<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
NET.B@NK, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]
NET.B@NK, INC.
950 NORTH POINT PARKWAY
SUITE 350
ALPHARETTA, GEORGIA 30005
Dear Shareholder:
You are cordially invited to attend our 1999 Annual Meeting of Shareholders,
which will be held at the Crowne Plaza Ravinia, 4355 Ashford Dunwoody Road,
Atlanta, Georgia 30346 on April 22, 1999 at 10:00 a.m., local time. I sincerely
hope that you will be able to attend the meeting, and I look forward to seeing
you.
The attached Notice of Annual Meeting and Proxy Statement describes the
formal business to be transacted at the meeting. We also will report on our
operations during the past year and during the first quarter of fiscal 1999, as
well as on our plans for the future.
We are including with this Proxy Statement a copy of our Annual Report. It
contains information on our operations and financial performance as well as our
audited financial statements.
Please take this opportunity to become involved in the affairs of the
Company. Whether or not you expect to be present at the meeting, please
complete, date, sign and mail the enclosed proxy card in the envelope provided.
Returning the proxy card does NOT deprive you of your right to attend the
meeting and vote your shares in person. If you attend the meeting, you may
withdraw your proxy and vote your own shares.
Sincerely,
[SIG]
D.R. Grimes
Vice Chairman and Chief Executive
Officer
<PAGE>
NET. B@NK, INC.
950 NORTH POINT PARKWAY
SUITE 350
ALPHARETTA, GEORGIA 30005
(770) 343-6006
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 22, 1999
The Annual Meeting of Shareholders of Net.B@nk, Inc. (the "Company"), will
be held at the Crowne Plaza Ravinia, 4355 Ashford Dunwoody Road, Atlanta,
Georgia 30346 on Thursday, April 22, 1999, at 10:00 a.m., to consider and vote
upon the following matters:
1. To elect directors to serve for the terms indicated in the accompanying
Proxy Statement.
2. To act upon a proposal to increase the number of shares of common stock
issuable under the Company's 1996 Stock Incentive Plan from 600,000 to
1,250,000.
3. To ratify Deloitte & Touche LLP as the Company's independent auditors.
4. To transact such other business as may properly come before such meeting
or any adjournment thereof.
The Board of Directors has established the close of business on March 8,
1999 as the record date for determining the shareholders who are entitled to
notice of, and to vote at, the Annual Meeting or any adjournment.
We hope you will be able to attend the meeting. To ensure that the greatest
number of shareholders will be present either in person or by proxy, however, we
ask that you date and sign the accompanying proxy card and return it as promptly
as possible in the enclosed self-addressed envelope. No postage is required if
mailed in the United States.
If you attend the Annual Meeting in person, you may revoke your proxy at the
meeting and cast your vote in person. If you receive more than one proxy because
your shares are held in various names or accounts, you should complete and
return each proxy.
By Order of the Board of Directors:
[SIG]
Mary E. Johnson
Secretary
March 26, 1999
<PAGE>
NET.B@NK, INC.
950 NORTH POINT PARKWAY
SUITE 350
ALPHARETTA, GEORGIA 30005
(770) 343-6006
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
APRIL 22, 1999
INTRODUCTION
TIME AND PLACE OF THE MEETING
The Company's Board of Directors is furnishing this Proxy Statement to
solicit proxies for use at the Annual Meeting of Shareholders to be held on
Thursday, April 22, 1999, at 10:00 a.m., at the Crowne Plaza Ravinia, 4355
Ashford Dunwoody Road, Atlanta, Georgia 30346, and at any adjournment of the
meeting.
RECORD DATE AND MAILING DATE
The close of business on March 8, 1999 is the record date for the
determination of shareholders entitled to notice of and to vote at the meeting.
We first mailed this Proxy Statement and accompanying proxy card to shareholders
on or about March 26, 1999.
NUMBER OF SHARES OUTSTANDING
As of the close of business on the Record Date, the Company had 100,000,000
shares of common stock, $.01 par value, authorized, of which 8,598,495 shares
were issued and outstanding. Each such share is entitled to one vote on all
matters to be presented at the meeting.
VOTING AT THE ANNUAL MEETING
PROCEDURES FOR VOTING BY PROXY
If you properly sign, return and do not revoke your proxy, the persons named
as proxies will vote your shares according to the instructions you have
specified on the proxy card. If you sign and return your proxy card but do not
specify how the persons appointed as proxies are to vote your shares, your proxy
will be voted FOR the election of the nominated directors, FOR the amendment to
our 1996 Stock Incentive Plan, FOR ratification of Deloitte & Touche LLP as our
independent auditors and in accordance with the best judgment of the persons
appointed as proxies as to all other matters properly brought before the
meeting. You can revoke your proxy by delivering to the Chief Executive Officer
of the Company, at the Company's address as listed above, either a written
revocation of your proxy or a duly executed proxy bearing a later date or by
attending the meeting and voting in person.
REQUIREMENTS FOR SHAREHOLDER APPROVAL
A quorum will be present if a majority of the outstanding shares of common
stock are present in person or by valid proxy. We will count abstentions and
broker non-votes, which are described below, in determining whether a quorum
exists. To be elected, a director must receive more votes than any other nominee
for the same seat on the Board of Directors. As a result, if you withhold your
vote as to one or more directors, it will have no effect on the outcome of the
election unless you cast that vote for a competing nominee. If any nominee for
election to the Board of Directors named in this Proxy Statement becomes
unavailable for election for any reason, the proxy will be voted for a
substitute nominee selected by the Board of Directors. To approve the amendment
to the Stock Incentive Plan and any other matter presented for shareholder
approval, the number of shares voted in favor of the proposal must exceed the
number of shares voted against the proposal, provided a quorum is present.
<PAGE>
EFFECT OF ABSTENTIONS
A shareholder who is present in person or by proxy at the Annual Meeting and
who abstains from voting on any or all proposals will be included in the number
of shareholders present at the Annual Meeting for the purpose of determining the
presence of a quorum. Abstentions do not count as votes in favor of or against a
given matter.
EFFECT OF BROKER NON-VOTES
Brokers who hold shares for the accounts of their clients may vote these
shares either as directed by their clients or in their own discretion if
permitted by the exchange or other organization of which they are members.
Companies listing their securities on the New York Stock Exchange are permitted
to vote their clients' proxies in their own discretion as to the election of
directors and the ratification of independent accountants. Proxies that brokers
do not vote on one or more proposals but that they do vote on others are
referred to as "broker non-votes" with respect to the proposal(s) not voted
upon. Broker non-votes are included in determining the presence of a quorum. A
broker non-vote, however, does not count as a vote in favor of or against a
particular proposal for which the broker has no discretionary voting authority.
SOLICITATION OF PROXIES
The Company will pay the cost of proxy solicitation. Our directors, officers
and employees may, without additional compensation, solicit proxies by personal
interview, telephone, fax, or otherwise. We will direct brokerage firms or other
custodians, nominees or fiduciaries to forward our soliciting material to the
beneficial owners of common stock held of record by these institutions and will
reimburse them for the reasonable out-of-pocket expenses they incur in
connection with this process.
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table lists, as of the Record Date, the number of shares of
common stock beneficially owned by (1) each current director and nominee, (2)
the executive officers listed in the Summary Compensation Table elsewhere in
this Proxy Statement, (3) each person or entity known to us to be the beneficial
owner of more than five percent of the outstanding common stock, and (4) all
current executive officers and directors as a group.
2
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED
NAME OF BENEFICIAL OWNER (1) PERCENT OF CLASS
- -------------------------------------------------------------------------- -------------------- -------------------
<S> <C> <C>
(i) Directors and Director Nominees
Robert E. Bowers (2).................................................. 115,938 1.3
Ward H. Clegg......................................................... 50,688 *
D.R. Grimes (2)....................................................... 179,062 2.0
J. Stephen Heard...................................................... 10,938 *
T. Stephen Johnson.................................................... 293,593(3) 3.4
Robin C. Kelton....................................................... 143,438 1.7
Thomas H. Muller, Jr.................................................. 10,938 *
Donald S. Shapleigh, Jr. (2).......................................... 115,937 1.3
W. James Stokes....................................................... 34,500 *
Mack I. Whittle....................................................... 806,000(4) 9.4
(ii) Non-Directors, Executive Officers
Thomas L. Cable....................................................... 5,000 *
Catherine Storey...................................................... 0 0
Jeffrey B. Watson..................................................... 3,000 *
(iii) Non-Directors, 5% Beneficial Owners
Carolina First Corporation
("Carolina First") (5)................................................ 805,000 9.4
Lord Abbett & Co. (6)................................................. 610,483 7.1
(iv) All current Executive Officers and Directors as a Group
(13 persons)............................................................ 1,769,032(7) 19.7
</TABLE>
- ------------------------
* Indicates less than one percent of the shares of common stock outstanding as
of the Record Date.
(1) Includes the following numbers of shares subject to options exercisable
within 60 days following the Record Date for the indicated reporting person:
<TABLE>
<S> <C> <C> <C>
Mr. Bowers...................... 115,938 Mr. Kelton.......................... 1,000
Mr. Cable....................... 5,000 Mr. Muller.......................... 1,000
Mr. Clegg....................... 1,000 Mr. Shapleigh....................... 49,687
Mr. Grimes...................... 179,062 Mr. Stokes.......................... 1,000
Mr. Heard....................... 1,000 Mr. Watson.......................... 3,000
Mr. Johnson..................... 1,000 Mr. Whittle......................... 1,000
</TABLE>
(2) Mr. Bowers, Mr. Grimes and Mr. Shapleigh are also executive officers of the
Company.
(3) Includes 146,280 shares owned of record by Mr. Johnson's spouse, Mary E.
Johnson.
(4) Mr. Whittle serves as Chairman of the Board of Carolina First. As a result,
he may be deemed to beneficially own any shares owned by Carolina First.
(5) Carolina First is located at 102 South Main Street, Greenville, South
Carolina 29601.
(6) Lord, Abbett & Co. is located at 767 Fifth Avenue, New York, New York 10153
and is an investment advisor registered under Section 203 of the Investment
Company Act of 1940, as amended. This information is based on a Report on
Schedule 13G filed by Lord, Abbett & Co. with the Securities and Exchange
Commission on February 12, 1999.
(7) Includes 359,687 shares subject to options exercisable within 60 days
following the Record Date.
3
<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
The Board of Directors consists of 12 members and is divided into three
classes. The director nominees and directors whose terms will continue are
listed below. The terms to be served by the members of each class below will
expire at the Annual Meeting of Shareholders in the year indicated and upon the
election and qualification of their successors. Thereafter, the members of each
class will be elected for a three-year term. Except for Messrs. Johnson and
Shapleigh, who have served as directors since February 1996, all of the
Company's current directors have served as such since April 1997. John T. Moore,
a Class III Director, and H. Bryce Solomon, a Class I Director, resigned as
directors of the Company in February 1999. We will operate with two vacancies on
the Board of Directors until we can fill the vacancies with outside directors
whose business experience and relationships are consistent with our growth
strategy.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
DIRECTOR NOMINEES
CLASS II (FOR A TERM EXPIRING IN 2002)
Robert E. Bowers................................... 42 Chief Financial Officer and Director
Ward H. Clegg...................................... 47 Director
J. Stephen Heard................................... 56 Director
W. James Stokes.................................... 40 Director
INCUMBENT DIRECTORS
CLASS I (TERM EXPIRING IN 2001)
D.R. Grimes........................................ 52 Vice Chairman, Chief Executive Officer and Director
T. Stephen Johnson................................. 49 Chairman of the Board
Mack I. Whittle, Jr................................ 50 Director
CLASS III (TERM EXPIRING IN 2000)
Robin C. Kelton.................................... 64 Director
Thomas H. Muller, Jr............................... 57 Director
Donald S. Shapleigh, Jr............................ 50 Director
</TABLE>
T. STEPHEN JOHNSON is President of T. Stephen Johnson & Associates
("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
Vice Chairman of Florida Banks, Inc., a bank holding company. 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. ("SSI"), which provides
electronic funds transfer and home banking software to the financial services
industry, 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 Productions Division (1988-1993). Prior to joining SSI, Mr. Grimes
served in various technology positions with Trust Company Bank of Georgia (now
SunTrust Bank).
DONALD S. SHAPLEIGH, JR. has served as President of the Company and the Bank
since January 1996 and has also served as a director of the Company since its
incorporation. He has submitted his resignation as President of the Company and
the Bank effective April 30, 1999 in order to serve as Executive
4
<PAGE>
Vice President and Director of Sales of Directo, Inc., a debit card marketing
and management organization. Mr. Shapleigh has been involved in banking since
1971, having spent 23 years in various senior positions with BankSouth, 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 1997. Prior to joining the Company, Mr. Bowers, a certified public
accountant, was the Chief Financial Officer of CheckFree Corporation, which
provides electronic bill payment processing for the financial services industry,
from January 1996 through August 1996. From September 1984 until January 1996,
he served as the Chief Financial Officer and a director of SSI, which was
acquired by CheckFree Corporation in January 1996. His experience includes
initial public offerings, strategic business planning and investor relations.
WARD H. CLEGG has served as a director of Resource BancShares Corporation
("Resource Bancshares") since September 1986 and has also worked with the
Company on a consulting basis. Resource Bancshares was acquired by Resource
Bancshares Mortgage in December 1997. Mr. Clegg also served as Executive Vice
President of Bankers Trust of South Carolina, where he had responsibility for
approximately $1.2 billion in securities processing assets as well as Advanced
Systems.
J. STEPHEN HEARD has served as Area Vice President, Hartford Computer Group,
Inc. since August 1998. From October 1997 to August 1998, he served as Product
Sales Executive of Vanstar Corporation, a technology services company and
value-added reseller of computer products to Fortune 1,000 companies, since
October 1997. He has also served as President of Heard Systems, Inc., which
provides information systems consulting services and 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., an investment
banking firm formed in January 1996 specializing in the banking and insurance
industries. Mr. Kelton is a 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.
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 Amstel, Inc.,
a beverage manufacturing and marketing company. From 1984 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
served as Head of Analysis, with a focus on bank mergers and acquisitions, stock
valuations, fairness opinions and regulatory assistance. Mr. Stokes also serves
as the Managing Director for the Southeast Bank Fund, Inc.
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
of Carolina First Bank. 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.
5
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established a Compensation Committee, which sets
the compensation for officers of the Company, reviews management organization
and development, reviews significant employee benefit programs and establishes
and administers executive compensation programs. The Compensation Committee
consists of T. Stephen Johnson, Thomas H. Muller, Jr. and J. Stephen Heard. Mr.
Muller replaced Mr. Moore on the Compensation Committee following Mr. Moore's
resignation from the Board of Directors in February 1999.
The Board of Directors has also established an Audit Committee, which
recommends to the Board of Directors the independent public accountants to be
selected to audit the Company's annual financial statements and approves any
special assignments given to the accountants. The Audit Committee also reviews
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
Audit Committee currently consists of Thomas H. Muller, Jr., W. James Stokes and
Ward H. Clegg.
The Board of Directors may from time to time establish other committees. The
Board of Directors does not have a nominating committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised of Messrs. Johnson, Heard and
Muller, and included John T. Moore until his resignation from the Board of
Directors in February 1999. Mr. Johnson serves as Chairman of the Board of
Directors of the Company. No other member of the Compensation Committee has
served as an executive officer of the Company and no executive officer of the
Company has served as a director or member of the Compensation Committee or of
any other entity of which Messrs. Johnson, Heard, Moore or Muller have served as
an executive officer.
DIRECTOR COMPENSATION
Since September 1998, our non-employee directors have received a $200 fee
per board meeting attended for their services as directors. We may also
reimburse directors for reasonable expenses incurred in connection with
attending meetings of the Board of Directors.
On July 15, 1999, the Compensation Committee granted each of the Company's
nine outside directors an option to purchase 1,000 shares of common stock at an
exercise price of $27.50 per share. Due to a significant decrease in the market
price of the common stock following the date of grant, the Compensation
Committee cancelled these options on August 31, 1998 and issued each director
new options on identical terms except for the exercise price, which reflected
the fair market value of the common stock on the date of grant ($15.75 per
share). The options vested immediately on the date of grant.
During fiscal 1998, the Company paid $71,562 in consulting fees to Mr. Clegg
for technological consulting services. Mr. Clegg may perform these services from
time to time in the future and will be paid on a project-by-project basis.
Management believes the Company has obtained Mr. Clegg's services on terms that
are no less favorable than those that could have been obtained from an
unaffiliated third party.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE DIRECTOR NOMINEES
LISTED ABOVE. PROXIES RECEIVED BY THE BOARD OF DIRECTORS WILL BE VOTED IN FAVOR
OF EACH OF THE LISTED NOMINEES UNLESS A CONTRARY INDICATION IS MADE.
6
<PAGE>
EXECUTIVE OFFICERS
The following persons serve as executive officers of the Company:
<TABLE>
<CAPTION>
<S> <C>
D.R. GRIMES AGE: 52
Mr. Grimes is the Vice Chairman and Chief Executive Officer of the Company. Please refer to the section of
this Proxy Statement entitled "Election of Directors" above for additional information regarding Mr. Grimes'
experience.
DONALD S. SHAPLEIGH, JR. AGE: 50
Mr. Shapleigh is the President of the Company and the Bank and also serves as a director of the Company. He
has submitted his resignation as President of the Company and the Bank effective April 30, 1999 in order to
serve as Executive Vice President and Director of Sales of Directo, Inc. Please refer to the section of the
Proxy Statement entitled "Election of Directors" above for additional information regarding Mr. Shapleigh's
experience.
ROBERT E. BOWERS AGE: 42
Mr. Bowers is the Chief Financial Officer of the Company and also serves as a director of the Company.
Please refer to the section of the Proxy Statement entitled "Election of Directors" above for additional
information regarding Mr. Bowers' experience.
THOMAS L. CABLE AGE: 42
Mr. Cable has served as Chief Technology Officer of the Company and the Bank since May 1997. From May 1996
to May 1997, he served as Vice President, Retail Financial Services of CheckFree Corporation, and from February
1996 to May 1996, he was responsible for CheckFree's Retail Direct Bank Product. From 1985 to February 1996,
Mr. Cable served in various capacities with Servantis Systems, Inc. ("SSI"), including Senior Vice President
and Business Unit Manager for Home Banking Products and Services, Vice President and Product Manager for
Delivery Systems and Associate and Product Manager for SSI's licensed bill payment software product. From 1978
to 1985, he was employed by First National Bank, Louisville, Kentucky as a Programmer and Programming Team
Leader responsible for the implementation and support of SSI's bill payment product and other bank application
systems.
CATHERINE STOREY AGE: 49
Ms. Storey has served as Operations Manager of the Company and the Bank since July 1998. From September
1997 until July 1998, she served as a Vice President and Manager of Bank of Gwinnett County, and was
responsible for managing the day-to-day operations and lending functions of the main office of the bank. From
June 1995 until September 1997, she served as a Senior Vice President of First Realty Mortgage Company and was
responsible for the operational functions of that company. From 1987 until 1995, she served in various
capacities with BankSouth, including Vice President of Retail Operations (1990-1995), Vice President and
Regional Manager of an 18-branch network (1988-1990) and Assistant Vice President and main office Operations
Manager (1987-1988).
JEFFREY B. WATSON AGE: 39
Mr. Watson has served as the Bank's Chief Lending Officer since November 1997. From 1996 to November 1997,
he served as Product Manager--Internet Financial Software for Security First Technologies, and in the summer of
1995, he coordinated consultation projects with Fortune 500 companies for Coopers & Lybrand. Mr. Watson served
in various capacities at Tracy Federal Bank from 1987 to 1994, including Senior Vice President (1993-1994),
Loan Production Manager (1989-1992) and Loan Officer (1987-1988).
</TABLE>
7
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information concerning the annual and
long-term compensation for services in all capacities to the Company for the
fiscal years ended December 31, 1998, 1997 and 1996 of our Chief Executive
Officer and the three other executive officers who received a combined payment
of salary and bonus in excess of $100,000 for services rendered to the Company
during fiscal 1998. Only Mr. Shapleigh served as an executive officer of the
Company prior to fiscal 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
AWARDS
-------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
NAME AND ----------------------------------- UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OTHER OPTIONS COMPENSATION
- ------------------------------------------------- --------- ---------- ---------- ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
D.R. Grimes...................................... 1998 $ 150,000 $ 0 $ 0 100,000(1) $ 0
Vice Chairman and Chief Executive Officer........ 1997 $ 130,000 $ 250,000 $ 0 132,500 $ 0
Donald S. Shapleigh, Jr.......................... 1998 $ 120,000 $ 0 $ 0 5,000(2) $ 0
President and Chief Operating Officer (3) 1997 $ 100,000 $ 25,000 $ 0 49,687 $ 0
1996 $ 82,284 $ 0 $ 0 0 $ 0
Robert E. Bowers................................. 1998 $ 120,000 $ 0 $ 0 7,500(2) $ 0
Chief Financial Officer 1997 $ 87,500 $ 100,000 $ 0 115,938 $ 0
Thomas L. Cable.................................. 1998 $ 105,000 $ 0 $ 0 5,000(2) $ 0
Chief Technology Officer 1997 $ 62,500 $ 39,000 $ 0 15,000 $ 0
</TABLE>
- ------------------------
(1) Of the indicated options, 10,000 were granted and repriced during 1998. See
"Historical Information Regarding Repricing, Replacement or Cancellation and
Regrant of Options."
(2) These options were granted and repriced during 1998. See "Historical
Information Regarding Repricing, Replacement or Cancellation and Regrant of
Options."
(3) Mr. Shapleigh will resign as our President and Chief Operating Officer
effective as of April 30, 1999.
The following tables set forth certain information at December 31, 1998, and
for the fiscal year then ended, concerning stock options granted to the officers
listed in the Summary Compensation Table. None of these officers exercised
options to purchase common stock of the Company during fiscal 1998. We have
never granted any stock appreciation rights, restricted stock or stock
incentives other than stock options.
8
<PAGE>
STOCK OPTION GRANTS IN FISCAL 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------------
PERCENTAGE OF POTENTIAL REALIZABLE VALUE AT
NUMBER OF TOTAL OPTIONS ASSUMED ANNUAL RATE OF
SECURITIES GRANTED TO ALL STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM (1)
DATE OF OPTIONS IN FISCAL BASE PRICE EXPIRATION -------------------------------
NAME GRANT GRANTED (2) 1998 PER SHARE DATE 0% 5% 10%
- ------------------------- --------- ------------- ----------------- ------------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mr. Grimes............... 07/15/98 10,000(3) 52.4 27.50 07/15/08 275,000 447,946 713,279
08/31/98 10,000 52.4 15.75 08/31/08 157,500 256,551 408,514
12/17/98 90,000 52.4 23.81 12/17/08 2,142,900 3,490,558 5,558,131
Mr. Shapleigh............ 07/15/98 5,000(3) 2.6 27.50 07/15/08 137,500 223,973 356,640
08/31/98 5,000 2.6 15.75 08/31/08 78,750 128,275 204,257
Mr. Bowers............... 07/15/98 7,500(3) 3.9 27.50 07/15/08 206,250 335,960 534,959
08/31/98 7,500 3.9 15.75 08/31/08 118,125 192,413 306,386
Mr. Cable................ 07/15/98 5,000(3) 2.6 27.50 07/15/08 137,500 223,973 356,640
08/31/98 5,000 2.6 15.75 08/31/08 78,750 128,275 204,257
</TABLE>
- ------------------------
(1) The dollar amounts under these columns are the result of calculations at the
0%, 5% and 10% rates set by the Securities and Exchange Commission and
therefore are not intended to forecast future possible appreciation, if any,
of the price of our common stock.
(2) With the exception of the options to purchase 90,000 shares issued to Mr.
Grimes, which vest in three equal annual increments beginning on the date of
grant, all options shown in this table vest in five equal annual increments
beginning on the one-year anniversary of the date of grant.
(3) The indicated options were cancelled and replaced by new options granted on
August 31, 1998 with the terms described in this table.
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES ACQUIRED DECEMBER 31, 1998 AT DECEMBER 31, 1998(1)
ON EXERCISE VALUE REALIZED -------------------------- -------------------------
NAME # $ EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------ ----------------- ------------------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Grimes.......................... 0 0 145,937 103,125 2,867,514 918,588
Mr. Shapleigh....................... 0 0 24,843 29,844 434,752 493,520
Mr. Bowers.......................... 0 0 86,953 36,485 2,031,225 595,362
Mr. Cable........................... 0 0 5,000 15,000 82,500 223,750
</TABLE>
- ------------------------
(1) The closing price of our common stock, as reported by the Nasdaq SmallCap
Market on December 31, 1998, was $27.50 per share. The value is calculated
on the basis of the difference between the option per share exercise price
and $27.50 per share, multiplied by the number of shares of common stock
underlying the option.
9
<PAGE>
HISTORICAL INFORMATION REGARDING REPRICING, REPLACEMENT
OR CANCELLATION AND REGRANT OF OPTIONS
The following table contains information concerning the repricing,
replacement or cancellation and regrant of options held by persons who are
currently executive officers or who were executive officers of the Company when
this action was taken. The table reflects all repricings, replacements and
cancellations and regrants of options that have occurred since the Company
became a reporting company under Section 13 of the Securities Exchange Act of
1934, as amended, in 1997.
10-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
LENGTH OF
MARKET PRICE OF EXERCISE ORIGINAL OPTION
NUMBER OF STOCK AT TIME PRICE TERM REMAINING AT
OPTIONS OF AT TIME OF NEW DATE OF REPRICING
REPRICED OR REPRICING OR REPRICING OR EXERCISE OR AMENDMENT (IN
NAME DATE AMENDED AMENDMENT AMENDMENT PRICE YEARS)
- -------------------------------------- --------- ----------- --------------- ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
D.R. Grimes........................... 08/31/98 10,000 $ 15.75 $ 27.50 $ 15.75 9.875
Vice Chairman and Chief Executive
Officer
Donald S. Shapleigh, Jr............... 08/31/98 5,000 $ 15.75 $ 27.50 $ 15.75 9.875
President and Chief Operating
Officer (1)
Robert E. Bowers...................... 08/31/98 7,500 $ 15.75 $ 27.50 $ 15.75 9.875
Chief Financial Officer
Thomas L. Cable....................... 08/31/98 5,000 $ 15.75 $ 27.50 $ 15.75 9.875
Chief Technology Officer
Catherine Storey...................... 08/31/98 5,000 $ 15.75 $ 27.50 $ 15.75 9.875
Operations Manager
Jeffrey B. Watson..................... 08/31/98 5,000 $ 15.75 $ 27.50 $ 15.75 9.875
Chief Lending Officer
</TABLE>
- ------------------------
(1) Mr. Shapleigh will resign as our President and Chief Operating Officer
effective as of April 30, 1999.
COMPENSATION COMMITTEE REPORT ON FISCAL 1998 OPTION REPRICINGS
This report is submitted by the two current members of the Compensation
Committee who participated in the determinations described below. John T. Moore,
who was also a member of the Compensation Committee during fiscal 1998, resigned
as a director in February 1999 and was replaced at that time by Thomas H.
Muller, Jr.
On August 31, 1998, the Compensation Committee approved a reduction of the
exercise price of a total of 64,000 options that it had granted to the Company's
employees and outside directors on July 15, 1998. To effect the repricing, we
cancelled and reissued the options that we had recently granted on July 15, 1998
with a lower exercise price. We reduced the exercise price of the options from
$27.50 to $15.75 per share, which was the fair market value of a share of Common
Stock on August 31, 1998, and extended the term of each option to August 31,
2008. All other terms of the options remained as they were before the repricing.
10
<PAGE>
We approved the repricing because we believe that equity interests are a
significant factor in the Company's ability to attract and retain key employees
that are critical to its long-range success. The options that were repriced had
an initial exercise price of $27.50 per share, which represented the fair market
value of the common stock on July 15, 1998. During July and August of 1998, the
market value of the common stock declined, reaching a market price of $15.75 per
share by August 31, 1998. This market decline was contrary to the incentive
objectives of the Board with respect to the recent grant. In view of the number
of underwater options held by the Company's directors and employees at that
time, the significant decrease in the market price of the common stock and the
competition for personnel with the skills and experience possessed by our
optionees, we approved a reduction in the exercise price of 64,000 options held
by the Company's directors and employees from $27.50 to $15.75 per share, the
fair market value of the Company's common stock on the date of the repricing.
Submitted by: THE COMPENSATION COMMITTEE
T. Stephen Johnson
J. Stephen Heard
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report discusses the compensation objectives and policies applicable to
our executive officers and our policy generally with respect to the compensation
of all executive officers as a group for fiscal 1998 and specifically reviews
the compensation established for our Chief Executive Officer during fiscal 1998.
This report is submitted by the two current members of the Compensation
Committee who participated in the determinations described below. John T. Moore,
who was also a member of the Compensation Committee during fiscal 1998, resigned
as a director in February 1999 and was replaced at that time by Thomas H.
Muller, Jr.
COMPENSATION PHILOSOPHY
Our executive compensation program has three objectives: (1) to align the
interests of the executive officers with those of our shareholders by basing a
significant portion of an executive's compensation on the Company's performance,
(2) to attract and retain highly talented and productive executives, and (3) to
provide incentives for superior performance by our executives. To achieve these
objectives, our executive compensation program consists of base salary,
short-term incentive compensation in the form of a bonus, and long-term
incentive compensation in the form of stock options. These compensation elements
are in addition to the general benefit programs that are offered to all of our
employees.
In determining the amount and type of compensation to be awarded to
executive officers, we study the compensation packages for executives of a peer
group of the Company's most direct publicly held competitors for executive
talent, assess the competitiveness of our executive compensation program and
review the Company's financial performance for the previous year. We also gauge
our success in achieving the compensation program's objectives in the previous
year and consider the Company's overall performance objectives.
Each element of our executive compensation program is discussed below.
BASE SALARIES
Base salaries for our executive officers for fiscal 1998 are reflected in
the Summary Compensation Table. In addition to the factors described above that
support our executive compensation program generally, we evaluate subjectively
the responsibilities of the specific executive position and the individual
executive's experience and knowledge in determining his or her base salary.
Salaries are not based upon the achievement of any predetermined performance
targets.
11
<PAGE>
BONUSES
Bonuses are intended to motivate the individual to work hard to achieve our
financial and operational performance goals or to otherwise motivate the
individual to aim for a high level of achievement in the coming year. We award
bonuses based on a combination of factors including the Company's historic and
recent financial performance, the individual's contribution to that performance,
the individual's performance on non-financial goals (such as ethical business
conduct, client satisfaction and the general perception of the Company and the
Bank by financial leaders and customers) and other contributions to our success.
We give each of these factors relatively equal weight without applying a
rigorous formula. We elected not to award any bonuses in fiscal 1998 and to
focus instead on granting long-term incentive compensation in the form of stock
options as described below.
LONG-TERM INCENTIVE COMPENSATION
Our long-term incentive compensation is based upon our 1996 Stock Incentive
Plan. We believe that placing a portion of executives' total compensation in the
form of stock options achieves three objectives. It aligns the interest of our
executives directly with those of our shareholders, gives executives a
significant long-term interest in the Company's success and helps us retain key
executives. In determining the number and terms of options to grant an
executive, we primarily consider subjectively the executive's past performance
(or, in the case of a new executive, his or her knowledge, and experience and
the degree to which we can recruit executives with similar skills) and the
degree to which an incentive for long-term performance would benefit the
Company. Based on our subjective evaluation of these factors, we granted the
options described in the Summary Compensation Table to the executive officers
named in that table and granted a total of 5,000 options to one other executive
officer in fiscal 1998.
BENEFITS
We believe we must offer a competitive benefits program to attract and
retain key executives. We provide the same medical and other benefits to our
executive officers that are generally available to our other employees.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
We base our Chief Executive Officer's salary, bonus and stock options on our
review of the compensation packages for chief executive officers of our most
direct competitors, on our subjective assessment of his experience, knowledge
and abilities, on a compensation analysis prepared by an independent consulting
firm and on the Company's earnings, asset and account growth for the year.
During 1998, the Company became profitable in an unprecedented eight months
after receiving its bank charter. At the same time, the Company under the
direction of the Chief Executive Officer attained all account and asset growth
targets. We believe that our Chief Executive Officer's overall compensation for
fiscal 1998 rewards these results and provides an appropriate incentive for
continued strong individual and Company performance.
12
<PAGE>
SECTION 162(M) OF THE INTERNAL REVENUE CODE
It is our responsibility to address the issues raised by Section 162(m) of
the Internal Revenue Code, as amended. The revisions to Section 162(m) made
certain non-performance based compensation in excess of $1,000,000 to executives
of public companies non-deductible to the companies beginning in 1994. We have
reviewed these issues and have determined that no portion of compensation
payable to any executive officer for fiscal 1998 is non-deductible. Our 1996
Stock Incentive Plan limits to 100,000 the number of options or shares that may
be awarded to any individual in a single year under that plan.
Submitted by: THE COMPENSATION COMMITTEE
J. Stephen Heard
T. Stephen Johnson
PERFORMANCE GRAPH
The following Performance Graph compares the yearly percentage change in the
cumulative total shareholder return on our common stock to the cumulative total
return on the Nasdaq Stock Market (U.S.) Index and the Nasdaq Bank Stock Index
from July 28, 1997, the effective date of the Company's initial public offering,
to December 31, 1998. The Performance Graph assumes reinvestment of dividends,
where applicable.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
7/28/97 12/31/97 12/31/98
<S> <C> <C> <C>
Net_B@nk, Inc. $100 $98 $229
Nasdaq Stock Market (U.S.) Index $100 $99 $139
Nasdaq Bank Stock Index $100 $124 $123
</TABLE>
<TABLE>
<CAPTION>
JULY 28, 1997 DECEMBER 31, 1997 DECEMBER 31, 1998
--------------- ------------------- -------------------
<S> <C> <C> <C>
Net.B@nk, Inc................................................ $ 100 $ 98 $ 229
Nasdaq Stock Market (U.S.) Index............................. $ 100 $ 99 $ 139
Nasdaq Bank Stock Index...................................... $ 100 $ 124 $ 123
</TABLE>
13
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and persons who own beneficially
more than 10% of the Company's outstanding common stock to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in their ownership of the Company's common stock. Directors, executive
officers and greater than 10% shareholders are required to furnish the Company
with copies of the forms they file. To our knowledge, based solely on a review
of the copies of these reports furnished to the Company, during the fiscal year
ended December 31, 1998, except for the following late reports: one report
covering one option grant and a repricing filed by each of Messrs. Bowers,
Cable, Clegg, Heard, Johnson, Kelton, Moore, Muller, Shapleigh, Solomon, Stokes
and Whittle and Ms. Storey, one report of initial ownership filed by Ms. Storey
and one report covering two option grants and a repricing filed by Mr. Grimes;
our directors, executive officers and greater than 10% shareholders complied
with all applicable Section 16(a) filing requirements.
CERTAIN TRANSACTIONS
Some of our directors, officers, principal shareholders and their associates
were customers of, or had transactions with, the Company or the Bank in the
ordinary course of business during 1998. Some of our directors are directors,
officers, trustees or principal securities holders of corporations or other
organizations that also were customers of, or had transactions with, the Company
or the Bank in the ordinary course of business during 1998.
All outstanding loans and other transactions with our directors, officers
and principal shareholders were made in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons and, when
made, did not involve more than the normal risk of collectability or present
other unfavorable features. In addition to banking and financial transactions,
we may have had additional transactions with, or used products or services of,
various organizations with which our directors were associated. The amounts
involved in these non-credit transactions have not been material in relation to
our business or to that of such other organizations. We expect to continue to
have similar transactions in the ordinary course of business with such
individuals and their associates in the future.
See "Election of Directors--Compensation of Directors" for information
regarding consulting fees that the Company paid to Mr. Clegg in fiscal 1998 and
may pay in the future.
PROPOSAL TWO
AMENDMENT OF THE 1996 STOCK INCENTIVE PLAN
The Board of Directors has approved and recommends that the shareholders
approve an amendment to our 1996 Stock Incentive Plan (the "Plan") to increase
the number of shares of common stock authorized for issuance under the Plan from
600,000 to 1,250,000. The Board of Directors approved the proposed amendment on
March 23, 1999.
The Board of Directors has reserved 600,000 shares of common stock for
issuance under the Plan and has reserved an additional 650,000 shares of common
stock for issuance under the Plan subject to shareholder approval of this
proposal. As of March 1, 1999, 519,619 shares of common stock were subject to
outstanding options under the Plan.
The criteria 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 will be considered in
appointed members to the committee that administers the Plan (the "Committee").
The Compensation Committee of the Board of Directors administers the Plan.
14
<PAGE>
Key employees, officers, directors and consultants of the Company or an
affiliate (such as the Bank) are eligible for awards under the Plan. The Plan
permits the Committee to make awards of shares of common stock, awards of
securities related to the value of the common stock and cash awards to
individual participants or under a program approved by the Committee for the
benefit of a group of eligible persons. The Committee may award a variety of
stock-based incentives, including 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 Committee determines the number of shares of common stock as
to which a Stock Incentive is granted and to whom any Stock Incentive is
granted, subject to the provisions of the Plan. The Committee also sets the
exercise or settlement price and the termination provisions of a Stock Incentive
to the extent not otherwise inconsistent with the terms of the Plan.
The Committee may 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,
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
provide exercise, conversion or settlement rights to a holder's estate or
personal representative in the event of the holder's death or disability. Stock
Incentives may be cancelled, accelerated, paid or continued, subject to the
terms of the applicable Stock Incentive agreement and to the provisions of the
Plan, in the event of the holder's termination of employment. Stock Incentives
are not generally transferable or assignable during a holder's lifetime. The
Committee may make cash awards to cover tax obligations of employees that result
from the receipt or exercise of a Stock Incentive. The Committee may condition
delivery of any shares of common stock issuable under the Plan upon compliance
with available exemptions from registration under applicable securities laws.
The maximum number of shares of common stock for which options or stock
appreciation rights may be granted during any fiscal year 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 under the terms
of outstanding Stock Incentives, and the exercise or settlement price of each
Stock Incentive will be adjusted to reflect the effect are subject to any
recapitalization of the Company or similar event. In the event of certain
corporate reorganizations and similar events, the Committee may substitute,
cancel, accelerate, cash-out or otherwise adjust the terms of outstanding stock
incentives, provided such adjustment is not inconsistent with the express terms
of the Plan or the applicable Stock Incentive agreement.
The term of the Plan is indefinite. Although the Board of Directors may
amend or terminate the Plan without shareholder approval, the Board of Directors
also may condition any amendment or termination upon shareholder approval if it
determines that shareholder approval is necessary or appropriate in
consideration of tax, securities or other laws.
The following table indicates the number of options granted under the Plan
to the persons and groups listed below as of the Record Date. The fair market
value of the common stock on the Record
15
<PAGE>
Date was $53.50, representing the closing price of the common stock reported by
the Nasdaq National Market for that date:
<TABLE>
<CAPTION>
SUBJECT TO OPTIONS
NAME GRANTED
- ------------------------------------------------------------------- -------------------------
<S> <C>
Mr. Bowers......................................................... 123,438
Mr. Cable.......................................................... 20,000
Mr. Grimes......................................................... 249,062
Mr. Shapleigh...................................................... 49,687
All current executive officers as a group.......................... 477,187
All current directors who are not executive officers as a group.... 7,000(1)
All employees, including all current officers who are not executive
officers, as a group............................................. 33,432
</TABLE>
- ------------------------
(1) Does not include 2,000 shares subject to options held by two non-employee
directors who resigned in February 1999.
FEDERAL INCOME TAX CONSEQUENCES
INCENTIVE STOCK OPTIONS. An optionee will not recognize income upon the
grant or exercise of an incentive stock option. Instead, the optionee will be
taxed when he or she sells the stock purchased upon exercise of the option. The
optionee will pay tax on the difference between the price he or she paid for the
stock and the amount for which he or she sells the stock. If the optionee does
not sell the stock within two years from the date of grant of the option and one
year from the date he or she exercises the option, the gain will be capital
gain, and the Company will not be entitled to a deduction. If the optionee sells
the stock at a gain prior to that time, the difference between the amount the
optionee paid for the stock and the lesser of the fair market value on the date
of exercise or the amount for which the stock is sold will be taxed as ordinary
income and the Company will be entitled to a corresponding deduction. If the
optionee sells the stock for more than the fair market value on the date of
exercise, the excess amount will be taxed as capital gain. If the optionee sells
the stock for less than the amount he or she paid for it during the one- or
two-year periods indicated, no amount will be taxed as ordinary income and the
loss will be taxed as a capital loss. Exercise of an incentive stock option may
subject an optionee to, or increase an optionee's liability for, the alternative
minimum tax.
NON-QUALIFIED STOCK OPTIONS. An optionee will not recognize income upon the
grant of a non-qualified stock option or at any time prior to the exercise of
all or part of the option. Generally, when the optionee exercises all or part of
a non-qualified option, he or she will recognize compensation taxable as
ordinary income in an amount equal to the excess of the fair market value of the
underlying stock on the date the option is exercised over the option price of
the stock and the Company will be entitled to a corresponding deduction. At that
time, the Company will be subject to income tax withholding requirements and
will have the right to require an optionee who is or was a Company employee to
remit in cash to the Company an amount sufficient to satisfy any federal, state
and local tax requirements prior to the delivery of any certificate or
certificates for such shares of stock.
A subsequent taxable disposition of the stock acquired upon exercise of an
option and held as a capital asset will result in a capital gain or loss
measured by the difference between the fair market value of the stock on the
date of the option exercise and the amount realized on later disposition.
THE FOREGOING IS A SUMMARY DISCUSSION OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES TO OPTIONEES UNDER THE INTERNAL REVENUE CODE AND SHOULD NOT BE
CONSTRUED AS LEGAL, TAX OR INVESTMENT ADVICE. ALL PLAN PARTICIPANTS SHOULD
CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES APPLICABLE TO
THEM, INCLUDING FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
16
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSED AMENDMENT
TO THE PLAN.
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Unless otherwise directed by the shareholders, the persons appointed as
proxies will vote for ratification of the appointment by the Board of Directors,
upon the recommendation of the Audit Committee, of Deloitte & Touche LLP as the
Company's independent accountants for fiscal 1999. If the shareholders do not
ratify the appointment, the Audit Committee will reconsider its recommendation.
We have been informed that no member of Deloitte & Touche LLP has any direct or
material indirect financial interest in the Company or the Bank. A
representative of Deloitte & Touche LLP will be present at the Annual Meeting to
answer appropriate questions and to make a statement if he or she desires.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS
FOR FISCAL 1999.
SHAREHOLDER PROPOSALS
If you wish to submit a proposal for action at the next Annual Meeting of
Shareholders and would like to have it included in the proxy statement for that
meeting, you must send a written copy of the proposal to the Chief Executive
Officer of the Company at the address listed on the first page of this proxy
statement on or before November 25, 1999. The proposal must comply with the
rules and regulations of the Securities and Exchange Commission.
OTHER BUSINESS
We know of no other matters that may be brought before the meeting. If,
however, any matter other than the election of directors or a matter incident to
the election of directors properly comes before the meeting, the persons
appointed as proxies will vote on the matter in accordance with their best
judgment.
- ------------------------
A COPY OF OUR 1998 FORM 10-K (EXCLUDING EXHIBITS) FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS AVAILABLE TO SHAREHOLDERS, WITHOUT CHARGE, UPON
WRITTEN REQUEST TO NET.B@NK, INC., 950 NORTH POINT PARKWAY, SUITE 350,
ALPHARETTA, GEORGIA 30005 (ATTN: CHIEF FINANCIAL OFFICER). WE WILL CHARGE
REPRODUCTION COST OF UP TO 25 CENTS PER PAGE FOR ANY EXHIBITS REQUESTED.
17
<PAGE>
APPENDIX A
SECOND AMENDMENT TO THE
NET.B@NK, INC.
1996 STOCK INCENTIVE PLAN
THIS SECOND AMENDMENT is made as of this 23rd day of March, 1999, by
Net.B@nk, Inc., a corporation duly organized and existing under the laws of the
State of Georgia (hereinafter called the "Company").
W I T N E S S E T H:
WHEREAS, the Company maintains the Net.B@nk, Inc. 1996 Stock Incentive Plan
(the "Plan"); and
WHEREAS, the Company desires to amend the Plan to increase the number of
shares authorized for issuance thereunder; and
WHEREAS, the Board of Directors of the Company has duly approved and
authorized this amendment to the Plan, subject to the further approval of the
Company's shareholders;
NOW, THEREFORE, the Company does hereby amend the Plan as follows:
1. By deleting, effective as of the date shareholder approval of the Second
Amendment is obtained, the first sentence of Section 2.2 in its entirety and
by substituting therefor the following:
"Subject to adjustment in accordance with Section 5.2, 1,250,000 shares
of Stock (the "Maximum Plan Shares') are hereby reserved exclusively for
issuance pursuant to Stock Incentives."
2. Except as specifically amended hereby, the Plan shall remain in full force
and effect as prior to the adoption of this Second Amendment.
3. Notwithstanding the foregoing, the adoption of this Second Amendment is
subject to the approval of the stockholders of the Company and in the event
that the stockholders of the Company fail to approve such adoption within
twelve months of the date of the approval of the Second Amendment by the
Board of Directors of the Company, the adoption of this Second Amendment
shall be null and void.
IN WITNESS WHEREOF, the Company has caused this Second Amendment to be
executed on the day and year first above written.
NET.B@NK, INC.
By: /s/ D.R. GRIMES
--------------------------------------
Title: Vice Chairman and Chief
Executive Officer
--------------------------------------
ATTEST:
By: /s/ ROBERT E. BOWERS
- ------------------------
Title: Chief Financial Officer
- -----------------------
(CORPORATE SEAL)
<PAGE>
NET.B@NK, INC.
PROXY
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 22, 1999
The undersigned shareholder of Net.B@nk, Inc. (the "Company") hereby appoints
D.R. Grimes and Robert E. Bowers as proxies with full power of substitution,
acting unanimously or by either of them if only one be present and acting, to
vote all shares of common stock of the Company which the undersigned would be
entitled to vote if personally present at the Annual Meeting of Shareholders
(the "Meeting") to be held at the Crowne Plaza Ravinia, 4355 Ashford Dunwoody
Road, Atlanta, Georgia 30346 on Thursday, April 22, 1999 at 10:00 a.m. and at
any adjournments thereof, upon the proposals described in the accompanying
Notice of the Annual Meeting and the Proxy Statement relating to the Meeting
(the "Proxy Statement"), receipt of which is hereby acknowledged.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 THROUGH 3.
<TABLE>
<S> <C>
PROPOSAL 1: To elect the nominees listed below to serve as Class II directors of
the Company for a term expiring at the 2002 Annual Shareholders'
Meeting.
Robert E. Bowers
Ward H. Clegg
J. Stephen Heard
W. James Stokes
FOR all nominees listed above (except as indicated to the contrary
below.)
INSTRUCTION: To withhold authority for one or more individual nominees, mark
"FOR" above, and write his name or their names in the space below:
PROPOSAL 2: To approve an amendment to the 1996 Stock Incentive Plan to increase
the number of shares of Common Stock issuable thereunder from
600,000 to 1,250,000.
FOR AGAINST ABSTAIN
PROPOSAL 3: To ratify Deloitte & Touche LLP as the Company's independent
auditors.
FOR AGAINST ABSTAIN
<CAPTION>
PROPOSAL 1:
WITHHOLD AUTHORITY to vote for all nominees listed above.
INSTRUCTION:
PROPOSAL 2:
PROPOSAL 3:
<CAPTION>
</TABLE>
