Exhibit 4.2



 





Exhibit 4.2




GATEWAY FINANCIAL HOLDINGS, INC.

1999 BOR STOCK OPTION PLAN

(formerly THE BANK OF RICHMOND, N.A. STOCK OPTION PLAN)




     THIS IS A STOCK OPTION PLAN of Gateway Financial Holdings, Inc., a North Carolina corporation
with its principal office in Virginia Beach, Virginia, assumed as a result of the merger of the
Company’s principal subsidiary, Gateway Bank & Trust Co., with The Bank of Richmond, N.A., under
which options may be granted from time to time to eligible Directors and Employees to purchase
Stock, subject to the provisions set forth below.



ARTICLE I

Establishment, Purpose, and Duration




     1.1 Establishment of the Plan. The Plan was adopted by the Board of Directors of The
Bank of Richmond, N.A. as of June 2, 1999 (the “Effective Date”). Unless otherwise defined herein,
all capitalized terms shall have the meanings set forth in Section 2.1 herein.



     1.2 Purpose of the Plan.  The purpose of the Plan is to promote the success of the
Company and its Subsidiaries by providing incentives to Employees and Directors that will promote
the identification of their personal interest with the long-term financial success of the Company
and with growth in shareholder value. The Plan is designed to provide flexibility to the Company,
including its Subsidiaries, in its ability to motivate, attract, and retain the services of
Employees and Directors upon whose judgment, interest, and special effort the successful conduct of
its operation is largely dependent.



     1.3 Duration of the Plan. The Plan shall commence on the Effective Date, as described
in Section 1.1 herein, and shall remain in effect, subject to the right of the Board of Directors
of the Company to terminate the Plan at any time pursuant to Article X herein, until June 1, 2009
(the “Term”), at which time it shall terminate except with respect to Awards made prior to, and
outstanding on, that date which shall remain valid in accordance with their terms.



ARTICLE II

Definitions




     2.1 Definitions. Except as otherwise defined in the Plan, the following terms shall
have the meanings set forth below:



     (a) “Agreement” means a written agreement implementing the grant of each Award signed by an
authorized officer of the Company and by the Participant.



     (b) “Award” means, individually or collectively, a grant under this Plan of
Options.



     (c) “Award Date” or “Grant Date” means the date on which the grant of an Award is made under
this plan.



     (d) “Board” or “Board of Directors” means the Board of Directors of the Company, unless
otherwise indicated.



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     (e) “Change in Control” means the occurrence, after the Effective Date, of either an
“Acquisition of Controlling Ownership” (as defined in clause (i) below), a “Change in the Incumbent
Board” (as defined in clause (ii) below a “Business Combination” (as defined in clause (iii)
below), or a “Liquidation or Dissolution” (as defined in clause (iv) below).



          (i) “Acquisition of Controlling Ownership” means the acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or I4(d)(2) of the Exchange Act) (a “Person”) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25%
or more of either (x) the then outstanding shares of common stock of the Company (the “Outstanding
Common Stock”) or (y) the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the “Outstanding Voting
Securities”). Notwithstanding the foregoing, for purposes of this clause (i), the following
acquisitions shall not constitute a Change in Control:




               (A) any acquisition directly from the Company;



               (B) any acquisition by the Company;



               (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained
by the Company or any corporation controlled by the Company; or



               (D) any acquisition by any corporation pursuant to a transaction which complies with
paragraphs (A), (B) and (C) of clause (iii) of this Section 2.1(e).



          (ii) “Change in the Incumbent Board” means that individuals who, as of the Effective Date,
constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority
of the Board. For this purpose, any individual who becomes a director subsequent to the Effective
Date whose election, or nomination for election by the Company’s shareholders, was approved by a
vote of at least a majority of the directors then comprising the Incumbent Board shall be thereupon
considered a member of the Incumbent Board (with his or her predecessor thereafter ceasing to be a
member), but excluding, for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board.




          (iii) “Business Combination” means the consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the assets of the Company
(a “Business Combination”) unless all of the following occur:




               (A) all or substantially all of the individuals and entities who were the beneficial owners
respectively, of the Outstanding Common Stock and Outstanding Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including, without limitation,
a corporation which as a result of such transaction owns the Company or all or substantially all of
the Company’s assets either directly or through one or more subsidiaries, in substantially the same
proportions as their ownership, immediately prior to such Business Combination of the Outstanding
Common Stock and Outstanding Voting Securities, as the case may be,



               (B) no Person (excluding any corporation resulting from such Business Combination or any
employee benefit plan (or related trust) of the Company or such corporation resulting from such
Business



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Combination) beneficially owns, directly or indirectly, 25% or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from such Business Combination, or
the combined voting power of the then outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business Combination, and



               (C) at least a majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board or were elected by such majority
at the time of the execution of the initial agreement, or of the action of the Board, providing for
such Business Combination.



          (iv) “Liquidation or Dissolution” means the approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.




     (f) “Code” means the Internal Revenue Code of 1986, as amended from time to time.



     (g) “Committee” means the Compensation Committee of the Board.



     (h) “Company” means Gateway Financial Holdings, Inc., or any successor thereto as provided in
Article XII herein.



     (i) “Employee” means a common law employee of the Company or its Subsidiaries.



     (j) “Exchange Act” means the Securities Exchange Act of 1934, as amended.



     (k) “Fair Market Value” of a Share means the closing sales price of the Stock on the relevant
date if it is a trading date, or if not, on the most recent date on which the Stock was traded
prior to such date, as reported by NASDAQ Global Market System, or if, in the opinion of the
Committee, this method is inapplicable or inappropriate for any reason, the fair market value as
determined pursuant to a reasonable method adopted by the Committee in good faith for such purpose.



     (l) “Incentive Stock Option” or “ISO” means an option to purchase Stock, granted under
Article VI, which is designated as an such and is intended to meet the requirements of Section 422
of the Code.



     (m) “Director” means a member of the Board.



     (n) “Non-Employee Director” means an individual who is a member of the Board of the Company
or a Subsidiary who is not an Employee.



     (o) “Non-Qualified Stock Option” or “NQSO” means an option to purchase Stock, granted under
Article VI, which is not intended to be an Incentive Stock Option.



     (q) “Option” means an Incentive Stock Option or a Non-Qualified Stock Option.



     (r) “Participant” means an Employee or Non-Employee Director who is granted an Award under
the Plan.



     (s) “Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange
Act and used in Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d).



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     (t) “Plan” means this stock option plan, as hereafter from time to time amended.



     (u) “Stock” or “Shares” means the common stock of the Company.



     (v) “Subsidiary” shall mean a corporation at least 50% of the total combined voting power of
all classes of stock of which is owned by the Company, either directly or through one or more of
its Subsidiaries.



ARTICLE III

Administration




     3.1 The Committee. The Plan shall be administered by the Committee which shall have
all powers necessary or desirable for such administration. The express grant in this Plan of any
specific power to the Committee shall not be construed as limiting any power or authority of the
Committee. In addition to any other powers and, subject to the provisions of the Plan, the
Committee shall have the following specific powers: (i) to determine the terms and conditions upon
which the Awards may be made and exercised; (ii) to determine all terms and provisions of each
Agreement, which need not be identical; (iii) to construe and interpret the Agreements and the
Plan; (iv) to establish, amend or waive rules or regulations for the Plan’s administration; (v) to
accelerate the exercisability of any Award; and (vi) to make all other determinations and take all
other actions necessary or advisable for the administration of the Plan.



     3.2 Delegation of Certain Duties. The Committee may in its sole discretion delegate
all or part of its duties and obligations to designated officer(s) to administer the Plan with
respect to Awards to Employees who are not subject to Section 16 of Exchange Act.



     3.3 Selection of Participants. The Committee shall have the authority to grant
Awards under the Plan, from time to time, to such Employees and Directors as may be selected by
it. Each Award shall be evidenced by an Agreement.



     3.4 Decisions Binding. All determinations and decisions made by the Committee
pursuant to the provisions of the Plan shall be final, conclusive and binding.



     3.5 Rule 16b-3 Requirements. Notwithstanding any other provision of the Plan, the
Board or the Committee may impose such conditions on any Award, and amend the Plan in any such
respects, as may be required to satisfy the requirements of Rule 16b-3, as amended (or any
successor or similar rule), under the Exchange Act. Any provision of the Plan to the contrary
notwithstanding, and except to the extent that the Committee determines otherwise: (i)
transactions by and with respect to officers and directors of the Company who are subject to
Section 16(b) of the Exchange Act (hereafter, “Section 16 Persons”) shall comply with any
applicable conditions of SEC Rule 16b-3 and (ii) every provision of the Plan shall be
administered, interpreted and construed to carry out the foregoing provisions of this sentence and
any provision that cannot be so administered, interpreted and construed shall to that extent be
disregarded.



     3.6 Indemnification. In addition to such other rights of indemnification as they may
have as directors or as members of the Committee and the members of the Committee or their
delegate shall be indemnified by the Company against reasonable expenses, including attorneys’
fees, actually and reasonably incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with the Plan or any Award
granted or made hereunder, and against all amounts reasonably paid by them in settlement thereof
or paid by them in



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satisfaction of a judgment in any such action, suit or proceeding, if such members acted in
good faith and in a manner which they believed to be in, and not opposed to, the best interests of
the Company and its Subsidiaries.



ARTICLE IV

Stock Subject to the Plan




     4.1 Number of Shares. Subject to adjustment as provided in Section 4.3 herein, the
maximum aggregate number of Shares that may be issued pursuant to Awards made under the Plan shall
not exceed 672,378. Except as provided in Sections 4.2 and 4.3 herein, the issuance of Shares in
connection with the exercise of, or as other payment for Awards, under the Plan shall reduce the
number of Shares available for future Awards under the Plan.



     4.2 Lapsed Awards or Forfeited Shares. If any Award granted under this Plan
terminates, expires, or lapses for any reason other than by virtue of exercise of the Award, any
Stock subject to such Award again shall be available for the grant of an Award under the Plan.



     4.3 Delivery of Shares as Payment. In the event a Participant pays the Option Price
for Shares pursuant to the exercise of an Option with previously acquired Shares, the number of
Shares available for future Awards under the Plan shall be reduced only by the net number of new
Shares issued upon the exercise of the Option.



     4.4 Capital Adjustments. The number and class of Shares subject to each
outstanding Award, the Option Price (as hereinafter defined) and the aggregate number and class of
Shares for which Awards thereafter may be made shall be subject to such adjustment; if any, as the
Committee in its sole discretion deems appropriate to reflect such events as stock dividends,
stock splits, recapitalizations, mergers, consolidations or reorganizations of or by the Company.



ARTICLE V

Eligibility




     Persons eligible to participate in the Plan include all Employees and Directors who are
selected for participation by the Committee.



ARTICLE VI

Option Grants




     6.1 Grant of Options. Subject to the terms and provisions of the Plan, Options may be
granted at any time and from time to time as shall be determined by the Committee. The Committee
shall have complete discretion in determining the number of Shares subject to Options granted to
each Participant, provided, however, that (i) no Employee may be granted Options in any calendar
year for more than 54,000 Shares and (ii) that the aggregate Fair Market Value (determined at the
time the Award is made) of Shares with respect to which any Participant may first exercise ISOs
granted under the Plan during any calendar year may not exceed $100,000 or such amount as shall be
specified in Section 422 of the Code and rules and regulation thereunder (determined with regard to
Options designated as ISOs which may be granted pursuant to Article VII hereof).



     6.2 Option Agreement. Each Option grant to an Employee shall be evidenced by an
Agreement that shall specify the type of Option granted, the Option Price, the duration of the
Option, the number of Shares to which



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the Option pertains, any conditions imposed upon the exercisability of Options in the event of
retirement, death, disability or other termination of employment, and such other provisions as the
Committee shall determine. Unless otherwise provided in the Agreement pursuant to which they are
received, one-third (1/3rd) of the Shares in each Option grant shall become exercisable on the
first, second and third anniversaries of their Grant Date, provided however that, unless otherwise
provided in the Agreement pursuant to which they are received, an Option shall be immediately
exercisable upon a Change in Control. The Agreement shall specify whether the Option is intended to
be an Incentive Stock Option within the meaning of Section 422 of the Code, or Non-Qualified Stock
Option not intended to be within the provisions of Section 422 of the Code.



     6.3 Option Price. The exercise price per share of Stock (“Option Price”) covered by
an Option granted to an Employee shall be determined by the Committee subject to the following
limitations. The Option Price shall not be less than 100% of the Fair Market Value of such Stock on
the Grant Date. In addition, an ISO granted to a Participant who, at the time of grant, owns
(within the meaning of Section 425(d) of the Code) Stock possessing more than 10% of the total
combined voting power of all classes of Stock of the Company, shall have an Option Price which is
at least equal to 110% of the Fair Market Value of the Stock.



     6.4 Duration of Options. Each Option shall expire at such time as the Committee shall
determine at the time of grant provided, however, that no Option shall be exercisable later than
the tenth (10th) anniversary date of its Award Date. In addition, no ISO granted to an Employee
who, at the time of grant, owns (within the meaning of Section 425(d) of the Code) Stock possessing
more than 10% of the total combined voting power of all classes of Stock of the Company, shall be
exercisable later than the fifth (5th) anniversary date of its Award Date.



     6.5 Exercisability. Options under the Plan shall be exercisable at such times and be
subject to such restrictions and conditions as the Committee shall determine, which need not be the
same for all Participants.



     6.6 Method of Exercise. Options shall be exercised by the delivery of a written
notice to the Company in the form prescribed by the Committee setting forth the number of Shares
with respect to which the Option is to be exercised, accompanied by full payment for the Shares
which shall be deemed to include any arrangements approved by the Committee for the delivery to the
Company of the proceeds of a sale or margin loan in the case of a “cashless” exercise. The Option
Price shall be payable to the Company in full either in cash (including, where approved by the
Committee, the proceeds of a cashless exercise in the Committee’s discretion), by delivery of
Shares of Stock valued at Fair Market Value at the time of exercise (in the Committee’s
discretion), delivery of a promissory note (in the Committee’s discretion) or by a combination of
the foregoing. As soon as practicable after receipt of written notice and payment, the Company
shall deliver to the Participant, stock certificates in an appropriate amount based upon the number
of Options exercised, issued in the Participant’s name. No Participant who is awarded Options shall
have rights as a shareholder until the date of exercise of the Options.



     6.7 Restrictions on Stock Transferability. The Committee may impose such restrictions
on any Shares acquired pursuant to the exercise of an Option granted under the Plan as it may deem
advisable, including, without limitation, restrictions under the applicable Federal securities law,
under the requirements of the National Association of Securities Dealers, Inc. or any stock
exchange upon which such Shares are then listed and under any blue sky or state securities laws
applicable to such Shares.



     6.8 Nontransferability of Options. Except as specifically provided in an Agreement
pursuant to 6.9 below, no Option granted under the Plan may be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent
and distribution, and all Options granted under the Plan shall be exercisable during his lifetime
only by such Participant or his guardian or legal representative.



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ARTICLE VII

Exercise Rules




     An Option may be exercised with respect to any number of whole shares less than the full
number for which the Option could be exercised. A partial exercise of an Option shall not affect
the right to exercise the Option from time to time in accordance with this Plan and the applicable
Agreement with respect to the shares remaining subject to the Option.



ARTICLE VIII

Change in Control




     In the event of a Change in Control of the Company, the Committee, as constituted before such
Change in Control, in its sole discretion may, as to any outstanding Award, either at the time the
Award is made or any time thereafter, take any one or more of the following actions: (i) provide
for the acceleration of any time periods relating to the exercise or realization of any such Award
so that such Award may be exercised or realized in full on or before a date initially fixed by the
Committee (assuming the Agreement with respect to the Award does not already provide for such
acceleration); (ii) provide for the purchase or settlement of any such Award by the Company, upon a
Participant’s request, for an amount of cash equal to the amount which could have been obtained
upon the exercise of such Award or realization of such Participant’s rights had such Award been
currently exercisable or payable; (iii) make such adjustment to any such Award then outstanding as
the Committee deems appropriate to reflect such Change in Control; or (iv) cause any such Award
then outstanding to be assumed, or new rights substituted therefor, by the acquiring or surviving
corporation in such Change in Control.



ARTICLE IX

Modification, Extension and Renewals of Awards




     Subject to the terms and conditions and within the limitations of the Plan, the Committee may
modify, extend or renew outstanding Awards, or, if authorized by the Board, accept the surrender of
outstanding Awards (to the extent not yet exercised) granted under the Plan and authorize the
granting of new Awards pursuant to the Plan in substitution therefor, and the substituted Awards
may specify a lower exercise price than the surrendered Awards, a longer term than the surrendered
Awards or may contain any other provisions that are authorized by the Plan. The Committee may also
modify the terms of any outstanding Agreement. Notwithstanding the foregoing, however, no
modification of an Award, shall, without the consent of the Participant, adversely affect the
rights or obligations of the Participant.



ARTICLE X

Amendment, Modification and Termination of the Plan




     10.1 Amendment, Modification and Termination. At any time and from time to time, the
Board may terminate, amend, or modify the Plan. Such amendment or modification may be without
shareholder approval except to the extent that such approval is required by the Code, pursuant to
the rules under Section 16 of the Exchange Act, by any national securities exchange or system on
which the Stock is then listed or reported, by any regulatory body having jurisdiction with respect
thereto or under any other applicable laws, rules or regulations.



     10.2 Awards Previously Granted. No termination, amendment or modification of the Plan
other than pursuant to Section 4.4 herein shall in any manner adversely affect any Award
theretofore granted under the Plan, without the written consent of the Participant.



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ARTICL IX

Withholding




     11.1 Tax Withholding. The Company shall have the power and the right to deduct or
withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy
Federal, State and local taxes (including the Participant’s FICA or other employment tax
obligation) required by law to be withheld with respect to any grant, exercise, or payment made
under or as a result of this Plan.



     11.2 Stock Withholding. With respect to withholding required upon the exercise of
Non-Qualified Stock Options or upon the occurrence of any other similar taxable event, Participants
may elect, subject to the approval of the Committee, to satisfy the withholding requirement, in
whole or in part, by having the Company withhold Shares of Stock having a Fair Market Value equal
to the amount required to be withheld. The value of the Shares to be withheld shall be based on
Fair Market Value of the Shares on the date that the amount of tax to be withheld is to be
determined. All elections shall be irrevocable and be made in writing, signed by the Participant on
forms approved by the Committee in advance of the day that the transaction becomes taxable.



ARTICLE XII

Successors




     All obligations of the Company under the Plan, with respect to Awards granted hereunder, shall
be binding on any successor to the Company, whether the existence of such successor is the result
of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all
of the business and/or assets of the Company.



ARTICLE XIII

General




     13.1 Requirements of Law. The granting of Awards and the issuance of Shares of Stock
under this Plan shall be subject to all applicable laws, rules, and regulations, and to such
approvals by any governmental agencies as may be required.



     13.2 Effect of Plan. The establishment of the Plan shall not confer upon any Employee
any legal or equitable right against the Company, a Subsidiary or the Committee, except as
expressly provided in the Plan. The grant of an Agreement shall not confer on such Participant any
right to employment with the Company, or to a position as a Director, officer or Employee of the
Company, nor shall it limit the right of the Company to remove such Participant from any position
held by the Participant or to terminate the Participant’s employment at any time. Participation in
the Plan shall not give any Employee any right to be retained in the service of the Company or any
of its Subsidiaries.



     13.3 Creditors. The interests of any Participant under the Plan or any Agreement are
not subject to the claims of creditors and may not, in any way, be assigned, alienated or
encumbered.



     13.4 Governing Law. The Plan, and all Agreements hereunder, shall be governed,
construed and administered in accordance with and governed by the laws of the Commonwealth of
Virginia and the intention of



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the Company is that ISOs granted under the Plan qualify as such under
Section 422 of the Code.



     13.5 Severability. In the event any provision of the Plan shall be held illegal or
invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the
Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not
been included.



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