be entitled to indemnification
and reimbursement by the Company in respect of any
claim, loss, damage or expense (including counsel
fees) arising therefrom to the full extent permitted
by law.
5. ELIGIBILITY.
5.1 EMPLOYEES AND CONSULTANTS. Nonqualified Stock Options
may be granted to Employees and Consultants.
Incentive Stock Options may be granted only to
Employees. An Employee or Consultant who has been
granted an Option may, if he is otherwise eligible,
be granted an additional Option or Options.
5.2 DESIGNATION OF OPTION. Each Option shall be
designated in the written option agreement as either
an Incentive Stock Option or a Nonqualified Stock
Option. However, notwithstanding such designations,
to the extent that the aggregate Fair Market Value of
the Shares with respect to which Options designated
as Incentive Stock Options are exercisable for the
first time by any Optionee during any calendar year
(under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options
shall be treated as Nonqualified Stock Options. For
this purpose, Incentive Stock Options shall be taken
into account in the order in which they were granted,
and the Fair Market Value of the Shares shall be
determined as of the time the Option with respect to
such Shares is granted.
5.3 EFFECT ON EMPLOYMENT. The Plan shall not confer upon
any Optionee any right with respect to continuation
of employment or consulting relationship with the
Company, nor shall it interfere in any way with his
right or the Company's right to terminate his
employment or consulting relationship at any time,
with or without cause, unless otherwise agreed in
writing by the Company and such Optionee.
6. TERM OF PLAN. The Plan shall become effective upon its
adoption by the Board subject only to approval by the holders
of a majority of the outstanding Shares within 12 months after
such date. Should the Plan not be approved by a vote of
stockholders as specified above, the Plan shall terminate 12
months after the effective date, all options issued prior to
that termination date shall continue in effect but without the
benefits that would accrue under the Code or the Act from such
stockholder approval. Otherwise, it shall continue in effect
until ten years from the effective date, unless extended by
the Board or sooner terminated under Section 15 of the Plan.
No grants of Options will be made pursuant to the Plan after
termination of the Plan.
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<PAGE>
7. TERM OF OPTION. The term of each Option shall be the term
stated in the Option Agreement; provided, however, that in the
case of an Incentive Stock Option, the term shall be no more
than 10 years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement. However, in
the case of an Incentive Stock Option granted to an Optionee
who, at the time the Option is granted, owns Stock
representing more than 10% of the voting power of all classes
of stock of the Company or any Parent or Subsidiary, the term
of the Option shall be five years from the date of grant
thereof or such shorter term as may be provided in the Option
Agreement.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
8.1 OPTION EXERCISE PRICE. The per share exercise price
for the Shares to be issued pursuant to exercise of
an Option shall be such price as is determined by the
Option Committee; provided, however, that as to an
Incentive Option:
(i) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than
10% of the voting power of all classes of stock of the Company
or any Parent or Subsidiary, the per Share exercise price
shall be no less than 110% of the Fair Market Value per Share
on the date of grant.
(ii) granted to any Employee, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share
on the date of grant.
8.2 CONSIDERATION. The consideration to be paid for the
Shares to be issued upon exercise of an Option may be
paid by certified or cashier's check. In the
discretion of the Option Committee as set forth in
the Option Agreement or, except for Incentive
Options, determined at the time of exercise, payment
may also be made by any or all of the following:
(i) check,
(ii) promissory note,
(iii) other shares of the Company's capital stock which (a)
in the case of shares of the Company's capital stock
acquired upon exercise of an Option either have been
owned by the Optionee for more than six months on the
date of surrender or were not acquired, directly or
indirectly, from the Company, and (b) have a Fair
Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which
said Option shall be exercised,
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<PAGE>
(iv) authorization for the Company to retain from the
total number of Shares as to which the Option is
exercised that number of Shares having a Fair Market
Value on the date of exercise equal to the exercise
price for the total number of Shares as to which the
Option is exercised,
(v) delivery of a properly executed exercise notice
together with irrevocable instructions to a broker to
promptly deliver to the Company the amount of sale or
loan proceeds required to pay the exercise price, or
(vi) such other consideration and method of payment for the
issuance of Shares to the extent permitted under applicable
laws.
9. LIMITATION ON EXERCISE. The following limitations on exercise
of Options shall apply to all Incentive Stock Options and,
except to the extent waived by the Option Committee and stated
in the option agreement, to all other Options.
9.1 TERMINATION OF EMPLOYMENT. In the event of
termination of an Optionee's relationship as a
Consultant (unless such termination is for purposes
of becoming an Employee of the Company) or on
termination of an Optionee's Continuous Status as an
Employee with the Company (as the case may be), such
Optionee may, but only within 90 days (or, as to
Options other than Incentive Options, such longer
period of time as is determined by the Option
Committee) after the date of such termination, but in
no event later than the expiration date of the term
of such Option as set forth in the Option Agreement,
exercise his Option to the extent that Optionee was
entitled to exercise it at the date of such
termination. To the extent that Optionee was not
entitled to exercise the Option at the date of such
termination, or if Optionee does not exercise such
Option to the extent so entitled within the time
specified herein, the Option shall terminate.
9.2 DISABILITY OF OPTIONEE. Notwithstanding the
provisions of Section 9.1 above, in the event of
termination of an Optionee's relationship as a
Consultant or Continuous Status as an Employee as a
result of his total and permanent disability (as
defined in Section 22(e)(3) of the Code), Optionee
may, but only within 12 months from the date of such
termination and in no event later than the expiration
date of the term of such Option as set forth in the
option agreement, exercise the Option to the extent
otherwise entitled to exercise it at the date of such
termination. To the extent that Optionee was not
entitled to exercise the Option at the date of
termination, or if Optionee does not exercise such
Option to the extent so entitled within the time
specified herein, the Option shall terminate.
9.3 DEATH OF OPTIONEE. In the event of the death of an
Optionee, the Option may be exercised, at any time
within 12 months following the date of death
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(but in no event later than the expiration date of
the term of such Option as set forth in the Option
Agreement), by the Optionee's estate or by a person
who acquired the right to exercise the Option by
bequest or inheritance, but only to the extent the
Optionee was entitled to exercise the Option at the
date of death. To the extent that Optionee was not
entitled to exercise the Option at the date of
termination, or if the Optionee's estate (or such
other person who acquired the right to exercise the
Option) does not exercise such Option to the extent
so entitled within the time specified herein, the
Option shall terminate.
10. EXERCISE OF OPTION.
10.1 PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. An
Option shall be deemed to be exercised, and the
Optionee deemed to be a stockholder of the Shares
being purchased upon exercise, when written notice of
such exercise has been given to the Company in
accordance with the terms of the Option by the person
entitled to exercise the Option and full payment for
the Shares with respect to which the Option is
exercised has been received by the Company. Full
payment may, as authorized by the Board, consist of
any consideration and method of payment allowable
under Section 8.2 of the Plan. An Option may not be
exercised for a fraction of a Share.
10.2 EFFECT ON NUMBER OF SHARES. Exercise of an Option in
any manner shall result in a decrease in the number
of shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option,
by the number of Shares as to which the Option is
exercised.
10.3 RULE 16B-3. Options granted to persons subject to
Section 16(b) of the Exchange Act must comply with
Rule 16b-3 and shall contain such additional
conditions or restrictions as may be required
thereunder to qualify for the maximum exemption from
Section 16 of the Exchange Act with respect to Plan
transactions.
10.4 BUY OUT PROVISIONS. The Option Committee may at any
time offer to buy out an Option previously granted
for a payment in cash or Shares, based on such terms
and conditions as the Option Committee shall
establish and communicate to the Optionee at the time
that such offer is made.
11. NON-TRANSFERABILITY OF OPTIONS. The Options may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of
in any manner other than by will or by the laws of descent or
distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
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12. STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS. At
the discretion of the Option Committee, Optionees may satisfy
withholding tax obligations as provided in this Section. When
an Optionee incurs tax liability in connection with an Option,
which tax liability is subject to tax withholding under
applicable tax laws, and the Optionee is obligated to pay the
Company an amount required to be withheld under applicable tax
laws, the Optionee may satisfy the withholding tax obligation
by electing to have the Company withhold from the Shares to be
issued upon exercise of the Option, that number of Shares
having a Fair Market Value equal to the amount required to be
withheld. The Fair Market Value of the Shares to be withheld
shall be determined on the date that the amount of tax to be
withheld is to be determined (the "Tax Date"). All elections
by an Optionee to have Shares withheld for this purpose shall
be made in writing in a form acceptable to the Option
Committee and shall be subject to the following restrictions:
(i) the election must be made on or prior to the
applicable Tax Date;
(ii) once made, the election shall be irrevocable as to
the particular Shares of the Option as to which the
election is made;
(iii) all elections shall be subject to the consent or
disapproval of the Option Committee; and
(iv) if the Optionee is subject to Rule 16b-3, the
election must comply with the applicable provisions
of Rule 16b-3 and shall be subject to such additional
conditions or restrictions as may be required
thereunder to qualify for the maximum exemption from
Section 16 of the Exchange Act with respect to Plan
transactions.
In the event the election to have Shares withheld is made by
an Optionee, the Tax Date is deferred under Section 83 of the
Code and no election is filed under Section 83(b) of the Code,
the Optionee shall receive the full number of Shares with
respect to which the Option is exercised but such Optionee
shall be unconditionally obligated to tender back to the
Company the proper number of Shares on the Tax Date.
13. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of
outstanding Options shall not affect in any way the right or
power of the Company or its stockholders to make or authorize
any or all adjustments, recapitalizations, reorganizations or
other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or
any issue of bond, debentures, preferred or prior preference
stock ahead of or affecting the Stock or the rights thereof,
or the dissolution or liquidation of the Company, or any sale
or transfer of all or any part of its assets or business, or
any other corporate act or proceeding, whether of a similar
character or otherwise; subject to the following:
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(i) If the Company shall effect a subdivision or consolidation
of shares or other capital readjustment, the payment of a
stock dividend, or other increase or reduction of the number
of shares of the Stock outstanding, without receiving
compensation therefor in money, services or property, then (a)
the number, class, and per share price of shares of Stock
subject to outstanding Options hereunder shall be
appropriately adjusted in such a manner as to entitle an
Optionee to receive upon exercise of an Option, for the same
aggregate cash consideration, the same total number and class
of shares as he would have received had he exercised his
Option and (b) the number and class of shares of Stock then
reserved for issuance under the Plan shall be adjusted by
substituting for the total number and class of shares of Stock
then reserved that number and class of shares of Stock that
would have been received by the owner of an equal number of
outstanding shares of each class of Stock as the result of the
event requiring the adjustment.
(ii) Unless otherwise expressly provided in an option
agreement, upon a Corporate Change (as defined
below), notwithstanding any other provision of this
Plan, any and all outstanding Options not fully
vested and exercisable shall vest in full and be
immediately exercisable, and any other restrictions
on such Options including, without limitation,
requirements concerning the achievement of specific
goals shall terminate. The foregoing shall apply to
Incentive Options, unless stated to the contrary in
the option agreement, even though the effect may be
to convert part of the Option to a Nonqualified
Option.
13.2 CORPORATE CHANGE. As used in this Plan, a "Corporate
Change" shall be deemed to have occurred upon, and shall mean
(A) the 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 80% or
more of either (i) the then outstanding shares of Stock of the
Company (the "Outstanding Company Common Stock") or (ii) 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"); provided, however, that the following
transactions shall not constitute a Corporate Change; (a) any
acquisition by virtue of the conversion of preferred stock of
the Company outstanding on the effective date hereof; (b)
customary transactions with and between underwriters and
selling group members with respect to a bona fide public
offering of securities, (c) any acquisition directly from the
Company (excluding an acquisition by virtue of the exercise of
a conversion privilege), (d) any acquisition by the Company,
(e) any acquisition by any employee benefit plan(s) (or
related trust(s)) sponsored or maintained by the Company or
any corporation controlled by the Company or (f) any
acquisition by any entity pursuant to a reorganization, merger
or consolidation, if, immediately following such
reorganization, merger or consolidation the conditions
described in clauses (i), (ii) and (iii) of clause (B) of this
Section are satisfied; or (B) the approval by the stockholders
of the Company of a
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reorganization, merger or consolidation, in each case, unless
immediately following such reorganization, merger or
consolidation (i) more than 60% of, respectively, the then
outstanding shares of common stock (or other equivalent
securities) of the entity resulting from such reorganization,
merger or consolidation and the combined voting power of the
then outstanding voting securities of such entity entitled to
vote generally in the election of directors (or other similar
governing body) is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Company Common Stock and Outstanding Company Voting Securities
immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their
ownership, immediately prior to such reorganization, merger or
consolidation of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding the Company, any employee benefit
plan(s) (or related trust(s)) of the Company and/or its
subsidiaries or such entity resulting from such
reorganization, merger or consolidation and any Person
beneficially owning, immediately prior to such reorganization,
merger or consolidation, directly or indirectly, 80% or more
of the Outstanding Company Common Stock or Outstanding Company
Voting Securities, as the case may be) beneficially owns,
directly or indirectly, 80% or more of, respectively, the then
outstanding shares of common stock (or other equivalent
securities) of the entity resulting from such reorganization,
merger or consolidation or the combined voting power of the
then outstanding voting securities of such entity entitled to
vote generally in the election of directors (or other similar
governing body) and (iii) at least a majority of the members
of the board of directors (or other similar governing body) of
the entity resulting from such reorganization, merger or
consolidation were members of the Incumbent Board (as defined
below) at the time of the execution of the initial agreement
providing for such reorganization, merger or consolidation.
The "Incumbent Board" shall mean individuals who as of the
effective date hereof constitute the Company's Board of
Directors; provided, however, that any individual becoming a
director subsequent to such date whose election, or nomination
for election by the Company's stockholders, was approved by a
vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of either (i) an
actual or threatened election contest (as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act), or an actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the
Company's Board of Directors or (ii) a plan or agreement to
replace a majority of the members of the Board of Directors
then comprising the Incumbent Board.
13.3 COMPLIANCE WITH RULE 16B-3. The Company intends that
this Section 13 shall comply with the requirements of
Rule 16b-3 and any future rules promulgated in
substitution therefor under the Exchange Act during
the term of the Plan. Should any provision of this
Section not be necessary to
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comply with the requirements of Rule 16b-3 or should
any additional provisions be necessary for this
Section to comply with the requirements of Rule
16b-3, the Board of Directors may amend the Plan to
add to or modify the provisions of the Plan
accordingly.
13.4 NO ADJUSTMENT UPON ISSUANCE OF SHARES. Except as
otherwise provided in this Plan, the issue by the
Company of shares of stock of any class, or
securities convertible into shares of stock of any
class, for cash or property, or for labor or services
either upon direct sale or upon the exercise of
rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company
convertible into such shares or other securities,
shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number, class, or
price of shares of Stock then subject to outstanding
Options.
14. TIME OF GRANTING OPTIONS. The date of grant of an Option
shall, for all purposes, be the date on which the Option
Committee makes the determination granting such Option, or
such other date as is determined by the Option Committee.
Notice of the determination shall be given to each Employee or
Consultant to whom an Option is so granted within a reasonable
time after the date of such grant.
15. AMENDMENT AND TERMINATION OF THE PLAN.
15.1 AMENDMENT AND TERMINATION. The Board may at any time
amend, alter, suspend or discontinue the Plan, but no
amendment, alteration, suspension or discontinuation
shall be made which would impair the rights of any
Optionee under any grant theretofore made, without
his or her consent. In addition, to the extent
necessary and desirable to comply with Rule 16b-3
under the Exchange Act or with Section 422 of the
Code (or any other applicable law or regulation,
including the applicable requirements of the NASD or
an established stock exchange), the Company shall
obtain stockholder approval of any Plan amendment in
such a manner and to such a degree as required.
15.2 EFFECT OF AMENDMENT OR TERMINATION. Any such
amendment or termination of the Plan shall not affect
Options already granted and such Options shall remain
in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed
otherwise between the Optionee and the Board, which
agreement must be in writing and signed by the
Optionee and the Company.
16. CONDITIONS UPON ISSUANCE OF SHARES.
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16.1 COMPLIANCE WITH LAWS. Shares shall not be issued
pursuant to the exercise of an Option unless the
exercise of such Option and the issuance and delivery
of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended,
the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any
stock exchange upon which the Shares may then be
listed, and shall be further subject to the approval
of counsel for the Company with respect to such
compliance.
16.2 REPRESENTATIONS AND WARRANTIES. As a condition to the
exercise of an Option, the Company may require the
person exercising such Option to represent and
warrant at the time of any such exercise that the
Shares are being purchased only for investment and
without any present intention to sell or distribute
such Shares if, in the opinion of counsel for the
Company, such a representation is required by any of
the aforementioned relevant provisions of law.
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17. RESERVATION OF SHARES. The Company, during the term of this
Plan, will at all times reserve and keep available such number
of Shares as shall be sufficient to satisfy the requirements
of the Plan.
18 INFORMATION TO OPTIONEES. The Company shall provide to each
Optionee, during the period for which such Optionee has one or
more Options outstanding, copies of all annual reports and
other information which are generally provided to all
stockholders of the Company. The Company shall not be required
to provide such information to persons whose duties in
connection with the Company assure their access to equivalent
information.
19 GOVERNING LAW; CONSTRUCTION. All rights and obligations under
the Plan shall be governed by, and the Plan shall be construed
in accordance with, the laws of the Commonwealth of Virginia
without regard to the principles of conflicts of laws. Titles
and headings to Sections herein are for purposes of reference
only, and shall in no way limit, define or otherwise affect
the meaning or interpretation of any provisions of the Plan.
THIS 1998 STOCK OPTION PLAN OF VIRGINIA GAS COMPANY WAS ADOPTED BY ITS BOARD OF
DIRECTORS ON JUNE 10, 1998.
