<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 21, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NET.B@NK, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
GEORGIA 6712 58-2224352
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification No.)
incorporation or
organization)
</TABLE>
7000 PEACHTREE DUNWOODY ROAD
BUILDING 10, SUITE 300
ATLANTA, GEORGIA 30328
(770) 392-4990
------------------------
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
DONALD S. SHAPLEIGH, JR.
7000 PEACHTREE DUNWOODY ROAD
BUILDING 10, SUITE 300
ATLANTA, GEORGIA 30328
(770) 392-4990
------------------------
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<S> <C>
WALTER G. MOELING, IV, ESQ. ALAN J. PRINCE, ESQ.
POWELL, GOLDSTEIN, FRAZER & MURPHY LLP KING & SPALDING
191 Peachtree Street, N.E. 191 Peachtree Street, N.E.
Atlanta, Georgia 30303 Atlanta, Georgia 30303
(404) 572-6600 (404) 572-4600
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
CALCULATION OF REGISTRATION FEE:
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
<S> <C> <C> <C> <C>
3,450,000
Common Stock, $.01 par value Shares $12.00 $41,400,000 $12,546
</TABLE>
(1) Includes 450,000 shares that may be purchased pursuant to the over-allotment
option granted to the Underwriters.
(2) Estimated solely for the purpose of determining the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
NET.B@NK, INC.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM NUMBER AND HEADING CAPTION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart Front of the Registration Statement and
Outside Front Cover Page of Prospectus............. Cover Page; Cross-Reference Sheet; Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front Cover Page of Prospectus; Outside Back
Cover Page of Prospectus
3. Summary Information and Risk Factors Summary; Risk
Factors............................................ Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Underwriting
6. Dilution............................................. Dilution
7. Selling Security Holders............................. Cover Page of Prospectus; Principal Shareholders
8. Plan of Distribution................................. Underwriting
9. Description of the Securities........................ Description of Capital Stock
10. Interests of Named Experts and Counsel............... Legal Matters; Experts
11. Information with Respect to the Registrant........... Prospectus Summary; Risk Factors; Dividend Policy;
Capitalization; Selected Financial Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Certain Transactions; Principal
Shareholders; Underwriting; Financial Statements
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities..................... Part II of the Registration Statement
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
<PAGE>
SUBJECT TO COMPLETION
, 1997
3,000,000 SHARES
NET.B@NK, INC.
[LOGO]
COMMON STOCK
All of the 3,000,000 shares of Common Stock, $.01 par value ("Common
Stock"), offered hereby (the "Offering") are being sold by Net.B@nk, Inc., a
Georgia corporation (the "Company"). Prior to this Offering, there has been no
public market for the Common Stock. The initial public offering price is
estimated to be between $10.00 and $12.00 per share. See "Underwriting" for
information relating to factors to be considered in determining the initial
public offering price.
The Company has applied to list the Common Stock on the Nasdaq National
Market under the symbol "NTBK."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. THESE SECURITIES ARE NOT INSURED BY THE FDIC
OR ANY OTHER GOVERNMENTAL AGENCY.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Share.................. $ $ $
Total(3)................... $ $ $
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $500,000.
(3) The Company and the Selling Shareholder named herein (the "Selling
Shareholder") have granted to the several Underwriters an option for 30 days
to purchase up to an additional 300,000 and 150,000 shares of Common Stock,
respectively, at the Price to Public, less Underwriting Discount, solely to
cover over-allotments, if any. If such option is exercised in full, the
Price to Public, Underwriting Discount, Proceeds to Company and Proceeds to
Selling Shareholder will be $ , $ , $ and
$ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, and subject to
certain other conditions. The Underwriters reserve the right to withdraw, cancel
or modify such offer and to reject orders in whole or in part. It is expected
that delivery of the shares of Common Stock will be made on or about
, 1997.
------------------------
MORGAN KEEGAN & COMPANY, INC. INTERSTATE/JOHNSON LANE
<PAGE>
Corporation
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
[FLOW CHART APPEARS HERE DESCRIBING THE VARIOUS METHODS BY WHICH CUSTOMERS
INTERFACE WITH THE BANK]
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET, IN THE OVER- THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
2
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO)
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED HEREIN, THE
INFORMATION CONTAINED IN THIS PROSPECTUS: (I) GIVES EFFECT TO THE 33.125-FOR-ONE
STOCK SPLIT AS A STOCK DIVIDEND PRIOR TO THE EFFECTIVE DATE OF THE OFFERING;
(II) ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED;
(III) ASSUMES THE CONSUMMATION OF THE COMPANY'S PURCHASE OF ALL OF THE
OUTSTANDING CAPITAL STOCK OF PREMIER BANK, FSB FROM PREMIER BANCSHARES, INC.;
AND (IV) ASSUMES THE CONSUMMATION OF THE TRANSFER OF THE ASSETS AND LIABILITIES
RELATING TO THE OPERATION OF THE ATLANTA INTERNET BANK FROM CAROLINA FIRST BANK
TO THE COMPANY'S NEWLY ACQUIRED FEDERAL SAVINGS BANK SUBSIDIARY. THE
TRANSACTIONS DESCRIBED IN CLAUSES (III) AND (IV) (THE "REORGANIZATION") AND THE
OFFERING WILL BE CONSUMMATED SIMULTANEOUSLY. SEE "THE REORGANIZATION."
THE COMPANY
Net.B@nk, Inc. (the "Company") owns and operates the Atlanta Internet Bank
(the "Bank"), an FDIC-insured federal savings bank that provides convenient,
cost-effective and secure banking services to the growing number of consumers
utilizing the Internet for commercial and financial services. Customers can
access the Bank on a seven-day-a-week, 24-hour-a-day ("7x24") basis from any
personal computer ("PC"), wherever located, by means of a secure Web browser or
by ATM, telephone or U.S. mail. The Company has assembled a management team with
experience in both banking and technology to implement its strategy to become a
leading provider of financial services through the Internet. The Bank commenced
operations in October 1996. As of March 18, 1997, the Bank had approximately
1,750 accounts and approximately $42.0 million in deposits.
The Company's objective is to offer a broad range of banking and financial
service products through the Internet and alternative delivery channels.
Customer convenience and operating efficiency are two key components of the
Company's strategy. The Bank does not incur the cost of supporting a branch
system, which management believes will benefit customers through the Bank's
ability to offer attractive deposit rates. Management believes the Bank's lower
overhead, customer convenience and ability to provide a broad choice of products
and services cost-effectively through alternative delivery systems give the Bank
a competitive advantage over traditional banks and banks offering PC-based home
banking.
In the initial phase of the Company's operations, management concentrated
its efforts on developing, testing and implementing an Internet banking
platform. Once the platform structure was in place, management established
deposit-oriented products that include electronic bill paying, interest checking
and money market accounts and certificates of deposit. During 1997, management
intends to offer a broad array of consumer loan products, such as personal
credit lines, mortgages, home equity and secured loans, credit cards and other
fee generating products. Management also plans to continue to pursue other
revenue generating opportunities through partnerships and strategic alliances
where appropriate.
Management intends to implement the following strategies in order to become
a leading provider of financial services through the Internet:
- LEVERAGE LOW COST STRUCTURE. The absence of a branch system and the
Company's low cost per transaction enable it to offer attractive deposit
rates without significantly impacting profitability.
- OUTSOURCE OPERATIONAL FUNCTIONS. The Company has entered into agreements
with companies that provide a variety of specialized services and
technologies to the Bank. In each of these relationships, the Bank
benefits from the service provider's expertise and economies of scale
while retaining the flexibility to take advantage of changes in available
technology without impacting customer service.
- PROVIDE CONVENIENT, REAL-TIME TRANSACTIONS. Management believes the Bank
provides its customers with a higher level of convenience than can be
achieved in a traditional branch or through PC-based home banking. The
Internet allows Bank customers to conduct banking activities on a
real-time
3
<PAGE>
7x24 basis from any PC, wherever located, using a secure Web browser. This
technology gives Internet banking an advantage over PC-based home banking,
which utilizes PC-based software, requires repeated downloading and backup
and limits the user to a specific PC.
- EMPLOY ADVANCED SECURITY. The Bank uses sophisticated technology to
provide what management believes to be among the most advanced security
measures currently available in the electronic banking industry. All
banking transactions are encrypted and routed from the Internet server
through a "firewall" that limits access to the Bank server. The Bank's
systems automatically detect attempts by third parties to access other
users' accounts and feature a high degree of physical security, secure
modem access, service continuity and transaction monitoring.
- OFFER A BROAD ARRAY OF PRODUCTS AND SERVICES. Management intends to
attract customers to the Bank by offering a variety of traditional
consumer loan and deposit products. Management intends to expand the
Bank's product and service offerings to include asset management with
money market sweeps, direct purchase capability with selected Internet
"mall" venues and reloadable cash cards.
- DEPLOY MULTI-FACETED MARKETING STRATEGY. The Company's target market
includes on-line users, on-line shoppers and special niche customers. In
addition to the Bank's on-line advertising relationships with AT&T Corp.'s
WorldNet Service and Digital Cities, Inc., a subsidiary of America Online
Incorporated ("Digital Cities/AOL"), several other marketing initiatives
are being employed. These initiatives include an emphasis on marketing the
Bank's products and services through alliances with selected professional
organizations, colleges, alumni associations and consumer service
providers and on targeted print advertising.
- CROSS-SELL FINANCIAL SERVICES. Management intends to market loans,
brokerage services and other income generating products to its depositors
through various direct marketing techniques, such as bank e-mail, on-line
advertising and telemarketing. Management believes that this strategy will
enable the Bank to generate additional earning assets and fee income.
Management further believes that selling multiple products will enhance
customer loyalty and strengthen customer relationships with the Bank.
The Internet is a global web of computer networks. Use of the Internet and
the World Wide Web (the "Web") has grown rapidly during the 1990s and is
expected to continue to grow. In addition, an industry survey revealed that in
the U.S., nearly two-thirds of Web users have a college education, over 50% of
Web users are 35 years of age or younger and 25% of Web users' households have
annual incomes of over $80,000.
Electronic banking encompasses both Internet banking, which can be conducted
on a real-time basis from any PC, wherever located, using a secure Web browser,
and PC-based home banking, which utilizes PC-based software. According to an
August 1996 report by Forrester Research, Inc., the number of electronic banking
households is expected to grow from 1.1 million in 1996 to 9.7 million in 2001.
The report further indicates that the percentage of such households utilizing
Internet banking is projected to rise to over 75% in 2001. Management believes
this growth, combined with the demographic characteristics of Internet users and
the relative flexibility and convenience of Internet banking, represents a
market opportunity for the Company because it is one of the world's first
providers of Internet banking services.
The Company was incorporated as a Georgia corporation on February 20, 1996.
The Bank commenced operations in October 1996 as a service of Carolina First
Bank ("CFB"), a Greenville, South Carolina-based bank. The Bank has operated
under the trade name "Atlanta Internet Bank" pending regulatory approval of the
Company's purchase of the outstanding stock of Premier Bank, FSB ("Premier
Bank") from Premier Bancshares, Inc. ("Premier") and the transfer of the assets
and liabilities relating to the operation of the Bank from CFB to the Company's
newly acquired federal savings bank, Premier Bank, which will be renamed Atlanta
Internet Bank. See "The Reorganization."
4
<PAGE>
The principal executive offices of the Company and the Bank are located at
7000 Peachtree Dunwoody Road, Building 10, Suite 300, Atlanta, Georgia 30328,
and the telephone number is (770) 392-4990. The Bank can be reached on the Web
at www.atlantabank.com.
RISK FACTORS
An investment in the Company involves a high degree of risk. See "Risk
Factors" beginning on page 7.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 3,000,000 shares(1)
Common Stock to be outstanding after the
Offering................................... 5,645,562 shares(1)
Use of Proceeds.............................. To contribute capital to the Bank, fund a
portion of the purchase price for the
outstanding capital stock of Premier Bank,
reimburse certain organizational and
operational expenses, and use for working
capital and general corporate purposes.
Proposed Nasdaq National Market symbol....... NTBK
</TABLE>
- ------------------------
(1) Includes 1,366,406 shares to be issued in the Reorganization. Does not
include 354,438 shares subject to employee stock options, none of which are
presently exercisable.
5
<PAGE>
SUMMARY FINANCIAL DATA
The summary historical financial information presented below, except for the
summary pro forma financial information, is derived from the Company's audited
financial statements as of December 31, 1996 and for the period February 20,
1996 (date of incorporation) to December 31, 1996. The summary historical
financial information and summary pro forma financial information should be read
in conjunction with the Company's financial statements and condensed pro forma
balance sheet and condensed pro forma statement of operations and the related
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 20, 1996
(DATE OF INCORPORATION)
TO
DECEMBER 31, 1996
------------------------------
<S> <C> <C> <C>
PRO FORMA
FOR THE
ACTUAL REORGANIZATION(3)
------------ ----------------
STATEMENT OF OPERATIONS DATA:
Revenues(1).................................. $ 67,709 $ 67,709
Expenses(2).................................. 3,906,891 3,916,058
------------ ----------------
Net loss..................................... $ 3,839,182 $ 3,848,349
------------ ----------------
------------ ----------------
Net loss per common share.................... $ 1.47 $ 1.38
------------ ----------------
------------ ----------------
Weighted average common shares outstanding... 2,616,211 2,788,912
------------ ----------------
------------ ----------------
AS OF DECEMBER 31, 1996
----------------------------------------------
<CAPTION>
PRO FORMA
FOR THE
PRO FORMA REORGANIZATION
FOR THE AND THE
ACTUAL REORGANIZATION(3) OFFERING(4)
------------ ---------------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).................... $ (598,423) $ (748,423) $ 28,726,855
Total assets................................. 1,246,449 15,854,280 44,580,642
Long-term debt, less current portion......... -- -- --
Total shareholders' equity (deficit)......... (386,073) (261,073) 29,214,205
</TABLE>
- ------------------------
(1) Revenues primarily reflect management fees from an affiliate.
(2) Expenses include $2,400,000 of amortization relating to an agreement with
CFB.
(3) To give effect to the acquisition of the charter of Premier Bank and
consummation of the transfer of the assets and liabilities relating to the
operation of the Bank from CFB to the Bank.
(4) Adjusted to give effect to the sale of the Common Stock offered hereby by
the Company at an offering price of $11.00 per share and the application of
the net proceeds therefrom. See "Use of Proceeds." The unaudited pro forma
for the Reorganization and the Offering data includes one-time charges of
approximately $450,000 for bonuses expected to be paid to certain officers
and $265,000 for non-cash compensation related to accelerated vesting of
nonqualified options to purchase Common Stock upon consummation of the
Offering, and gives effect to the receipt of approximately $30.2 million of
net proceeds from the Offering including the payment of approximately
$750,000 in liabilities from such proceeds.
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMPANY INVOLVES A HIGH DEGREE OF RISK. PROSPECTIVE
PURCHASERS SHOULD GIVE CAREFUL CONSIDERATION TO THE SPECIFIC FACTORS SET FORTH
BELOW, AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, BEFORE
PURCHASING THE COMMON STOCK OFFERED HEREBY.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
LIMITED OPERATING HISTORY; OPERATING DEFICIT
The Company was incorporated in February 1996, and the Bank commenced
operations in October 1996. Accordingly, the Company has no history of
operations as a bank or thrift holding company and the Bank has only a limited
operating history upon which an evaluation of the Company and its prospects can
be based. The Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stages of development, particularly companies in the new and rapidly evolving
market for electronic banking. To address these risks, the Company must, among
other things, build its customer base, respond to competitive developments,
continue to attract, retain and motivate qualified employees, and continue to
upgrade its technologies, products and services. There can be no assurance that
the Company will be successful in addressing such risks. The Company has
incurred operating losses since inception and expects to incur operating losses
for the near future. There can be no assurance that the Company will achieve or
sustain profitability. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
NEW AND EVOLVING MARKET FOR INTERNET BANKING
The market for Internet banking services has only recently begun to develop,
is rapidly evolving and is characterized by an increasing number of market
entrants who have introduced or developed such services. As is typical in the
case of a new and rapidly evolving industry, demand and market acceptance for
Internet banking is subject to a high level of uncertainty. The industry is
young and has few proven competitors. Moreover, security and other critical
issues concerning the commercial use of the Internet (including security,
reliability, cost, ease of use and access and quality of service) remain
unresolved and may impact the growth of Internet use. While management believes
Internet banking offers significant advantages over traditional branch and
PC-based home banking, there can be no assurance that Internet banking will
become widespread.
In addition, market acceptance of Internet banking is substantially
dependent upon the adoption of the Internet for general commerce and financial
services transactions. The adoption of the Internet for these purposes,
particularly by those individuals and enterprises that have historically relied
upon traditional banking services, requires the acceptance of a new way of
conducting business and exchanging information. There can be no assurance that
PC users will adopt the Internet for electronic banking or commerce.
Because the market for Internet banking is new and evolving, it is difficult
to predict the future growth rate, if any, and size of this market. There can be
no assurance that the market for Internet banking will develop or that the
Bank's services will be accepted. If the market fails to develop, develops more
slowly than expected or becomes saturated with competitors, or if Internet
banking does not achieve market acceptance, the Company's business, operating
results and financial condition could be materially adversely affected. See
"Business--Industry Background" and "--Market Opportunity."
7
<PAGE>
ABILITY TO IMPLEMENT BUSINESS STRATEGY
The Company's business strategy is dependent upon its ability to offer
secure, convenient, cost-effective and comprehensive financial services on the
Internet. The growth and expansion of the Bank's business have placed, and are
expected to continue to place, significant demands on the Company's management,
operational and financial resources. Successful implementation of the Company's
business strategy requires continued growth of the Internet banking market and
will depend on the Company's ability to (i) increase significantly the number of
customers using the Bank for their financial service requirements; (ii)
implement an earning asset strategy; (iii) develop new strategic alliances for
products and services; (iv) implement and improve the Bank's operational,
financial and management information systems; and (v) hire and train additional
qualified personnel. There can be no assurance that the Company will be
successful in the implementation of its business strategy. See
"Business--Strategy."
DEPENDENCE UPON NEW PRODUCTS AND SERVICES
The Company's success will depend in part upon the Bank's ability to offer
new products and provide new financial services that meet changing customer
requirements. The Bank presently offers interest-bearing checking accounts,
money market accounts and certificates of deposit and provides ATM, direct
deposit, monthly statement, on-line transfer, wire transfer, bank e-mail and
electronic bill paying services. There can be no assurance that the Company can
successfully develop and bring new products and services to market in a timely
manner. Furthermore, PC-based home banking systems have been marketed in the
past by other banking companies and have not enjoyed widespread consumer demand.
Accordingly, there can be no assurance that there will be widespread consumer
acceptance of banking systems such as those offered by the Bank. See
"Business--Industry Background," "--Market Opportunity" and "-- Competition."
RISK OF SYSTEMS FAILURE; SECURITY RISKS
The computer systems and network infrastructure utilized by the Bank could
be vulnerable to unforeseen problems. The Bank's operations are dependent upon
its ability to protect its computer equipment against damage from fire, power
loss, telecommunications failure or a similar catastrophic event. Any damage or
failure that causes an interruption in the Bank's operations could have a
material adverse effect on the Company's business, operating results and
financial condition.
In addition, the Bank's operations are dependent upon its ability to protect
the computer systems and network infrastructure utilized by the Bank against
damage from physical break-ins, security breaches and other disruptive problems
caused by the Internet or other users. Such computer break-ins and other
disruptions would jeopardize the security of information stored in and
transmitted through such computer systems and network infrastructure, which may
result in significant liability to the Bank and deter potential customers.
Although management intends to continue to implement security technology and
establish operational procedures to prevent such damage, there can be no
assurance that these security measures will be successful. A failure of such
security measures could have a material adverse effect on the Company's
business, operating results and financial condition. See "Business--Security."
The Bank is also part of a developing and rapidly evolving market for
Internet and Web-based electronic banking. Market acceptance of Internet banking
is substantially dependent upon the adoption of the Internet for general
commerce and financial services transactions. If another provider of financial
services through the Internet were to suffer damage from a physical break-in,
security breach or other disruptive problem caused by the Internet or other
users, such event could harm the growth and acceptance among the public of the
Internet for financial services transactions. Such an event could deter
potential customers of the Bank or cause customers to leave the Bank and thereby
have a material adverse effect on the Company's business, operating results and
financial condition.
8
<PAGE>
CUSTOMER ATTRITION
The market for Internet banking is new and evolving. Therefore, management
is unable to predict whether customers will continue to use the Internet or the
Bank. In addition, the attractive rates offered by the Bank may attract
short-term depositors who close their accounts in pursuit of higher rates
elsewhere. Management expects that some customer attrition will occur within the
first few months after a new customer begins to use the Bank's services.
Management believes that customers who experience difficulty in accessing the
Bank or in conducting transactions early in their relationship with the Bank may
terminate the relationship. Customer attrition could have a material adverse
effect on the Company's business, operating results and financial condition.
RELIANCE ON THIRD PARTY SERVICE PROVIDERS
The Company receives essential technical, marketing and customer service
support from AT&T's Advanced Network Solutions Division through a bundled
product and service offering called "Personal Financial Services" pursuant to an
agreement between the Company and AT&T. The Bank also receives professional
programming services from Edify Corporation ("Edify") and electronic bill
payment processing services from CheckFree Corporation ("CheckFree") under this
agreement. Although the AT&T agreement expires in February 1998, it may be
terminated without cause by either party upon six months' prior written notice.
The Bank's systems processing is performed by BISYS under an agreement between
BISYS and the Company. The BISYS agreement expires in July 1999, subject to
automatic renewal for successive three-year periods absent six months' prior
written notice to the contrary by either party. If the Company were unable to
replace AT&T, Edify, CheckFree or, in particular, BISYS, with another service
provider prior to the effective termination of services under the applicable
agreement, the Company's operations would be interrupted. If such interruption
were to continue for a significant period of time, the Company's business,
operating results and financial condition could be materially adversely
affected. See "Business--Operations."
DEPENDENCE UPON KEY PERSONNEL; NEED TO HIRE ADDITIONAL QUALIFIED PERSONNEL
The Company's success will depend upon the continued service of its senior
management team, which consists of D. R. Grimes, Vice Chairman and Chief
Executive Officer of the Company and the Bank; Donald S. Shapleigh, Jr.,
President and Chief Operating Officer of the Company and the Bank; Robert E.
Bowers, Chief Financial Officer of the Company and the Bank; and Belinda L.
Morgan, Chief Operations Officer of the Company and the Bank. The Company's
success also will depend upon its ability to attract and retain additional
highly qualified technical personnel. The Bank's employees may voluntarily
terminate their employment at any time, and competition for qualified employees
is intense. The Company does not carry key person life insurance on any of its
executives. The loss of the services of key personnel, or the inability to
attract additional qualified personnel, could have a material adverse effect
upon the Company's business, operating results and financial condition. See
"Management."
CONTROL BY AFFILIATES
Following the sale of the Common Stock offered hereby, the directors and
executive officers of the Company will beneficially own 2,096,253 shares,
representing 36.2% of the outstanding Common Stock of the Company. As a result,
the directors and executive officers of the Company and their affiliates will be
able to exercise significant control over the management and the affairs of the
Company and will have the power to block certain business combinations. In
addition, CFB has the right to nominate four directors to the Company's Board of
Directors. Presently, the Board of Directors consists of three directors, but
will be increased to include 12 directors prior to the consummation of this
Offering. Carolina First Corporation ("Carolina First"), the bank holding
company of CFB, is deemed to control the Company for purposes of the Bank
Holding Company Act of 1956, as amended. See "Management."
9
<PAGE>
MANAGEMENT'S DISCRETION AS TO USE OF UNALLOCATED NET PROCEEDS
The Company has designated only limited specific uses for the net proceeds
from the sale of Common Stock described in this Prospectus. The Company expects
to use the net proceeds from the Offering as follows: (i) approximately
$25,000,000 as a contribution to capital for the Bank; (ii) $2,150,000 to fund a
portion of the purchase price for the outstanding capital stock of Premier Bank;
(iii) approximately $1,500,000 to reimburse CFB for expenses incurred in
operating the Bank prior to the Reorganization; (iv) approximately $500,000 to
reimburse TSJ&A for expenses incurred for management, consulting, regulatory and
accounting services, as well as office space and clerical support during the
Bank's organization and its ongoing operations prior to the Reorganization; and
(v) the remainder for working capital and other general corporate purposes.
Consequently, the Board of Directors and management of the Company will have
broad discretion in allocating a significant portion of the net proceeds of the
Offering. See "The Reorganization" and "Use of Proceeds."
ADDITIONAL CAPITAL NEEDS
Management anticipates that its existing capital resources, including the
net proceeds of the sale of the Common Stock offered hereby, will adequately
satisfy the foreseeable capital requirements of the Company and the Bank. Future
capital requirements, however, depend on many factors, including the Bank's
ability to successfully attract new customers and provide additional services.
To the extent that the funds generated by the Offering are insufficient to fund
future operating requirements, it may be necessary to raise additional funds
through public or private financings. Any equity or debt financings, if
available at all, may be on terms which are not favorable to the Company and, in
the case of equity financings, could result in dilution to the Company's
shareholders. If adequate capital is not available, the Bank will be subject to
an increased level of regulatory supervision and the Company's business,
operating results and financial condition could be adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Supervision and Regulation."
POTENTIAL EFFECTS OF CHANGES IN INTEREST RATES
The operations of the Bank are substantially dependent on its net interest
income, which is the difference between the interest income earned on its
interest-earning assets and the interest expense paid on its interest-bearing
liabilities. Like most depository institutions, the Bank's earnings are affected
by changes in market interest rates and other economic factors beyond its
control. If an institution's interest-earning assets have longer effective
maturities than its interest-bearing liabilities, the yield on the institution's
interest-earning assets generally will adjust more slowly than the cost of its
interest-bearing liabilities and, as a result, the institution's net interest
income generally would be adversely affected by material and prolonged increases
in interest rates and positively affected by comparable declines in interest
rates. In recent years, the assets of many financial institutions have been
negatively "gapped"--which means that the dollar amount of interest-bearing
liabilities which reprice within specific time periods, either through maturity
or rate adjustment, exceeds the dollar amount of interest-earning assets which
reprice within such time periods. As a result, the net interest income of these
savings institutions, including the Bank, would be expected to be negatively
impacted by increases in interest rates.
In addition to affecting interest income and expense, changes in interest
rates also can affect the value of the Bank's interest-earning assets, which are
comprised of fixed and adjustable-rate instruments, and the ability to realize
gains from the sale of such assets. Generally, the value of fixed-rate
instruments fluctuates inversely with changes in interest rates.
COMPETITION
The market for electronic banking has only recently begun to develop, is
rapidly evolving and has few proven competitors. Management expects that
competition will intensify in the future. Management
10
<PAGE>
believes that its ability to compete successfully depends upon a number of
factors, including market presence; customer service and satisfaction; the
capacity, reliability and security of its network infrastructure; ease of access
to and navigation of the Internet; the pricing policies of its competitors; the
timing of introductions of new products and services by the Company and its
competitors; and industry and general economic trends. In addition, the Bank
faces substantial competition for its loan and deposit products from traditional
financial institutions and will also face substantial competition for its
brokerage and asset management services from firms specializing in those
services. Many of these competitors are larger than the Bank and have greater
financial and other resources. These competitors include commercial banks,
savings and loan associations, credit unions, brokerage firms, mutual fund
companies and other financial services companies. See "Business--Competition."
GOVERNMENT REGULATION
The Company is subject to regulation by the Office of Thrift Supervision
("OTS") and the Georgia Department of Banking and Finance (the "Department of
Banking"), and the Bank will be regulated by the OTS and the Federal Deposit
Insurance Corporation (the "FDIC"). In conducting various aspects of its
business, the Bank is subject to various laws and regulations relating to
commercial transactions generally, such as the Uniform Commercial Code, and is
also subject to the electronic funds transfer rules embodied in Regulation E,
promulgated by the Federal Reserve Board. Given the expansion of the electronic
commerce market, it is possible that any of the foregoing agencies could revise
existing regulations or adopt new regulations governing or affecting the Bank's
ability to conduct its business via the Internet. Additionally, Congress has
held hearings on whether to regulate providers of services and transactions in
the electronic commerce market, and it is possible that Congress or individual
states could enact laws regulating Internet banking. If enacted, such laws,
rules and regulations could have a material adverse effect on the Company's
business, operating results and financial condition. See "Business-- Supervision
and Regulation."
DIVIDEND POLICY
The Company does not intend to pay cash dividends in the foreseeable future,
as any earnings are expected to be retained for use in developing and expanding
the Bank's business. See "Dividend Policy."
ANTITAKEOVER PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS
Certain provisions of the Company's Amended and Restated Articles of
Incorporation and Bylaws may be deemed to have the effect of making more
difficult an acquisition of control of the Company in a transaction not approved
by the Company's Board of Directors. These provisions include the ability of the
Board of Directors to issue shares of preferred stock in one or more series
without further authorization of the Company's shareholders, a supermajority
shareholder approval requirement for certain transactions and provisions
requiring a classified Board of Directors.
The Company's Amended and Restated Articles of Incorporation authorize the
issuance of "blank check" preferred stock with such designations, rights and
preferences as may be determined from time to time by its Board of Directors.
Accordingly, the Company's Board of Directors is empowered, without shareholder
approval, to issue preferred stock with dividend, liquidation, conversion,
voting or other rights which could adversely affect the voting power or other
rights of the holders of Common Stock. In the event of such issuance, the
preferred stock could also be utilized, under certain circumstances, as a method
of discouraging, delaying or preventing a change in control of the Company.
Although management has no current intention to issue any shares of preferred
stock, there can be no assurance that the Company will not do so in the future.
See "Description of Capital Stock."
The Amended and Restated Articles of Incorporation require the affirmative
vote of the holders of two-thirds of the voting stock to approve certain
mergers, share exchanges and dispositions of the assets of
11
<PAGE>
the Company unless at least two-thirds of the members of the Board of Directors
approve the proposed transaction. If such approval by the Board of Directors is
obtained, approval by the vote of a majority of the outstanding shares entitled
to vote is required. This provision may tend to discourage attempts by third
parties to acquire the Company in a hostile takeover effort. It may also permit
a minority of directors and shareholders to prevent a business combination
regardless of the terms of the proposed transaction.
The Amended and Restated Articles of Incorporation also provide that the
Board of Directors will be divided into three classes serving staggered
three-year terms and that a director may only be removed by the vote of
two-thirds of the outstanding shares entitled to vote in an election of
directors or by the vote of at least two-thirds of the directors then in office.
These provisions could enable a minority of the Company's shareholders to
prevent the removal of a director sought to be removed by a majority of the
shareholders and may tend to enhance management's ability to retain control over
the Company's affairs and to preserve the director's present position on the
Board.
NO PRIOR MARKET; VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no market for the Common Stock, and
there can be no assurance that an active market will develop or be sustained.
The trading price of the Common Stock could be subject to significant
fluctuations in response to quarterly variations in the Company's actual or
anticipated operating results, changes in general market conditions and other
factors. In recent years, significant price and volume fluctuations have
occurred in the stock prices of companies that often have been unrelated or
disproportionate to their operating performance. There can be no assurance that
the market price of the Common Stock will not decline below the initial public
offering price. The initial public offering price of the Common Stock will be
determined by negotiations among the Company and the Representatives of the
Underwriters. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this Offering, there will be 5,645,562 shares of
Common Stock outstanding. Of these shares, the 3,000,000 shares sold in this
Offering will be freely tradeable without restriction, except for any shares
purchased by an "affiliate" of the Company. The remaining 2,645,562 shares of
Common Stock are "restricted securities" as that term is defined in Rule 144
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
The Company and each of its directors, officers and existing shareholders have
agreed, for a period of days from the date of this Prospectus, not to sell or
otherwise dispose, directly or indirectly, of any shares of Common Stock,
without the prior consent of the Representatives. As a result, commencing
days after the completion of this Offering, the 1,249,343 restricted shares of
Common Stock will be eligible for sale in the public market pursuant to Rule
144. The remaining 1,396,219 restricted shares of Common Stock must be held for
one year before they may be resold pursuant to Rule 144, unless the resale of
such shares is made pursuant to an effective registration statement under the
Securities Act or another exemption from registration is available. Of these
shares, 1,325,000 are held by CFB, which has agreed, for a period of one year,
not to sell or otherwise dispose, directly or indirectly, of those shares
without the prior consent of the Representatives. The market price of the
Company's Common Stock could be materially adversely affected by the sale or
availability for sale of shares now held by the existing shareholders of the
Company or of shares which may be issued under the Company's 1996 Stock
Incentive Plan. See "Management," "Shares Eligible for Future Sale" and
"Underwriting."
DILUTION
Purchasers in this Offering will incur an immediate and substantial dilution
in the net tangible book value of the Common Stock from the initial public
offering price. Without taking into account any changes in net tangible book
value after December 31, 1996, other than to give effect to the sale by the
Company of 3,000,000 shares of Common Stock in this Offering, based upon the
initial public offering price of $11.00
12
<PAGE>
per share and after deducting the underwriting discounts and commissions and the
estimated offering expenses, the net tangible book value of the Company at
December 31, 1996 would have been approximately $28,939,205 million, or $5.15
per share. This represents an immediate increase in net tangible book value of
$5.35 per share to the existing shareholders and an immediate net tangible book
value dilution of $5.85 per share to purchasers in this Offering. See
"Dilution."
THE REORGANIZATION
The Company was incorporated as a Georgia corporation on February 20, 1996.
Its primary business purpose is the operation of the Bank as a wholly owned
federal savings bank subsidiary of the Company. The transactions described below
are collectively referred to as the "Reorganization." All of the transactions
comprising the Reorganization will be consummated contemporaneously with the
consummation of this Offering.
The Company entered into a Stock Purchase Agreement on June 17, 1996, which
was amended and restated as of December 19, 1996 and which was further amended
on February 25, 1997, with Premier pursuant to which the Company will purchase
all of the issued and outstanding stock of Premier Bank, a federal savings bank
and a wholly owned subsidiary of Premier. In exchange for the stock of Premier
Bank, Premier will receive from the Company $2,150,000, comprised of $2,000,000
of unimpaired capital and $150,000 purchase premium, and 41,406 shares of the
Company's Common Stock. The Company's purchase of the Premier Bank stock (the
"Stock Purchase") is subject to the approval of the OTS and the FDIC. The
Company and Premier have filed applications for approval of the Stock Purchase
with the OTS and the FDIC. Additionally, Premier has filed an application with
the Department of Banking for approval of a corporate reorganization that will
be effected in connection with the Stock Purchase. Although no assurances can be
given, management anticipates that the OTS, the FDIC and the Department of
Banking will grant the requisite approvals on or before April 30, 1997.
Pending receipt of the regulatory approvals described above, the Bank has
been operated as a service of CFB pursuant to the terms of an agreement dated
July 15, 1996, which was amended on December 6, 1996 and which was further
amended on March 18, 1997 (the "Operation Agreement") among the Company, CFB and
certain organizers and investors in the Company. The Operation Agreement
provides that CFB will operate the Bank as a service of CFB under the trade name
"Atlanta Internet Bank" and that the Company will manage the operations of the
Bank. Under the terms of the Operation Agreement, CFB will provide funding for
the reasonable expenses of operation of the Bank up to the amount of $1,325,985
or until July 31, 1997. As of March 19, 1997, CFB had funded $913,607 for the
operations of the Bank.
Upon receipt of the regulatory approvals described above and consummation of
the Stock Purchase, CFB will transfer the assets and liabilities relating to the
operation of the Bank to the Company's newly acquired federal savings bank
subsidiary, Atlanta Internet Bank, FSB (formerly Premier Bank, FSB). As
consideration for the transfer, the Company will pay $1.00 to CFB and will issue
to CFB 1,325,000 shares of Common Stock. Upon completion of the transfer of
assets and liabilities as contemplated by the Operation Agreement (the "CFB
Transfer"), CFB will pay to the Bank 100% of the total amount of deposits with
the Bank, less the sum of: (i) all cash items; (ii) net interest income based
upon the Bank's cost of deposits and the interest income allocated by CFB to the
Bank's operations, which is not expected to exceed a cost of $100,000; (iii)
unreimbursed reasonable expenses (including the funding advanced by CFB) to the
extent not reflected in (ii) above not expected to exceed $1,500,000; and (iv)
the net book value of loans issued by the Bank. CFB has the right to nominate
four directors of the Company.
The CFB Transfer is subject to approval by the Federal Reserve. CFB filed an
application for approval with the Federal Reserve on December 6, 1996.
13
<PAGE>
USE OF PROCEEDS
The net proceeds (assuming an offering price of $11.00 per share) from the
sale of 3,000,000 shares of Common Stock offered by the Company are estimated to
be $30,190,000 ($33,259,000 if the Underwriters' over-allotment option is
exercised in full) after deducting the underwriting discount and estimated
offering expenses payable by the Company. The Company plans to use the net
proceeds of the Offering as follows: (i) $25,000,000 as a contribution to
capital for the Bank; (ii) $2,150,000 to fund a portion of the purchase price
for the outstanding capital stock of Premier Bank; (iii) approximately
$1,500,000 to reimburse CFB for expenses incurred in operating the Bank prior to
the Reorganization; (iv) approximately $500,000 to reimburse TSJ&A for expenses
incurred for management, consulting, regulatory and accounting services, as well
as office space and clerical support during the Bank's organization, and its
ongoing operations prior to the Reorganization; and (v) the remainder for
working capital and other general corporate purposes. The capital contributed to
the Bank will constitute common equity capital of the Bank for regulatory
capital purposes and will be used for general corporate purposes. See "The
Reorganization" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
DIVIDEND POLICY
The Company currently intends to retain any future earnings to finance the
growth and development of its business and therefore does not anticipate paying
any cash dividends in the foreseeable future. In addition, OTS regulations
govern the dividends that may be paid by the Bank. See "Business--Supervision
and Regulation--Capital Distributions."
14
<PAGE>
DILUTION
As of December 31, 1996, the pro forma for the Reorganization consolidated
net tangible book value (total tangible assets less total liabilities) of the
Company was approximately $(536,073), or $(.20) per share of Common Stock. After
giving effect to the receipt of approximately $30.2 million of estimated net
proceeds from this Offering (net of estimated underwriting discounts and
offering expenses), the pro forma net tangible book value of the Common Stock
outstanding at December 31, 1996 would have been $5.15 per share, representing
an immediate increase in the net tangible book value of $5.35 per share to the
existing shareholders and an immediate dilution of $5.85 per share (the
difference between the assumed initial public offering price and the
consolidated net tangible book value per share after this Offering) to persons
purchasing Common Stock at the initial public offering price. The following
table illustrates such per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share(1).......... $ 11.00
---------
Pro forma for the Reorganization consolidated net tangible
book value per share before this Offering(2)............ $ (.20)
---------
Increase in consolidated net tangible book value per share
attributable to the sale of Common Stock in this
Offering................................................ $ 5.35
---------
Pro forma consolidated net tangible book value per share
after giving effect to the Reorganization and this
Offering.................................................. $ 5.15
---------
Dilution in pro forma consolidated net tangible book value
to the purchasers of Common Stock offered hereby(3)....... $ 5.85
---------
---------
</TABLE>
The foregoing computations do not include 354,438 shares of Common Stock
issuable upon exercise of outstanding stock options at an average exercise price
of $5.79 per share and subscriptions for 29,813 shares of Common Stock at a
purchase price of $.14 per share. Assuming the exercise of all such options and
stock subscriptions, the pro forma consolidated net tangible book value per
share before this Offering would be $.27, the pro forma consolidated net
tangible book value per share after this Offering would be $5.17, and the
dilution per share to new investors would be $5.83.
- ------------------------
(1) Before deduction of estimated underwriting discounts and expenses to be paid
by the Company.
(2) Pro forma for the Reorganization net tangible book value per share is
determined by dividing the net tangible book value of the Company after the
Reorganization by the number of shares of Common Stock outstanding after the
Reorganization.
(3) Dilution is determined by substracting the pro forma for the Reorganization
and Offering net tangible book value per share at December 31, 1996 from the
assumed initial public offering price paid by a new investor for a share of
Common Stock.
15
<PAGE>
The following table sets forth on a pro forma basis as of December 31, 1996,
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by the existing
shareholders (including persons receiving shares of Common Stock in the
Reorganization) and by the new investors purchasing shares of Common Stock in
this Offering (assuming an initial public offering price of $11.00 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------ ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(IN THOU- (IN THOU-
SANDS) SANDS)
Existing Shareholders....................................... 2,616 46.6 % $ 5,018 13.2 % $ 1.92
New Investors............................................... 3,000 53.4 33,000 86.8 11.00
----- ----- --------- -----
Total................................................. 5,616 100.0 % $ 38,018 100.0 %
----- ----- --------- -----
----- ----- --------- -----
</TABLE>
16
<PAGE>
CAPITALIZATION
The following table sets forth (i) the historical consolidated
capitalization of the Company as of December 31, 1996, (ii) the pro forma
capitalization of the Company as of December 31, 1996 after giving effect to the
issuance of 1,366,406 shares of Common Stock in the Reorganization, and (iii)
the pro forma capitalization of the Company as of December 31, 1996, as adjusted
to give effect to the sale by the Company of 3,000,000 shares of Common Stock in
the Offering and the application of the net proceeds therefrom as described in
"Use of Proceeds." This table should be read in conjunction with the Company's
financial statements and notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
---------------------------------------------
<S> <C> <C> <C>
PRO FORMA
FOR THE
PRO FORMA REORGANIZATION
HISTORICAL FOR AND THE
CONSOLIDATED REORGANIZATION OFFERING(1)
------------- -------------- --------------
Long-term debt, less current portion............................... $ -- $ -- $ --
------------- -------------- --------------
------------- -------------- --------------
Shareholders' Equity (Deficit):
Preferred Stock, no par value; 10,000,000 shares authorized; none
issued and outstanding........................................... -- -- --
Common Stock, $.01 par value; 100,000,000 shares authorized; issued
and outstanding 1,249,343, pro forma for the Reorganization
2,615,749, and pro forma for the Reorganization and the Offering
5,615,749........................................................ $ 12,493 $ 26,157 $ 56,157
Additional paid-in capital......................................... 1,069,088 5,020,424 35,180,424
Common stock subscribed (1,354,813 shares)......................... 3,844,185 4,185 4,185
Stock subscriptions receivable (29,813 shares)..................... (4,185) (4,185) (4,185)
Unamortized affiliate service contract expense..................... (1,440,000) -- --
Unamortized stock plan expense..................................... (28,472) (28,472) --
Deficit accumulated during the development stage................... (3,839,182) (5,288,349) (6,022,376)
Total shareholders' equity (deficit)......................... $ (386,073) $ (270,240) $ 29,214,205
------------- -------------- --------------
Total capitalization......................................... $ (386,073) $ (270,240) $ 29,214,205
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
- ------------------------
(1) The pro forma for the Reorganization and the Offering data includes one-time
charges of approximately $450,000 for bonuses expected to be paid to certain
officers and $265,000 for non-cash compensation related to accelerated
vesting of nonqualified options to purchase Common Stock upon consummation
of the Offering.
17
<PAGE>
SELECTED FINANCIAL DATA
The following selected historical financial information should be read in
conjunction with the Company's financial statements and condensed pro forma
balance sheet and statement of operations and the related notes thereto included
elsewhere in this Prospectus and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The selected financial statement
data set forth below as of December 31, 1996 and with respect to the period from
February 20, 1996 (date of incorporation) to December 31, 1996 is derived from
the audited financial statements of the Company included elsewhere in this
Prospectus. The pro forma statement of operations information for the period
February 20, 1996 to December 31, 1996 was derived from the audited historical
financial statements of the Company and adjusted to give effect to the
acquisition of the outstanding capital stock of Premier Bank. The pro forma
balance sheet information as of December 31, 1996 was derived from the audited
historical financial statements of the Company and the statement of audited
assets and liabilities generated by the Internet banking operations of the
Company and held and serviced by CFB, adjusted to give effect to the
Reorganization as of December 31, 1996 and further adjusted to give effect to
the Reorganization and the Offering as of December 31, 1996. The pro forma
information as of December 31, 1996 and for the period February 20, 1996 to
December 31, 1996 does not purport to represent what the Company's financial
position or results of operations would have been had the agreements been
consummated at earlier dates.
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 20, 1996
(DATE OF INCORPORATION)
TO
DECEMBER 31, 1996
------------------------------
<S> <C> <C> <C>
PRO FORMA
FOR THE
ACTUAL REORGANIZATION(3)
------------ ----------------
STATEMENT OF OPERATIONS DATA:
Revenues(1).................................. $ 67,709 $ 67,709
Expenses(2).................................. 3,906,891 3,916,058
------------ ----------------
Net loss..................................... $ 3,839,182 $ 3,848,349
------------ ----------------
------------ ----------------
Net loss per common share.................... $ 1.47 $ 1.38
------------ ----------------
------------ ----------------
Weighted average common shares outstanding... 2,616,211 2,788,912
------------ ----------------
------------ ----------------
</TABLE>
18
<PAGE>
<TABLE>
<S> <C> <C> <C>
AS OF DECEMBER 31, 1996
----------------------------------------------
<CAPTION>
PRO FORMA
FOR THE
PRO FORMA REORGANIZATION
FOR THE AND THE
ACTUAL REORGANIZATION(3) OFFERING(4)
------------ ---------------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).................... $ (598,423) $ (748,423) $ 28,726,855
Total assets................................. 1,246,449 15,854,280 44,580,642
Total shareholders' equity (deficit)......... (386,073) (261,073) 29,214,205
</TABLE>
- ------------------------
(1) Revenues primarily reflect management fees from an affiliate.
(2) Expenses include $2,400,000 of amortization relating to an agreement with
CFB and pro forma expenses include $9,167 of amortization related to
goodwill acquired with the acquisition of the outstanding capital stock of
Premier Bank.
(3) To give effect to the acquisition of the outstanding capital stock of
Premier Bank and consummation of the transfer of the assets and liabilities
relating to the operation of the Bank from CFB to the Bank.
(4) Adjusted to give effect to the sale of the Common Stock offered hereby by
the Company at an offering price of $11.00 per share and the application of
the net proceeds therefrom. See "Use of Proceeds." The unaudited pro forma
for Reorganization and the Offering data includes one-time charges of
approximately $450,000 for bonuses expected to be paid to certain officers
and $265,000 for non-cash compensation related to accelerated vesting of
nonqualified options to purchase Common Stock upon consummation of the
Offering, and gives effect to the receipt of approximately $30.2 million in
net proceeds from the Offering including the payment of approximately
$750,000 in liabilities from such proceeds.
19
<PAGE>
PRO FORMA CONDENSED BALANCE SHEET
The following condensed pro forma balance sheet gives effect to the
consummation of the agreement between the Company and CFB and the acquisition of
the outstanding capital stock of Premier Bank. The pro forma condensed balance
sheet should be read in conjunction with the Company's financial statements and
related notes thereto and the statement of assets and liabilities generated by
the Internet banking operations of the Company and held and serviced by CFB and
related note thereto.
The unaudited pro forma condensed balance sheet presented below does not
purport to represent what the Company's balance sheet would have been had the
agreement with CFB and the acquisition of Premier Bank been consummated at an
earlier date.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF
ASSETS AND
LIABILITIES PRO FORMA FOR
GENERATED BY PREMIER THE
COMPANY BANK(1) BANK ADJUSTMENTS REORGANIZATION
------------ ------------- ------------ ----------------------- --------------
Current assets............... $ 1,034,099 $ 10,366,437 $ 7,000,000 $ (3,033,606)(2)(3) $ 15,366,930
Total assets................. 1,246,449 10,366,437 7,000,000 (2,758,606)(2)(3)(4) 15,854,280
Current liabilities.......... 1,632,522 10,366,437 5,000,000 (883,606)(2) 16,115,353
Shareholders' equity
(deficit).................. (386,073) 2,000,000 (1,875,000)(3)(5) (261,073)
</TABLE>
- ------------------------
(1) Represents assets and liabilities generated by the Company's Internet
banking operations as held and serviced by CFB.
(2) Adjustment to settle amounts due to CFB for $883,606.
(3) Adjustments to reflect the investment in Premier Bank based on the estimated
purchase price of approximately $2,150,000 in cash ($2,000,000 of unimpaired
capital and $150,000 purchase premium) plus 27,593 shares of Common Stock
valued at $2.81 a share and 13,813 shares of Common Stock valued at $3.47 a
share.
(4) Adjustment to consolidate the investment in Premier Bank by allocating the
purchase price to the fair market value of assets acquired and liabilities
assumed. The following allocation is based upon current estimates which will
be subsequently adjusted based upon final determination of the fair value of
assets acquired and liabilities assumed as of the closing date.
The purchase price has been allocated to the assets acquired and liabilities
assumed as follows:
<TABLE>
<S> <C>
Net assets--historical.......................................... $2,000,000
Goodwill........................................................ 275,000
---------
Total estimated purchase price............................ $2,275,000
---------
---------
</TABLE>
(5) Adjustment to consolidate the investment in Premier Bank by eliminating the
capital acquired.
20
<PAGE>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
The following pro forma condensed statement of operations gives effect to
the consummation of the agreement between the Company and CFB and the
acquisition of the outstanding capital stock of Premier Bank. The pro forma
condensed statement of operations should be read in conjunction with the
Company's financial statements and related notes thereto, and the statement of
assets and liabilities generated by the Internet banking operations of the
Company and held and serviced by CFB and related note thereto.
The unaudited pro forma condensed statement of operations presented below
does not purport to represent what the Company's statement of operations would
have been had the agreement with CFB and the acquisition of the outstanding
captial stock of Premier Bank been consummated at an earlier date.
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 20, 1996
(DATE OF INCORPORATION)
TO
DECEMBER 31, 1996
----------------------------
<S> <C> <C>
ACTUAL PRO FORMA
------------ --------------
Revenues........................................................ $ 67,709 $ 67,709
Expenses........................................................ 3,906,891 3,916,058(1)
------------ --------------
Net loss........................................................ $ 3,839,182 $ 3,848,349(1)
------------ --------------
------------ --------------
Net loss per common share....................................... $ 1.47 $ 1.38
------------ --------------
------------ --------------
Weighted average common shares outstanding...................... 2,616,211 2,788,912
------------ --------------
------------ --------------
</TABLE>
- ------------------------
(1) Reflects ten months of amortization expense related to the $275,000 of
goodwill recorded in conjunction with the acquisition of Premier Bank which
is being amortized over a 25-year period.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company was incorporated as a Georgia corporation on February 20, 1996.
Its primary business purpose is to operate a bank as a wholly owned federal
savings bank subsidiary. The Company entered into a Stock Purchase Agreement
dated June 17, 1996, which was amended and restated as of December 19, 1996 and
was further amended on February 25, 1997 with Premier to purchase all of the
issued and outstanding stock of Premier Bank, a federal savings bank and a
wholly owned subsidiary of Premier, in exchange for $2,150,000, comprised of
$2,000,000 of unimpaired capital and $150,000 purchase premium, and 41,406
shares of the Company's Common Stock. The Company and Premier have filed
applications for approval of the Stock Purchase with the OTS and FDIC.
Additionally, Premier has filed an application with the Department of Banking
for approval of a corporate reorganization that will be effected in connection
with the Stock Purchase. Although no assurances can be given, management
anticipates that approvals will be granted and the purchase will take place
simultaneously with the closing of the Company's initial public offering.
Pending receipt of the regulatory approvals above and since its opening in
October 1996, the Bank has operated as a service of CFB pursuant to the terms of
an agreement dated July 15, 1996. Under the agreement, CFB operates the Bank as
a service of CFB under the trade name "Atlanta Internet Bank" and the Company
manages the operations of the Bank. As part of the agreement, CFB will receive
1,325,000 shares of Common Stock of the Company and reimburse actual expenses up
to a maximum of $1,325,985. Upon regulatory approvals and consummation of the
Premier Stock Purchase, CFB will transfer the assets (less any interim operating
loss) and liabilities relating to the operation of the Bank to the Company's
federal savings bank subsidiary, which will be renamed Atlanta Internet Bank
upon consummation of all transactions. As of December 31, 1996, CFB had funded
$883,606 of operating expenses. Also, as of December 31, 1996, CFB has recorded
$10,366,437 in deposits for the Bank, $10,164,927 in money market deposit
accounts and $201,510 in interest checking accounts. As of March 19, 1997, the
Bank had approximately 1,750 accounts and approximately $42,000,000 in deposits.
Management believes the Bank will provide convenient, cost-effective and
secure banking services utilizing the Internet as the primary channel for
delivery of its commercial and financial services to the growing number of
consumers who use the Internet. Customer convenience and operating efficiency
are two key components of the Company's strategy. Customers will be able to
access the Bank through the Internet, a telephone or an ATM on a 7x24 basis.
Management does not intend to have a traditional branch/teller system as a
delivery channel, thereby reducing typical salary and overhead occupancy costs.
It is also management's intent to limit internal operating costs for systems
processing and programming services by outsourcing as many operations as
practical. Management believes it can take advantage of the economies of scale
of large providers of these services. In August 1996, the Company entered into a
systems processing agreement with BISYS effective through July 1999, subject to
automatic renewal for three-year periods absent a six-month notice of
termination by either party. Pursuant to agreements with AT&T, the Company
receives technical, marketing and customer service support, including
professional programming services from Edify and electronic bill paying
processing services from CheckFree.
22
<PAGE>
RESULTS OF OPERATIONS
The following analysis reviews the results of operations of the Company
since incorporation, February 20, 1996, to December 31, 1996. The financial
statements and related notes should be read in conjunction with this review.
STATEMENT OF OPERATIONS
FROM FEBRUARY 20, 1996
(DATE OF INCORPORATION) TO DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
REVENUES: $ 67,709
----------
<CAPTION>
% of
EXPENSES: Expenses
-----------
<S> <C> <C>
Amortization of service contract................... $2,400,000 61.4
Salaries and consulting fees....................... 836,962 21.4
Marketing.......................................... 197,111 5.0
Professional fees.................................. 83,633 2.1
Logo/web site...................................... 73,326 1.9
Monthly user fees.................................. 60,452 1.6
Travel, meetings and entertainment................. 38,794 1.0
Occupancy.......................................... 17,850 0.5
Depreciation....................................... 17,406 0.5
Other operating expenses........................... 181,357 4.6
---------- -----
Total expenses................................. $3,906,891 100.0
----------
NET LOSS............................................. $3,839,182
----------
----------
NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE...... $ 1.47
----------
----------
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING........................................ 2,616,211
----------
----------
DEPOSITS (780 accounts serviced by CFB and included
in CFB Statement of Assets and Liabilities)........ $10,366,437
----------
----------
</TABLE>
The statement of operations reflects the initial phase of the Company's
operations, including the acquisition, testing and implementation of the
Internet banking platform, marketing expenses and the accrual of CFB's expense
reimbursements. As noted above, since the Company has not received approval for
its purchase of the outstanding capital stock of Premier, deposits and related
assets resulting from the Company's marketing efforts are reflected in CFB's
financial statements. Therefore, interest income and interest expense are not
included in the statement of operations. Only miscellaneous fees and consulting
revenues are included in Revenues.
EXPENSES
AMORTIZATION OF SERVICE CONTRACT. The Company has agreed to issue to CFB
1,325,000 shares of its Common Stock appraised at $3,840,000 on the date of
contract, July 15, 1996. This amount is being amortized to expense over the
estimated eight-month life (August 1996 to March 1997) of the service contract.
23
<PAGE>
SALARIES AND CONSULTING FEES. These expenses include $318,772 of Company
salary and benefit expenses and $160,042 of compensation expense of CFB, as well
as $358,148 of consulting service for accounting, regulatory and service
development expenses.
MARKETING. These expenses primarily include advertising expenses of
$106,586 and marketing materials of $48,344.
PROFESSIONAL FEES. These expenses include legal and accounting fees.
MONTHLY USER FEES. These expenses include monthly user fees payable to AT&T
covering charges such as Edify's Electronic Banking System, CheckFree's
electronic bill paying system and ongoing customer support. Also, costs for
initial customer support and monthly fees for each customer accessing the Bank
through the Internet are included in these expenses.
OTHER EXPENSES. These expenses include copying costs, office supplies and
general office expenses, as well as monthly processing charges, including
communication charges. Other expenses also include $48,050 paid to AT&T
including amortization related to a $200,000 fee paid to AT&T for programming
services. This $200,000 is being amortized over the 18-month contract period.
STOCK OPTIONS AND OTHER COMPENSATION. The Company adopted its 1996 Stock
Incentive Plan (the "Plan") which provides that key employees, officers,
directors, and consultants of the Company may be granted nonqualified and
incentive stock options to purchase shares of Common Stock of the Company,
derivative securities related to the value of the Common Stock or cash awards.
The Plan limits the total number of shares which may be awarded to 397,500,
which have been reserved for the Plan. Awards to officers and employees under
the Plan were as follows: 16,563 nonqualified stock options at an exercise price
of $1.21 per share on November 25, 1996; 124,219 nonqualified stock options at
an exercise price of $1.21 per share on January 5, 1997; 39,750 incentive stock
options at an exercise price of $3.62 per share and 173,906 incentive stock
options at an exercise price of $10.00 per share on February 25, 1996. In
connection with the awards of the nonqualified options, the Company will record
total compensation of $266,250. Generally, the options vest over a three-year
period; however, if the Offering is completed, all of the nonqualified options
will vest immediately.
The Company has agreed to pay certain officers bonuses of up to $450,000 if
the Offering is completed.
CAPITAL RESOURCES. Management believes it has sufficient capital to satisfy
the Company's foreseeable needs for 1997. Concurrent with closing, management
intends to immediately purchase the outstanding shares of Premier Bank and
transfer the bank assets and corresponding liabilities of the "Atlanta Internet
Bank" from CFB. The Company anticipates that $25 million of the Offering
proceeds will be contributed to the Bank for general corporate purposes. The
balance of the net proceeds will be used for the CFB asset transfer ($1.3
million), general corporate purposes ($2,000,000) and repayment of liabilities
and registration costs.
24
<PAGE>
BUSINESS
OVERVIEW
The Company owns and operates the Atlanta Internet Bank, an FDIC-insured
federal savings bank that provides convenient, cost-effective and secure banking
services to the growing number of consumers using the Internet for commercial
and financial services. Customers can access the Bank on a 7x24 basis from any
PC, wherever located, by means of a secure Web browser or by ATM, telephone or
U.S. mail.
The Company's objective is to offer a broad range of banking and financial
service products through the Internet and alternative delivery channels.
Customer convenience and operating efficiency are two key components of the
Company's strategy. The Bank does not incur the cost of supporting a physical
branch system, which management believes will benefit customers through the
Bank's ability to offer attractive deposit rates.
In the initial phase of the Company's operations, management concentrated
its efforts on developing, testing and implementing an Internet banking
platform. Once the platform structure was in place, management established
deposit-oriented products that include electronic bill paying, checking and
money market accounts and certificates of deposit. During 1997, management
intends to offer a broad array of consumer loan products, such as personal
credit lines, mortgages, home equity and secured loans, credit cards and other
fee generating products. Management also plans to continue to pursue other
revenue generating opportunities through partnerships and strategic alliances
where appropriate.
Customers can access the Bank through any Internet service provider by means
of an acceptable secure Web browser such as Netscape's NAVIGATOR (Version 2.0 or
higher) or Microsoft's INTERNET EXPLORER (Version 3.0 or higher). Customers can
review account activity, enter transactions into an on-line account register,
pay bills electronically and print bank statement reports, all on a real-time
basis. Unlike PC-based home banking software, which resides on a PC that stores
the data and requires manual downloading and backup, the Bank enables customers
to transact banking business on a real-time basis from any location provided
they have a secure Web browser to connect them to the Bank through the Internet.
The Bank currently offers interest-bearing checking accounts, money market
accounts and certificates of deposit and provides direct deposit, monthly
statement, on-line transfer, wire transfer, bank e-mail and electronic bill
paying services. As of March 19, 1997, the Bank had approximately $42,000,000 in
deposits and approximately 1,750 accounts, of which approximately $10,350,000
was invested in certificates of deposit, approximately $31,250,000 was invested
in money market accounts and approximately $350,000 was invested in
interest-bearing checking accounts.
The Company was incorporated as a Georgia corporation on February 20, 1996.
The Bank commenced operations in October 1996 as a service of CFB under the
trade name "Atlanta Internet Bank" pending regulatory approval of the Company's
purchase of the outstanding stock of Premier Bank and the transfer of the assets
and liabilities relating to the operation of the Bank from CFB.
25
<PAGE>
INDUSTRY BACKGROUND
THE INTERNET
The Internet is a global web of computer networks. Developed more than 25
years ago, this "network of networks" allows any computer connected to the
Internet to communicate with any other computer using the Internet protocol. The
Internet historically was used by academic institutions, defense contractors and
government agencies primarily for remote access to host computers and for
sending and receiving e-mail. Before the 1990s, communication on the Internet
was conducted in an arcane language requiring a high degree of technical
knowledge. During the 1990s, however, software packages called "browsers" were
developed to allow non-technical users to find, retrieve and link information on
the Internet. Browsers allow highlighted words or icons, called hyperlinks, to
display text, video, graphics and sound on a local computer screen no matter
where the originating resource is located. In addition, individuals are
connecting directly to the Internet through a variety of easy-to-use software
packages and Internet access gateways provided by consumer on-line services.
Use of the Internet has grown rapidly during the 1990s and is expected to
continue to grow. According to an industry source, the number of Internet users
is expected to increase from 38 million in 1995 to 199 million in 1999. Much of
the recent growth in Internet use by businesses and individuals has been driven
by the emergence of a network of servers and information available on the
Internet called the "World Wide Web." The Web features a rapidly increasing
number of "home pages" that provide information about a wide variety of
institutions, businesses and individuals. A home page functions primarily as an
advertisement, however, and does not necessarily allow a user to transact
business on a real-time basis with the person or entity sponsoring the page. For
example, although several hundred banks have home pages on the Web, management
believes that only a few have the capability to transact banking business over
the Internet. Management believes the Bank is the only bank that operates solely
on the Internet without branch locations.
ELECTRONIC BANKING
The creation of the Web and the introduction of Web browsers with graphical
presentation and "point and click" navigation have made the Internet a
mainstream global network. A variety of security standards have been developed
to make the Internet safer for general commerce and financial services
transactions. Transactions can now be protected through secure Web servers that
are separated from general purpose Web servers and through encrypted
transmissions between servers and the user's PC.
The increasing amount of commerce transacted on the Web has prompted the
development of electronic banking delivery systems. These forms of electronic
delivery systems provide convenience for customers and allow financial
institutions to lower their overhead costs. The two types of electronic banking,
PC-based home banking and Internet banking, are very different in their
functionality, means of operations and timeliness. The characteristics of each
are described below.
PC-BASED HOME BANKING. PC-based home banking requires PC-based financial
services software products such as Intuit Inc.'s ("Intuit") QUICKEN, Microsoft's
MONEY or Meca Software, LLC's ("Meca") MANAGING YOUR MONEY. Each product carries
its own set of instructions that the customer must learn before commencing any
banking transactions. The software resides on the customer's PC along with his
or her account data and requires a dial-up modem and manual downloading.
Consequently, PC-based home banking must be conducted from the PC containing the
customer's software and account data. The customer must back up his or her
account data at frequent intervals to reduce the risk of losing data. Because
the customer must connect with the financial institution via modem and download
his or her account data, real-time transactions are not possible. The
information presented to the customer is current only as of the time it was
downloaded to the customer's PC.
26
<PAGE>
INTERNET BANKING. Unlike PC-based home banking, Internet banking requires
only a secure Web browser for Internet access to the Internet and the financial
institution. No particular software is required and the customer's operations
are not restricted to a specific PC. Instead, the customer accesses the
financial institution through the Internet and deposits or transfers funds, pays
bills or transacts other business on a real-time basis. Account data remains
stored on the Bank's secure server at all times, protected by technology
designed specifically to safeguard such information. No downloading or back-up
is required, as the Bank's server backs up all data and transactions on a
continuous basis. With Internet banking, the information presented to the
customer remains current at all times.
The following chart compares the typical features of Internet banking,
PC-based home banking and traditional branch banking:
<TABLE>
<CAPTION>
BANKING SERVICE DELIVERY CHANNEL
<S> <C> <C> <C>
TRADITIONAL BRANCH
INTERNET BANKING PC-BASED HOME BANKING BANKING
--------------------- ----------------------- -----------------------
Accessibility 7 days a week 7 days a week Traditional Banking
24 hours per day 24 hours per day Hours
Real-Time Processing Batch Processing (2)
(1) Batch Processing (2)
-----------------------------------------------------------------------
Convenience Need Only Internet Banking Software and Branches and ATMs
Access and Secure Account Data Reside on
Browser Single PC
No Customer Back-up Requires Frequent
Required Customer Back-up
-----------------------------------------------------------------------
Cost No Branches No Branches Full Overhead Structure
Low Personnel Cost Reduced Personnel
and Other Overhead Cost and Other Overhead
-----------------------------------------------------------------------
Data Security Password/ID Protected Password/ID Protected N/A
Encrypted Dial-up Secure Dial-up Modem N/A
Modem Transmission Transmission
All Data Stored on Data Stored on PC All Data Stored on
Secured System Secured System
-----------------------------------------------------------------------
Technology Program Upgrades Upgrades Require New N/A
Flexibility Centralized and Diskettes to be
Require no Customer Installed on PC by
Installation Customer
</TABLE>
- ------------------------
(1) Customer transfers between their accounts are processed on a real-time
basis.
(2) Customer transfers between their accounts are batched and processed daily.
MARKET OPPORTUNITY
The use of electronic banking delivery systems is growing as consumers find
electronic banking to be convenient and cost-effective. According to Forrester
Research, Inc., the number of electronic banking households is expected to grow
from 1.1 million in 1996 to 9.7 million in 2001, with total assets managed
on-line expected to increase from $5.4 billion to $46.9 billion during that
period. Forrester's report further indicates that while Internet banking was
being used by less than 10% of electronic banking households in 1996, the
percentage of such households utilizing Internet banking is projected to rise to
over 75% in 2001.
An industry survey revealed that in the U.S., nearly two-thirds of Web users
have a college education. The survey also indicated that in the U.S., more than
50% of Web users are 35 years of age or younger and
27
<PAGE>
25% of Web users' households have annual household incomes of at least $80,000.
Management believes that Internet users generally carry higher bank balances and
use more financial services.
Management believes the increasing number of users of the Internet and the
Web, coupled with the demographic characteristics of those users and the
relative flexibility and convenience of Internet banking, represents a market
opportunity for the Company as one of the world's first providers of Internet
banking services.
STRATEGY
The Company's objective is to become a leading provider of financial
services through the Internet. Management intends to accomplish this objective
by implementing the following strategies:
- LEVERAGE LOW COST STRUCTURE. The Bank is not required to pay the overhead
expenses necessary to support a traditional branch operation, and
operating costs are therefore generally lower. The absence of a branch
system and the Company's low cost per transaction enable it to offer
attractive deposit rates without significantly impacting profitability.
- OUTSOURCE OPERATIONAL FUNCTIONS. The Company has entered into agreements
with companies that provide a variety of specialized services and
technologies to the Bank. For example, the Bank's Internet technology,
transaction processing, bill payment functions and other services are all
outsourced to third-party service providers. In each of these
relationships, the Bank benefits from the service provider's expertise and
economies of scale while retaining the flexibility to take advantage of
changes in available technology without impacting customer service.
- PROVIDE CONVENIENT, REAL-TIME TRANSACTIONS. Management believes the Bank
provides customers with a higher level of convenience than can be achieved
in a traditional branch or through PC-based home banking. The Internet
allows Bank customers to conduct banking activities on a real-time, 7x24
basis from any PC, wherever located, using a secure Web browser. This
technology gives Internet banking an advantage over PC-based home banking,
which utilizes PC-based software, requires repeated manual downloading and
back-up and limits the user to a specific PC.
- EMPLOY ADVANCED SECURITY. The Bank uses sophisticated technology to
provide what management believes to be among the most advanced security
measures currently available in the electronic banking industry. All
banking transactions are encrypted and all transactions are routed from
the Internet server through a "firewall" that limits access to the Bank
server. The Bank's systems automatically detect attempts by third parties
to access other users' accounts and feature a high degree of physical
security, secure modem access, service continuity and transaction
monitoring. At the Company's request, AT&T is obtaining a Statement of
Accounting Standards 70 ("SAS 70") audit by a national accounting firm. In
an SAS 70 audit, the auditors issue a report addressing whether the
computer systems are being managed and operated in a manner consistent
with accepted practices. The SAS 70 audit procedure is expected to be
completed by summer 1997. See "--Security."
- OFFER A BROAD ARRAY OF PRODUCTS AND SERVICES. The Internet provides an
opportunity for the Bank to deliver a variety of traditional consumer loan
and deposit products. Management intends to expand the Bank's product and
service offerings to include services such as asset management with money
market sweeps, direct purchase capability with selected Internet "mall"
venues and reloadable cash cards.
- DEPLOY MULTI-FACETED MARKETING STRATEGY. The Company's target market
includes on-line users, on-line shoppers and special niche customers. In
addition to the Bank's on-line advertising with AT&T's WorldNet Services
and Digital Cities/AOL, several other marketing initiatives are being
employed. These initiatives include a significant emphasis on marketing
the Bank's services through
28
<PAGE>
alliances with selected professional organizations, colleges, alumni
associations and consumer service providers and on targeted print
advertising.
- CROSS-SELL FINANCIAL SERVICES. Management intends to market loans,
brokerage services and other income generating products to its depositors
through various direct marketing techniques, such as bank e-mail, on-line
advertising and telemarketing. Management believes this strategy will
enable the Bank to generate additional earning assets and fee income.
Management further believes that selling multiple products will enhance
customer loyalty and strengthen customer relations with the Bank.
MARKETING
CURRENT MARKETING STRATEGIES
Prior to its October 1996 launch, the Bank embarked on a marketing campaign
to establish its presence as an Internet-only bank that offers a variety of
services and provides additional convenience and flexibility without the
overhead and operating costs associated with a physical branch system.
The Bank currently markets its services through advertising campaigns in
printed material, such as newspapers and magazines, as well as on various Web
sites through relationships with entities such as AT&T WorldNet. The Bank's
marketing, advertising and public relations campaigns focus on the following
three components:
- VALUE. The Bank's relatively low overhead and operating costs enable it to
offer higher interest rates than those normally offered by traditional
banks. The Bank entered the market in October 1996 with attractive
introductory rates on its money market and checking accounts. This pricing
structure has been successful in attracting depositors who are motivated
by the Bank's rates, as well as by the variety of services the Bank
expects to promote in the future. Consequently, management believes the
Bank's customer base will grow as new product and service offerings
provide additional incentives for banking on-line.
- CONVENIENCE AND SERVICE. Unlike traditional banks, the Bank never closes.
Its products and services are available on a 7x24 basis at the user's
convenience. Unlike depositors in traditional banks, the Bank's depositors
have complete control over when and how they access their accounts.
PC-based home banking, which utilizes PC-based software, requires repeated
manual downloading and back-up and limits the user to a specific PC. The
Bank's customers have real-time, interactive access to their accounts from
any PC, wherever located, by means of a secure Web browser. The Bank's
services offer a solution for busy people who travel, people with
disabilities, college students and their families, employees on
international assignment, and the growing population using the Internet
for a variety of services. The convenience of Internet banking becomes
increasingly valuable as new products and services are offered.
- SERVICE PROVIDERS. The Bank has carefully chosen its service providers in
an effort to ensure the highest quality service possible to its customers.
AT&T's WorldNet Service enabled the Bank to commence its on-line
operations with a well-known Internet service provider. The Bank's
relationship with AT&T also provides efficient end-user technical support
and quick response to on-line e-mail inquiries. See
"Business--Operations--Service Providers."
FUTURE MARKETING STRATEGIES
Management intends to continue to market the Bank's services through a
combination of special marketing alliances, advertising campaigns and public
relations activities, while expanding joint marketing programs and advertising
with AT&T WorldNet, Digital Cities/AOL and other Internet service providers.
While the key messages of value, convenience, service and reliability will
continue to play a major role in the Bank's marketing and public relations
efforts, management also intends to focus on targeted groups.
29
<PAGE>
The Bank's primary goal will be to grow its account base to solidify its brand
name recognition in multiple market segments. Management intends to identify and
pursue customers through several additional channels, including, but not limited
to:
- ON-LINE USERS. Management believes that current Internet users are
favorably predisposed to Internet services. This is a rapidly growing
demographic group, as increasing numbers of users go on-line every day.
The Bank currently is using AT&T WorldNet and Digital Cities/AOL as banner
sites. Management plans to register the Bank on the Internet's top search
engines, use on-line banner advertising opportunities and establish the
Bank's presence with other Internet service providers and targeted
Internet sites.
- ON-LINE SHOPPERS. The Bank has an arrangement with one of the world's
first on-line retail "malls" to pioneer an on-line shoppers account.
Management believes on-line shopping will become one of the fastest
growing segments on the Internet over the next two years. Management
intends to actively market the Bank's services to this population.
- MARKETING ALLIANCES. Management intends to market the Bank's services
through alliances with selected professional organizations, colleges,
alumni associations and consumer service providers. For example, the Bank
recently entered into such an alliance with the Georgia Institute of
Technology Alumni Association. In each case, management will emphasize the
uniqueness of the Bank and its exclusive offerings to a particular group.
- SPECIAL NICHE CUSTOMERS. The Bank is targeting specific market segments
such as college students, U.S. citizens living outside the United States,
disabled persons and residents of large apartment complexes. The Bank is
developing programs that are tailored to fit their demographic profiles.
One example already underway is the Corporate Call program, which offers
special incentives and services to employees of targeted companies, often
in technology-related industries. These services and special rates already
have been used successfully to attract employees of several companies to
the Bank's services.
SPECIFIC PUBLIC RELATIONS ACTIVITIES
A vital part of the Bank's marketing plan is the execution of its public
relations strategy. For each of its targeted marketing campaigns, management
will develop a public relations campaign for advertising and editorial coverage.
Many traditional public relations methods will be used in promoting Bank
services. Management intends to pursue media coverage, including general press,
industry periodicals, television, radio and other media covering banking and
finance, technology, consumer issues and special interests. Press releases,
video news releases, direct mail campaigns, media alerts and presentations will
announce new banking services as they are added, as well as new partnerships and
alliances. Additionally, management plans to develop specific "net campaigns"
for Internet advertising, forum discussions and general electronic public
relations. The Bank also will continue to work with AT&T to develop joint
promotional materials as new services are added. AT&T provided significant
marketing support for the Bank's initial launch and has indicated that it will
continue to work with the Bank to develop marketing strategies.
PRODUCTS AND SERVICES
CURRENT PRODUCTS AND SERVICES
The Bank currently offers interest-bearing checking accounts, money market
accounts and certificates of deposit. Each new Bank customer receives a
password, a checkbook and an ATM card. In addition, the Bank provides electronic
bill paying services, direct deposit, on-line transfer, wire transfer and other
services traditionally associated with checking accounts. The Bank's primary
products and services are described below.
30
<PAGE>
- CHECKING AND MONEY MARKET ACCOUNTS. To attract initial deposits, the Bank
is offering attractive interest rates on checking and money market
accounts. Management expects that the Bank will be able to continue to
offer attractive rates as a result of the Bank's low overhead costs. The
Bank charges customers a service charge, currently set at $4.50 per month,
for an interest-bearing checking account. Management anticipates that the
interest-bearing checking account will be used as the primary account for
transactions and bill payment, with the money market account being used
for more stable savings balances. Overdraft protection is automatically
established between the money market account and the interest-bearing
checking account.
- CERTIFICATES OF DEPOSIT. The Bank offers certificates of deposit with
terms of six, 12 and 30 months. As in the case of checking and money
market accounts, the Bank offers attractive interest rates on its
certificates of deposit.
- BILL PAYMENT SERVICE. Through services provided by CheckFree, customers
are able to pay their bills on-line through electronic funds transfer or a
written draft prepared and sent to the creditor by CheckFree. No
additional fee is charged for this service.
- OTHER SERVICES. The Bank also offers direct deposit, on-line transfer and
wire transfer services. Customers receive monthly bank statements by mail
and can print their bank statements at any time. Customers also can send
on-line e-mail messages to the Bank and systems administrators who can
respond to their inquiries with return e-mail messages.
FUTURE PRODUCTS AND SERVICES
Management intends to follow the Bank's initial product offerings with new
products and services. Management plans to add credit cards, loans (including
mortgage and other consumer loan products) and brokerage services over the next
several quarters. These products and services are described below.
- CONSUMER LOAN PRODUCTS. Beginning in 1997, the Bank plans to introduce
loan products to current and potential customers via the Internet and
other delivery channels. These products will include mortgages, home
improvement/equity loans, credit cards, personal lines of credit,
overdraft protection and secured loans. Management plans to utilize
decision support systems that respond to inquiries on a 7x24 basis. While
the Bank will set credit criteria, terms and conditions and rates, much of
the closing process and servicing will be provided by contracted third
parties. The Bank also intends to purchase loans as well as participations
in loans.
- CREDIT CARDS. In 1997, the Bank plans to offer credit cards to its most
creditworthy customers. Although the interest rate and other terms have
not yet been determined, management believes its customers will be less
sensitive to the interest rate offered than to the convenience of using
the card along with the other services provided by the Bank. The Bank will
be solely responsible for the credit criteria, pricing, terms, conditions
and funding of credit card accounts, but likely will enter into an
agreement with a third party to process the Bank's credit card accounts.
- BROKERAGE SERVICES. The Bank plans to offer brokerage services to its
customers in 1997. Customers will be able to view their account balances
and conduct banking and brokerage transactions from a single screen.
Management anticipates that combined brokerage and deposit account
statements will eventually be available. Management has not yet identified
specific products or providers or sought regulatory approval for brokerage
services.
- OTHER PRODUCTS AND SERVICES. The Bank plans to offer Individual Retirement
Accounts ("IRAs") and debit cards to its existing and future customers.
Management has not selected specific IRA or debit card products or
providers.
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LENDING AND INVESTMENT ACTIVITIES
The Bank intends to generate interest income by making consumer loans and
investing in various fixed income securities, loan participations and whole loan
packages. Management's core lending philosophy is to focus on providing its
customer base with convenient access to consumer loan products. Customers will
be able to apply for loan products via the Internet, telephone or U.S. mail.
Through the use of automated credit scoring and decision-making technologies,
management believes it can respond quickly to customer requests for loan
products.
The Bank will establish a credit committee to set underwriting standards and
criteria for the issuance of loan products and to monitor on an ongoing basis
the Bank's loan portfolio. Management's general philosophy is to focus on credit
quality. In addition, management believes the demographic profile of Internet
users will positively impact the Bank's loan portfolio with respect to net
losses and charge-offs.
While the Bank builds its customer base and loan portfolio, it will invest
excess funds in various fixed income securities, loan participations and whole
loan packages. Management's philosophy of high credit quality will guide its
investment decisions. The Bank's fixed income securities portfolio will be
concentrated primarily in U.S. Treasury obligations and mortgage-backed
securities issued by agencies such as Fannie Mae and Freddie Mac. The Bank may
also invest in loan participations offered from commercial banks that syndicate
loans and invest in packages of whole loans offered by commercial banks and
other financial intermediaries.
COMPETITION
The market for electronic banking has only recently begun to develop, is
rapidly evolving and has few proven competitors. With the expected continued
development of the Internet as an avenue for providing financial services,
management expects competition to intensify. Because of the diverse and changing
competitive marketplace in the financial services industry and for
Internet-related products and services, there can be no assurance that
management has identified or considered all possible present and future
competitors. Many of the Company's known competitors have substantially greater
financial resources than the Company.
Several significant competitors currently offer on-line banking services.
These competitors include financial institutions offering PC-based home banking
and Internet banking services and software companies offering PC-based home
banking services. Management believes the following constitute the Bank's major
competitors:
- Security First Network Bank, FSB ("SFNB"), Atlanta, Georgia, is the first
bank to offer banking services predominantly on the Internet. SFNB opened
for operation in October 1995 and offers deposit and bill payment services
and loan products.
- IBM is teaming up with 18 large banks to offer a full service home banking
package called INTEGRION. The joint venture will connect a customer's PC
with the bank through the IBM Global Communications Network, a private
communications network. The banks that are included in this consortium
will not be limited in the type of financial management software they
offer to their customers, but INTEGRION will control the channels
connecting the financial institution to their customers.
- Management also views the major financial software companies, Intuit and
Microsoft, as competitors. Intuit's QUICKEN software is the most popular
home banking software on the market today. Microsoft's MONEY is also a
well-known home banking software package. These applications enable
customers to access one of the network member banks and download their
account information, transfer funds between accounts and automatically
reconcile account balances.
- Meca Software, LLC is jointly owned by NationsBank, Bank of America
Corporation, Fleet Financial Group, Inc., First Bank Systems, Inc., and
Royal Bank of Canada. Meca is the maker of
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the financial software, MANAGING YOUR MONEY. This software will offer home
banking as well as other financial services via the Internet this year.
All of these competitors are larger and have greater financial and other
resources than the Company. Nevertheless, management believes the Bank will be
able to compete effectively with the foregoing competitors. Although SFNB is
also an Internet bank, management believes the Bank will be able to compete
effectively with SFNB based primarily on the Bank's sole focus of providing
banking services.
Management views the Bank's principal competitive advantages over PC-based
home banking software providers to be, in approximately equal proportions,
speed, simplicity and flexibility. Management believes that the real-time
interface between customers and their account activity, as well as the relative
simplicity of the steps required to transact business with the Bank,
distinguishes the Bank from PC-based home banking providers. Additionally,
customers of the Bank are not restricted to the location of a single PC, as is
the case with PC-based financial services software.
The Bank also competes with traditional banks. Management believes that the
Bank's competitive advantage with respect to these banks is based primarily on
price and secondarily on speed, flexibility and convenience. Because the Bank
does not have the overhead expenses inherent in operating a traditional branch,
it is able to attract new customers by passing its savings on to them. The
growth of the Internet and the speed, flexibility and convenience it offers also
provide the Bank with a competitive advantage over traditional banks.
OPERATIONS
ACCOUNT ACTIVITY
Customers can access the Bank through any Internet service provider,
including but not limited to AT&T's WorldNet Service and Digital Cities/AOL, by
means of an acceptable secure Web browser such as Netscape's NAVIGATOR (Version
2.0 or higher) or Microsoft's INTERNET EXPLORER (Version 3.0 or higher). When
customers access the Bank's service menu, they can open a new account, review
the status of an existing account or engage in a transaction.
To open a new account, the customer can either (i) print out the account
application displayed on the screen, fill it out and send it to the Bank; or
(ii) apply by calling the Bank's toll-free telephone number, 1-888-BKONWEB. The
Bank then establishes an account for the customer through its direct interface
with BISYS, the Bank's systems processor. It also sends a "welcome kit" to the
customer containing AT&T WorldNet software (if requested), a preliminary
password and some basic information about the Bank. The customer is instructed
to deposit funds to his or her account at the Bank by direct deposit, wire
transfer, mail or other means. The Bank then accesses the BISYS network and
records the initial deposit.
Deposits into an open account at the Bank can be made via direct deposit
programs, by transferring funds between accounts at the Bank, by wire transfer,
by mail or in person at the Bank's principal executive offices; however, no
teller line is maintained and the Bank does not intend to establish a physical
branch system. Customers can also make withdrawals and have access to their
accounts at ATMs that are affiliated with the Cirrus Network, which operated
nearly 315,000 ATMs worldwide as of February 27, 1997. Other networks may be
added in the future. On-line customers currently are able to review account
activity, enter transactions into an on-line account register, pay bills
electronically, receive statements by mail and print bank statement reports. In
the future, customers will be able to take advantage of additional product
offerings by the Bank.
PRODUCT DELIVERY
Management believes the widespread acceptance of graphical computer
interfaces and Web browsers presents a unique and rapidly growing opportunity to
offer a variety of traditional as well as non-traditional banking and bank
related services via the Internet. To this end, the Company has pursued a
strategy of
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acquiring and utilizing proven banking systems and technologies rather than
developing new technologies and systems. This enables the Company to focus on
marketing a variety of services in attractive packages to the consumer while
reducing the Company's dependence on one supplier or on the uncertainties of new
technologies.
SERVICE PROVIDERS
Management has negotiated agreements with a select group of service
providers who not only provide the Bank with significant quality, security,
reliability, performance and marketing capabilities, but also play an integral
role in the implementation of the Bank's full financial services strategy.
Moreover, the Company has preserved a degree of flexibility that will enable it
to continually assess and evaluate its product offerings and delivery structure
and incorporate other alliance opportunities as they present themselves. Should
any of these relationships terminate, however, management believes the Company
could secure the required services from an alternative source without material
interruption of the Bank's operations.
- AT&T ADVANCED NETWORK SOLUTIONS DIVISION. Pursuant to an agreement between
the Company and AT&T dated August 16, 1996 (the "AT&T Agreement"), AT&T's
Advanced Network Solutions Division provides technical, marketing and
customer service through a bundled product and service offering called
"Personal Financial Services." Specifically, AT&T provides the Bank with a
secure Internet Web site on AT&T's Easy World Wide Web ("EW3"), computer
software that performs services related to the operation and maintenance
of the Bank's infrastructure and other electronic banking services. AT&T
also provides a toll-free touch-tone voice response service for technical
and bill payment customer support, banking customer service and inbound
telemarketing.
Under the AT&T Agreement, AT&T also provides and maintains the software
products of two other banking software companies--Edify and CheckFree. It
provides the interface necessary to link the Bank's servers with the
servers used by BISYS and CheckFree. Pursuant to a license granted by
Edify, AT&T provides Edify's Electronic Banking System and Electronic
Workforce software applications to the Bank. This software enables the
Bank to offer a variety of automated banking and e-mail services on the
Internet. In addition, pursuant to a separate agreement between AT&T and
CheckFree, the Bank receives bill payment processing services performed by
CheckFree.
The AT&T Agreement required an initial consulting payment and also
requires additional payments for initial customer support, or
"on-boarding." In addition, the Bank pays a monthly fee for each customer
accessing the Bank via the Internet. The AT&T Agreement expires on
February 19, 1998, but may be terminated by either party upon six months'
prior written notice.
- AT&T WORLDNET. AT&T's WorldNet Services Group provides the Bank with
advertising and marketing services. The Bank was initially part of a
select group known as Charter Advertisers. This program provided
advantageous banner advertising and directory listings throughout the
WorldNet site, including the Home Page. Management continues to work
closely with AT&T on additional advertising programs. See "--Marketing."
- BISYS. The Bank receives core systems processing services, such as deposit
account, loan processing and year-end processing services, pursuant to an
agreement between the Company and BISYS dated August 22, 1996 (the "BISYS
Agreement"). For these standard services, the Bank pays BISYS a monthly
fee calculated by multiplying the number of customer accounts by a per
account charge. The monthly fee is reviewed on a quarterly basis and
adjusted so that as the number of accounts rises, the per account charge
is reduced. Non-standard services, such as ATM services and the production
of certain reports, are subject to additional monthly charges. In
addition, the Bank paid BISYS an initial conversion fee. The BISYS
Agreement expires on August 22, 1999, but will renew automatically for
successive three-year terms absent six months' prior written notice to the
contrary by either party.
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The following chart summarizes the services provided by AT&T, BISYS, Edify
and CheckFree:
<TABLE>
<CAPTION>
COMPANY KEY SERVICES
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
AT&T
- - Advanced Network - Secure hosting of Edify's Electronic Banking System
Solutions Division - CheckFree bill paying services
- Customer care--technical and bill paying support
- Connectivity to banking and bill paying host computers
- - WorldNet - Rotating banner ads on Welcome Page (Main Page)
- Banner advertisements in various WorldNet locations
- - Easy World Wide Web (EW3) - Hosting of the Bank's marketing web site
- - Marketing Advantage - Co-Branded WorldNet Navigator disks provided to Atlanta Internet Bank customers
and used for direct marketing purposes. Displays Atlanta Internet Bank's logo
on WorldNet screen using special registration.
- - Network Voice Response TouchTone voice response service for toll-free inbound routing to:
- Technical and bill paying customer support
- Banking customer service
- Inbound telemarketing
- -----------------------------------------------------------------------------------------------------------------------------------
BISYS - Bank systems processing
- Interface to secure server hosting at AT&T
- Online customer ID/password verification
- ATM and debit card systems
- Items capture/inclearings, other services
- -----------------------------------------------------------------------------------------------------------------------------------
Edify - Electronic Banking System--Licensed to AT&T and run on secure server
- -----------------------------------------------------------------------------------------------------------------------------------
CheckFree - Bill paying services under contract with AT&T Advanced Network Solutions
</TABLE>
SECURITY
The Bank's ability to provide its customers with secure financial services
over the Internet is of paramount importance. Management has reviewed the
Internet systems, services and software used in the Bank's operations to ensure
that they meet the highest standards of security. The following are among the
security measures that are in place:
ENCRYPTED TRANSACTIONS. All banking transactions and Internet
communications are encrypted so that sensitive information is not available on
the Internet in a form that can be read or easily deciphered. Encryption of
Internet communications is accomplished through the use of the Netscape SSL
(Secure Sockets Layer) technology. SSL is the standard for encryption on the
Internet and is currently used by Netscape's NAVIGATOR (Version 2.0 or higher)
and Microsoft's INTERNET EXPLORER (Version 3.0 or higher). Messages between the
Bank server and BISYS are encrypted using DES encryption, which is described in
the section entitled "--Isolated Bank Server" below.
SECURE LOGON. To eliminate the possibility of downloading the Bank's or a
customer's password file, user identification and passwords are not stored on
the Internet, the Web server or the customer's PC. Furthermore, passwords are
variable length strings of six to eight alpha-numeric characters, which makes
the chance that a password can be randomly guessed less than one in one
trillion.
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ISOLATED BANK SERVER. The computer that is used to provide the Bank's
services cannot be accessed directly through the Internet. It is on a private
connection, or intranet, that provides two-way communication between the
isolated Bank server and the AT&T EW3 Internet Server. Consequently, an Internet
user cannot directly access the computer that actually provides the Bank's
services.
All banking services are routed from the AT&T EW3 server through a firewall.
The firewall is a combined software and hardware product that precisely defines,
controls and limits the access to "internal" computers from "outside" computers
across a network. Use of this firewall means that only authenticated bank
customers or administrators may send or receive transactions through it, and the
firewall itself is immune to penetration from the network. In other words, the
firewall is a mechanism used to protect the Bank server from the freely
accessible Internet.
Furthermore, all messages sent or received between the AT&T EW3 server and
the Bank server are encrypted using DES encryption. This is a symmetric key
algorithm and is highly secure because it is not susceptible to standard
ciphertext attacks. Thus, even if a perpetrator were able to route a message to
the Bank server through the firewall, the message could not be encrypted in a
way that would be considered valid by the server. As a result, the message would
be rejected.
The following diagram illustrates the layers of security that exist between
a user's PC and the Bank's server:
[DIAGRAM APPEARS HERE ILLUSTRATING THE SECURITY MEASURES THE BANK USES TO
PROTECT ITS BANKING PLATFORM AND THE INFORMATION FLOWING THROUGH THE BANK FROM
OUTSIDE INTRUSION.]
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AUTHENTICATED SESSION INTEGRITY. An authenticated user is any user who
signs onto the Bank site with a valid user ID and password. Although the vast
majority of authenticated users will be legitimate Bank customers, the Bank
server is programmed to limit exposure to an authenticated user who is
attempting to defraud the Bank. If the authenticated user alters the URL (the
command or request that is sent from the browser to the server) in any way in an
attempt to gain access to other users' accounts, the Bank server immediately
detects that the session integrity variables have been violated. The Bank server
will immediately stop the session and record the attempt in a log so that Bank
staff can investigate.
PHYSICAL SECURITY. All servers and network computers reside in secure AT&T
facilities. Currently, computer operations supporting the Bank's Internet access
are based in New Jersey. Only employees with proper photographic identification
may enter the primary building. The computer operations are located underground,
with admission only by key card. Access to the Bank server console requires
further password identification.
During the summer of 1997, computer operations will be moved to AT&T's
specialized operations center in rural Virginia. The facility is protected by a
perimeter fence employing electronic surveillance and after-hours security
staff. Secured admission to computer operations and the Bank server are tightly
monitored, as is the case in New Jersey.
SECURE MODEM ACCESS. The Bank server and BISYS are connected by a private
line that is not accessible from the public network. The Bank server is
connected to CheckFree by a one-way modem that permits the server to call
CheckFree, but will not accept incoming calls to the Bank server. A dial-up
maintenance port also permits access to the Bank server. The modem that provides
the only access to this port is specially protected. A person dialing into this
modem must use a device called a "SecureID" card to generate a one-time
password. This SecureID card-protected modem is impenetrable by random dialers
and hackers.
SERVICE CONTINUITY. AT&T and BISYS each provide a fully redundant network
with no single point of failure. The Bank server will also be "mirrored" so that
hardware failures or software bugs should cause no more than a few minutes of
service outage. "Mirroring" means that the Bank server is backed up continuously
so that all data is stored in two physical locations. This network and server
redundancy ensures that access to the Bank will be reliable. However, in case of
any circumstance that results in customers not being able to access the Bank
over the Internet, customers will retain access to their funds through several
means, including checks, ATM cards, customer service and an automated telephone
response system.
MONITORING. All customer transactions on the Bank server in BISYS and in
CheckFree produce one or more entries into transactional logs. AT&T and the Bank
recognize that it is critical to monitor these logs for unusual or fraudulent
activity. As mentioned previously, any attempt by an authenticated user to
modify the command or request that is sent from the browser to the server will
be logged. Additionally, all financial transactions will be logged. Bank
personnel review these logs regularly, and any abnormal or unusual activity will
be noted and appropriate action will be taken either by the Bank, AT&T or both.
Ultimately, vigilant monitoring is the best defense against fraud.
The preceding security measures ensure that the Bank is set up in a secure
manner. However, over the long term, the security of the Bank depends upon the
procedures and standards used for administration of the Internet site. The
Company has asked AT&T to obtain an SAS 70 audit by a national accounting firm.
In an SAS 70 audit, the auditors issue a report addressing whether the computer
systems are being managed and operated in a manner consistent with accepted
practices. The AT&T report is expected by summer 1997. Management expects BISYS
to continue its practice of obtaining an SAS 70 audit.
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<PAGE>
Management believes the risk of fraud presented by Internet banking is not
materially different from the risk of fraud inherent in any banking
relationship. Management believes the three principal reasons for a breach in
bank security are: (i) misappropriation from the user of the user's account
number or password; (ii) penetration of the bank's server by an outside
"hacker"; and (iii) fraud committed by an employee of the bank or one of its
service providers. Both traditional banks and Internet banks are vulnerable to
these types of fraud. By establishing the security measures described above,
management believes the Bank has minimized its vulnerability to the first two
types of fraud. To counteract fraud by employees, associates and consultants,
management has established internal procedures and policies designed to ensure
that, as in any bank, proper control and supervision is exercised over
employees, associates and consultants.
SUPERVISION AND REGULATION
Savings and loan holding companies, such as the Company, and federal savings
banks, such as the Bank, are extensively regulated under both federal and state
law. The following is a brief summary of certain statutes and rules and
regulations that will affect the Company and the Bank upon consummation of the
Reorganization. This summary is qualified in its entirety by reference to the
particular statute and regulatory provision referred to below and is not
intended to be an exhaustive description of the statutes or regulations
applicable to the business of the Company and the Bank. Supervision, regulation
and examination of the Company and the Bank by the regulatory agencies are
intended primarily for the protection of depositors rather than shareholders of
the Company. The terms "savings association," "federal savings bank" and
"thrift" are used interchangeably in the section.
SAVINGS AND LOAN HOLDING COMPANY REGULATION
The Company will be a registered holding company under both the Savings and
Loan Holding Company Act (the "SLHCA") set forth in Section 10 of the Home
Owners Loan Act ("HOLA") and the Georgia Bank Holding Company Act. The Company
will be regulated under such acts by the Office of Thrift Supervision (the
"OTS") and by the Department of Banking, respectively. As a savings and loan
holding company, the Company will be required to file with the OTS an annual
report and such additional information as the OTS may require pursuant to the
SLHCA. The OTS may also conduct examinations of the Company and each of its
subsidiaries.
Savings and loan holding companies and their subsidiaries are prohibited
from engaging in any activity or rendering any services for or on behalf of
their savings institution subsidiaries for the purpose or with the effect of
evading any law or regulation applicable to the institution. This restriction is
designed to prevent the use of holding company affiliates to evade requirements
of the SLHCA that are designed to protect the holding company's savings
institution subsidiaries. A unitary holding company, that is, a holding company
that owns only one insured institution whose subsidiary institution satisfies
the qualified thrift lender test (discussed below), is not restricted to the
statutorily prescribed list of permissible activities, and the SLHCA imposes no
limits on direct or indirect non-savings institution subsidiary operations.
The SLHCA makes it unlawful for any savings and loan holding company,
directly or indirectly, or through one or more subsidiaries or one or more
transactions, to acquire control of another savings association or another
savings and loan holding company without prior approval from the OTS. An
acquisition by merger, consolidation or purchase of assets of such an
institution or holding company or of substantially all of the assets of such an
institution or holding company is also prohibited without prior OTS approval.
When considering an application for such an acquisition, the OTS takes into
consideration the financial and managerial resources and future prospects of the
prospective acquiring company and the institution involved. This includes
consideration of the competence, experience and integrity of the officers,
directors and principal shareholders of the acquiring company and savings
institution. In addition,
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<PAGE>
the OTS considers the effect of the acquisition on the institution, the
insurance risk to the Savings Association Insurance Fund ("SAIF") and the
convenience and needs of the community to be served.
The OTS may not approve an acquisition that would result in the formation of
certain types of interstate holding company networks. The OTS is precluded from
approving an acquisition that would result in the formation of a multiple
holding company controlling institutions in more than one state unless the
acquiring company or one of its savings institution subsidiaries is authorized
to acquire control of an institution or to operate an office in the additional
state pursuant to a supervisory acquisition authorized under Section 13(k) of
the Federal Deposit Insurance Act or unless the statutes of the state in which
the institution to be acquired is located permits such an acquisition.
Savings and loan holding companies are allowed to acquire or to retain as
much as 5% of the voting shares of a savings institution or savings and loan
holding company without regulatory approval.
Because Carolina First is deemed to control the Company under regulatory
standards applicable to Carolina First, the Company has agreed with Carolina
First that it will not engage in any activities other than activities which are
permissible banking or non-banking activities under applicable regulations of
the Federal Reserve Board, which in general terms limits the activities of bank
holding companies and their affiliates to those which are determined to be "so
closely related to banking or managing or controlling banks as to be a proper
incident thereto." The Company does not believe that these limitations will
impose any material constraints on its proposed activities.
As of the date of this Prospectus, management believes the Company is in
compliance with all statutes, regulations and rules promulgated or enforced by
the OTS and the Department of Banking. Upon the consummation of the
Reorganization, the Company believes it will continue to be in compliance with
all statutes, regulations and rules promulgated or enforced by the OTS and the
Department of Banking.
BANK REGULATION
GENERAL. The Bank will be a federal savings bank organized under the laws
of the United States subject to examination by the OTS. The OTS regulates all
areas of the Bank's banking operations including reserves, loans, mergers,
payment of dividends, interest rates, establishment of branches, and other
aspects of operations. OTS regulations generally provide that federal savings
banks must be examined no less frequently than every 12 months, unless the
federal savings bank (i) has assets of less than $250 million; (ii) is well
capitalized; (iii) was found to be well managed and its composite condition was
found to be outstanding (or good, if the bank had total assets of not more than
$100,000) during its last examination; (iv) is not subject to a formal
enforcement proceeding or an order from the FDIC or another banking agency; and
(v) has not undergone a change of control during the previous 12-month period,
in which event it must be examined no less frequently than every 18 months. The
Bank also is subject to assessments by the OTS to cover the costs of such
examinations.
The Bank will also be insured and regulated by the Federal Deposit Insurance
Corporation (the "FDIC"). The major functions of the FDIC with respect to
insured federal savings banks include paying depositors to the extent provided
by law in the event an insured bank is closed without adequately providing for
payment of the claims of depositors and preventing the continuance or
development of unsound and unsafe banking practices.
Subsidiary institutions of a savings and loan holding company, such as the
Bank, are subject to certain restrictions imposed by the Federal Reserve Act on
any extension of credit to the holding company or any of its subsidiaries, on
investment in the stock or other securities thereof, and on the taking of such
stock or securities as collateral for loans to any borrower. In addition, a
holding company and its subsidiaries are prohibited from engaging in certain
tying arrangements in connection with any extension of credit or provision of
any property or services.
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<PAGE>
CAPITAL REQUIREMENTS. OTS regulations require that federal savings banks
maintain (i) "tangible capital" in an amount of not less than 1.5% of total
assets, (ii) "core capital" in an amount not less than 3.0% of total assets, and
(iii) a level of risk-based capital equal to 8% of risk-weighted assets. Under
OTS regulations, the term "core capital" generally includes common stockholders'
equity, noncumulative perpetual preferred stock and related surplus, and
minority interests in the equity accounts of consolidated subsidiaries less
unidentifiable intangible assets (other than certain amounts of supervisory
goodwill) and certain investments in certain subsidiaries plus 90% of the fair
market value of readily marketable purchased mortgage servicing rights ("PMSRs")
and purchased credit card relationships (subject to certain conditions).
"Tangible capital" generally is defined as core capital minus intangible assets
and investments in certain subsidiaries, except PMSRs.
In determining total risk-weighted assets for purposes of the risk-based
requirement, (i) each off-balance sheet asset must be converted to its
on-balance sheet credit equivalent amount by multiplying the face amount of each
such item by a credit conversion factor ranging from 0% to 100% (depending upon
the nature of the asset), (ii) the credit equivalent amount of each off-balance
sheet asset and each on-balance sheet asset must be multiplied by a risk factor
ranging from 0% to 200% (again depending upon the nature of the asset) and (iii)
the resulting amounts are added together and constitute total risk-weighted
assets. "Total capital," for purposes of the risk-based capital requirement
equals the sum of core capital plus supplementary capital (which, as defined,
includes the sum of, among other items, perpetual preferred stock not counted as
core capital, limited life preferred stock, subordinated debt, and general loan
and lease loss allowances up to 1.25% of risk-weighted assets) less certain
deductions. The amount of supplementary capital that may be counted towards
satisfaction of the total capital requirement may not exceed 100% of core
capital, and OTS regulations require the maintenance of a minimum ratio of core
capital to total risk-weighted assets of 4%.
OTS regulations have been amended to include an interest-rate risk component
to the risk-based capital requirement. Under this regulation, an institution is
considered to have excess interest rate-risk if, based upon a 200-basis point
change in market interest rates, the market value of an institution's capital
changes by more than 2%. This new requirement, application of which has been
delayed indefinitely by the OTS, is not expected to have any material effect on
the ability of the Bank to meet the risk-based capital requirement. The OTS also
revised its risk-based capital standards to ensure that its standards provide
adequately for concentration of credit risk, risk from nontraditional activities
and actual performance and expected risk of loss on multi-family mortgages.
Capital requirements higher than the generally applicable minimum
requirement may be established for a particular savings association if the OTS
determines that the institution's capital was or may become inadequate in view
of its particular circumstances.
Additionally, the Department of Banking requires that savings and loan
holding companies, such as the Company, must maintain a 5% Tier 1 leverage ratio
on a consolidated basis.
Upon consummation of the Reorganization, Management expects that the Company
will have a 35% Tier I leverage ratio on a consolidated basis and will be "well
capitalized."
PROMPT CORRECTIVE ACTION. The Federal Deposit Insurance Corporation
Improvement Act of 1991 (the "FDIC Act") imposes a regulatory matrix which
requires the federal banking agencies, which include the OTS, the FDIC, the
Office of the Comptroller of Currency (the "OCC"), and the Federal Reserve
Board, to take prompt corrective action to deal with depository institutions
that fail to meet their minimum capital requirements or are otherwise in a
troubled condition. The prompt corrective action provisions require
undercapitalized institutions to become subject to an increasingly stringent
array of restrictions, requirements and prohibitions, as their capital levels
deteriorate and supervisory problems mount. Should these corrective measures
prove unsuccessful in recapitalizing the institution and correcting its
problems, the FDIC Act mandates that the institution be placed in receivership.
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Pursuant to regulations promulgated under the FDIC Act, the corrective
actions that the banking agencies either must or may take are tied primarily to
an institution's capital levels. In accordance with the framework adopted by the
FDIC Act, the banking agencies have developed a classification system, pursuant
to which all banks and thrifts will be placed into one of five categories:
well-capitalized institutions, adequately capitalized institutions,
undercapitalized institutions, significantly undercapitalized institutions and
critically undercapitalized institutions. The capital thresholds established for
each of the categories are as follows:
<TABLE>
<CAPTION>
TIER 1
RISK-BASED RISK-BASED
CAPITAL CATEGORY TIER 1 CAPITAL CAPITAL CAPITAL OTHER
- --------------------------------- ----------------- ---------------- ---------------- ------------------------
<S> <C> <C> <C> <C>
Well-Capitalized 5% or more 10% or more 6% or more Not subject to a capital
directive
Adequately Capitalized 4% or more 8% or more 4% or more --
Undercapitalized less than 4% less than 8% less than 4% --
Significantly Undercapitalized less than 3% less than 6% less than 3% --
Critically Undercapitalized 2% or less -- -- --
tangible equity
</TABLE>
The undercapitalized, significantly undercapitalized and critically
undercapitalized categories overlap; therefore, a critically undercapitalized
institution would also be an undercapitalized institution and a significantly
undercapitalized institution. This overlap ensures that the remedies and
restrictions prescribed for undercapitalized institutions will also apply to
institutions in the lowest two categories.
The down-grading of an institution's category is automatic in two
situations: (i) whenever an otherwise well-capitalized institution is subject to
any written capital order or directive, and (ii) where an undercapitalized
institution fails to submit or implement a capital restoration plan or has its
plan disapproved. The federal banking agencies may treat institutions in the
well-capitalized, adequately capitalized and undercapitalized categories as if
they were in the next lower capital level based on safety and soundness
considerations relating to factors other than capital levels.
The FDIC Act prohibits all insured institutions regardless of their level of
capitalization from paying any dividend or making any other kind of capital
distribution or paying any management fee to any controlling person if following
the payment or distribution the institution would be undercapitalized. While the
prompt corrective action provisions of the FDIC Act contain no requirements or
restrictions aimed specifically at adequately capitalized institutions, other
provisions of the FDIC Act and the agencies' regulations relating to deposit
insurance assessments, brokered deposits and interbank liabilities treat
adequately capitalized institutions less favorably than those that are
well-capitalized.
A depository institution that is not well capitalized is prohibited from
accepting deposits through a deposit broker. However, an adequately capitalized
institution can apply for a waiver to accept brokered deposits. Institutions
that receive a waiver are subject to limits on the rates of interest they may
pay on brokered deposits.
Undercapitalized institutions are prohibited from offering rates of interest
on insured deposits that significantly exceed the prevailing rate in their
normal market area or the area in which the deposits would otherwise be
accepted. Institutions classified as undercapitalized are precluded from
increasing their assets, acquiring other institutions, establishing additional
branches, or engaging in new lines of business without an approved capital plan
and an agency determination that such actions are consistent with the plan.
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Savings associations that are significantly undercapitalized may be required
to take one or more of the following actions: (i) raise additional capital so
that the institution will be adequately capitalized; (ii) be acquired by, or
combined with, another institution if grounds exist for appointing a receiver;
(iii) refrain from affiliate transactions; (iv) limit the amount of interest
paid on deposits to the prevailing rates of interest in the region where the
institution is located; (v) further restrict asset growth; (vi) hold a new
election for directors, dismiss any director or senior executive officer who
held office for more than 180 days immediately before the institution became
undercapitalized, or employ qualified senior executive officers; (vii) stop
accepting deposits from correspondent depository institutions; and (viii) divest
or liquidate any subsidiary which the OTS determines poses a significant risk to
the institution.
Significantly undercapitalized institutions are subject to the same
mandatory sanctions and discretionary actions applicable to all undercapitalized
institutions. In addition, a significantly undercapitalized institution is
prohibited from paying any bonus or giving a raise to any senior executive
officer without prior agency approval. A significantly undercapitalized
institution will be required to (i) sell sufficient shares or obligations to
restore its capital compliance or be acquired by another institution, (ii)
restrict the institution's transactions with affiliates, and (iii) limit the
interest rates paid by the institution on its deposits. The banking agencies are
also given the option to impose one or more of the activities restrictions that
are applicable to critically undercapitalized institutions.
Critically undercapitalized institutions must be placed in conservatorship
or receivership within ninety (90) days unless both the institution's regulator
and the FDIC agree that some other course of action ultimately would result in a
lower cost solution. If the regulators decide to keep a critically
undercapitalized institution open, they must reassess their decision every
ninety (90) days and document the reasons why they elected not to appoint a
conservator or receiver. Further, if an institution continues to be critically
undercapitalized on average for four quarters after falling below two percent
(2%) tangible capital, the regulatory agencies are required to place the
institution in receivership, unless it (i) has positive net worth, (ii) is in
substantial compliance with an approved capital restoration plan, (iii) is
profitable or has a sustainable upward trend in earnings, and (iv) has reduced
its ratio of non-performing loans to total loans. In addition, the institution's
regulator and the FDIC must certify that the institution is viable and is not
expected to fail.
Critically undercapitalized institutions that are allowed to remain open are
subject to all the requirements and restrictions discussed above that either
automatically apply to or may be imposed on undercapitalized and significantly
undercapitalized institutions. In addition, beginning sixty (60) days after it
becomes critically undercapitalized, an institution is generally prohibited from
paying any interest or principal on its subordinated debt. Critically
undercapitalized institutions are also required to obtain prior FDIC approval
for a number of activities, including (i) entering into any material transaction
other than in the usual course of business, (ii) extending credit for any highly
leveraged transaction, (iii) amending their charter or bylaws, (iv) making any
material change in accounting methods, (v) engaging in any affiliate
transactions under Section 23A of the Federal Reserve Act, (vi) paying
"excessive" compensation or bonuses, and (vii) paying interest on new or renewed
liabilities so as to increase the institution's weighted average cost of funds
significantly above the prevailing interest rates for deposits in the
institution's normal market.
CAPITAL DISTRIBUTIONS. An OTS rule imposes limitations on all capital
distributions by savings associations (including dividends, stock repurchases
and cash-out mergers). Under the current rule, a savings association is
classified as a Tier 1 institution, a Tier 2 institution or a Tier 3
institution, depending on its level of regulatory capital both before and after
giving effect to a proposed capital distribution. Under a proposed rule, the OTS
would conform its three classifications to the five capital classifications set
forth under the prompt corrective action regulations. Under the proposal,
institutions that are at least adequately capitalized would still be required to
provide prior notice. Well capitalized institutions could make capital
distributions without prior regulatory approval in specified amounts in any
calendar year.
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A Tier 1 institution (I.E., one that both before and after a proposed
capital distribution has net capital equal to or in excess of its capital
requirements) may, subject to any otherwise applicable statutory or regulatory
requirements or agreements entered into with the regulators, make capital
distributions in any calendar year up to 100% of its net income to date during
the calendar year plus the amount that would reduce by one-half its "surplus
capital ratio" (I.E., the percentage by which the association's capital-to-
assets ratio exceeds the ratio of its fully phased-in capital requirement to its
assets) at the beginning of the calendar year. No regulatory approval of the
capital distribution is required, but prior notice must be given to the OTS.
A Tier 2 institution (I.E., one that both before and after a proposed
capital distribution has net capital equal to its then-applicable minimum
capital requirement but which fails to meet its fully phased-in capital
requirement either before or after the distribution) may, after prior notice but
without the approval of the OTS, make capital distributions of up to: (i) 75% of
its net income over the most recent four quarter period if it satisfies the
applicable risk-based capital standard; or (ii) 50% of its net income over the
most recent four quarter period if it satisfies the applicable risk-based
capital standard. In calculating an institution's permissible percentage of
capital distributions, previous distributions made during the previous four
quarter period must be included. Tier 2 institutions may not make capital
distributions in excess of the above limitations without the prior written
approval of the OTS.
A Tier 3 institution (I.E., one that either before or after a proposed
capital distribution fails to meet its then applicable minimum capital
requirement) may not make any capital distributions without the prior written
approval of the OTS. In addition, the OTS may prohibit a proposed capital
distribution, which would otherwise be permitted by the regulation, if the OTS
determines that such distribution would constitute an unsafe or unsound
practice. Also, an institution meeting the Tier 1 criteria which has been
notified that it needs more than normal supervision will be treated as a Tier 2
or Tier 3 institution, unless the OTS deems otherwise.
LIQUIDITY. Under applicable federal regulations, savings associations are
required to maintain an average daily balance of liquid assets (including cash,
certain time deposits, certain bankers' acceptances, certain corporate debt
securities and highly rated commercial paper, securities of certain mutual funds
and specified United States government, state or federal agency obligations)
equal to a monthly average of not less than a specified percentage of the
average daily balance of the savings association's net withdrawable deposits
plus short-term borrowings. Under HOLA, this liquidity requirement may be
changed from time to time by the OTS to any amount within the range of 4% to 10%
depending upon economic conditions and the deposit flows of member institutions,
and currently is 5%. Savings institutions also are required to maintain an
average daily balance of short-term liquid assets at a specified percentage
(currently 1%) of the total of the average daily balance of its net withdrawable
deposits and short-term borrowings. After the Reorganization, the Bank will be
in compliance with these liquidity requirements.
EQUITY INVESTMENTS. The OTS has revised its risk-based capital regulation
to modify the treatment of certain equity investments and to clarify the
treatment of other equity investments. Equity investments that are permissible
for both savings banks and national banks will no longer be deducted from
savings associations' calculations of total capital over a five-year period.
Instead, permissible equity investments will be placed in the 100% risk-weight
category, mirroring the capital treatment prescribed for those investments when
made by national banks under the regulations of the OCC. Equity investments held
by savings associations that are not permissible for national banks must still
be deducted from assets and total capital.
QUALIFIED THRIFT LENDER REQUIREMENT. A federal savings bank is deemed to be
a "qualified thrift lender" ("QTL") as long as its "qualified thrift
investments" equal or exceed 65% of its "portfolio assets" on a monthly average
basis in nine out of every 12 months. Qualified thrift investments generally
consist of (i) various housing related loans and investments (such as
residential construction and mortgage loans, home improvement loans, mobile home
loans, home equity loans and mortgage-backed securities),
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<PAGE>
(ii) certain obligations of the FDIC (including the Federal Savings and Loan
Insurance Corporation) and (iii) shares of stock issued by any FHLB, the FHLMC
or the FNMA. In addition, the following assets may be categorized as qualified
thrift investments in an amount not to exceed 20% in the aggregate of portfolio
assets: (i) 50% of the dollar amount of residential mortgage loans originated
and sold within 90 days of origination; (ii) investments in securities of a
service corporation that derives at least 80% of its income from residential
housing finance; (iii) 200% of loans and investments made to acquire, develop or
construct starter homes or homes in credit needy areas (subject to certain
conditions); (iv) loans for the purchase or construction of churches, schools,
nursing homes and hospitals; and (v) consumer loans (in an amount up to 20% of
portfolio assets). For purposes of the QTL test, the term "portfolio assets"
means the savings institution's total assets minus goodwill and other intangible
assets, the value of property used by the savings institution to conduct its
business, and liquid assets held by the savings institution in an amount up to
20% of its total assets.
OTS regulations provide that any savings association that fails to meet the
definition of a QTL must either convert to a national bank charter or limit its
future investments and activities (including branching and payments of
dividends) to those permitted for both savings associations and national banks.
Further, within one year of the loss of QTL status, a holding company of a
savings association that does not convert to a bank charter must register as a
bank holding company and will be subject to all statutes applicable to bank
holding companies. In order to exercise the powers granted to federally
chartered savings associations and maintain full access to FHLB advances, the
Bank must meet the definition of a QTL. After the Reorganization, the Bank will
qualify as a QTL under the current test.
LOANS TO ONE BORROWER LIMITATIONS. HOLA generally requires savings
associations to comply with the loans to one borrower limitations applicable to
national banks. National banks generally may make loans to a single borrower in
amounts up to 15% of their unimpaired capital and surplus, plus an additional
10% of capital and surplus for loans secured by readily marketable collateral.
HOLA provides exceptions under which a savings association may make loans to one
borrower in excess of the generally applicable national bank limits. A savings
association may make loans to one borrower in excess of such limits under one of
the following circumstances: (i) for any purpose, in any amount not to exceed
$500,000; or (ii) to develop domestic residential housing units, in an amount
not to exceed the lesser of $30 million or 30% of the savings association's
unimpaired capital and unimpaired surplus, provided other conditions are
satisfied. The Federal Institutions Reform, Recovery, and Enforcement Act of
1989 provided that a savings association could make loans to one borrower to
finance the sale of real property acquired in satisfaction of debts previously
contracted in good faith in amounts up to 50% of the savings association's
unimpaired capital and unimpaired surplus. The OTS, however, has modified the
third standard by limiting loans to one borrower to finance the sale of real
property acquired in satisfaction of debts to 15% of unimpaired capital and
surplus. That rule provides, however, that purchase money mortgages received by
a savings association to finance the sale of such real property do not
constitute "loans" (provided no new funds are advanced and the savings
association is not placed in a more detrimental position holding the note than
holding the real estate) and, therefore, are not subject to the loans to one
borrower limitations.
COMMERCIAL REAL PROPERTY LOANS.
HOLA limits the aggregate amount of commercial real estate loans that a
federal savings association may make to an amount not in excess of 400% of the
savings association's capital. The Bank does not intend to make loans in excess
of this limit.
COMMUNITY REINVESTMENT. Under the Community Reinvestment Act (the "CRA")
and the implementing OTS regulations, federal savings banks have a continuing
and affirmative obligation to help meet the credit needs of its local community,
including low and moderate-income neighborhoods, consistent with the safe and
sound operation of the institution. The CRA requires the board of directors of
financial institutions, such as the Bank, to adopt a CRA statement for each
assessment area that, among other things, describes its efforts to help meet
community credit needs and the specific types of credit that the
44
<PAGE>
institution is willing to extend. The regulations promulgated pursuant to CRA,
contain three evaluation tests: (i) a lending test which will compare the
institution's market share of loans in low-and moderate-income areas to its
market share of loans in its entire service area and the percentage of a bank's
outstanding loans to low- and moderate-income areas or individuals, (ii) a
services test which will evaluate the provision of services that promote the
availability of credit to low- and moderate-income areas, and (iii) an
investment test, which will evaluate an institution's record of investments in
organizations designed to foster community development, small- and
minority-owned businesses and affordable housing lending, including state and
local government housing or revenue bonds. The regulation is designed to reduce
the paperwork requirements of the current regulations and provide regulators,
institutions and community groups with a more objective and predictable manner
with which to evaluate the CRA performance of financial institutions.
Traditional approaches to compliance with the Community Reinvestment Act, as
well as the applicable regulations, are premised upon the establishment of
geocentrically-established physical locations and the provision of banking
services to those locations. As presently written, the regulations provide no
clear guidance for the establishment of CRA compliance by a bank such as the
Bank, which focuses on alternative delivery systems. The Regulation does contain
provisions which contemplate the adoption of a strategic CRA plan by banks who
desire to establish their own specified approach to serving their community. The
Bank intends to establish a CRA Strategic Plan which takes into account its
unique physical structure and the delivery mechanisms it intends to utilize, and
the Bank anticipates that its Strategic Plan, as adopted will be approved by
OTS.
FAIR LENDING. Congress and various federal agencies (including, in addition
to the bank regulatory agencies, the Department of Housing and Urban
Development, the Federal Trade Commission and the Department of Justice)
(collectively the "Federal Agencies") responsible for implementing the nation's
fair lending laws have been increasingly concerned that prospective home buyers
and other borrowers are experiencing discrimination in their efforts to obtain
loans. In recent years, the Department of Justice has filed suit against
financial institutions that it determined had discriminated, seeking fines and
restitution for borrowers who allegedly suffered from discriminatory practices.
Most, if not all, of these suits have been settled (some for substantial sums)
without a full adjudication on the merits.
On March 8, 1994, the Federal Agencies, in an effort to clarify what
constitutes lending discrimination and to specify the factors the agencies will
consider in determining if lending discrimination exits, announced a joint
policy statement detailing specific discriminatory practices prohibited under
the Equal Credit Opportunity Act and the Fair Housing Act. In the policy
statement, three methods of proving lending discrimination were identified: (i)
overt evidence of discrimination, when a lender blatantly discriminates on a
prohibited basis, (ii) evidence of disparate treatment, when a lender treats
applicants differently based on a prohibited factor even where there is no
showing that the treatment was motivated by prejudice or a conscious intention
to discriminate against a person, and (iii) evidence of disparate impact, when a
lender applies a practice uniformly to all applicants, but the practice has a
discriminatory effect, even where such practices are neutral on their face and
are applied equally, unless the practice can be justified on the basis of
business necessity.
SAFETY AND SOUNDNESS GUIDELINES. The federal banking agencies have adopted
safety and soundness regulations relating to (i) internal controls, information
systems, and internal audit systems; (ii) loan documentation; (iii) credit
underwriting; (iv) interest rate exposure; (v) asset growth; and (vi)
compensation and benefit standards for officers, directors, employees and
principal shareholders. Subsequent legislation, however, required that the
agencies adopt guidelines in lieu of the regulations. Such guidelines impose
standards based upon an institution's asset quality and earnings. The guidelines
are intended to set out standards that the agencies will use to identify and
address problems at institutions before capital becomes impaired. Institutions
are required to establish and maintain a system to identify problem assets and
prevent deterioration of those assets in a manner commensurate with its size and
the nature and scope of their operations. Furthermore, institutions must
establish and maintain a system to evaluate and
45
<PAGE>
monitor earnings and ensure that earnings are sufficient to maintain adequate
capital and reserves in a manner commensurate with their size and the nature and
scope of its operation.
Under the guidelines, an institution not meeting one or more of the safety
and soundness standards would be required to file a compliance plan with the
appropriate federal banking agency. Nonetheless, in the event that an
institution, such as the Bank, were to fail to submit an acceptable compliance
plan or fail in any material respect to implement an accepted compliance plan
within the time allowed by the agency, the institution would be required to
correct the deficiency and the appropriate federal agency would also be
authorized to: (i) restrict asset growth; (ii) require the institution to
increase its ratio of tangible equity to assets; (iii) restrict the rates of
interest that the institution may pay; or (iv) take any other action that would
better carry out the purpose of the corrective action.
POLICY ON GROWTH. It is the general policy of the OTS to ensure that asset
and liability growth of federal savings banks is prudent, adequately capitalized
and conducted in a manner that is consistent with safety and soundness and the
interests of the insurance fund. Excessive asset growth by any institution, as
determined by the OTS on the basis of the institution's management and asset
quality, capital adequacy, interest rate risk profile and operating controls and
procedures, is an unsafe and unsound practice. As a general rule, institutions
"requiring more than normal supervision" or "subject to greater restrictions"
will be permitted little to no growth under OTS policy, subject to OTS
discretion and waiver authority. In addition, all institutions except those
whose regulatory capital already exceeds the "fully phased-in" requirement must
increase their tangible, core and total capital by the capital requirements
applicable at the time to support the growth at the time the assets are
increased. Institutions that meet the "fully phased-in" capital requirements
must ensure that proposed growth will not cause them to fall below those
requirements in the future. On a case-by-case basis, where appropriate, the OTS
retains the authority and flexibility to impose more stringent growth
restrictions.
Furthermore, without the prior written approval of the OTS, any institution
requiring more than normal supervision is not permitted to increase its total
assets during any quarter in excess of an amount equal to net interest credited
on deposit liabilities (or earnings credited on share accounts) during the
quarter. Also, under HOLA growth is prohibited by any institution not in
compliance with its capital standards.
FDIC INSURANCE OF DEPOSITS. Federal deposit insurance is required for all
federally chartered savings associations. Deposits at the Bank are insured to a
maximum of $100,000 for each depositor by Savings Association Insurance Fund
(the "SAIF"). As a SAIF-insured institution, the Bank is subject to regulation
and supervision by the FDIC, to the extent deemed necessary by the FDIC to
ensure the safety and soundness of the SAIF. The FDIC is entitled to have access
to reports of examination of the Bank made by the OTS and all reports of
condition filed by the Bank with the OTS. The FDIC also may require the Bank to
file such additional reports as it determines to be advisable for insurance
purposes. Additionally, the FDIC may determine by regulation or order that any
specific activity poses a serious threat to the SAIF and that no SAIF member may
engage in the activity directly.
Insurance premiums are paid in semiannual assessments. Under a risk-based
assessment system, the FDIC is required to calculate a savings association's
semiannual assessment based on (i) the probability that the insurance fund will
incur a loss with respect to the institution (taking into account the
institution's asset and liability concentration), (ii) the potential magnitude
of any such loss, and (iii) the revenue and reserve needs of the insurance fund.
The semiannual assessment imposed on the Bank may be higher depending on the
SAIF revenue and expense levels, and the risk classification applied to the
Bank. Effective January 1, 1998, the FDIC is required to set SAIF semiannual
assessments rates in an amount sufficient to increase the reserve ratio of the
SAIF to 1.25% of insured deposits over no more than a 15-year period. The FDIC
also has the authority to establish a higher reserve ratio.
The deposit insurance assessment rate was increased from 23 cents per one
hundred dollars of SAIF assessable deposits (generally all insured accounts
subject to certain adjustments) to an assessment rate
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<PAGE>
within the range of 23 cents to 31 cents, depending on the assessment risk
classification assigned to each institution. Under the risk-classification
system, each SAIF member is assigned to one of three capital groups: "well
capitalized," "adequately capitalized," or "less than adequately capitalized,"
as such terms are defined under the OTS's prompt corrective action regulation
(discussed above), except that "less than adequately capitalized" includes any
institution that is not well capitalized or adequately capitalized. Within each
capital group, institutions are assigned to one of three supervisory
subgroups--"healthy" (institutions that are financially sound with only a few
minor weaknesses), "supervisory concern" (institutions with weaknesses which, if
not corrected could result in significant deterioration of the institution and
increased risk to the SAIF) or "substantial supervisory concern" (institutions
that pose a substantial probability of loss to the SAIF unless corrective action
is taken). The FDIC will place each institution into one of nine assessment risk
classifications based on the institution's capital group and supervisory
subgroup classification.
Until recently, SAIF premiums had been equivalent to deposit insurance
premiums paid by banks on deposits to the Bank Insurance Fund ("BIF"). Deposit
insurance premiums were set to facilitate each fund's achieving its designated
reserve ratios. As each fund achieves its designated reserve ratio, however, the
FDIC has the authority to lower the premium assessments for that fund to a rate
that would be sufficient to maintain the designated reserve ratio. In August
1995, the FDIC determined that the BIF had achieved its designated reserve ratio
and approved lower BIF premium rates for deposit insurance by the BIF for all
but the riskiest institutions. On November 14, 1995, the FDIC determined that
BIF deposit insurance premiums for well capitalized banks would be further
reduced to the statutory minimum of $2,000 per institution per year, effective
January 1, 1996. Because the SAIF remained significantly below its designated
reserve ratio, insurance premiums for assessable SAIF deposits were not reduced
in either FDIC action.
The current financial condition of the SAIF resulted in the adoption of the
Deposit Insurance Funds Act of 1996 ("DIFA"), which was enacted on September 30,
1996 as part of the Omnibus Consolidated Appropriations Act. Under DIFA, a
special one-time assessment of 65.7 cents per $100 of assessable SAIF deposits
was collected on November 27, 1996 and applied retroactively to SAIF deposits as
of March 31, 1995. DIFA provides that special assessments will be deductible
under Section 162 of the Internal Revenue Code in the year in which the
assessment is paid. After collection of the special assessment, it is expected
that the SAIF would achieve its designated reserve ratio and SAIF premium rates
would then become the same as BIF rates. DIFA further provides that BIF and SAIF
are to be merged, creating the "Deposit Insurance Fund," on January 1, 1999,
provided that bank and savings association charters are combined by that date.
The Treasury Department is required to prepare a report to be submitted to
Congress by March 31, 1997 on the development of a common charter for all
insured depository institutions. See "Supervision and Regulation--Elimination of
Federal Savings Charter."
DIFA further assesses premiums for Financing Corporation Bond debt service
("FICO"). Beginning January 1, 1997, FICO premiums for BIF and SAIF were set at
1.3 and 6.4 basis points, respectively. Full pro rata sharing of FICO will begin
no later than January 1, 2000.
Effective January 1, 1997, SAIF members have the same risk-based assessment
schedule as BIF members, which is 0 to 27 cents per $100 of deposits. FICO
assessments of 1.3 cents for BIF deposits and 6.4 cents for SAIF deposits will
be added to the BIF-assessable base and SAIF-assessable base, respectively,
until December 31, 1999. Thereafter, approximately 2.4 cents would be added to
each regular assessment for all insured depositors, thereby achieving full pro
rata FICO sharing.
The SAIF-assessable base previously was assessed at a rate of 23 to 31 basis
points for the fourth quarter as part of the regular annual deposit insurance
assessment. Following the adoption of DIFA, the special assessment was booked as
an asset by the FDIC effective October 1, 1996, fully capitalizing SAIF as of
that date. Consequently, the proposed regular assessment rate for SAIF-member
savings associations
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has been lowered retroactively to 18 to 27 basis points effective October 1,
1996, which represents the amount necessary to cover FICO obligations.
Until January 1, 1997, under the FDIC's interpretation of existing law, FICO
payments could be met only from assessments on SAIF-member savings associations.
Any overpayment of fourth quarter assessments from such institutions, estimated
at approximately 1.25 cents per $100 of deposits, was refunded or credited, with
interest, using regular quarterly payment procedures.
The federal banking agencies are required to take action to prevent insured
institutions from facilitating or encouraging the shifting of SAIF deposits to
BIF deposits for purposes of evading the assessments imposed on SAIF-assessable
deposits.
Insurance of deposits may be terminated by the FDIC after notice and
hearing, upon a finding by the FDIC that the savings association has engaged in
unsafe or unsound practices, is in an unsafe or unsound condition to continue
operations, or has violated any applicable law, rule, regulation, order or
condition imposed by, or written agreement with, the FDIC. Additionally, if
insurance termination proceedings are initiated against a savings association,
the FDIC may temporarily suspend insurance on new deposits received by an
institution under certain circumstances.
FEDERAL HOME LOAN BANK SYSTEM. The FHLB System consists of 12 regional
FHLBs, each subject to supervision and regulation by the Federal Housing Finance
Board (the "FHFB"). The FHLBs provide a central credit facility for member
savings associations. After the Reorganization, the Bank will be a member of the
FHLB of Atlanta and will be required to own shares of capital stock in the FHLB
of Atlanta in an amount at least equal to 1% of the aggregate principal amount
of unpaid residential mortgage loans, home purchase contracts and similar
obligations at the beginning of each year, or 1/20 of their advances
(borrowings) from the FHLB, whichever is greater. The maximum amount that the
FHLB of Atlanta will advance fluctuates from time to time in accordance with
changes in policies of the FHFB and the FHLB of Atlanta, and the maximum amount
generally is reduced by borrowings from any other source. In addition, the
amount of FHLB advances that a savings association may obtain will be restricted
in the event the institution fails to constitute a QTL.
FEDERAL RESERVE SYSTEM. The Federal Reserve Board has adopted regulations
that require savings associations to maintain nonearning reserves against their
transaction accounts (primarily NOW and regular checking accounts). After the
Reorganization, the Bank will be in compliance with these requirements. These
reserves may be used to satisfy liquidity requirements imposed by the OTS.
Because required reserves must be maintained in the form of cash or a
non-interest-bearing account at a Federal Reserve Bank, the effect of this
reserve requirement is to reduce the amount of the Bank's interest-earning
assets.
Savings institutions also have the authority to borrow from the Federal
Reserve "discount window." Federal Reserve Board regulations, however, require
savings associations to exhaust all FHLB sources before borrowing from a Federal
Reserve bank.
The Federal Reserve Board also has adopted regulations to implement the
Electronic Funds Transfer Act ("EFTA"), the basic framework establishing rights,
liabilities and responsibilities of participants in electronic funds transfer
systems. The Bank's proposed banking activities over the Internet would be as
electronic funds transfers. The Federal Reserve Board has proposed amending its
regulations implementing the EFTA in order to simplify the burdens that the EFTA
places on financial institutions. Although most of the regulatory provisions
remain unchanged, the Federal Reserve Board has proposed raising the asset-size
test for the small-institution exemption from $25 million to $100 million in
assets. Under the small institution exemption pre-authorized transfers are
exempt from the EFTA and the regulations promulgated thereunder. All other
electronic fund transfers, however, remain subject to the EFTA. The Bank will
qualify as a small institution under the proposed amendment and will remain
eligible for the small institution exemption until one-year from the end of the
calendar year in which its assets exceeded $100 million.
48
<PAGE>
RESTRICTIONS ON MANAGEMENT INTERLOCKS. The Bank is also subject to the
restrictions of the Depository Institution Management Interlocks Act ("DIMIA"),
which is intended to foster competition among depository institutions by
prohibiting a management official from serving two nonaffiliated depository
organizations (holding companies or institutions) in situations where the
management interlock likely would have an anticompetitive effect. Under DIMIA,
management officials, including directors and executive officers, are precluded
from serving as a management official of a depository organization at the same
time they are serving as a management official of an unaffiliated organization,
if the depository organizations (or institution subsidiary thereof) are in the
same community or have offices in the same relevant metropolitan statistical
area ("RMSA") and each depository organization has total assets of $20 million
or more. A management official of a depository organization with assets
exceeding $2.5 billion may not serve at the same time as a management official
of an unaffiliated depository organization with total assets exceeding $1.5
billion, regardless of the location of the two depository organizations.
Interlocking relationships permitted by DIMIA include institutions under
receivership, conservatorship, liquidation, or which are to be closed or in
danger of being closed, for the 5-year period following the acquisition of a
failed institution, organizations that do not conduct business within the United
States except as incident to activities outside of the United States and for
management officials of diversified savings and loan holding companies. Other
interlocking relationships are permitted for specified time periods by agency
order, if one of the organizations is located or is to be located in a
low-income or other economically depressed area, or is controlled or managed by
persons who are members of minority groups or by women, or is a newly-chartered
organization and the interlocking relationship is necessary to provide
management or operating expertise to the newly created organization, or if one
of the organizations faces conditions endangering the organizations safety and
soundness.
The OTS, along with the other federal banking agencies, recently proposed
amendments to the regulations implementing DIMIA that would narrow the
circumstances under which an exception could be granted by agency order. Such
changes were required to implement changes to DIMIA that were adopted in the
Riegle Community Development and Regulatory Improvement Act of 1994, and will
require that persons seeking an exemption meet either a "regulatory standards
exemption" or a "management consignment exemption." Agency approval under the
regulatory standards exemption will require that an institution certify that it
has undertaken reasonable efforts to locate any other qualified candidates who
are not prohibited from service under DIMIA. Agencies will not object to such an
interlock if it involves institutions that, if merged, would not trigger a
challenge from the agencies on anticompetitive grounds, as measured under the
Herfindahl-Hirschman Index. The management consignment exemption is permissible
if the management official will strengthen either a newly chartered institution
(defined as charted for less than two years from the date of filing for the
exemption) or an institution that is an unsafe or unsound condition.
Mack I. Whittle, Jr. is the President and Chief Executive Officer of
Carolina First and is a director of Carolina First and CFB. Mr. Whittle will
serve as a director of the Company upon consummation of this Offering. The
Company, Carolina First and CFB believe that no violation of DIMIA exists since
CFB is deemed to control the Bank for federal regulatory purposes.
TRANSACTIONS WITH AFFILIATES RESTRICTIONS. Transactions engaged in by a
savings association or one of its subsidiaries with affiliates of the savings
association generally are subject to the affiliate transaction restrictions
contained in Sections 23A and 23B of the Federal Reserve Act in the same manner
and to the same extent as such restrictions apply to transactions engaged in by
a member bank or one of its subsidiaries with affiliates of the member bank.
Section 23A of the Federal Reserve Act imposes both quantitative and qualitative
restrictions on transactions engaged in by a member bank or one of its
subsidiaries with an affiliate, while Section 23B of the Federal Reserve Act
requires, among other things that all transactions with affiliates be on terms
substantially the same, and at least as favorable to the member bank or its
subsidiary, as the terms that would apply to, or would be offered in, a
comparable transaction with an unaffiliated party. Exemptions from, and waivers
of, the provisions of Sections 23A and
49
<PAGE>
23B of the Federal Reserve Act may be granted only by the Federal Reserve Board.
The HOLA and OTS regulations promulgated thereunder contain other restrictions
on loans and extension of credit to affiliates, and the OTS is authorized to
impose additional restrictions on transactions with affiliates if it determines
such restrictions are necessary to ensure the safety and soundness of any
savings association. Current OTS regulations are similar to Sections 23A and 23B
of the Federal Reserve Act.
The Company anticipates that CFB will continue to provide the Company with
various resources on an arms-length basis. In addition to purchasing various
services from CFB from time to time, the Company may also purchase selected
loans from CFB as well as other financial institutions. As a matter of Company
policy, any transaction with CFB must be approved by a majority of the directors
of the Company not affiliated with CFB.
FUTURE REQUIREMENTS. Statutes and regulations are regularly introduced
which contain wide-ranging proposals for altering the structures, regulations
and competitive relationships of financial institutions. It cannot be predicted
whether or what form any proposed statute or regulation will be adopted or the
extent to which the business of the Company and the Bank may be affected by such
statute or regulation.
ELIMINATION OF FEDERAL SAVINGS ASSOCIATION CHARTER
Legislation has been introduced that would eliminate the federal savings
association charter. If such legislation is enacted, the Bank would be required
to convert its federal savings bank charter to either a national bank charter or
to a state depository institution charter. Pending legislation also may provide
relief as to recapture of the bad debt deduction for federal tax purposes that
otherwise would be applicable if the Bank converted its charter, provided that
the Bank meets a proposed residential loan origination requirement. Various
legislative proposals also may result in the restructuring of federal regulatory
oversight, including, for example, consolidation of the OTS into another agency,
or creation of a new Federal banking agency to replace the various agencies
which presently exist. The Bank is unable to predict whether such legislation
will be enacted or, if enacted, whether it will contain relief as to bad debt
deductions previously taken.
PROPERTY
The Company entered into a Lease Agreement (the "Lease"), dated as of June
18, 1996, amended as of February 28, 1997, with The Griffin Company (the
"Landlord"), pursuant to which the Company leases approximately 4,200 square
feet of office space for its principal executive offices in Atlanta, Georgia.
The monthly rental rate is $6,125, subject to annual adjustment in accordance
with the CONSUMER PRICE INDEX FOR THE UNITED STATES FOR ALL CONSUMERS. The
monthly rental rate cannot be increased by less than 4% or more than 10% from
the prior year's rental rate.
The Lease expires on June 30, 1999. The Company has the right to renew the
lease for an additional two-year term under the same terms and at the then
current rental rate, as adjusted in accordance with the terms of the Lease.
Additionally, the Company has the right to terminate the lease on December 31,
1997 by giving notice to the Landlord and paying a penalty in the amount of
eight times the then current monthly rental rate.
EMPLOYEES
As of March 1, 1997, the Company had 15 full-time employees and no part-time
employees. The Company's employees are not parties to a collective bargaining
agreement, and management believes its relationship with employees is good.
LEGAL PROCEEDINGS
Neither the Company nor the Bank is a party to any material legal
proceedings.
50
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors
and executive officers of the Company. The Company's Board of Directors
currently consists of T. Stephen Johnson, Mary E. Johnson and Donald S.
Shapleigh, Jr., who have served as directors since the Company's inception in
February 1996. The remaining directors listed below will be elected to the Board
and Mary E. Johnson will resign as a director prior to the consummation of this
Offering.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- -------------------------------------------------------------------------------
<S> <C> <C>
T. Stephen Johnson 47 Chairman of the Board
D. R. Grimes 50 Vice Chairman, Chief Executive Officer and Director
Donald S. Shapleigh, Jr. 49 President, Chief Operating Officer and Director
Robert E. Bowers 40 Chief Financial Officer and Director
Belinda L. Morgan 50 Operations Officer
Ward H. Clegg 45 Director
J. Stephen Heard 54 Director
Mary E. Johnson 44 Director
Robin C. Kelton 62 Director
John T. Moore 47 Director
Thomas H. Muller, Jr. 55 Director
W. James Stokes 38 Director
Mack I. Whittle, Jr. 48 Director
</TABLE>
Under the Company's Amended and Restated Articles of Incorporation, when the
number of directors is fixed at six, the Board of Directors will be divided into
three classes and the members of one class will be elected each year for a
three-year term.
T. STEPHEN JOHNSON is President of TSJ&A, a bank consulting firm located in
Roswell, Georgia. The firm specializes in mergers, acquisitions and regulatory
consulting. TSJ&A has served as advisor and consultant in the formation of
approximately 70 banks in the southeastern United States. Mr. Johnson served in
a management capacity for two large Atlanta banks before forming TSJ&A in 1987.
Mr. Johnson also serves as Chairman and Founder of the Southeast Bank Fund,
Inc., a privately held corporation that invests in the stock of banks located in
the Southeast ("Southeast Bank Fund"). In addition, he is principal owner of
Bank Assets Inc., a provider of benefit programs for directors and officers of
banks.
D. R. GRIMES has served as Vice Chairman and Chief Executive Officer of the
Company since January 1997. From March 1996 to January 1997, he was an
independent management consultant, and from 1978 to March 1996, he served in
various capacities with Servantis Systems, Inc., including Executive Vice
President of Technology and Chief Information Officer (1995-1996); Executive
Vice President of Technology and Marketing (1993-1995); President, Treasury
Products Division (1994); and President, Financial Products Division
(1988-1993).
DONALD S. SHAPLEIGH, JR. has served as President of the Company and the Bank
since January 1996. He has also served as a director of the Company since its
incorporation. Mr. Shapleigh has been involved in banking since 1971, having
spent 23 years in various senior positions with Bank South, N.A. and SouthTrust
Bank. From November 1994 to December 1995, Mr. Shapleigh served as Director of
Sales for Creative Solutions Group/A BISYS Company, an Atlanta-based company
that sells its patented automated voice response technology to retail financial
service companies.
ROBERT E. BOWERS has served as Chief Financial Officer of the Company since
February 18, 1997. Prior to joining the Company, Mr. Bowers was the Chief
Financial Officer of CheckFree Corporation from
51
<PAGE>
January 1996 through August 1996. From September 1984 until January 1996, he
served as the Chief Financial Officer and a director of Servantis Systems, Inc.,
a software company. His experience includes initial public offerings, strategic
business planning and investor relations.
BELINDA L. MORGAN has served as Operations Officer of the Company and the
Bank since June 1996. From 1965 to 1995, she was employed by Bank South,
Atlanta, Georgia, and its predecessors in various management capacities,
including Programming and Product Development Manager, Operations Director and
General Manager of Operations and Technology. From June 1995 to May 1996, she
served as an independent consultant in the area of bank operations.
WARD H. CLEGG has served as a director of Resource BancShares Corporation
("Resource Bancshares") since September 1986. Resource Bancshares is the owner
of specialty assets companies that engage in commercial mortgage banking, credit
card transaction processing and origination and small ticket equipment leasing.
He also works with Carolina First (the holding company for CFB) on a consulting
basis.
J. STEPHEN HEARD has served as President of Heard Systems, Inc., which
provides information systems consulting services and Scrip ATM Services to the
retail industry, since January 1, 1994. In 1995 he retired from IBM after a
30-year career in marketing, sales and systems engineering.
ROBIN C. KELTON is Chairman of Kelton International Ltd. ("Kelton
International"), an investment banking firm formed in January 1996 and patterned
after the companies he founded, Fox-Pitt, Kelton, Inc. and Fox-Pitt Kelton, Ltd.
Kelton International draws business principally from Europe and the United
States. Mr. Kelton is the founder and former Chairman and Chief Executive
Officer of Fox-Pitt, Kelton Ltd. and the Fox-Pitt, Kelton Group, and President
of Fox-Pitt, Kelton, Inc. These companies were formed in 1970 and comprise an
international investment banking and brokerage group based in London and New
York.
JOHN T. MOORE has practiced law in Columbia, South Carolina since 1975 and
has been a partner in the law firm of Nelson Mullins Riley & Scarborough, LLP
since 1982. His practice is concentrated in the area of debtor and creditor
rights and creditor regulatory compliance issues.
THOMAS H. MULLER, JR. has served as the Chief Financial Officer of SpectRx,
Inc., a medical device company since December 1996. Mr. Muller has also served
as President of Muller & Associates, a firm providing financial management
services to entrepreneurial enterprises, since 1992 and Chief Financial Officer
of Nurse On Call, Inc., a healthcare software company, from 1993 to 1996. From
1993 to 1995, Mr. Muller also served as Chief Financial Officer of Amstell,
Inc., a beverage manufacturing and marketing company. From 1991 to 1992, Mr.
Muller served as Chief Financial Officer of HBO & Company, a leading healthcare
information systems company.
W. JAMES STOKES has served as Senior Vice President of TSJ&A since 1987. He
serves as Head of Analysis, with a focus on mergers and acquisitions, stock
valuations, fairness opinions and regulatory assistance. Mr. Stokes also serves
as the Chief Analyst for Southeast Bank Fund.
MACK I. WHITTLE, JR. has served as President and Chief Executive Officer of
Carolina First since 1986. Mr. Whittle is also a director of Carolina First and
CFB. Mr. Whittle began his banking career in 1969 with Bankers Trust of South
Carolina. From 1969 to 1986, he served in several capacities including Trust
Officer, Vice President of Commercial Business Development, City Executive for
Myrtle Beach, and Senior Vice President and Regional Officer. In January 1986,
Bankers Trust of South Carolina merged with NCNB Corp. Mr. Whittle resigned from
NCNB Corp. in May 1986 to form Carolina First.
COMMITTEES OF THE BOARD OF DIRECTORS
Prior to the consummation of this Offering, the Board of Directors will
establish a Compensation Committee. The Compensation Committee will establish
remuneration levels for officers of the Company,
52
<PAGE>
review management organization and development, review significant employee
benefit programs and establish and administer executive compensation programs.
Prior to the consummation of this Offering, the Board of Directors will
establish an Audit Committee. The Audit Committee will recommend to the Board of
Directors the independent public accountants to be selected to audit the
Company's annual financial statements and approve any special assignments given
to such accountants. The Audit Committee will also review the planned scope of
the annual audit, any changes in accounting principles and the effectiveness and
efficiency of the Company's internal accounting staff.
The Board of Directors may from time to time establish certain other
committees to facilitate the management of the Company.
DIRECTOR COMPENSATION
Directors of the Company do not receive any fees or other compensation for
their services as directors. The Company may reimburse directors for reasonable
expenses incurred in connection with attending meetings of the Board of
Directors.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation awarded to, earned by or paid to the Company's Chief Executive
Officer from the Company's incorporation on February 20, 1996 through December
31, 1996. D. R. Grimes became Chief Executive Officer of the Company on January
5, 1997. Prior to that time Donald S. Shapleigh, Jr. served as Chief Executive
Officer of the Company. No other officer of the Company received annual
compensation in excess of $100,000. Mr. Shapleigh did not receive or hold any
stock options or other long-term incentives during that period. In November
1996, Mr. Grimes received nonqualified stock options to purchase 16,563 shares
of the Company's Common Stock.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION(2)
ANNUAL COMPENSATION(1) ----------------
SECURITIES
NAME AND ---------------------- UNDERLYING ALL OTHER
PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS/SARS(#) COMPENSATION($)
- ---------------------------------------------------- ---------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
Donald S. Shapleigh, Jr. 82,284 -- -- --
President and Chief Executive Officer(3)
</TABLE>
- ------------------------
(1) Information with respect to certain perquisites and other personal benefits
has been omitted because the aggregate value of such items does not meet the
minimum amount required for disclosure under SEC regulations.
(2) The Company has not awarded any restricted stock or long-term incentives
other than stock options. Accordingly, columns relating to such awards have
been omitted.
(3) Mr. Shapleigh, the Company's President and Chief Operating Officer, also
served as Chief Executive Officer until January 1997.
STOCK INCENTIVE PLAN
The Board of Directors has reserved 397,500 shares of Common Stock for
issuance pursuant to awards that may be made under the Company's 1996 Stock
Incentive Plan. The term of the Plan is indefinite.
53
<PAGE>
Awards under the Plan are determined by a committee of no less than two
members of the Board of Directors (the "Committee"), the members of which are
selected by the Board of Directors. Committee members satisfy the criteria
required for "non-employee directors" set forth in Rule 16b-3, under the
Securities Exchange Act of 1934, as amended, and "outside directors" within the
meaning of Section 162(m) of the Internal Revenue Code. Rules, regulations and
interpretations necessary for the ongoing administration of the Plan are made by
the Committee.
Key employees, officers, directors and consultants of the Company or an
affiliate are eligible for awards under the Plan. The Plan permits the Committee
to make awards of shares of Common Stock, awards of derivative securities
related to the value of the Common Stock and certain cash awards to eligible
persons. These discretionary awards may be made on an individual basis, or
pursuant to a program approved by the Committee for the benefit of a group of
eligible persons. The Plan permits the Committee to make awards of a variety of
equity-based incentives, including (but not limited to) stock awards, options to
purchase shares of Common Stock and to sell shares of Common Stock back to the
Company, stock appreciation rights, so-called "cash-out" or "limited stock
appreciation rights" (which the Committee may make exercisable in the event of
certain changes in control of the Company or other events), phantom shares,
performance incentive rights, dividend equivalent rights and similar rights
(hereinafter, "Stock Incentives"). The number of shares of Common Stock as to
which a Stock Incentive is granted and to whom any Stock Incentive is granted is
determined by the Committee, subject to the provisions of the Plan. Stock
Incentives issuable may be made exercisable or settled at such prices and may be
made terminable under such terms as are established by the Committee, to the
extent not otherwise inconsistent with the terms of the Plan.
The Committee has the discretion to allow a Stock Incentive to be settled in
various ways, depending upon the type of Stock Incentive, including payment in
cash, payment by the delivery of previously-owned shares of Common Stock,
payment through a cashless exercise executed through a broker or payment by
having withheld a number of shares of Common Stock otherwise issuable pursuant
to the Stock Incentive. The terms of particular Stock Incentives may provide
that they terminate, among other reasons, upon the holder's termination of
employment or other status with respect to the Company and any affiliate, upon a
specified date, upon the holder's death or disability, or upon the occurrence of
a change in control of the Company. Stock Incentives may also include exercise,
conversion or settlement rights to a holder's estate or personal representative
in the event of the holder's death or disability. At the Committee's discretion,
Stock Incentives that are held by an employee who suffers a termination of
employment may be cancelled, accelerated, paid or continued, subject to the
terms of the applicable Stock Incentive agreement and to the provisions of the
Plan. Stock Incentives generally shall not be transferable or assignable during
a holder's lifetime. The Committee may make cash awards designed to cover tax
obligations of employees that result from the receipt or exercise of a Stock
Incentive. Delivery of any shares of Common Stock issuable pursuant to the Plan
may be conditioned upon compliance with available exemptions from registration
under applicable federal and state securities laws.
The maximum number of shares of Common Stock with respect to which options
or stock appreciation rights may be granted during any fiscal year of the
Company as to any eligible employee shall not exceed 100,000, to the extent
required by Section 162(m) of the Internal Revenue Code for the grant to qualify
as qualified performance-based compensation.
The number of shares of Common Stock reserved for issuance in connection
with the grant or settlement of Stock Incentives or to which a Stock Incentive
is subject, as the case may be, and the exercise price of each option are
subject to adjustment in the event of any recapitalization of the Company or
similar event, effected without the receipt of consideration. In the event of
certain corporate reorganizations and similar events, Stock Incentives may be
substituted, cancelled, accelerated, cashed-out or otherwise adjusted by the
Committee, provided such adjustment is not inconsistent with the express terms
of the Plan or the applicable Stock Incentive agreement.
54
<PAGE>
Although the Plan may be amended or terminated by the Board of Directors
without shareholder approval, the Board of Directors also may condition any such
amendment or termination upon shareholder approval if shareholder approval is
deemed necessary or appropriate in consideration of tax, securities or other
laws.
A total of 354,438 options have been granted under the Plan. The following
directors and executive officers of the Company have been granted options with
the following terms:
<TABLE>
<CAPTION>
TYPE OF SHARES SUBJECT EXERCISE
NAME OPTION(1) TO OPTION PRICE
- ---------------------------------------------------------------- ---------------- --------------- -------------
<S> <C> <C> <C>
D. R. Grimes.................................................... Nonqualified 82,813 $ 1.21
D. R. Grimes.................................................... Incentive 66,250 $ 10.00
Robert E. Bowers................................................ Nonqualified 57,969 $ 1.21
Robert E. Bowers................................................ Incentive 57,969 $ 10.00
Donald S. Shapleigh, Jr......................................... Incentive 49,688 $ 10.00
Belinda L. Morgan............................................... Incentive 16,563 $ 3.62
</TABLE>
- ------------------------
(1) Incentive stock options vest in equal one-third annual increments beginning
on the first anniversary of the grant date, provided, however, that vesting
accelerates on certain profitability conditions. Nonqualified stock options
vest in equal one-third annual increments beginning on the first anniversary
of the grant date or the completion of the public offering of the Company,
whichever is first to occur.
55
<PAGE>
CERTAIN TRANSACTIONS
The Bank has been operated as a service of CFB pursuant to the terms of the
Operation Agreement. The Operation Agreement provides that, until the Company
receives regulatory approval to own and operate the Bank, CFB will operate the
Bank as a service of CFB under the trade name "Atlanta Internet Bank" and that
the operations of the Bank will be managed by the Company. CFB agreed to provide
funding for the reasonable expenses and operations of the Bank up to the amount
of $1,325,985 or until July 31, 1997, whichever is first to occur.
Simultaneously with the consummation of this Offering, CFB will transfer the
assets and liabilities relating to the operations of the Bank to the Company's
newly acquired federal savings bank subsidiary. In consideration for operating
the Bank as a service of CFB, the Company will pay $1.00 to CFB and will issue
1,325,000 shares of the Company's Common Stock to CFB. Upon completion of the
transfer of the assets and liabilities of the Bank as contemplated by the
Operation Agreement, CFB will pay to the Bank 100% of the total amount of
deposits with the Bank, less the sum of: (i) all cash items; (ii) net interest
income based upon the Bank's cost of deposits and interest income allocated by
CFB to the Bank's operations, which is not expected to exceed a cost of
$100,000; (iii) unreimbursed reasonable expenses (including the funding advanced
by CFB) to the extent not reflected in (ii) above not expected to exceed
$1,500,000; and (iv) the net book value of loans issued by the Bank. CFB will
also have the right to nominate four directors of the Company. See "The
Reorganization."
Additionally, the Company may purchase certain services and loans from CFB.
Such transactions will be on terms no less favorable than could be obtained from
an unaffiliated third party for comparable transactions, and approved by a
majority of the Company's directors not affiliated with CFB.
T. Stephen Johnson is the Chairman of the Board of Directors of the Company.
He is also the President of TSJ&A. TSJ&A provides certain operating services to
the Company such as management, consulting, regulatory and accounting services,
as well as office space and clerical support. TSJ&A expects to incur
approximately $500,000 in expenses as a result of providing such operating
services. The Company intends to reimburse TSJ&A with a portion of the net
proceeds of the Offering.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of March 20, 1997 and
adjusted to reflect the sale of the shares offered hereby, by (i) each director
and director nominee; (ii) each executive officer; (iii) each person known to
the Company to be the beneficial owner of more than five percent of the
outstanding Common Stock of the Company; and (iv) all of the directors and
executive officers as a group. Unless otherwise specified, each shareholder has
sole voting and investment power with respect to the indicated shares and the
address of each shareholder is the same as the address of the Company.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
------------------------------------
PERCENT
------------------------
PRIOR TO AFTER
NAME OF BENEFICIAL OWNER NUMBER OFFERING OFFERING
- ------------------------------------------------------------------------------------- ---------- ----------- -----------
<C> <S> <C> <C> <C>
(i) Directors and Director Nominees
Robert E. Bowers(1)(2).................................................... 57,969 2.1 1.0
Ward H. Clegg............................................................. 49,688 1.9 0.9
D. R. Grimes(1)(2)........................................................ 82,813 3.0 1.4
J. Stephen Heard.......................................................... 9,938 0.4 0.2
Mary E. Johnson(3)........................................................ 292,593 11.1 5.2
T. Stephen Johnson(4)..................................................... 292,593 11.1 5.2
Robin C. Kelton........................................................... 142,438 5.4 2.5
John T. Moore............................................................. 9,938 0.4 0.2
Thomas H. Muller, Jr...................................................... 9,938 0.4 0.2
Donald S. Shapleigh, Jr.(1)(2)............................................ 66,250 2.5 1.2
W. James Stokes........................................................... 33,125 1.3 0.6
Mack I. Whittle(5)........................................................ 1,325,000 50.1 23.5
(ii) Non-Director, Executive Officer
Belinda L. Morgan......................................................... 16,563 0.6 0.3
(iii) Non-Directors, 5% Beneficial Owners
Carolina First Bank(6).................................................... 1,325,000 50.1 23.5
Edward J. Sebastian(7).................................................... 292,593 11.1 5.2
(iv) All Executive Officers and Directors as a Group (13 persons).............. 2,096,253 75.2 36.2
</TABLE>
- ------------------------
(1) Mr. Bowers, Mr. Grimes and Mr. Shapleigh are also executive officers of the
Company.
(2) Includes outstanding options for executive officers as follows:
D. R. Grimes 82,813
Robert E. Bowers 57,969
(3) Includes 146,313 shares owned of record by Ms. Johnson's spouse, T. Stephen
Johnson.
(4) Includes 146,280 shares owned of record by Mr. Johnson's spouse, Mary E.
Johnson.
(5) Includes 1,325,000 shares owned of record by CFB. Mr. Whittle serves as
Chairman of the Board of CFB.
(6) Carolina First Bank is located at 102 South Main Street, Greenville, South
Carolina 29601. If the Underwriters' over-allotment option is exercised, CFB
(the "Selling Shareholder") will sell 150,000 shares of Common Stock in the
Offering. In such event, CFB will beneficially own 1,175,000 shares of
Common Stock after the Offering, representing approximately 19.3% of the
then-outstanding Common Stock.
(7) Includes 146,280 shares owned of record by Mr. Sebastian's spouse. Mr.
Sebastian disclaims beneficial ownership of such shares. Mr. Sebastian's
address is 1901 Main Street, Suite 620, Columbia, South Carolina 29201.
57
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 100,000,000 shares of
common stock, $.01 par value, and 10,000,000 shares of preferred stock, no par
value. As of March 18, 1997, there were 1,279,156 shares of Common Stock
outstanding held by 29 holders of record. The following summary is qualified by
reference to the Amended and Restated Articles of Incorporation (the "Articles")
and Bylaws (the "Bylaws") of the Company, which are filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in the election
of directors and on all other matters submitted to a vote of the holders of
Common Stock and do not have cumulative voting rights. The holders of Common
Stock are entitled to receive dividends, if any, as may be declared from time to
time by the Board of Directors out of funds legally available therefor, and in
the event of liquidation, dissolution or winding-up of the Company, to share
ratably in all assets available for distribution.
PREFERRED STOCK
The authorized Preferred Stock may be issued from time to time in one or
more designated series or classes. The Board of Directors, without approval of
the shareholders, is authorized to establish the voting, dividend, redemption,
conversion, liquidation and other relative provisions as may be provided in a
particular series or class. The issuance of Preferred Stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could, among other things, adversely affect the voting power of the
holders of Common Stock and, under certain circumstances, make it more difficult
for a third party to acquire, or discourage a third party from acquiring, a
majority of the outstanding voting stock of the Company. The Company has no
present intention to issue any series or class of Preferred Stock.
SPECIAL MEETINGS OF SHAREHOLDERS
The Bylaws of the Company provide that special meetings of the shareholders
may be called at any time for any purpose by the Chief Executive Officer or by
the presiding officer of the Board. Either the Chief Executive Officer or the
Secretary of the Company is required to call a special meeting when (i)
requested in writing by any two or more of the directors; or (ii) requested in
writing by shareholders owning shares representing at least twenty-five percent
(25%) of all the votes entitled to be cast on any issue proposed to be
considered at such meeting.
SUPERMAJORITY APPROVAL OF CERTAIN TRANSACTIONS
The Articles require the affirmative vote of the holders of two-thirds of
the voting stock to approve certain mergers, share exchanges and dispositions of
the assets of the Company unless at least two-thirds of the members of the Board
of Directors approve the proposed transaction. If such approval by the Board of
Directors is obtained, approval by the vote of a majority of the outstanding
shares entitled to vote is required. This provision may tend to discourage
attempts by third parties to acquire the Company in a hostile takeover effort.
It may also permit a minority of directors and shareholders to prevent a
business combination regardless of the terms of the proposed transaction.
CLASSIFIED BOARD AND REMOVAL OF DIRECTORS
The Articles also provide that the Board of Directors will be divided into
three classes serving staggered three-year terms and that a director may only be
removed by the vote of two-thirds of the outstanding shares entitled to vote in
an election of directors. These provisions could enable a minority of the
Company's shareholders to prevent the removal of a director sought to be removed
by a majority of the
58
<PAGE>
shareholders and may tend to enhance management's ability to retain control over
the Company's affairs and to preserve the director's present position on the
Board.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Bylaws of the Company contain certain indemnification provisions
providing that directors, officers, and employees or agents of the Company will
be indemnified against expenses actually and reasonably incurred by them if they
are successful on the merits of a claim or proceeding.
When a case or dispute is not ultimately determined on its merits (I.E., it
is settled), the indemnification provisions provide that the Company will
indemnify directors when they meet the applicable standard of conduct. The
applicable standard of conduct is met if the director acted in good faith and in
a manner he or she reasonably believed to be in or not opposed to the best
interests of the Company, and with respect to an employee benefit plan, for a
purpose the director believed in good faith to be in the interests of the
participants and beneficiaries of the plan. The standard of conduct with respect
to any criminal action or proceeding is met if the director had no reasonable
cause to believe his or her conduct was unlawful. Whether the applicable
standard of conduct has been met is determined by the Board of Directors, the
shareholders or independent legal counsel in each specific case.
The Company can also provide for greater indemnification than that set forth
in the Bylaws if it chooses to do so, subject to approval by the Company's
shareholders. The Company may not, however, indemnify a director for liability
arising out of circumstances which constitute exceptions to limitation of a
director's liability for monetary damages. See "--Limitation of Liability".
The indemnification provisions of the Bylaws specifically provide that the
Company may purchase and maintain insurance on behalf of any director against
any liability asserted against such person and incurred by him or her in any
such capacity, whether or not the Company would have had the power to indemnify
against such liability.
Management is not aware of any pending or threatened action, suit or
proceeding involving any of its directors or officers for which indemnification
from the Company may be sought.
LIMITATION OF LIABILITY
Article X of the Company's Articles, subject to certain exceptions,
eliminates the potential personal liability of a director for monetary damages
to the Company and to the shareholders of the Company for breach of a duty as a
director. There is no elimination of liability for (a) a breach of duty
involving appropriation of a business opportunity of the Company, (b) an act or
omission not in good faith or involving intentional misconduct or a knowing
violation of law, (c) a transaction from which the director derives an improper
material tangible personal benefit, or (d) as to any payment of a dividend or
approval of a stock repurchase that is illegal under the Georgia Business
Corporation Code. The Articles do not eliminate or limit the right of the
Company or its shareholders to seek injunctive or other equitable relief not
involving monetary damages.
Article X was adopted by the Company pursuant to the Georgia Business
Corporation Code which allows Georgia corporations, with the approval of their
shareholders, to include in their Articles of Incorporation a provision
eliminating or limiting the liability of directors, except in the circumstances
described above. Article X was included in the Company's Articles to encourage
qualified individuals to serve and remain as directors of the Company. Article X
was also included to enhance the Company's ability to secure liability insurance
for its directors at a reasonable cost. The Company intends to obtain liability
insurance covering actions taken by its directors in their capacities as
directors. The Board of Directors believes that Article X will enable the
Company to secure such insurance on terms more favorable than if such a
provision were not included in the Articles.
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 5,645,562 shares of
Common Stock outstanding. The shares sold in this Offering will be freely
tradeable without restriction or further registration, except for shares owned
by "affiliates" of the Company as such term is defined under the Securities Act)
which may be sold subject to the resale limitations of Rule 144 promulgated
under the Securities Act ("Rule 144"). The remaining 2,645,562 outstanding
shares constitute "restricted securities" within the meaning of Rule 144. Such
shares must be held for one year before they may be resold pursuant to Rule 144,
unless the resale of such shares is made pursuant to an effective registration
statement under the Securities Act or another exemption from registration is
available.
Generally, Rule 144 provides that beginning 90 days after the date of this
Prospectus, a person (or persons whose shares are aggregated) who has
beneficially owned "restricted" securities for at least one year, including a
person who may be deemed an "affiliate" of the Company, as the term "affiliate"
is defined under the Securities Act, is entitled to sell in "broker's
transactions" or in transactions directly with a "market maker," within any
three-month period, a number of shares that does not exceed the greater of one
percent of the then outstanding shares of Common Stock or the average weekly
trading volume of the Common Stock on any national securities exchange and/or
over-the-counter market during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain notice requirements and the
availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not deemed an "affiliate" of the
Company would be entitled to sell such shares under Rule 144 without regard to
the volume, public information, manner of sale or notice provisions and
limitations described above, once a period of at least two years had elapsed
since the later of the date the shares were acquired from the Company or from an
"affiliate" of the Company.
There are currently outstanding options to purchase 354,438 shares of Common
Stock under the Company's 1996 Stock Incentive Plan. After this Offering, the
Company intends to file a registration statement on Form S-8 under the
Securities Act to register the shares of Common Stock issuable upon exercise of
such options. Accordingly, such shares will be freely tradeable by holders who
are not affiliates of the Company and, subject to the volume and manner of sale
limitations of Rule 144, by holders who are affiliates of the Company.
Prior to this Offering, there has been no public market for the Common Stock
of the Company, and no prediction can be made as to the effect, if any, that
future sales of shares or the availability of shares for sale will have on the
market price for Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock in the public market, or the perception of the
availability of shares for sale, could adversely affect the prevailing market
price of the Common Stock and could impair the Company's ability to raise
capital through the sale of its equity securities.
60
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement among the
Company and the Underwriters named below (the "Underwriting Agreement"), the
Company has agreed to sell to each of such Underwriters named below, and each of
such Underwriters, for whom Morgan Keegan & Company, Inc. and Interstate/Johnson
Lane Corporation are acting as representatives, has severally agreed to purchase
from the Company, the respective number of shares of Common Stock set forth
opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
UNDERWRITER COMMON STOCK
- ------------------------------------------------------------------------- -------------------
<S> <C>
Morgan Keegan & Company, Inc.............................................
Interstate/Johnson Lane Corporation......................................
----------
Total................................................................ 3,000,000
----------
----------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares of Common Stock
offered hereby, if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at such
price less a concession of $ per share. The Underwriters may allow, and
such dealers may allow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time to
time be varied by the representatives.
The Company and the Selling Shareholder have granted the Underwriters an
option exercisable for 30 days after the date of this Prospectus to purchase up
to an aggregate of 300,000 and 150,000 additional shares of Common Stock,
respectively, solely to cover over-allotments, if any. If the Underwriters
exercise their overallotment option, the Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares of Common Stock to be purchased by each of
them, as shown in the table above, bears to the 3,000,000 shares of Common
Stock.
The Company and all of its officers, directors and existing shareholders
have agreed, during the period beginning from the date of this Prospectus and
continuing to and including the date days (one year with respect to CFB)
after the date of the Prospectus, not to offer, sell, contract to sell or
otherwise dispose of any securities of the Company (other than, with respect to
the Company, pursuant to employee stock option plans existing, or on the
conversion or exchange of convertible or exchangeable securities outstanding, on
the date of this Prospectus) which are substantially similar to the shares of
Common Stock or which are convertible or exchangeable into securities which are
substantially similar to the shares of Common Stock without the prior consent of
the representatives.
The representatives of the Underwriters have informed the Company that the
Underwriters do not expect sales to accounts over which the Underwriters
exercise discretionary authority to exceed five percent of the total number of
shares of Common Stock offered by them.
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock will be negotiated
between the Company and the representatives of the Underwriters. Among the
factors to be considered in determining the initial public offering price of the
Common Stock, in addition to prevailing market conditions, are the history of,
and prospects for, the industry in which the Company operates, the price
earnings multiples of publicly traded common stocks of comparable companies, the
cash flow and earnings of the Company and comparable companies in recent periods
and the Company's business potential and cash flow and earnings prospects.
The Company and the Selling Shareholder have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act.
61
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby is being passed
upon for the Company by Powell, Goldstein, Frazer & Murphy LLP, Atlanta,
Georgia. The validity of the shares of Common Stock offered hereby will be
passed upon for the Underwriters by King & Spalding, Atlanta, Georgia.
EXPERTS
The financial statements included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein in this Registration Statement, and are included in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company has not previously been subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended. The Company has filed with the
Commission a Registration Statement on Form S-1 (the "Registration Statement")
under the Securities Act, with respect to the offer and sale of Common Stock
pursuant to this Prospectus. This Prospectus, filed as a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement or the exhibits and schedules thereto in accordance with
the rules and regulations of the Commission and reference is hereby made to such
omitted information. Statements made in this Prospectus concerning the contents
of any contract, agreement or other document filed as an exhibit to the
Registration Statement are summaries of the terms of such contract, agreement or
document and are not necessarily complete. Reference is made to each such
exhibit for a more complete description of the matters involved and such
statements shall be deemed qualified in their entirety by such reference. The
Registration Statement and the exhibits and schedules thereto filed with the
Commission may be inspected, without charge, and copies may be obtained at
prescribed rates, at the public reference facility maintained by the Commission
at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the regional offices of the Commission at 7 World Trade Center, Suite
1300, New York, New York 10048 and Citicorp Center, Suite 1400, 500 West Madison
Street, Chicago, Illinois 60661. This Registration Statement was filed with the
Commission electronically. The Commission maintains a site on the World Wide Web
that contains documents filed with the Commission electronically. The address of
such site is http://www.sec.gov, and the Registration Statement may be inspected
at such site. For further information pertaining to the Common Stock offered by
this Prospectus and the Company, reference is made to the Registration
Statement.
The Company and its organizers have filed or will file various applications
with the OTS and the Federal Reserve. Prospective investors should rely only on
information contained in this Prospectus and in the Company's related
Registration Statement in making an investment decision. To the extent that
other available information not presented in this Prospectus, including
information available from the Company and information in public files and
records maintained by the OTS and the Federal Reserve, is inconsistent with
information presented in this Prospectus or provides additional information,
such other information is superseded by the information presented in this
Prospectus and should not be relied on. Projections appearing in the
applications are based on assumptions that the organizers believe are
reasonable, but as to which no assurances can be made. The Company specifically
disaffirms those projections for purposes of this Prospectus and cautions
prospective investors against placing reliance on them for purposes of making an
investment decision.
The Company will furnish its shareholders with annual reports containing
audited financial information for each fiscal year on or before the date of the
annual meeting of shareholders as required by the Commission and by Rule
80-6-1-.05 of the Department of Banking. The Company also intends to furnish its
shareholders with quarterly reports containing unaudited consolidated financial
statements for the first three quarters of each fiscal year. The Company's
fiscal year ends on December 31. Additionally, the Company will also furnish
such other reports as it may determine to be appropriate or as otherwise may be
required by law.
62
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors of Net.B@nk, Inc.:
We have audited the accompanying balance sheet of Net.B@nk, Inc. (the
"Company") (a development stage enterprise) as of December 31, 1996 and the
related statements of operations, shareholders' deficit, and cash flows for the
period from February 20, 1996 (date of incorporation) to December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1996 and the
results of its operations and its cash flows for the period from February 20,
1996 (date of incorporation) to December 31, 1996 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 18, 1997
F-1
<PAGE>
NET.B@NK, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................................... $ 768,666
License agreements--current................................................... 155,600
Other assets--current......................................................... 109,833
----------
Total current assets........................................................ 1,034,099
LICENSE AGREEMENTS.............................................................. 46,366
FURNITURE AND EQUIPMENT--Net.................................................... 165,984
----------
$1,246,449
----------
----------
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Amounts due to affiliate...................................................... $ 883,606
Other payables and accrued liabilities........................................ 748,916
----------
Total current liabilities................................................... 1,632,522
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT:
Preferred stock, no par (10,000,000 shares authorized, none outstanding)...... --
Common stock, $.01 par (100,000,000 shares authorized, 1,249,343 shares issued
and outstanding)............................................................ 12,493
Additional paid-in capital.................................................... 1,069,088
Common stock subscribed (1,354,813 shares).................................... 3,844,185
Stock subscriptions receivable (29,813 shares)................................ (4,185)
Unamortized affiliate service contract expense................................ (1,440,000)
Unamortized stock plan expense................................................ (28,472)
Deficit accumulated during the development stage.............................. (3,839,182)
----------
Total shareholders' deficit................................................. (386,073)
----------
$1,246,449
----------
----------
</TABLE>
See notes to financial statements.
F-2
<PAGE>
NET.B@NK, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
PERIOD FROM FEBRUARY 20, 1996
(DATE OF INCORPORATION) TO DECEMBER 31, 1996
<TABLE>
<S> <C>
REVENUES:
Management fees from affiliate................................................ $ 60,000
Interest income............................................................... 7,709
---------
Total revenues.............................................................. 67,709
EXPENSES:
Amortization of service contract with affiliate............................... 2,400,000
Salaries and consulting fees.................................................. 836,962
Marketing..................................................................... 197,111
Professional fees............................................................. 83,633
Logo/web site................................................................. 73,326
Monthly user fees............................................................. 60,452
Travel, meetings, and entertainment........................................... 38,794
Occupancy..................................................................... 17,850
Depreciation.................................................................. 17,406
Other operating expenses...................................................... 181,357
---------
Total expenses.............................................................. 3,906,891
---------
NET LOSS........................................................................ $3,839,182
---------
---------
NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE................................. $ 1.47
---------
---------
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING............................................................ 2,616,211
---------
---------
</TABLE>
See notes to financial statements.
F-3
<PAGE>
NET.B@NK, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
UNAMORTIZED
AFFILIATE
COMMON PREFERRED ADDITIONAL STOCK SERVICE
STOCK STOCK PAID-IN COMMON STOCK SUBSCRIPTIONS CONTRACT
($.01 PAR) (NO PAR) CAPITAL SUBSCRIBED RECEIVABLE EXPENSE
----------- ----------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE-- February 19, 1996.............. $ -- $ -- $ -- $ -- $ -- $ --
Proceeds from issuance of common stock:
Incorporation, February 20, 1996,
759,093 shares..................... 7,591 (7,362)
March 15, 1996, 49,688 shares........ 497 (482)
April 1, 1996, 142,438 shares........ 1,424 18,571
September 17, 1996, 298,125 shares... 2,981 997,129
Contribution of services from
affiliate.......................... 31,232
Issuance of 1,354,813 shares of common
stock subscriptions.................. 3,844,185 (4,185) (3,840,000)
Issuance of 16,563 compensatory
stock options........................ 30,000
Amortization of stock plan expense.....
Net loss, including amortization of
service contract..................... 2,400,000
----------- ----------- ------------ ------------ ------------- -------------
BALANCE--December 31, 1996............... $ 12,493 $ -- $ 1,069,088 $ 3,844,185 $ (4,185) $ (1,440,000)
----------- ----------- ------------ ------------ ------------- -------------
----------- ----------- ------------ ------------ ------------- -------------
<CAPTION>
DEFICIT
ACCUMULATED
UNAMORTIZED DURING THE
STOCK PLAN DEVELOPMENT
EXPENSE STAGE TOTAL
------------ ------------- -------------
<S> <C> <C> <C>
BALANCE-- February 19, 1996.............. $ -- $ -- $ --
Proceeds from issuance of common stock:
Incorporation, February 20, 1996,
759,093 shares..................... 229
March 15, 1996, 49,688 shares........ 15
April 1, 1996, 142,438 shares........ 19,995
September 17, 1996, 298,125 shares... 1,000,110
Contribution of services from
affiliate.......................... 31,232
Issuance of 1,354,813 shares of common
stock subscriptions.................. --
Issuance of 16,563 compensatory
stock options........................ (30,000)
Amortization of stock plan expense..... 1,528 1,528
Net loss, including amortization of
service contract..................... (3,839,182) (1,439,182)
------------ ------------- -------------
BALANCE--December 31, 1996............... $ (28,472) $ (3,839,182) $ (386,073)
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
NET.B@NK, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
PERIOD FROM FEBRUARY 20, 1996
(DATE OF INCORPORATION) TO DECEMBER 31, 1996
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Net loss...................................................................... $(3,839,182)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation................................................................ 17,406
Amortization of service contract............................................ 2,400,000
Contribution of services from affiliate..................................... 31,232
Amortization of stock plan expense.......................................... 1,528
Changes in assets and liabilities which provide (use) cash:
Other assets, current..................................................... (265,433)
License agreements--noncurrent............................................ (46,366)
Payables and accrued liabilities.......................................... 748,916
----------
Net cash used in operating activities................................... (951,899)
INVESTING ACTIVITIES--Capital expenditures...................................... (183,390)
FINANCING ACTIVITIES:
Advances from affiliate....................................................... 883,606
Proceeds from the sale of stock............................................... 1,020,349
----------
Net cash provided by financing activities............................... 1,903,955
----------
NET INCREASE IN CASH AND CASH EQUIVALENTS, AND CASH AND CASH EQUIVALENTS AT END
OF PERIOD..................................................................... $ 768,666
----------
----------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
NET.B@NK, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND FOR THE PERIOD FEBRUARY 20, 1996
(DATE OF INCORPORATION) TO DECEMBER 31, 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
Net.B@nk, Inc. (the "Company") was incorporated on February 20, 1996 as a
Georgia corporation. Its primary business purpose is the formation and,
ultimately, the operation of Atlanta Internet Bank ("AIB"). The Company expects
to operate AIB as a federal savings bank and a wholly owned subsidiary, pending
its purchase of the charter and certain assets and liabilities of Premier Bank,
FSB ("Premier Bank") and obtaining regulatory approvals from the Office of
Thrift Supervision ("OTS"), the Federal Deposit Insurance Corporation (the
"FDIC"), and the Federal Reserve Board.
The Company entered into an agreement as of July 15, 1996 with Carolina
First Bank ("CFB") in which CFB would hold and service the deposit accounts
generated by the Internet banking operations which are managed by the Company.
The original term of the Agreement was to expire on March 31, 1997. The
Agreement has been extended to July 31, 1997 by an amendment dated March 18,
1997. Also, CFB has agreed to provide funding for reasonable expenses of the
Company up to an amount of $1,325,985. Upon AIB obtaining the regulatory
approvals necessary to operate a federal savings bank, the deposit accounts
generated will be transferred to AIB. As of December 31, 1996, CFB held and
serviced deposit accounts totaling $10,366,437 that were generated by the
Internet banking operations and managed by the Company.
For the services contract with CFB, the Company has agreed to issue CFB
1,325,000 shares of its common stock valued at $3,840,000. Such amount is being
amortized to expense over the life of the contract. Since the common stock is
not expected to be issued until the second quarter of 1997, the Company has
credited subscriptions for common stock.
The Company has entered into an agreement dated June 17, 1996, as amended
and restated December 19, 1996 and February 25, 1997, with First
Alliance/Premier Bancshares, Inc. ("First Alliance") pursuant to which the
Company will purchase the charter of its subsidiary, Premier Bank, and a minimum
amount of assets and liabilities. The purchase price will be equal to the amount
of Premier Bank's unimpaired capital of $2,000,000 plus $150,000 of purchase
premium and 41,406 shares of the Company's common stock valued at $125,000. The
Company's purchase is subject to the approval of the OTS. The Company and First
Alliance have filed applications for approval of the purchase with the OTS. The
transaction is expected to be accounted for as a purchase.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of the Company conform with generally
accepted accounting principles. The following is a summary of the more
significant accounting policies.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-6
<PAGE>
NET.B@NK, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996 AND FOR THE PERIOD FEBRUARY 20, 1996
(DATE OF INCORPORATION) TO DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS--Cash equivalents include money market instruments
and time deposits with an original maturity of 90 days or less. Interest bearing
certificates of deposit and money market accounts totaled $500,000 and $242,103,
respectively, at December 31, 1996.
FURNITURE AND EQUIPMENT--Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets, generally five to seven
years.
ORGANIZATIONAL COSTS--Organizational costs are included in other assets and
are stated at cost, net of accumulated amortization and are being amortized over
a 60-month period using the straight-line method.
LICENSE AGREEMENTS--The costs of license agreements to utilize certain
distribution channels and processors are amortized over the term of such
agreements ranging from 18 months to 36 months using the straight-line method.
INCOME TAXES--Provisions for income taxes are based upon amounts reported in
the statement of operations and include deferred taxes on temporary differences
between financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. A valuation allowance is provided for deferred tax assets when it is
more likely than not that such assets will not be realized.
NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE--Net loss per common and
common equivalent share is computed based on the weighted average number of
common and common equivalent shares outstanding during the period. All common
and common equivalent shares issued have been considered to be outstanding for
the entire period.
3. FURNITURE AND EQUIPMENT
Furniture and equipment at December 31, 1996 is summarized as follows:
<TABLE>
<S> <C>
Furniture and fixtures.................................................... $ 40,741
Equipment................................................................. 142,649
---------
Furniture and equipment................................................... 183,390
Less accumulated depreciation............................................. 17,406
---------
Furniture and equipment--net............................................ $ 165,984
---------
---------
</TABLE>
F-7
<PAGE>
NET.B@NK, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996 AND FOR THE PERIOD FEBRUARY 20, 1996
(DATE OF INCORPORATION) TO DECEMBER 31, 1996
4. LEASES
The Company leases its facilities and certain other equipment under
operating lease agreements. Future minimum payments as of December 31, 1996
under these leases follow:
<TABLE>
<S> <C>
1997...................................................................... $ 73,500
1998...................................................................... 73,500
1999...................................................................... 36,750
---------
$ 183,750
---------
---------
</TABLE>
Rent expense for the period from February 20, 1996 (date of incorporation)
to December 31, 1996 was $17,850.
5. COMMITMENTS
The Company is a party to an agreement with AT&T Corporation ("AT&T"), which
provides the Company with technical, marketing, and customer services. The
Company also received professional programming services from Edify Corporation
and electronic bill paying processing services from CheckFree Corporation under
this agreement. Under the terms of the agreement, the Company has paid or agreed
to pay an initial payment of $200,000 and ongoing (monthly) payments for
customer support. The implementation fees paid have been capitalized as other
assets and are being amortized over the 18-month term of the agreement. Although
the agreement expires in February 1998, the agreement is terminable at will by
either party upon six months' written notice.
AT&T's WorldNet Service division provides the Company with advertising and
marketing services under AT&T's "Charter Membership" program. The Company pays
AT&T monthly user fees and has the right to continue this relationship
indefinitely.
The Company is a party to an agreement with BISYS to receive core bank
processing services. Under the terms of the agreement, the Company paid an
initial conversion fee of $66,800 and must pay a monthly service fee. The
service fee is adjusted on a quarterly basis based on the number of customer
accounts serviced. Although the agreement expires in July 1999, the agreement
renews automatically for successive three-year terms absent six months' prior
written notice to the contrary by either party.
6. INCOME TAXES
As of December 31, 1996, the Company had state and federal net operating
loss carryforwards of approximately $837,591 which will expire in 2011 if not
utilized.
F-8
<PAGE>
NET.B@NK, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996 AND FOR THE PERIOD FEBRUARY 20, 1996
(DATE OF INCORPORATION) TO DECEMBER 31, 1996
6. INCOME TAXES (CONTINUED)
As of December 31, 1996, the Company had deferred tax assets as follows:
<TABLE>
<S> <C>
Net operating loss carryforward......................................... $ 318,285
Service contract expense................................................ 912,000
Start-up costs.......................................................... 216,297
Other--net.............................................................. 12,308
---------
Total................................................................. 1,458,890
Less valuation allowance................................................ 1,458,890
---------
Total................................................................. $ --
---------
---------
</TABLE>
7. SHAREHOLDERS' DEFICIT
The Company's authorized capital stock consists of 100,000,000 shares of
common stock, $.01 par value and 10,000,000 shares of preferred stock, no par
value. As of December 31, 1996, there were 1,249,343 shares of common stock
outstanding and no shares of preferred stock outstanding. Both the authorized
common and preferred stock may be issued from time to time in one or more
designated series or classes. The Board of Directors, without approval of the
shareholders, is authorized to establish the voting, dividend, redemption,
conversion, liquidation, and other relative provisions as may be provided in a
particular series or class of stock.
Effective November 25, 1996, the shareholders of the Company approved the
1996 Stock Incentive Plan (the "Plan"), which provides that key employees,
officers, directors, and consultants of the Company may be granted nonqualified
and incentive stock options to purchase shares of common stock of the Company,
derivative securities related to the value of the common stock, or cash awards.
The Plan limits the total number of shares which may be awarded under the Plan
to 397,500, which have been reserved for the Plan. Generally, the options expire
ten years from the date of grant. On November 25, 1996, 16,563 nonqualified
stock options were granted at an exercise price of $1.21 per share. The options
vest one-third on the first anniversary of the date of issuance, one-third on
the second anniversary of the date of issuance and one-third on the third
anniversary of the date of issuance. In connection with the 16,563 options
granted, $30,000 of stock plan expense is being amortized over the vesting
period. The option agreement contains a provision for accelerating vesting if
certain events occur. As of December 31, 1996, none of the options are
exercisable.
The Company has adopted the disclosure-only provisions of SFAS No. 123. Had
compensation cost for the Company's stock options granted in 1996 been
determined based on the fair value at the grant
F-9
<PAGE>
NET.B@NK, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996 AND FOR THE PERIOD FEBRUARY 20, 1996
(DATE OF INCORPORATION) TO DECEMBER 31, 1996
7. SHAREHOLDERS' DEFICIT (CONTINUED)
dates for awards under those plans consistent with a method prescribed in SFAS
No. 123, the Company's net loss and net loss per share would have been increased
to the pro forma amounts indicated below:
<TABLE>
<S> <C>
Net loss:
As reported........................................................... $3,839,182
Pro forma............................................................. 3,839,443
Net loss per share:
As reported........................................................... $ 1.47
Pro forma............................................................. 1.47
</TABLE>
The fair value of each option grant of $2.12 was estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 1996: no expected volatility; risk-free
interest rate of 5.92%; expected life of five years; and no dividend yield.
8. RELATED PARTY TRANSACTIONS
TRANSACTIONS WITH CFB--Certain of the Company's cash accounts and time
deposits are on deposit with CFB. The Company received $7,709 in interest income
related to these accounts during the period from February 20, 1996 to December
31, 1996. For the period from February 20, 1996 (date of incorporation) to
December 31, 1996, the Company received $60,000 in management fees from CFB. For
the period from February 20, 1996 to December 31, 1996, the Company expensed
$883,606 for fees paid to CFB for various advisory, consulting, and custodial
services which was included in accrued expenses as of December 31, 1996. In
addition, the Company recorded $31,432 in consulting expense and contributed
capital for consulting services contributed by CFB during the period.
OTHER TRANSACTIONS--For the period from February 20, 1996 to December 31,
1996, the Company paid $67,032 in consulting fees to an advisory director. In
addition, the Company has expensed $278,418 and included in accrued expenses
amounts due to a company owned by the Chairman of the Board of the Company for
accounting and management services provided to the Company during the period
from February 20, 1996 to December 31, 1996.
9. SUBSEQUENT EVENTS
The Company entered into an agreement with a provider of on-line services
effective January 31, 1997 for certain Internet advertising services. Under the
terms of the agreement, which expires on the earlier of May 17, 1997 or upon the
Company securing 1,250 applicants, the Company has agreed to pay approximately
$31,000 over the term of the agreement.
On January 5, 1997, the Company granted under the Plan 124,219 nonqualified
stock options to officers of the Company at an exercise price of $1.21 per
share. Also on February 25, 1997, the Company granted under the Plan 39,750
incentive stock options to officers and employees of the Company at an exercise
price of $3.62 per share and 173,906 incentive stock options to officers of the
Company at an
F-10
<PAGE>
NET.B@NK, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996 AND FOR THE PERIOD FEBRUARY 20, 1996
(DATE OF INCORPORATION) TO DECEMBER 31, 1996
9. SUBSEQUENT EVENTS (CONTINUED)
exercise price of $10.00 per share. The options vest one-third on the first
anniversary of the date of issuance, one-third on the second anniversary of the
date of issuance, and one-third on the third anniversary of the date of
issuance. The vesting of the options accelerate if certain events occur.
The Company has agreed to pay certain officers bonuses up to $450,000 if the
initial public offering of the Company's Common Stock is completed.
On March 17, 1997, the Company declared a 33.125 for 1 stock split of its
common stock effected in the form of a stock dividend payable on the effective
date of the initial public offering. All references to share and per share
amounts have been retroactively adjusted to reflect the split. Also, additional
paid-in capital has been charged and common stock has been credited
retroactively with $12,116 to reflect the stock split.
F-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors of Net.B@nk, Inc.:
We have audited the accompanying Statement of Assets and Liabilities
Generated by the Internet banking operations of Net.B@nk, Inc. (the "Company")
and Held and Serviced by Carolina First Bank as of December 31, 1996. This
statement of assets and liabilities is the responsibility of the Company's
management. Our responsibility is to express an opinion on this statement of
assets and liabilities based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of assets and liabilities is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the statement of assets and liabilities. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying statement of assets and liabilities was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-1 of
Net.B@nk, Inc. as described in the Note to such statement and is not intended to
be a complete presentation of Carolina First Bank's assets and liabilities.
In our opinion, such statement of assets and liabilities referred to above
presents fairly, in all material respects, the assets and liabilities generated
by the Internet banking operations of the Company as of December 31, 1996 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 18, 1997
F-12
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
GENERATED BY THE INTERNET BANKING OPERATIONS OF NET.B@NK, INC.
AND HELD AND SERVICED BY CAROLINA FIRST BANK
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
CASH AND DUE FROM BANKS........................................................ $10,366,437
----------
----------
LIABILITIES
DEPOSITS:
Interest checking............................................................ $ 201,510
Money Market deposit accounts................................................ 10,164,927
----------
Total...................................................................... $10,366,437
----------
----------
</TABLE>
NOTE:
BASIS OF PRESENTATION
The above statement has been prepared to comply with Rule 3-05 of the
Securities and Exchange Commission.
Carolina First Bank ("CFB") entered into an agreement dated July 15, 1996
with Net.B@nk, Inc. (the "Company") to hold and service the deposit accounts
generated by the Internet banking operations of Atlanta Internet Bank ("AIB").
AIB began accepting deposits on August 1, 1996 and the original agreement with
CFB expires on March 31, 1997. The Agreement has been extended to July 31, 1997
by an amendment dated March 18, 1997. Also, under the agreement CFB has agreed
to provide funding for reasonable expenses of the Company up to an amount of
$1,325,985. Upon the Company obtaining the regulatory approvals necessary to
operate a Federal Savings Bank, the deposit accounts will be transferred to AIB,
which will become a wholly owned subsidiary of the Company.
Funds related to customer deposits serviced for AIB are combined with the
general funds of CFB for investment purposes. The interest income earned on such
investments approximates interest related to the deposit accounts.
F-13
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES OF COMMON STOCK OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKE SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
SOLICITATION OR OFFER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREBY SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................... 3
Risk Factors.............................................................. 7
The Reorganization........................................................ 13
Use of Proceeds........................................................... 14
Dividend Policy........................................................... 14
Dilution.................................................................. 15
Capitalization............................................................ 17
Selected Financial Data................................................... 18
Pro Forma Condensed Balance Sheet......................................... 20
Pro Forma Condensed Statement of Operations............................... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 22
Business.................................................................. 25
Management................................................................ 51
Certain Transactions...................................................... 56
Principal Shareholders.................................................... 57
Description of Capital Stock.............................................. 58
Shares Eligible for Future Sale........................................... 60
Underwriting.............................................................. 61
Legal Matters............................................................. 62
Experts................................................................... 62
Available Information..................................................... 62
Index to Financial Statements............................................. F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
3,000,000 SHARES
NET.B@NK, INC.
[LOGO]
COMMON STOCK
---------------------
P R O S P E C T U S
---------------------
MORGAN KEEGAN & COMPANY, INC.
INTERSTATE/JOHNSON LANE
Corporation
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses, other than underwriting discounts
and commissions, to be borne by the Company in connection with the issuance and
distribution of the Common Stock being registered.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............... $ 15,000
National Association of Securities Dealers, Inc. Filing Fee....... 10,000
Nasdaq Stock Market Listing Fee................................... 10,000
Blue Sky Fees and Expenses........................................ 10,000
Legal Fees and Expenses........................................... 200,000
Accounting Fees and Expenses...................................... 140,000
Printing and Engraving Expenses................................... 70,000
Transfer Agent and Registrar Fee.................................. 25,000
Miscellaneous..................................................... 20,000
---------
TOTAL......................................................... $ 500,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Bylaws contain certain indemnification provisions providing
that directors, officers, and employees or agents of the Company will be
indemnified against expenses actually and reasonably incurred by them if they
are successful on the merits of a claim or proceeding.
When a case or dispute is not ultimately determined on its merits (i.e., it
is settled), the indemnification provisions provide that the Company will
indemnify directors when they meet the applicable standard of conduct. The
applicable standard of conduct is met if the director acted in good faith and in
a manner he or she reasonably believed to be in or not opposed to the best
interests of the Company, and with respect to an employee benefit plan, for a
purpose the director believed in good faith to be in the interests of the
participants and beneficiaries of the plan. The standard of conduct with respect
to any criminal action or proceeding is met if the director had no reasonable
cause to believe his or her conduct was unlawful. Whether the applicable
standard of conduct has been met is determined by the Board of Directors, the
shareholders or independent legal counsel in each specific case.
The Company can also provide for greater indemnification than that set forth
in the Bylaws if it chooses to do so, subject to approval by the Company's
shareholders. The Company may not, however, indemnify a director for liability
arising out of circumstances which constitute exceptions to limitation of a
director's liability for monetary damages. See "Description of Capital
Stock--Limitation of Liability".
The indemnification provisions of the Bylaws specifically provide that the
Company may purchase and maintain insurance on behalf of any director against
any liability asserted against such person and incurred by him or her in any
such capacity, whether or not the Company would have had the power to indemnify
against such liability.
In addition, Article X of the Company's Amended and Restated Articles of
Incorporation (the "Articles"), subject to certain exceptions, eliminates the
potential personal liability of a director for monetary damages to the Company
and to the shareholders of the Company for breach of a duty as a director. There
is no elimination of liability for (a) a breach of duty involving appropriation
of a business opportunity of the Company, (b) an act or omission not in good
faith or involving intentional misconduct or a knowing violation of law, (c) a
transaction from which the director derives an improper material
II-1
<PAGE>
tangible personal benefit, or (d) as to any payment of a dividend or approval of
a stock repurchase that is illegal under the Georgia Business Corporation Code.
The Articles do not eliminate or limit the right of the Company or its
shareholders to seek injunctive or other equitable relief not involving monetary
damages.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since its inception in February 1996, the Registrant has issued and sold
(without payment of any selling commission to any person) the following
unregistered securities. The share figures and prices reflect retroactively the
effect of the Company's March 17, 1997 33.125-for-one stock split effected as a
stock dividend.
On February 20, 1996, the Registrant issued to the organizers of the Company
(11 persons), in a private placement exempt from registration under Section 4(2)
of the Securities Act of 1993, as amended (the "Securities Act"), an aggregate
of 808,780 shares of the Registrant's Common Stock, for an aggregate purchase
price of $244.16 in connection with the organization of the Company.
On April 1, 1996, the Registrant issued to foreign investors, in a
transaction exempt from registration as an offshore private placement, 142,438
shares of the Registrant's Common Stock for an aggregate purchase price of
$19,995 .
On May 20, 1996, the Registrant issued to three director nominees, in a
transaction exempt from registration under Section 4(2) of the Securities Act,
29,813 shares of the Registrant's Common Stock for an aggregate purchase price
of $4,185.
On September 17, 1996, the Registrant issued to foreign investors, in a
transaction exempt from registration as an offshore private placement, 298,125
shares of the Registrant's Common Stock for an aggregate purchase price of
$1,080,000.
The Registrant is contractually obligated to issue to Carolina First Bank,
1,325,000 shares of the Registrant's Common Stock for consideration valued at
$3,840,000 . Such issuance will be made contemporaneously with the Offering
pursuant to an exemption provided by Section 4(2) of the Securities Act.
The Registrant is contractually obligated to issue 41,406 shares of its
Common Stock to Premier Bancshares, Inc. for consideration valued at $125,000.
Such issuance will be made pursuant to the exemption provided by Section 4(2) of
the Securities Act.
All of the securities were acquired by the recipients for investment and
with no view toward the resale or distribution thereof. In each instance, the
recipient was either an organizer of the Registrant or a sophisticated investor,
the offers and sales were made without any public solicitation and the stock
certificates bear restrictive legends. No underwriter was involved in the
transactions and no commissions were paid.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Amended and Restated Articles of Incorporation of the
Registrant
3.2 Bylaws of the Registrant
4.1 Specimen Stock Certificate of the Registrant*
4.2 See Exhibits 3.1 and 3.2 for provisions of the Registrant's
Articles of Incorporation and Bylaws governing the rights of
holders of securities of the Registrant
5.1 Opinion of Powell, Goldstein, Frazer & Murphy LLP*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------------------------------------------------------
<C> <S>
10.1 Amended and Restated Stock Purchase Agreement among the
Registrant and First Alliance/ Premier Bancshares, Inc.
dated as of December 19, 1996, as amended by Amendment No. 1
dated as of February 25, 1997
10.2 Operation Agreement among the Registrant and Carolina First
Bank dated July 15, 1996, as amended December 6, 1996 and
March 18, 1997.
10.3 1996 Stock Incentive Plan of the Registrant
11.1 Schedule Regarding Computation of Per Share Loss
23.1 Consent of Deloitte & Touche, LLP
23.2 Consent of Powell, Goldstein, Frazer & Murphy LLP (included
in its opinion filed as Exhibit 5.1)*
23.3 Consent of director nominees*
24.1 Power of Attorney (appears on the signature page to this
Registration Statement)
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
- ------------------------
* To be filed by Amendment.
(b) Financial Statement Schedules
The financial statement schedules for which provision is made in the
applicable accounting regulations of the Commission are either not required
under the related instructions or are inapplicable and have therefore been
omitted.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia
on March 21, 1997.
NET.B@NK, INC.
By: /s/ D. R. GRIMES
-----------------------------------------
D. R. Grimes
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears on
the signature pages to this Registration Statement constitutes and appoints
Donald S. Shapleigh and D. R. Grimes, and each of them, his or her true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for the undersigned and in his or her name, place, and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits hereto and other documents in
connection herewith with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents and each of them, full power and authority to
do so and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
NAME POSITION DATE
- ------------------------------ --------------------------- -------------------
/s/ D. R. GRIMES Chief Executive Officer
- ------------------------------ (Principal executive March 21, 1997
D. R. Grimes officer)
/s/ ROBERT E. BOWERS Chief Financial Officer
- ------------------------------ (Principal financial and March 21, 1997
Robert E. Bowers accounting officer)
/s/ T. STEPHEN JOHNSON Chairman of the Board
- ------------------------------ March 21, 1997
T. Stephen Johnson
/s/ DONALD S. SHAPLEIGH, JR. President, Chief Operating
- ------------------------------ Officer and Director March 21, 1997
Donald S. Shapleigh, Jr.
/s/ MARY E. JOHNSON Secretary and Director
- ------------------------------ March 21, 1997
Mary E. Johnson
II-4
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Amended and Restated Articles of Incorporation of the Registrant
3.2 Bylaws of the Registrant
4.1 Specimen Stock Certificate of the Registrant*
4.2 See Exhibits 3.1 and 3.2 for provisions of the Registrant's Articles of Incorporation and Bylaws
governing the rights of holders of securities of the Registrant
5.1 Opinion of Powell, Goldstein, Frazer & Murphy LLP*
10.1 Amended and Restated Stock Purchase Agreement among the Registrant and First Alliance/ Premier
Bancshares, Inc. dated as of December 18, 1996, as amended by Amendment No. 1 dated as of February 25,
1997
10.2 Operation Agreement among the Registrant and Carolina First Bank dated July 17, 1996 as amended December
6, 1996 and March 19, 1997
10.3 1996 Stock Incentive Plan of the Registrant
11.1 Schedule Regarding Computation of Per Share Loss
23.1 Consent of Deloitte & Touche, LLP
23.2 Consent of Powell, Goldstein, Frazer & Murphy LLP (included in its opinion filed as Exhibit 5.1)
23.3 Consent of director nominees*
24.1 Power of Attorney (appears on the signature page to this Registration Statement)
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
- ------------------------
* To be filed by Amendment.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF THE REGISTRANT
<PAGE>
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
INTERNET ORGANIZING GROUP, INC.
1. The name of the Corporation is Internet Organizing Group, Inc.
2. Pursuant to Section 14-2-1007 of the Georgia Business Corporation Code,
these Amended and Restated Artilces of Incorporation amend and restate the
Articles of Incorporation of the Corporation. These Amended and Restated
Articles of Incorporation were duly adopted by the shareholders of the
Corporation on December 10, 1996 in accordance with the provisions of Section
14-2-1003 of the Georgia Business Corporation Code.
3. Effective on the date of filing these Amended and Restated Articles of
Incorporation, the Articles of Incorporation of Corporation shall be amended and
restated in their entirety as follows:
I.Name
The name of the Corporation is "Net.B@nk, Inc."
II. State of Organization
The Corporation is organized pursuant to the provisions of the Georgia
Business Corporation Code.
III. Capital Stock
(a) The Corporation shall have the authority to issue one hundred million
(100,000,000) shares of common stock (the "Common Stock"), $.01 par value per
share, and ten million (10,000,000) shares of preferred stock (the "Preferred
Stock"), no par value.
(b) The Board of Directors of the Corporation is authorized, subject to
limitations prescribed by law and the provisions of this Article, to provide for
the issuance of the shares of Preferred Stock in series, and by filing a
certificate pursuant to the applicable law of the State of Georgia to establish
from time to time the number of shares to be included in each such series, and
to fix the designation, powers, preferences, and relative rights of the shares
of each such series and the qualifications, or restrictions thereof. The
authority of the Board of Directors with respect to each series shall include,
but not be limited to, determination of the following:
(i) The number of shares constituting that series and the
distinctive designation of that series;
(ii) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date
or dates, and the relative rights of priority, if any, of
payments of dividends on shares of that series;
<PAGE>
(iii) Whether that series shall have voting rights, in addition to
the voting rights provided by law, and, if so, the terms of
such voting rights;
(iv) Whether that series shall have conversion privileges, and,
if so, the terms and conditions of such conversion,
including provisions for adjustment of the conversion rate
in such events as the Board of Directors shall determine;
(v) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such
redemption, including the date or dates upon or after which
they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different
conditions and at different redemption rates;
(vi) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so,
the terms and amount of such sinking fund;
(vii) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, and the relative rights of
priority, if any, of payment of shares of that series; and
(viii) Any other relative rights, preferences and limitations of
that series.
IV. Registered Office; Registered Agent
The street address of the registered office of the Corporation is: 191
Peachtree Street, N.E., Suite 1600, Atlanta, Georgia 30303 located in Fulton
County. The registered agent of the Corporation at such office is Walter G.
Moeling, IV, Esq. The registered office and registered agent of the Corporation
may be changed from time to time by the Board of Directors of the Corporation.
V. Principal Office
The mailing address of the principal office of the Corporation is: 7000
Peachtree-Dunwoody Road, Building 10, Suite 300, Atlanta, Georgia 30328, subject
to change by action of the Board of Directors of the Corporation.
VI. Incorporator
The name and address of the Incorporator of the Corporation is: Donald S.
Shapleigh, Jr., 7000 Peachtree-Dunwoody Road, Building 10, Suite 300, Atlanta,
Georgia 30328.
VII. Terms of Directors
At any time when the number of directors is fixed at six or more, the Board
of Directors shall be divided into three (3) classes, Class I, Class II and
Class III, which shall be as nearly equal in number as possible. Each director
in Class I shall be elected to an initial term of one (1) year, each director in
Class II shall be elected to an initial term of two (2) years, each director in
Class III
<PAGE>
shall be elected to an initial term of three (3) years, and each director shall
serve until the election and qualification of his or her successor or until his
or her earlier resignation, death or removal from office. Upon the expiration
of the initial terms of office for each Class of directors, the directors of
each Class shall be elected for terms of three (3) years, to serve until the
election and qualification of their successors or until their earlier
resignation, death or removal from office.
VIII. Removal of Directors
(a) At any shareholders' meeting with respect to which notice of such
purpose has been given, the entire Board of Directors or any individual director
may be removed for cause, as defined in subsection (b) of this Article, only by
the affirmative vote of the holders of at least two-thirds (2/3) of the issued
and outstanding shares of the Corporation entitled to vote in an election of
directors.
(b) For purposes of this Article VIII, a director of the Corporation may
be removed for cause if (i) the director has been convicted of a felony; (ii)
any bank regulatory authority having jurisdiction over the Corporation requests
or demands the removal; or (iii) at least two-thirds (2/3) of the directors of
the Corporation then in office, excluding the director to be removed, determine
that the director's conduct has been inimical to the best interests of the
Corporation.
IX. Bylaws; Number of Directors
(a) Except as provided in paragraph (b) of this Article IX, the Board of
Directors shall have the right to adopt, amend or repeal the bylaws of the
Corporation by the affirmative vote of a majority of all directors then in
office, and the shareholders shall have such right by the affirmative vote of a
majority of the issued and outstanding shares of the Corporation entitled to
vote in an election of directors.
(b) Notwithstanding paragraph (a) of this Article IX, any amendment of the
bylaws of the Corporation changing the number of directors shall require the
affirmative vote of two-thirds (2/3) of all directors then in office or by
two-thirds (2/3) of the issued and outstanding shares entitled to vote at any
regular or special meeting of the shareholders, and notice of the proposed
change must be contained in the notice of the meeting.
X. Liability of Directors
A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages, for breach of any duty as
a director, except for liability for:
(i) any appropriation, in violation of his or her duties, of any
business opportunity of the Corporation;
(ii) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
(iii) the types of liability set forth in Section 14-2-832 of the
Georgia Business Corporation Code dealing with unlawful
distributions of corporate assets to shareholders; or
(iv) any transaction from which the director derived an improper
material tangible personal benefit.
<PAGE>
If applicable law is amended to authorize corporate action further
eliminating or limiting the liability of directors, then the liability of each
director of the Corporation shall be eliminated or limited to the fullest extent
provided by applicable law, as amended. Any repeal or modification of this
Article X by the shareholders of the Corporation shall be prospective only and
shall not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification.
XI. Certain Business Transactions
(a) Approval of any merger or share exchange of the Corporation with or
into any other corporation, or any sale, lease, exchange or other disposition of
all or substantially all of the assets of the Corporation to any other
corporation, person or other entity, shall require either:
(i) the affirmative vote of two-thirds (2/3) of the directors of the
Corporation then in office and the affirmative vote of a majority
of the issued and outstanding shares of the Corporation entitled
to vote; or
(ii) the affirmative vote of a majority of the directors of the
Corporation then in office and the affirmative vote of the
holders of at least two-thirds (2/3) of the issued and
outstanding shares of the Corporation entitled to vote.
(b) The Board of Directors shall have the power to determine for the
purposes of this Article XI, on the basis of information known to the
Corporation, whether any sale, lease, exchange or other disposition of part of
the assets of the Corporation involves substantially all of the assets of the
Corporation.
XII. Factors Considered in Business Transaction
The Board of Directors, when evaluating any offer of another party (i) to
make a tender offer or exchange offer for any equity security of the
Corporation, (ii) to merge or consolidate any other corporation with the
Corporation, or (iii) to purchase or otherwise acquire all or substantially all
of the assets of the Corporation, shall, in determining what is in the best
interests of the Corporation and its shareholders, give due consideration to all
relevant factors, including without limitation: (A) the short-term and
long-term social and economic effects on the employees, customers, shareholders
and other constituents of the Corporation and its subsidiaries, and on the
communities within which the Corporation and its subsidiaries operate (it being
understood that any subsidiary bank of the Corporation is charged with providing
support to and being involved in the communities it serves); and (B) the
consideration being offered by the other party in relation to the then-current
value of the Corporation in a freely negotiated transaction and in relation to
the Board of Directors' then-estimate of the future value of the Corporation as
an independent entity.
XIII. Amendment of Articles of Incorporation
The Corporation reserves the right to amend, alter, or repeal any provision
contained in these Articles of Incorporation in the manner now or hereafter
prescribed by statute, and all rights conferred on shareholders herein are
granted subject to this reservation. Notwithstanding the preceding sentence,
the provisions set forth in this Article XIII and Articles VII, VIII, IX, X, XI,
and XII hereof may not be altered, amended or repealed in any respect, and no
other provision(s) may be adopted which would impair in any respect the
operation or effect of any such provisions,
<PAGE>
except by the affirmative vote of holders of at least two-thirds (2/3) of the
voting power of the then outstanding shares of capital stock, voting together as
a single class; provided, however, that such two-thirds (2/3) voting requirement
shall not be applicable if the Board of Directors of the Corporation shall
approve such action by resolution adopted by at least two-thirds (2/3) of the
directors then in office, in which case the affirmative vote of holders of a
majority of the then outstanding shares of capital stock entitled to be cast at
the meeting of shareholders called for that purpose, voting together as a single
class, shall be required to approve such action.
XIV. Savings Clause
Should any provision of these Articles of Incorporation, or any clause
hereof, be held to be invalid, illegal or unenforceable, in whole or in part,
the remaining provisions and clauses of these Articles of Incorporation shall
remain valid and fully enforceable.
IN WITNESS WHEREOF, the Corporation has caused these Amended and Restated
Articles of Incorporation to be duly executed by its duly authorized officer on
this 25th day of November, 1996.
/s/ Donald S. Shapleigh, Jr.
------------------------------
Donald S. Shapleigh, Jr.
President
<PAGE>
EXHIBIT 3.2
BYLAWS OF THE REGISTRANT
<PAGE>
BYLAWS
OF
INTERNET ORGANIZING GROUP, INC.
<PAGE>
BY LAWS
OF
INTERNET ORGANIZING GROUP, INC.
(ADOPTED: FEBRUARY 20, 1996)
ARTICLE I
DEFINITIONS
As used in these Bylaws, the terms set forth below shall have the meanings
indicated:
"ARTICLES OF INCORPORATION" means the Articles of Incorporation of the
Corporation, as amended from time to time.
"BOARD" shall mean the Board of Directors of the Corporation.
"CHIEF EXECUTIVE OFFICER" shall mean the President of the Corporation,
or such other officer as shall be designated by the Board as having the duties
of the Chief Executive Officer, as described in Section 4 of Article V of these
Bylaws.
"CODE" shall mean the Georgia Business Corporation Code, as amended from
time to time.
"CORPORATION" shall mean Internet Organizing Group, Inc., a Georgia
corporation.
"SECRETARY" shall mean the Secretary of the Corporation, or such other
officer as shall be designated by the Board as having the duties of the
Corporate Secretary as described in Section 5 of Article V of these Bylaws.
"SECRETARY OF STATE" shall mean the Secretary of State of Georgia.
"VOTING GROUP" shall have the meaning set forth in subsection (a) of
Section 6 of Article III of these Bylaws.
ARTICLE II
GENERAL PROVISIONS REGARDING NOTICES
Section 1. Notices.
Except as otherwise provided in the Articles of Incorporation or these
Bylaws, or as otherwise required by applicable law:
<PAGE>
(a) Any notice required by these Bylaws or by law shall be in writing
unless oral notice is reasonable under the circumstances.
(b) Notice may be communicated in person: by telephone, telegraph,
teletype, or other form of wire or wireless communication; or by
mail or private carrier. If these forms of personal notice are
impracticable, notice may be communicated by a newspaper of general
circulation in the area where published, or by radio, television, or
other form of public broadcast communication.
(c) Written notice by the Corporation to any shareholder, if in a
comprehensible form, is effective when mailed, if mailed with
first-class postage prepaid and correctly addressed to the
shareholder's address shown in the Corporation's current record of
shareholders; PROVIDED that if the Corporation has more than 500
shareholders of record entitled to vote at a meeting, it may utilize
a class of mail other than first class if the notice of the meeting
is mailed, with adequate postage prepaid, not less than 30 days
before the date of the meeting.
(d) Written notice to the Corporation may be addressed to its registered
agent at its registered office or to the Corporation or its
Secretary at its principal office shown in its most recent annual
registration with the Secretary of State.
(e) Except as provided in subsection (c) of this Section 1, written
notice, if in a comprehensible form, is effective at the earliest of
the following:
(1) when received, or when delivered, properly addressed, to the
addressee's last known principal place of business or
residence;
(2) five days after its deposit in the mail, as evidenced by the
postmark, if mailed with first-class postage prepaid and
correctly addressed; or
(3) on the date shown on the return receipt, if sent by registered
or certified mail, return receipt requested, and the receipt
is signed by or on behalf of the addressee.
(f) Oral notice is effective when communicated if communicated in a
comprehensible manner.
(g) In calculating time periods for notice under these By-Laws, when a
period of time measured in days, weeks, months, years, or other
measurement of time is prescribed for the exercise of any privilege
or the discharge of any duty, the first day shall not be counted but
the last day shall be counted.
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<PAGE>
Section 2. Waiver of Notice.
Except as otherwise provided or required by the Articles of Incorporation,
these Bylaws or applicable law:
(a) A shareholder may waive any notice required to be given to such
shareholder, before or after the date and time stated in the notice.
The waiver must be in writing, be signed by the shareholder entitled
to the notice, and be delivered to the Corporation for inclusion in
the minutes or filing with the Corporation's corporate records.
(b) A shareholder's attendance at a meeting:
(1) waives objection to lack of notice or defective notice of the
meeting, unless the shareholder at the beginning of the
meeting objects to holding the meeting or transacting business
at the meeting; and
(2) waives objection to consideration of a particular matter at
the meeting that is not within the purpose or purposes
described in the meeting notice, unless the shareholder
objects to considering the matter when it is presented.
(c) Neither the business transacted nor the purpose of the meeting need
be specified in the waiver, except that any waiver by a shareholder
of the notice of a meeting of shareholders with respect to an
amendment of the Articles of Incorporation, a plan of merger or
share exchange, a sale of assets or any other action which would
entitle the shareholder to exercise statutory dissenter's rights
under the Code and obtain payment for his shares shall not be
effective unless:
(1) prior to the execution of the waiver, the shareholder shall
have been furnished the same material that under the Code
would have been required to be sent to the shareholder in a
notice of the meeting, including notice of any applicable
dissenters' rights as provided in the Code; or
(2) the waiver expressly waives the right to receive the material
required to be furnished.
(d) A director may waive any notice required to be given to such
director by the Code, the Articles of Incorporation, or these Bylaws
before or after the date and time stated in the notice. Except as
provided by subsection (e) of this Section 2, the waiver must be in
writing, signed by the director entitled to the
3
<PAGE>
notice, and delivered to the Corporation for inclusion in the
minutes or filing with the Corporation's corporate records.
(e) A director's attendance at or participation in a meeting waives any
required notice to him of the meeting unless the director at the
beginning of the meeting (or promptly upon his arrival) objects to
holding the meeting or transacting business at the meeting and does
not thereafter vote for or assent to action taken at the meeting.
ARTICLE III
SHAREHOLDERS' MEETINGS
Section 1. Place of Meeting.
The Board may designate any place within or outside the State of Georgia
as the place of meeting for any annual or special shareholders' meeting. A
waiver of notice signed by all shareholders entitled to vote at a meeting may
designate any place within or outside the State of Georgia as the place for the
holding of such meeting. If no designation is made, or if a special meeting be
otherwise called, the place of meeting shall be the principal office of the
Corporation.
Section 2. Annual Meeting.
An annual meeting of the shareholders shall be held on the second
Wednesday in April of each year, if not a legal holiday (and if such is a legal
holiday, then on the next following day not a legal holiday), at such time and
place as the Board shall determine, at which time the shareholders shall elect a
Board and transact such other business as may be properly brought before the
meeting. Notwithstanding the foregoing, the Board may cause the annual meeting
of shareholders to be held on such other date in any year as the Board shall
determine to be in the best interests of the Corporation, and any business
transacted at that meeting shall have the same validity as if transacted on the
date designated herein.
Section 3. Special Meetings.
Except to the extent otherwise prescribed by statute or the Articles of
Incorporation, special meetings of the shareholders, for any purpose or
purposes, may be called by the Chief Executive Officer, or by the presiding
officer of the Board, if any. The Chief Executive Officer or the Secretary
shall call a special meeting when: (1) requested in writing by any two or more
of the directors; or (2) requested in writing by shareholders owning shares
representing at least twenty-five percent (25%) of all the votes entitled to be
cast on any issue proposed to be considered at such meeting. Any such written
request shall be signed and dated and shall state the purpose or purposes of the
proposed meeting.
4
<PAGE>
Section 4. Notice to Shareholders.
(a) Except as otherwise specifically provided in this Section 4,
requirements with respect to the giving of notice and waiver of
notice shall be governed by the provisions of Article II of these
Bylaws.
(b) The Corporation shall give notice to each shareholder entitled to
vote thereat of the date, time and place of each annual and special
shareholders' meeting no fewer than ten (10) nor more than sixty
(60) days before the meeting date.
(c) Unless otherwise required by the Code with respect to meetings at
which specified actions will be considered (including but not
limited to mergers, certain share exchanges, certain asset sales by
the Corporation, and dissolution of the Corporation), notice of an
annual meeting need not contain a description of the purpose or
purposes for which the meeting is called.
(d) Notice of a special meeting must include a description of the
purpose or purposes for which the meeting is called.
(e) Unless a new record date is set (or is required by law or by the
terms of these Bylaws to be set) therefor, notice of the date, time
and place of any adjourned meeting need not be given otherwise than
by the announcement at the meeting before adjournment. If a new
record date for the adjourned meeting is or must be fixed, however,
notice of the adjourned meeting must be given in accordance with
these Bylaws as if such adjourned meeting were a newly-called
meeting.
(f) If any corporate action proposed to be considered at a meeting of
shareholders would or might give rise to statutory dissenters'
rights under the Code, the notice of such meeting shall state that
the meeting is to include consideration of such proposed corporate
action, and that the consummation of such action will or might give
rise to such dissenters' rights, and shall include the description
of such statutory dissenters' rights required by the Code.
(g) If any corporate action which would give rise to statutory
dissenters' rights under the Code is taken by written consent of
shareholders without a meeting, or is taken at a meeting with
respect to which less than all shareholders were entitled to receive
notice, or is otherwise taken without a vote of shareholders, the
Corporation shall cause notice thereof, including the information
concerning statutory dissenters' rights contemplated by paragraph
(b) above, to be given, not more than ten (10) days after the
adoption of such action by shareholder vote at a meeting or by
written consent to those shareholders who did not execute such
written consent or who were not entitled to receive notice
5
<PAGE>
of such meeting, or to all shareholders if such action was otherwise
taken without a vote of shareholders.
Section 5. Fixing of Record Date.
(a) For the purpose of determining shareholders entitled to notice of or
to vote at any meeting of shareholders, or shareholders entitled to
demand a special meeting of shareholders, or shareholders entitled
to take any other action, the Board may fix in advance (but not
retroactively from the date the Board takes such action) a date as
the record date for any such determination of shareholders, such
date in any case to be not more than seventy (70) days prior to the
meeting or action requiring such determination of shareholders. If
no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, the
close of business on the last business day before the first notice
of such meeting is delivered to shareholders shall be the record
date. If no record date is fixed for determining shareholders
entitled to take action without a meeting, the date the first
shareholder signs the consent shall be the record date for such
purpose. If no record date is fixed for determining shareholders
entitled to demand a special meeting, or to take other action, the
date of receipt of notice by the Corporation of demand for such
meeting, or the date on which such other action is to be taken by
the shareholders, shall be the record date for such purpose.
(b) A separate record date may be established for each voting group
entitled to vote separately on a matter at a meeting.
(c) A determination of shareholders entitled to notice of or to vote at
a shareholders meeting is effective for any adjournment of the
meeting unless the Board fixes a new record date, which it must do
if the meeting is adjourned to a date more than 120 days after the
date fixed for the original meeting.
(d) For the purpose of determining shareholders entitled to a
distribution by the Corporation (other than one involving a
purchase, redemption or other acquisition of the Corporation's
shares), the record date shall be the date fixed for such purpose by
the Board, or if the Board does not fix such a date, the date on
which the Board authorizes such distribution.
Section 6. Quorum and Voting Requirements.
(a) Except as otherwise provided by the Articles of Incorporation or the
Code:
(1) A "voting group" with respect to any given matter means all
shares of one or more class or series which, under the
Articles of Incorporation
6
<PAGE>
or the Code, are entitled to vote and be counted together
collectively on that matter, and unless specified otherwise in
the Articles of Incorporation, the Code or these Bylaws, all
shares entitled to vote on a given matter shall be deemed to
be a single voting group for purposes of that matter.
(2) Each outstanding share, regardless of class, is entitled to
one vote on each matter voted on at a shareholders' meeting.
(3) A majority of the votes entitled to be cast on the matter by a
voting group constitutes a quorum of that voting group for
action on that matter.
(4) The presence of a quorum of each voting group entitled to vote
thereon shall be the requisite for transaction of business on
a given matter.
(5) Action on a matter other than election of directors is
approved by a voting group if a quorum of such voting group
exists and the number of votes cast within such voting group
in favor of such action exceeds the number of votes cast
within such voting group against such action.
(6) Except as otherwise provided in these Bylaws, all shares
entitled to vote for election of directors shall vote thereon
as a single voting group, and directors shall be elected by a
plurality of votes cast by shares entitled to vote in the
election in a meeting at which a quorum of such voting group
is present.
(b) Once a share is represented for any purpose other than solely to
object to holding a meeting or transacting business at the meeting,
it is deemed present for quorum purposes for the remainder of the
meeting and for any adjournment of that meeting unless a new record
date is, or is required by law or these By-Laws to be, set for that
adjourned meeting.
(c) If a quorum for transaction of business shall not be present at a
meeting of shareholders, the shareholders entitled to vote thereat,
present in person or by proxy, shall have the power to adjourn the
meeting from time to time, until the requisite amount of voting
stock shall be present. No notice other than announcements at the
meeting before adjournment shall be required of the new date, time
or place of the adjourned meeting, unless a new record date for such
adjourned meeting is, or is required by law or these Bylaws to be,
fixed. At such adjourned meeting (for which no new record date is,
or is required to be, set) at which a quorum shall be present in
person or by proxy, any business may be transacted that might have
been transacted at the meeting originally called.
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<PAGE>
Section 7. Proxies.
At every meeting of the shareholders, any shareholder having the right to
vote shall be entitled to vote in person or by proxy, but no proxy shall be: (i)
effective unless given in writing and signed, either personally by the
shareholder or his attorney-in-fact; (ii) effective until received by the
Secretary or other officer or agent authorized to tabulate votes; or (iii) valid
after eleven months from its date, unless said proxy expressly provides for a
longer period.
Section 8. Informal Actions by Shareholders.
Any action required or permitted to be taken at a meeting of the
shareholders may be taken without a meeting if written consent (which may take
the form of one or more counterpart copies), setting forth the action so taken,
shall be signed by all the holders of all the shares entitled to vote with
respect to the subject matter thereof and delivered to the Corporation for
inclusion in the minutes or filing with the corporate records. Such consent
shall have the same force and effect as a unanimous vote of the shareholders;
provided, however, that no such consent which purports to be an approval of any
plan of merger, share exchange, asset sale or other transaction (i) as to which
shareholder approval is required by the Code and (ii) with respect to which
specific disclosure requirements to voting shareholders are imposed by the Code,
shall be effective unless:
(a) prior to the execution of the consent, each consenting shareholder
shall have been furnished the same material which, under the Code,
would have been required to be sent to shareholders in a notice of a
meeting at which the proposed action would have been submitted to
the shareholders for action, including notice of any applicable
dissenters' rights; or:
(b) the written consent contains an express waiver of the right to
receive the material otherwise required to be furnished.
ARTICLE IV
DIRECTORS
Section 1. General Powers.
All corporate powers of the Corporation shall be exercised by or under the
authority of, and the business and affairs of the Corporation managed under the
direction of, its Board, subject to any limitation set forth in the Articles of
Incorporation, or any amendment to these Bylaws approved by the shareholders of
the Corporation, or any otherwise lawful agreement among the shareholders of the
Corporation.
8
<PAGE>
Section 2. Number, Tenure, Qualifications.
The Board shall consist of one or more individuals, the precise number to
be fixed by resolution of the shareholders from time to time. Each member of
the Board shall hold office until the annual meeting of shareholders held next
after his election and until his successor has been duly elected and has
qualified, or until his earlier resignation, removal from office, or death.
Directors shall be natural persons who are eighteen (18) years of age or older,
but need not be shareholders or residents of Georgia unless the Articles of
Incorporation require otherwise.
Section 3. Vacancies, How Filled.
If any vacancy shall occur in the membership of the Board by reason of the
resignation, removal or death of a director, the remaining directors shall
continue to act, and such vacancies may be filled by the affirmative vote of the
majority of the directors then in office, though less than a quorum, and if not
therefore filled by action of the directors, may be filled by the shareholders
at any meeting held during the existence of such vacancy. A director elected to
fill a vacancy shall be elected for the unexpired term of his predecessor in
office.
Section 4. Place of Meeting.
The Board may hold its meetings at such place or places within or without
the State of Georgia as it may from time to time determine.
Section 5. Compensation.
Directors may be allowed such compensation for attendance at regular or
special meetings of the Board and of any special or standing committees thereof
as may be from time to time determined by resolution of the Board.
Section 6. Regular Meetings.
A regular annual meeting of the Board shall be held, without other notice
than this Bylaw, immediately after, and at the same place as, the annual meeting
of shareholders. The Board may provide, by resolution, the time and place
within or without the State of Georgia, for the holding of additional regular
meetings without other notice than such resolution.
Section 7. Special Meetings.
Special meetings of the Board may be called by the Chief Executive Officer
or the presiding officer of the Board, if different from the Chief Executive
Officer, on not less than two (2) days' notice to each director by mail,
telegram, cablegram or other form of wire or wireless communication, or personal
delivery or other form of communication authorized
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under the circumstances by the Code, and shall be called by the Chief Executive
Officer or the Secretary in like manner and on like notice on the written
request of any two (2) or more members of the Board. Such notice shall state
the time, date and place of such meeting, but need not describe the purpose of
the meeting. Any such special meeting shall be held at such time and place as
shall be stated in the notice of the meeting.
Section 8. General Provisions Regarding Notice and Waiver.
Except as otherwise expressly provided in this Article IV, matters
relating to notice to directors and waiver of notice by directors shall be
governed by the provisions of Article II of these By-Laws.
Section 9. Quorum.
At all meetings of the Board, unless otherwise provided in the Articles of
Incorporation or other provisions of these Bylaws, the presence of a majority of
the Directors shall constitute a quorum for the transaction of business. In the
absence of a quorum a majority of the Directors present at any meeting may
adjourn from time to time until a quorum be had. Notice of the time and place
of any adjourned meeting need only be given by announcement at the meeting at
which adjournment is taken.
Section 10. Manner of Acting.
Except as expressly otherwise provided by the Articles of Incorporation or
other provisions of these Bylaws, if a quorum is present when a vote is taken,
the affirmative vote of a majority of directors present is the act of the Board.
A director who is present at a meeting when corporate action is taken is deemed
to have assented to the action unless:
(a) He objects at the beginning of the meeting (or promptly upon his
arrival) to holding it or transacting business at the meeting;
(b) His dissent or abstention from the action taken is entered in the
minutes of the meeting; or
(c) He does not vote in favor of the action taken and delivers written
notice of his dissent or abstention to the presiding officer of the
meeting before its adjournment or to the Corporation immediately
after adjournment of the meeting.
Section 11. Committees.
(a) Except as otherwise provided by the Articles of Incorporation, the
Board may create one or more committees and appoint members of the
Board to serve on
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them. Each committee may have one or more members, who serve at the
pleasure of the Board.
(b) The provisions of these Bylaws and of the Code which govern
meetings, action without meetings, notice and waiver of notice, and
quorum and voting requirements of the Board, shall apply as well to
committees created under this Section 11 and their members.
(c) To the extent specified by the Articles of Incorporation, these
Bylaws and the resolution of the Board creating such committee, each
committee may exercise the authority of the Board, provided that a
committee may not:
(1) approve, or propose to shareholders for approval, action
required by the Code to be approved by shareholders;
(2) fill vacancies on the Board or on any of its committees;
(3) exercise any authority which the Board may have to amend the
Articles of Incorporation;
(4) adopt, amend, or repeal bylaws; or
(5) approve a plan of merger not requiring shareholder approval.
Section 12. Action Without Formal Meeting.
Except as expressly otherwise provided in the Articles of Incorporation,
any action required or permitted to be taken at any meeting of the Board or of
any committee thereof may be taken without a meeting if written consent thereto
(which may take the form of one or more counterparts) is signed by all members
of the Board or of such committee, as the case may be, and such written consent
is filed with the minutes of the proceedings of the Board or committee. A
consent executed in accordance herewith has the effect of a meeting vote and may
be described as such in any document.
Section 13. Conference Call Meetings.
Members of the Board, or any committee of the Board, may participate in a
meeting of the Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can simultaneously hear each other during the meeting, and participation
in a meeting pursuant to this Section shall constitute presence in person at
such meeting.
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ARTICLE V
OFFICERS
Section 1. Generally.
The Board shall from time to time elect or appoint such officers as it
shall deem necessary or appropriate to the management and operation of the
Corporation, which officers shall hold their offices for such terms as shall be
determined by the Board and shall exercise such powers and perform such duties
as are specified in these Bylaws or in a resolution of the Board. Except as
specifically otherwise provided in resolutions of the Board, the following
requirements shall apply to election or appointment of officers:
(a) The Corporation shall have, at a minimum, the following officers,
which offices shall bear the titles designated therefor by
resolution of the Board, but in the absence of such designation
shall bear the titles set forth below:
OFFICE TITLE
Chief Executive Officer President
Chief Financial Officer Treasurer
Secretary Secretary
(b) All officers of the Corporation shall serve at the pleasure of the
Board, and in the absence of specification otherwise in a resolution
of the Board, each officer shall be elected to serve until the next
succeeding annual meeting of the Board and the election and
qualification of his successor, subject to his earlier death,
resignation or removal.
(c) Any person may hold two or more offices simultaneously, and no
officer need be a shareholder of the Corporation.
(d) If so provided by resolution of the Board, any officer may be
delegated the authority to appoint one or more officers or assistant
officers, which appointed officers or assistant officers shall have
the duties and powers specified in the resolution of the Board.
Section 2. Compensation.
The salaries of the officers of the Corporation shall be fixed by the
Board, except that the Board may delegate to any officer or officers the power
to fix the compensation of any other officer.
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Section 3. Vacancies.
A vacancy in any office, because of resignation, removal or death may be
filled by the Board for the unexpired portion of the term, or if so provided by
resolution of the Board, by an officer of the Corporation to whom has been
delegated the authority to appoint the holder of such vacated office.
Section 4. Chief Executive Officer.
The Chief Executive Officer shall have such title or titles designated by
the Board and shall be the principal executive officer of the Corporation.
Subject to the control of the Board, the Chief Executive Officer shall in
general manage, supervise and control all of the business and affairs of the
Corporation. He shall, when present, preside at all meetings of all of the
stockholders. He may sign, individually or in conjunction with any other proper
officer of the Corporation hereunto authorized by the Board, certificates for
shares of the Corporation, any deeds, mortgages, bonds, policies of insurance,
contracts, investment certificates, or other instruments which the Board has
authorized to be executed, except in cases where the execution thereof shall be
expressly delegated by the Board or by the Bylaws to some other officer or agent
of the Corporation, or shall be required by law to be otherwise signed ar
executed; and in general shall perform all duties incident to the office of the
Chief Executive Officer of the Corporation and such other duties as may be
prescribed by the Board from time to time.
Section 5. Secretary.
The Secretary may be designated by any such title as determined by
resolution of the Board, but shall have the duties of the officer denominated
the "Secretary" under the Code. Such officer shall: (a) attend and keep the
Minutes of the shareholders' meetings and of the Board's meetings in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these Bylaws or as otherwise required by law
or the provisions of the Articles of Incorporation; (c) be custodian of the
corporate records and of the seal of the Corporation and see that the seal of
the Corporation is affixed to all documents, the execution of which on behalf of
the Corporation under its seal is duly authorized; (d) maintain, or cause an
agent designated by the Board to maintain, a record of the Corporation's
shareholders in a form that permits the preparation of a list of the names and
addresses of all shareholders in alphabetical order by class of shares, showing
the number and class of shares held by each; (e) have general charge of the
stock transfer books of the Corporation or responsibility for supervision, on
behalf of the Corporation, of any agent to which stock transfer responsibility
has been delegated by the Board; (f) have responsibility for the custody,
maintenance and preservation of those corporate records which the Corporation is
required by the Code or otherwise to create, maintain or preserve; (g) in
general perform all duties incident to the legal office of "Secretary", as
described in the Code, and such other duties as from time to time may be
assigned to him by the Board.
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Section 6. The Chief Financial Officer.
The Chief Financial Officer, unless otherwise determined by the Board,
shall: (a) have charge and custody of and be responsible for all funds and
securities of the Corporation; receive and give receipts for monies due and
payable to the Corporation from any source whatsoever, and deposit all such
monies in the name of the Corporation in such banks, trust companies or other
depositories as shall be selected by the Board; and (b) in general perform all
the duties incident to the office of Chief Financial Officer and such other
duties as from time to time may be assigned by the Board.
Section 7. Deputy Officers.
The Board may create one or more deputy officers whose duties shall be,
among any other designated thereto by the Board, to perform the duties of the
officer to which such office has been deputized in the event of the
unavailability, death or inability or refusal of such officer to act. Deputy
officers may hold such titles as designated therefor by the Board; however, any
office designated with the prefix "Vice" or "Deputy" shall be, unless otherwise
specified by resolution of the Board, automatically a deputy officer to the
office with the title of which the prefix term is conjoined. Deputy officers
shall have such other duties as prescribed by the Board from time to time.
Section 8. Assistant Officers.
The Board may appoint one or more officers who shall be assistants to
principal officers of the Corporation, or their deputies, and who shall have
such duties as shall be delegated to such assistant officers by the Board or
such principal officers, including the authority to perform such functions of
those principal officers in the place of and with full authority of such
principal officers as shall be designated by the Board or (if so authorized) by
such principal officers. The Board may by resolution authorize appointment of
assistant officers by those principal officers to which such appointed officers
will serve as assistants.
ARTICLE VI
INDEMNIFICATION
Section 1. DefInitions for Indemnification Provisions.
As used in this Article VI, the term:
(a) "Corporation" (when spelled with an initial capital letter) includes
any domestic or foreign predecessor entity of the "Corporation" (as
defined in Article I of these Bylaws) in a merger or other
transaction in which the predecessor's existence ceased upon
consummation of the transaction.
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(b) "Director" means an individual who is or was a director of the
Corporation or an individual who, while a director of the
Corporation, is or was serving at the Corporation's request as a
director, officer, partner, trustee, employee, or agent of another
foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise. A director is
considered to be serving an employee benefit plan at the
Corporation's request if his duties to the Corporation also impose
duties on, or otherwise involve services by, him to the plan or to
participants in or beneficiaries of the plan. Director includes,
unless the context requires otherwise, the estate or personal
representative of a director.
(c) "Expenses" include attorneys' fees.
(d) "Liability" means the obligation to pay a judgment, settlement,
penalty, fine (including an excise tax assessed with respect to an
employee benefit plan), or reasonable expenses incurred with respect
to a proceeding.
(e) "Party" includes an individual who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
(f) "Proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal.
Section 2. Mandatory indemnification Against Expenses.
Unless otherwise provided by the Articles of Incorporation, to the extent
that a director has been successful, on the merits or otherwise, in the defense
of any proceeding to which he was a party, or in defense of any claim, issue, or
matter therein, because he is or was a director of the Corporation, the
Corporation shall indemnify the director against reasonable expenses incurred by
him in connection therewith.
Section 3. Authority for Permissive Indemnification.
(a) Except as provided in subsections (d) and (e) of this Section 3, or
as otherwise provided in the Articles of Incorporation, the
Corporation may indemnify or obligate itself to indemnify an
individual made a party to a proceeding because he is or was a
director against liability incurred in the proceeding if he acted in
a manner he believed in good faith to be in or not opposed to the
best interests of the Corporation and, in the case of any criminal
proceeding, he had no reasonable cause to believe his conduct was
unlawful.
(b) A director's conduct with respect to an employee benefit plan for a
purpose he believed in good faith to be in the interests of the
participants in and
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beneficiaries of the plan is conduct that satisfies the requirement
of subsection (a) of this Section 3.
(c) The termination of a proceeding by judgment, order, settlement, or
conviction, or upon a plea of nolo contendere or its equivalent is
not, of itself, determinative that the director did not meet the
standard of conduct set forth in subsection (a) of this Section 3.
(d) The Corporation may not indemnify a director under this Section 3:
(1) in connection with a proceeding by or in the right of the
Corporation in which the director was adjudged liable to the
Corporation; or
(2) in connection with any other proceeding in which he was
adjudged liable on the basis that personal benefit was
improperly received by him.
(e) Indemnification permitted under this Section 3 in connection with a
proceeding by or in the right of the Corporation is limited to
reasonable expenses incurred in connection with the proceeding.
Section 4. Determination and Authorization of Permitted Indemnification.
(a) The Corporation may not indemnify a director under Section 3 of this
Article VI unless a determination has been made in the specific case
that indemnification of the director is permissible in the
circumstances because he has met the standard of conduct set forth
in subsection (a) of such Section 3.
(b) The determination required by subsection (a) hereof shall be made:
(1) by the Board by majority vote of a quorum consisting of
directors not at the time parties to the proceeding;
(2) if a quorum cannot be obtained under paragraph (1) of this
subsection (b), by majority vote of a committee duly
designated by the Board (in which designation directors who
are parties may participate), consisting solely of two or more
directors not at the time parties to the proceeding;
(3) by special legal counsel:
(i) selected by the Board or its committee in the manner
prescribed in paragraph (1) or (2) of this subsection;
or
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(ii) if a quorum of the Board cannot be obtained under
paragraph (1) of this subsection and a committee cannot
be designated under paragraph (2) of this subsection,
selected by majority vote of the full Board (in which
directors who are parties may participate); or
(4) by the shareholders, but shares owned by or voted under the
control of directors who are at the time parties to the
proceeding may not be voted on the determination.
(c) Authorization of indemnification or an obligation to indemnify and
evaluation as to reasonableness of expenses shall be made in the
same manner as the determination that indemnification is
permissible, as set forth in subsection (b) hereof, except that if
such determination is made by special legal counsel, authorization
of indemnification and evaluation as to reasonableness of expenses
shall be made by those entitled to select counsel under paragraph
(3) of subsection (b) of this Section 4.
Section 5. Shareholder-Approved Indemnification.
(a) Without regard to any limitations contained in any other section of
this Article VI, the Corporation may, if authorized by its
shareholders by a majority of votes which would be entitled to be
cast in a vote to amend the Corporation's Articles of Incorporation
(which authorization may take the form of an amendment to the
Articles of Incorporation or a contract, resolution or bylaw
approved or ratified by the requisite shareholder vote), indemnify
or obligate itself to indemnify a director made a party to a
proceeding, including a proceeding brought by or in the right of the
Corporation.
(b) The Corporation shall not indemnify a director under this Section 5
for any liability incurred in a proceeding in which the director is
adjudged liable to the Corporation or is subjected to injunctive
relief in favor of the Corporation:
(1) for any appropriation, in violation of his duties, of any
business opportunity of the Corporation;
(2) for acts or omissions which involve intentional misconduct or
a knowing violation of law;
(3) for any type of liability for unlawful distribution under
Section 14-2-832 of the Code, or any successor statute; or
(4) for any transaction from which he received an improper
personal benefit.
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(c) Where approved or authorized in the manner described in subsection
(a) of this Section 5, the Corporation may advance or reimburse
expenses incurred in advance of final disposition of the proceeding
only if:
(1) the director furnishes the Corporation a written affirmation
of his good faith belief that his conduct does not constitute
behavior of the kind described in subsection (b) of this
Section 5; and
(2) the director furnishes the Corporation a written undertaking,
executed personally or on his behalf, to repay any advances if
it is ultimately determined that he is not entitled to
indemnification under this Section 5.
Section 6. Advances for Expenses.
(a) The Corporation may pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding in advance of
final disposition of the proceeding if:
(1) the director furnishes the Corporation a written affirmation
of his good faith belief that he has met the standard of
conduct set forth in subsection (a) of Section 3 of this
Article VI; and
(2) the director furnishes the Corporation a written undertaking,
executed personally or on his behalf, to repay any advances if
it is ultimately determined that he is not entitled to
indemnification under this Article.
(b) The undertaking required by paragraph (2) of subsection (a) of this
Section 6 must be an unlimited general obligation of the director
but need not be secured and may be accepted without reference to
financial ability to make repayment.
Section 7. Indemnification of Officers, Employees and Agents.
Except as otherwise provided in the Articles of Incorporation, an officer
of the Corporation who is not a director is entitled to mandatory
indemnification under Section 2 of this Article VI, and is entitled to
permissive indemnification and advancement of expenses under the standards and
procedures set forth in Section 3, 4 and 5 of this Article VI, to the same
extent as a director, consistent with public policy.
Section 8. Insurance.
The Corporation may purchase and maintain insurance on behalf of an
individual who is or was a director, officer, employee, or agent of the
Corporation or who, while a director, officer, employee, or agent of the
Corporation, is or was serving at the request of the
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Corporation as a director, officer, partner, trustee, employee, or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise, against liability asserted against
or incurred by him in that capacity or arising from his status as a director,
officer, employee, or agent, whether or not the Corporation would have power to
indemnify him against the same liability under this Article VI or applicable
law.
Section 9. Expenses for Appearance as Witness.
Nothing contained in this Article VI shall be deemed to limit the
Corporation's power to pay or reimburse expenses incurred by a director or
officer in connection with his appearance as a witness in a proceeding at a time
when he has not been made a named defendant or respondent to the proceeding.
ARTICLE VII
REIMBURSEMENT OF NON-DEDUCTIBLE
PAYMENTS TO OFFICERS AND EMPLOYEES
In the event any payments to an officer or employee of the Corporation,
such as salary, commission, bonus, interest or rent expenses incurred by him, is
thereafter disallowed in whole or in part by the Internal Revenue Service as a
proper deduction for income tax purposes under Section 162 of the Internal
Revenue Code of 1986 (or disallowed under any similar statutory section which
may subsequently replace such Section 162), such disallowed payments shall be
deemed to be an obligation owed by such officer or employee to the Corporation.
Such disallowed payments shall be reimbursed by such officer or employee to the
Corporation on or before ninety (90) days following the final determination of
such disallowance by the Internal Revenue Service or entry of the final judgment
of such determination if adjudicated. It shall be the duty of the Board to
enforce reimbursement of each such amount disallowed, including the withholding
from future compensation payments to such officer or employee until the amount
owed to the Corporation has been recovered.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation shall be established by the Board or,
in the absence of Board action establishing such fiscal year, by the Chief
Executive Officer.
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ARTICLE IX
ANNUAL STATEMENTS
(a) No later than four months after the close of each fiscal year, and
in any case prior to the next annual meeting of shareholders, the
Corporation shall prepare:
(1) a balance sheet showing in reasonable detail the financial
condition of the Corporation as of the close of the fiscal
year; and
(2) a profit and loss statement showing the results of its
operation during the fiscal year.
Upon written request, the Corporation shall mail promptly to any
shareholder of record a copy of the most recent such balance sheet
and profit and loss statement. If prepared for other purposes, the
Corporation shall also furnish upon written request a statement of
sources and applications of funds and a statement of changes in
shareholders' equity for the fiscal year. If financial statements
are prepared by the Corporation on the basis of generally accepted
accounting principles, the annual financial statements must also be
prepared, and disclose that they are prepared, on that basis. If
financial statements are prepared otherwise than on the basis of
generally accepted accounting principles, they must so disclose and
must be prepared on the same basis as other reports or statements
prepared by the Corporation for the use of others.
(b) If the annual financial statements are reported upon by a public
accountant, his report must accompany them. If not, the statements
must be accompanied by a statement of the Chief Executive Officer or
the person responsible for the Corporation's accounting records:
(1) stating his reasonable belief whether the statements were
prepared on the basis of generally accepted accounting
principles and, if not, describing the basis of preparation;
and
(2) describing any respects in which the statements were not
prepared on a basis of accounting consistent with the
statements prepared for the preceding year.
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ARTICLE X
CAPITAL STOCK
Section 1. Form.
(a) Except as otherwise provided for in paragraph (b) of this Section 1,
the interest of each shareholder shall be evidenced by a certificate
representing shares of stock of the Corporation, which shall be in
such form as the Board may from time to time adopt and shall be
numbered and shall be entered in the books of the Corporation as
they are issued. Each certificate shall exhibit the holder's name,
the number of shares and class of shares and series, if any,
represented thereby, the name of the Corporation and a statement
that the Corporation is organized under the laws of the State of
Georgia. Each certificate shall be signed by one or more officers
of the Corporation specified by resolution of the Board, but in the
absence of such specifications, shall be valid if executed by the
Chief Executive Officer or any Deputy or Assistant thereto, and such
execution is countersigned by the Secretary, or any Deputy or
Assistant thereto. Each stock certificate may but need not be
sealed with the seal of the Corporation.
(b) If authorized by resolution of the Board, the Corporation may issue
some or all of the shares of any or all of its classes or series
without certificates. The issuance of such shares shall not affect
shares already represented by certificates until they are
surrendered to the Corporation. Within a reasonable time after the
issuance or transfer of any shares not represented by certificates,
the Corporation shall send to the holder of such shares a written
statement setting forth, with respect to such shares (i) the name of
the Corporation as issuer and the Corporation's state of
incorporation, (ii) the name of the person to whom such shares are
issued, (iii) the number of shares and class of shares and series,
if any, and (iv) the terms of any restrictions on transfer which,
were such shares represented by a stock certificate would be
required to be noted on such certificate, by law, by the Articles of
Incorporation or these By-Laws, or by any legal agreement among the
shareholders of the Corporation.
Section 2. Transfer.
Transfers of stock shall be made on the books of the Corporation only by
the person named in the certificate, or, in the case of shares not represented
by certificates, the person named in the Corporation's stock transfer records as
the owner of such shares, or, in either case, by attorney lawfully constituted
in writing. In addition, with respect to shares represented by certificates,
transfers shall be made only upon surrender of the certificate therefor, or in
the case of a certificate alleged to have been lost, stolen or destroyed, upon
compliance with the provisions of Section 4, Article X of these Bylaws.
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Section 3. Rights of Holder.
The Corporation shall be entitled to treat the holder of record of any
share of the Corporation as the person entitled to vote such share (to the
extent such share is entitled to vote), to receive any distribution with respect
to such share, and for all other purposes and accordingly shall not be bound to
recognize any equitable or other claim to or interest in such share on the part
of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by law.
Section 4. Lost or Destroyed Certificates.
Any person claiming a certificate of stock to be lost, stolen or destroyed
shall make an affidavit or affirmation of the fact in such manner as the Board
may require and shall if the Board so requires, give the Corporation a bond of
indemnity in the form and amount and with one or more sureties satisfactory to
the Board, whereupon an appropriate new certificate may be issued in lieu of the
one alleged to have been lost, stolen or destroyed.
ARTICLE XI
SEAL
The corporate seal shall be in such form as shall be specified in the
minutes of the
organizational meeting of the Corporation, or as the Board may from time to time
determine.
ARTICLE XII
REGISTERED OFFICE AND REGISTERED AGENT
The address of the initial registered office of the corporation is 3343
Peachtree Road, N.E., Suite 1800, Atlanta, Georgia 30326 and the name of the
initial registered agent is Robert C. Schwartz. The corporation may amend this
Article XII at any time to change its registered office or registered agent,
without further action of its officers or directors, by filing with the
Secretary of State a notice of such change, in accordance with Section 14-2-502
of the Code, or any successor statute.
The corporation may have other offices at such places within or without
the State of Georgia as the Board from time to time designate or the business of
the corporation may require or make desirable.
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ARTICLE XIII
AMENDMENTS
Section 1. Amendments Generally.
(a) Except as otherwise provided in subsection (c) of this Section 1, or
in the Articles of Incorporation or by applicable law, the Board may
amend or repeal any provision of these Bylaws or adopt any new
bylaw, unless the shareholders have adopted, amended or repealed a
particular bylaw provision and, in doing so, have expressly reserved
to the shareholders the right of amendment or repeal therefor.
(b) The Corporation's shareholders have the right to amend or repeal any
provision of these Bylaws, or to adopt new Bylaw provisions, even
though such provisions may also be adopted, amended or repealed by
the Board.
(c) Any provision of these Bylaws limiting the authority of the Board or
establishing staggered terms for directors may be adopted, amended
or repealed only by the shareholders.
Section 2. Bylaw Increasing Quorum or Voting Requirements.
(a) Except as provided in Section 14-2-1113 of the Code or any successor
statute thereto (relating to corporate business combinations with
statutorily defined "interested shareholders"), any bylaw which sets
a greater quorum or voting requirement for shareholders (or voting
groups of shareholders) than the minimum required by the Code may
not be adopted, amended or repealed by the Board.
(b) Except as otherwise provided in the Articles of Incorporation, a
bylaw that fixes a greater quorum or voting requirement for the
Board than the minimum required by the Code:
(1) may be adopted, amended, or repealed by the shareholders only
by the affirmative vote of a majority of the votes entitled to
be cast; or
(2) may be adopted, amended, or repealed by the directors only by
a majority of the entire Board.
(c) A bylaw adopted or amended by the shareholders that fixes a greater
quorum or voting requirement for the Board may be amended or
repealed only by a specified vote of either the shareholders or the
Board, if such bylaw provision so provides.
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EXHIBIT 10.1
AMENDED AND RESTATED STOCK PURCHASE AGREEMENT
AMONG THE REGISTRANT
AND FIRST ALLIANCE/PREMIER BANCSHARES, INC.
DATED AS OF DECEMBER 19, 1996,
AS AMENDED BY
AMENDMENT NO. 1 DATED
AS OF FEBRUARY 25, 1997
<PAGE>
AMENDED AND RESTATED
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
NET.B@NK, INC.
AND
FIRST ALLIANCE/PREMIER BANCSHARES, INC.
<PAGE>
AMENDED AND RESTATED
STOCK PURCHASE AGREEMENT
THIS AMENDED AND RESTATED STOCK PURCHASE AGREEMENT ("Agreement") is made
and entered into as of the 19th day of December, 1996, by and between NET.B@NK,
INC. (the "Company"), a corporation organized and existing under the laws of the
State of Georgia and FIRST ALLIANCE/PREMIER BANCSHARES, INC., a corporation
organized and existing under the laws of the State of Georgia ("Bancshares").
PREAMBLE
WHEREAS, a majority of the entire Board of Directors of each of the Company
and Bancshares have, respectively, approved and made this Agreement and
authorized its execution; and
WHEREAS, Bancshares is the sole shareholder of Premier Bank, F.S.B.
("Bank"); and
WHEREAS, Bancshares anticipates that it will consolidate the operations of
First Alliance Bank and Bank pursuant to a Purchase and Assumption Agreement;
and
WHEREAS, the Boards of Directors of the Company and Bancshares are of the
opinion that the transactions described herein are in the best interests of the
parties to this Agreement and their respective stockholders; and
WHEREAS, the stock purchase described herein is subject to regulatory
approval and the satisfaction of certain other conditions described in this
Agreement.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants and agreements set forth herein, the parties agree as
follows:
ARTICLE ONE
DEFINITIONS
Except as otherwise provided herein, the capitalized terms set forth below
(in their singular and plural forms as applicable) shall have the following
meanings:
1.1 "Agreement" shall mean this Stock Purchase Agreement.
1.2 "Bancshares" shall mean First Alliance/Premier Bancshares, Inc.
1.3 "Bank" shall mean Premier Bank, F.S.B.
1.4 "Bank Financial Statement" shall mean the financial statement of Bank
described in Section 4.4 of this Agreement.
<PAGE>
1.5 "BHC Act" shall mean the federal Bank Holding Company Act of 1956, as
amended.
1.6 "Closing" shall mean the closing of the transactions contemplated
hereunder which, unless the Parties otherwise agree, will take place on the
Effective Date, as described in Section 3.1 of this Agreement.
1.7 "Common Stock" shall mean the $8.00 par value common stock of the
Bank.
1.8 "Effective Date" shall mean the date and time on which the stock
purchase contemplated by this Agreement becomes effective pursuant to the laws
of the State of Georgia as defined in Section 3.2 of this Agreement.
1.9 "ERISA" shall mean Public Law No. 93406, the Employee Retirement
Income Security Act of 1974, as amended.
1.10 Exhibits 1 and 2, inclusive, and the Schedules referenced herein,
shall mean the respective Exhibits and Schedules so marked, each of which has
been initialed for identification by an officer of the Company and an officer of
the Bank, and bound sets of which have been delivered to the respective Parties.
Such Exhibits and Schedules are hereby incorporated by reference herein and made
a part hereof, and may be referred to in this Agreement and any other related
instrument or document without being attached hereto.
1.11 "Federal Reserve Board" shall mean the Board of Governors of the
Federal Reserve System.
1.12 "GAAP" shall mean generally accepted accounting principles.
1.13 "Internal Revenue Code" shall mean the Internal Revenue Code of 1986,
as amended.
1.14 "OTS" shall mean the Office of Thrift Supervision.
1.15 "Party" shall mean either the Company or Bancshares and "Parties"
shall mean collectively the Company and Bancshares.
1.16 "Previously Disclosed" shall mean information delivered prior to the
date of this Agreement in the manner and to the counsel described in Section
11.7 of this Agreement and describing in reasonable detail the matters contained
therein.
1.17 "Purchase and Assumption Transaction" shall mean the transaction
described in Section 9.12 hereof pursuant to an agreement substantially in the
form of Exhibit 1 attached hereto.
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1.18 "Regulatory Authorities" shall mean the applicable federal and state
regulatory authorities.
1.19 "Subsidiaries" or "Subsidiary" shall mean those corporations,
associations or other entities of which the entity in question owns or controls
80% or more of the outstanding equity securities either directly or through an
unbroken chain of entities as to each of which 80% or more of the outstanding
equity securities is owned directly or indirectly by its parent; provided,
however, there shall not be included any such entity acquired through
foreclosure, any such entity which owns or operates an automatic teller machine
interchange network or any such entity the equity securities of which are owned
or controlled in a fiduciary capacity.
ARTICLE TWO
PURCHASE OF STOCK
2.1 TRANSFER OF CERTIFICATES. Subject to the terms and conditions of this
Agreement, on the Effective Date Bancshares agrees to sell, assign, transfer and
deliver all of the $8.00 par value common stock of the Bank (the "Common Stock")
to the Company, and the Company agrees to purchase the Common Stock from
Bancshares. The certificates representing the Common Stock shall be duly
endorsed in blank, or accompanied by a stock power duly executed in blank, by
Bancshares, with all necessary transfer tax and other revenue stamps, acquired
at Bancshares' expense, affixed and cancelled. Bancshares agrees to cure at any
time after closing, without further compensation, any deficiencies with respect
to the endorsement of the certificates representing the Common Stock or with
respect to the stock power accompanying such certificate.
2.2 PURCHASE PRICE. In full consideration for the purchase by the Company
of the Common Stock, the Company shall on the Effective Date (i) pay to
Bancshares an amount in cash equal to the sum of the amount of the Bank's
unimpaired capital at Closing plus $100,000, and (ii) transfer to Bancshares 833
shares of the common stock of the Company (the "Company Common Stock") valued at
$120.00 per share which is the "agreed-upon" value of shares issued to certain
of the Company's investors by the Company. For the purpose of this Agreement,
the term "unimpaired capital" shall mean the sum of the Bank's paid in capital,
capital surplus, retained earnings and allocation for loan and lease losses with
respect to any loans and leases, immediately following consummation of the
Purchase and Assumption Transaction.
2.3 ANTI-DILUTION PROVISIONS. In the event that the Company changes the
number of shares of the Company Common Stock issued and outstanding prior to the
Effective Date as a result of a stock split, stock dividend or similar
recapitalization with respect to the Company Common Stock, the number of shares
issued to Bancshares as described in Section 2.2 shall be proportionately
adjusted.
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2.4 DIRECTOR AND OFFICERS OF THE BANK. Effective as of the Effective
Date, Bancshares shall deliver to the Company the resignations of all directors
and officers of the Bank.
ARTICLE THREE
CLOSING AND EFFECTIVE DATE
3.1 TIME AND PLACE OF CLOSING. A Closing will take place at 11:00 a.m. on
the Effective Date, or at such other time as the Parties may mutually agree.
The place of Closing shall be the offices of Bancshares at 2180 Atlanta Plaza,
950 East Paces Ferry Road, Atlanta, Georgia 30326, or at such other place as may
be mutually agreed upon by the Parties.
3.2 EFFECTIVE DATE. Upon the terms and subject to the conditions hereof,
as soon as practicable after receipt of the requisite regulatory approvals
following consummation of the Purchase and Assumption Transaction, but not later
than March 31, 1997, the parties shall designate an Effective Date on which the
Closing shall take place.
ARTICLE FOUR
REPRESENTATIONS AND WARRANTIES OF BANCSHARES
Bancshares hereby represents and warrants to the Company as follows:
4.1 ORGANIZATION, STANDING AND AUTHORITY. The Bank is a federal savings
bank duly organized, validly existing and in good standing under the laws of the
United States, is duly qualified to do business and is in good standing in the
States of the United States and jurisdictions where its ownership or leasing of
property or the conduct of its business requires it to be so qualified and in
which the failure to be duly qualified could have a material adverse effect upon
the Bank, and has corporate power and authority to carry on its business as now
conducted and to own, lease and operate its assets, properties and businesses,
and to execute and deliver this Agreement and perform its terms. The Bank is an
"insured bank" as defined in the Federal Deposit Insurance Act and applicable
regulations thereunder. The Bank has in effect all federal, state, local and
foreign governmental authorization necessary for it to own or lease its
properties and assets and to carry on its businesses as they are now being
conducted, the absence of which, either individually or in the aggregate, would
have a material adverse effect on the financial condition or operations of the
Bank.
4.2 CAPITAL STOCK.
(a) The authorized capital stock of the Bank consists of 1,000,000 shares
of Common Stock, $8.00 par value, of which 320,550 shares are issued and
outstanding as of the date of this Agreement. The Bank holds no shares of its
Common Stock in its treasury. As of the date of
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this Agreement, the Bank has reserved no shares of its Common Stock for issuance
to directors, officers and employees subject to options.
(b) All of the issued and outstanding shares of the Bank's Common Stock
are duly and validly issued and outstanding and are fully paid and
non-assessable. None of the outstanding shares of the Bank's Common Stock has
been issued in violation of any preemptive rights of the current or past
stockholders of the Bank. Except as set forth above, there are no shares of
capital stock or other equity securities of the Bank outstanding and no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of the capital stock of the Bank,
or contracts, commitments, understandings or arrangements by which the Bank was
or may be bound to issue additional shares of its capital stock or options,
warrants or rights to purchase or acquire any additional shares of its capital
stock.
4.3 AUTHORITY.
(a) The execution and delivery of this Agreement and the consummation of
the transactions contemplated herein have been duly and validly authorized by
all necessary corporate action in respect thereof on the part of Bancshares.
This Agreement represents a legal, valid and binding obligation of Bancshares
enforceable against Bancshares in accordance with its terms (except in all cases
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by Bancshares,
nor the consummation by Bancshares of the transactions contemplated herein, nor
compliance by Bancshares with any of the provisions hereof will (i) conflict
with or result in a breach of any provision of Bancshares' or the Bank's
Articles of Incorporation or Bylaws, or (ii) constitute or result in the breach
of any term, condition or provision of, or constitute a default under, or give
rise to any right of termination, cancellation, or acceleration with respect to,
or result in the creation of any lien, charge or encumbrance upon, any property
or assets of Bancshares or the Bank, pursuant to any note, bond, mortgage,
indenture, license, agreement, lease, or other instrument or obligation to which
they are a party or by which they or any of their properties or assets may be
subject, and that would, in any such events, have a material adverse effect on
the financial condition or operations of the Bank or the transactions
contemplated hereby, or (iii) subject to receipt of the requisite approvals
referred to in Section 9.5 of this Agreement, violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Bank or any of
its properties or assets.
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(c) Other than (i) in connection or compliance with the provisions of
applicable state corporate law, (ii) notices to, consents, authorizations,
approvals, or exemptions required from the Regulatory Authorities and (iii)
notices to or filings with the Internal Revenue Service or the Pension Benefit
Guaranty Corporation with respect to any employee benefit plans, no notice to,
filing with, authorization of, or exemption by, or consent or approval of any
public body or authority is necessary for the consummation by the Bank of the
transactions contemplated in this Agreement.
4.4 FINANCIAL STATEMENT. The Bank has delivered to the Company prior to
the execution of this Agreement the following financial statement (a copy of
which is attached hereto as Exhibit 2) of the Bank (referred to herein, together
with the footnotes thereto, as the "Bank's Financial Statement"): A pro forma
balance sheet giving effect to the asset purchase transaction pursuant to the
Purchase and Assumption Transaction referred to in Section 9.12 hereof.
The Bank's Financial Statement (as of the date thereof) is in accordance
with the books and records of the Bank, which are complete and accurate in all
material respects and which have been maintained in accordance with sound and
prudent business practices.
4.5 ABSENCE OF UNDISCLOSED LIABILITIES. Giving effect to the Purchase and
Assumption Transaction, the Bank has no obligation or liability (contingent or
otherwise) that has not been fully assumed by First Alliance Bank, except as
disclosed in the Bank's Financial Statement.
4.6 TAX MATTERS. All federal, state and local tax returns required to be
filed by or on behalf of Bancshares, the Bank and any affiliated group (as
defined in Section 1504 of the Internal Revenue Code) of which the Bank is a
member have been timely filed or requests for extensions have been timely filed,
granted and have not expired for periods ending on or before March 31, 1995, and
all returns filed are complete and accurate to the best information and belief
of Bancshares's management and the Bank's management. All taxes due on filed
returns have been paid. As of the date of this Agreement, there is no audit
examination, deficiency or refund litigation or matter in controversy with
respect to any taxes that might result in a determination adverse to the Bank,
except as reserved for in the Bank's Financial Statements. All taxes, interest,
additions and penalties due with respect to completed and settled examinations
or concluded litigation have been paid. No federal income tax returns for
Bancshares, the Bank or any affiliated group (as defined in Section 1504 of the
Internal Revenue Code) of which the Bank is a member have been audited by the
Internal Revenue Service.
4.7 LOANS. To the best knowledge and belief of management of the Bank, as
of the date of this Agreement, each loan reflected as an asset of the Bank in
the Bank's Financial Statement is the legal, valid and binding obligation of the
obligor named therein, and no loan, is subject to any asserted defense, offset
or counterclaim known to the Bank, except as disclosed on Schedule 4.7.
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4.8 ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for possible loan
losses shown on the Bank's Financial Statement is adequate in all material
respects to provide for possible losses on the loans referred to in Section 4.7
(including accrued interest receivable) as of the date hereof.
4.9 EMPLOYEE BENEFIT PLANS.
(a) The Company does not adopt or assume, and shall have no obligation to
adopt or assume, and shall have no liability whatsoever to the Bank, employees
of the Bank, or any other person, with respect to any Benefit Plan (as
hereinafter defined) currently maintained by, or contributed to, by the Bank, or
by which the Bank is or ever has been bound, for the benefit of the Bank's
employees, retirees, dependents, spouses, directors, independent contractors,
leased employees or the beneficiaries of all such persons, whether arrived at
through collective bargaining or otherwise, including, without limitation: (i)
any retirement, profit-sharing, deferred compensation, bonus, stock option,
stock purchase, stock appreciation, pension, retainer, consulting, severance,
welfare or incentive plan, agreement or arrangement, or (ii) any plan, agreement
or arrangement providing for "fringe benefits" or perquisites, including but not
limited to benefits relating to Bank automobiles, clubs, seminars, vacations,
parking, financial planning, child care, parenting, sabbatical, sick leave,
medical, dental, hospitalization, life insurance and other types of insurance,
or (iii) any employment agreement written or otherwise, or (iv) any
"multiemployer plan" within the meaning of ERISA Section 3(37), or (v) any other
"employee benefit plan" within the meaning of ERISA Section 3(3). For purposes
of this Section 4.9, the term "Bank" includes all employers (whether or not
incorporated) which are treated, together with the Bank, as a single employer by
reason of Sections 414(b), (c), (m) or (o) of the Internal Revenue Code.
(b) First Alliance Bank or Bancshares shall furnish such notices and
comply with such other requirements under the Bank's Benefit Plans regarding
health continuation coverage for its employees as are imposed by state or
federal law, including, without limitation, COBRA, ERISA, the Internal Revenue
Code, and other statutes affecting health continuation coverage.
(c) The Bank shall, prior to the Closing Date, take all actions necessary
to properly terminate, as of the Closing Date, its participation in or
sponsorship of the Bank's Benefit Plans, such action to include all necessary
corporate authorizations, amendment of Benefit Plan documents, advance written
notification to employee-participants (including, if applicable, a written
notice under ERISA Section 204(h)), and filings with regulatory agencies, all as
required by law and by such Benefit Plans. Employees of the Bank shall accrue
no additional benefits under the Bank's Benefit Plans on or after the Closing
Date. All employee benefits accrued up to and including the Closing Date under
the Bank's Benefit Plans shall be the obligation of First Alliance Bank (or be
reflected on the Bank's Financial Statement as liabilities).
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4.10 MATERIAL CONTRACTS. Except as otherwise reflected in the Bank's
Financial Statement, neither the Bank, nor any of its assets, businesses or
operations is as of the date of this Agreement a party to, or is bound or
affected by, or receives benefits under, (i) any agreement, arrangement or
commitment not cancelable by it without penalty other than agreements,
arrangements or commitments to be fully assumed by First Alliance Bank pursuant
to the Purchase and Assumption Transaction, (ii) any agreement, arrangement or
commitment relating to the employment, election or retention in office of any
director or officer, or (iii) any contract, agreement or understanding with any
labor union.
4.11 LEGAL PROCEEDINGS. Except as set forth below and except as related to
normal foreclosure actions relating to collateral pledged to secure loans, there
are no actions, suits or proceedings instituted or pending, or to the knowledge
of the Bank's management, threatened (or unasserted but considered probable of
assertion) against the Bank or against any properties, assets, interests, or
rights of the Bank, that are reasonably expected to have either individually or
in the aggregate a material adverse effect on the businesses, operations or
financial condition of the Bank or that are reasonably expected to threaten or
impede the consummation of the transactions contemplated by this Agreement. The
Bank is not a party to any agreement or instrument or subject to any charter or
other corporate restriction or any judgment, order, writ, injunction, decree,
rule, regulation, code or ordinance that threatens or might impede the
consummation of the transactions contemplated by this Agreement.
4.12 REPORTS. Since the date the Bank commenced business, the Bank has
filed all reports and statements, together with any amendments required to be
made with respect thereto, that it was required to file with the Regulatory
Authorities and the Internal Revenue Service. Each of such reports and
documents, including the financial statements, exhibits and schedules thereto,
are responsive to applicable requirements and the instructions of the applicable
form.
4.13 STATEMENTS TRUE AND CORRECT. No representation or warranty made by the
Bank nor any statement or certificate or instrument furnished as information
which is Previously Disclosed or included in an Exhibit or Schedule by
Bancshares or the Bank in connection with this Agreement nor any statement or
certificate to be furnished by Bancshares or the Bank to the Company pursuant to
this Agreement or in connection with the transactions contemplated by this
Agreement, contains or will contain any untrue statement of material fact or
omits or will omit to state a material fact necessary to make the statements
contained therein not misleading. None of the information supplied or to be
supplied by Bancshares or the Bank for inclusion in any documents to be filed
with any Regulatory Authority in connection with the transactions contemplated
hereby, will, at the respective times such documents are filed, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements therein not misleading. All documents
that Bancshares or the Bank is responsible for filing with any Regulatory
Authority in connection with the transactions contemplated hereby will comply as
to form in all material respects with the provisions of applicable law.
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4.14 REGULATORY APPROVALS. Bancshares knows of no reason why the
regulatory approvals required to be obtained in order to consummate the
transactions contemplated hereunder and referred to in Section 9.5 of this
Agreement should not be obtained without imposition of a condition or
restriction of the type referred to in the last sentence of such Section.
ARTICLE FIVE
COVENANTS AND AGREEMENTS OF BANCSHARES
Bancshares hereby covenants and agrees with the Company as follows:
5.1 CONDUCT OF BUSINESS; NEGATIVE COVENANTS. Unless contemplated by this
Agreement, from the date of this Agreement until the earlier of the Effective
Date or until the termination of this Agreement, Bancshares covenants and agrees
that it will not do or agree to commit to do, any of the following without the
prior written consent of the Company, which consent shall not be unreasonably
withheld:
(a) Amend the Bank's Articles of Incorporation or Bylaws; or
(b) Repurchase, redeem, or otherwise acquire or exchange, directly or
indirectly, any shares of its capital stock or any securities convertible into
any shares of the Bank's capital stock; or
(c) Take any action whatsoever which would prevent it or the Bank
from being able to consummate this Agreement in accordance with its terms and
conditions.
5.2 CONDUCT OF BUSINESS; AFFIRMATIVE COVENANTS. Unless the prior written
consent of the Company shall have been obtained and except as otherwise
contemplated herein, the Bank will operate its business only in the usual,
regular and ordinary course; and take no action which would (i) adversely affect
the ability of the Bank to obtain any necessary approvals of governmental
authorities required for the transactions contemplated hereby without imposition
of a condition or restriction of the type referred to in Section 9.5 of this
Agreement, or (ii) adversely affect the ability of the Bank to perform its
covenants and agreements under this Agreement.
5.3 ADVERSE CHANGES IN CONDITION. Bancshares hereby agrees to give
written notice promptly to the Company concerning any material adverse change in
its condition from the date of this Agreement until the Effective Date that
might adversely affect the consummation of the transactions contemplated hereby
or upon becoming aware of the occurrence or impending occurrence of any event or
circumstance which would cause or constitute a material breach of any of the
representations, warranties or covenants contained herein.
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5.4 COOPERATION. Bancshares hereby covenants and agrees to cooperate
fully with the Company to provide such support, assistance and information to
the Company as may be reasonably requested by it in connection with its
application for all necessary approvals by public authorities, federal, state or
local, in connection with the transactions contemplated hereby.
5.5 INVESTIGATION AND CONFIDENTIALITY. Prior to the Effective Date, the
Company may make or cause to be made such investigation, if any, of the business
and properties of the Bank and of its financial and legal condition as the
Company reasonably deems necessary or advisable to familiarize itself and its
advisers with such business, properties, and other matters, provided that such
investigation shall be reasonably related to the transactions contemplated
hereby and shall not interfere unnecessarily with normal operations. Bancshares
agrees to furnish the Company and the Company's advisers with such financial and
operating data and other information with respect to its businesses, properties,
and employees as the Company shall from time to time reasonably request. No
investigation by the Company shall affect the representations and warranties of
Bancshares, and subject to Section 10.3 of this Agreement, each such
representation and warranty shall survive any such investigation. The Company
shall, and shall cause its advisers and agents to, maintain the confidentiality
of all confidential information furnished to it by Bancshares concerning the
Bank's businesses, operations and financial condition and shall not use such
information for any purpose except in furtherance of the transactions
contemplated by this Agreement. If this Agreement is terminated prior to the
Effective Date, the Company shall promptly return all documents and copies
thereof and all work papers containing confidential information received from
Bancshares.
5.6 REPORTS. Bancshares shall file and shall cause the Bank to file all
reports required to be filed with the Regulatory Authorities by the Bank between
the date of this Agreement and the Effective Date and shall deliver to the
Company copies of all such reports promptly after the same are filed. The
financial statements provided by the Bank will fairly present the financial
position of the Bank as of the dates indicated and the results of operations and
changes in financial position for the period then ended in accordance with GAAP
applicable to banks applied on a consistent basis (subject in the case of
interim financial statements to normal recurring year-end adjustments).
5.7 CURRENT INFORMATION. During the period from the date of this
Agreement to the Effective Date, Bancshares shall cause one or more of its
representatives to confer on a regular and frequent basis with representatives
of the Company and to report on the general status of the Bank's ongoing
operations. Bancshares shall promptly notify the Company of any material change
in (a) the normal course of the Bank's business, or (b) in the operation of its
properties, and of any material governmental complaints, investigations or
hearings (or communications indicating that the same may be contemplated) or the
institution or the threat of any material litigation involving the Bank, and
will keep the Company fully informed with respect to such events.
5.8 CAPITAL STOCK. Without the prior written consent of the Company, from
the date of this Agreement to the earlier of the Effective Date or the
termination of this Agreement,
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Bancshares shall not, and shall not enter into any agreement to, issue, sell, or
otherwise permit to become outstanding any additional shares of Common Stock, or
any other capital stock of the Bank, including any shares of capital stock held
in the Bank's treasury, or any stock appreciation rights, or any option,
warrant, conversion, or other right to purchase any such stock, or any security
convertible into any such stock.
5.9 AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the terms and
conditions of this Agreement, Bancshares hereby agrees to use all reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, all things necessary, proper, or advisable under applicable laws and
regulations to consummate and make effective, as soon as practicable after the
date of this Agreement, the transactions contemplated by this Agreement,
including, but not limited to, the Purchase and Assumption Transaction referred
to in Section 9.12 hereof.
ARTICLE SIX
REPRESENTATIONS AND WARRANTS OF THE COMPANY
The Company hereby represents and warrants to Bancshares as follows:
6.1 ORGANIZATION, STANDING AND AUTHORITY OF THE COMPANY. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Georgia, is duly qualified to do business and is in good
standing in the states of the United States and foreign jurisdictions where its
ownership or leasing of property or the conduct of its business requires it to
be so qualified and in which the failure to be duly qualified could have a
material adverse effect upon the Company and its Subsidiaries on a consolidated
basis, and has corporate power and authority to carry on its business as now
conducted and to own, lease and operate its assets, properties and businesses,
and to execute and deliver this Agreement and perform its terms. The Company has
in effect all federal, state, local and foreign governmental authorization
necessary for it to own or lease its properties and assets and to carry on its
businesses as they are now being conducted, the absence of which, either
individually or in the aggregate, would have a material adverse effect on the
financial condition or operations of the Company and its Subsidiaries on a
consolidated basis.
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6.2 AUTHORITY.
(a) The execution and delivery of this Agreement and the consummation of
the transactions contemplated herein have been duly and validly authorized by
all necessary corporate action in respect thereof on the part of the Company.
This Agreement represents a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms (except in all
cases as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by the Company or
its Subsidiaries, nor the consummation by the Company or its Subsidiaries of the
transactions contemplated herein, nor compliance by the Company with any of the
provisions hereof will (i) conflict with or result in a breach of any provision
of the Company's Articles of Incorporation, Articles of Association or Bylaws,
or (ii) constitute or result in the breach of any term, condition or provision
of, or constitute a default under, or give rise to any right of termination,
cancellation, or acceleration with respect to, or result in the creation of any
lien, charge or encumbrance upon, any property or assets of the Company,
pursuant to any note, bond, mortgage, indenture, license, agreement, lease, or
other instrument or obligation to which it is a party or by which it or any of
its properties or assets may be subject, and that would, in any such event, have
a material adverse effect on the financial condition or operations of the
Company and its Subsidiaries on a consolidated basis or the transactions
contemplated hereby, or (iii) subject to receipt of the requisite approvals
referred to in Section 9.5 of this Agreement, violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company or any
of its Subsidiaries or any of their properties or assets.
(c) Other than (i) in connection or compliance with the provisions of
applicable state corporate law, (ii) consents, authorizations, approvals, or
exemptions required from the Regulatory Authorities, and (iii) notices to or
filings with the Internal Revenue Service or the Pension Benefit Guaranty
Corporation with respect to any employee benefit plans, no notice to, filing
with, authorization of, or exemption by, or consent or approval of any public
body or authority is necessary for the consummation by the Company of the
transactions contemplated in this Agreement.
6.3 STATEMENTS TRUE AND CORRECT. No representation or warranty made by
the Company nor any statement or certificate or instrument furnished as
information which is Previously Disclosed or included in an Exhibit or Schedule
in connection with this Agreement nor any statement or certificate to be
furnished by the Company to Bancshares pursuant to this Agreement or in
connection with the transactions contemplated by this Agreement, contains or
will contain any untrue statement of material fact or omits or will omit to
state a material fact necessary to make the statements contained therein not
misleading. None of the information supplied or to be supplied by the Company
for inclusion in any documents to be filed with any
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Regulatory Authority in connection with the transactions contemplated hereby,
will, at the respective times such documents are filed, be false or misleading
with respect to any material fact, or omit to state any material fact necessary
in order to make the statements therein not misleading. All documents that the
Company is responsible for filing with any Regulatory Authority in connection
with the transactions contemplated hereby will comply as to form in all material
respects with the provisions of applicable law.
6.4 REGULATORY APPROVALS. The Company knows of no reason why the
regulatory approvals referred to in Section 9.5 of this Agreement should not be
obtained without imposition of a condition or restriction of the type referred
to in the last sentence of such Section.
ARTICLE SEVEN
COVENANTS AND AGREEMENTS OF THE COMPANY
7.1 APPLICATIONS. The Company shall prepare and file, or shall cause to
be prepared and filed, applications with the Regulatory Authorities seeking the
requisite approvals necessary to consummate the transactions contemplated by
this Agreement, and shall take such other steps and actions in furtherance
thereof as it deems appropriate in order to be able to secure such approvals.
7.2 AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the terms and
conditions of this Agreement, the Company agrees to use all reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper, or advisable under applicable laws and regulations to
consummate and make effective, as soon as practicable after the date of this
Agreement, the transactions contemplated by this Agreement. The Company shall
use all reasonable efforts to obtain consents of (and agreements with) all third
parties and governmental bodies necessary or desirable for the consummation of
the transactions contemplated by this Agreement.
7.3 ADVERSE CHANGES IN CONDITION. The Company hereby agrees to give
written notice promptly to Bancshares concerning any material adverse change in
its condition from the date of this Agreement until the Effective Date that
might adversely affect the consummation of the transactions contemplated hereby,
or upon becoming aware of the occurrence or impending occurrence of any event or
circumstance which would cause or constitute a material breach of any of the
representations, warranties or covenants contained herein.
7.4 COOPERATION. The Company hereby covenants and agrees to cooperate
fully with Bancshares to provide such support, assistance and information to
Bancshares as may be reasonably requested by it in connection with its
application for all necessary approvals of the Regulatory Authorities in
connection with the transactions contemplated hereby.
7.5 INVESTIGATION AND CONFIDENTIALITY. Prior to the Effective Date,
Bancshares may make or cause to be made such investigation, if any, of the
business and properties of the
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Company and of its financial and legal condition as Bancshares reasonably deems
necessary or advisable to familiarize itself and its advisors with such
business, properties, and other matters, provided that such investigation shall
be reasonably related to the transactions contemplated hereby and shall not
interfere unnecessarily with normal operations. The Company agrees to furnish
Bancshares and Bancshares' advisors with such financial and operating data and
other information with respect to its businesses, properties, and employees as
Bancshares shall, from time to time, reasonably request. No investigation by
Bancshares shall affect the representations and warranties of the Company, and
subject to Section 10.3 of this Agreement, each such representation and warranty
shall survive any such investigation. Bancshares shall, and shall cause its
advisors and agents to, maintain the confidentiality of all confidential
information furnished to it by the Company concerning the Company's businesses,
operations and financial condition and shall not use such information for any
purpose except in furtherance of the transactions contemplated by this
Agreement. If this Agreement is terminated prior to the Effective Date,
Bancshares shall promptly return all documents and copies thereof and all work
papers containing confidential information received from the Company.
7.6 REPORTS. The Company shall file all reports required to be filed with
the Regulatory Authorities between the date of this Agreement and the Effective
Date and shall deliver to Bancshares copies of all such reports promptly after
the same are filed.
7.7 CURRENT INFORMATION. During the period from the date of this
Agreement to the Effective Date, the Company shall cause one or more of its
representatives to confer on a regular and frequent basis with representatives
of Bancshares and to report on the general status of the Company's ongoing
operations. The Company shall promptly notify Bancshares of any material change
in (a) the normal course of the Company's business, or (b) any operations of its
properties, and of any material governmental complaints, investigations or
hearings (or communications indicating that the same may be contemplated) or the
institution or the threat of any material litigation involving the Company, and
will keep Bancshares fully informed with respect to such events.
ARTICLE EIGHT
ADDITIONAL AGREEMENTS
8.1 PRESS RELEASES. Prior to the Effective Date, the Company and
Bancshares shall consult with each other as to the form and substance of any
press release or other public disclosure related to this Agreement or any other
transaction contemplated hereby. All such press releases, announcements and
other public disclosures must be reviewed in advance by the other Party prior to
distribution; provided, however, that nothing in this Section 8.1 shall be
deemed to prohibit any Party from making any disclosure after such consultation
which its counsel deems necessary or advisable in order to satisfy such Party's
disclosure obligations imposed by law.
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ARTICLE NINE
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
The obligations of the Company and Bancshares to perform this Agreement are
subject to the satisfaction of the following conditions, unless waived in
writing by the Party for whose benefit such condition exists pursuant to Section
11.5 of this Agreement:
9.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
each Party set forth or referred to in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and as of the
Effective Date with the same effect as though all such representations and
warranties had been made on and as of the Effective Date, except for any such
representations and warranties confined to a specified date, which shall be true
and correct in all material respects as of such date.
9.2 PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of the
covenants and agreements of each Party to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby prior to
the Effective Date shall have been duly performed and complied with in all
material respects.
9.3 CERTIFICATES. Each of the Parties shall have delivered to the other a
certificate, dated as of the Effective Date and signed on its behalf by its
Chairman of the Board, or its President, and its Treasurer, Cashier or other
principal, to the effect that (i) the conditions of its obligations set forth in
Section 9.1 and Section 9.2 of this Agreement have been satisfied, and (ii) with
respect to each of the Parties, that there has been no material adverse change
in the financial condition or results of operations of either Party from that
reflected on the most recent financial statements referred to in Section 4.4,
all in such reasonable detail as the other Party shall request.
9.4 CORPORATE AUTHORIZATION. All action necessary to authorize the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby shall have been duly and validly taken by
the Parties. Each Party shall have furnished to the other certified copies of
resolutions duly adopted by such Party's Board of Directors evidencing the same.
9.5 CONSENTS AND APPROVALS. All approvals and authorizations of, filings
and registrations with, and notifications to, all federal and state authorities
required for consummation of the transactions contemplated hereby and for the
preventing of any termination of any right, privilege, license or agreement of
either Party which, if not obtained or made, would have a material adverse
impact on the financial condition or results of operation of such Party, shall
have been obtained or made and shall be in full force and effect and all waiting
periods required by law shall have expired. To the extent that any lease,
license, loan or financing agreement or other contract or agreement to which the
Bank is a party requires the consent of or waiver from the other party thereto
as a result of the transactions contemplated by this Agreement, such consent or
waiver shall have been obtained, unless waived by the Company in accordance with
Section 11.5 of this Agreement. Any approval obtained from any Regulatory
Authority which is
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necessary to consummate the transactions contemplated hereby shall not be
conditioned or restricted in a manner which in the judgment of the Board of
Directors of all Parties would make it impractical to consummate the
transactions contemplated hereby.
9.6 LEGAL PROCEEDINGS. No action, proceeding or any restrictive orders
shall have been instituted or issued by any governmental authority or to the
knowledge of the Parties threatened by any governmental authority seeking to
restrain the consummation of the transactions contemplated by this Agreement
which, in the opinion of the Board of Directors of the Company or Bancshares,
render it impossible or inadvisable to consummate the transactions provided for
in this Agreement.
9.7 MATERIAL ADVERSE CHANGE. There shall have been no determination by
the Board of Directors of any Party that the transactions contemplated by this
Agreement have become impractical because any state of war, national emergency,
or banking moratorium shall have been declared in the United States or a general
suspension of trading on the New York Stock Exchange shall have occurred. At
the Effective Date, the Assets and Liabilities and unimpaired capital of the
Bank shall be identical in nature and amount to the figures shown on the Bank's
Financial Statement.
9.8 INDEMNIFICATION BY BANCSHARES. Bancshares shall indemnify and hold
harmless the Company and each of their directors, officers, agents and
successors and assigns against all losses, damages and expenses (including
reasonable attorneys' fees), caused by or arising out of (i) any breach or
default in the performance by Bancshares of any covenant or agreement of
Bancshares contained in this Agreement, (ii) any breach of any warranty or
material misrepresentation made by Bancshares herein or in any schedule attached
hereto or in any certificate or other instrument delivered by or on behalf of
Bancshares pursuant hereto which relates to a warranty which pursuant to Section
10.3 survives the Closing, (iii) any liability of the Bank for taxes
attributable to any period or portion thereof that ends on or before the
Effective Date, and (iv) any liability for taxes of any affiliated group (as
defined in Section 1504 of the Internal Revenue Code) of which the Bank is a
member that are assessed against the Bank (or any successor by merger thereof or
any deemed purchaser of the assets of the Bank pursuant to Treas. Reg. Section
1.1502-6, by contract, as transferee or successor, or otherwise, and (v) any and
all actions, suits, proceedings, claims, demands, judgments, costs and expenses
(including reasonable legal and accounting fees) whatsoever not expressly
included and identified by nature and amount in the liabilities section of the
Bank's Financial Statement caused by or arising out of any business or
activities of the Bank prior to the Effective Date. The party to be indemnified
hereunder shall give to the indemnifying party prompt written notice of the
assertion of any third-party claim which might give rise to an indemnification
obligation hereunder and the indemnifying party may undertake the defense
thereof by representatives chosen by it, but acceptable to the indemnified
party, which acceptance shall not be unreasonably withheld. If the indemnifying
party, within a reasonable time after notice of any such claim, fails to defend,
the indemnified party will have the right to undertake the defense, and
compromise or settle any such claim on behalf of and for the account and risk of
the indemnifying party, subject to the right of the indemnifying party to assume
the defense of such claim at any time prior to settlement,
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compromise or final determination. Notwithstanding the foregoing, if there is a
reasonable probability that a claim may materially and adversely affect the
indemnified party, other than as a result of money damages or other payments,
the indemnified party shall have the right, at the cost and expense of the
indemnifying party, to defend, compromise or settle such claim.
9.9 INDEMNIFICATION BY COMPANY. The Company shall indemnify and hold
harmless Bancshares and each of its directors, officers, agents and successors
and assigns against all losses, damages and expenses (including reasonable
attorneys' fees), caused by or arising out of (i) any breach or default in the
performance by the Company of any covenant or agreement of the Company contained
in this Agreement or (ii) any breach of any warranty or any material
misrepresentation made by the Company herein or in any schedule attached hereto
or in any certificate or other instrument delivered by or on behalf of the
Company pursuant hereto which relates to a warranty which pursuant to Section
10.3 survives the Closing. The party to be indemnified hereunder shall give to
the indemnifying party prompt written notice of the assertion of any third-party
claim which might give rise to an indemnification obligation hereunder and the
indemnifying party may undertake the defense thereof by representatives chosen
by it, but acceptable to the indemnified party, which acceptance shall not be
unreasonable withheld. If the indemnifying party, within a reasonable time
after notice of any such claim, fails to defend, the indemnified party will have
the right to undertake the defense, and compromise or settle any such claim on
behalf of and for the account and risk of the indemnifying party, subject to the
right of the indemnifying party to assume the defense of such claim at any time
prior to settlement, compromise or final determination. Notwithstanding the
foregoing, if there is a reasonable probability that a claim may materially or
adversely affect the indemnified party, other than as a result of monetary
damages or other payments, the indemnified party shall have the right, at the
cost and expense of the indemnifying party, to defend, compromise or settle such
claim.
9.10 RELOCATION OF BANK HEADQUARTERS. Receipt by the Bank of regulatory
approval from the OTS for the relocation of its headquarters from Acworth,
Georgia, to Columbia, South Carolina.
9.11 PURCHASE AND ASSUMPTION. The Bank and First Alliance Bank shall have
entered into and shall, prior to or contemporaneously with the Closing hereof,
consummate the Purchase and Assumption Transaction pursuant to an agreement
substantially in the form of Exhibit 1 attached hereto, as a result of which the
financial position of the Bank will conform to the Bank Financial Statement
referred to in Section 4.4 hereof.
9.12 SUBSCRIPTION BY BANCSHARES. Bancshares shall have executed a
subscription agreement for 833 shares of the Company Common Stock at the time of
the Closing of this Agreement on terms and conditions mutually satisfactory to
Bancshares and the Company.
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ARTICLE TEN
TERMINATION
10.1 TERMINATION. This Agreement may be terminated in any of the following
ways:
(a) By a vote of a majority of the Board of Directors of the Company or
Bancshares in the event of a material breach by another Party of any
representation, warranty, covenant or agreement contained herein which cannot be
cured at or prior to the Effective Date; or
(b) By a vote of a majority of the Board of Directors of the Company or
Bancshares in the event that the stock purchase described herein shall not have
been consummated by March 31, 1997, which date may be extended upon the mutual
agreement of the Parties; or
(c) By a vote of a majority of the Board of Directors of the Company or
Bancshares in the event any approval of any governmental or other Regulatory
Authority required for consummation of the transactions contemplated hereby
shall have been denied by final non-appealable action of such authority or if
any action taken by such authority is not appealed within the time limit for
appeal.
10.2 EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Agreement pursuant to Section 10.1 of this Agreement, this
Agreement shall become void and have no effect, except that the provisions of
Sections 5.5, 7.5 and 11.1 of this Agreement shall survive any such termination
and abandonment.
10.3 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The respective
representations, warranties, obligations, covenants and agreements of the
Parties shall not survive the Effective Date except Sections 2.1, 4.1, 4.3,
4.13, 6.1, 6.2, 6.3, 9.8, 9.9, 11.1 and 11.2 of this Agreement. The
representations, warranties, obligations, covenants and agreements of the
Parties (a) under Sections 2.1, 11.1 and 11.2 of this Agreement shall survive
only for a period of six months following the Closing, (b) under Sections 4.1
and 6.1 shall survive only for a period of three years following the Closing,
and (c) under the remaining Sections shall survive only for the period during
which a claim which serves as a basis for an asserted misrepresentation or,
where applicable, a breach of warranty, obligation, covenant or agreement could
be brought as an action under applicable law.
ARTICLE ELEVEN
MISCELLANEOUS
11.1 EXPENSES. Each of the Parties shall bear and pay all costs and
expenses incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial or
other consultants, investment bankers, accountants and counsel.
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11.2 BROKERS AND FINDERS. Each of the Parties represents and warrants that
neither it nor any of its officers, directors, employees or affiliates has
employed any broker or finder or incurred any liability for any financial
advisory fees, investment bankers' fees, brokerage fees, commissions, or
finders' fees in connection with this Agreement or the transactions contemplated
hereby. In the event of a claim by any broker or finder based upon his or its
representing or being retained by or allegedly representing or being retained by
either the Company or Bancshares, as the case may be, agrees to indemnify and
hold the other Party harmless of and from any such claim.
11.3 ENTIRE AGREEMENT. Except as otherwise expressly provided herein, this
Agreement contains the entire agreement between the Parties with respect to the
transactions contemplated hereunder, and this Agreement supersedes all prior
arrangements or understandings with respect thereto, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the Parties and their respective successors. Nothing in this Agreement,
expressed or implied, is intended to confer upon any party, other than the
Parties or their respective successors, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
11.4 AMENDMENTS. To the extent permitted by law, this Agreement may be
amended by a subsequent writing signed by all of the Parties upon the approval
of the Boards of Directors of each of the Parties.
11.5 WAIVERS. Prior to or on the Effective Date, the Company shall have
the right to waive any default in the performance of any term of this Agreement
by Bancshares, to waive or extend the time for the compliance or fulfillment by
Bancshares of any and all of its obligations under this Agreement, and to waive
any or all of the conditions precedent to the obligations of the Company under
this Agreement, except any condition which, if not satisfied, would result in
the violation of any law or applicable governmental regulation. Prior to or on
the Effective Date Bancshares shall have the right to waive any default in the
performance of any term of this Agreement by the Company, to waive or extend the
time for the compliance or fulfillment by the Company of any and all of its
obligations under this Agreement, and to waive any or all of the conditions
precedent to the obligations of Bancshares under this Agreement, except any
condition which, if not satisfied, would result in the violation of any law or
applicable governmental regulation.
11.6 NO ASSIGNMENT. None of the Parties may assign any of its rights or
obligations under this Agreement to any other person without the prior written
consent of the other Party.
11.7 NOTICES. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or by facsimile transmission or by registered or certified mail, postage
prepaid, to the persons at the addresses set forth below (or at such other
address as may be provided hereunder), and shall be deemed to have been
delivered as of the date so delivered:
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COMPANY:
Donald S. Shapleigh, Jr.
President
7000 Peachtree Dunwoody Road
Building 10, Suite 300
Atlanta, GA 30328
Copy to Counsel:
Walter G. Moeling, IV, Esq.
Powell, Goldstein, Frazer & Murphy
Sixteenth Floor
191 Peachtree Street, N.E.
Atlanta, GA 30303
BANCSHARES:
Darrell D. Pittard
Chairman of the Board and Chief Executive Officer
2180 Atlanta Plaza
950 East Paces Ferry Road
Atlanta, GA 30326
Copy to Counsel:
Steven S. Dunlevie, Esq.
Womble Carlyle Sandridge & Rice, PLLC
Suite 700
1275 Peachtree Street, N.E.
Atlanta, GA 30309
11.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia except to the extent federal
law shall be applicable.
11.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute one and the same instrument.
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IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf and its corporate seal to be hereunto affixed and
attested by officers hereunto duly authorized, all as of the day and year first
above written.
COMPANY:
NET.B@NK, INC.
By: /s/ Donald S. Shapleigh, Jr.
-------------------------------------
Print Name: Donald S. Shapleigh, Jr.
-----------------------------
Attest:
/s/ Mary E. Johnson
- -----------------------------------
Secretary
[CORPORATE SEAL]
FIRST ALLIANCE/PREMIER
BANCSHARES, INC.
By: /s/ Darrell D. Pittard
-------------------------------------
Print Name: Darrell D. Pittard
-----------------------------
Attest:
/s/ Barbara J. Burtt
- -----------------------------------
Secretary
[CORPORATE SEAL]
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FIRST AMENDMENT TO
AMENDED AND RESTATED STOCK PURCHASE AGREEMENT
This FIRST AMENDMENT (the "Amendment") to the Amended and Restated Stock
Purchase Agreement (the "Agreement"), dated as of December 19, 1996, by and
between NET.B@NK, Inc. (the "Company") and PREMIER BANCSHARES, INC. (formerly
known as First Alliance/Premier Bancshares, Inc., "Bancshares") is entered
into and made effective as of February 25, 1997. Capitalized terms used
herein and not otherwise defined shall have the meaning ascribed to them in
the Agreement.
WHEREAS, the parties hereto desire to amend the Agreement for the
purpose of extending the termination date and modifying the amount of
consideration the Company will pay to Bancshares.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Company and Bancshares agree to amend
the Agreement as follows:
1. Section 2.2 of the Agreement is hereby amended by deleting the
existing Section 2.2 thereof in its entirety and substituting in lieu thereof
the following new Section 2.2:
2.2 PURCHASE PRICE. In full consideration for the purchase by the
Company of the Common Stock, the Company shall on the Effective Date
(i) pay to Bancshares an amount in cash equal to the sum of the Bank's
unimpaired capital at closing, and (ii) transfer to Bancshares 1,250
shares of the common stock of the Company (the "Company Common Stock")
valued at $115.00 per share, which is the "agreed-upon" value of shares
issued to certain of the Company's investors by the Company and is equal
to not less than one and one-half percent (1.50%) of the Company Common
Stock issued and outstanding as of February 25, 1997. For the purpose of
this Agreement, the term "unimpaired capital" shall mean the sum of the
Bank's paid in capital, capital surplus, retained earnings, and allocation
for loan and lease losses with respect to any loans and leases,
immediately following consummation of the Purchase and Assumption
Transaction.
2. Section 3.2 of the Agreement is hereby amended to extend the
expiration of the permissible Effective Date to May 31, 1997.
3. Section 9.12 of the Agreement is hereby amended to increase the
number of shares referenced in the subscription agreement required of
Bancshares to 1,250 of the Company Common Stock.
4. Section 10.1(b) of the Agreement is hereby amended to extend the
termination of the Agreement to May 31, 1997.
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5. Section 11.1 is hereby amended to provide at the end of Section 11.1
an additional sentence which provides as follows: "Notwithstanding anything
contained herein to the contrary, the Company shall pay to Bancshares an
amount in cash equal to $150,000.00 for the purpose of reimbursing Bancshares
for its expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement, $30,000.00 of which shall be
non-refundable and due and payable upon execution hereof and the remaining
$120,000.00 shall be due and payable on the Effective Date."
6. Except as hereinabove amended, the Agreement shall remain otherwise
in full force and effect.
7. This Amendment may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has caused this Amendment to be
executed on its behalf and its corporate seal to be hereunto affixed and
attested by officers hereunto duly authorized all as of the day and year
first above written.
NET.B@NK, INC.
Attest:
/s/ D.R. Grimes
By: ------------------------------------
D.R. Grimes, Chief Executive Officer
/s/ Mary E. Johnson
- ------------------------------------
Secretary
[CORPORATE SEAL]
PREMIER BANCSHARES, INC.
Attest:
/s/ Darrell D. Pittard
By: ------------------------------------
Darrell D. Pittard, Chairman of the
Board and Chief Executive Officer
/s/ Barbara J. Burtt
- ------------------------------------
Secretary
[CORPORATE SEAL]
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THIS AGREEMENT IS SUBJECT TO ARBITRATION PURSUANT TO
CHAPTER 48 OF TITLE 15 OF THE CODE OF LAWS OF SOUTH CAROLINA
AMENDED AND RESTATED AGREEMENT
This Amended and Restated Agreement (this "Agreement") is dated as of
July 15, 1996, executed as of this 17th day of September, 1996 (except Sections
2.3(iii) and 6.6 are dated as of September 16, 1996) by and among Carolina First
Bank, a South Carolina corporation ("CFB"), Internet Organizing Group, Inc., a
Georgia corporation ("IOG"), the Organizers (as set forth on the Signature Page
hereof, which include Kelton International, Limited and which are hereinafter
referred to as the "Organizers"), and the Kelton Group of Investors (as set
forth on the Signature Page hereof and which are hereinafter referred to as the
"Kelton Group").
PREAMBLE
WHEREAS this Agreement amends and restates in full that certain Agreement
entered into July 15, 1996 by and among CFB, IOG, the Organizers (as set forth
on the Signature Page thereof, and the Kelton Group of Investors (as set forth
on the Signature Page thereof);
NOW, THEREFORE, in consideration of the mutual covenants and
representations contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
SECTION I. CERTAIN COVENANTS OF THE PARTIES
1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
have the definitions indicated.
"Accrued Interest Payable" means interest on Deposits which is accrued but
has neither been posted to a deposit account nor paid as of the Transfer Date.
"Accrued Interest Receivable" means interest on loans which is accrued but
unpaid as of the Closing Date.
"Cash Items" means all cash items, suspense items and items in process of
collection, that are related to the IB Deposits.
"CFB IB Operation" shall mean the CFB Internet banking operation described
in Section 2.2 hereof.
"Deposit" shall have the meaning set forth in Section 3(1) of the Federal
Deposit Insurance Act, 12 U.S.C. Section 1813(1), including, without limitation,
individual retirement accounts and cash management accounts.
"IB Contracts" means any leases, contracts and other agreements owned by
CFB and utilized principally in the CFB IB Operation.
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"IB Deposit" means a Deposit (except South Carolina Deposits), including
Accrued Interest Payable thereon, which has been gathered through the CFB IB
Operation.
"IB Loan" means any loan substantially effected through the CFB IB
Operation and any other loans of such types or categories and in such amounts as
are agreed upon by the parties hereto, together with any Accrued Interest
Receivable thereon, the related servicing rights and all records associated
therewith.
"Net Book Value" means the value of an asset on the books of CFB as of the
date of the Transfer determined in accordance with Generally Accepted Accounting
Principles ("GAAP"), but without regard to any general allowance for credit
losses.
"Premier Charter" shall mean the thrift charter of Premier Bank, FSB.
"South Carolina Deposits" shall mean IB Deposits associated with customers
who on the date hereof, are customers of CFB.
"Transfer" shall mean the transfer of the assets and liabilities of the CFB
IB Operation to IOG, all as more specifically set forth in Section III and other
sections of this Agreement.
SECTION II. CERTAIN COVENANTS OF THE PARTIES
2.1. ACQUISITION OF CHARTER. IOG shall use its best efforts to acquire the
Premier Charter on substantially the terms and otherwise as contemplated in that
certain H(e)-1 Application of IOG filed (or to be filed) with the Office of
Thrift Supervision, a copy of which has been provided to CFB. In the event that
IOG does not reasonably expect to obtain the Premier Charter on reasonably
acceptable terms or in a timely manner, IOG shall use its best efforts to
acquire another banking charter on reasonably acceptable terms (such other
charter, or the Premier Charter being hereinafter referred to as the "Charter").
2.2. CFB INTERNET BANKING OPERATIONS. Prior to the Transfer, CFB shall
conduct certain Internet banking operations (the "CFB IB Operation"), which
shall consist of the following:
(i) As soon as reasonably practicable following the date hereof,
CFB shall offer certain banking products via the Internet under the name
"The Atlanta Internet Bank, a product of Carolina First Bank" (hereinafter
referred to as the "AIB Product"). The AIB Product and the CFB IB Operation
shall be offered and conducted as otherwise described herein, including as
described on Exhibit A attached hereto.
(ii) IOG shall provide the management and financial expertise and
software required for the operation of CFB's IB Operation all as
contemplated herein, including as set forth in Exhibit A attached hereto
(the "IOG Services"). IOG shall perform the IOG Services in compliance
with applicable law, and in a manner consistent with the reasonable
standards in the industry (with due consideration being given to the
relative newness of this segment of the banking industry). Notwithstanding
the foregoing, the parties acknowledge that IOG shall not have liability
for any actions taken by CFB in connection with the CFB IB Operation, and
CFB shall indemnify IOG for any liability inuring to IOG as a result of
CFB's actions. The IOG
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Services will be provided beginning on the date hereof and ending on the
earlier of the Transfer or the termination of this Agreement, all as
described herein.
(iii) Notwithstanding IOG's authority and responsibilities with
respect to CFB IB Operation (as contemplated in Exhibit A), IOG shall not
effect any of the following without the prior consent of CFB:
(a) Enter into contracts on behalf of CFB;
(b) Incur expenses on its own behalf in connection with the CFB
IB Operation which is reasonably expected to involve more
than an aggregate of $20,000.
(c) Conduct any operations not specifically contemplated in this
Agreement (including, without limitation, make expenditures
not contemplated in the Expense Estimate attached hereto as
Exhibit B).
(d) Amend its Articles of Incorporation or Bylaws (with respect
to which, CFB's consent shall not be unreasonably withheld).
(iv) In connection with the CFB IB Operation, CFB shall perform such
services as are specifically set forth herein, including in Exhibit A. All
actions taken by CFB in connection with the CFB IB Operation shall be in
compliance with applicable law and in a manner consistent with the
reasonable standards in the industry (with due consideration being given to
the relative newness of this segment of the banking industry).
Notwithstanding the foregoing, the parties acknowledge that CFB shall not
have liability for any actions taken by IOG in connection with its
providing the IOG Services, and IOG shall indemnify CFB for any liability
inuring to CFB as a result of IOG's actions.
2.3. FUNDING OBLIGATIONS. (i) CFB shall fund the reasonable expenses of
the CFB IB Operation from the date hereof through March 31, 1997 (which date may
be extended by CFB). Notwithstanding the foregoing except as set forth in
Section 2.3(ii), CFB shall not be required to fund the CFB IB Operation if the
amounts expended by CFB as contemplated in Exhibit B, plus losses associated
with the CFB IB Operation exceeds $1,125,985 (the "CFB Funding Cap") (CFB's
actual expenditures and net losses associated with the CFB IB Operation being
hereinafter referred to as the "CFB Expenditures"). Subject to Section 2.3(ii),
in the event that the CFB Funding Cap is reached, then CFB may elect not to
provide further funding and may terminate the CFB IB Operation as contemplated
in Section 8.1(v).
(ii) In the event that (A) the CFB Funding Cap is reached (the "Cap
Date") and IOG is not in default under this Agreement (except for a default
resulting from the March 31, 1997 deadline having been reached) or (B) this
Agreement is terminated under Section 8.1(iv) (such date of termination or the
Cap Date being hereinafter referred to as the "Termination Date"), CFB (unless
it reasonably determines that there is no reasonable likelihood that the
Transfer will occur before the earlier of 120 days from the Termination Date or
July 31, 1997) shall continue to fund the reasonable costs of the CFB IB
Operation until the earlier of 120 days from the Termination Date, July 31,
1997, or the Transfer; provided, however, that all costs during such period
shall be subject to approval of CFB and provided further that CFB shall not be
obligated to expend additional amounts in excess of $200,000 (the $200,000,
together with any other expenses of CFB in excess of the CFB Funding Cap, being
hereinafter referred to as the
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"Reimbursable Expenses"). At July 31, 1997, the Reimbursable Expenses shall
become immediately due and payable by IOG to CFB, which debt shall be payable on
a priority basis (prior to repayment of any expenses of other parties set forth
on the Signature Page hereof).
(iii) Concurrently with the execution hereof, the Kelton Group (jointly
and severally) agree to purchase 9,000 shares of IOG common stock (as such share
amount shall have been equitably adjusted for splits, reverse splits and similar
matters) for $1,080,000, payable in cash on the date hereof.
2.4 RETENTION OF IOG. In connection with the provision by IOG of the IOG
Services, the parties agree that at all times, IOG and all of its employees
shall be considered an independent contractor of CFB and the parties shall take
such action as may be reasonably necessary to ensure such treatment. All work
done by IOG in connection with the CFB IB Operation shall be the property of IOG
and, unless CFB consents otherwise, IOG shall enter into all contracts executed
in connection with the CFB IB Operation in its own name and on its own behalf
(such that IOG will be deemed to be the owner and beneficiary of such
contracts).
2.5. CONSIDERATION FOR THE IOG SERVICES. In connection with the provision
of the IOG Services, CFB shall pay to IOG its reasonable expenses prior to the
Transfer, all as contemplated on Exhibit B attached hereto; provided, however,
that in no event shall CFB be required to pay amounts for items in excess of the
amounts set forth in Exhibit B attached hereto or to pay amounts (or incur
losses) in excess of the amount set forth in Section 2.3. CFB shall make its
payments only to IOG and shall have no liability to IOG employees utilized in
providing the IOG Services.
2.6. DIRECT SOLICITATION. In connection with the CFB IB Operation, IOG
shall not directly solicit current CFB customers for its banking services.
Notwithstanding the foregoing, the parties acknowledge that this Section 2.6
shall not preclude general multi-state solicitation.
2.7. COOPERATION AND ACCESS. The parties shall reasonably cooperate in
order to effect the transactions contemplated herein. The parties hereby to
provide the other with full and complete access at all reasonable times to the
CFB IB Operation and all matters related thereto.
SECTION III. TRANSFER OF THE CFB IB OPERATION
3.1. TRANSFER OF ASSETS. Upon consummation of the IOG's acquisition of the
Charter and upon receipt of all necessary or desirable regulatory approvals
associated with the acquisition of the Charter, the Transfer, and the issuance
of the stock contemplated in this Section III, CFB shall transfer the CFB IB
Operation to IOG (the "Transfer"), which shall include the transfer of the
following assets and the assumption of the following liabilities:
(i) The assets transferred shall include the following:
(1) any tangible assets purchased by and utilized exclusively by the
CFB IB Operation, including all furniture, fixtures and equipment
utilized exclusively by the CFB IB Operation;
(2) all IB Contracts;
(3) all IB Loans;
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<PAGE>
(4) the Cash Items;
(5) any accrued but uncollected income directly associated with the
CFB IB operation; and
(6) all other assets, of any kind and type (tangible or intangible)
associated exclusively with the CFB IB Operation, including,
without limitation, the accounting records associated with the
CFB IB Operation.
(ii) The liabilities transferred by CFB and assumed by IOG shall include
the following:
(1) all IB Deposits and all obligations of CFB to provide services
incidental to the IB Deposits;
(2) all liabilities associated with the IB Contracts;
(3) any accrued but unpaid expenses directly associated with the CFB
IB Operation; and
(4) any other liabilities associated exclusively with the CFB IB
Operation and any other liabilities as may be agreed upon by the
parties.
The parties acknowledge that they expect that the Transfer will occur in
connection with an initial public offering of IOG or a private placement of
securities raising at least $10 million (although such shall not be required).
3.2. CONSIDERATION FOR THE TRANSFER. In connection with the Transfer,
(i) IOG shall issue to CFB 40,000 shares of IOG Common Stock (the "CFB
Shares," which term may include the "Warrants" as defined below if the issuance
of such Warrants is required) and
(ii) IOG shall pay to CFB a purchase price calculated as follows:
(1) 100% of the face value of all Cash Items; plus
(2) 100% of the Reimbursable Expenses not actually reimbursed; plus
(3) 100% of the absolute value of any net losses associated with the
CFB IB Operation (excluding the Reimbursable Expenses); plus
(4) 100% of the Net Book Value of the Branch Loans; minus
(5) 100% of the total amount of the Branch Deposits on deposit at the
date of the Transfer.
If the results of the above calculations are positive, that amount shall be paid
by IOG to CFB, but if the results of the above calculations are negative, that
amount shall be paid by CFB to IOG. The parties agree that CFB shall be entitled
to receive the CFB Shares so long as it has funded the reasonable expenses of
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the CFB IB Operation prior to the Transfer, even if the total CFB Expenditures
do not equal or exceed the amount of the CFB Funding Cap.
3.3. CLOSING DELIVERIES AND DOCUMENTS. Upon the consummation of the
Transfer, the parties shall deliver to each other such documents as are
typically provided in connection with the purchase and sale of branches,
including bills of sale, assignments, and assignment and assumption agreements,
and officer's certificates. The parties may also mutually elect to enter into a
separate transfer agreement containing standard representations, warranties and
covenants typical of such transactions.
3.4 CERTAIN TRANSFER MATTERS. Upon the Transfer, IOG shall be responsible
for completing Forms 1099 for customers who were set up in connection with the
CFB IB Operation, and other similar customer related matters.
3.5. RETENTION OF SOUTH CAROLINA CUSTOMERS. Upon the Transfer, IOG will
reasonably cooperate with CFB in order to assist CFB in setting up an Internet
operation to service customers associated with the SC Deposits. CFB shall pay
IOG's out of pocket costs associated with such assistance.
3.6. EQUITY MAINTENANCE. In the event that CFB does not receive final
approval to own the CFB Shares as contemplated above at the time of the
Transfer, IOG shall issue to CFB warrants equal exercisable into the CFB Shares
(the "Warrants"), which Warrants:
(i) shall be exercisable upon such terms as shall be acceptable to
CFB and applicable regulatory agencies;
(ii) shall have shall have an exercise price equal to $.01 (which may
be paid via "cashless exercise"); and
(iii) shall have a term of at least 15 years.
The parties acknowledge that they expect that the form of the Warrants
would be substantially the same as the warrants to purchase common stock of
Affinity Technology Group, Inc. currently owned by CFB.
3.7. REIMBURSEMENT. If, after the date hereof, IOG procures equity capital
(or debt convertible into equity capital) exceeding $6 million (the "New
Capital"), whether in one or a series of offerings, then to the extent that the
New Capital exceeds $6 million, all parties hereto shall be reimbursed, on a pro
rata basis, (dollar for dollar until paid in full) for the reasonable expenses
incurred by the CFB IB Operation (which for CFB will be the CFB Expenditures).
The parties acknowledge, on their respective behalf, that Exhibit D sets forth
the expenses reimbursable under this Section 3.7 which were incurred prior to
June 1, 1996.
SECTION IV. MANAGEMENT AND RELATED MATTERS
4.1. DIRECTORS. In the event that CFB receives regulatory approval to have
a representative or representatives serve as members of the Board of Directors
of IOG, CFB shall be entitled to designate as part of management's slate, three
directors (and the Board of IOG shall not be composed of more than 11 persons).
In the event that CFB is not permitted to designate a director (assuming
applicable law permits), IOG shall permit a representative of CFB to be present
at all IOG Board meetings.
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4.2. EXECUTIVE COMMITTEE. In the event that the IOG Board of Directors
establishes an executive committee, such committee must include the
CFB-designated director as a member; provided that CFB receives regulatory
approval to have a representative serve as a member of the Board of Directors of
IOG.
4.3. VOTING OF STOCK AND OTHER ACTIONS. CFB, the Organizers and the Kelton
Group hereby agree to vote their IOG Common Stock and take such other reasonable
action as may be necessary to cause the actions set forth in this Section IV to
occur. Each party to this Section IV hereby agree that each of them shall not
vote their IOG capital stock or take any actions which are contrary to the
purposes and intent set forth in this Section IV; provided, however, that this
Section shall not impose restraints upon the actions of any party which would be
inconsistent with any applicable fiduciary duties.
4.4. TERMINATION OF VOTING AGREEMENT. The provisions of this Section IV
shall terminate completely upon the completion of an underwritten public
offering whereby IOG is registered under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended.
4.5. CONSENT OF CFB. IOG shall obtain the prior written consent of CFB in
connection with the matters set forth below, which consent shall not be
unreasonably withheld:
(i) the issuance by IOG of any shares of capital stock (or securities
convertible into capital stock), except as contemplated in Section 6.6 hereof;
(ii) the selection of investment bankers, attorneys, consultants and
other vendors which would be required to establish operations and obtain
regulatory approvals; and
(iii) material employment-related decisions with respect to executive
officers and key employees.
(iv) amendments to IOG's Articles of Incorporation or Bylaws.
SECTION V. REPRESENTATIONS OF CFB
CFB represents and warrants as follows:
5.1. ORGANIZATION, GOOD-STANDING AND CONDUCT OF BUSINESS. CFB is a
corporation, duly organized, validly existing and in good standing under the
laws of the State of South Carolina, and has full power and authority and all
necessary governmental and regulatory authorization to own its properties and
assets and to carry on its business as it is presently being conducted.
5.2. CORPORATE AUTHORITY. The execution, delivery and performance of this
Agreement have been duly authorized by the Board of Directors of CFB. No further
corporate acts or proceedings on the part of CFB are required or necessary to
authorize this Agreement.
5.3. BINDING EFFECT. When executed, this Agreement will constitute a valid
and legally binding obligation of CFB, enforceable against CFB in accordance
with its terms, subject to (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to rights of creditors of FDIC-insured institutions or the relief of
debtors generally, (ii) laws relating to the safety and soundness of depository
institutions, and (iii) general principles of equity. The
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Agreement, when executed and delivered by CFB in accordance with the provisions
hereof, shall be duly authorized, executed and delivered by CFB and enforceable
against CFB in accordance with its terms, subject to the exceptions in the
previous sentence.
5.4. NON-CONTRAVENTION AND DEFAULTS; NO LIENS. Neither the execution or
delivery of this Agreement, nor the fulfillment of, or compliance with, the
terms and provisions hereof, will (i) result in a breach of the terms,
conditions or provisions of, or constitute a default under, or result in a
violation of, termination of or acceleration of the performance provided by the
terms of, any agreement to which CFB is a party or by which it may be bound,
(ii) violate any provision of any law, rule or regulation, (iii) result in the
creation or imposition of any lien, charge, restriction, security interest or
encumbrance of any nature whatsoever on any asset of CFB, or (iv) violate any
provisions of CFB's Articles of Incorporation or Bylaws.
5.5. NECESSARY APPROVALS. Except for regulatory approvals applicable
solely to financial institutions (which approvals (if any are determined by CFB
to be required) will be obtained by CFB prior to consummation of the
transactions contemplated herein), no consent, approval, authorization,
registration, or filing with or by any governmental authority, foreign or
domestic, is required on the part of CFB in connection with the execution and
delivery of this Agreement or the consummation by CFB of the transactions
contemplated hereby.
5.6. INVESTMENT STATUS AND INVESTMENT INTENT. CFB is acquiring the CFB
Shares (and/or the Warrants, as the case may be) for investment for CFB's own
account and not with a view to, or for resale in connection with, any
distribution thereof, and CFB has no present intention of selling or
distributing the common stock of IOG. CFB does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person with respect to any of the
common stock of IOG. CFB understands that the common stock of IOG to be
acquired by CFB has not been registered under the Securities Act of 1933, as
amended, or under any state securities laws by reason of specific exemption from
the registration provisions of the Securities Act and state securities laws
which depends upon, among other things, the bona fide nature of the investment
intent as expressed herein.
SECTION VI. REPRESENTATIONS OF IOG
IOG represents and warrants, and the Organizers to the best of their
knowledge, represent and warrant, as follows as of the date hereof:
6.1. ORGANIZATION, GOOD-STANDING AND CONDUCT OF BUSINESS. IOG is a
corporation, duly organized, validly existing and in good standing under the
laws of the State of Georgia, and has full power and authority and all necessary
governmental and regulatory authorization to own its properties and assets and
to carry on its business as it is presently being conducted.
6.2. CORPORATE AUTHORITY. The execution, delivery and performance of this
Agreement have been duly authorized by the Board of Directors of IOG. No
further corporate acts or proceedings on the part of IOG are required or
necessary to authorize this Agreement.
6.3. BINDING EFFECT. When executed, this Agreement will constitute a valid
and legally binding obligation of IOG, enforceable against IOG in accordance
with its terms, subject to (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
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<PAGE>
relating to rights of creditors or the relief of debtors generally and (ii)
general principles of equity. The Agreement, when executed and delivered by IOG
accordance with the provisions hereof, shall be duly authorized, executed and
delivered by IOG and enforceable against IOG in accordance with its terms,
subject to the exceptions in the previous sentence.
6.4. NON-CONTRAVENTION AND DEFAULTS; NO LIENS. Neither the execution or
delivery of this Agreement, nor the fulfillment of, or compliance with, the
terms and provisions hereof, will (i) result in a breach of the terms,
conditions or provisions of, or constitute a default under, or result in a
violation of, termination of or acceleration of the performance provided by the
terms of, any agreement to which IOG is a party or by which it may be bound,
(ii) violate any provision of any law, rule or regulation, (iii) result in the
creation or imposition of any lien, charge, restriction, security interest or
encumbrance of any nature whatsoever on any asset of IOG, or (iv) violate any
provisions of IOG's Certificate of Incorporation or Bylaws, copies of which are
attached hereto as Exhibit C.
6.5. NECESSARY APPROVALS. No consent, approval, authorization,
registration, or filing with or by any governmental authority, foreign or
domestic, is required on the part of IOG in connection with the execution and
delivery of this Agreement or the consummation by IOG of the transactions
contemplated hereby.
6.6. CAPITALIZATION. The authorized capital stock of IOG consists solely
of 100,000 authorized shares of common stock ("IOG Common Stock"), of which
40,000 are issued and outstanding, 31,000 of which are owned by the Organizers
and 9,000 of which are being issued contemporaneously herewith to the Kelton
Group as contemplated in Section 2.3(iii) hereof. All of the issued and
outstanding shares of IOG are validly issued and fully paid and nonassessable.
Except for the CFB Shares (as defined below), there are no outstanding
obligations, options, warrants or commitments of any kind or nature or any
outstanding securities or other instruments convertible into shares of any class
of capital stock of IOG, or pursuant to which IOG is or may become obligated to
issue any shares of its capital stock. None of the shares of the IOG Common
Stock is subject to any restrictions as to the transfer thereof, except as set
forth in IOG's Certificate of Incorporation, Bylaws, or restrictions on account
of applicable federal or state securities laws. IOG does not hold 5% or more of
any class of equity securities of any other company or legal entity. The CFB
Shares (as defined below) will, when issued, be validly issued, fully paid and
nonassessable. IOG and the Organizers represent that the $1,000,000 referenced
in Section 2.3(iii) hereof has been contributed to IOG.
6.7. LIABILITIES AND LITIGATION. IOG has no liabilities other than as
referenced in this Agreement. There are no claims, actions, suits or proceedings
pending or, to IOG's knowledge, threatened against IOG, or to its knowledge
affecting IOG, at law or in equity, before or by any Federal, state, municipal,
administrative or other court, governmental department, commission, board, or
agency, an adverse determination of which could have a material adverse effect
on the business or operations of IOG (including its ultimate ownership and
operation of the Operation), and IOG knows of no basis for any of the foregoing.
There is no order, writ, injunction, or decree of any court, domestic or
foreign, or any Federal or state agency affecting IOG or to which IOG is
subject.
6.8. OPERATIONS OF THE CFB IB OPERATION AND RIGHTS OF IOG. IOG is not
aware of any reason why the AIB Product, when in service, will not operate as
previously demonstrated to CFB. Upon execution hereof and after the Transfer,
IOG will have (or will reasonably expect to obtain) all necessary rights,
licenses and authority to operate the CFB IB Operation as previously described
to CFB.
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SECTION VII. REGULATORY MATTERS AND COMPLIANCE
7.1. REGULATORY APPROVALS. Consummation of the transactions contemplated
herein shall be subject to receipt of all necessary regulatory approvals, and
neither party shall be required to consummate any transactions contemplated
herein unless all necessary or reasonably desirable regulatory approvals have
been obtained. Notwithstanding anything to the contrary herein, in no event
shall this Agreement be construed to require either party to take, or impose any
liability on either party as a result of its failure to take, any action which
is not permissible under applicable law. The consummation of any transaction
contemplated herein shall constitute a representation by each party to the other
that all regulatory approvals necessary for that particular transaction have
been received.
7.2. EXPENSE OF REGULATORY APPROVALS; COOPERATION. Each party shall be
responsible for obtaining any regulatory approvals related to its consummation
of the transactions contemplated herein. Each party shall use their respective
best efforts to obtain all regulatory approvals and shall cooperate with the
other party in order to facilitate the procurement of all regulatory approvals.
7.3. COMPLIANCE WITH APPLICABLE LAW. Each party shall be responsible for
compliance (and hereby covenants to comply) with all applicable laws and
regulations in connection with their respective actions taken in connection with
the CFB IB Operation; provided, however, that CFB shall have final authority
over all regulatory-related matters, including the authority to require IOG to
take such actions as CFB deems reasonably necessary or in order to comply with
applicable laws and regulations (as reasonably interpreted by CFB).
SECTION VIII. TERMINATION
8.1. BASES FOR TERMINATION. This Agreement may be terminated at any time:
(i) by mutual consent of the parties;
(ii) upon 30 days' written notice, by either CFB or IOG, at that
party's option, if a permanent injunction or other order, including any order
denying any required regulatory consent or approval, shall have been issued by
any Federal or state court of competent jurisdiction in the United States or by
any United States Federal or state governmental or regulatory body, which order
prevents the consummation of the transactions substantially as contemplated
herein;
(iii) by either CFB or IOG, if the other party has failed to comply
with the agreements or fulfill the conditions contained herein, provided,
however, that any such failure of compliance or fulfillment must be material and
the breaching party must be given notice of the failure to comply and a
reasonable period of time to cure;
(iv) upon 30 days' written notice, by either CFB or IOG if it becomes
likely (in the reasonable opinion of the terminating party) that the CFB IB
Operation will not be able to be operated and transferred as contemplated herein
or will not be transferred on or before June 30, 1997 (and in the event of such
termination, CFB shall be issued the percentage of the CFB Shares (or Warrants)
equal to the percentage derived from dividing the CFB Expenditures by the CFB
Funding Cap;
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(v) upon 30 days' written notice, by CFB if the CFB IB Operation
experiences cumulative losses which, when added to the amounts expended by CFB
as contemplated in Exhibit B hereof, exceed the CFB Funding Cap.
8.2. STANDARD OF LIABILITY. In the event of termination of this Agreement
by any party as provided above in Section 8.1(i) or (ii) or (iv), this Agreement
shall forthwith become void and there shall be no liability hereunder on the
part of any party, or their respective agents, representatives or affiliates,
except for intentional breach.
8.3. EFFECT OF TERMINATION. In the event of termination of this Agreement
by any party, Section 9.1, any agreements between the two parties as to
indemnification, and any covenants contained herein which are specifically
contemplated as being performed after termination shall survive such termination
and provided, further, that any termination hereof shall not preclude any party
hereto from recovering any legal or equitable damages or relief to which it is
entitled.
8.4. FURTHER AGREEMENTS AFTER TERMINATION. In the event of a termination
of this Agreement pursuant to Section 8.1(ii) or (iv), each of the Organizers
and each member of the Kelton Group hereby agree not to participate in the
formation or operation of any entity (other than IOG) which utilizes any of the
assets, principal employees, or expertise of any form or type created, utilized
or acquired by IOG or CFB in connection with the CFB IB Operation; provided,
however, that this Section 8.4 shall not preclude an individual set forth on the
Signature Page hereof from seeking gainful employment with another banking
entity so long as such is not part of an effort to transfer assets and/or
expertise of IOG to another entity.
SECTION IX. MISCELLANEOUS PROVISIONS
9.1. CONFIDENTIALITY AND NO-USE. Each party will and, will cause its
employees and agents to, hold in strict confidence, unless disclosure is
compelled by judicial or administrative process, or in the opinion of its
counsel, by other requirements of law, all Confidential Information of the other
party and will not disclose the same to any person. Confidential Information
shall be used only for the purpose of and in connection with consummating the
transaction contemplated herein. Each party will and will cause its employees
and agents to hold in strict confidence all Confidential Information except for
such disclosure as may be required in the ordinary course of business, or unless
disclosure is compelled by judicial or administrative process, or in the opinion
of its counsel, by other requirements of law. During the pendency of this
Agreement, each party agrees that it shall use Confidential Information only in
connection with the business of IOG and not for any other purpose. In the event
that this Agreement is terminated because of a breach hereof, the breaching
party shall never be entitled to use Confidential Information. Subsequent
shareholders of IOG shall be required to agree to confidentiality and no-use
provisions substantially similar to the provisions contained in this Section
9.1. The term "Confidential Information" shall mean all information of any kind
concerning a party hereto (or an affiliate of a party) that is furnished by such
party or on its behalf in connection with this Agreement, except information (i)
ascertainable or obtained from public or published information, (ii) received
from a third party not known to the recipient of Confidential Information to be
under an obligation to keep such information confidential, (iii) which is or
becomes known to the public (other than through a breach of this Agreement),
(iv) of which the recipient was in possession prior to disclosure thereof in
connection herewith, or (v) which was independently developed by the recipient
without the benefit of Confidential Information.
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9.2. ANTI-DILUTION. All share amounts set forth herein shall be subject to
equitable adjustment in the event of stock splits, stock dividends, reverse
stock splits, other similar recapitalizations, and issuances of IOG Common Stock
(or securities convertible into IOG Common Stock) at less than fair market value
(as determined from time to time by the Board of Directors, consistent with
their duty of care); provided, however, that such equitable adjustment shall be
used only to preserve and not increase the benefits herein to the relevant
party.
9.3. ARBITRATION. Any dispute arising under this Agreement shall be
referred to and resolved by arbitration in Atlanta, Georgia (if initiated by
CFB) or Greenville, South Carolina (if initiated by any other party hereto), in
accordance with the rules of the American Arbitration Association, by a panel of
three arbitrators, one of whom shall be selected by the IOG, one of whom shall
be selected by CFB and the third of whom shall be selected by the arbitrators
selected by IOG and CFB. A determination made in accordance with such rules
shall be delivered in writing to the panics hereto and shall be final and
binding and conclusive upon them. Each party shall pay its or his own legal,
accounting and other fees in connection with such an arbitration; provided,
however, that the arbitrators may award arbitration costs, including legal,
auditing and other fees to the prevailing party in the arbitration proceeding if
the arbitrators determine that such an award is appropriate.
9.4. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties with respect to the subject matter contained herein and there are no
agreements, warranties, covenants or undertakings other than those expressly set
forth herein.
9.5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that the Agreement shall not be assigned by
either of the parties hereto without the prior written consent of the other
party hereto, which consent shall not be unreasonably withheld, and provided
further, that any actions required or permitted to be taken herein by a party
may be taken by an affiliate of such party, provided that such substitution does
not have a material adverse affect on the attendant benefits to the other party.
It is expressly acknowledged (and consented to by the parties) that it shall be
deemed reasonable for CFB to assign all or part of its rights or obligations
under this agreement to its parent corporation or a wholly-owned subsidiary of
its parent corporation, formed as a small business investment company. This
Agreement shall not construed to create or permit third party beneficiaries.
9.6. LAW GOVERNING. This Agreement shall be governed by and construed in
accordance with the laws of the State of South Carolina.
9.7. AMENDMENT. This Agreement may not be amended except by an instrument
in writing signed on behalf of all of the parties.
9.8. WAIVER. Any term, provision or condition of this Agreement (other
than that required by law) may be waived in writing at any time by the party
which is entitled to the benefits thereof.
9.9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
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9.10. CONSTRUCTION. The parties acknowledge that representations,
acknowledgements or covenants expressly made herein by one or more parties to
this Agreement are being made only by the parties stated herein as making such
representations, acknowledgements or covenants, and no other party shall be
deemed to guarantee accuracy or performance of such provisions, unless such is
expressly stated.
END OF PAGE - NEXT PAGE IS SIGNATURE PAGE
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In witness whereof, the parties have executed this Agreement as of the date
first written above.
Witness: CAROLINA FIRST BANK
/s/ Forney Z. Rangeley By: /s/ Mack I. Whittle, Jr.
- -------------------------------------- -----------------------------------
Mack I. Whittle, Jr.
INTERNET ORGANIZING GROUP, INC.
/s/ Mary Johnson By: /s/ T. Stephen Johnson
- -------------------------------------- -----------------------------------
T. Stephen Johnson
KELTON GROUP OF INVESTORS (See Attached Page)
ORGANIZERS
/s/ Edward J. Sebstain
- -------------------------------------- -----------------------------------
(signature) (signature)
- -------------------------------------- -----------------------------------
Print name and Title (or if an Print name and title (of if an
individual so state) individual so state)
- -------------------------------------- -----------------------------------
(signature) (signature)
- -------------------------------------- -----------------------------------
Print name and Title (or if an Print name and title (of if an
individual so state) individual so state)
Kelton International, Limited
/s/ Robin C. Kelton
- --------------------------------------
By: Robin C. Kelton, Authorized Person
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KELTON INVESTORS
By: Robin C. Kelton, As Agent By: Robin C. Kelton, As Agent
- -------------------------------------- -----------------------------------
Henry Looser Nils Otto Taube
Lightning Asset Management Ltd. By: Robin C. Kelton, As Agent
-----------------------------------
By: Robin C. Kelton, As Agent John H.W. Hodson
-----------------------------------
Name:
----------------------------
Title: By: Robin C. Kelton, As Agent
--------------------------- -----------------------------------
Sibylla Muller
Jo Hambro Investment Management Ltd.
No. 1 London Account Darier Hentschii & CTE
Attn: Mr. Yves Micheli
By: Robin C. Kelton, As Agent
-----------------------------------
Name: By: Robin C. Kelton, As Agent
---------------------------- --------------------------------
Title: Name:
--------------------------- -------------------------
Title:
------------------------
Jo Hambro Investment Management Ltd.
A/C IOM 300 By: Robin C. Kelton, As Agent
-----------------------------------
Charles Martyn-Hemphill
By: Robin C. Kelton, As Agent
-----------------------------------
Name:
----------------------------
Title: By: Robin C. Kelton, As Agent
--------------------------- -----------------------------------
Dr. Martin Jetzer
Grabrun Investment Corporation
c/o J. Delafontaine
By: Robin C. Kelton, As Agent
-----------------------------------
Name:
----------------------------
Title:
---------------------------
By: Robin C. Kelton, As Agent
- --------------------------------------
Nezhet Tayib
By: Robin C. Kelton, As Agent
- --------------------------------------
Gilbert Hubert
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EXHIBIT A
DESCRIPTION OF AIB BANKING PRODUCT AND CFB IB OPERATIONS
TABLE OF CONTENTS
Overview
1.0 General Description
2.0 Deposit Accounts To Be Offered Thru the Product
2.1 Checking
2.2 Money Market Deposit Accounts
2.3 CD's and CD IRA's
2.4 Transfers
2.5 Automated Sweeps
2.6 Account Fees and Charges; Interest Fees
3.0 Bill Payment Services
4.0 Customer Access to Their Accounts
4.1 Access Through Personal Computers (PC's)
4.2 Access Via TouchTone Phone
4.3 Access Via Fax
4.4 Access Via ATM/Debit Card
4.5 Access Via Physical Check
5.0 Deposits
5.1 Direct Deposits
5.2 Mail
5.3 External Transfer
6.0 Term of Arrangement Between CFB and IOG
7.0 Key IOG Vendors and Suppliers
7.1 AT&T Corporation
7.2 Edify Corporation
7.3 BiSys
7.4 Checkfree
7.5 Other Vendors and Suppliers
8.0 Reserved
9.0 Marketing, Advertising and Promotion
10.0 Customer Sign-Up
11.0 Account Opening Fulfillment
11.1 Quick Fulfillment
11.2 Final Fulfillment
12.0 Customer Service
12.1 e-Mail
12.2 TouchTone VRU
12.3 Mail
13.0 Passwords and PIN's
13.1 PC and TouchTone Passwords/PIN's
13.2 ATM/Debit Card PIN's
14.0 IOG Physical Facilities
15.0 IOG Staffing
16.0 Audits and Examinations
16
<PAGE>
17.0 Certain CFB Responsibilities
17.1 Legal/Regulatory
17.2 Route & Transit Number
17.3 Wire Transfer
17.4 General Ledger Consolidation
17.5 AIB Product Expenditures
18.0 Certain IOG Responsibilities
18.1 Systems, Communications, Bill Paying and Operations
17
<PAGE>
OVERVIEW
This Exhibit A describes the CFB IB Operations and the AIB Product anticipated
to be offered during the period of time from the date hereof through the date of
Transfer (which is contemplated to be on or before October 1, 1996 (the "First
Phase"). The parties expect to perform a live test using a subset of the AIB
Product beginning on or about July 15, 1996 and that the AIB Product;s first
phase will be offered to the general public on or about September 1, 1996. The
live test will include approximately 50 customers who will be employees of the
respective parties involved in the project.
All of the provisions of this Exhibit A shall be construed so as to comply with
applicable law and regulations. In the event that any of the provisions herein
are contrary to applicable law or regulations, such provisions shall be
automatically deemed to have been amended (including being deleted entirely, if
necessary) to the extent necessary to comply with applicable law or regulations.
Unless stated otherwise, each of the items set forth below as being a part of
the CFB IB Operation are expected to be made available on or about the date that
PC access is provided to the general public.
1.0 GENERAL DESCRIPTION
IOG will develop, implement and manage the CFB IB Operation, all as
contemplated herein. In connection therewith, and except as set forth
otherwise herein. IOG will provide full backoffice operations, systems and
administrative support in connection with the CFB IB Operation, including a
full range of customer service activities. Credit accounts and services
may be offered during the First Phase, upon approval of CFB as to terms.
2.0 DEPOSIT ACCOUNTS TO BE OFFERED THRU THE AIB PRODUCT
Customers will be offered checking, MMDA and CD accounts. Customers will
be able to establish multiple checking, MMDA, and CD accounts and will be
able to perform certain kinds of maintenance to their accounts (e.g.
address changes).
2.1 CHECKING
Checking accounts will include physical checks and deposits, ATM/debit
cards, physical and electronic consolidated statements, direct
deposits, and pre-authorized debits. Both non-interest bearing and
interest bearing checking accounts will be offered and may be combined
under a tiered interest checking approach. Overdraft protection lines
of credit may be offered, upon approvals of the terms of such lines by
CFB.
2.2 MONEY MARKET DEPOSIT ACCOUNTS
Customers will be able to open and make deposits to and withdrawals
from money market deposit accounts. Required statements may be
rendered under consolidated statements. Customers will be able to
initiate self-directed transfers to and from their money market
deposit account and their checking accounts. Automated sweeps and
fixed transfers may also be established.
18
<PAGE>
2.3 CD'S AND CD IRA'S
Customers will be able to purchase CD's of varying maturities.
Handling of maturity notices will be determined and will likely
include electronic notification. Automatic rollover features will
also be provided. CD balances and other related information may be
reported under consolidated statements.
2.4 TRANSFERS
Customers, through one or more means of access, will be able to self-
initiate internal funds transfers between accounts. Customers may be
provided with the ability to initiate external transfers subject to
CFB approval.
2.5 AUTOMATED SWEEPS
Automated sweeps between accounts (e.g. between checking accounts
and/or MMDA's) may also be included, subject to regulatory
restrictions governing the number of withdrawals per month.
Additionally, sweeps may be used to automatically cover overdrafts
occurring on customers' checking accounts.
2.6 ACCOUNT FEES AND CHARGES; INTEREST FEES
Account fees and charges will be recommended periodically by IOG to
CFB, and finally determined by CFB. Generally, all fees and charges
are anticipated to be debited against the customers' selected primary
checking accounts. Interest pricing on all deposit accounts will be
recommended periodically by IOG to CFB, and finally determined by CFB.
3.0 BILL PAYMENT SERVICES
Customers will be provided with full PC-based and TouchTone-based bill
paying services. This will include both ACH and physical check
remittances. Customers will also be able to perform a full range of
maintenance transactions in connection with the bill payment services
including but not limited to payee setups, changes and deletions.
Customers will be able to establish both variable and fixed payments. Bill
payment transaction descriptions will meet required electronic funds
transfer regulations. Funds clearing for payments will be determined
according to industry standards and will be subject to CFB approval prior
to implementation.
4.0 CUSTOMER ACCESS TO THEIR ACCOUNTS
Customers will be able to access their accounts and related services
through the devices and means described herein.
4.1 ACCESS THROUGH PERSONAL COMPUTERS (PC'S)
Customers will be able to access their accounts through their PC's via
modem through the Internet and through an optional "intranet" dial-up.
Access will be Web-based, whereby customers will use PC-based browsers
to dial into their respective Internet
19
<PAGE>
access providers and then navigate to the AIB Product's Web Site. If
the customer is a customer of the Internet access provider on which
the AIB Product's Web-site resides, the customer will be able to
connect directly to the AIB Product under "intranet" access.
Security will be provided and managed by the Web-site hosting vendor
(which is expected to be AT&T).
4.2 ACCESS VIA TOUCHTONE PHONE
Customers will be able to access their accounts via use of TouchTone
phones and will be able to perform a range of transactions and other
functions subject to the restrictions inherent in this form of access
device. In addition, customers will be able to select a menu option
which will connect them directly to customer service personnel who
will be able to perform a full range of customer support functions
including both technical and banking-related customer service. The
Voice Response Unit ("VRU") services are anticipated to be provided by
the same vendor which provides the Web-site hosting for the AIB
Product.
4.3 ACCESS VIA FAX
Customers will be able to initiate, either through the PC or through
TouchTone phone, certain fax-based services, such as ordering
statements and copies of checks.
4.4 ACCESS VIA ATM/DEBIT CARD
ATM/debit card access will be available to checking accounts, except
that MMDA's will have ATM access only. Customers, upon acceptance of
their account application, will be issued ATM and/or debit cards. IOG
will make the arrangements necessary for ATM networks access, subject
to prior approval by CFB. ATM/debit card access will be provided by a
third party vendor.
4.5 ACCESS VIA PHYSICAL CHECK
Customers will have access via physical check to only checking
accounts and MMDA's. Customers will be issued checks containing a
CFB-supplied route and transit number and will be able to write checks
against their accounts in accordance with existing banking operations.
Canceled checks will not be returned. Customers will be able to order
copies of checks as needed and, additionally, check images will be
considered for access by customers through their PC's. Customers may
also be able to order copies of checks, either through PC's or
TouchTone phones, and direct the copies to be sent to fax. Overdraft
conditions will be handled within required deadlines if not otherwise
covered through account sweeps. Also, pre-authorized debits, as
earlier described, will be included.
5.0 DEPOSITS
Customers will be able to make deposits to their accounts through a number
of means as set forth herein.
20
<PAGE>
5.1 DIRECT DEPOSIT
Customers will be provided with direct deposit services through their
checking accounts. Purchases of CD's and deposits to MMDA's can be
made via transfers and other transactions which can be self-initialed
by the customer through one or more of the access devices earlier
described.
5.2 MAIL
Customers will be supplied with self-mailers which can be used to
enclose and mail, via U.S. Postal Service, deposits to their accounts.
The self-mailers are anticipated to be addressed to a servicing
lockbox established by CFB in Columbia, South Carolina. Deposits will
be captured and processed under procedures to be worked out between
CFB and IOG Physical deposit receipts will not be returned. Customers
will be able to obtain copies upon request.
5.3 EXTERNAL TRANSFER
External transfer shall include both ACH and Wire Transfers.
Customers, at the appropriate time, will be able to initiate transfers
from accounts at other banks and broker-based money market funds to
their selected checking accounts.
6.0 TERM OF ARRANGEMENT BETWEEN CFB AND IOG
The IOG Services will be provided beginning on the date hereof and ending
on the earlier of the Transfer or October 31, 1996, all as described in the
Agreement.
7.0 KEY IOG VENDORS AND SUPPLIERS
In performing the development, implementation and management services, IOG
intends on contracting with a number of different-vendors and suppliers,
all of which must be approved by CFB. The parties agree that all vendor
contracts will be entered into between the vendor and IOG. Certain key
vendors and suppliers (all of which are acceptable to CFB) are listed
below.
7.1 AT&T CORPORATION
IOG will use AT&T's data and voice communications services, including
but not limited to its WorldNet, Easy World Wide Web and other
services, to provide a full range of access channels to customers, as
well as the connectivity required between other vendors, suppliers and
IOG. AT&T will be responsible for providing point to point data and
voice communications between the key vendors and IOG. AT&T will have
primary responsibility for providing and maintaining electronic
security. In connection with security, IOG shall provide to CFB a
report from AT&T and its in-house security expert (Perry Schwartz)
attesting to their reviews and tests and detailing their particular
observations, comments and concerns on each of the following dates:
(1) on the date that the live test begins and (2) on the date when the
AIB Product is made available to the general public, all of which must
be reasonably satisfactory to CFB in order to continue the CFB IB
Operation.
21
<PAGE>
7.2 EDIFY CORPORATION
IOG will use the server-based software platforms offered by Edify to
establish "front-end" customer access across multiple types of access
devices (e.g. PC, TouchTone and Fax) as well as to handle "back-end"
interfacing and transaction messaging between the other vendors,
including but not limited to, the core processing vendor and the bill
paying services vendor. The Edify server-based software platform will
be hosted by AT&T within its networking architecture.
7.3 BISYS
BiSys will provide core account processing services including but not
limited to systems processing connected with deposit accounts, check
imaging, items capture, ACH and general ledger for the purposes of the
first phase. Additionally, BiSys may provide other processing
services connected with future phases of the AIB Product.
7.4 CHECKFREE
It is anticipated that Checkfree will provide bill paying services.
It is further anticipated that these services will be provided through
AT&T under AT&T's contracts with Checkfree.
7.5 OTHER VENDORS AND SUPPLIERS
Other needed services will be contracted, including but not limited
to, check printers, ATM/debit card plastics vendors, and ATM networks
access (e.g. Plus, Cirrus, etc.). Where it is expedient and mutually
acceptable, such services may be arranged through CFB.
8.0 RESERVED
9.0 MARKETING, ADVERTISING AND PROMOTION
IOG, in conjunction with one or more of its key vendors, will be
responsible for all marketing, advertising and promotion of the AIB
Product, including but not limited to, Web site promotion and advertising.
Marketing will also include media and public relations. Promotional
incentives may also be used. Additionally, IOG will develop physical
literature, including but not limited to, promotional literature, sign-up
kits, and other printed media forms. Because the AIB Product will be
accessible through the Internet, it is expected that customer account
applications will be received from locations nationwide and
internationally. Applications received from residents of foreign countries
will not be accepted.
10.0 CUSTOMER SIGN-UP
All account agreements, disclosures, and other contractual customer
documents will be prepared by IOG and submitted to CFB for approval. New
customers will sign up using an account application. No account will be
opened without an original signed physical account agreement.
22
<PAGE>
It is anticipated that prospective customers will be able to complete a
PC-based account application which includes a printout of the account
agreement for signing and mailing along with a concurrent e-mailed message
being delivered to IOG. All account applications will be processed by IOG,
including but not limited to, the processing of matters related to credit
investigation and other steps necessary for fraud prevention and approval
of ATM and debit cards. IOG plans to be able to process properly-completed
account applications with 24 hours after receipt.
11.0 ACCOUNT OPENING FULFILLMENT
Upon receipt and acceptance of a new customer account application, a two
step fulfillment process will be accomplished.
11.1 QUICK FULFILLMENT
Immediately upon acceptance, the customer's account(s) will be
established on the core processing system and initial deposits will be
processed. If the customer has selected bill paying services to be
included, then the bill paying service will be notified along with any
initial payees which the customer has directed to be established.
Concurrently, a temporary password will be assigned to enable the
customer to gain initial access via a PC and a TouchTone phone. A
package will be sent to the customer containing information about the
AIB Product and the related services and will include, if requested by
the customer, the necessary browser software along with other
materials, including but not limited to an initial set of "counter
checks and deposit slips." The temporary password will be mailed
under separate envelope for security reasons. It is anticipated that
the quick fulfillment will be sent by IOG to the customer within
approximately 24 hours after account acceptance.
11.2 FINAL FULFILLMENT
Within approximately 14 days after account acceptance, the customer
will receive certain additional items, including but not limited to, a
personal set of checks and deposit slips, a physical checkbook
register and an ATM and/or Debit Card.
12.0 CUSTOMER SERVICE
Customer service will be coordinated between IOG, AT&T and Checkfree,
depending upon the customer's service need. AT&T will be providing
customers with technical support (Tier I). Customer service will generally
be available 7 days a week, 24 hours per day. The customer will have three
ways to request service.
12.1 E-MAIL
The customer will be able to send and receive e-mail to and from
IOG/CFB, AT&T and Checkfree. Additionally, using the Edify
server-based platform, customers who have two phone lines will be able
to contact IOG customer service representatives by
23
<PAGE>
voice, and the customer service representative receiving the call will
be able to pull up the customer's current PC view through the PC under
a "co-session" approach.
12.2 TOUCHTONE VRU
The customer will be provided with an 800 number which connects into a
VRU within AT&T's service environment. The customer will be provided
with a set of menu options to select depending upon the service or
information needed including but not limited to connecting with an IOG
customer service representative.
12.3 MAIL
Customers will also be provided an address for submitting customer
service requests. This address will be a post office box established
by IOG in the Atlanta, Georgia area, unless CFB determines that for
regulatory purposes, the post office box must be in South Carolina.
13.0 PASSWORDS AND PIN'S
13.1 PC AND TOUCHTONE PASSWORDS/PIN'S
PC and TouchTone access passwords and PIN's will be managed under the
Edify server-based software platform hosted within the AT&T
environment. IOG, BiSys and AT&T will further define specific
procedures for the establishment and administration of passwords and
PIN's in connection with AT&T's overall security responsibility.
Customers will be able to change their passwords and PIN's through
their PC's and TouchTone phones at any time.
13.2 ATM/DEBIT CARD PIN'S
Issuance and administration of PIN's connected with ATM/debit cards
will be agreed upon by IOG and the appropriate vendors.
14.0 IOG PHYSICAL FACILITIES
IOG will establish physical operational facilities in the Atlanta, Georgia
area and, to the maximum extent possible, all operational activities
connected with the AIB Product, including but not limited to customer
service and administration, will be performed at those facilities. IOG
will be responsible for establishing and maintaining required physical
security measures. Notwithstanding the foregoing, for regulatory purposes,
CFB may require that the physical facilities be located in South Carolina.
15.0 IOG STAFFING
IOG will be responsible for the hiring, training and supervision of all
personnel, full time, part time and temporary, needed to support activities
being performed at IOG's physical facility. IOG will be responsible for
accomplishing security background checks on
24
<PAGE>
prospective employees. IOG (and its employees) shall be deemed to be
independent contractors of CFB, all as more particularly contemplated in
the Agreement.
16.0 AUDITS AND EXAMINATIONS
IOG and its vendors and suppliers will cooperate and provide full access to
auditors of CFB and bank regulatory and other examiners. Additionally, IOG
will undertake to establish any certifications and registrations needed in
connection with the AIB Product and the related services contemplated
herein.
17.0 CERTAIN CFB RESPONSIBILITIES
17.1 LEGAL/REGULATORY
CFB will allow the CFB IB Operations to be conducted under its
charter. CFB shall be responsible for conducting any audits of the
CFB IB Operations or taking such other actions that may be mandated
under applicable law or regulation.
17.2 ROUTE & TRANSIT NUMBER
CFB will provide a route and transit number to be used for items
processing activities to be performed by IOG.
17.3 WIRE TRANSFER
CFB will provide wire transfer services support to IOG, but only with
respect to collected funds. Joint analysis is currently being
conducted to determine implementation requirements.
17.4 GENERAL LEDGER CONSOLIDATION
CFB and IOG will agree upon the procedures for consolidating the
depository and cash balances of the AIB Product (housed under the core
processing services of BiSys) into CFB's books. IOG will maintain a
general ledger separately. CFB will be responsible for funds
investment and income allocation. Joint analysis is currently being
conducted to determine implementation requirements.
17.5 AIB PRODUCT EXPENDITURES
CFB, in conjunction with IOG, will track operating and capital
expenditures related to the development, implementation and management
of the AIB Product.
18.0 CERTAIN IOG RESPONSIBILITIES
18.1 SYSTEMS, COMMUNICATIONS, BILL PAYING AND OPERATIONS
IOG will be responsible for developing, implementing and managing all
systems (core processing, Web-based, etc.), communications (voice and
data), and back office
25
<PAGE>
operations, including but not limited to new accounts setup and
fulfillment, staffing, items processing, customer service, equipment
and facilities (except as previously described herein) in conjunction
with the key vendors described above.
26
<PAGE>
EXHIBIT B
INTERNET ORGANIZING GROUP, INC. 07/03/96
PROJECTED INTERIM OPERATING EXPENSES AND CASH FLOW REQUIREMENTS
PROJECTED FROM JUNE 1, 1996 THROUGH MARCH 31, 1997
- ------------------------------------------------------------
INTERIM OPERATING EXPENSES
- ------------------------------------------------------------
SALARIES & CONSULTING EXPENSES
Salaries & Benefits $ 153,060
CFB Salaries & Consulting Fees 94,000
Technology 8,000
Operations 17,200
---------
Total Salaries & Consulting: $ 272,260
- ------------------------------------------------------------
OCCUPANCY EXPENSE
Lease Expense $ 14,875
Taxes & Insurance 10,100
Maintenance/Leasehold Improvements 2,500
---------
Total Occupancy: $ 27,475
- ------------------------------------------------------------
OTHER ORGANIZING EXPENSES
Legal Expenses $ 40,000
Accounting 1,000
Application Fees 18,000
Travel/Meetings 23,500
CFB Travel/Meetings and Other 10,000
Marketing
Collateral/Marketing Material 63,500
WorldNet Advertising 50,000
Logo/Web Site 31,100
ATM Cards/Check Printing 8,850
Monthly Processing Fees 25,500
ATM Network Fees 10,000
---------
Total Other Expenses: $ 281,450
- ------------------------------------------------------------
TOTAL INTERIM OPERATING EXPENSES: $ 581,185
- ------------------------------------------------------------
OTHER CASH FLOW
- ------------------------------------------------------------
FF&E
Banking Stations/Network $ 100,500
Security Equipment 20,500
Employee Break Room Facility 2,000
Furniture/Equipment 34,000
Supplies (Forms) 18,000
Telephone Equipment/Communication 56,500
---------
Total FF&E: $ 231,500
- ------------------------------------------------------------
CAPITALIZED CONTRACTS
AT&T (includes Edify) $ 200,000
Bisys 80,000
---------
Total Capitalized Contracts: $ 280,000
- ------------------------------------------------------------
TOTAL OTHER CASH FLOW: $ 511,500
- ------------------------------------------------------------
CFB Salaries, Consulting Fees and Travel
before June 1, 1996 $ 33,300
- ------------------------------------------------------------
TOTAL CASH REQUIREMENTS $1,125,985
- ------------------------------------------------------------
- ------------------------------------------------------------
27
<PAGE>
AGREEMENT
This Agreement is entered into as of this 6th day of December, 1996 by
and between Carolina First Corporation, a South Carolina corporation ("CFC") and
Internet Organizing Group, Inc., a Georgia corporation ("IOG").
WHEREAS the parties hereto, among other parties, have entered into an
Agreement pursuant to which IOG is obligated to issue to CFC 40,000 shares of
IOG common stock, subject to certain conditions (the "Initial Agreement");
WHEREAS it is in the best interest of the parties that such shares be
issued in the near future;
WHEREAS as a condition to the issuance of such shares, the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") has
required that CFC commit that CFC will cause the activities of IOG not to change
from the managerial and technical services currently being performed for CFC (it
being understood that preparations for the anticipated stock offering and
acquisition of a thrift charter are incidental to such activities);
WHEREAS CFC has made such a commitment to the Federal Reserve (the
"Commitment");
NOW, THEREFORE, in consideration of the mutual covenants and
representations contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
IOG shall not engage in any activities other than the managerial and
technical services currently being performed for CFC (it being understood that
preparations for IOG's anticipated stock offering and acquisition of a thrift
charter are incidental to such activities). The parties agree that IOG may
engaged in any other than activities which are then permissible banking or
non-banking activities under applicable regulations of the Federal Reserve
Board, so long as any necessary regulatory approvals are received. The parties
agree to cooperate to seek necessary approvals for any such activity in which
IOG wants to engage.
This Agreement shall terminate when the Federal Reserve permits the
Commitment to terminate. This Agreement contains the entire agreement of the
parties with respect to the subject matter contained herein (and supersedes the
Initial Agreement to the extent necessary to give effect to the provisions
hereof) and there are no covenants or undertakings other than those expressly
set forth herein. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns. This
Agreement shall not construed to create or permit third party beneficiaries.
This Agreement shall be governed by and construed in accordance with the laws of
the State of South Carolina. This Agreement may not be amended except by an
instrument in writing signed on behalf of all of the parties. Any term,
provision or condition of this Agreement (other than that required by law) may
be waived in writing at any time by the party which is entitled to the benefits
thereof. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
In witness whereof, the parties have executed this Agreement as of the date
first written above.
Witness: CAROLINA FIRST CORPORATION
/s/ William Hummers By: /s/ Mack I. Whittle, Jr.
- --------------------------- ------------------------------------
Mack I. Whittle, Jr.
INTERNET ORGANIZING GROUP, INC.
/s/ Belinda L. Morgan By: /s/ Donald Shapleigh
- --------------------------- ------------------------------------
Donald Shapleigh
<PAGE>
March 18, 1997
Net.B@nk, Inc.
7000 Peachtree Dunwoody Rd.
Building 10, Suite 300
Atlanta, GA 30328
Re: Operating Agreement dated July 15, 1996 ("the Agreement")
Gentlemen:
Section 2.3 of the Agreement provides that Carolina First Bank ("CFB") will fund
the reasonable expenses of the CFB IB Operation through March 31, 1997 and,
subject to certain funding and time limitations and certain conditions set forth
therein, further provides that the funding termination date may be extended to
July 31, 1997, or the Transfer, whichever occurs first. Inasmuch as it appears
that it is reasonably likely that the Transfer will occur on or before July 31,
1997, CFB hereby commits to extend the funding obligation until the earlier of
July 31, 1997 or such time as the Reimbursable Expenses equal $1,325,985.
Net.B@nk, Inc. hereby consents to the transfer from CFB to Carolina first
corporation of the right to receive 40,000 shares of Net.B@nk Common Stock
(subject to any intervening stock dividend or stock split) pursuant to the
Transfer as provided for in Section 3.2 of the Operating Agreement.
Notwithstanding the foregoing, if the Reimbursable Expenses reach the funding
limit of $1,325,985 specified above prior to July 31, 1997 and if CFB is
reasonably satisfied at such date that the contemplated initial Public Offering
of Net.B@nk Common Stock being underwritten by Morgan Keegan & Company, Inc. and
Interstate/Johnson Lane Corporation will take place on or before July 31, 1997,
CFB will continue until July 31, 1997 to advance such additional reimbursable
Expenses, in excess of the $1,325,985, as CFB deems reasonably necessary for the
continued operation of the CFB IB Operation. Any such additional sums advanced
shall be repayable as provided in Section 2.3 hereof along with all other
Reimbursable Expenses so repayable, and any such repayment shall be further
subject to the provisions of Section 3.7 of the Operating Agreement.
<PAGE>
Net.B@nk, Inc.
March 18, 1997
Page 2
If and to the extent that CFB and Net.B@nk, Inc. determine that external equity
financing is not sufficient to enable Net.B@nk to acquire the Premier charter
and the acquisition of the IB Operation from CFB will not occur, then provided
that Net.B@nk is not otherwise in default under the terms of the Operating
Agreement, as hereby amended, CFB will retain Net.B@nk as an outsourced service
provided for the purpose of providing data processing, internet access, and
other service to CFB in order that CFB may continue to provide internet banking
services to the customer as the IB Operation.
In return for the outsourced service to be provided by Net.B@nk, CFB will pay to
Net.B@nk an amount equal to the minimum monthly cash needed by Net.B@nk to
maintain a going concern status; provided, that the maximum amount to be
provided to Net.B@nk shall not exceed $45,000 per month. The terms of the
outsourced services to be provided by Net.B@nk to CFB shall be set forth in a
definitive outsource service agreement to be negotiated, but containing terms
and conditions typical for such an agreement. Such agreement shall have an
initial term ending December 31, 1997, at which time either party may terminate
the agreement. CFB and Net.B@nk acknowledge that Deloitte & Touche may consider
the provisions of this letter agreement in connection with its review of the
financial status of Net.B@nk.
Capitalized terms used herein shall have the meanings set forth in the Operating
Agreement.
If the foregoing correctly sets forth your understanding of our agreement,
please so indicate in the space hereinafter provided.
Sincerely,
CAROLINA FIRST BANK ACCEPTED AND AGREED TO:
By: /s/ William Hummers NET.B@NK, INC.
---------------------------
By: /s/ D. R. Grimes
--------------------------------
<PAGE>
EXHIBIT 10.3
1996 STOCK INCENTIVE PLAN OF THE REGISTRANT
<PAGE>
NET.B@NK, INC.
1996 STOCK INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1 DEFINITIONS....................................................... 1
1.1 Definitions........................................................ 1
SECTION 2 THE STOCK INCENTIVE PLAN.......................................... 5
2.1 Purpose of the Plan................................................ 5
2.2 Stock Subject to the Plan.......................................... 5
2.3 Administration of the Plan......................................... 5
2.4 Eligibility and Limits............................................. 6
SECTION 3 TERMS OF STOCK INCENTIVES......................................... 6
3.1 Terms and Conditions of All Stock Incentives....................... 6
3.2 Terms and Conditions of Options.................................... 8
(a) Option Price.................................................. 8
(b) Option Term................................................... 8
(c) Payment....................................................... 8
(d) Conditions to the Exercise of an Option....................... 9
(e) Termination of Incentive Stock Option......................... 9
(f) Special Provisions for Certain Substitute Options............. 9
3.3 Terms and Conditions of Stock Appreciation Rights.................. 9
(a) Settlement.................................................... 10
(b) Conditions to Exercise........................................ 10
3.4 Terms and Conditions of Stock Awards............................... 10
3.5 Terms and Conditions of Dividend Equivalent Rights................. 10
(a) Payment....................................................... 10
(b) Conditions to Payment......................................... 10
3.6 Terms and Conditions of Performance Unit Awards.................... 11
(a) Payment....................................................... 11
(b) Conditions to Payment......................................... 11
3.7 Terms and Conditions of Phantom Shares............................. 11
(a) Payment....................................................... 11
(b) Conditions to Payment......................................... 11
3.8 Treatment of Awards Upon Termination of Service.................... 11
SECTION 4 RESTRICTIONS ON STOCK............................................ 12
4.1 Escrow of Shares................................................... 12
4.2 Forfeiture of Shares............................................... 12
4.3 Restrictions on Transfer........................................... 12
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SECTION 5 GENERAL PROVISIONS............................................... 13
5.1 Withholding........................................................ 13
5.2 Changes in Capitalization; Merger; Liquidation..................... 13
5.3 Cash Awards........................................................ 14
5.4 Compliance with Code............................................... 14
5.5 Right to Terminate Service......................................... 14
5.6 Restrictions on Delivery and Sale of Shares; Legends............... 14
5.7 Non-alienation of Benefits......................................... 15
5.8 Termination and Amendment of the Plan.............................. 15
5.9 Stockholder Approval............................................... 15
5.10 Choice of Law...................................................... 15
5.11 Effective Date of Plan............................................. 15
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NET.B@NK, INC.
1996 STOCK INCENTIVE PLAN
SECTION 1 DEFINITIONS
1.1 DEFINITIONS. Whenever used herein, the masculine pronoun shall be
deemed to include the feminine, and the singular to include the plural, unless
the context clearly indicates otherwise, and the following capitalized words and
phrases are used herein with the meaning thereafter ascribed:
(a) "BOARD OF DIRECTORS" means the board of directors of the Company.
(b) "CAUSE" has the same meaning as provided in the employment
agreement between the Participant and the Company or, if applicable, any
affiliate of the Company on the date of Termination of Service, or if no such
definition or employment agreement exists, "Cause" means conduct amounting to
(1) fraud or dishonesty against the Company or its affiliates, (2) Participant's
willful misconduct, repeated refusal to follow the reasonable directions of the
board of directors of the Company or its affiliates, or knowing violation of law
in the course of performance of the duties of Participant's service with the
Company or its affiliates, (3) repeated absences from work without a reasonable
excuse, (4) repeated intoxication with alcohol or drugs while on the Company or
affiliates' premises during regular business hours, (5) a conviction or plea of
guilty or NOLO CONTENDERE to a felony or a crime involving dishonesty, or (6) a
breach or violation of the terms of any agreement to which Participant and the
Company or its affiliates are party.
(c) "CHANGE IN CONTROL" means any one of the following events which
may occur following completion of the initial public offering, if any, of the
Company:
(1) the acquisition by any individual, entity or "group", within
the meaning of Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange
Act of 1934, as amended, (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934) of
voting securities of the Company where such acquisition causes any such Person
to own twenty-five percent (25%) or more of the combined voting power of the
then outstanding voting securities then entitled to vote generally in the
election of directors (the "Outstanding Voting Securities"); provided, however,
that for purposes of this Section 1(c)(1), the following shall not be deemed to
result in a Change in Control, (i) any acquisition directly from the Company,
unless such a Person subsequently acquires additional shares of Outstanding
Voting Securities other than from the Company, in which case any such subsequent
acquisition shall be deemed to be a Change in Control; (ii) any acquisition by
any employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company; or (iii) any acquisition
by merger, consolidation, share exchange, combination, reorganization, sale or
transfer or like transaction that is NOT otherwise described in Section 1(c)(2)
or 1(c)(4) below as long as no Person (other than an employee benefit plan or
related trust sponsored or maintained by the Company, any corporation controlled
by the Company or any company resulting from such business combination) obtains
beneficial ownership of twenty-five percent (25%) or more of the then
Outstanding Voting Securities;
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(2) a merger, consolidation, share exchange, combination,
reorganization or like transaction involving the Company in which the
stockholders of the Company immediately prior to such transaction do not own at
least fifty percent (50%) of the value or voting power of the issued and
outstanding capital stock of the Company or its successor immediately after such
transaction;
(3) the sale or transfer (other than as security for the
Company's obligations) of more than fifty percent (50%) of the assets of the
Company in any one transaction, a series of related transactions or a series of
transactions occurring within a one (1) year period in which the Company, any
corporation controlled by the Company or the stockholders of the Company
immediately prior to the transaction do not own at least fifty percent (50%) of
the value or voting power of the issued and outstanding equity securities of the
acquiror immediately after the transaction;
(4) the sale or transfer of more than fifty percent (50%) of the
value or voting power of the issued and outstanding capital stock of the Company
by the holders thereof in any one transaction, a series of related transactions
or a series of transactions occurring within a one (1) year period in which the
Company, any corporation controlled by the Company or the stockholders of the
Company immediately prior to the transaction do not own at least fifty percent
(50%) of the value or voting power of the issued and outstanding equity
securities of the acquiror immediately after the transaction; or
(5) the dissolution or liquidation of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means the committee appointed by the Board of
Directors to administer the Plan pursuant to Plan Section 2.3.
(f) "COMPANY" means Net.B@nk, Inc., a Georgia corporation.
(g) "DISABILITY" has the same meaning as provided in the long-term
disability plan or policy maintained or, if applicable, most recently
maintained, by the Company or, if applicable, any affiliate of the Company for
the Participant. If no long-term disability plan or policy was ever maintained
on behalf of the Participant or, if the determination of Disability relates to
an Incentive Stock Option, Disability shall mean that condition described in
Code Section 22(e)(3), as amended from time to time. In the event of a dispute,
the determination of Disability shall be made by the Board of Directors and
shall be supported by advice of a physician competent in the area to which such
Disability relates.
(h) "DISPOSITION" means any conveyance, sale, transfer, assignment,
pledge or hypothecation, whether outright or as security, inter vivos or
testamentary, with or without consideration, voluntary or involuntary.
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(i) "DIVIDEND EQUIVALENT RIGHTS" means certain rights to receive cash
payments as described in Plan Section 3.5.
(j) "FAIR MARKET VALUE" refers to the determination of value of a
share of Stock. If the Stock is actively traded on any national securities
exchange or any Nasdaq quotation or market system, Fair Market Value shall mean
the closing price at which sales of Stock shall have been sold on the most
recent trading date immediately prior to the date of determination, as reported
by any such exchange or system selected by the Committee on which the shares of
Stock are then traded. If the shares of Stock are not actively traded on any
such exchange or system, Fair Market Value shall mean the arithmetic mean of the
bid and asked prices for the shares of Stock on the most recent trading date
within a reasonable period prior to the determination date as reported by such
exchange or system. If there are no bid and asked prices within a reasonable
period or if the shares of Stock are not traded on any exchange or system as of
the determination date, Fair Market Value shall mean the fair market value of a
share of Stock as determined by the Committee taking into account such facts and
circumstances deemed to be material by the Committee to the value of the Stock
in the hands of the Participant; provided that, for purposes of granting awards
other than Incentive Stock Options, Fair Market Value of a share of Stock may be
determined by the Committee by reference to the average market value determined
over a period certain or as of specified dates, to a tender offer price for the
shares of Stock (if settlement of an award is triggered by such an event) or to
any other reasonable measure of fair market value and provided further that, for
purposes of granting Incentive Stock Options, Fair Market Value of a share of
Stock shall be determined in accordance with the valuation principles described
in the regulations promulgated under Code Section 422.
(k) "INCENTIVE STOCK OPTION" means an incentive stock option, as
defined in Code Section 422, described in Plan Section 3.2.
(l) "NON-QUALIFIED STOCK OPTION" means a stock option, other than an
option qualifying as an Incentive Stock Option, described in Plan Section 3.2.
(m) "OPTION" means a Non-Qualified Stock Option or an Incentive Stock
Option.
(n) "OVER 10% OWNER" means an individual who at the time an Incentive
Stock Option is granted owns Stock possessing more than 10% of the total
combined voting power of the Company or one of its Parents or Subsidiaries,
determined by applying the attribution rules of Code Section 424(d).
(o) "PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if, with respect to
Incentive Stock Options, at the time of granting of the Option, each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in the chain.
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(p) "PARTICIPANT" means an individual who receives a Stock Incentive
hereunder.
(q) "PERFORMANCE UNIT AWARD" refers to a performance unit award
described in Plan Section 3.6.
(r) "PHANTOM SHARES" refers to the rights described in Plan Section
3.7.
(s) "PLAN" means the Net.B@nk, Inc. 1996 Stock Incentive Plan.
(t) "STOCK" means the Company's common stock, without par value.
(u) "STOCK APPRECIATION RIGHT" means a stock appreciation right
described in Plan Section 3.3.
(v) "STOCK AWARD" means a stock award described in Plan Section 3.4.
(w) "STOCK INCENTIVE AGREEMENT" means an agreement between the
Company and a Participant or other documentation evidencing an award of a Stock
Incentive.
(x) "STOCK INCENTIVE PROGRAM" means a written program established by
the Committee pursuant to which Stock Incentives, other than Options or Stock
Appreciation Rights, are awarded under the Plan under uniform terms, conditions
and restrictions set forth in such written program and distributed among
eligible officers, employees and directors.
(y) "STOCK INCENTIVES" means, collectively, Dividend Equivalent
Rights, Incentive Stock Options, Non-Qualified Stock Options, Performance Unit
Awards, Phantom Shares, Stock Appreciation Rights and Stock Awards.
(z) "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, with respect to
Incentive Stock Options, at the time of the granting of the Option, each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
(aa) "TERMINATION OF SERVICE" means the termination of the service
relationship, whether employment or otherwise, between a Participant and the
Company and its affiliates, regardless of the fact that severance or similar
payments are made to the Participant for any reason, including, but not by way
of limitation, a termination by resignation, discharge, death, Disability or
retirement. The Committee shall, in its absolute discretion, determine the
effect of all matters and questions relating to Termination of Service,
including, but not by way of limitation, the question of whether a leave of
absence constitutes a Termination of Service, or whether a Termination of
Service is for Cause.
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SECTION 2 THE STOCK INCENTIVE PLAN
2.1 PURPOSE OF THE PLAN. The Plan is intended to (a) provide incentive to
officers, employees, directors and consultants of the Company and its affiliates
to stimulate their efforts toward the continued success of the Company and to
operate and manage the business in a manner that will provide for the long-term
growth and profitability of the Company; (b) encourage stock ownership by
officers, employees, directors and consultants by providing them with a means to
acquire a proprietary interest in the Company by acquiring shares of Stock or to
receive compensation which is based upon appreciation in the value of Stock; and
(c) provide a means of obtaining and rewarding key personnel.
2.2 STOCK SUBJECT TO THE PLAN. Subject to adjustment in accordance with
Section 5.2, 12,000 shares of Stock (the "Maximum Plan Shares") are hereby
reserved exclusively for issuance pursuant to Stock Incentives. At no time
shall the Company have outstanding Stock Incentives and shares of Stock issued
in respect of Stock Incentives in excess of the Maximum Plan Shares. The shares
of Stock attributable to the nonvested, unpaid, unexercised, unconverted or
otherwise unsettled portion of any Stock Incentive that is forfeited or
cancelled or expires or terminates for any reason without becoming vested, paid,
exercised, converted or otherwise settled in full shall again be available for
purposes of the Plan.
2.3 ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Committee. The Committee shall have full authority in its discretion to
determine the officers, employees, directors and consultants of the Company or
its affiliates to whom Stock Incentives shall be granted and the terms and
provisions of Stock Incentives, subject to the Plan. Subject to the provisions
of the Plan, the Committee shall have full and conclusive authority to interpret
the Plan; to prescribe, amend and rescind rules and regulations relating to the
Plan; to determine the terms and provisions of the respective Stock Incentive
Agreements or Stock Incentive Programs and to make all other determinations
necessary or advisable for the proper administration of the Plan. The
Committee's determinations under the Plan need not be uniform and may be made by
it selectively among persons who receive, or are eligible to receive, awards
under the Plan (whether or not such persons are similarly situated). The
Committee's decisions shall be final and binding on all Participants.
As to any matter involving a Participant who is not a "reporting person"
for purposes of Section 16 of the Securities Exchange Act of 1934, the Committee
may delegate to any member of the Board of Directors or officer of the Company
the administrative authority to (a) interpret the provisions of the
Participant's Stock Incentive Agreement and (b) determine the treatment of Stock
Incentives upon a Termination of Service, as contemplated by Plan Section 3.8.
The Committee shall consist of at least two members of the Board of
Directors and, during those periods that the Company is subject to the
provisions of Section 16 of the Securities Exchange Act of 1934, the Board of
Directors shall consider the advisability of whether each such appointee shall
qualify as a "non-employee director", as that term is defined in Rule 16b-3 as
then in effect under the Securities Exchange Act of 1934, and, during those
periods that the Company has issued equity securities required to be registered
under Section 12 of the Securities
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Exchange Act of 1934, the Board of Directors shall consider the advisability of
whether each such appointee shall separately qualify as an "outside director",
within the meaning of Code Section 162(m) and the regulations promulgated
thereunder. The Board of Directors may from time to time remove members from or
add members to the Committee. Vacancies on the Committee shall be filled by the
Board of Directors.
2.4 ELIGIBILITY AND LIMITS. Stock Incentives may be granted only to
officers, employees, directors and consultants of the Company or an affiliate;
provided, however, that an Incentive Stock Option may only be granted to an
employee of the Company or any Parent or Subsidiary. In the case of Incentive
Stock Options, the aggregate Fair Market Value (determined as at the date an
Incentive Stock Option is granted) of stock with respect to which stock options
intended to meet the requirements of Code Section 422 become exercisable for the
first time by an individual during any calendar year under all plans of the
Company and its Parents and Subsidiaries shall not exceed $100,000; provided
further, that if the limitation is exceeded, the Incentive Stock Option(s) which
cause the limitation to be exceeded shall be treated as Non-Qualified Stock
Option(s); except as the terms of the Stock Incentive Agreement may expressly
provide otherwise. To the extent required under Code Section 162(m) and
regulations thereunder for compensation to be treated as qualified
performance-based compensation, subject to adjustment in accordance with Section
5.2, the maximum number of shares Stock with respect to which Options or Stock
Appreciation Rights may be granted during any single fiscal year of the Company
to any employee shall not exceed 6,000.
SECTION 3 TERMS OF STOCK INCENTIVES
3.1 TERMS AND CONDITIONS OF ALL STOCK INCENTIVES.
(a) The number of shares of Stock as to which a Stock Incentive shall
be granted shall be determined by the Committee in its sole discretion, subject
to the provisions of Section 2.2 as to the total number of shares available for
grants under the Plan. If a Stock Incentive Agreement so provides, a
Participant may be granted a new Option to purchase a number of shares of Stock
equal to the number of previously owned shares of Stock tendered in payment of
the Exercise Price (as defined below) for each share of Stock purchased pursuant
to the terms of the Stock Incentive Agreement.
(b) Each Stock Incentive shall be evidenced either by a Stock
Incentive Agreement in such form and containing such terms, conditions and
restrictions as the Committee may determine is appropriate or be made subject to
the terms of a Stock Incentive Program, containing such terms, conditions and
restrictions as the Committee may determine is appropriate. Each Stock
Incentive Agreement or Stock Incentive Program shall be subject to the terms of
the Plan and any provision in a Stock Incentive Agreement or Stock Incentive
Program that is inconsistent with the Plan shall be null and void.
(c) The date a Stock Incentive is granted shall be the date on which
the Committee has approved the terms and conditions of the Stock Incentive
Agreement or Stock Incentive Program and has determined the recipient of the
Stock Incentive and the number of
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shares covered by the Stock Incentive and has taken all such other action
necessary to complete the grant of the Stock Incentive.
(d) The Committee may provide in any Stock Incentive Agreement or
pursuant to any Stock Incentive Program (or subsequent to the award of a Stock
Incentive but prior to its expiration or cancellation, as the case may be) that,
in the event of a Change in Control, the Stock Incentive shall or may be cashed
out on the basis of any price not greater than the highest price paid for a
share of Stock in any transaction reported by any market or system selected by
the Committee on which the shares of Stock are then actively traded during a
specified period immediately preceding or including the date of the Change in
Control or offered for a share of Stock in any tender offer occurring during a
specified period immediately preceding or including the date the tender offer
commences; provided that, in no case shall any such specified period exceed one
(1) year (the "Change in Control Price"). For purposes of this Subsection, the
cash-out of a Stock Incentive shall be determined as follows:
(1) Options shall be cashed out on the basis of the excess, if
any, of the Change in Control Price (but not more than the Fair Market Value of
the Stock on the date of the cash-out in the case of Incentive Stock Options)
over the Exercise Price with or without regard to whether the Option may
otherwise be exercisable only in part;
(2) Stock Awards and Phantom Shares shall be cashed out in an
amount equal to the Change in Control Price with or without regard to any
conditions or restrictions otherwise applicable to any such Stock Incentive; and
(3) Stock Appreciation Rights, Dividend Equivalent Rights and
Performance Unit Awards shall be cashed out with or without regard to any
conditions or restrictions otherwise applicable to any such Stock Incentive and
the amount of the cash out shall be determined by reference to the number of
shares of Stock that would be required to pay the Participant in kind for the
value of the Stock Incentive as of the date of the Change in Control multiplied
by the Change in Control Price.
(e) Any Stock Incentive may be granted in connection with all or any
portion of a previously or contemporaneously granted Stock Incentive. Exercise
or vesting of a Stock Incentive granted in connection with another Stock
Incentive may result in a pro rata surrender or cancellation of any related
Stock Incentive, as specified in the applicable Stock Incentive Agreement or
Stock Incentive Program.
(f) Stock Incentives shall not be transferable or assignable except
by will or by the laws of descent and distribution and shall be exercisable,
during the Participant's lifetime, only by the Participant; in the event of the
Disability of the Participant, by the legal representative of the Participant;
or in the event of the death of the participant, by the personal representative
of the Participant's estate or if no personal representative has been appointed,
by the successor in interest determined under the Participant's will.
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3.2 TERMS AND CONDITIONS OF OPTIONS. Each Option granted under the Plan
shall be evidenced by a Stock Incentive Agreement. At the time any Option is
granted, the Committee shall determine whether the Option is to be an Incentive
Stock Option or a Non-Qualified Stock Option, and the Option shall be clearly
identified as to its status as an Incentive Stock Option or a Non-Qualified
Stock Option. At the time any Incentive Stock Option is exercised, the Company
shall be entitled to place a legend on the certificates representing the shares
of Stock purchased pursuant to the Option to clearly identify them as shares of
Stock purchased upon exercise of an Incentive Stock Option. An Incentive Stock
Option may only be granted within ten (10) years from the earlier of the date
the Plan is adopted by the Board of Directors or approved by the Company's
stockholders.
(a) OPTION PRICE. Subject to adjustment in accordance with
Section 5.2 and the other provisions of this Section 3.2, the exercise price
(the "Exercise Price") per share of Stock purchasable under any Option shall be
as set forth in the applicable Stock Incentive Agreement. With respect to each
grant of an Incentive Stock Option to a Participant who is not an Over 10% Owner
or to each grant of any Option to a Participant who is then a "covered
employee," within the meaning of Code Section 162(m), the Exercise Price per
share shall not be less than the Fair Market Value on the date the Option is
granted. With respect to each grant of an Incentive Stock Option to a
Participant who is an Over 10% Owner, the Exercise Price shall not be less than
110% of the Fair Market Value on the date the Option is granted.
(b) OPTION TERM. The term of an Option shall be as specified in the
applicable Stock Incentive Agreement; provided, however that any Incentive Stock
Option granted to a Participant who is not an Over 10% Owner shall not be
exercisable after the expiration of ten (10) years after the date the Option is
granted and any Incentive Stock Option granted to an Over 10% Owner shall not be
exercisable after the expiration of five (5) years after the date the Option is
granted.
(c) PAYMENT. Payment for all shares of Stock purchased pursuant to
exercise of an Option shall be made in any form or manner authorized by the
Committee in the Stock Incentive Agreement or by amendment thereto, including,
but not limited to, cash or, if the Stock Incentive Agreement provides, (1) by
delivery to the Company of a number of shares of Stock which have been owned by
the holder for at least six (6) months prior to the date of exercise having an
aggregate Fair Market Value of not less than the product of the Exercise Price
multiplied by the number of shares the Participant intends to purchase upon
exercise of the Option on the date of delivery; (2) in a cashless exercise
through a broker; or (3) by having a number of shares of Stock withheld, the
Fair Market Value of which as of the date of exercise is sufficient to satisfy
the Exercise Price. In its discretion, the Committee also may authorize (at
the time an Option is granted or thereafter) Company financing to assist the
Participant as to payment of the Exercise Price on such terms as may be offered
by the Committee in its discretion. Payment shall be made at the time that the
Option or any part thereof is exercised, and no shares shall be issued or
delivered upon exercise of an option until full payment has been made by the
Participant. The holder of an Option, as such, shall have none of the rights of
a stockholder.
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(d) CONDITIONS TO THE EXERCISE OF AN OPTION. Each Option granted
under the Plan shall be exercisable by whom, at such time or times, or upon the
occurrence of such event or events, and in such amounts, as the Committee shall
specify in the Stock Incentive Agreement; provided, however, that subsequent to
the grant of an Option, the Committee, at any time before complete termination
of such Option, may accelerate the time or times at which such Option may be
exercised in whole or in part, including, without limitation, upon a Change in
Control and may permit the Participant or any other designated person to
exercise the Option, or any portion thereof, for all or part of the remaining
Option term notwithstanding any provision of the Stock Incentive Agreement to
the contrary.
(e) TERMINATION OF INCENTIVE STOCK OPTION. With respect to an
Incentive Stock Option, in the event of the Termination of Service of a
Participant, the Option or portion thereof held by the Participant which is
unexercised shall expire, terminate, and become unexercisable no later than the
expiration of three (3) months after the date of Termination of Service;
provided, however, that in the case of a holder whose Termination of Service is
due to death or Disability, one (1) year shall be substituted for such three (3)
month period. For purposes of this Subsection (e), Termination of Service of
the Participant shall not be deemed to have occurred if the Participant is
employed by another corporation (or a parent or subsidiary corporation of such
other corporation) which has assumed the Incentive Stock Option of the
Participant in a transaction to which Code Section 424(a) is applicable.
(f) SPECIAL PROVISIONS FOR CERTAIN SUBSTITUTE OPTIONS.
Notwithstanding anything to the contrary in this Section 3.2, any Option issued
in substitution for an option previously issued by another entity, which
substitution occurs in connection with a transaction to which Code
Section 424(a) is applicable, may provide for an exercise price computed in
accordance with such Code Section and the regulations thereunder and may contain
such other terms and conditions as the Committee may prescribe to cause such
substitute Option to contain as nearly as possible the same terms and conditions
(including the applicable vesting and termination provisions) as those contained
in the previously issued option being replaced thereby.
3.3 TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS. Each Stock
Appreciation Right granted under the Plan shall be evidenced by a Stock
Incentive Agreement. A Stock Appreciation Right may be granted in connection
with all or any portion of a previously or contemporaneously granted Stock
Incentive or not in connection with a Stock Incentive. A Stock Appreciation
Right shall entitle the Participant to receive the excess of (a) the Fair Market
Value of a specified or determinable number of shares of the Stock at the time
of payment or exercise over (b) a specified price (1) which, in the case of a
Stock Appreciation Right granted in connection with an Option, shall be not less
than the Exercise Price for that number of shares and (2) which, in the case of
a Stock Appreciation Right that is granted to a Participant who is then a
"covered employee," within the meaning of Code Section 162(m), shall not be less
than the Fair Market Value of the Stock at the time of the award. A Stock
Appreciation Right granted in connection with a Stock Incentive may only be
exercised to the extent that the related Stock Incentive has not been exercised,
paid or otherwise settled. The exercise of a Stock Appreciation Right granted
in connection with a Stock Incentive shall result in a pro rata surrender or
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cancellation of any related Stock Incentive to the extent the Stock Appreciation
Right has been exercised.
(a) SETTLEMENT. Upon settlement of a Stock Appreciation Right, the
Company shall pay to the Participant the appreciation in cash or shares of Stock
(valued at the aggregate Fair Market Value on the date of payment or exercise)
as provided in the Stock Incentive Agreement or, in the absence of such
provision, as the Committee may determine.
(b) CONDITIONS TO EXERCISE. Each Stock Appreciation Right granted
under the Plan shall be exercisable or payable at such time or times, or upon
the occurrence of such event or events, and in such amounts, as the Committee
shall specify in the Stock Incentive Agreement; provided, however, that
subsequent to the grant of a Stock Appreciation Right, the Committee, at any
time before complete termination of such Stock Appreciation Right, may
accelerate the time or times at which such Stock Appreciation Right may be
exercised or paid in whole or in part.
3.4 TERMS AND CONDITIONS OF STOCK AWARDS. The number of shares of Stock
subject to a Stock Award and restrictions or conditions on such shares, if any,
shall be as the Committee determines, and the certificate for such shares shall
bear evidence of any restrictions or conditions. Subsequent to the date of the
grant of the Stock Award, the Committee shall have the power to permit, in its
discretion, an acceleration of the expiration of an applicable restriction
period with respect to any part or all of the shares awarded to a Participant.
The Committee may require a cash payment from the Participant in an amount no
greater than the aggregate Fair Market Value of the shares of Stock awarded
determined at the date of grant in exchange for the grant of a Stock Award or
may grant a Stock Award without the requirement of a cash payment.
3.5 TERMS AND CONDITIONS OF DIVIDEND EQUIVALENT RIGHTS. A Dividend
Equivalent Right shall entitle the Participant to receive payments from the
Company in an amount determined by reference to any cash dividends paid on a
specified number of shares of Stock to Company stockholders of record during the
period such rights are effective. The Committee may impose such restrictions
and conditions on any Dividend Equivalent Right as the Committee in its
discretion shall determine, including the date any such right shall terminate
and may reserve the right to terminate, amend or suspend any such right at any
time.
(a) PAYMENT. Payment in respect of a Dividend Equivalent Right may
be made by the Company in cash or shares of Stock (valued at Fair Market Value
on the date of payment) as provided in the Stock Incentive Agreement or, in the
absence of such provision, as the Committee may determine.
(b) CONDITIONS TO PAYMENT. Each Dividend Equivalent Right granted
under the Plan shall be payable at such time or times, or upon the occurrence of
such event or events, and in such amounts, as the Committee shall specify in the
Stock Incentive Agreement or Stock Incentive Program; provided, however, that
subsequent to the grant of a Dividend Equivalent Right, the Committee, at any
time before complete termination of such Dividend Equivalent Right, may
accelerate the time or times at which such Dividend Equivalent Right may be paid
in whole or in part.
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3.6 TERMS AND CONDITIONS OF PERFORMANCE UNIT AWARDS. A Performance Unit
Award shall entitle the Participant to receive, at a future date, payment of an
amount equal to all or a portion of the value of a number of units (stated in
terms of a designated dollar amount per unit) granted by the Committee, all as
the Committee shall specify in the Stock Incentive Agreement or Stock Incentive
Program. At the time of the grant, the Committee must determine the base value
of each unit, the number of units subject to a Performance Unit Award, the
performance factors applicable to the determination of the ultimate payment
value of the Performance Unit Award and the period over which Company
performance shall be measured. The Committee may provide for an alternate base
value for each unit under certain specified conditions.
(a) PAYMENT. Payment in respect of Performance Unit Awards may be
made by the Company in cash or shares of Stock (valued at Fair Market Value on
the date of payment) as provided in the Stock Incentive Agreement or Stock
Incentive Program or, in the absence of such provision, as the Committee may
determine.
(b) CONDITIONS TO PAYMENT. Each Performance Unit Award granted under
the Plan shall be payable at such time or times, or upon the occurrence of such
event or events, and in such amounts, as the Committee shall specify in the
Stock Incentive Agreement or Stock Incentive Program; provided, however, that
subsequent to the grant of a Performance Unit Award, the Committee, at any time
before complete termination of such Performance Unit Award, may accelerate the
time or times at which such Performance Unit Award may be paid in whole or in
part.
3.7 TERMS AND CONDITIONS OF PHANTOM SHARES. Phantom Shares shall entitle
the Participant to receive, at a future date, payment of an amount equal to all
or a portion of the Fair Market Value of a number of shares of Stock at the end
of a certain period, all as the Committee shall specify in the Stock Incentive
Agreement or Stock Incentive Program. At the time of the grant, the Committee
shall determine the factors which will govern the portion of the rights so
payable, including, at the discretion of the Committee, any performance criteria
that must be satisfied as a condition to payment.
(a) PAYMENT. Payment in respect of Phantom Shares may be made by the
Company in cash or shares of Stock (valued at Fair Market Value on the date of
payment) as provided in the Stock Incentive Agreement or Stock Incentive Program
or, in the absence of such provision, as the Committee may determine.
(b) CONDITIONS TO PAYMENT. Each Phantom Share granted under the Plan
shall be payable at such time or times, or upon the occurrence of such event or
events, and in such amounts, as the Committee shall specify in the Stock
Incentive Agreement or Stock Incentive Program; provided, however, that
subsequent to the grant of a Phantom Share, the Committee, at any time before
complete termination of such Phantom Share, may accelerate the time or times at
which such Phantom Share may be paid in whole or in part.
3.8 TREATMENT OF AWARDS UPON TERMINATION OF SERVICE. Except as otherwise
provided by Plan Section 3.2(e), any award under this Plan to a Participant who
suffers a Termination of Service may be cancelled, accelerated, paid or
continued, as provided in the Stock Incentive Agreement or Stock Incentive
Program or, in the absence of such provision, as the Committee
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<PAGE>
may determine. The portion of any award exercisable in the event of
continuation or the amount of any payment due under a continued award may be
adjusted by the Committee to reflect the Participant's period of service from
the date of grant through the date of the Participant's Termination of Service
or such other factors as the Committee determines are relevant to its decision
to continue the award.
SECTION 4 RESTRICTIONS ON STOCK
4.1 ESCROW OF SHARES. Any certificates representing the shares of Stock
issued under the Plan shall be issued in the Participant's name, but, if the
Stock Incentive Agreement or Stock Incentive Program so provides, the shares of
Stock shall be held by a custodian designated by the Committee (the
"Custodian"). Each applicable Stock Incentive Agreement or Stock Incentive
Program providing for transfer of shares of Stock to the Custodian shall appoint
the Custodian as the attorney-in-fact for the Participant for the term specified
in the applicable Stock Incentive Agreement or Stock Incentive Program, with
full power and authority in the Participant's name, place and stead to transfer,
assign and convey to the Company any shares of Stock held by the Custodian for
such Participant, if the Participant forfeits the shares under the terms of the
applicable Stock Incentive Agreement or Stock Incentive Program. During the
period that the Custodian holds the shares subject to this Section, the
Participant shall be entitled to all rights, except as provided in the
applicable Stock Incentive Agreement or Stock Incentive Program, applicable to
shares of Stock not so held. Any dividends declared on shares of Stock held by
the Custodian shall, as the Committee may provide in the applicable Stock
Incentive Agreement or Stock Incentive Program, be paid directly to the
Participant or, in the alternative, be retained by the Custodian until the
expiration of the term specified in the applicable Stock Incentive Agreement or
Stock Incentive Program and shall then be delivered, together with any proceeds,
with the shares of Stock to the Participant or to the Company, as applicable.
4.2 FORFEITURE OF SHARES. Notwithstanding any vesting schedule set forth
in any Stock Incentive Agreement or Stock Incentive Program, in the event that
the Participant violates a noncompetition agreement as set forth in the Stock
Incentive Agreement or Stock Incentive Program, all Stock Incentives and shares
of Stock issued to the holder pursuant to the Plan shall be forfeited; provided,
however, that the Company shall return to the holder the lesser of any
consideration paid by the Participant in exchange for Stock issued to the
Participant pursuant to the Plan or the then Fair Market Value of the Stock
forfeited hereunder.
4.3 RESTRICTIONS ON TRANSFER. The Participant shall not have the right to
make or permit to exist any Disposition of the shares of Stock issued pursuant
to the Plan except as provided in the Plan or the applicable Stock Incentive
Agreement or Stock Incentive Program. Any Disposition of the shares of Stock
issued under the Plan by the Participant not made in accordance with the Plan or
the applicable Stock Incentive Agreement or Stock Incentive Program shall be
void. The Company shall not recognize, or have the duty to recognize, any
Disposition not made in accordance with the Plan and the applicable Stock
Incentive Agreement or Stock Incentive Program, and the shares so transferred
shall continue to be bound by the Plan and the applicable Stock Incentive
Agreement or Stock Incentive Program.
-12-
<PAGE>
SECTION 5 GENERAL PROVISIONS
5.1 WITHHOLDING. The Company shall deduct from all cash distributions
under the Plan any taxes required to be withheld by federal, state or local
government. Whenever the Company proposes or is required to issue or transfer
shares of Stock under the Plan or upon the vesting of any Stock Award, the
Company shall have the right to require the recipient to remit to the Company an
amount sufficient to satisfy any federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for such
shares or the vesting of such Stock Award. A Participant may pay the
withholding tax in cash, or, if the applicable Stock Incentive Agreement or
Stock Incentive Program provides, a Participant may elect to have the number of
shares of Stock he is to receive reduced by, or with respect to a Stock Award,
tender back to the Company, the smallest number of whole shares of Stock which,
when multiplied by the Fair Market Value of the shares of Stock determined as of
the Tax Date (defined below), is sufficient to satisfy federal, state and local,
if any, withholding taxes arising from exercise or payment of a Stock Incentive
(a "Withholding Election"). A Participant may make a Withholding Election only
if both of the following conditions are met:
(a) The Withholding Election must be made on or prior to the date on
which the amount of tax required to be withheld is determined (the "Tax Date")
by executing and delivering to the Company a properly completed notice of
Withholding Election as prescribed by the Committee; and
(b) Any Withholding Election made will be irrevocable; however, the
Committee may in its sole discretion disapprove and give no effect to the
Withholding Election.
5.2 CHANGES IN CAPITALIZATION; MERGER; LIQUIDATION.
(a) The number of shares of Stock reserved for the grant of Options,
Dividend Equivalent Rights, Performance Unit Awards, Phantom Shares, Stock
Appreciation Rights and Stock Awards; the number of shares of Stock reserved for
issuance upon the exercise or payment, as applicable, of each outstanding
Option, Dividend Equivalent Right, Performance Unit Award, Phantom Share and
Stock Appreciation Right and upon vesting or grant, as applicable, of each Stock
Award; the Exercise Price of each outstanding Option and the specified number of
shares of Stock to which each outstanding Dividend Equivalent Right, Phantom
Share and Stock Appreciation Right pertains shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Stock resulting
from a subdivision or combination of shares or the payment of an ordinary stock
dividend in shares of Stock to holders of outstanding shares of Stock or any
other increase or decrease in the number of shares of Stock outstanding effected
without receipt of consideration by the Company.
(b) In the event of any merger, consolidation, extraordinary dividend
(including a spin-off), reorganization or other change in the corporate
structure of the Company or its Stock or tender offer for shares of Stock, the
Committee, in its sole discretion, may make such adjustments with respect to
awards and take such other action as it deems necessary or appropriate to
reflect or in anticipation of such merger, consolidation, extraordinary
dividend, reorganization, other change in corporate structure or tender offer,
including, without limitation, the substitution of new awards, the termination
or adjustment of outstanding awards, the
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<PAGE>
acceleration of awards or the removal of restrictions on outstanding awards, all
as may be provided in the applicable Stock Incentive Agreement or Stock
Incentive Program or, if not expressly addressed therein, as the Committee
subsequently may determine in the event of any such merger, consolidation,
extraordinary dividend (including a spin-off), reorganization or other change in
the corporate structure of the Company or its Stock or tender offer for shares
of Stock. Any adjustment pursuant to this Section 5.2 may provide, in the
Committee's discretion, for the elimination without payment therefor of any
fractional shares that might otherwise become subject to any Stock Incentive.
(c) The existence of the Plan and the Stock Incentives granted
pursuant to the Plan shall not affect in any way the right or power of the
Company to make or authorize any adjustment, reclassification, reorganization or
other change in its capital or business structure, any merger or consolidation
of the Company, any issue of debt or equity securities having preferences or
priorities as to the Stock or the rights thereof, the dissolution or liquidation
of the Company, any sale or transfer of all or any part of its business or
assets, or any other corporate act or proceeding.
5.3 CASH AWARDS. The Committee may, at any time and in its discretion,
grant to any holder of a Stock Incentive the right to receive, at such times and
in such amounts as determined by the Committee in its discretion, a cash amount
which is intended to reimburse such person for all or a portion of the federal,
state and local income taxes imposed upon such person as a consequence of the
receipt of the Stock Incentive or the exercise of rights thereunder.
5.4 COMPLIANCE WITH CODE. All Incentive Stock Options to be granted
hereunder are intended to comply with Code Section 422, and all provisions of
the Plan and all Incentive Stock Options granted hereunder shall be construed in
such manner as to effectuate that intent.
5.5 RIGHT TO TERMINATE SERVICE. Nothing in the Plan or in any Stock
Incentive Agreement or Stock Incentive Program shall confer upon any Participant
the right to continue as an employee, officer, director or consultant of the
Company or any of its affiliates or affect the right of the Company or any of
its affiliates to terminate the Participant's service at any time.
5.6 RESTRICTIONS ON DELIVERY AND SALE OF SHARES; LEGENDS. Each Stock
Incentive is subject to the condition that if at any time the Committee, in its
discretion, shall determine that the listing, registration or qualification of
the shares covered by such Stock Incentive upon any securities exchange or under
any state or federal law is necessary or desirable as a condition of or in
connection with the granting of such Stock Incentive or the purchase or delivery
of shares thereunder, the delivery of any or all shares pursuant to such Stock
Incentive may be withheld unless and until such listing, registration or
qualification shall have been effected. If a registration statement is not in
effect under the Securities Act of 1933 or any applicable state securities laws
with respect to the shares of Stock purchasable or otherwise deliverable under
Stock Incentives then outstanding, the Committee may require, as a condition of
exercise of any Option or as a condition to any other delivery of Stock pursuant
to a Stock Incentive, that the Participant or other recipient of a Stock
Incentive represent, in writing, that the shares received pursuant to the Stock
Incentive are being acquired for investment and not with a view to distribution
and agree that the shares will not be disposed of except pursuant to an
effective registration statement, unless the Company shall have received an
opinion of counsel that such
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<PAGE>
disposition is exempt from such requirement under the Securities Act of 1933 and
any applicable state securities laws. The Company may include on certificates
representing shares delivered pursuant to a Stock Incentive such legends
referring to the foregoing representations or restrictions or any other
applicable restrictions on resale as the Company, in its discretion, shall deem
appropriate.
5.7 NON-ALIENATION OF BENEFITS. Other than as specifically provided with
regard to the death of a Participant, no benefit under the Plan shall be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge; and any attempt to do so shall be void. No such benefit
shall, prior to receipt by the Participant, be in any manner liable for or
subject to the debts, contracts, liabilities, engagements or torts of the
Participant.
5.8 TERMINATION AND AMENDMENT OF THE PLAN. The Board of Directors at any
time may amend or terminate the Plan without stockholder approval; provided,
however, that the Board of Directors may condition any amendment on the approval
of stockholders of the Company if such approval is necessary or advisable with
respect to tax, securities or other applicable laws. No such termination or
amendment without the consent of the holder of a Stock Incentive shall adversely
affect the rights of the Participant under such Stock Incentive.
5.9 STOCKHOLDER APPROVAL. The Plan shall be submitted to the stockholders
of the Company for their approval within twelve (12) months before or after its
adoption by the Board of Directors. If such approval is not obtained, any Stock
Incentive granted under the Plan shall be void.
5.10 CHOICE OF LAW. The laws of the State of Georgia shall govern the
Plan, to the extent not preempted by federal law.
5.11 EFFECTIVE DATE OF PLAN. The Plan shall become effective upon the date
the Plan is approved by the Board of Directors.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed as of
this 25th day of November, 1996.
NET.B@NK, INC.
By: /s/ Donald S. Shapleigh, Jr.
--------------------------------
Title: President
-----------------------------
Attest:
/s/ Mary E. Johnson
- ------------------------------
Secretary
[CORPORATE SEAL]
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<PAGE>
Exhibit 11.1
NET B@NK, INC.
Schedule Regarding Computation of Per Share Loss
For The Period
February 20, 1996
(Date of Incorporation)
ACTUAL To December 31, 1996
- ------ ----------------------
Net Loss $3,839,182
----------
----------
Shares issued and outstanding 1,249,343
Incremental shares applicable to
common stock subscriptions 1,223,139
Incremental shares applicable to
stock options 143,729
----------
Weighted average common and
common equivalent shares
outstanding 2,616,211
----------
----------
Net loss per common and common
equivalent share $1.47
----------
----------
PROFORMA FOR REORGANIZATION
- ---------------------------
Pro forma net loss $3,848,349
----------
----------
Shares issued and outstanding-actual 1,249,343
Shares issued in the Reorganization 1,366,406
----------
Pro forma shares issued and outstanding 2,615,749
Incremental shares applicable to
common stock subscriptions 29,434
Incremental shares applicable to stock
options 143,729
----------
Weighted average common and common
equivalent shares outstanding 2,788,912
----------
----------
Pro forma net loss per common and
common equivalent share $1.38
----------
----------
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registrant Statement of Net.B@nk, Inc. on Form
S-1 of our reports dated March 18, 1997, appearing in the Prospectus, which is
part of this Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 18, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NETBANK,
INC. WAS INCORPORATED FEB 20, 1996. THE ATTACHED FINANCIALS REPRESENT THE
FORMATION OF THE COMPANY. THE COMPANY HAS NOT YET RECEIVED ITS CHARTER AND
THEREFORE ITS FINANCIALS DO NOT YET CONTAIN TYPICAL BANKING OPERATIONS OTHER
THAN START UP COSTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> FEB-20-1996
<PERIOD-END> DEC-31-1996
<CASH> 26,563
<INT-BEARING-DEPOSITS> 742,103
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 0
<ALLOWANCE> 0
<TOTAL-ASSETS> 1,246,449
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,632,522
<LONG-TERM> 0
0
0
<COMMON> 12,493
<OTHER-SE> (398,566)
<TOTAL-LIABILITIES-AND-EQUITY> 1,246,449
<INTEREST-LOAN> 0
<INTEREST-INVEST> 7,709
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 7,709
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 0
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,906,891
<INCOME-PRETAX> (3,839,182)
<INCOME-PRE-EXTRAORDINARY> (3,839,182)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,839,182)
<EPS-PRIMARY> (1.47)
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
