<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------
FORM 8-A
FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
NET.B@NK, INC.
------------------------------------------------
(Exact name of registrant as specified in its charter)
GEORGIA 58-2224352
----------------- ----------------
(State of incorporation or organization) (I.R.S. employer
identification no.)
7000 Peachtree Dunwoody Road
Building 10, Suite 300
Atlanta, Georgia 30328
Phone: (770) 392-4990 30328
------------------------------ ----------------
(Address of principal executive offices) (zip code)
If this form relates to the registration of a class of debt securities and
is effective upon filing pursuant to General Instruction A(c)(1) please
check the following box. / /
If this form relates to the registration of a class of debt securities and
is to become effective simultaneously with the effectiveness of a
concurrent registration statement under the Securities Act of 1933 pursuant
to General Instruction A(c)(2) please check the following box. / /
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None.
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
------------------- ------------------------------
Common Stock, $.01 par value Nasdaq National Market
- --------------------------------------------------------------------------------
This Registration Statement contains a total of 3 pages. Certain exhibits
are incorporated in this Registration Statement by reference to the Registrant's
Registration Statement on Form S-1, (Registration No. 333-23717) filed on March
21, 1997.
<PAGE>
Item 1. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The Registrant incorporates by reference herein the description of the
Registrant's Common Stock, $.01 par value per share, appearing under the
caption, "Description of Capital Stock," in the Prospectus contained in the
Registrant's Registration Statement on Form S-1 (Registration No. 333-23717),
as filed with the Securities and Exchange Commission on March 21, 1997, and
as such section may be amended until the time such Registration Statement is
declared effective. The form of the Company's Amended and Restated Articles of
Incorporation and Bylaws are filed as Exhibits 3.1 and 3.2, respectively, to
the aforesaid Registration Statement on Form S-1, No. 333-23717.
Item 2. EXHIBITS
The following exhibits are filed as part of the Registration Statement.
2(a) Registration Statement on Form S-1 (Registration No. 333-23717) as
filed with the Securities and Exchange Commission filed March 21,
1997.
2(b) Amended and Restated Articles of Incorporation.(1)
2(c) Bylaws.(2)
2(d) Copy of form of stock certificate for the Registrant's Common
Stock.(3)
- --------------------
(1) Incorporated herein by reference to Exhibit 3.1 of the Registrant's
Registration Statement on Form S-1, No. 333-23717, filed March 21,
1997.
(2) Incorporated herein by reference to Exhibit 3.2 of the Registrant's
Registration Statement on Form S-1, No. 333-23717, filed March 21,
1997.
(3) To be filed by amendment.
-2-
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
NET.B@NK, INC.
Dated: April 4, 1997 By: /s/ D.R. Grimes
------------------ -----------------------------------
D.R. Grimes
Chief Executive Officer
-3-
<PAGE>
EXHIBIT 2(a)
-4-
<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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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>
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."
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.
<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.
<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
32
<PAGE>
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
33
<PAGE>
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.
34
<PAGE>
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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<PAGE>
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.]
36
<PAGE>
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,
38
<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.
39
<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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<PAGE>
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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(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
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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
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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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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.
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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
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<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 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
