SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. ____________)
Filed by the Registrant
Filed by a Party other than the Registration
Check the appropriate box:
X Preliminary Proxy Statement
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
WATERSIDE
CAPITAL
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
$125 per Exchange Act Rules O-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item
22(a)(2) of Schedule 14A
Fee computed on table below per Exchange Act Rules 14a6(i)(4) and O-11.
1)Title of each class of securities to which transaction applies:
Common Stock
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 O-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
4)Proposed maximum aggregate value of transaction:
5)Total fee paid:
Fee paid previously by written preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act Rule
O-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.:
3)Filing Party:
4)Date Filed:
<PAGE>
[WATERSIDE CAPITAL CORPORATION LETTERHEAD]
300 East Main Street
Norfolk, Virginia 23510
September __, 1998
Dear Shareholder:
You are cordially invited to attend the 1998 Annual Meeting of
Shareholders of Waterside Capital Corporation that will be held at the
Chesapeake Conference Center, 900 Greenbrier Circle, Chesapeake, Virginia 23320
at 10:00 a.m. Eastern Time on Thursday, October 22, 1998.
Enclosed are a Notice of the Annual Meeting, a Proxy Card, and a Proxy
Statement containing information about the matters to be acted upon at the
meeting. Directors and Officers of the Company as well as a representative of
KPMG Peat Marwick LLP will be present at the Annual Meeting to respond to any
questions our shareholders may have.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING.
Accordingly, we urge you to sign and date the enclosed Proxy Card and promptly
return it to us in the enclosed, self-addressed, postage-paid envelope, even if
you are planning to attend the meeting. If you attend the meeting, you may vote
in person even if you have previously returned a Proxy Card.
We look forward to the 1998 Annual Meeting of Shareholders and we hope you
will attend the meeting or be represented by proxy.
Sincerely,
J. ALAN LINDAUER, President and Chief
Executive Officer
<PAGE>
WATERSIDE CAPITAL CORPORATION
300 EAST MAIN STREET SUITE 1380
NORFOLK, VIRGINIA 23510
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
OCTOBER 22, 1998
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN THAT the Annual Meeting of Shareholders of
Waterside Capital Corporation will be held at held at the Chesapeake Conference
Center, 900 Greenbrier Circle, Chesapeake, Virginia 23320 at 10:00 a.m. Eastern
Time on Thursday, October 22, 1998 for the following purposes:
1. To elect twenty (20) directors to hold office for a term of one year
and until their respective successors are elected and qualified;
2. To amend the Company's Articles of Incorporation as set forth in
the form of Amended Articles of Incorporation attached as Exhibit
A;
3. To approve the Company's 1998 Employee Stock Option Plan, a copy of
which is attached as Exhibit B;
4. To ratify the appointment of KPMG Peat Marwick LLP as the Company's
independent auditors for 1999; and
5. To act upon such other matters as may properly come before the
meeting or any adjournment thereof.
Information concerning the matters to be acted upon at the meeting is set
forth in the accompanying Proxy Statement. The Board of Directors has
established the close of business on August 14, 1998 as the record date for the
determination of shareholders entitled to notice of and to vote at the Annual
Meeting or any adjournments thereof.
By Order of the Board of Directors
Gerald T. McDonald, Secretary
Norfolk, Virginia
September __, 1998
PLEASE COMPLETE, SIGN, AND DATE THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY VOTE
EITHER IN PERSON OR THROUGH YOUR PROXY.
<PAGE>
PROXY STATEMENT
This Proxy Statement and the enclosed proxy card ("Proxy") are furnished
in connection with the solicitation of proxies on behalf of the Board of
Directors of Waterside Capital Corporation (the "Company") to be voted at the
Annual Meeting of Shareholders (the "Annual Meeting") to be held at held at the
Chesapeake Conference Center, 900 Greenbrier Circle, Chesapeake, Virginia 23320
at 10:00 a.m. Eastern Time on Thursday, October 22, 1998 and at any adjournment
thereof, for the purposes set forth in the accompanying Notice of Meeting.
Only shareholders of record at the close of business on August 14, 1998
(the "Record Date") are entitled to notice of and to vote at the Annual Meeting.
This Proxy is being mailed on or about September __, 1998.
Revocability of Proxy
Execution of the enclosed Proxy will not affect a shareholder's right to
attend the Annual Meeting and vote in person. If your Proxy is properly signed,
received by the Company and not revoked by you, the shares to which it relates
will be voted at the Annual Meeting in accordance with your instructions. If a
shareholder does not return a signed Proxy, his or her shares cannot be voted by
proxy.
Person Making the Solicitation
The cost of soliciting Proxies will be borne by the Company. The Company
has retained Reliance Trust Company to assist in the solicitation of proxies
from brokers and nominees and in the counting of proxies. The Company will pay
Reliance Trust Company approximately $500 plus out-of-pocket expenses for this
assistance. In addition to solicitation by mail, the Company will request banks,
brokers, and other custodians, nominees, and fiduciaries to send proxy material
to the beneficial owners and to secure their voting instructions if necessary.
The Company, upon request, will reimburse them for their expenses in so doing.
Officers of the Company may solicit Proxies personally, by telephone or by
telegram from some shareholders if Proxies are not received promptly, for which
no additional compensation will be paid.
Voting Shares And Vote Required
On the Record Date, the Company had 1,420,900 shares of Common Stock
outstanding. Each share of Common Stock is entitled to one vote on each matter
presented at the Annual Meeting.
Directors are elected by a "plurality" of shares of Common Stock present
in person or represented by proxy and entitled to vote at the Annual Meeting.
For the purposes of this Annual Meeting, this means that the twenty director
nominees with the most affirmative votes will be elected. Under the laws of
Virginia, the Company's state of incorporation, "shares present in person or
represented by proxy and entitled to vote" are determinative of the outcome of
the matter subject to vote. Abstentions are considered "shares present in person
or represented by proxy," but broker non-votes are not, based on the Company's
understanding of Virginia law and the Company's Articles of Incorporation and
Bylaws.
All shareholder meeting proxies, ballots, and tabulations that identify
individual shareholders are kept confidential, and will not be available for
examination, nor will the identity or the vote of any shareholder be disclosed
except as may be necessary to meet legal requirements. Votes will be counted and
certified by Reliance Trust Company, which will act as the inspector of
elections.
Unless specified otherwise, the Proxy will be voted as follows:
(1) FOR the election of the twenty (20) nominees to serve as directors
of the Company for a one-year term and until their respective
successors are duly elected and qualified;
(2) FOR the amendment of the Company's Articles of Incorporation as set
forth in the form of Amended Articles of Incorporation attached
hereto as Exhibit A;
(3) FOR approval of the Company's 1998 Employee Stock Option Plan, a
copy of which is attached hereto as Exhibit B; and
(4) FOR the ratification of the appointment of KPMG Peat Marwick LLP as
independent auditors for 1999;
Management is not aware of any other matters to be presented for action at the
Annual Meeting, but if such matters are properly presented, this proxy will be
voted in the discretion of the Proxy holders "for" or "against" such other
matters as may properly come before the Annual Meeting
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of August 14, 1998 relating
to the beneficial ownership of the Company's Common Stock by (i) each of the
Company's directors and the executive officer identified in the Compensation
Table who own Common Stock, (ii) each person (or group of affiliated persons)
who is known by the Company to own beneficially more than 5% of the Common
Stock, and (iii) all of the Company's directors and executive officers as a
group.
Beneficial Ownership of Common Stock
Name and Address of Beneficial Amount of Beneficial
Owner(1) Ownership Percent of Class
J. Alan Lindauer 53,700(2) 3.8
J.W. Whiting Chisman, Jr. 30,050 2.1
Eric L. Fox 5,000 *
Ernest F. Hardee 22,800 1.6
Robert I. Low 2,900 *
Peter M. Meredith, Jr. 39,100(3) 2.8
Richard G. Ornstein 10,000 *
James E. Andrews 10,000 *
Jeffrey R. Ellis 9,500 *
Roger L. Frost 10,000(4) *
Henry U. Harris, III 6,000(5) *
Augustus C. Miller 11,200 *
Juan M. Montero, II 27,700(6) 1.9
R. Scott Morgan, Sr. 1,000 *
Jordan E. Slone 14,000(7) 1.0
SAFECO Asset Management Company
P.O. Box 34890
Seattle, Washington 98124-1890 175,000 12.3
All officers and directors as a
Group (24 persons) 251,195 17.7
- -----------------------------------
(1) All directors and the executive officer identified above receive mail at
the Company's corporate executive offices at 300 East Main Street, Suite
1380, Norfolk, Virginia 23510.
(2) Includes 40,000 shares held by Hometown Bank & Co. for the J. Alan
Lindauer Profit Sharing Plan and 9,000 shares which Mr. Lindauer has the
right to acquire within 60 days through the exercise of options granted
under the 1998 Employee Plan.
(3) Includes (i) 10,000 shares held by Meredith Realty Company, L.L.C., of
which Mr. Meredith is a member, (ii) 19,000 shares held by Pomar Holding
Company, L.L.C., of which Mr. Meredith is a member, (iii) 3,500 shares
owned by Mr. Meredith's wife, and (iv) 4,000 shares held in trust for the
benefit of Mr. Meredith's two sons.
(4) Includes 10,000 shares held by Goodman & Company 401(k) Profit Sharing
Plan for the benefit of Mr. Frost.
(5) Includes 5,000 shares held by DanSan, a general partnership, of which Mr.
Harris is one of two general partners.
(6) All of which are held by Juan M. Montero II M.D. P.C. Profit Sharing and
Money Purchase Pension Plan for benefit of Dr. Montero.
(7) All of which are held by Garden Capital Acquisitions, LLC of which Mr.
Slone is a member.
*Represents less than one percent (1%) interest.
PROPOSAL 1. ELECTION OF DIRECTORS
The Company's Board of Directors is currently comprised of 22 members.
Directors serve for a term of one year and hold office until their successors
are duly elected and qualify. Two of the current members of the Board of
Directors have informed the Board that they will resign as members of the Board
effective upon the date of the Annual Meeting. The Board of Directors recommends
that the twenty remaining members of the Board of Directors be re-elected and
Proxies received will be voted for the election of these 20 nominees unless
marked to the contrary. A shareholder who desires to withhold voting of the
Proxy for the nominees may so indicate on the Proxy. Each of the nominees has
consented to be named as a nominee and has indicated his intent to serve if
elected. If any nominee becomes unable to serve, the Proxy will be voted for a
substitute nominee to be designated by the Board of Directors, or the number of
directors will be reduced.
The following information relates to the nominees. There are no family
relationships among any of the nominees, nor among any of the nominees and any
officer. Charles Merriman has been selected as a nominee pursuant to a contract
between the Company and Scott & Stringfellow. Other than Mr. Merriman, there is
no understanding between any nominee and any other person pursuant to which the
nominee was selected. Each officer serves at the discretion of the Board of
Directors, subject to any employment contract rights.
Nominees
James E. Andrews has served as a director of the Company since May 1997. Since
1974, Mr. Andrews has been the principal owner of Anzell Automotive, Inc., an
automotive repair firm and franchisor of automotive repair shops.
Donna C. Bennett has served as a director of the Company since September 1996.
She is a Vice-President of First Union Bank and has been employed since 1985
with First Union Bank, or its predecessors, in various capacities.
J. W. Whiting Chisman, Jr. has served as a director of the Company since
February 1994. Since 1988, he has been President of Dare Investment Company,
a land developer and investor in equities.
Jeffrey R. Ellis has served as a director of the Company since August 1997.
Between 1973 and 1986, Mr. Ellis was the President and Chief Executive
Officer of Ridgewell Caterers, Inc. Since 1986, he has been a private
investor.
Eric L. Fox has served as a director of the Company since July 1993 and as
Secretary/Treasurer since September 1996. In 1975, Mr. Fox joined the
investment firm of Kidder, Peabody & Co. which was acquired by Paine Webber
in 1995. He is currently a Portfolio Manager of Paine Webber.
Roger L. Frost has served as a director of the Company since May 1997. Between
1956 and 1997, he was an accountant with Goodman & Company, a firm of Certified
Public Accountants, from which he retired as a senior partner in 1997.
Ernest F. Hardee has served as a director of the Company since September 1997.
Since 1963, he has been President and Chief Executive Officer of Hardee Realty
Corporation, a real estate brokerage firm. He has also served as a director of
Branch Bank & Trust Corp. since 1995.
Henry U. Harris, III has served as a director of the Company since September
1997. Since 1980, he has been Portfolio Manager of Virginia Investment
Counselors, Inc., a financial consulting firm, of which he is now President.
Since 1991, he has been the vice-chairman of the Board of Directors of Heritage
Bank & Trust.
J. Alan Lindauer has served as a director since July 1993 and as Chairman of the
Executive Committee of the Company since December 1993 and since March 1994 as
its President and Chief Executive Officer. Since 1986, Mr. Lindauer has been
President of JTL, Inc., a business consulting firm. Mr. Lindauer is a Certified
Management Consultant.
Robert I. Low has served as a director of the Company since July 1993. Mr.
Low is a senior partner of Goodman & Company, a firm of Certified Public
Accountants. He has been with that firm since 1969.
Peter M. Meredith, Jr. has served as a director of the Company and as
Chairman of the Board of Directors since May 1994. Since 1978, he has served
in various executive capacities with Meredith Construction Company, Inc.
Since 1995, he has been the Chairman of the Board of Directors of Heritage
Bank.
Charles H. Merriman has served as a director of the Company since March 1998. He
is currently a Managing Director with Scott & Stringfellow, an investment
banking firm, where he has served in various capacities since 1972.
Augustus C. Miller has served as a director of the Company since August 1994.
Since 1977, he has been President and Chief Executive Officer of Miller Oil Co.,
Inc., a distributor of fuels.
Paul F. Miller has served as a director of the Company since May 1994. Since
1987, he has served as Director of Planning and Development for the City of
Newport News, Virginia.
Juan M. Montero, II has served as a director of the Company since July 1995.
Since 1972, he has engaged in the private practice of general and thoracic
surgery.
R. Scott Morgan, Sr. has served as a director of the Company since September
1997. Since 1995, Mr. Morgan has been Executive Vice President and Corporate
Banking Manager with the Corporate Banking Group of Branch Bank & Trust Corp.
Between 1992 and 1995, he was employed in various capacities with Commerce
Bank.
James W. Noel, Jr. has served as a director of the Company since August 1994.
Since 1993, Mr. Noel has been the Executive Director of the York County
Industrial Development Authority. Between 1991 and 1993, he served in various
capacities with the City of Portsmouth, Virginia.
Richard G. Ornstein has served as a director of the Company and a member of the
Executive Committee since September 1997. Since 1964, Mr. Ornstein has been
privately engaged in real estate management and development.
Richard A. Schreiber has served as a director of the Company since May 1995.
Since 1994, he has been President and Chief Executive Officer of the Virginia
Eastern Shore Corporation, which is engaged in development of business for the
Eastern Shore of Virginia. Between 1980 and 1993, he was Vice-President and
Chief Executive Officer of Colonial Williamsburg Hotel Properties, Inc.
Jordan E. Slone has served as a director of the Company since July 1995. Since
1987, Mr. Slone has been Chairman and Chief Executive Officer of the Harbor
Group Companies, a diversified real estate and financial services firm.
Meetings and Committees of the Board of Directors
Meetings
The business of the Company is managed under the direction of the Board of
Directors. The Board of Directors meets on a regularly scheduled basis during
the year to review significant developments affecting the Company and to act on
matters requiring approval by the Board of Directors. It also holds special
meetings when an important matter requires action by the Board of Directors
between scheduled meetings. The Board of Directors held five meetings during
fiscal year 1998. In accordance with the Rules of the Nasdaq National Market
System, all of the members of the Board of Directors except Mr. Lindauer are
independent directors. During fiscal year 1998, each member of the Board of
Directors other than Messrs. Jeffrey R. Ellis, Roger L. Frost, Augustus L.
Miller, Paul F. Miller, Juan M. Montero, II and James W. Noel, Jr. who are
nominees, and Mr. Matthew James and Mr. Harold J. Marioneaux, Jr., who are not
nominees, participated in at least 75% of all meetings of the Board of Directors
and at least 75% of all meetings of the applicable committees during the period
for which he or she was a director. Effective July 1, 1998, directors will
receive $100 for each Board and Committee meeting attended. Prior to July 1,
1998, directors did not receive any compensation for attending Board of
Directors meetings. Directors who are also employees of the Company receive no
additional compensation for serving as directors. The Company reimburses all of
its directors for travel and out of pocket expenses in connection with their
attendance at meetings of the Board of Directors.
Committees
The Board of Directors has established Executive, Audit and
Compensation/Stock Option Committees (the "Compensation Committee"). The
Company's Articles of Incorporation provide for the appointment by the Board of
Directors of an Executive Committee comprised of not less than five nor more
than nine members, all of whom must be a member of the Board of Directors. The
Executive Committee was constituted by the Board of Directors in December 1993
and, under Virginia law may exercise all the authority of the Board of Directors
except that it may not (i) approve or recommend to shareholders action that
Virginia Law requires to be approved by shareholders, (ii) fill vacancies on the
Board of Directors or any committee, (iii) amend the Articles of Incorporation,
(iv) adopt, amend, or repeal the Bylaws, (v) approve a plan of merger, (vi)
authorize or approve a distribution, except according to a general formula or
method prescribed by the Board of Directors, or (vii) authorize or approve the
issuance or sale or contract for sale of shares, or determine the designation of
the relative rights, preferences and limitations of a class or series of shares
within limits specifically prescribed by the Board of Directors. The Executive
Committee is delegated the power, with certain exceptions, of the Board of
Directors to act in place of the full Board during all periods between regular
meetings of the Board. The Executive Committee met 14 times during 1998. Members
of the Executive Committee (except Mr. Lindauer) received $50 for each Executive
Committee meeting they attended in 1998. The members of the Executive Committee
are Messrs. Chisman, Fox, Hardee, Lindauer, Low, Meredith, Merriman, and
Ornstein. The Audit Committee is empowered by the Board of Directors to, among
other things, recommend the firm to be employed by the Company as its
independent auditor and to consult with such auditor regarding audits and the
adequacy of internal accounting controls. The Audit Committee held two meetings
in 1998. The members of the Audit Committee are Mr. Low, Ms. Bennett, and Mr.
Frost. The Compensation Committee makes recommendations to the Board of
Directors as to, among other things, the compensation of the Chief Executive
Officer, each officer who is also a director of the Company and designated other
members of senior management, as well as new compensation and stock plans. The
Compensation Committee met two times in 1998. The members of the Compensation
Committee are Messrs.
Chisman, Hardee, and Meredith.
Identification of Director-Nominees
The Company will consider director-nominees recommended by shareholders,
although it has not actively solicited recommendations from shareholders for
nominees nor has the Company established any procedure for this purpose for the
Annual Meeting.
EXECUTIVE AND DIRECTOR COMPENSATION
The table below sets forth certain information regarding cash and other
compensation earned during fiscal year 1998 by each director and Mr. Lindauer,
the Company's President and Chief Executive Officer. No other officer of the
Company received aggregate compensation from the Company during fiscal year 1998
in excess of $60,000.
Compensation Table
Total Compensation
Aggregate From Fund and Fund
Name of Person Compensation From Complex Paid
Position Fund to Directors
J. W. Whiting Chisman, Jr.
Director $ 500 $ 500
Eric L. Fox
Director 650 650
Ernest F. Hardee
Director 500 500
J. Alan Lindauer
President and Chief
Executive Officer 104,000 104,000
Director -0- -0-
Robert I. Low
Director 650 650
Peter M. Meredith, Jr.
Director 500 500
Charles H. Merriman
Director 50 50
Richard G. Ornstein
Director 450 450
Lindauer Employment Agreement
Mr. Lindauer is employed as the Company's President and Chief Executive
Officer under an employment agreement dated January 1, 1998 ("Lindauer
Employment Agreement"). The Lindauer Employment Agreement expires on December
31, 2002, unless terminated earlier in accordance with its terms. Mr. Lindauer
is paid an annual salary of $130,000. The Lindauer Employment Agreement includes
a two-year covenant not to compete with the Company within the Commonwealth of
Virginia and a one-year employee nonsolicitation clause and imposes certain
non-disclosure obligations on Mr. Lindauer with respect to the Company's
confidential and proprietary information.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
directors, officers and persons who beneficially own more than 10% of a
registered class of stock of the Company to file initial reports of ownership
(Forms 3) and reports of changes in beneficial ownership (Forms 4 and 5) with
the SEC and NASDAQ. Such persons are also required under the rules and
regulations promulgated by the SEC to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Company, the Company believes that all reporting requirements under Section
16(a) for 1997 were met in a timely manner by its directors, officers and
greater than 10% beneficial owners.
PROPOSAL 2. APPROVAL OF AMENDMENT TO AND RESTATEMENT OF
ARTICLES OF INCORPORATION
The Board of Directors has unanimously approved, and recommends to
stockholders that they consider and approve, a proposal to amend the Company's
Articles of Incorporation to comply with changes made by the Small Business
Administration ("SBA") to certain regulations applicable to the Company ("SBA
Regulations"). As a Small Business Investment Company ("SBIC") seeking leverage
("SBA Leverage") under the SBA Regulations, the Company is subject to, among
others, SBA Regulations that define events of default under the terms of SBA
Leverage and the SBA's corresponding remedies. In 1996, certain of the SBA
Regulations were reorganized and renumbered by the SBA. As requested by the SBA,
the Company is asking its shareholders to approve this amendment to its Articles
of Incorporation to reflect these changes and to enable the Company to take full
advantage of SBA Leverage. Aware that the Company would be recommending this
amendment to its Articles of Incorporation and recognizing the technical nature
of this amendment, the SBA has allowed the Company to borrow certain funds under
the SBA Leverage program.
The Virginia Stock Corporation Act requires that two-thirds or more of the
shareholders' approve the amendment to the Company's Articles of Incorporation.
If the proposed amendment is approved, the amendment to the Company's current
Articles of Incorporation attached as Exhibit A will be filed with the Virginia
State Corporation Commission and become part of its charter documents. The
Company cannot predict what action, if any, the SBA would take regarding the
Company's ability to borrow funds from the SBA under the SBA Leverage program if
the proposed amendment is not approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO REFLECT THE
CHANGES MADE TO THE SBA REGULATIONS
PROPOSAL 3. APPROVAL OF 1998 EMPLOYEE STOCK OPTION PLAN
Introduction
On January 27, 1998, the Board of Directors of the Company adopted the
1998 Employee Stock Option Plan (the "Employee Plan"), subject to approval of
the Company's stockholders. The purpose of the Employee Plan is to support the
business goals of the Company and to attract, retain and motivate management
officials of high caliber by providing incentives to associate more closely the
interests of certain officers and key executives of the Company with the
interests of the Company's shareholders. A copy of the Employee Plan is attached
as Exhibit B to this Proxy Statement, and the summary description of the
Employee Plan set forth below is qualified in its entirety by reference to the
full text of the Employee Plan.
Purpose and Eligible Participants
Participants shall be limited to those officers and other key employees of
the Company who are in positions in which their decisions, actions, and counsel
significantly contribute to the success of the Company. Directors of the Company
who are not otherwise officers or employees of the Company shall not be
participants. Outside directors are not eligible for participation in the
Employee Plan.
Shares Available
The aggregate number of shares of the Company's Common Stock that may be
issued under the Employee Plan for awards during its term is 100,000. Common
Stock related to awards that are forfeited, terminated, expire unexercised, or
are settled in such manner that all or some of the shares covered by an award
under the Employee Plan are not issued to a participant shall immediately become
available for awards under the Employee Plan. In the event of any change in the
outstanding Common Stock of the Company by reason of a stock dividend or
distribution, recapitalization, merger, consolidation, split-up, combination,
exchange of shares or the like, the number of shares of Common Stock which may
be issued under the Employee Plan, as well as shares issuable pursuant to
outstanding awards, shall be adjusted appropriately.
Administration of the Employee Plan
The Employee Plan is administered and interpreted by the Compensation
Committee, which currently consists of three directors. A person may serve on
the Compensation Committee only if he or she is not eligible to receive a grant
of an award under the Employer Plan and has not in fact received such an award
for at least one year before his or her appointment and otherwise satisfies the
definition of a "disinterested person" for purposes of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and satisfies
the requirements of an "outside director" for purposes of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"). No member of the
Compensation Committee may receive awards under the Employee Plan. The
Compensation Committee has full and final authority in its discretion: (i) to
make and adopt rules and regulations for the administration of the Employee
Plan; (ii) to conclusively interpret the provisions of the Employee Plan and to
decide all questions of fact arising in its application; (iii) to determine the
employees to whom awards shall be made under the Employee Plan; (iv) to
determine the type of award to be made and the amount, size and terms of each
such award (including, but not limited to, any exercise price, grant price, or
purchase price, any restriction or condition, any schedule for lapse of
restrictions or conditions relating to transferability or forfeiture,
exercisability, or settlement of an award, and waivers or accelerations thereof,
based in each case on such conditions as the Compensation Committee shall
determine); (v) to determine the time when awards will be granted; (vi) to
prescribe from time to time the form, and the terms, provisions and conditions
not inconsistent with the Employee Plan, of any award agreement; (vii) to
determine whether, to what extent and under what circumstances Common Stock of
the Company deliverable with respect to an award will be deferred automatically,
at the election of the Compensation Committee, or at the election of the
participant; and (viii) to make all other determinations necessary or advisable
for the administration of the Employee Plan. The Compensation Committee may
designate persons other than its members to carry out its responsibilities under
such conditions or limitations as it may set, other than its authority with
regard to benefits granted to employees who are officers or directors of the
Company for purposes of Section 16 of the Exchange Act.
Forms and Provisions of Awards
The Compensation Committee may grant from time to time long-term incentive
awards in the form of non-qualified stock options or incentive stock options,
separately or in combination, as it deems appropriate and in the best interest
of the Company under the circumstances. Payment for Company Common Stock
acquired through exercise of a non-qualified stock option or an incentive stock
option may be made in cash or, unless the Compensation Committee determines
otherwise at or prior to the time of exercise, Company Common Stock at fair
market value as determined pursuant to the Employee Plan, or a combination of
cash and Common Stock. A further description of the Employee Plan's provisions
concerning the various forms of awards under the Employee Plan is set forth
below.
Incentive Stock Options. The option price of incentive stock options and
the period during which each incentive stock option can be exercise is fixed by
the Compensation Committee, but in no case can the price be less than 100% of
the market value of the shares at the time the incentive stock option is
granted. In the event that a participant ceases to be an employee of the Company
for any reason other than death, disability, retirement or involuntary
separation without cause, all incentive stock options granted to the participant
will lapse unless otherwise determined by the Compensation Committee. In the
event employment ceases because a participant dies, retires or becomes disabled
prior to expiration of the participant's incentive stock option without having
fully exercised such incentive stock option, the participant shall have the
right to exercise the incentive stock option during its term, to the extent that
the incentive stock option was exercisable on the date employment ceased. The
Compensation Committee, however, in its discretion, may provide that any
incentive stock options outstanding but not yet exercisable upon the death,
disability or retirement of the participant may become exercisable in accordance
with a schedule determined by the Compensation Committee. If employment ceases
because a participant is involuntarily separated without cause prior to
expiration of the participant's incentive stock option without having fully
exercised such incentive stock option, the participant shall have the right to
exercise the incentive stock option during its term within a period of three
months after the date employment so ceased, to the extent that the incentive
stock option was exercisable on the date employment ceased, or during such other
period and subject to such terms as may be determined by the Compensation
Committee.
Non-Qualified Stock Options. The option price of non-qualified stock
options and the period during which each non-qualified stock option can be
exercised is fixed by the Compensation Committee, but in no case can the price
be less than 100% of the fair market value of the shares at the time the option
is granted. No non-qualified stock option may be exercised earlier than six
months after the date of grant or later than ten years after the date of grant.
In the event that participant ceases to be an employee of the Company for any
reason other than death, disability, retirement or "involuntary separation
without cause" (as defined in the Employee Plan), all non-qualified stock
options granted to the participant will lapse unless otherwise determined by the
Committee. In the event employment ceases because a participant dies, retires or
becomes disabled prior to expiration of the participant's non-qualified stock
option without having fully exercised such non-qualified stock option, the
participant shall have the right to exercise the non-qualified stock option
during its term, to the extent that the non-qualified stock option was
exercisable on the date employment ceased. The Committee, however, in its
discretion, may provide that any non-qualified stock options outstanding but not
yet exercisable upon the death, disability or retirement of the participant may
become exercisable in accordance with a schedule determined by the Committee. If
employment ceases because a participant is involuntarily separated without cause
prior to expiration of the participant's non-qualified stock option without
having fully exercised such non-qualified stock option, the participant shall
have the right to exercise the non-qualified stock option during its term within
a period of three months after the date employment so ceased, to the extent that
the non-qualified stock option was exercisable on the date employment ceased, or
during such other period and subject to such terms as may be determined by the
Committee.
Change of Control
If there is a Change of Control of the Company, all outstanding stock
options under the Employee Plan shall become exercisable immediately prior to
the consummation of the Change of Control. A Change of Control of the Company
shall be deemed to have occurred upon the happening of any of the following
events:
(1) the acquisition, other than from the Company, by any individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 30% or more of either the then
outstanding shares of Common Stock of the Company or the combined voting
power of the then outstanding voting securities of the Company entitled to
vote generally in the election of directors, but excluding, for this
purpose, any such acquisition by the Company or any of its subsidiaries,
or any employee benefit plan (or related trust) of the Company, or any
corporation with respect to which, following such acquisition, more than
50% of, respectively, the then outstanding shares of Common Stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election
of directors 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 Common Stock and voting securities of the
Company immediately prior to such acquisition in substantially the same
proportion as their ownership, immediately prior to such acquisition, of
the then outstanding shares of Common Stock of the Company or the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors, as the case may
be;
(2) individuals who constitute the Company's Board of Directors (the
"Incumbent Board")( cease for any reason to constitute at least a majority
of the Board, provided that any individual becoming a director subsequent
to the date hereof whose election, or nomination for election by the
Company's shareholders, 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 is in connection with an actual or threatened "election
contents" relating to the election of the directors of the Company (as
such term is used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act); or
(3) approval by the Company's shareholders of a reorganization,
merger or consolidation of the Company, in each case, with respect to
which all or substantially all of the individuals and entities who were
the respective beneficial owners of the Common Stock and voting securities
of the Company immediately prior to such reorganization, merger or
consolidation do not, following such reorganization, merger or
consolidation, beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of Common Stock or 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 reorganization, merger or consolidation,
or of a complete liquidation or dissolution of the Company or of the sale
or other disposition of all or substantially all of the assets of the
Company.
Term of Plan; Amendments; Termination
The Employee Plan became effective on January 27, 1998, subject to
approval of the Employee Plan by the Company's shareholders. The Employee Plan
will remain in effect until all awards under the Employee Plan have been
satisfied, but no award may be granted more than ten years after the effective
date of the Employee Plan. The Board of Directors may amend, alter, suspend or
terminate the Employee Plan or the Committee's authority to grant awards under
the Employee Plan, except that any such amendment or termination shall be
subject to the ratification or approval of the Company's shareholders within one
year after Board action if shareholder ratification or approval is required by
any federal or state law or regulation or the rules of any stock exchange or
automated quotation system on which the Company's Common Stock may then be
listed or quoted. Any amendment, alteration, suspension or termination of the
Employee Plan shall not, without the consent of a participant, affect the
participant's rights under any award previously granted.
Federal Income Tax Consequences
Grants of Options, Rights and Awards. The grant of a non-qualified stock
option or an incentive stock option does not result in income for the grantee or
in a deduction for the Company. The exercise of a non-qualified stock option
results in ordinary income for the optionee and a deduction for the Company
measured by the difference between the option price and the fair market value of
the shares received at the time of exercise. Income tax withholding is required.
Exercise of Option, Rights and Awards. The exercise of an incentive stock
option does not result in income for the optionee. However, the excess of the
fair market value on the exercise date over the option price of the shares is an
"item of adjustment" for alternative minimum tax purposes. When an optionee
sells shares acquired by exercise of an incentive stock option, the optionee's
gain (the excess of sales proceeds over option price) upon the sale will be
taxes as capital gain provided the optionee (i) exercises the option while an
employee of the Company or a subsidiary or within three months after termination
of such employment for reasons other than death or disability and (ii) the sale
is not within two years after the date of grant nor within one year after the
transfer of shares upon exercise. If the exercise is after such three month
period or the subsequent sale is before the expiration of either the two year or
the one year period, the optionee generally will realize ordinary income in the
year of exercise or the disqualifying sale.
Subsequent Sales. A sale of shares of the Company's common stock more than
one year after their receipt as described above will result in long-term gain or
loss to the holder.
Option Limitations. For compensation realized by any of the executive
officers named in the Compensation Table to be deductible by the Company, IRS
regulations under Section 162(m) require any stock option plan to state the
maximum number of options that can be granted during a fiscal year. The Employee
Plan now has a limit of 25,000 options per fiscal year. Although the Company
does not expect to grant this number of options on a regular basis, the Company
does expect that this will be the maximum number of options that would be
necessary to recruit an outstanding top executive.
Summary of Benefits Under the Employee Plan
It is not possible to state the number of options that might be granted in
the future under the Employee Plan to a particular individual. The following
table sets forth the number of options and option prices for options granted
during the last fiscal year, subject to the approval of this Plan at the 1998
Annual Meeting.
Number of
Name and Position Options Granted Grant Price
J. Alan Lindauer
President and Chief Executive Officer 25,000 $11.03
Robert P. Louthan
Vice President 10,000 11.00
Gerald T. McDonald
Secretary/Treasurer and Chief
Financial Officer 20,000 11.00
Michael C. Huffman
Business Development Officer 10,000 11.00
Mark Sommer
Controller 12,500 11.00
All other Executive Officers as a group -0- ---
All other employees including current
officers who are not Executive Officers -0- ---
Outside Directors are not eligible for participation in the Employee Plan.
The Board of Directors believes that stock options are a competitive
necessity in its industry to attract and retain employees with the skill,
intelligence, education and experience on whose success the Company is largely
dependent. Stock options are used by the Company as a major element of the
compensation package for many different levels of employees because they foster
proprietary identification with the Company and encourage them to exert maximum
efforts for its success.
Approval of the Employee Plan by the shareholders requires the affirmative
vote of the majority of the votes cast at the Annual Meeting. Abstentions will
count as "no" votes. Failure to approve this proposal will result in termination
of the Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT ALL STOCKHOLDERS VOTE "FOR"
APPROVAL OF THE EMPLOYEE PLAN.
PROPOSAL 4. RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors, upon recommendation of its Audit Committee,
intends to appoint KPMG Peat Marwick LLP as the firm of independent certified
public accountants to audit the financial statements of the Company for the
fiscal year ending June 30, 1999, and the Board of Directors desires that such
appointment be ratified by the shareholders. KPMG Peat Marwick LLP has audited
the financial statements of the Company since June 30, 1997
Ratification by the shareholders of KPMG Peat Marwick LLP requires the
affirmative vote of the majority of the votes cast at the Annual Meeting.
Abstentions will count as no votes.
A representative of KPMG Peat Marwick LLP will be present at the Annual
Meeting and available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS AUDITORS.
OTHER MATTERS
The Board of Directors does not know of any matters that will be presented
for action at the Annual Meeting other than those described above or matters
incident to the conduct of the Annual Meeting. If, however, any other matters
not presently known to management should come before the Annual Meeting, it is
intended that the shares represented by the Proxy will be voted on such matters
in accordance with the discretion of the holders of such proxy.
SUBMISSION OF PROPOSALS FOR 1999
The next Annual Meeting of Shareholders will be held on or about October
21, 1999. Any shareholder who wishes to submit a proposal for consideration at
that meeting, and who wishes to have such proposal included in the Company's
proxy statement for that meeting, must submit the proposal in writing to J. Alan
Lindauer, President and Chief Executive Officer, at 300 East Main Street, Suite
1380, Norfolk, VA 23510.
GENERAL
The Company's 1998 Annual Report to Shareholders accompanies this Proxy
Statement. The 1998 Annual Report to Shareholders does not form any part of the
material for the solicitation of proxies. Upon written request, the Company will
provide shareholders with a copy of its Report on Form N-SAR for the year ended
June 30, 1998 (the "Form N-SAR"), as filed with the Securities and Exchange
Commission, without charge. Please direct written requests for a copy of the
Form N-SAR to: J. Alan Lindauer, President and Chief Executive Officer,
Waterside Capital Corporation, 300 East Main Street, Suite 1380, Norfolk, VA
23510.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY PROMPTLY
By Order of the Board of Directors
September __, 1998
<PAGE>
EXHIBIT A TO PROXY STATEMENT
ARTICLES OF AMENDMENT
OF
WATERSIDE CAPITAL CORPORATION
Pursuant to Section 13.1-710 of the Code of Virginia of 1950, as
amended, the following information is provided:
1. The name of the Corporation is Waterside Capital
Corporation.
2. Article VIII, Section 8.1 is hereby deleted from the Articles of
Incorporation and replaced with the following section:
8.1 Upon the occurrence of any of the events specified in 13
C.F.R. 107.1810(d)(1)-(6), 107.1810(f)(1)-(3), 107.1820(b) or 107.1820(c) as
determined by the SBA, SBA shall have the right, and the corporation consents
to, SBA's exercise of such right:
(i) upon written notice, to require the corporation to replace,
with individuals approved by SBA, one or more of the Corporation's officers
and/or such number of members of the Corporation's Executive Committee as is
sufficient to constitute a majority of such Executive Committee; or
(ii) to obtain the appointment of SBA or its designee as receiver
of the corporation pursuant to ss. 311(c) of the SBIC Act for the purpose of
continuing to operate the Corporation.
3. Pursuant to Section 13.1-710 of the Code of Virginia of 1950, as
amended, the Board of Directors of the Corporation submitted this amendment to
the shareholders at the Annual Meeting of the shareholders on October 22, 1998.
4. Pursuant to Section 13.1-654 of the Code of Virginia of 1950, as
amended, the Shareholders of the Corporation adopted this amendment at the
Annual Meeting of the Shareholders. Holders of shares of common stock were
eligible to vote on the adoption of the amendment. At the close of business on
August 14, 1998, the date fixed by the Board of Directors as the record date for
the meeting of the shareholders, 1,420,900 shares of common stock were
outstanding. Of those shares, ____________ were voted for the amendment,
_____________ were voted against the amendment and ___________ abstained. The
number of shares of common stock voted for the amendment was sufficient to
approve the amendment.
Dated the ___ day of ______________, 1998.
<PAGE>
WATERSIDE CAPITAL CORPORATION
By J. Alan Lindauer, President
EXHIBIT B TO PROXY STATEMENT
WATERSIDE CAPITAL CORPORATION
1998 EMPLOYEE STOCK OPTION PLAN
1. Purpose
The purpose of the Waterside Capital Corporation 1998 Employee Stock
Option Plan (the "Plan") is to support the business goals of the Company and to
attract, retain, and motivate key employees of the Company by providing
incentives that closely align their interests with the interests of the
Company's shareholders. These objectives are accomplished by making Awards under
the Plan, thereby providing Participants with a proprietary interest in the
growth and performance of the Company.
2. Definitions
2.1 "Award" shall mean the grant of any form of stock option to a
Plan Participant pursuant to such terms, conditions, performance requirements,
and limitations as the Committee may establish in order to fulfill the
objectives of the Plan.
2.2 "Award Agreement" shall mean an agreement between the Company
and a Participant that sets forth the terms, conditions, performance
requirements, and limitations applicable to an Award.
2.3 "Board" shall mean the Board of Directors of the Company.
2.4 "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, or any successor thereto.
2.5 "Committee" shall mean the Compensation/Stock Option Committee
of the Board. If at any time no Committee shall be in office, then the functions
of the committee specified in the Plan shall be exercised by the Board.
2.6 "Company" shall mean Waterside Capital Corporation, a
corporation organized under the laws of the Commonwealth of Virginia, and its
subsidiaries, including subsidiaries of subsidiaries.
2.7 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time, or any successor thereto.
2.8 "Fair Market Value" shall mean as of any given date, the average
of the bid and ask prices for each of the preceding twenty (20) business days of
the Stock on the Nasdaq SmallCap Market.
2.9 "Involuntary Separation without Cause" shall mean a termination
of employment by the Company for reasons other than substantial failure to
perform duties, material violation of Company policies, unethical activities,
misconduct, fraud, or commission of an illegal act; provided, that, Involuntary
Separation without Cause does not include a resignation or a voluntary
separation from employment, in either case initiated by a Participant.
2.10 "Participant" shall mean an employee of the Company to whom an
Award has been made under the Plan.
2.11 "Plan" shall mean the Waterside Capital Corporation 1998
Employee Stock Option Plan.
2.12 "Stock" shall mean the Common Stock, $1.00 par value share, of
the Company.
3. Effective Date and Duration of the Plan.
The effective date of the Plan is January 27, 1998, subject to
approval of the Plan by the shareholders of the Company. The Plan shall remain
in effect until all Awards under the Plan have been satisfied by the issuance of
shares, but no Award shall be granted more than ten years after the effective
date of the Plan.
4. Capital Stock Available for Awards.
The number of shares of common stock of the Company for which Awards
may be granted under the Plan shall not exceed 100,000. As soon as possible
after adoption of the Plan by the Company's shareholders, the Company shall take
whatever actions are necessary to file required documents with the U.S.
Securities and Exchange Commission and any other appropriate governmental
authorities and stock exchanges to make shares of stock available for issuance
pursuant to Awards. Stock related to Awards that are forfeited, terminated,
expire unexercised, or are settled in such manner that all or some of the shares
covered by an Award under this Plan are not issued to a Participant shall
immediately become available for Awards under this Plan.
5. Administration.
The Plan shall be administered and interpreted by the Committee,
which shall consist of not less than two persons appointed by the Board from
among its members. A person may serve on the Committee only if he or she is not
eligible and has not received a grant of an Award under the Plan for at least
one year before his or her appointment and satisfies the requirements of an
"outside director" for purposes of Section 162(m) of the Code. No member of the
Committee may receive Awards under the Plan. Without limiting the foregoing, the
Committee shall have full and final authority in its discretion: (i) to make,
adopt, amend, and rescind rules and regulations for the administration of the
Plan; (ii) to conclusively interpret the provisions of the Plan and to decide
all questions of fact arising in its application; (iii) to determine the
employees to whom Awards shall be made under the Plan; (iv) to determine the
type of Award to be made and the amount, size and terms of each such Award
(including, but not limited to, any restriction or condition, any schedule for
lapse of restrictions or conditions relating to transferability or forfeiture,
exercisability, or settlement of an Award, and waivers or accelerations thereof,
and waiver of performance conditions relating to an Award, based in each case on
such conditions as the Committee shall determine); (v) to determine the time
when Awards will be granted; (vi) to prescribe from time to time the form, and
the terms, provisions and conditions not inconsistent with the Plan, of any
Award Agreement; (vii) to determine whether, to what extent, and under what
circumstances cash or common stock of the Company or a combination thereof
payable or deliverable with respect to an Award will be deferred automatically,
at the election of the Board, or at the election of a Participant; and (viii) to
make all other determinations necessary or advisable for the administration of
the Plan. The Committee may designate persons other than its members to carry
out its responsibilities under such conditions or limitations as it may set,
other than its authority with regard to benefits granted to employees who are
officers or directors of the Company for purposes of Section 16 of the Exchange
Act.
6. Eligibility.
Participants shall be limited to those officers and other key
employees of the Company who are in positions in which their decisions, actions
and efforts significantly contribute to the success of the Company. Directors of
the Company who are not otherwise officers or employees of the Company shall not
be Participants.
7. Awards Under the Plan.
The Committee shall determine the type or types of Awards to be made
to each Participant and shall set forth in each Award Agreement the terms,
conditions, and limitations applicable to each Award. Awards may be granted
singly, in combination or in tandem. Awards may also be made in combination or
in tandem with, in replacement of, or as alternatives to, grants or rights under
any other employee plan of the Company, including the plan of any acquired
entity.
8. Incentive Stock Options.
Incentive stock options, or substitutes therefor, are options to
purchase shares of common stock of the Company which, in addition to being
subject to applicable terms, conditions, and limitations established by the
Committee, comply with Section 422 of the Code. Incentive stock options shall be
evidenced by Award Agreements which shall contain in substance the following
terms and conditions:
8.1 Option Price. The purchase price per share of stock deliverable
upon the exercise of an incentive stock option shall not be less than 100% of
the Fair Market Value of the stock on the day the incentive stock option is
granted, as determined by the Committee.
8.2 Exercise of Option. Each Award Agreement pursuant to which
incentive stock options are granted shall state the period or periods of time
within which the incentive stock option may be exercised by the Participant, in
whole or in part, which shall be such period or periods of time as may be
determined by the Committee, provided that the exercise period shall not end
later than ten years after the date of the grant of the incentive stock option.
8.3 Nontransferability. Each Award Agreement shall state that the
incentive stock option is not transferable other than by will or the laws of
descent and distribution, and during the lifetime of the Participant is
exercisable only by the Participant.
8.4 Payment for Shares. Stock purchased pursuant to an incentive
stock option shall be paid for in full in cash or, unless the Committee
determines otherwise at or prior to the time of exercise, common stock of the
Company at Fair Market Value or a combination thereof, in an amount or having a
combined value equal to the aggregate purchase price for the shares subject to
the incentive stock option or portion thereof being exercised.
8.5 Rights Upon Termination of Employment. In the event that a
Participant ceases to be an employee of the Company for any reason other than
death, disability, retirement (including early retirement) or Involuntary
Separation without Cause, all incentive stock options granted to the Participant
shall lapse forthwith or at such other time as determined by the Committee. In
the event employment ceases because a Participant dies, retires, becomes
disabled, or is Involuntarily Separated without Cause, prior to expiration of
the Participant's incentive stock option, without having fully exercised such
incentive stock option, the Participant shall have the right to exercise the
incentive stock option during its term within a period of three months after the
date employment so ceased, to the extent that the incentive stock option was
exercisable on the date employment ceased.
8.6 Individual Limitations.
8.6.1 Notwithstanding anything herein to the
contrary, to the extent that the aggregate Fair Market Value (determined as of
the time the option is granted) of stock for which any Participant is granted
incentive stock options that are exercisable for the first time during any
calendar year (under all such plans of the Company) shall exceed $100,000 (such
excess to be determined by taking incentive stock options into account in the
order in which granted), such incentive stock options to such extent shall be
treated as options which are not incentive stock options.
8.6.2 Notwithstanding anything herein to the
contrary, no incentive stock option shall be granted to any individual if at the
time the incentive stock option is to be granted the individual owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or of any parent or subsidiary corporation unless at the
time such incentive stock option is granted the option price is at least 110% of
the Fair Market Value of the stock subject to the incentive stock option and
such incentive stock option by its terms is not exercisable after the expiration
of five years from the date such incentive stock option is granted.
8.7 Code Compliance. Each Award Agreement pursuant to which
incentive stock options are granted shall contain such other terms, conditions
and provisions as the Committee may determine to be necessary or desirable in
order to qualify such option as a tax-favored option within the meaning of
Section 422 of the Code, or the regulations thereunder. Notwithstanding Section
16 hereof, the Board shall have the power without further approval to amend the
terms of the Plan or any Awards or Award Agreements thereunder for such purpose.
9. Non-Qualified Stock Options.
Non-qualified stock options, or substitutes therefor, are options to
purchase shares of common stock of the Company which are not intended to comply
with Section 422 of the Code. Non-qualified stock options shall be evidenced by
Award Agreements which shall contain in substance the following terms and
conditions:
9.1 Option Price. The purchase price per share of stock deliverable
upon the exercise of a non-qualified stock option shall be not less than 100% of
the Fair Market Value of the stock on the day the non-qualified stock option is
granted, as determined by the Committee.
9.2 Exercise of Option. Each Award Agreement pursuant to which
non-qualified stock options are granted shall state the period or periods of
time within which the non-qualified stock option may be exercised by the
Participant, in whole or in part, which shall be such period or periods of time
as may be determined by the Committee at the time of grant, provided that the
exercise period shall not end later than ten years after the date of the grant
of the non-qualified stock option.
9.3 Payment for Shares. Stock purchased pursuant to a non-qualified
stock option shall be paid for in full in cash or, unless the Committee
determines otherwise at or prior to the time of exercise, in common stock of the
Company at Fair Market Value or a combination of cash and such common stock, in
an amount or having a combined value equal to the aggregate purchase price for
the shares subject to the non-qualified stock option or portion thereof being
exercised.
9.4 Rights Upon Termination of Employment. In the event that a
Participant ceases to be an employee of the Company for any reason other than
death, disability, retirement (including early retirement) or Involuntary
Separation without Cause, all non-qualified stock options granted to such
Participant shall lapse forthwith or at such other time as determined by the
Committee. In the event employment ceases because a Participant dies, retires,
or becomes disabled, or is Involuntarily Separated without Cause prior to
expiration of the Participant's non-qualified stock option without having fully
exercised such non-qualified stock option, the Participant shall have the right
to exercise the non-qualified stock option during its term within a period of
three months after the date employment so ceased, to the extent that the
non-qualified stock option was exercisable on the date employment ceased.
9.5 Cashless Exercise. To the extent permitted under the applicable
laws and regulations under Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder, and with the consent of the Committee, the
Company agrees to cooperate in a "cashless exercise" of a non-qualified stock
option. The cashless exercise shall be effected by the Participant delivering to
a registered securities broker acceptable to the Company instructions to sell a
sufficient number of shares of stock to cover the costs and expenses associated
therewith.
10. General Restrictions.
10.1 Conditions on Company's Obligations. The Company's obligations
with respect to each Award under the Plan shall be subject to the requirement
that, if at any time the Committee shall determine that (i) the listing,
registration or qualification of the shares of common stock subject or related
thereto upon any securities exchange or under any state or federal law, (ii) the
consent or approval of any government regulatory body, or (iii) an agreement by
the recipient of an award with respect to the disposition of shares of common
stock, is necessary or desirable as a condition of or in connection with the
granting of such Award, such Award may not be consummated in whole or in part
unless such listing, registration, qualification, consent, approval or agreement
shall have been effected or obtained free of any conditions not acceptable to
the Committee.
10.2 Per Employee Limitation on Stock Options. Notwithstanding
anything in this Plan to the contrary, no Participant shall receive incentive
stock options and non-qualified stock options that, in the aggregate, grant the
Participant the option to purchase in excess of 25,000 shares of common stock of
the Company in any given year the Plan is in effect.
11. Rights To Terminate Employment.
Nothing in the Plan or in any Award Agreement or other agreement
entered into pursuant to the Plan shall confer upon any Participant the right to
continue in the employment of the Company or affect any right which the Company
may have to terminate the employment of such Participant.
12. Withholding.
Whenever the Company proposes or is required to issue or transfer
shares of common stock under the Plan, the Company shall have the right to
require the Participant to remit to the Company an amount sufficient to satisfy
any federal, state and/or local tax withholding requirements prior to the
delivery of any certificate for such shares or, in the discretion of the
Committee, the Company may withhold from the shares to be delivered shares
sufficient to satisfy all or a portion of such tax withholding requirements.
13. Nontransferability.
No Award under the Plan shall be assignable or transferable by the
Participant other than by will or by the laws of descent and distribution.
During the life of the Participant, all Awards shall be exercisable only by such
person or by such Participant's guardian or legal representative.
14. Non-Uniform Determination.
The Committee's determinations under the Plan (including without
limitation determinations of the persons to receive Awards, the form, amount and
timing of such Awards, the terms, provisions and conditions of such Awards, the
agreements evidencing same, and the establishment of values and performance
targets) need not be uniform and may be made by it selectively among
Participants who receive, or are eligible to receive, Awards under the Plan,
whether or not such persons are similarly situated.
15. Adjustments.
In the event of any change in the outstanding common stock of the
Company by reason of a stock dividend or distribution, recapitalization, merger,
consolidation, split-up, combination, exchange of shares or the like, in which
the number of shares held by Company shareholders prior to such event is
affected by such event, then the Committee shall adjust the number of shares of
common stock which may be issued under the Plan and shall provide for an
equitable adjustment of any outstanding Award or the number or kind of shares
issuable pursuant to an outstanding Award under the Plan. Notwithstanding the
foregoing, all changes in the outstanding common stock of the Company shall be
considered in determining the number of shares of outstanding common stock of
the Company for purposes of Section 4 of this Plan.
16. Amendment.
The Board may amend, alter, suspend or terminate the Plan or the
Committee's authority to grant Awards under the Plan, except that any such
amendment, alteration, suspension or termination shall be subject to the
ratification or approval of the Company's shareholders within one year after
Board action if such shareholder ratification or approval is required by any
federal or state law or regulation or the rules of any stock exchange or
automated quotation system on which the common stock of the Company may then be
listed or quoted, or if the Board otherwise, in its discretion, determines for
any other reason to submit such changes to the Plan to shareholders for approval
or ratification. The amendment, alteration, suspension or termination of the
Plan shall not, without the consent of a Participant, affect the Participant's
rights under an Award previously granted.
17. Change of Control.
17.1 Notwithstanding any other provision of the Plan, if there is a
Change of Control, as defined below, of the Company, all outstanding stock
options shall become exercisable immediately prior to the consummation of the
Change of Control.
17.2 A "Change of Control" of the Company shall be deemed to have
occurred upon the happening of any of the following events:
17.2.1 when any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), (other than the Company or a subsidiary of
the Company or any Company employee benefit plan, including any trustee of such
plan acting as trustee) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly of securities of the
Company representing twenty percent (20%) or more of the combined voting power
of the Company's then outstanding securities without the consent of a majority
of the Board;
17.2.2 the occurrence of any transaction or event relating to
the Company required to be described pursuant to the requirements of Item 6(e)
of Schedule 14A of the Exchange Act.;
17.2.3 when, during a period of two consecutive years during
the existence of the Plan, the individuals who, at the beginning of such period,
constitute the Board of Directors of the Company cease for any reason other than
death to constitute at least a two-thirds majority thereof, provided however,
that a director who was not a director at the beginning of such period shall be
deemed to have satisfied the two-year requirement if such director was elected
by, or on the recommendation of, at least two-thirds of the directors who were
directors at the beginning of such period (either actually or by prior operation
of this section); or
17.2.4 the occurrence of a transaction requiring shareholder
approval for the acquisition of the Company by an entity other than the Company
through purchase of assets, or by merger, or otherwise.
18. Effect on Other Plans.
Participation in the Plan shall not affect an employee's eligibility
to participate in any other benefit or incentive plan of the Company, and any
Awards made pursuant to the Plan shall not be used in determining the benefits
provided under any other plan of the Company unless specifically provided.
19. Compliance With Exemption Rules Under Section 16 of the Exchange Act.
It is the intent of the Company that transactions involving equity
securities under the Plan by persons subject to Section 16 of the Exchange Act
be exempt under Rule 16b-3 under the Exchange Act. Accordingly, if any provision
of the Plan or any Award agreement does not comply with the requirements of Rule
16b-3 as then applicable to such a transaction, such provision shall be
construed or deemed amended to the extent necessary to conform to such
requirements with respect to such transaction.
20. Governing Law.
The Plan and all awards made and actions taken hereunder shall be
governed by and construed in accordance with the laws of the Commonwealth of
Virginia, except to the extent federal law and the rules of regulations
promulgated thereunder by the SEC apply.
