U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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 Materials Pursuant to Rule 14a-11(c) or Rule 14a-12
FINET HOLDINGS CORPORATION
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] 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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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (setforth the amount
on which the filing fee is calculated and state how it was
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[ ] Fee paid previously with preliminary materials.
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fee was paid previously. Identify the previous filing by registration
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<PAGE>
FINET HOLDINGS CORPORATION
505 Sansome Street, 14th Floor
San Francisco, California 94111
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
November 6, 1998
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Finet
Holdings Corporation, a Delaware corporation (the "Company"), will be held on
Thursday, November 24, 1998, at 9:00 a.m., local time, at One Embarcadero
Center, 26th Floor Main Conference Room, San Francisco, California, for the
following purposes:
1. To elect Directors to serve for the ensuing year and until their
successors are elected.
2. To consider and vote upon a proposal to amend the Company's Certificate
of Incorporation to increase the authorized number of shares of the Company's
Common Stock.
3. To ratify the issuance of the Company's Common Stock and convertible
securities to new investors which could potentially result in their owning
approximately 50.3% of the Company's Common Stock.
4. To ratify the adoption by the Company's Board of Directors of the
Company's 1998 Stock Option Plan, and to approve the number of shares authorized
thereunder.
5. To ratify the adoption by the Company's Board of Directors of the
Company's Stock Bonus Incentive Plan, and to approve the number of shares
authorized thereunder.
6. To ratify the adoption by the Company's Board of Directors of the
Company's Non-Employee Directors' Stock Option Plan, and to approve the number
of shares authorized thereunder. The foregoing items of business are more fully
described in the Proxy Statement accompanying this Notice.
Only shareholders of record at the close of business on October 15, 1998
are entitled to notice of and to vote at the meeting and at any continuation or
adjournment thereof.
By order of the Board of Directors,
/s/ Jan C. Hoeffel
Jan C. Hoeffel
Secretary
San Francisco, California
November 6, 1998
- -------------------------------------------------------------------------------
ALL SHAREHOLDERS MAY ATTEND THE MEETING IN PERSON. HOWEVER, TO ENSURE YOUR
REPRESENTATION AT THE MEETING, YOU ARE URGED TO VOTE, SIGN, AND RETURN THE
ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE POSTAGE-PREPAID ENVELOPE ENCLOSED
FOR THAT PURPOSE.
- -------------------------------------------------------------------------------
<PAGE>
FINET HOLDINGS CORPORATION
505 Sansome Street, 14th Floor
San Francisco, California 94111
PROXY STATEMENT
General
The enclosed proxy is solicited on behalf of the Board of Directors of
Finet Holdings Corporation, a Delaware corporation (the "Company"), for use at
the Annual Meeting of shareholders to be held on November 24, 1998 at 9:00 a.m.
local time, at which shareholders of record on October 15, 1998 will be entitled
to vote. At the close of business on October 15, 1998 (the "Record Date"), the
Company had issued and outstanding 33,033,105 shares of Common Stock. The Annual
Meeting will be held at One Embarcadero Center, 26th Floor Main Conference Room,
San Francisco, California.
Shareholders are urged to read the Proxy Statement in its entirety, and to
pay particular attention to Proposal 3, which could potentially result in new
investors owning approximately 50.3% of the Company's Common Stock.
Voting and Revocability of Proxies
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of the Company's Common Stock, par value $0.01 (the "Common
Stock") is necessary to constitute a quorum at the Annual Meeting. Only
stockholders of record at the close of business on Monday, October 15, 1998 (the
"Record Date") will be entitled to notice of, and to vote at, the Annual
Meeting. Holders of Common Stock as of the Record Date are entitled to one vote
for each share held.
All shares of Common Stock represented by properly executed proxies will,
unless the proxies have previously been revoked, be voted in accordance with the
instructions indicated in the proxies. If no instructions are indicated, the
shares will be voted in favor of (i.e., "FOR"): (i) the election of the six
nominees for Directors of the Company listed under Proposal 1; (ii) the
amendment of the Company's Certificate of Incorporation to increase the
authorized number of shares of the Company's Common Stock, (iii) the
ratification of the issuance of Common Stock and convertible securities to new
investors, which could potentially result in their owning approximately 50.3% of
the Company's Common Stock; (iv) the ratification of the adoption of the 1998
Stock Option Plan; (v) the ratification of the adoption of the Stock Bonus
Incentive Plan; and (vi) the ratification of the adoption of the Non-Employee
Directors' Stock Option Plan. With respect to any other item of business that
may come before the Annual Meeting, the proxy holders will vote the proxy in
accordance with their best judgment.
In the election of Directors, the six candidates receiving the highest
number of votes will be elected as Directors. Any other matters submitted for
stockholder approval at the Annual Meeting will be decided by the affirmative
vote of the majority of the shares represented in person or by proxy and
entitled to vote on each such matter. Abstentions with respect to any matter are
treated as shares present or represented and entitled to vote on that matter and
thus have the same effect as negative votes. Brokers holding shares of record
generally are not entitled to vote on certain matters unless they receive voting
instructions from their customers. If a broker which is the record holder of
certain shares indicates on a proxy that it does not have discretionary
authority to vote on a particular matter as to such shares, or if shares are not
voted in other circumstances in which proxy authority is defective or has been
withheld with respect to a particular matter, these non-voted shares will be
counted for quorum purposes but are not deemed to be present or represented for
purposes of determining whether stockholder approval of that matter has been
obtained.
Any stockholder executing a proxy has the power to revoke the proxy at any
time prior to its exercise. A proxy may be revoked prior to exercise by: (a)
filing with the Company a written revocation of the proxy; (b) appearing at the
Annual Meeting and casting a vote contrary to that indicated on the proxy; or
(c) submitting a duly executed proxy bearing a later date.
Solicitation
The cost of preparing, printing, assembling and mailing this Proxy
Statement and other material furnished to stockholders in connection with the
solicitation of proxies will be borne by the Company. In addition to the
solicitation of proxies by use of the mails, officers, Directors and employees
of the Company may solicit proxies by written communications, by telephone,
telegraph or personal call. These persons are to receive no special compensation
for any solicitation activities. The Company will reimburse banks, brokers and
other persons holding Common Stock in their names, or those of their nominees,
for their expenses in forwarding proxy solicitation materials to beneficial
owners of Common Stock.
This Proxy Statement and the accompanying form of proxy are first being
mailed to stockholders on or about November 13, 1998.
Shareholder Proposals for Next Annual Meeting
Proposals of shareholders that are intended to be presented at the
Company's 1999 Annual Meeting of shareholders must be received by the Company no
later than July 15, 1999 in order to be included in the proxy statement relating
to that meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
Nominees
Six Directors will be elected at the Annual Meeting to serve for one year
expiring on the date of the Annual Meeting in 1999. Set forth below is
information regarding the nominees, including information furnished by them. The
names of such nominees are as follows:
Mark L. Korell
Stephen J. Sogin
L. Daniel Rawitch
Jan C. Hoeffel
Jose Philipe Guedes
S. Lewis Meyer
All nominees are currently Directors of the Company. Each person nominated
for election has agreed to serve if elected, and management has no reason to
believe that any nominee will be unavailable to serve. Unless otherwise
instructed, the proxy holders will vote the proxies received by them for the six
nominees named below. The six candidates receiving the highest number of
affirmative votes of the shares entitled to vote at the Annual Meeting will be
elected Directors of the Company. Abstentions, broker non-votes, and
instructions on the accompanying proxy card to withhold authority to vote for
one or more of the nominees will result in the respective nominees receiving
fewer votes. If for any reason any nominee should, prior to the Annual Meeting,
become unavailable for election as a Director, an event not now anticipated, the
proxies will be voted for such substitute nominee, if any, as may be recommended
by management. In no event, however, shall the proxies be voted for a greater
number of persons than the number of nominees named.
The Company's Bylaws provide for a maximum of nine Directors that are
elected on an annual basis at the Company's Annual Meeting of stockholders. The
present term for each Director will expire at the next Annual Meeting of
stockholders or at such time as a successor is duly elected and qualified.
Executive officers are elected annually and, except to the extent governed by
employment contracts, serve at the discretion of the Board of Directors.
MANAGEMENT RECOMMENDS A VOTE FOR EACH
OF THE NOMINEES FOR DIRECTOR NAMED ABOVE
DIRECTORS AND EXECUTIVE OFFICERS
Name Age Position Since
- ---- --- -------- -----
Mark L. Korell 50 Chief Executive Officer October, 1998
Stephen J. Sogin, Ph.D 55 Director March, 1990
L. Daniel Rawitch 39 Director, December, 1994
President October, 1998
<PAGE>
Jan C. Hoeffel 62 Director and Secretary November, 1995
Vice Chairman October, 1998
Jose Philipe Guedes 51 Director January, 1997
S. Lewis Meyer 53 Director January, 1997
George P. Winkel 56 Chief Financial Officer September, 1997
Michael G. Conway 49 Executive Vice President, October, 1998
Capital Markets
Thomas L. Porter 51 Executive Vice President, August, 1998
Finance and Administration
Mark L. Korell, 50, was appointed Chairman of the Board and Chief Executive
Officer of the Company in October, 1998. Mr. Korell has served as the Chief
Executive Officer of IMX Mortgage Exchange, an innovative e-commerce software
firm, the Chief Executive Officer of Norwest Mortgage, Inc., the nation's
largest mortgage lender and loan servicer, and the Chief Executive Officer of
GMAC Mortgage Group and its Residential Funding Corp subsidiary. He has also
served as assistant to the Chairman of the Federal Home Loan Bank Board and
Deputy Director of the Minnesota Housing Finance Agency.
Stephen J. Sogin, Ph.D., 55, has been a Director of the Company since
March, 1990. From 1982 until 1995, he was a general partner of the entity that
was the general partner of Montgomery Medical Ventures II, formerly a
significant Finet shareholder. Dr. Sogin is the author of over 30 scientific
papers on theoretical and applied microbiology and is a member of the American
Society for Microbiology and the American Association for the Advancement of
Science. Dr. Sogin is also a Director of Osteotech, Inc.
L. Daniel Rawitch, 39, served as a Director since September, 1994 and as
Chief Executive Officer from May, 1995 through October, 1998, when he became
President. He acquired the operating rights to Residential Pacific Mortgage,
Inc. in 1989 and served as its Chief Executive Officer until it was acquired by
the Company in August, 1994, at which time he became Vice Chairman of the
Company and focused on marketing capabilities development.
Jan C. Hoeffel, 62, was a founder and President of Finex Corporation, a
technology-oriented mortgage broker acquired by the Company in December, 1991,
after which he served as Executive Vice President until resigning in mid-1992.
He rejoined the Company in mid-1995 and became President and a Director in
November, 1995, while also serving as President from that time until October,
1998. He is a Director and major shareholder of Typography Express, a
computer-based national service bureau for graphic arts professionals, and a
Director and majority shareholder of San Luis Avionics, Inc., an FAA certified
repair station providing avionics sales, installation and maintenance for
general aviation aircraft.
Jose Philipe Guedes, 51, became a Director in January, 1997. Mr. Guedes is
Managing Partner of Ceramic, a ceramic tile manufacturer, and Pinto Basil, a
real estate investment firm. From 1982-1995, he was Chief Executive Officer of
Cerexport/Vista Alegre, a ceramic manufacturer refining firm. He earned a degree
in chemical engineering from the University of Lisbon and has served as a
Director of R. Schedel, a Lisbon Stock Exchange broker, and SOCI, a newspaper
publisher, and is a past President of the Portuguese Ceramic Manufacturers
Association.
S. Lewis Meyer, Ph.D., 54, became a Director in January, 1997. He is
President and Chief Executive Officer of Imatron Inc., a public,
technology-based company engaged in designing, manufacturing and marketing a
high performance computed tomography scanner which utilizes proprietary,
electron beam tomography technology. Mr. Meyer received a B.S. in Physics from
the University of Pacific and a M.S. and Ph.D. in Physics from Purdue
University. Mr. Meyer is also a Director of BSD Medical Corporation, a
publicly-held company in the business of developing and marketing products
utilizing hyperthemia technology for the treatment of a variety of diseases.
George P. Winkel, 56, is the Company's Chief Financial Officer and a
Certified Public Accountant. Prior to joining Finet in September, 1997, for five
years he was a Managing Partner of Reuben E. Price & Co., the Company's auditor
and earlier, over 20 years, held a number of accounting and financial management
positions with RJR Nabisco.
Michael G. Conway, 49, became Finet's Executive Vice President - Capital
Markets in October, 1998. Mr. Conway was Executive Vice President, Marketing for
North American Mortgage Company (formerly IMCO Realty Services, Inc. and Wells
Fargo Mortgage) from August, 1985 to October, 1997. During his tenure at North
American, Mr. Conway was responsible for product development and pricing,
hedging, and selling residential loan production. Mr. Conway earned an MBA in
Management and Finance from UCLA.
Thomas L. Porter, 51, is the Company's Executive Vice President - Finance
and Administration. From December, 1996 until joining Finet in August, 1998 he
was Vice President - Financial Planning & Analysis with Medaphis Corporation, a
publicly-held, health services provider. Earlier he was Controller of IBM's
19,000 employee National Service Division and Director of Business Services for
its Corporate Financial Systems Group until September, 1993, then Senior Vice
President - Finance for McKesson's $8 billion Drug Company from June, 1994 to
June, 1996. He received an MBA in Finance/Marketing from Columbia.
Board Committees and Meetings
The Board of Directors has three standing committees: the Executive
Committee, the Audit Committee, and the Compensation Committee, the members of
which are indicated below.
The Executive Committee exercises the power and authority of the Board of
Directors in the interim period between Board meetings. The members of the
Executive Committee are Messrs. Hoeffel, Meyer (Chairman), Rawitch and Sogin.
The Executive Committee met six times during the last fiscal year.
The Audit Committee reviews the activities of the Company's internal
accounting functions and its independent public accountants. The members of the
Audit Committee are Messrs. Meyer and Sogin. The Audit Committee met one time
during the last fiscal year.
The Compensation Committee is responsible for the determination of
compensation payable to the executive officers of the Company. In addition, the
Compensation Committee is responsible for the administration of the Company's
1989 Stock Option Plan and has the authority to determine to whom options are
granted, the number of shares covered by the options, the time at which options
are granted and the exercise price of the options, all subject to the provisions
of the Plan. The Compensation Committee met two times during the 1998 fiscal
year. The members of the Compensation Committee are Messrs. Meyer, and Sogin.
The Company's Board of Directors met four times during the last fiscal
year. No Director attended less than 75% of the aggregate number of meetings of
the Board of Directors and the committees on which he served during the period
for which he was a member of the Board, with the exception of Jose Philipe
Guedes, who attended 50% of the Board meetings held.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Executive Compensation
The following table sets forth information, with respect to the fiscal
years ended April 30, 1998, 1997, and 1996, respectively, regarding compensation
received by the Company's Chief Executive Officer and each of the Company's
other executive officers whose total annual compensation exceeded $100,000.
<TABLE>
Summary Compensation Table
<CAPTION>
Annual Compensation ($) Awards
Name and Other Restricted Securities All
Principal Fiscal Annual Stock Underlying Other
Position Year Salary Bonus Comp. Awards Options Comp.1
- -------- ---- ------ ----- ----- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
L. Daniel 1998 150,000 - - - -
Rawitch 1997 150,000 58,341 - - 35,000
President2 1996 150,000 38,789 - 100,000 -
Jan C. 1998 111,818 - - - -
Hoeffel, 1997 150,000 53,762 - - 18,000
Vice Chairman3 1996 107,000 1,500 - 100,000 -
James W. 1998 150,000 - - - -
Noack, MMI 1997 150,000 8,735 - - -
President4
<FN>
1 During fiscal 1997, prior to the acquisition of MMI by Finet, Mr.Rawitch and
Mr. Hoeffel were employed by an MMI affiliate on a part-time basis. Mr.
Rawitch received compensation of $35,000, and Mr. Hoeffel received consulting
fees of $18,000.
2 Mr. Rawitch served as Chief Executive Officer of the Company from May, 1995
until October, 1998.
3 Mr. Hoeffel served as President of the Company from November, 1995 until
October, 1998.
4 Mr. Noack was President of MMI until becoming Vice Chairman of Finet in
May, 1998. He became a Directorof the Company in January, 1997 when MMI was
acquired by Finet. He resigned as a Finet Director effective August 5, 1998.
</FN>
</TABLE>
Employment Agreements
The Company entered into an employment agreement with Mark L. Korell on
October 13, 1998 under which Mr. Korell will serve as the Company's Chairman and
Chief Executive Officer. The employment agreement has a term of four years and
provides for an annual salary of $350,000 with increases of $25,000 per year
after the first year. The salary is being guaranteed for a period of 18 months
by two shareholders. A bonus is payable annually in the amount of 2% of the
Company's pre-tax profits, if any. In connection with his appointment, Mr.
Korell was also granted 500,000 restricted shares of Common Stock valued at
$0.56 per share, 125,000 of which vested upon grant, with 93,750 shares vesting
on each of the next four anniversary dates of grant. Mr. Korell was also granted
five-year options to purchase 1,300,000 shares of Common Stock at an exercise
price of $0.56 per share. Such options vest 325,000 shares upon grant, with
243,750 shares vesting on each of the next four anniversary dates. The Company
has agreed to pay all of the income tax liability incurred by Mr. Korell as a
result of the option grants. The employment agreement also contains an
anti-dilution provision affording Mr. Korell the right to retain ownership of 4%
of the Company during the agreement's four year term.
The Company entered into an employment agreement with Michael G. Conway on
October 15, 1998 under which Mr. Conway will serve as the Company's Executive
Vice President - Capital Markets. The employment agreement has a term of four
years and provides for an annual salary of $187,500. A bonus is payable annually
in the amount of 1% of the Company's pre-tax profits, if any. In connection with
his appointment, Mr. Conway was also granted 60,000 restricted shares of Common
Stock valued at $0.56 per share, 15,000 of which vested upon grant, with an
equal number of shares vesting on each of the next four anniversary dates of
grant. Mr. Conway was also granted five-year options to purchase 300,000 shares
of Common Stock at an exercise price of $0.66 per share. Such options vest
75,000 shares upon grant, with 56,250 shares vesting on each of the next four
anniversary dates of grant. The Company has agreed to pay all of the income tax
liability incurred by Mr. Conway as a result of the option grants.
Members of the Company's executive management, including certain executives
of subsidiaries, have entered into employment agreements with the Company.
Except for certain base salary and performance compensation differences, the
agreements are standard and contain specific confidentiality and non-competitive
language.
<TABLE>
<CAPTION>
Options Granted in Fiscal Year Ended April 30, 1998
% Total
Options Options Exercise Expiration
Name Granted1 Granted Price ($/sh) Date
- ---- -------- ------- ------------ ----
<S> <C> <C> <C> <C>
Jose Maria Salema Garcao 40,000 21.3% 5.50 10/2002
Stephen J. Sogin 25,000 13.3% 4.50 1/2003
Jose Philipe Guedes 25,000 13.3% 4.50 1/2003
S. Lewis Meyer 25,000 13.3% 4.50 1/2003
------ ------
188,000 100.0%
<FN>
1 The options listed were granted to non-employee Directors under the 1989
Stock Option Plan as described in "COMPENSATION OF DIRECTORS AND EXECUTIVE
OFFICERS - Director Compensation."
</FN>
</TABLE>
<TABLE>
<CAPTION>
Aggregated Options Exercised and Option Values in Fiscal Year 1998
Number of securities Value of unexercised
underlying unexercised In-the-Money options at
options at year-end(#) year-end ($)
exercisable/ exercisable/
Shares acquired Value unexercisable unexercisable
Name on exercise(#) realized($)
---- ----------- -------- --------------------- ---------------------------
<S> <C> <C> <C> <C>
L. Daniel Rawitch -0- -0- 148,000/0 $499,500/0
Jan Hoeffel -0- -0- 225,241/0 $760,188/0
James W. Noack -0- -0- 0/0 $0/0
</TABLE>
Director Compensation
Directors that are full-time employees of the Company are not separately
compensated for their service on the Board. The Company pays Outside Directors
(Directors who are not full-time employees) $15,000 annually for their services
and attendance at all regular quarterly Board meetings, and $1,000 for each
additional Board or committee meeting attended. Outside Directors are also
reimbursed for expenses actually incurred in attending meetings of the Board and
its committees. Additionally, members of the Board of Directors are eligible to
participate under the Company's stock option plans.
The 1989 Stock Option Plan provides for automatic grants of non-qualified
options to Outside Directors. Upon becoming a Director, each Outside Director is
granted a five-year, currently exercisable option to purchase 40,000 shares of
the Company's Common Stock at the then-current fair market value and, for each
of the next three years on the anniversary date of becoming a Director, is
granted an additional five-year option for an additional 40,000 shares, which
options vest at the rate of 10,000 shares per quarter, subject to continuing
service as a Director. Directors may also be granted additional options at the
discretion of the Board.
On June 2, 1998, the Company retained Mr. S. Lewis Meyer, a Director of the
Company and Chair of its Executive Committee, to assist the Company in certain
specified strategic areas for approximately 10 full days per month. Pursuant to
this engagement, Mr. Meyer is compensated, commencing August 1, 1998, at the
rate of $10,000 per month. Additionally, for a consideration of $10,000, he was
granted warrants to purchase 1,000,000 shares of the Company's Common Stock at
an exercise price of $1.25 per share, 200,000 of which vested on June 2, 1998,
with the remaining 800,000 to vest quarterly over the next four years, subject
to continued service with the Company.
On February 18, 1998, the Board of Directors approved the Company's
Non-Employee Directors' Stock Option Plan (the "Directors' Plan"). For a
description of the Directors' Plan, see "Proposal 6- Proposal to Ratify the
Company's Non-Employee Directors' Stock Option Plan."
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock at October 15, 1998: (1) by
each person known by the Company to own beneficially more than five percent of
the Company's outstanding shares of Common Stock; (2) by each Director and Named
Executive Officer of the Company; and (3) by all Directors and Officers as a
group. Except as otherwise indicated in the notes to this table, the holders
listed below have sole voting and investment power with respect to such shares.
For purposes of this table, a person is deemed to have "beneficial ownership" of
any shares as of a given date which such person has the right to acquire within
60 days after such date. For purposes of computing the percentage of outstanding
shares held by each person named below on a given date, any security which such
person has the right to acquire within 60 days after such date is deemed to be
outstanding, but is not deemed to be outstanding for the purpose of computing
the percentage ownership of any other person.
<TABLE>
<CAPTION>
---------------------------Beneficial Ownership--------------------------
Name and Address of ----Common Stock----
Beneficial Owner # Owned % Owned
---------------- ------- -------
<S> <C> <C> <C>
Beneficial Jose Maria Salema Garcao 12,263,900(1) 30.7%
Owners of Quinta Da Marinha, Lote
more than 5% CT-14, 2750 Cascais
of shares Portugal
outstanding
James W. Noack 4,404,238(2) 13.3%
854 Clifton Court
Benicia, CA 95410
Cumberland Associates 2,685,344(3) 8.0 %
1114 Ave of Americas
New York, NY 10036
Fondation Pamalu 2,500,000(4) 7.3%
4536 Mozelos VFR
Portugal
Americo Ferreira Amorim 2,000,000 6.0%
Estefania 163
Porto, Portugal
Directors Jan C. Hoeffel 1,564,075(5) 4.6%
And Officers L. Daniel Rawitch 1,346,973(6) 4.0%
Mark L. Korell 450,000(7) 1.3%
Jose Philipe Guedes 385,000(8) 1.1%
<FN>
1 Reflects 5,373,900 shares beneficially owned, currently exercisable warrants
to acquire 6,850,000 shares and currently exercisable options to acquire
40,000 shares.
2 Reflects 4,301,237 shares beneficially owned by him, 28,000
beneficially owned by his minor child and currently exercisable
warrants to acquire 75,001 shares.
3 Reflects 2,423,063 shares beneficially owned and currently exercisable
warrants to acquire 262,281 shares.
4 Reflects 1,500,000 shares beneficially owned and currently exercisable
warrants to acquire 1,000,000 shares.
5 Reflects 1,263,158 shares beneficially owned by him, 917 shares
beneficially owned by his spouse, and currently exercisable warrants to
acquire 300,000shares.
6 Reflects 946,973 shares beneficially owned by him and currently
exercisable warrants to acquire 400,000 shares.
7 Reflects 125,000 shares beneficially owned by him and currently
exercisable options to acquire 325,000 shares.
8 Reflects 320,000 shares beneficially owned by him and currently
exercisable options to purchase 65,000 shares.
</FN>
<PAGE>
S. Lewis Meyer 365,000(1) 1.0%
Stephen J. Sogin 180,633(2) 0.5%
Michael G. Conway 90,000(3) 0.2%
George P. Winkel 50 0.0%
8 Directors and Officers 4,381,731 12.6%
as a group
<FN>
1 Reflects currently exercisable warrants to acquire 300,000 shares and
currently exercisable options to purchase 65,000 shares.
2 Reflects 50,000 shares beneficially owned by him and currently
exercisable options to purchase 130,633 shares.
3 Reflects 15,000 shares beneficially owned by him and currently
exercisable options to purchase 75,000 shares.
</FN>
</TABLE>
The percent of class calculation is based on 33,033,105 shares of Common
Stock outstanding as of October 15, 1998.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
It is the Company's policy not to enter into transactions with affiliates
of the Company unless such transactions are for bona fide business purposes and
are on terms at least as favorable to the Company as those that could be
obtained from unaffiliated parties.
At present, the Company has no material, related party relationships other
than 3 year term consulting agreements with James Umphryes and James W. Noack,
current shareholders and former owners of MMI. The agreements calls for payments
of $15,000 per month through December, 1999.
Pending completion of the April, 1997 private offering and an increase in
the Company's working capital, James Noack, a former Director of the Company,
lent the Company a total of $625,000 at an interest rate of 8.5%. These loans
were secured by three foreclosed residential properties in inventory. The loans
were retired as each property was sold. As of April 30, 1997, all borrowings had
been fully repaid.
Effective December 31, 1996 the Company issued a total of 8,400,000 shares
of its Common Stock and paid a total of $1,000,000 in cash to James Noack and
James Umphryes, collectively, as consideration for the acquisition of MMI. At
the same time, the Company acquired PreferenceAmerica from its shareholders, two
of whom were Messrs. Noack and Umphryes, for $250,000.
The Company rents on a month-to-month basis a 3,500 square foot storage
facility from James Noack for $600 per month for the storage of furniture and
equipment.
During fiscal year 1997 and earlier, the Company made loans to several
officers and employees. As of April 30, 1998 total loan balances of $59,000 to
two individuals remained outstanding. Subsequently these loans were fully
retired.
On December 16, 1996, Jose Maria Salema Garcao, a former Director and
current shareholder, purchased 1,000,000 shares of the Company's Common Stock
for $500,000 and was granted five year warrants to purchase 1,000,000 shares of
the Company's Common Stock at an exercise price of $1.00 per share. On December
28, 1996, he purchased 1,000,000 shares of the Company's Common Stock for
$500,000 and was instrumental in assisting the Company to sell an additional
5,000,000 shares of its Common Stock for $2,500,000, for which he was granted
2,500,000 five year warrants at an average exercise price of $.85 per share. On
March 21, 1997, he purchased 1,000,000 shares of the Company's Common Stock for
$600,000 for which he was granted five year warrants to purchase 600,000 shares
of the Company's Common Stock at an average exercise price of $2.00 per share.
In April 1997, he purchased 1,400,000 shares for $1,400,000, for which he was
granted five year warrants to purchase 600,000 shares of the Company's Common
Stock at an average exercise price of $2.83 per share. In October 1997, he
purchased 150,000 shares for $450,000 and was granted five year warrants to
purchase 150,000 shares of the Company's Common Stock at an exercise price of
$5.00 per share. Mr. Salema Garcao resigned from the Board effective October 16,
1998.
In October 1997, James Noack purchased 75,001 shares for $225,000 and was
granted five year warrants to purchase 75,001 shares of the Company's Common
Stock at an exercise price of $5.00 per share.
At April 30, 1998 a total of $305,000 of compensation was deferred by 4
executive officers. The compensation is payable for service during the Company's
1996 and 1997 fiscal years to Messrs. Hoeffel ($99,934), Noack ($97,177),
Rawitch ($70,667), and Winkel ($37,222).
On October 30, 1998, Fondation Pamalu, a current shareholder, agreed to
purchase 2,500,000 shares of the Company's Common Stock at $0.80 per share. In
connection with the sale, the Company has agreed to file a registration
statement with the Securities and Exchange Commission (the "SEC" or
"Commission") to register the shares.
COMPENSATION PLANS
1989 Stock Option Plan
In 1989, the Board of Directors approved the Company's 1989 Stock Option
Plan (the "1989 Plan") which plan was subsequently approved by the Company's
stockholders that same year. In 1997, the Board of Directors and the
stockholders of the Company approved certain amendments to the Plan. The 1989
Plan provides for the grant of options to officers, Directors, other key
employees and consultants of the Company to purchase up to an aggregate of
1,750,000 shares of Common Stock. The 1989 Plan is administered by the Board of
Directors or a committee thereof, which have complete discretion to select the
optionees and to establish the terms and conditions of each option, subject to
the provisions of the 1989 Plan. Options granted under the 1989 Plan may be
"incentive stock options" as defined in Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), or nonqualified options, and will be
designated as such.
The exercise price of incentive stock options may not be less than 100% of
the fair market value of the Common Stock as of the date of grant (110% of the
fair market value if the grant is to an employee who owns more than 10% of the
total combined voting power of all classes of capital stock of the Company). The
Code currently limits to $100,000 the aggregate value of Common Stock that may
be acquired in any one year pursuant to incentive stock options under the 1989
Plan or any other option plan adopted by the Company. Nonqualified options also
may be granted without regard to any restriction on the amount of Common Stock
that may be acquired pursuant to such options in any one year.
In general, upon termination of employment of an optionee, all options
granted to such person which were not exercisable on the date of such
termination would immediately terminate, and any options that are exercisable
would terminate 90 days (one year in the case of termination by reason of death
or disability) following termination of employment.
Options may not be exercised more than ten years after the date of grant
(five years after the grant if the grant is an incentive stock option to an
employee who owns more than 10% of the total combined voting power of all
classes of capital stock of the Company). Options granted under the 1989 Plan
are not transferable and may be exercised only by the respective grantees during
their lifetime or by their heirs, executors or administrators in the event of
death. Under the 1989 Plan, shares subject to options that have been cancelled
or terminated are reserved for subsequently granted options. The number of
options outstanding and the exercise price thereof are subject to adjustment in
the case of certain transactions such as mergers, recapitalizations, stock
splits or stock dividends. The 1989 Plan is effective for ten years, unless
sooner terminated or suspended.
During the fiscal year ended April 30, 1998, options to purchase 188,000
shares of Common Stock were granted under the 1989 Plan. As of that date there
were 1,012,000 options available for grant under the 1989 plan.
1998 Stock Option Plan
On February 18, 1998 the Board of Directors approved the Company's 1998
Stock Option Plan (the "1998 Plan"). The 1998 Plan is meant to replace the 1989
Plan, which by law must terminate no later than 1999. For a description of the
1998 Plan, see "Proposal 4 - Proposal to ratify the Company's 1998 Stock Option
Plan."
Stock Bonus Incentive Plan
On February 18, 1998 the Board of Directors approved the Company's Stock
Bonus Incentive Plan (the "Stock Bonus Plan"). For a description of the Stock
Bonus Plan, see "Proposal 5 - Proposal to ratify the Company's Stock Bonus
Incentive Plan."
Non-Employee Directors' Stock Option Plan
On February 18, 1998 the Board of Directors also approved the Company's
Non-Employee Directors' Stock Option Plan (the "Directors' Plan"). For a
description of the Directors' Plan, see "Proposal 6 - Proposal to ratify the
Company's Non-Employee Directors' Stock Option Plan."
Compensation Committee Report
This report is provided by the Compensation Committee of the Board of
Directors (the "Committee") to assist stockholders in understanding the
Committee's objectives and procedures in establishing the compensation of
Finet's Chief Executive Officer and other executive officers. The Committee,
made up of Outside Directors, is responsible for establishing and administering
the Company's executive compensation program. None of the members of the
Committee are eligible to receive awards under the Company's incentive
compensation programs.
Finet's executive compensation program is designed to motivate, reward, and
retain the management talent needed to achieve its business objectives and
maintain its competitiveness in the homeownership industry. It does this by
utilizing competitive base salaries that recognize a philosophy of career
continuity and by rewarding exceptional performance and accomplishments that
contribute to the Company's success.
Compensation Philosophy and Objective
The philosophical basis of the compensation program is to pay for
performance and the level of responsibility of an individual's position. The
Committee finds greatest value in executives who possess the ability to
implement the Company's business plans as well as to react to unanticipated
external factors that can have a significant impact on corporate performance.
Compensation decisions for all executives, including the Named Executive
Officers and the Chief Executive Officer, are based on the same criteria. These
include quantitative factors that directly improve the Company's short-term
financial performance, as well as qualitative factors that strengthen the
Company over the long term, such as demonstrated leadership skills and the
ability to deal quickly and effectively with difficulties which sometimes arise.
The Committee believes that compensation of Finet's key executives should:
o Link rewards to business results and stockholder returns;
o Encourage creation of stockholder value and achievement of strategic
objectives;
o Maintain an appropriate balance between base salary and short-term
and long-term incentive opportunity;
o Attract and retain, on a long-term basis, highly qualified executive
personnel; and
o Provide total compensation opportunity that is competitive with that
provided by competitors in the homeownership industry, taking into
account relative company size and performance as well as individual
responsibilities and performance.
Key Elements of Executive Compensation
Finet's executive compensation program consists of three elements: Base
Salary, Short-Term Incentives and Long-Term Incentives. Payout of short-term
incentives depends on corporate performance measured against annual objectives
and overall performance. Payout of the long-term incentives depends on
performance of Finet stock, both in absolute and relative terms.
Base Salary
A competitive base salary is crucial to support the philosophy of
management development and career orientation of executives. Salaries are
targeted to pay levels of the Company's competitors and companies having similar
capitalization and revenues, among other attributes. Executive salaries are
reviewed annually.
Short-Term Incentive
Short-term awards to executives are made in cash and in stock to recognize
contributions to the Company's business during the past year. The bonus an
executive receives is dependent on individual performance and level of
responsibility. Assessment of an individual's relative performance is made
annually based on a number of factors which include initiative, business
judgment, technical expertise, and management skills.
Stock Bonus Incentive Plan. In 1998 the Board of Directors approved,
subject to shareholder approval, the adoption of the Stock Bonus Incentive Plan
and reserved 875,000 shares for that purpose. Under the terms of the Stock Bonus
Plan the Committee may award shares of the Company's Common Stock to employees,
including executive officers.
Long-Term Incentive
Long-term incentive awards provided by shareholder-approved compensation
programs are designed to develop and maintain strong management through share
ownership and incentive awards. No long-term incentive awards were granted to
executive officers in 1998.
Stock Option Plan. The 1989 Stock Option Plan will expire in 1999. In 1998,
the Board of Directors approved, subject to shareholder approval, the adoption
of the 1998 Stock Option Plan and reserved 4,000,000 shares for that purpose. At
the sole discretion of the Committee, eligible officers and employees will
periodically receive options to purchase shares of the Company's Common Stock
pursuant to the 1998 Plan. The value of the options depends entirely on
appreciation of Finet stock. Grant of options depends upon quarterly and annual
Company performance, as determined by review of qualitative and quantitative
factors.
Employee Stock Purchase Plan. The Company has not implemented an Employee
Stock Purchase Plan under which all employees, including executive officers, may
purchase shares of the Company's Common Stock at a discount of 15% from the
market price of the shares, but expects to do so in 1999.
1998 Compensation. Finet's total revenue for the year ended April 30, 1998
increased 24% to $12.6 million, while loss from operations increased 217% to
$9.2 million. The revenue increase was due primarily to the acquisition of
Coastal Federal Mortgage and increased activity in all business units. The loss
increase resulted primarily from product development costs, unit start-up costs,
acquisition costs and related professional fees, and the write-off of intangible
assets. Compensation levels during 1998 were principally driven by a highly
competitive market in the San Francisco Bay Area, particularly for personnel
with mortgage industry experience. No cost-of-living or merit salary increases
were implemented during the year for the Named Executive Officers. With the
exception of a 100 share bonus granted to each employee as of December 25, 1998,
no bonuses of cash or stock were given nor were any stock options granted during
the year to any Named Executive Officer. Stock Options were granted to other
employees of the Company based on the employee's level of responsibility and
other factors.
1998 Chief Executive Officer Compensation
Mr. Rawitch's base salary of $150,000 has remained unchanged since 1995,
with no cost of living or merit increases. The Committee believes that the base
salary and other terms and conditions of his employment are consistent with the
foregoing philosophy and objectives and reflect the scope and level of his
responsibilities.
Members of the Compensation Committee
S. Lewis Meyer
Stephen J. Sogin
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and Directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, Directors and greater than ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on review of the copies of such forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that during the fiscal year ended April 30, 1998, all Section 16(a)
filing requirements applicable to its officers, Directors and greater than
ten-percent beneficial owners were complied with, except as follows: Jose Maria
Salema Garcao, a former Director and greater than ten-percent beneficial owner
of the Company, filed late two Forms 4, covering an aggregate of 184
transactions; James W. Noack, a former Director and greater than ten-percent
beneficial owner of the Company, filed late a Form 4, reporting one transaction;
S. Lewis Meyer, a Director of the Company, filed late a Form 3 reporting one
transaction; David Purvis, a former Director of the Company, filed late a Form 3
reporting one transaction; Paul R. Garrigues, a former executive officer of the
Company filed a late Form 3 and two late Form 4s reporting a total of three
transactions, and James A. Umphryes, a former ten-percent beneficial shareholder
of the Company, filed late a Form 3, and filed late two Forms 4 reporting a
total of four transactions.
PROPOSAL 2
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors is presenting, for approval by the shareholders, an
amendment to the Company's Certificate of Incorporation to increase the number
of authorized shares of Common Stock from 60 million to 150 million, $0.01 par
value.
As of October 15, 1998, 33,033,105 shares of Common Stock have been issued
and are outstanding and another 28,395,854 shares have been reserved for future
issuance as follows: 1,328,656 shares under the Company's 1989 Stock Option
Plan; 12,612,196 shares reserved for the exercise of warrants; 8,547,009 shares
reserved for issuance upon the conversion of Series A Preferred Stock; 3,944,515
shares reserved for sale pursuant to a shelf registration statement on Form S-3
filed with the Securities and Exchange Commission on April 23, 1998 (as amended
on May 28, 1998); and 263,478 reserved for other commitments. Additionally,
2,040,000 options have been reserved for issuance pursuant to the 1998 Stock
Option Plan, pending its approval by the shareholders.
On September 17, 1998 the Board of Directors adopted a resolution to amend
the first paragraph of Article FOURTH of the Company's Restated Certificate of
Incorporation to read in its entirety as follows:
FOURTH: Capital Stock. The total number of shares which the
Corporation shall have authority to issue is One Hundred Fifty
Million One Hundred Thousand (150,100,000) shares, consisting
of One Hundred Thousand (100,000) shares of Preferred Stock,
of the par value of one cent ($0.01) per share (hereinafter
called "Preferred Stock"), and One Hundred Fifty Million
(150,000,000) shares of Common Stock of the par value of one
cent ($0.01) per share (hereinafter called "Common Stock").
The Board believes that the authorized number of shares of Common Stock
should be increased to provide sufficient shares for such corporate purposes as
may be determined by the Board to be necessary or desirable. These purposes may
include, without limitation: acquiring other businesses in exchange for shares
of the Company's Common Stock; raising capital through the sale of Common Stock;
and attracting and retaining valuable employees by the issuance of stock
options. In addition to the shares reserved for issuance as set forth above, the
Company currently contemplates a private placement offering in November, 1998
which would result in the issuance of a substantial amount of additional Common
Stock. See: Proposal 3 - "Proposed Transactions."
Authorization of additional shares notwithstanding, as a condition to
continued listing of the Company's securities on the NASDAQ SmallCap Market, the
rules of the National Association of Securities Dealers (the "NASD") require
stockholder approval by a majority of the total votes cast in person or by proxy
prior to the issuance of designated securities (i) where the issuance would
result in a change of control of the Company, (ii) in connection with the
acquisition of the stock or assets of another company if an affiliate of the
Company has certain interlocking interests with the company to be acquired, or
where the Company issues more than twenty percent (20%) of its currently
outstanding shares of Common Stock, or (iii) in connection with a transaction
other than a public offering involving the sale or issuance of more than twenty
percent (20%) of the Common Stock or voting power outstanding before the
issuance, subject to certain exceptions or application to the NASD. Holders of
the Company's Common Stock have no preemptive or other subscription rights with
respect to future share issuances.
The additional shares of Common Stock to be authorized by Proposal 2 could
be issued in the future by the Board in ways that would make more difficult a
change in control of the Company, for instance through a private sale to
purchasers allied with management, diluting the stock ownership of the person
seeking to gain control of the Company. In addition, the issuance of additional
Common Stock could have a dilutive effect on earnings per share and on the
equity and voting rights of the present holders of Common Stock. However, the
proposed amendment is not the result of knowledge by management of any specific
effort by any person or group to obtain control of the Company, and the Company
has no present intention of issuing additional shares (other than shares already
reserved) to discourage any such effort.
The affirmative vote of the holders of a majority of the votes cast at the
Annual Meeting by the shareholders entitled to vote is required to approve this
amendment to the Certificate of Incorporation.
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 2
PROPOSAL 3
APPROVAL OF THE ISSUANCE OF COMMON STOCK, AND DEBENTURES, PREFERRED STOCK,
AND WARRANTS WHICH ARE CONVERTIBLE INTO OR EXERCISABLE FOR COMMON STOCK
General
The shareholders are being asked to ratify the issuance of Common Stock and
convertible securities to new investors which could potentially result in such
investors owning approximately 50.3% of the Company's Common Stock. Management
considers the proceeds from the Proposal 3 securities offerings to be critical
to the Company's continued viability. The Board of Directors has separately
analyzed each of the offerings and, as disclosed elsewhere in this Proposal 3,
consulted three investment banking firms to help it analyze all available
alternative sources of financing. Based on the Company's financial condition,
the price of its Common Stock, the need for additional capital, and limited
other sources of financing, the Board believes that the offerings and their
respective terms are the best available alternatives, commercially reasonable,
and in the best interests of the Company and its shareholders.
Previous Transactions
On March 18, 1998 the Company entered into a stock purchase agreement with
certain investors for the sale of $7,000,000 principal amount of the Company's
3% Subordinated Convertible Debentures (the "Debentures"), and warrants to
purchase 175,000 Common shares. The offering was held in three tranches. The
first tranch closed on March 18, 1998 and resulted in the sale of $4,000,000 of
Debentures and the issuance of 3-year warrants to purchase up to 100,000 Common
Shares at an exercisable price of $5.71 per share. An additional $1,500,000 face
amount of Debentures were sold in a second tranch to the same investors on April
20, 1998, with the investors further receiving 37,500 3-year warrants to
purchase shares of the Company's Common Stock at an exercise price of $4.88. On
May 26, 1998 the third and final tranch of the Debenture offering was closed,
for an additional $1,500,000 principal amount of Debentures, and an additional
37,500 3-year warrants at an exercise price of $5.25 per share.
The number of shares of Common Stock issuable upon conversion of the
Debentures is determined by dividing the aggregate principal amount, plus any
accrued interest at 3% per annum and certain other possible obligations, by the
lesser of (i) $5.00 per share, or (ii) 78% of the average of the closing bid
price for the Company's Common Stock for the ten consecutive trading days ending
on the trading day immediately preceding such conversion date.
Recent Transactions
On September 29, 1998, the Company raised $2,500,000 through issuance of
250 shares of its Series A Preferred Stock, and a warrant exercisable for
250,000 Common shares, to certain investors and consultants. The Company has
agreed to file a registration statement with the Commission to register the
Common Stock issuable upon conversion of the Preferred shares. Each share of
Series A Stock is convertible into Common Stock at any time on or after the
earlier of February 15, 1999 or the date the closing bid price of the Company's
Common Stock is above $1.50 per share. The conversion price floats pursuant to a
formula incorporating the length of time the Preferred shares have been held and
the market price of the common stock at the time of conversion, and assumes a
base price per Preferred share of $10,000 plus 6% interest, and a 78% discount
from market price at the time of conversion, subject to adjustment under certain
circumstances. If a share of Preferred A Stock were converted on February 15,
1999 and the price of the Company's Common Stock on that date were the same as
the price of the Company's Common Stock on the date of issuance, each share of
Preferred A Stock would be convertible into approximately 17,482 shares of
Common Stock. If any Preferred A Stock remains outstanding on September 29,
2000, then all such shares will be converted pursuant to the floating conversion
formula.
On October 30, 1998, the Company agreed to sell 2,500,000 Common shares in
a private placement to Fondation Pamalu, a current shareholder of the Company at
$0.80 per share, for a total consideration of $2,000,000. In connection with the
sale the Company agreed to reduce the exercise price of 1,000,000 Common Stock
Purchase Warrants owned by the purchaser from $5.00 to $1.00 per share.
Proposed Transactions
The Company currently contemplates making a private placement of up to an
additional 30,000,000 shares of Common Stock at $1.00 per share, or the five day
weighted average closing price for the Common Stock, whichever is less. The
offering is expected to commence in November, 1998. If all of the shares offered
in the private placement are sold, 3,000,000 warrants will be issued to
investment bankers for services in connection with the offering. The warrants
will have a five year term and a per share exercise price of $1.25. The Company
intends to file a registration statement with the Commission to register the
Common Stock issued to investors and the Common Stock issuable to the warrant
holders. Proceeds from the offering are expected to be allocated for operational
and financial needs, infrastructure investment, e-commerce business development,
and repayment of outstanding debentures.
The terms of the Debentures are currently the subject of renegotiation. The
terms agreed to in principle provide that the number of shares of the Company's
Common Stock issuable to the Debenture holders upon conversion would be
restructured as follows. $1,100,000 worth of the $7,000,000 principal amount of
Debentures, plus accrued interest, would be immediately convertible into Common
Stock at $0.50 per share. $2,900,000 worth plus accrued interest will be
convertible into approximately $4,880,000 worth of newly issued Series B
Preferred Stock of the Company, which will in turn convert into Common shares.
The Series B will convert at the rate of 101% of the average of the closing bid
price for the Company's Common Stock for the ten consecutive trading days ending
on the trading day immediately preceding the conversion date. The remaining
$3,000,000 worth plus accrued interest would be restructured into approximately
$5,000,000 of new debentures which would be convertible into Common shares at
the same rate, but will not be convertible prior to February 15, 1999, unless
the bid price for the Common Stock closes above $1.50 per share before that
date.
Potential Dilution to Current Shareholders
The following chart sets forth the potential dilutive effect which could
result from the securities offerings described in this Proposal 3:
<TABLE>
<CAPTION>
Potential Dilution
Number of Shares Percent of Beneficial Ownership
---------------- -------------------------------
After Proposal 3 Offerings
--------------------------
<S> <C> <C>
Common Stock issued and outstanding 33,033,105 32.7%
as of October 15, 1998
Shares reserved as of October 15, 17,115,814 17.0%
1998 for issuance to existing
shareholders under convertible
securities, excluding the Proposal
3 securities
Common shares issuable under the 50,794,406 50.3%
Proposal 3 securities1
Total 100,943,325 100%
<FN>
1 Assuming a conversion price of $1.00 per Common share (the closing price on
October 29, 1998), of such 50,794,406 shares: 2,241,047 are issuable upon
conversion of $1.1 million of Debentures which can immediately convert;
5,050,466 are issuable upon conversion of $3.0 million of Debentures which can
convert beginning February 15, 1999; 4,883,643 are issuable upon conversion of
$2.9 million of Series B Preferred Stock which can convert beginning February
15, 1999; 2,556,750 shares are issuable upon conversion of 250 shares of Series
A Preferred Stock; 2,500,000 are reserved for sale pursuant to an agreement with
Fondation Pamalu dated October 30, 1998; 562,500 are currently exercisable under
warrants issued in connection with previous Proposal 3 transactions; and
30,000,000 are Common shares currently contemplated to be offered in a private
placement in November, 1998, with 3,000,000 warrants issuable to the Company's
investment bankers if all such 30,000,000 shares are sold.
</FN>
</TABLE>
The foregoing table assumes the conversion of all currently outstanding
convertible securities (excluding convertible securities outstanding under the
Proposal 3 offerings), and the exercise of all currently outstanding stock
options. If none of such convertible securities are converted and none of such
stock options are exercised, and all of the Proposal 3 offerings are fully
subscribed, the percentage beneficial ownership of the investors in the Proposal
3 offerings would be approximately 60.6%.
Reasons for the Transactions
The proceeds from the Proposal 3 securities offerings are critical to the
Company's continued viability. The primary business purposes of the offerings
are to fund strategic acquisitions and to finance continuing operations. The
Company has incurred, and expects to continue to incur, substantial expenses as
the result of the various costs associated with the acquisitions of Coastal
Federal Mortgage Company on April 30, 1998 and MICAL Mortgage, Inc. on May 19,
1998. The proceeds from the Proposal 3 offerings are also critical in
maintaining the Company's net worth at a level required by its warehouse line of
credit, which is the principal source of funds for newly originated loans to its
borrowing customers. External factors also led the Company to seek additional
financing, including the recent volatility in the market for small
capitalization stocks.
Primarily as a result of the one-time costs associated with funding of
start up operations, the write off of intangibles, the costs associated with the
Coastal, MICAL, and other acquisitions, and real estate foreclosures, the
Company's expenses increased 65% from $13.0 million in 1997 to $21.7 million in
1998. During fiscal years 1997 and 1998 additional revenue sources were
developed, however, to date the cash consumed from the commencement of these
activities exceeded total cash generated. Cash from the Proposal 3 securities
offerings has been used to offset the operating cash shortfall.
The Company's day-to-day financing activities involve the use of cash to
fund its lending activities. The Company must advance cash on a daily basis to
fund newly originated loans to its borrower customers. The majority of these
funds are provided through a conventional mortgage warehouse line of credit from
Residential Funding Corporation ("RFC"). The Company maintains a $79 million
committed warehouse facility and a $25 million uncommitted gestation facility
with RFC. The borrowing agreements for these lines of credit contain various
financial covenants, among them a requirement that the Company maintain a
certain net worth. Due in large part to operating losses carried forward for the
past two years, as of April 30, 1998 the Company was in breach of the tangible
net worth requirement of its debt covenants. Subsequent to April 30, 1998 RFC
issued a formal waiver of the breach. The Proposal 3 securities offerings are an
essential component of increasing the Company's net worth so that it can
increase its mortgage funding levels necessitated by business development and
the Coastal and MICAL acquisitions.
During 1998 the Company retained three investment banking firms to advise
it in connection with its financing activities: Piper Jaffray Inc., Rochon
Capital Group, Ltd., and J.P. Carey Securities, Inc. Due to the factors
discussed above, the offerings were effected on a very accelerated timetable.
The Company does not expect that the Proposal 3 securities offerings will
result, individually or in the aggregate, in a change in control of the Company.
The shareholders are being asked to ratify the issuance of the Common
Stock, Debentures, Preferred Stock, and the warrants, and to authorize the
Common shares issuable upon conversion or exercise of those securities pursuant
to NASDAQ listing maintenance Rules. The affirmative vote of a majority of the
Common shares present, in person or by proxy, and entitled to vote at the Annual
Meeting is required to approve Proposal 3.
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 3
PROPOSAL 4
PROPOSAL TO APPROVE THE COMPANY'S 1998 STOCK OPTION PLAN
General
In May 1998, the Board of Directors unanimously adopted the Company's 1998
Stock Option Plan (the "1998 Plan") in order to retain the services of qualified
officers, Directors, employees and consultants, and to provide such persons with
benefits comparable to those provided by corporations similar to the Company.
The 1998 Plan provides for the grant of options to officers, Directors, other
employees and consultants of the Company to purchase up to an aggregate of
4,000,000 shares of Common Stock. As of October 15, 1998 there were
approximately 330 persons in the class eligible to participate in the 1998 Plan.
The 1998 Plan may be administered by the Board of Directors or a committee
thereof, which have complete discretion to select the optionees and to establish
the terms and conditions of each option, subject to the provisions of the 1998
Plan. Options granted under the 1998 Plan may be "incentive stock options" as
defined in Section 422 of the Code, or nonqualified options, and will be
designated as such. The following is a summary of the material features of the
1998 Plan and is qualified in its entirety by reference to it. A copy of the
1998 Plan is attached hereto as Exhibit A.
The exercise price of incentive stock options may not be less than the fair
market value of the Common Stock as of the date of grant (110% of the fair
market value if the grant is to an employee who owns more than 10% of the total
combined voting power of all classes of capital stock of the Company). The Code
currently limits to $100,000 the aggregate value of Common Stock that may become
exercisable for the first time in any one year pursuant to incentive stock
options under the 1998 Plan or any other option plan adopted by the Company.
Nonqualified options may be granted under the 1998 Stock Option Plan at an
exercise price not less than 85% of the fair market value of the Common Stock on
the date of grant. Nonqualified options also may be granted without regard to
any restriction on the amount of Common Stock that may become exercisable
pursuant to such options in any one year.
In general, upon termination of employment of an optionee, all options
granted to such person which were not exercisable on the date of such
termination would immediately terminate, and any options that are exercisable
would terminate 90 days (one year in the case of termination by reason of death
or disability) following termination of employment.
Options may not be exercised more than ten years after the grant (five
years after the grant if the grant is an incentive stock option to an employee
who owns more than 10% of the total combined voting power of all classes of
capital stock of the Company). Options granted under the 1998 Plan are not
transferable and may be exercised only by the respective grantees during their
lifetime or by their heirs, executors or administrators in the event of death.
Under the 1998 Plan, shares subject to options that have been cancelled or
terminated are available for subsequently granted options. The number of options
outstanding and the exercise price thereof are subject to adjustment in the case
of certain transactions such as recapitalizations, stock splits or stock
dividends. The 1998 Plan is effective for ten years, unless sooner terminated or
suspended.
Certain Federal Income Tax Consequences of the 1998 Plan
Incentive stock options under the 1998 Plan are afforded favorable federal
income tax treatment under the Code. If an option is treated as an incentive
stock option, the optionee will recognize no income upon grant or exercise of
the option unless the alternative minimum tax rules apply. Upon an optionee's
sale of the shares (assuming that the sale occurs at least two years after grant
of the option and at least one year after exercise of the option), any gain will
be taxed to the optionee as long-term capital gain. If the optionee disposes of
the shares prior to the expiration of the above holding periods, then the
optionee will recognize ordinary income in an amount generally measured as the
difference between the exercise price and the lower of the fair market value of
the shares at the exercise date or the sale price of the shares. Any gain or
loss recognized on such a premature sale of the shares in excess of the amount
treated as ordinary income will be characterized as capital gain or loss.
All other options granted under the 1998 Plan are nonqualified stock
options and will not qualify for any special tax benefits to the optionee. An
optionee will not recognize any taxable income at the time he or she is granted
a nonqualified stock option. However, upon exercise of the nonqualified stock
option, the optionee will recognize ordinary income for federal income tax
purposes in an amount generally measured as the excess of the then fair market
value of each share over its exercise price. Upon an optionee's resale of such
shares, any difference between the sale price and the fair market value of such
shares on the date of exercise will be treated as capital gain or loss and will
generally qualify for long-term capital gain or loss treatment if the shares
have been held for more than one year. Recently enacted legislation provides for
reduced tax rates for long-term capital gains based on the taxpayer's income and
the length of the taxpayer's holding period.
The foregoing does not purport to be a complete summary of the federal
income tax considerations that may be relevant to holders of options or to the
Company. It also does not reflect provisions of the income tax laws of any
municipality, state or foreign country in which an optionee may reside, nor does
it reflect the tax consequences of an optionee's death.
New Plan Benefits
Pending approval of the 1998 Plan by the shareholders, options to purchase
a total of 2,040,000 Common shares have been awarded as follows. Mark L. Korell,
Chief Executive Officer, has been awarded 1,300,000 shares at an exercise price
of $0.56 per share. Michael G. Conway, Executive Vice President - Capital
Markets, has been awarded 300,000 share at an exercise price of $0.66 per share.
Thomas L. Porter, Executive Vice President - Finance and Administration, has
been awarded 200,000 shares at an exercise price of $0.75 per share, and 100,000
shares at $0.66 per share. Tony Miller, an employee of the Company, has been
awarded an option to purchase 80,000 shares at an exercise price of $0.50 per
share. An option for 60,000 shares at an exercise price of $3.38 per share has
been awarded to Seton Services, Inc., a consultant to the Company. All of the
options described in this paragraph are subject to vesting over a three or four
year term.
Other than as set forth above, no awards to any person have been made under
the 1998 Plan, and no decisions with respect to the identity of any other
persons who may receive awards in the future or the type or amount of such
awards have been made.
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL FOUR
PROPOSAL 5
PROPOSAL TO APPROVE AND ADOPT THE
1998 STOCK BONUS INCENTIVE PLAN
General
The stockholders will be asked at the meeting to vote on a proposal to
approve and adopt the 1998 Stock Bonus Incentive Plan (the "Stock Bonus Plan").
The Stock Bonus Plan was approved by the Board of Directors on February 18,
1998. The purpose of the Stock Bonus Plan is to further the interests of the
Company by encouraging selected officers, Directors, consultants and key
employees upon whose judgment, initiative and effort the Company is largely
dependent for the successful conduct of its business, to acquire a proprietary
interest in the Company. As of October 15, 1998 there were approximately 330
persons in the class eligible to participate in the Stock Bonus Plan. The
following is a summary of the material features of the Stock Bonus Plan and is
qualified entirely by reference to it. A copy of the Stock Bonus Plan is
attached hereto as Exhibit B.
The Board has authorized up to an aggregate of 875,000 shares of Common
Stock for issuance as bonus awards under the Stock Bonus Plan. Adjustments to
the amounts of shares reserved for issuance under the Stock Bonus Plan will be
made in the event the outstanding shares of the Company are increased or
decreased as a result of any stock split, recapitalization or similar change in
corporate structure.
The Stock Bonus Plan will be administered by the Company's Board of
Directors, which will have the power to construe and interpret the terms and
provisions of the Stock Bonus Plan. The Stock Bonus Plan permits the Board of
Directors to delegate some or all of its powers with respect to the Stock Bonus
Plan to a committee. Bonus shares may be granted under the Stock Bonus Plan to
any of the Company's employees, Directors, officers and to consultants or
advisers to the Company, provided that bona fide services are rendered by such
consultants or advisers.
Each grant of bonus shares shall become vested according to a schedule to
be established by the committee at the time of grant. Once a recipient of bonus
shares ceases to remain employed by the Company or to provide services to the
Company, any Shares not fully vested will be forfeited by the recipient and
returned to the Bonus Share Reserve. The committee, in its discretion, may also
impose restrictions on the future transferability of the bonus shares.
A participant in the Stock Bonus Plan will be taxed on the value of the
shares of Common Stock issued pursuant thereto on the award of such shares. The
participant will recognize as income the full fair market value of the shares at
ordinary income tax rates in effect at that time.
New Plan Benefits
No awards to any person have been made under the Stock Bonus Plan, and no
decisions with respect to the identity of persons who may receive awards in the
future or the type or amount of such awards have been made.
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 5
PROPOSAL 6
PROPOSAL TO APPROVE THE 1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
General
On February 18, 1998, the Board of Directors adopted, subject to
stockholder approval, the 1998 Non-Employee Directors' Stock Option Plan (the
"Directors' Plan"). The purpose of the Directors' Plan is to advance the
interests of the Company by enhancing the ability of the Company to attract and
retain Outside Directors who are in a position to make significant contributions
to the success of the Company and to reward Directors for such contributions
through ownership of shares of the Company's Common Stock. A maximum of 500,000
shares may be delivered upon the exercise of options granted under the
Directors' Plan. The following is a summary of the material provisions of the
Directors' Plan and is qualified in its entirety by reference to the complete
text of the Directors' Plan, which is attached to this Proxy Statement as
Exhibit C.
The Directors' Plan will be administered by the Company's Board of
Directors, which will have the power to construe and interpret the terms and
provisions of the Directors' Plan. The Directors' Plan permits the Board of
Directors to delegate some or all of its powers with respect to the Directors'
Plan to a committee. Only Directors of the Company who are not employees of or
full-time consultants to the Company or any subsidiary of the Company (the
"Outside Directors") are eligible to participate in the Directors' Plan. Messrs.
Guedes, Meyer and Sogin currently qualify as Outside Directors.
Each person elected for the first time to be a non-employee Director
automatically receives an option to purchase 40,000 shares of the Company's
Common Stock. The Directors' Plan also provides that every Outside Director is
to receive an option to purchase 40,000 shares on January 1st of each year if
such Director served continuously as such for the entire preceding twelve
months. The exercise price of the options is 85% of the fair market value of the
Common Stock on the date of grant, except that the price shall be 110% of the
fair market value in the case of any Director who owns stock possessing more
than 10% of the total combined voting power of the Company.
All options granted under the Directors' Plan will be subject to a vesting
schedule within the discretion of the Board. Typically, the options granted to
Directors will vest 25% per year on the anniversary of the date of grant and
have a term of five years. Each option terminates prior to the expiration date
if the optionee's service as a Outside Director, or, subsequently as an
employee, of the Company terminates.
The Company has a right to repurchase shares of stock issued or issuable
upon exercise of an option grant not subject to any vesting schedule. If the
service of a non-employee Director is terminated for any reason other than by
death or total disability, the Company has the option to repurchase all of such
Director's stock issued or issuable under such option. The repurchase price will
be the original per share purchase price of the option, however the right to
repurchase at this price lapses at the rate of 25% per year, starting with the
first anniversary date of the option grant.
The Board of Directors may at any time terminate the Directors' Plan, but
options granted will not be affected by any such action. The Board of Directors
may at any time amend the Directors' Plan for any purpose. If approved by the
Stockholders, and if not terminated sooner, no options may be granted under the
Directors' Plan after February 18, 2008.
New Plan Benefits
1998 Non-Employee Directors' Stock Option Plan
Name and Position Number of Shares 1 Dollar Value 2
- ----------------- ------------------- ---------------
Jose Philipe Guedes 25,000 $14,000
S. Lewis Meyer 25,000 $14,000
Stephen J. Sogin 25,000 $14,000
1 These amounts represent what would have been awarded in shares of Common
Stock if the Directors' Plan had been in effect during the fiscal year ended
April 30, 1998. Note that such amounts were granted under the 1989 Plan, in
lieu of a Directors' Plan (See Table: "Options Granted in Fiscal Year Ended
April 30, 1998").
2 Based upon the assumption that the purchase price for one share of Common
Stock on the date of grant was $0.56.
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL SIX
INDEPENDENT PUBLIC ACCOUNTANTS
Reuben E. Price & Co. has served as the Company's independent auditors for
the year ended April 30, 1998, and the Board of Directors has appointed such
firm as independent auditors for the fiscal year ended April 30, 1999. A
representative of Reuben E. Price & Co. will be available at the Annual Meeting
to respond to appropriate questions or make other statements such representative
deems appropriate.
OTHER BUSINESS
The Board of Directors knows of no other business that will be presented
for consideration at the Annual Meeting. If other matters are properly brought
before the meeting, however, it is the intention of the persons named in the
accompanying Proxy to vote the shares represented thereby on such matters in
accordance with their best judgment.
By order of the Board of Directors,
/s/ Jan C. Hoeffel
---------------------------------------
Jan C. Hoeffel
Secretary
November 6, 1998
<PAGE>
FINET HOLDINGS CORPORATION
Proxy Solicited by Board of Directors
For Annual Meeting of Shareholders - November 24, 1998
Mark L. Korell and L. Daniel Rawitch, or either of them, each with the
power of substitution and revocation, are hereby authorized to represent the
undersigned with all powers which the undersigned would possess if personally
present, to vote the securities of the undersigned at the Annual Meeting of
shareholders of FINET HOLDINGS CORPORATION, to be held at One Embarcadero
Center, 26th Floor Main Conference Room, San Francisco, California, at 9:00 a.m.
local time on Thursday, November 24, 1998, and at any postponements or
adjournments of that meeting as set forth below, and in their discretion upon
any other business that may properly come before the meeting.
THE BOARD OF DIRECTORS RECOMMENDS AN AFFIRMATIVE VOTE FOR THE NOMINEES FOR
DIRECTOR LISTED BELOW:
1. To elect directors to hold office until the 1999 Annual Meeting of
shareholders or until their successors are elected.
[_] FOR all nominees [_] WITHHOLD AUTHORITY
listed below (except to vote for all nominees
as marked below) listed below
Mark L. Korell L. Daniel RawitchJose Philipe Guedes
Stephen J. Sogin S. Lewis Meyer Jan C. Hoeffel
To withhold authority to vote for any nominee, write that nominee's name below:
- --------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS AN AFFIRMATIVE VOTE FOR PROPOSAL TWO BELOW:
2. To approve an amendment to the Company's Certificate of Incorporation to
increase the number of shares the Company is authorized to issue to 150,100,000
shares, of which 150,000,000 shares will be Common Stock and 100,000 shares will
be Preferred Stock.
[ ] FOR approving the amendment [ ] AGAINST approving the amendment
to the Company's Certificate to the Company's Certificate of
of Incorporation Incorporation
THE BOARD OF DIRECTORS RECOMMENDS AN AFFIRMATIVE VOTE FOR PROPOSAL THREE BELOW:
3. To ratify the issuance of the Company's Common Stock and convertible
securities to new investors which could potentially result in their owning
approximately 50.3% of the Company's Common Stock.
[ ] FOR ratifying the issuance [ ] AGAINST ratifying the issuance
of Common Stock of Common Stock
and Convertible Securities and Convertible Securities
THE BOARD OF DIRECTORS RECOMMENDS AN AFFIRMATIVE VOTE FOR PROPOSAL FOUR BELOW:
4. To approve the Company's 1998 Stock Option Plan, and to approve the
number of shares authorized thereunder.
[ ] FOR approving the [ ] AGAINST approving the 1998
1998 Stock Option Plan Stock Option Plan and shares
and shares authorized authorized thereunder
thereunder
THE BOARD OF DIRECTORS RECOMMENDS AN AFFIRMATIVE VOTE FOR PROPOSAL FIVE BELOW:
5. To approve the Company's 1998 Stock Bonus Incentive Plan, and to approve
the number of shares authorized thereunder.
[ ] FOR approving the 1998 [ ] AGAINST approving the 1998 Stock
Stock Bonus Incentive Plan Bonus Incentive Plan and
and shares authorized thereunder shares authorized thereunder
THE BOARD OF DIRECTORS RECOMMENDS AN AFFIRMATIVE VOTE FOR PROPOSAL SIX BELOW:
6. To approve the Company's 1998 Non-Employee Directors' Stock Option Plan,
and to approve the number of shares authorized thereunder.
[ ] FOR approving the 1998 [ ] AGAINST approving the 1998
Non-Employee Directors' Stock Non-Employee Directors' Stock
Option and shares authorized Option Plan and shares authorized
thereunder thereunder
The undersigned hereby acknowledge receipt of (a) Notice of Annual Meeting
of Shareholders to be held November 24, 1998, and (b) the accompanying Proxy
Statement.
Date: ______________________, 1998
----------------------------------
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Please sign exactly as signature appears at left.
Executors, administrators, traders, guardians,
attorneys-in-fact, etc. should give their full
titles. If signer is a corporation, please give
full corporate name and have a duly authorized
officer sign, stating title. If a partnership,
please sign in partnership name by authorized
person. If stock is registered in two names,
both should sign.
EXHIBIT A
FINET HOLDINGS CORPORATION
1998 STOCK OPTION PLAN
1. Purpose and Scope. The purposes of this Plan are to induce persons of
outstanding ability and potential to join and remain with Finet Holdings
Corporation (the "Company"), to provide an incentive for such employees as well
as for non-employee consultants to expand and improve the profits and prosperity
of the Company by enabling such persons to acquire proprietary interests in the
Company, and to attract and retain key personnel through the grant of Options to
purchase shares of the Company's common stock. As used herein, the term "Option"
includes both Incentive Stock Options and Non-Qualified Stock Options.
2. Definitions. Each term set forth in this Section 2 shall have the meaning set
forth opposite such term for purposes of this Plan unless the context otherwise
requires, and for the purposes of such definitions, the singular shall include
the plural and the plural shall include the singular:
(a) "Affiliate" shall mean any parent corporation or subsidiary corporation
of the Company as those terms are defined in Sections 424(e)and (f) respectively
of the Internal Revenue Code of 1986, as amended.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Committee" shall have the meaning set forth in Section 3 hereof.
(d) "Company" shall mean Finet Holdings Corporation, a Delaware
corporation.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Fair Market Value" for a share of Stock means the price that the
Board or the Committee acting in good faith determines, through any reasonable
valuation method (including but not limited to reference to prices existing in
any established market in which the Stock is traded), to be the price at which a
share of Stock might change hands between a willing buyer and a willing seller,
neither being under any compulsion to buy or to sell and both having reasonable
knowledge of the relevant facts.
(g) "Option" shall mean a right to purchase Stock granted pursuant to the
Plan.
(h) "Exercise Price" shall mean the purchase price for Stock under an
Option, as determined in Sections 7 - "Incentive Stock Options" - and 8 -
"Non-Incentive Stock Options" - below.
(i) "Participant" shall mean an employee or non-employee consultant to the
Company to whom an Option is granted under the Plan.
(j) "Plan" shall mean this Finet Holdings Corporation 1998 Stock Option
Plan.
(k) "Stock" shall mean the $0.01 par value common stock of the Company.
(l) "1934 Act" means the Securities Exchange Act of 1934, as amended.
3. Administration.
The Plan shall be administered (i) with respect to individuals who
receive options under the Plan and who are or become subject to the reporting
requirements and short-swing liability provisions of Section 16 of the
Securities Exchange Act of 1934, as amended (the "1934 Act") ("Reporting
Persons") by a committee consisting of at least two members of the Board of
Directors of the Company (the "Board"), each of whom is a non-employee director
(as such term is defined under Rule 16b-3 of the 1934 Act) (the "Reporting
Persons Committee") and (ii) with respect to all individuals who receive Options
under the Plan and are who are not Reporting Persons, by a committee which
consists of at least two members of the Board (the "Stock Option Committee").
For purposes of this Plan, references to the "Committee" shall mean the
Reporting Persons Committee, the Stock Option Committee, or both, as the context
may require.
The Committee shall have full authority in its discretion,
subject to and not inconsistent with the express provisions of the Plan, to
grant Options, to determine the Exercise Price and term of each Option, the
persons to whom, and the time or times at which, Options shall be granted and
the number of shares of Stock to be covered by each Option; to interpret the
Plan; to prescribe, amend, and rescind rules and regulations relating to the
Plan; to determine the terms and provisions of the option agreements (which need
not be identical) entered into in connection with the grant of Options under the
Plan; and to make all other determinations deemed necessary or advisable for the
administration of the Plan. The Board may delegate to one or more of their
members, or to one or more agents, such administrative duties as it may deem
advisable, and the Board or any person to whom it has delegated duties as
aforesaid may employ one or more persons to render advice with respect to any
responsibility the Board or such person may have under the Plan. The Board may
employ attorneys, consultants, accountants, or other persons, and the Board
shall be entitled to rely upon the advice, opinions, or valuations of such
persons. All actions taken and all interpretations and determinations made by
the Board in good faith shall be final and binding upon all Participants, the
Company, and all other interested persons. No member of the Board shall be
personally liable for any action, determination, or interpretation made in good
faith with respect to the Plan; and all members of the Board shall be fully
protected by the Company in respect of any such action, determination, or
interpretation.
4. Shares Subject to the Plan. Subject to adjustment under the provisions
of Section 14 - "Effect of Change in Stock Subject to Plan" - of the Plan, the
maximum number of shares of Stock that may be optioned or sold under the Plan is
Four Million (4,000,000). Such shares may be authorized but unissued shares of
Stock of the Company, or issued shares of Stock reacquired by the Company, or
shares purchased in the open market expressly for use under the Plan. If for any
reason any shares of Stock as to which an Option has been granted cease to be
subject to purchase thereunder, then (unless the Plan shall have been
terminated) such shares shall become available for subsequent awards under this
Plan in the discretion of the Board. The Company shall, at all times while the
Plan is in force, reserve such number of common shares as will be sufficient to
satisfy the requirements of all outstanding Options granted under the Plan.
5. Eligibility; Factors to be Considered in Granting Options.
(a) Options may be granted to: (i) any regular full-time employee
(including officers and directors) of either the Company or any affiliate
of the Company; and (ii) any non-employee consultant of the Company.
(b) In determining to whom options shall be granted and the number of
shares of Stock to be covered by each Option, the Board shall take into
account the nature the participants' duties, their present and potential
contributions to the success of the Company, and such other factors as it
shall deem relevant in connection with accomplishing the purposes of the
Plan. The Board shall also determine the time(s) of grant, the type and
term of Option granted, and the time(s) of exercise, in whole or part. A
Participant who has been granted an Option under the Plan may be granted
new Options, which may be in addition to prior Options granted under the
Plan or may be in exchange for the surrender and cancellation of prior
Options having a higher or lower Exercise Price and containing such other
terms as the Board may deem appropriate.
6. Terms and Conditions of Options.
(a) General. Options granted pursuant to the Plan shall be authorized
by the Board and shall be evidenced by agreements ("Option Agreements") in
such form as the Board from time to time shall approve. Such Option
Agreements shall comply with and be subject to the following general terms
and conditions, and shall also comply with and be subject to the provisions
of Section 7 relating to Incentive Stock Options or Section 8 relating to
Non-Qualified Stock Options, as applicable, as well as such other terms and
conditions as set forth in this Plan and as the Board may deem desirable,
not inconsistent with the Plan.
(b) Employment Agreement. The Committee may, in its discretion,
include in any Option granted under the Plan a condition that the
Participant shall agree to remain in the employ of, and/or to render
services to, the Company for a period of time (specified in the Option
Agreement) following the date the Option is granted. No such Option
Agreement shall impose upon the Company any obligation to employ and/or
retain the Participant for any period of time.
(c) Manner of Exercise. A Participant may exercise an Option by giving
written notice of such exercise to the Company at its principal office,
attention to the Secretary, and paying the Exercise Price either (i) in
cash in full at the time of exercise, or (ii) in the discretion of the
Board:
(i) by delivery of other previously outstanding
common stock of the Company,
(ii) by an approved deferred payment schedule or
other arrangement, which arrangement shall be contained in
writing in the Option Agreement, in which event an interest
rate will be stated which is not less than the rate then
specified which will prevent any imputation of higher
interest under Section 483 of the Code,
(iii) by retention by the Company of some of the
Stock as to which the Option is then being exercised, in
which case the Optionee's notice of exercise shall include a
statement (1) directing the Company to retain so many shares
that would otherwise have been delivered by the Company upon
exercise of this Option as equals the number of shares that
would have been surrendered to the Company if the purchase
price had been paid with previously outstanding stock of the
Company, and (2) confirming the aggregate number of shares
as to which this Option is being thus exercised and
therefore surrendered, or
(iv) in any other form of legal consideration
acceptable to the Committee at the time of grant or
exercise.
(d) Time of exercise. Promptly after the exercise of an Option
and the payment of the Exercise Price, either in full or pursuant to
the approved payment schedule, the Participant shall be entitled to
the issuance of a stock certificate evidencing ownership of the
appropriate number of shares of Stock. A Participant shall have none
of the rights of a shareholder until shares are issued to him/her, and
no adjustment will be made for dividends or other rights for which the
record date has occurred prior to the date such stock certificate is
issued.
(e) Number of shares. Each Option shall state the total number of
shares of Stock to which it pertains.
(f) Option Period and Limitations on Exercise. The Board may, in
its discretion, provide that an Option may not be exercised in whole
or part for any period(s) of time specified in the Option Agreement,
except that the right to exercise must be at the rate of at least 20%
per year over five years from the date the Option is granted, subject
to the further conditions of the Plan and the Option Agreement such as
continued employment. However, in the case of an Option granted to
officers, directors, or non-employee consultants of the Company or any
of its affiliates, the Option may become fully exercisable, subject to
the further conditions of the Plan and the Option Agreement, at any
time or during any period established by the Company or its
affiliates. The exercise period shall be stated in the Option
Agreement. No Option may be exercised after the expiration of ten
years from the Grant Date. No Option may be exercised as to less than
one hundred (100) shares at any one time, or the remaining shares
covered by the Option if less than one hundred (100).
7. Incentive Stock Options. The Board may grant Incentive Stock Options
("ISOs") which meet the requirements of Section 422 of the Code, as amended
from time to time.
(a) ISOs may be granted only to employees of the Company or its
affiliates.
(b) Each ISO granted under the Plan must be granted within 10
years from the date the Plan is adopted or is approved by the
shareholders of the Company, whichever is earlier.
(c) The purchase price shall not be less than the Fair Market
Value of the common shares at the time of grant, except that the
purchase price shall be 110% of the Fair Market Value in the case of
any person who owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or its
affiliates at the time of grant.
(d) No ISO granted under the Plan shall be exercisable more
than 10 years from the date of grant, except that in the case of any
person who owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or its affiliates
at the time of grant, no ISO shall be exercisable more than five
years from the date of grant.
(e) To the extent that the aggregate Fair Market Value of stock
(determined at the time of grant) with respect to which ISOs are
exercisable for the first time by any individual during any
calendar year under all plans of the Company and its subsidiaries
exceeds $100,000, such options shall be treated as Non-Qualified
stock options, but only to the extent of such excess. Should it be
determined that an entire option or any portion thereof does not
qualify for treatment as an ISO by reason of exceeding such
maximum, or for any other reason, such option or portion shall be
considered a Non-Qualified stock option.
8. Non-Qualified Stock Options. The Board may grant Non-Qualified Stock
Options ("NSOs") under the Plan in addition to or in lieu of Incentive Stock
Options. NSOs are not intended to meet the requirements of Section 422 of the
Code, and shall be subject to the following terms and conditions:
(a) NSOs may be granted to any eligible Participant.
(b) The purchase price of the shares shall be determined by the Board
in its absolute discretion, but in no event shall such purchase price be
less than 85% of the Fair Market Value of the shares at the time of grant.
In the case of any person who owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or its
affiliates at the time of grant, the price shall be 110% of the Fair Market
Value.
(c) NSOs shall not be exercisable more than ten years from the date of
grant.
9. Transferability. Options granted under this Plan shall not be
transferable other than by will or by the laws of descent and distribution, and
during a Participant's life shall be exercisable only by such Participant.
Options granted under this Plan shall not be subject to execution, attachment or
other process.
10. Termination of Employment. Options held by employees, including
directors, shall terminate three months after termination of employment with the
Company or affiliate, unless:
(a) If employment is terminated for cause, as such term is defined by
California law, the employer's contract of employment or the Option Agreement,
the Option shall immediately terminate.
(b) If termination is due to the employee's permanent and total
disability within the meaning of Section 22(e)(3) of the Code, the Option may be
exercised at any time within one year following termination.
(c) The Option Agreement by its terms specifies whether it shall
terminate later than three (3) months after termination of employment. If the
Option may be exercised later than three months following termination, any
portion exercised beyond three months shall be a non-qualified stock option.
This paragraph shall not be construed to extend the term of any Option nor to
permit anyone to exercise the Option after expiration of its term.
(d) Options granted under this Plan shall not be affected by any
change of duties or position of the Participant so long as Participant continues
to be a regular, full-time employee of the Company. Any Option, or any rules and
regulations relating to the Plan, may contain such provisions as the Board shall
approve with reference to the determination of the date employment terminates.
Nothing in the Plan or in any Option granted pursuant to the Plan shall confer
upon any Participant any right to continue in the employ of the Company or shall
interfere in any way with the right of the Company to terminate such employment
at its will at any time.
11. Rights in the Event of Death. If an employee dies during the term of
this Option, his/her legal representative or representatives, or the person or
persons entitled to do so under the employee's last will and testament or under
applicable intestate laws, shall have the right to exercise this Option, but
only for the number of shares as to which the employee was entitled to exercise
this Option on the date of his death, and such right shall expire and this
Option shall terminate six (6) months after the date of Grantee's death or on
the expiration date of this Option, whichever date is sooner. In all other
respects, this option shall terminate upon such death.
12. Leaves of Absence. For purposes of the Plan, an employee on approved
leave of absence from the Company shall be considered as currently employed for
90 days following beginning the leave or for so long as his/her right to
reemployment is guaranteed by statute or contract, whichever is longer.
13. Effect of Change in Stock Subject to Plan.
(a) In the event that outstanding common shares are hereafter changed
by reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split, combination of shares, stock dividends and the
like, the Board shall make adjustments as it deems appropriate in the aggregate
number of shares advisable under the Plan and the number and price subject to
outstanding option. Any adjustment shall apply proportionately and only to the
unexercised portion of options granted.
(b) In the event the Company dissolves or liquidates or another entity
succeeds to its assets, or in the event of a merger or consolidation in which
the Company is not the surviving entity, or in the event of a reverse merger in
which the Company survives but its common stock immediately preceding the merger
is converted into other property by virtue of the merger, then the surviving
entity shall assume the outstanding Options or substitute similar Options for
those outstanding.
14. Agreement and Representation of Employees.
(a) Acquiring stock for investment purposes. As a condition to the
exercise of any Option, the Company may require the person exercising such
Option to represent and warrant at the time of such exercise that any shares of
Stock acquired at exercise are being acquired only for investment and without
any present intention to sell or distribute such shares if, in the opinion of
Company's counsel, such representation is required or desirable under the
Securities Act of 1933 or any other applicable law, regulation, or rule of any
governmental agency.
(b) Withholding. With respect to the exercise of any Option granted
under this Plan, each Participant shall fully and completely consent to whatever
the Board directs to satisfy the federal and state tax withholding requirements,
if any, which the Board in its discretion deems applicable to such exercise.
(c) Delivery. The Company is not obligated to deliver any common
shares until there has been qualification under or compliance with all state or
federal laws, rules and regulations deemed appropriate by the Company. The
Company will use all reasonable efforts to obtain such qualification and
compliance.
15. Amendment and Termination of Plan. The Board, by resolution, may
terminate, amend, or revise the Plan with respect to any shares as to which
Options have not been granted; provided however, that any amendment that would:
(a) increase the aggregate number of shares of common stock that may be issued
under the Plan, (b) materially increase the benefits accruing to Participants,
or (c) materially modify the requirements as to eligibility for participation in
the Plan, shall be subject to shareholder approval within 12 months before or
after adoption. It is expressly contemplated that the Board may amend the Plan
in any respect necessary to provide employees with the maximum benefits
available under and/or to satisfy the requirements of or amendments to Section
422 of the Code.
No termination, modification or amendment of the Plan may however,
alter or impair the rights conferred by an Option previously granted without the
consent of the individual to whom the Option was previously granted.
Unless sooner terminated, the Plan shall remain in effect for
a period of ten years from the date of the Plan's adoption by the Board.
Termination of the Plan shall not affect any Option previously granted.
16. Use of Proceeds. The proceeds from the sale of shares pursuant to
Options granted under the Plan shall constitute general funds of the Company.
17. Effective Date of Plan. The Effective Date of this Plan is February
____, 1998, the date it was adopted by the Board, provided the shareholders of
the Company approve this Plan within twelve (12) months after such effective
date. Any Options granted under this Plan prior to the date of shareholder
approval shall be deemed to be granted subject to such approval. Should
shareholder approval not be obtained within twelve (12) months, any Options
granted pursuant to the Plan shall be null and void.
18. Indemnification of Committee. In addition to such other rights of
indemnification as they may have and subject to limitations of applicable law,
the members of the Committee shall be indemnified by the Company against all
costs and expenses reasonably incurred by them in connection with any action,
suit or proceeding to which they or any of them may be a party by reason of any
action taken or failure to act under or in connection with the Plan or any
rights granted thereunder and against all amounts paid by them in settlement
thereof or paid by them in satisfaction of a judgment of any such action, suit
or proceeding, the Board or Committee member or members shall notify the Company
in writing, giving the Company an opportunity at its own cost to defend the same
before such Committee member or members undertake to defend the same on their
own behalf.
19. Information Requirements. The Company shall provide each participant
with annual financial statements.
20. Governing Law. The Plan shall be governed by, and all questions arising
hereunder, shall be determined in accordance with the laws of State of
California as such laws are applied to agreements between California residents
entered into and to be performed entirely within California.
Date of Board Adoption: February 18, 1998
Date of Shareholder Approval: _________
EXHIBIT B
FINET HOLDINGS CORPORATION
1998 STOCK BONUS INCENTIVE PLAN
1. Purpose and Scope. The purpose of this Plan is to advance the interests
of Finet Holdings Corporation (the "Company") and its shareholders, by
encouraging and enabling selected officers, directors, consultants and key
employees upon whose judgment, initiative and effort the Company is largely
dependent for the successful conduct of its business, to acquire and maintain a
proprietary interest in the Company by ownership of its stock, to keep personnel
of experience and ability in the employ of the Company and to compensate them
for their contributions to the growth and profits of the Company and thereby
induce them to continue to make such contributions in the future.
2. Definitions. Each term set forth in this Section 2 shall have the
meaning set forth opposite such term for purposes of this Plan unless the
context otherwise requires, and for the purposes of such definitions, the
singular shall include the plural and the plural shall include the singular:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Committee" means the Directors duly appointed to administer the
Plan.
(c) "Company" shall mean Finet Holdings Corporation, a Delaware
corporation.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Plan" shall mean the Finet Holdings Corporation 1998 Stock Bonus
Incentive Plan.
(f) "Bonus Share" shall mean the shares of Common Stock of the Company
reserved pursuant to Section 4 hereof and any such shares issued to a Recipient
pursuant to this Plan.
(g) "Recipient" shall mean any individual rendering services for the
Company to whom shares are granted pursuant to this Plan.
3. Administration. The Plan shall be administered (i) with respect to
individuals who receive bonuses under the Plan and who are or become subject to
the reporting requirements and short-swing liability provisions of Section 16 of
the Securities Exchange Act of 1934, as amended (the "1934 Act") ("Reporting
Persons") by a Committee consisting of at least two members of the Board, each
of whom is a non-employee director (as such term is defined under Rule 16b-3 of
the 1934 Act) (the "Reporting Persons Committee") and (ii) with respect to all
individuals who receive bonuses under the Plan and who are not Reporting
Persons, by a Committee which consists of at least two members of the Board (the
"Compensation Committee"). For purposes of this Plan, references to the
"Committee" shall mean the Reporting Persons Committee, the Compensation
Committee, or both, as the context may require.
The Committee shall have full authority in its discretion, subject to and
not inconsistent with the express provisions of the Plan, to grant bonuses; to
determine individuals to whom and the time or times at which Bonus Shares shall
be granted; and the number of Bonus Shares; to construe and interpret the Plan;
and to make all other determinations and take all other actions deemed necessary
or advisable for the proper administration of the Plan. All such actions and
determinations shall be conclusively binding for all purposes and upon all
persons. No member of the Board shall be personally liable for any action,
determination, or interpretation made in good faith with respect to the Plan;
and all members of the Board shall be fully protected by the Company in respect
of any such action, determination, or interpretation.
4. Bonus Shares Subject to the Plan.
(a) Bonus Shares Reserved. The total number of shares of the Company's
Common Stock which may be issued under the Plan shall not exceed 875,000 shares.
(b) Adjustments to Bonus Share Reserve. In the event the outstanding
shares of the Company's Common Stock are increased or decreased as a result of
any stock split, stock dividend, recapitalization or other similar change in
corporate structure, effected without the receipt of consideration, or if the
Common Stock is converted into other shares or securities of the Company or any
other corporation as a result of a merger, reorganization, or other similar
transaction, an appropriate adjustment shall be made by the Committee to the
class and/or number of shares which are available for issuance under the Plan in
order that there shall be no dilution or enlargement of benefits hereunder.
5. Eligibility. Bonus Shares may be granted under the Plan to the Company's
employees, directors, officers, and to consultants or advisors to the Company,
provided however that bona fide services shall be rendered by such consultants
or advisors and such services shall not be in connection with the offer and sale
of securities in a capital-raising transaction. Participation may be based on
the recommendations of the Company's officers, subject to the Committee's
approval. Participation shall be determined annually and semi-annually for new
employees for each calendar year, without regard to whether the employee was a
participant for any prior calendar year.
6. Granting and Vesting of Bonus Shares. The Committee, in its sole
discretion, is empowered to grant to an eligible Recipient a number of Bonus
Shares as it shall determine from time to time. Each grant of these Bonus Shares
shall become vested according to a schedule to be established by the Committee
at the time of the grant. For purposes of this Plan, vesting shall mean the
period during which the Recipient must remain an employee or provide services
for the Company. At such time as the employment of the Recipient ceases, any
shares not fully vested shall be forfeited by the Recipient and shall be
returned to the Bonus Share Reserve. The Committee, in its sole discretion, may
also impose restrictions on the future transferability of the Bonus Shares,
which restrictions shall be set forth on a Notice of Stock Bonus Grant.
7. Determination of Employment.
(a) No Recipient shall be eligible to receive a bonus award unless
such Recipient is either employed by the Company or providing consulting
services to the Company on the date of grant.
(b) In the event that a Recipient ceases to be an employee or service
provider by reason of death, disability or retirement or for any other reason,
the Committee, in its sole discretion, may award a partial bonus to the
Recipient (or, in the event of the Recipient's death, to his or her
beneficiary). Payment shall be made to the Recipient (or his or her beneficiary
as the case may be according to Section 10.
8. Withholding Taxes. A Recipient shall be obligated to satisfy all federal
and state tax withholding obligations arising from the award of Bonus Shares.
9. Transferability. Any right to a stock bonus payment under the Plan shall
be nontransferable, except that such right may be transferred to a beneficiary
upon a participant's death, as provided in Section 10. Any attempted alienation,
assignment, pledge, hypothecation, attachment, execution or similar process,
whether voluntary or involuntary with respect to any such right shall be void
and, at the Committee's option, shall cause such right to be forfeited.
10. Beneficiary Designations. Upon commencement of participation, each
Recipient who is an employee of the Company shall by virtue of his or her
employment with the Company have named beneficiaries for life insurance purposes
under the Finet Insurance Plan that will be used for the same purpose under this
Plan. Any Recipient, including consultants, may designate a new beneficiary by
filing the prescribed form with the Committee. If the participant has not named
a beneficiary, or if none of the named beneficiaries is living when any payment
is to be made, then (a) the spouse of the deceased Recipient shall be the
beneficiary, or (b) if the Recipient has no spouse living at the time of such
payment, the then living children of the deceased Recipient shall be the
beneficiaries in equal shares, or (c) if the Recipient has neither spouse nor
children living at the time of such payment, the estate of the Recipient shall
be the beneficiary. The Recipient may change the designation of the beneficiary
from time to time in accordance with procedures established by the Committee.
Any designation of a beneficiary (or an amendment or revocation thereof) shall
be effective only if it is made in writing on the prescribed form and is
received by the Company or the Committee prior to the Recipient's death.
11. Shareholder Rights. No Recipient shall have any rights as a shareholder
until such time as any Bonus Shares are actually issued to such Recipient.
12. No Employment Rights. No provision of the Plan, nor any bonus
opportunity
established under the Plan, shall be construed to give any person any right to
remain in the Company's service. The Company reserves the right to terminate any
person's service at any time, with or without cause.
13. Restrictions Upon Issuance. Unless the Bonus Shares covered by the Plan
have been registered with the Securities and Exchange Commission, each Recipient
shall, by accepting a Bonus Share, represent and agree, for himself and his
transferees by will or the laws descent and distribution, that all Bonus Shares
were acquired for investment and not for resale or distribution. On such
exercise of any portion of a Bonus Share, the person entitled to exercise shall,
upon request of the Committee, furnish evidence satisfactory to the Committee
(including a written and signed representation) to the effect that the shares of
stock are being acquired in good faith for investment and not for resale or
distribution. Furthermore, the Committee may, if it deems appropriate, affix a
legend to certificates representing Bonus Shares indicating that such Bonus
Shares have not been registered with the Securities and Exchange Commission and
may so notify the Company's transfer agent. Such shares may be disposed of by a
Recipient in the following manner only: (1) pursuant to an effective
registration statement covering such resale or reoffer, (2) pursuant to an
applicable exemption from registration as indicated in a written opinion of
counsel reasonably acceptable to the Company, or (3) any transaction that meets
all of the requirements of Rule 144 of the Securities and Exchange Commission.
If Bonus Shares covered by the Plan have been registered with the Securities and
Exchange Commission, no such restrictions on resale shall apply, except in the
case of Recipients who are directors, officers, or principal shareholders of the
Company.
14. Amendments or Termination. The Company may amend, suspend or terminate
the Plan at any time and for any reason. Neither an amendment of the Plan nor
the termination thereof shall affect any Bonus Shares previously issued.
15. Governing Law. The Plan shall be governed by the laws of the State of
California.
Date of Board Adoption: February 18, 1998
Date of Shareholder Approval: , 1998
EXHIBIT C
FINET HOLDINGS CORPORATION
1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
1. PURPOSE OF THE PLAN. This Finet Holdings Corporation 1998 Non-Employee
Directors' Stock Option Plan (the "Plan") is adopted for the benefit of the
directors of Finet Holdings Corporation, a Delaware corporation (the "Company")
who, at the time of their service, are not employees of the Company or any of
its subsidiaries (the "Non-Employee Directors"). The purposes of the Plan are to
advance the interests of the Company by providing the Non-Employee Directors
with additional incentive to serve the Company by increasing their proprietary
interest in the success of the Company.
2. ADMINISTRATION OF THE PLAN. (a) The Plan shall be administered by the
Board of Directors of the Company (the "Board"). The Board may delegate
administration of the Plan to a committee ("Committee") comprised of not less
than two (2) members of the Board. If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers possessed by the Board, subject to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may abolish the committee at any time and revest in
the Board the administration of the Plan. (b) The Board shall have the authority
to adopt, alter and repeal such administrative rules, guidelines and practices
governing the Plan as it shall, from time to time, deem advisable; to interpret
the terms and provisions of the Plan and any Option granted under the Plan (and
any agreements relating thereto); and to otherwise supervise the administration
of the plan, and to exercise such powers and perform such acts as the Board
deems necessary or expedient to promote the bests interests of the Company. The
Board may correct any defect, supply any omission or reconcile any inconsistency
in the Plan or in any Option in the manner and to the extent it shall deem
necessary to carry the Plan into effect. (c) All actions taken and all
interpretations and determinations made by the Board in good faith shall be
final and binding upon all Non-Employee Directors, the Company, and all other
interested persons. (d) No member of the Board shall be personally liable for
any action, determination, or interpretation made in good faith with respect to
the Plan; and all members of the Board shall be fully protected by the Company
in respect of any such action, determination, or interpretation.
3. STOCK SUBJECT TO AND RESERVED FOR THE PLAN. (a) The total number of
shares of the Company's Common Stock, $0.01 par value (the "Common Stock"), with
respect to which Options may be granted under the Plan, shall not exceed the
aggregate of 500,000 shares; provided, however, that the class and aggregate
number of shares which may be subject to the Options granted hereunder shall be
subject to adjustment in accordance with the provisions of Section 14 of this
Plan. Such shares may be treasury shares, reacquired shares or authorized but
unissued shares. (b) The Company shall reserve for issuance pursuant to this
Plan such number of shares of Common Stock as may from time to time be subject
to Options granted hereunder. If any Option expires or is canceled prior to its
exercise in full, the shares theretofore subject to such Option may again be
made subject to an Option under the Plan. (c) All Options granted under the Plan
will constitute nonstatutory stock options (i.e., stock options which do not
qualify under Sections 422 or 423 of the Internal Revenue Code of 1986 (the
"Code")) (the "Option").
4. ELIGIBILITY. Options shall be granted only to Non-Employee Directors of
the Company.
5. NON-DISCRETIONARY GRANT OF OPTIONS.
(a) Non-Employee Directors Elected After the Effective Date of the Plan:
Initial Grant. For so long as this Plan is in effect and shares are available
for the grant of Options hereunder, each person who is elected as a Non-Employee
Director of the Company for the first time after the effective date of the Plan,
and who is not and has not been an employee of the Company or any of the
Company's subsidiaries (as defined in Section 424(f) of the Code (a "New
Director") shall be granted a one-time Option ("Initial Option") to purchase
40,000 shares of Common Stock at a per share exercise price equal to 85% of the
Fair Market Value (defined below) of a share of Common Stock on such date
(subject to the adjustments provided in Section 14 hereof), except that the
price shall be 110% of the Fair Market Value in the case of any person who owns
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Corporation or its subsidiaries. This Section 5(a) shall only
apply to a New Director the first time he or she is elected a director of the
Company after the effective date of this Plan.
(b) Annual Option Grant to Non-Employee Directors ("Annual Option"). In
addition, for so long as (i) this Plan is in effect, and (ii) there are shares
available for the grant of Options hereunder, each person serving as an elected
Non-Employee Director as of the effective date of this Plan and each New
Director (together "Eligible Director") shall be granted automatically, on
January 1st of each year (or the next day on which the Company's Common Stock is
traded should the Company's Common Stock not trade on such date, commencing as
of January 1, 1998 and subject to the adjustments provided in Section 14
hereof), an Option to purchase 40,000 shares of Common Stock at a per share
exercise price equal to 85% of the Fair Market Value (defined below) of a share
of Common Stock), except that the price shall be 110% of the Fair Market Value
in the case of any person who owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Corporation or its
subsidiaries. The foregoing notwithstanding, such Eligible Director must have
served as a Non-Employee Director continuously for at least thirty (30) days
immediately preceding the first day of January of any given year, in order to be
eligible for grant of an Annual Option as of January 1st of that year.
(c) Option Price. For the purposes of this Section 5, the "Fair Market
Value" as of any particular date shall mean (i) the closing sales price on the
immediately preceding business day of a share of Common Stock as reported on the
principal securities exchange on which shares of Common Stock are then listed or
admitted to trading or (ii) if not so reported, the average of the closing bid
and asked prices for a share of Common Stock on the immediately preceding
business day as quoted on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") or (iii) if not quoted on NASDAQ, the
average of the closing bid and asked prices for a share of Common Stock as
quoted by the National Quotation Bureau's "Pink Sheets" or the National
Association of Securities Dealers' OTC Bulletin Board System. If the price of a
share of Common Stock shall not be so reported, the Fair Market Value of a share
of Common Stock shall be determined by the Board in its absolute discretion.
6. OPTION AGREEMENT. Each Option granted under the Plan shall be evidenced
by an agreement, in a form approved by the Board, which shall be subject to the
terms and conditions of the Plan. Any agreement may contain such other terms,
provisions and conditions as may be determined by the Board and that are not
inconsistent with the Plan.
7. VESTING AND TERM OF OPTIONS. (a) Each Option granted under this Plan
shall be subject to vesting pursuant to one of two schedules: (i) vesting in
full on the date of grant; or (ii) vesting in four (4) equal installments
commencing on the first anniversary of the date of grant; provided, however,
that each such Option, regardless of the manner of vesting, shall be subject to
termination as provided in Section 9 hereof. The schedule of vesting, whether
vesting in full or in installments, shall be determined by the Board as part of
and at the time of the grant; provided however, that any Option granted under
this Plan which vests in full on the date of grant as set forth in subsection
(i) above, shall be subject, as a condition of such Option grant, to the
Company's right to repurchase as provided in Section 16 hereof. (b) Each Option
agreement shall also provide that the Option shall expire ten years from the
date of grant, unless sooner terminated pursuant to Section 9 hereof.
8. EXERCISE OF OPTIONS. Options shall be exercisable at any time after
their appropriate vesting date, subject to termination as provided in Section 9
hereof and to the Company's right to repurchase as provided in Section 16
hereof. Options shall be exercised by written notice to the Company setting
forth the number of shares with respect to which the Option is being exercised
and specifying the address to which the certificates representing such shares
are to be mailed. Such notice shall be accompanied by cash or certified check,
bank draft, or postal or express money order payable to the order of the
Company, for an amount equal to the product obtained by multiplying the exercise
price of the Option by the number of shares of Common Stock with respect to
which the Option is then being exercised. As promptly as practicable after
receipt of such written notification and payment, the Company shall deliver to
the Eligible Director a certificate or certificates representing the number of
shares of Common Stock with respect to which such Option has been so exercised,
issued in the Eligible Director's name, provided, however, that such delivery
shall be deemed effected for all purposes when the Company's transfer agent
shall have deposited such certificates in the United States mail, addressed to
the Eligible Director, at the address specified pursuant to this Section 8.
9. TERMINATION OF OPTIONS. Except as may be otherwise expressly provided in
this Plan or otherwise determined by the Board, each Option, to the extent it
shall not have been exercised previously, shall terminate on the earliest of the
following: (i) on the last day of the three-month period commencing on the date
on which the Eligible Director ceases to be a member of the Board for any reason
other than the death or total disability (within the meaning of Section 22(e)(3)
of the Internal Revenue Code) of the Eligible Director, in which case the option
may be exercised at any time within eighteen (18) months following termination
of such directorship or service, during which period the Eligible Director shall
be entitled to exercise all Options held by the Eligible Director on the date on
which the Eligible Director ceased to be a member of the Board that could have
been exercised on such date; or (ii) ten years after the date of grant of such
Option.
10. TRANSFERABILITY OF OPTIONS. During the term of an Option, the Option
shall not be assignable or otherwise transferable except by will or by the laws
of descent and distribution. Each Option shall be exercised during the Eligible
Director's lifetime only by the Eligible Director.
11. NO RIGHTS AS STOCKHOLDER. No Eligible Director shall have any rights as
a stockholder with respect to shares covered by an Option until the date of
issuance of a stock certificate or certificates representing such shares. Except
as provided in Section 14 hereof, no adjustment for dividends or otherwise shall
be made if the record date therefor is prior to the date of issuance of
certificates representing shares of Common Stock purchased pursuant to exercise
of this Option.
12. INVESTMENT REPRESENTATIONS. Whether or not the Options and shares
covered by the Plan have been registered under the Securities Act of 1933, as
amended, each person exercising an option under the Plan may be required by the
Company to give a representation in writing that such person is acquiring such
shares for investment and not with a view to, or for sale in connection with,
the distribution of any part thereof. The Company will endorse any necessary
legend referring to the foregoing restriction upon the certificate or
certificates representing any shares issued or transferred to the Eligible
Director upon the exercise of any Option granted under the Plan.
13. AMENDMENT OR TERMINATION. The Board may amend, modify, revise or
terminate this Plan at any time and from time to time. All Options granted under
this Plan shall be subject to the terms and provisions of this Plan and any
amendment, modification or revision of this Plan shall be deemed to amend,
modify or revise all Options outstanding under this Plan at the time of such
amendment, modification or revision. If this Plan is terminated by action of the
Board, all outstanding Options may be terminated.
14. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of
outstanding Options shall not affect in any way the right or power of the
Company or its stockholders to make or authorize the dissolution or liquidation
of the Company, any sale or transfer of all or any part of the Company's assets
or business, any reorganization or other corporate act or proceeding, whether of
a similar character or otherwise, any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, any merger or consolidation of the Company, or any issuance of bonds,
debentures, preferred or prior preference stock senior to or affecting the
Common Stock or the rights thereof; provided, however, that if (i) the
outstanding shares of Common Stock of the Company shall be subdivided into a
greater number of shares or (ii) the outstanding shares of Common Stock shall be
combined into a smaller number of shares thereof, then (a) the number of shares
of Common Stock available for the grant of Options under the Plan shall be
proportionally adjusted to equal the product obtained by multiplying such number
of available shares remaining by a fraction, the numerator of which is the
number of outstanding shares of Common Stock after giving effect to such
combination or subdivision and the denominator of which is that number of
outstanding shares of Common Stock prior to such combination or subdivision, (b)
the exercise price of any Option then outstanding under the Plan shall be
proportionately adjusted to equal the product obtained by multiplying such
exercise price by a fraction, the numerator of which is the number of
outstanding shares of Common Stock prior to such combination or subdivision and
the denominator of which is that number of outstanding shares of Common Stock
after giving effect to such combination or subdivision, and (c) the number of
shares of Common Stock issuable on the exercise of any Option then outstanding
under the Plan or thereafter granted under the Plan shall be proportionately
adjusted to equal the product obtained by multiplying such number of shares of
Common Stock by a fraction, the numerator of which is the number of outstanding
shares of Common Stock after giving effect to such combination or subdivision
and the denominator of which is that number of outstanding shares of Common
Stock prior to such combination or subdivision.
15. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. (a) The Plan, the grant and
exercise of Options thereunder, and the obligation of the Company to sell and
deliver shares acquirable on exercise of such Options, shall be subject to all
applicable federal and state laws, rules and regulations and to such approvals
by any governmental or regulatory agency or national securities exchange as may
be required. The Company shall not be required to sell or issue any shares on
exercise of any Option if the issuance of such shares shall constitute a
violation by the Non-Employee Director or the Company of any provisions of any
law or regulation of any governmental authority. (b) Each Option granted under
this Plan shall be subject to the requirement that, if at any time the Board
shall determine that (i) the listing, registration or qualification of the
shares subject thereto on any securities exchange or under any state or federal
law of the United States or of any other country or governmental subdivision
thereof, (ii) the consent or approval of any governmental regulatory body, or
(iii) the making of investment or other representations, are necessary or
desirable in connection with the issue or purchase of shares subject thereto, no
such Option may be exercised in whole or in part unless such listing,
registration, qualification, consent, approval or representation shall have been
effected or obtained, free of any conditions not acceptable to the Board. (c)
These provisions do not obligate the Company to register either the Plan, any
option granted under the Plan, or any stock issued or issuable pursuant to any
such Option, under any state or federal law of the United States or of any other
country or governmental subdivision thereof. (d) Any determination by the Board
in connection with any of the above determinations shall be final, binding and
conclusive.
16. REPURCHASE RIGHT OF THE COMPANY.
(a) General. Shares of stock issued or issuable upon exercise of an option
grant with immediate vesting, as set forth in Section 7(a)(i), are subject to a
right of repurchase by the Company. If the service of a Non-Employee Director to
the Company or a subsidiary of the Company is terminated for any reason other
than by death or total disability, except as otherwise described in Section
16(d), the Company (or any subsidiary designated by it) shall have the option
for 90 days after the termination of service by the Non-Employee Director to
repurchase all or any part of his stock issued or issuable upon exercise of the
option, as provided in this Section 16.
(b) Notice. Within 30 days of receiving notice from a Non-Employee Director
or his representative of the termination of the director's service to the
Company or a subsidiary of the Company, the Company must give notice to the
director of the Company's decision whether or not to exercise its repurchase
right.
(c) Repurchase Price. The repurchase price per share repurchased in
accordance with this Section 16 shall be the original per share purchase price
set forth in the accompanying Notice of Stock Option Grant. The Company's
repurchase right at this price lapses at the rate of 25% per year, starting with
the first anniversary of the Option Grant, and continues over 4 years, without
reference to the date the Option was exercised or became exercisable.
(d) Shares Acquired Through Exercise of Option After Termination of
Services. If the Non-Employee Director exercises in whole or in part his option
after termination of his services to the Company for any reason other than death
or total disability, the Company shall have, for 90 days after the exercise, the
right to repurchase the shares so acquired upon written notice to the
Non-Employee Director. The purchase price and terms of payment will be governed
by Sections 16(c) and (e) of this Plan.
(e) Payment of the Purchase Price. The Company's right to repurchase must
be exercised for cash or cancellation of purchase money indebtedness for the
shares within 90 days of termination of service by the Non-Employee Director (or
in the case of securities issued upon exercise of Options after the date of
termination, within 90 days after the date of exercise).
(f) Death or Total Disability. There shall be no right of repurchase by the
Company upon the Non-Employee Directors' death or total disability. The
foregoing notwithstanding, the provisions of this Section 16(g) do not extend or
otherwise affect the termination of any Option which shall not have been
exercised, as otherwise set forth in Section 9 herein.
(g) Repurchase Right as to Other Shares. The repurchase right of the
Company shall apply as well to all shares or other securities issued in respect
to any Option due to any stock split, reverse stock split, stock dividend,
recapitalization, reclassification, spin-off, split-off, merger, consolidation
or reorganization ("Other Shares") but such right shall expire on the occurrence
of any event or transaction upon which the Option terminates.
17. INDEMNIFICATION OF BOARD OF DIRECTORS. The Company shall, to the
fullest extent permitted by law, indemnify, defend and hold harmless any person
who at any time is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (whether civil,
criminal, administrative or investigative) in any way relating to or arising out
of this Plan or any Options granted hereunder by reason of the fact that such
person is or was at any time a director of the Company against judgments, fines,
penalties, settlements and reasonable expenses (including attorneys' fees)
actually incurred by such person in connection with such action, suit or
proceeding. This right of indemnification shall inure to the benefit of the
heirs, executors and administrators of each such person and is in addition to
all other rights to which such person may be entitled by virtue of the bylaws of
the Company or as a matter of law, contract or otherwise.
18. ADDITIONAL PROVISIONS. (a) Nothing in the Plan, or in any instrument
executed pursuant thereto, shall confer upon any Non-Employee Director either
the right or the obligation to continue acting as a director of (or to
employment by) the Company, nor shall any Plan provision or instrument executed
pursuant thereto affect any right of the Company, its Board and/or its
shareholders to terminate the directorship (or employment) of any Non-Employee
Director with or without cause. (b) In connection with each option granted
pursuant to the Plan, each Non-Employee Director shall make arrangements
satisfactory to the Company to insure that the amount of any federal or other
withholding tax required to be withheld with respect to such sale or transfer is
made available to the Company for timely payment of such tax.
19. EFFECTIVE DATE OF THE PLAN. This Plan shall become effective, subject
to stockholder approval, on February 18, 1998. No Option shall be granted
pursuant to this Plan on or after February 18, 2008.
20. GOVERNING LAW. The Plan shall be governed by, and all questions arising
hereunder, shall be determined in accordance with the laws of the State of
California as such laws are applied to agreements between California residents
entered into and to be performed entirely within California.
Date of Board Adoption: February 18, 1998
Date of Shareholder Approval:
